BTG plc Annual Report and Accounts 2012
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Because people
depend on us.
Contents
Business review
02 At a glance
06 Chairman’s statement
08 Chief Executive Officer’s review
16 Business review
22 Financial review
26 Principal risks and uncertainties
30 Corporate responsibility report
Directors and governance
36 Board of directors
38 Directors’ report
43 Corporate governance
54 Audit Committee report
59 Nomination Committee report
61 Remuneration Committee report
76 Statement of directors’ responsibilities
77
Independent auditor’s report
to the members of BTG plc
Financials
80 Consolidated income statement
81 Consolidated statement of
comprehensive income
82 Consolidated statement of financial position
83
Consolidated statement of cash flows
84 Consolidated statement of changes in equity
85 Notes to the consolidated financial statements
131 Company statement of financial position
132 Company statement of cash flows
133 Company statement of changes in equity
134 Notes to the Company financial statements
138 Appendix 1: Unaudited pro-forma consolidated
income statement
139 Five-year financial record
141 Shareholder information
143 Cautionary statement
144 Trade marks
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BTG is a growing international specialist
healthcare company. Our mission is to
bring to market medical products that
meet the needs of specialist physicians
and their patients.
We are focused on three business areas:
Specialty Pharmaceuticals, Interventional
Medicine and Licensing & Biotechnology.
Our products include a treatment for
snakebites, antidotes to treat toxicity
associated with medicines used for heart
conditions and cancer, and interventional
oncology products that are used to treat
patients with liver or prostate tumours.
We develop our own products and we
in-license or acquire them from others.
We sell direct to our customers
in the US and elsewhere principally
through partners.
In everything we do, we are guided by
our core values and our Code of Conduct.
We believe that by doing the right thing
every time, we will deliver enduring value
to all our stakeholders.
BTG plc Annual Report and Accounts 2012
01
Business review
At a glance
Highlights
Below we summarise the key financial metrics we use to monitor business
performance.
We have delivered a strong
financial performance during the
2011/12 year. The increase in
revenue reflects the transition to
direct sales in the US of our Specialty
Pharmaceuticals products and a full
year of Biocompatibles sales.
Revenues were also boosted by
higher than expected royalties
from BeneFIX® (Factor IX) and
Zytiga® (abiraterone acetate).
Revenue
Gross profit
Underlying operating profit1
Profit/(loss) before tax for the year
Underlying basic earnings per share1
Cash and cash equivalents2
11/12
£197.0m
£140.7m
£54.0m
£23.0m
11.4p
£111.9m
10/11
£111.4m
£77.3m
£1.7m
(£10.8m)
1.0p
£73.9m
Total revenue
Total revenue by business area
Contribution by business area
£197.0m
3
2
3
2
11/12
10/11
09/10
08/09
07/08
Gross margin
71.4%
11/12
10/11
09/10
08/09
07/08
£197.0m
£111.4m
£98.5m
1
1
£84.8m
£75.0m
1. Licensing & Biotechnology £91.6m
2. Specialty Pharmaceuticals £76.7m
£28.7m
3. Interventional Medicine
1. Licensing & Biotechnology £45.6m
2. Specialty Pharmaceuticals £39.4m
£6.8m
3. Interventional Medicine
Underlying operating profit1
Cash and cash equivalents2
£54.0m
£111.9m
71.4%
11/12
£54.0m
11/12
£111.9m
69.4%
10/11
£1.7m
10/11
66.7%
09/10
£10.8m
09/10
56.3%
08/09
£7.0m
08/09
57.2%
07/08
£16.6m
07/08
£73.9m
£82.6m
£78.2m
£57.0m
1 Operating profit and EPS excluding acquisition adjustments and reorganisation costs.
2 Including held to maturity financial assets.
02
Business review
BTG plc Annual Report and Accounts 2012
Focus areas
Specialty Pharmaceuticals
See page 8
Interventional Medicine
See page 11
Licensing & Biotechnology
See page 13
The current focus within Specialty
Pharmaceuticals is on antidote
products that are used within
hospitals. We market and sell our
products directly in the US, and
elsewhere we work with distribution
partners.
Our key products are embolisation
and drug-eluting beads used primarily
to treat patients with liver tumours
and brachytherapy products used
mainly for early-stage prostate
cancer. We assumed direct sales
responsibility in the US for LC Bead™
in January 2012.
This business area comprises
licensed products and programmes
and generates significant royalties for
BTG. We out-license assets that we
do not intend to market ourselves.
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Commercial sales
Commercial sales
Commercial sales
CroFab® (crotalidae polyvalent
immune fab (ovine))
The only approved treatment for bites
by North American pit vipers.
LC Bead™, DC Bead® and Bead Block®
Embolisation and drug-eluting beads
that are used to treat patients with
hypervascularised tumours.
DigiFab® (digoxin immune fab (ovine))
The only available treatment for
toxicity associated with the use
of the heart medicine digoxin.
Brachytherapy implants
Low-dose radioactive seeds used
primarily to treat early-stage prostate
cancer.
Existing royalty streams include
Zytiga® (abiraterone acetate), a
treatment for advanced prostate
cancer marketed by the Janssen
Pharmaceutical Companies of
Johnson & Johnson, and the
Two-Part Hip Cup, licensed to
most major hip-replacement
technology manufacturers.
Voraxaze® (glucarpidase)
Approved in the US for treating
life-threatening toxicity that can
occur in cancer patients with renal
impairment who are receiving
high-dose methotrexate therapy.
Late-stage development
Late-stage development
Late-stage development
Uridine triacetate
Under development by Wellstat
Therapeutics Corporation as a
treatment for toxicity associated
with use of the chemotherapeutic
5-fluorouracil. BTG has acquired
US and EU commercial rights.
Varisolve® (polidocanol endovenous
microfoam (PEM))
A non-surgical product that has
completed Phase III development in
the US as a potential comprehensive
treatment to improve both the
symptoms and appearance of
varicose veins.
Growth strategy
We are seeking to in-license or
acquire additional antidotes, as well
as other products used by acute care
and other specialist physicians.
Growth strategy
We plan to continue investing in
clinical development of the bead
products to expand their indicated
uses and geographic availability. We
are also seeking to acquire additional
products used by interventional
radiologists, medical oncologists
and vascular surgeons.
Lemtrada™ (alemtuzumab)
In Phase III development by Sanofi
as a potential treatment for relapsing-
remitting multiple sclerosis.
AZD9773 (CytoFab™)
In Phase IIb development by
AstraZeneca as a potential treatment
for severe sepsis and/or septic
shock.
Growth strategy
We are currently assessing options
for the CellMed platforms and
early-stage programmes we acquired
with Biocompatibles. We are not
actively seeking to develop or acquire
products for out-licensing.
BTG plc Annual Report and Accounts 2012
03
Business review
Voraxaze® (glucarpidase)
Specialty Pharmaceuticals
Approved and launched in the US,
this is the only drug which can break
down methotrexate in the blood
following cancer treatment. Hundreds
of patients a year may benefit from
this new treatment, many of whom
are children with cancers such as
lymphoma.
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Varisolve® (polidocanol
endovenous microfoam (PEM))
Interventional Medicine
A non-surgical experimental
treatment for varicose veins,
that has completed Phase III
development in the US. If approved,
PEM could potentially transform
this underserved market as a
comprehensive single-product
treatment for symptomatic and/or
visible varicose veins.
Chairman’s statement
Garry Watts
Chairman
We are delivering on our strategy
and are well placed to be increasingly
cash-generative over the medium term.
Cash generated from operations
£47.2m
11/12
10/11
09/10
08/09
07/08
£47.2m
(£12.0m)
£5.8m
(£1.8m)
£13.4m
by our core values, which are embedded
throughout the Group, and which we
believe contribute to the generation
of shareholder value.
We are well placed to become
increasingly cash-generative over the
medium term, driven by the transition to
direct sales in the US, the US approval of
Voraxaze®, underlying double-digit growth
in our Interventional Medicine business
and a continuing strong royalty stream
from our Licensing & Biotechnology
business.
The cash we generate is available to
continue development of PEM and our
bead products and to invest in acquiring
or in-licensing new products and
late-stage programmes. The Board
believes that reinvesting shareholder
funds in this way will generate most
value over the longer term, and it does
not recommend payment of a dividend.
BTG has made strong progress over the
past year, and I look forward to working
with my Board colleagues and our wider
team to continue to develop BTG into a
leading specialist healthcare business.
In this, my first statement to
shareholders as Chairman, I am pleased
to report that BTG is in a strong position
and is delivering on its strategy and its
objectives. We have made significant
progress on a number of fronts over the
last year and are at an exciting time in
our development. We approach the
future with confidence.
The Group’s strategy of selling its own
specialist products is working. In
Specialty Pharmaceuticals, a strong
performance from CroFab® and DigiFab®
has been supplemented by cost-recovery
and named patient sales of Voraxaze®,
which was approved by the FDA in
January 2012 and launched nationally
in the US at the end of April 2012.
Similarly, the creation of a dedicated
sales function in Interventional Medicine
has enabled us to bring in-house the
US sales responsibility for our beads
business.
Our Licensing & Biotechnology revenues
benefited from significant post-patent-
expiry royalties from Pfizer on BeneFIX®
and first royalties from Johnson &
Johnson on Zytiga®, which has had
a strong start.
Product development has also
progressed well during the year. In
addition to the Voraxaze® approval, we
have announced positive US Phase III
results for PEM, a potential treatment
for varicose veins, and we continue to
progress our bead chemoembolisation
studies.
I have been very impressed with the
quality of the people at BTG; it has a
high-calibre management group and
a strong teamwork culture. I should
like to acknowledge the excellent work
of my predecessor, Dr John Brown, in
overseeing this and in successfully
steering the Group through its
transformation. I would like formally
to thank him on behalf of the Board
and to wish him well for the future.
As we look to the future, our focus
remains on our clearly articulated and
deliverable strategy and objectives.
We will also continue to be guided
06
Business review
BTG plc Annual Report and Accounts 2012
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Zytiga® (abiraterone acetate)
Licensing & Biotechnology
Launched in the US and Europe
by the Janssen Pharmaceutical
Companies of Johnson & Johnson
during the last year. Approved for the
treatment of patients with late-stage
prostate cancer. We benefit from a
royalty on all global sales of this new
oral, once-daily medication.
Chief Executive Officer’s review
Louise Makin
Chief Executive Officer
We have the team, capabilities and
financial resources to continue
implementing our strategy to be a
leading specialist healthcare business.
When we set out several years ago to
transform our business from an early-
stage development company into a
specialist healthcare business selling its
own products, we defined a set of core
values that would guide us. These values
continue to be fundamental to how we
go about our business.
Ultimately, they are about building trust
with all our stakeholders: customers,
patients, payers, regulators, partners,
shareholders and colleagues. We are
proud to be part of a company whose
products improve health and can save
lives. We also recognise our corporate
responsibilities, and we believe that
always living our values will help us be a
responsible business that is capable of
delivering sustainable, profitable growth.
All of our values are equally important
though one that stands out when
reflecting on the past year is delivery.
This is about doing what we say we will
do at an individual, team, segmental and
Group level. Thanks to the commitment
and professionalism of our employees,
we have had an excellent year and made
strong progress towards delivering our
key medium-term business goals.
The following section should be
read in conjunction with the financial
statements and related notes on
pages 80 to 130.
Specialty Pharmaceuticals revenue
Specialty Pharmaceuticals
£76.7m
£35.4m
11/12
10/11
Specialty Pharmaceuticals contribution
£39.4m
£10.8m
11/12
10/11
Our Acute Care sales force
performed well in its first full year
selling CroFab® and DigiFab® directly
in the US. Revenues of £76.7m
resulted in a contribution of £39.4m.
The team commenced selling
Voraxaze® on 30 April 2012 following
its US approval in January 2012.
The Acute Care sales team performed
strongly, delivering 117% growth in
revenues from CroFab®, DigiFab® and
Voraxaze®. This resulted principally from
the transition to direct sales in the US,
and was further enhanced by increased
end market volumes and price growth.
The benefits of selling directly were also
reflected in a substantial increase in
profit contribution.
The reported revenues from Voraxaze®
result from its availability under a
treatment investigational new drug (IND)
in the US and from named patient sales
elsewhere. A key achievement during the
year was the US approval of Voraxaze® in
January 2012 following a priority review
by the FDA. This product addresses a
real unmet need: there is no other
approved treatment for life-threatening
high-dose methotrexate toxicity due to
impaired renal function. Around half the
patients who experience toxicity with
high-dose methotrexate are children.
We estimate the US peak sales potential
for Voraxaze® to be approximately $15m
per annum, on the basis of commercial
pricing rather than cost-recovery.
Although modest, this unique product
delivers a good margin and exemplifies
our strategy of leveraging the investment
we have made in creating a US
commercial infrastructure. It will be sold
by the existing Acute Care team so
requires only modest incremental sales
and marketing expenditure.
Our partner Wellstat Therapeutics
Corporation continues to make good
progress with the development of uridine
triacetate (UTA), a potential antidote to
toxicity associated with 5-fluorouracil
(5-FU), a common chemotherapeutic.
Wellstat anticipates submitting a US
regulatory application during the second
half of 2013. If approved, UTA would be
sold by our Acute Care sales team. In
May 2012, we also acquired rights to
distribute UTA on a named patient supply
basis in Europe for an upfront payment
of $3.0m, together with an option to
market UTA following EU regulatory
approval, under pre-agreed financial
terms including a multi-million dollar
exercise fee and transfer pricing
payments based on manufacturing costs
and a significant percentage of net sales.
08
Business review
BTG plc Annual Report and Accounts 2012
DigiFab® (digoxin immune fab (ovine))
Specialty Pharmaceuticals
Approved for sale in the US, Canada,
UK and Switzerland for the treatment
of digoxin toxicity and marketed
in the US through our Acute Care
team. The only available product for
the treatment of digoxin toxicity.
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Brachytherapy Implants
Interventional Medicine
Our brachytherapy business
develops, manufactures and markets
unique delivery systems containing
radioactive seeds as well as ancillary
equipment used principally in the
treatment of early-stage prostate
cancer.
Chief Executive Officer’s review
Our strategy within Specialty
Pharmaceuticals is to expand our
portfolio of marketed products and
late-stage programmes through
in-licensing and acquisition. We have
a growing antidote franchise and are
looking for similar products that are
used in emergency situations in
hospitals and in other specialist centres.
We are also exploring opportunities
to expand our portfolio with products
used by other specialist physicians
within and outside the hospital setting.
Interventional Medicine
Revenues were £28.7m in the first
full year following our acquisition
of Biocompatibles, delivering a
contribution of £6.8m. In January
2012, we commenced direct sales
of our bead products in the US.
The full financial impact of this
transition will be evident in our
2012/13 results.
We estimate, based on our analysis of
public information, that the global annual
aggregate sales of loco-regional
treatments for liver tumours grew from
$87m at the end of 2008 to $193m at
the end of 2011, with our market share
growing from 20% to 27% during that
period. We anticipate continued double-
digit overall market growth through
2020, driven by expanding the approved
uses of the products, geographic
expansion and product innovation.
Our strategy to expand this business
is to: sell directly in the US; expand
geographically through working with
partners; invest in clinical studies
to expand the indicated uses of our
products; develop line extensions;
and acquire additional products used
by interventional radiologists, clinical
oncologists and oncology surgeons.
During the second half of 2011
we set up our second field force,
an Interventional Medicine team of
24 Account Managers (AMs) and
Medical Science Liaisons (MSLs).
BTG plc Annual Report and Accounts 2012
As planned, the AMs assumed
direct control of selling LC Bead™ in
the US from January 2012, following
expiry of the distribution contract
with AngioDynamics, Inc.
The transition has gone well.
We expect the financial benefits of
selling directly to start this financial year.
Less immediately obvious, but equally
important, are the benefits of being
able to get close to our customers.
This helps us fully understand their
needs and the pressures that they
face, so that we can respond in terms
of our product and service offering.
In Japan, where we are partnered with
Eisai, the regulatory application for
DC Bead® is being reviewed by the
Japanese regulatory authorities.
In China, our partner SciClone completed
a 40-person study and is engaging with
the Chinese regulator about the further
steps required in order for them to
accept a submission for review. In South
Korea, qualified reimbursement was
achieved and in Taiwan we are awaiting
reimbursement approval.
Later this year we expect first results
from the PARAGON exploratory studies,
in which DC Bead® loaded with irinotecan
is being investigated as a treatment for
metastatic colorectal cancer (mCRC).
These include PARAGON II, which is
evaluating the safety and efficacy of the
irinotecan bead used prior to surgical
resection of metastatic liver tumours.
A second study (PARAGON Louisville)
is evaluating the effectiveness of
chemoembolisation with LC Bead™
loaded with irinotecan, both with and
without systemic chemotherapy, in
the treatment of unresectable liver
metastases in patients with
colorectal cancer.
We plan to initiate a formal Phase II
study in mCRC, the design of which
will be informed by these exploratory
studies. We are also exploring other
indications such as metastatic ocular
cancer and cholangiocarcinoma, orphan
indications which may not require
extensive studies to gain marketing
approvals.
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Interventional Medicine revenue
£28.7m
£5.6m1
11/12
10/11
Interventional Medicine contribution
£6.8m
£0.2m1
11/12
10/11
1 Includes approximately two months of trading
following the Biocompatibles acquisition.
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Business review
AZD9773 (CytoFab™)
Licensing & Biotechnology
In Phase IIb clinical development
with partner AstraZeneca as a
treatment for severe sepsis.
Manufactured by BTG using the same
polyclonal antibody manufacturing
platform used to make our approved
antidotes, CroFab® and DigiFab®.
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Chief Executive Officer’s review
At present, when DC Bead® is loaded
with a chemotherapeutic, this is done in
the pharmacy at the hospital where the
procedure is to take place. We are
developing the PRECISION Bead® and
PARAGON Bead®, which are pre-loaded
with drug and, if approved, would be a
significant step forward for interventional
medicine.
In January and April 2012, we reported
positive results from VANISH-1 and
VANISH-2 our two US pivotal Phase III
trials of PEM, which are designed to
support its approval as a comprehensive
treatment to reduce the symptoms and
improve the appearance of varicose
veins. The primary endpoint was a
reduction in symptoms, as measured by
a novel patient-reported outcomes tool.
Improvement in appearance, the
secondary endpoint, was measured
using novel patient and physician tools.
PEM achieved all the study endpoints
with a high degree of statistical
significance. In a smaller study, VV017,
patients were treated first with heat
ablation of the great saphenous vein
followed by PEM for the remaining visible
varicosities. Statistical significance was
reached for one of two co-primary
endpoints, the blinded independent
panel review of photographs, but not for
the patient-reported measure.
We are completing manufacturing and
chemistry, manufacturing and controls
(CMC) activities and preparing our
regulatory application, which we aim to
submit at the end of 2012. If approved,
we intend to market PEM ourselves in
the US reimbursed sector. We estimate
the global peak sales potential of PEM
to be up to $500m per annum.
Licensing & Biotechnology
Revenue of £91.6m delivered a
contribution of £45.6m. Revenues
benefited from higher than expected
post-patent-expiry royalties on
BeneFIX® and a strong start from
Zytiga® following US and EU
regulatory approvals during 2011.
BTG plc Annual Report and Accounts 2012
This part of our business derives from
BTG’s history as an IP commercialisation
organisation. It comprises licensed
assets together with assets acquired
with Protherics and Biocompatibles
that we do not intend to take to market
ourselves but which may have value to
partners. We have retained the required
IP and other commercial skills to
commercialise these assets, as those
skills remain core to our ongoing
business activities.
Although not an active area of focus
in terms of new opportunities, our
Licensing & Biotechnology segment is
expected to continue to provide a solid
financial underpin for BTG for many years
to come. While some licensed assets
will cease to deliver revenues following
patent expiries, others are starting to
generate new revenue streams and
have the potential to deliver royalties
beyond 2020.
Following patent expiry in March 2011,
revenues from BeneFIX®, for several
years our largest individual royalty
contributor, are expected to end during
our 2012/13 year.
A new revenue stream emerged during
the 2011/12 year with the US and EU
approvals of Zytiga®, marketed by the
Janssen Pharmaceutical Companies of
Johnson & Johnson. This was approved
to treat men with castration resistant
prostate cancer (CRPC) who have
previously received docataxel. The
approvals resulted in two milestone
payments and our first royalties.
Importantly, a second Phase III trial
in men who had not yet received
chemotherapy was unblinded after an
interim analysis in March 2012 because
of clear evidence of clinical benefits in
men receiving Zytiga® compared with
those receiving placebo. Johnson &
Johnson intends to start submitting
regulatory applications to extend the
approved uses of Zytiga® into this
chemo-naïve patient population.
If approved, this could significantly
expand the number of patients who may
benefit from treatment with this product.
In April 2012, Sanofi presented positive
Phase III data and indicated it would
submit US and EU regulatory
Licensing & Biotechnology revenue
£91.6m
£70.4m
11/12
10/11
Licensing & Biotechnology contribution
£45.6m
£32.6m
11/12
10/11
13
Business review
Chief Executive Officer’s review
applications for the approval of
alemtuzumab as a treatment for
relapsing-remitting multiple sclerosis
during the second quarter 2012. The
application is expected to receive priority
review in the US. If approved, this would
result in another new revenue stream
for BTG.
AstraZeneca’s Phase IIb study of
AZD9773 completed recruitment of
around 300 patients with severe sepsis
in March 2012. Top-line data are
anticipated in the second half of 2012,
together with a decision by AstraZeneca
on whether to progress into Phase III
development.
After disappointing data from a Phase IIa
study in patients with relapsing-remitting
multiple sclerosis, we discontinued
development of BGC20-0134 and
ceased commercial activities.
We are continuing to explore options for
partnerships with CellMed, our German
subsidiary acquired with Biocompatibles.
CellMed has a number of early-stage
programmes and platform technologies
that are not in our core focus areas but
may be of interest to other companies.
There is good momentum across
our three business areas and we
look forward to another busy year
with confidence. We have the team,
capabilities and financial resources
to continue implementing our strategy
to be a leading specialist healthcare
business focused on Specialty
Pharmaceuticals and Interventional
Medicine.
14
Business review
BTG plc Annual Report and Accounts 2012
CroFab® (crotalidae polyvalent
immune fab (ovine))
Specialty Pharmaceuticals
The only approved treatment
for the management of patients
with North American pit viper
envenomation. Of the 3,000
to 5,000 venomous snakebites
treated in US emergency
departments each year, 97%
are from pit vipers.
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Business review
16 Business review
22 Financial review
26 Principal risks and uncertainties
30 Corporate responsibility report
R&D expenditure
£39.7m
11/12
10/11
09/10
08/09
07/08
£39.7m
£32.1m
£27.0m
£21.6m
£12.9m
Overview and business model
BTG is a specialist healthcare company
that is focused on bringing to market
medical products that meet the needs of
specialist physicians and their patients.
We operate through three business
areas: Specialty Pharmaceuticals,
Interventional Medicine and Licensing
& Biotechnology.
Our core activities are:
Sales and marketing: We sell our
products directly in the US and primarily
through partners in other countries. In
the US we sell CroFab®, DigiFab® and
Voraxaze® through our Acute Care sales
force, and Bead Block®, LC Bead™ and
our brachytherapy products through our
Interventional Medicine sales force.
DigiFab®, Voraxaze®, Bead Block® and
DC Bead® are sold through distributors
outside the US, where approved, and
through named patient programmes
where permitted.
Research and development: We conduct
non-clinical and clinical studies to
assess factors including the safety
and efficacy of our pharmaceutical
and medical device product candidates.
We liaise with regulators over the
development pathways for our products
and their approvability. Current
development programmes include PEM,
a potential non-surgical treatment for
varicose veins, and a number of
exploratory studies using our drug-eluting
beads to treat patients with primary and
metastatic tumours in the liver. Our
research and development personnel
manage these activities and oversee
the contract research organisations we
utilise to conduct many of our studies.
Research and development activities
are managed on a Group-wide basis.
Revenues generated through successful
commercialisation of programmes are
included within the relevant operating
segments.
Manufacturing: We manufacture the
ovine polyclonal antibodies CroFab®,
DigiFab® and AZD9773, which is
partnered with AstraZeneca and is
under development to treat severe
sepsis. We also manufacture our
embolisation and drug-eluting beads
and our brachytherapy products.
We will conduct the final manufacture
of PEM at our Farnham facility.
Business development: We in-license
or acquire products and late-stage
programmes from other companies.
We are seeking products and
programmes that we can sell directly in
the US through our existing commercial
infrastructure. We are also opportunity-
driven and consider products that may
require separate sales forces to call on
specialist physicians other than those
who are currently our customers.
Our strategy
Our strategy to deliver long-term value is
to be a focused, integrated, international
specialist healthcare business. We
focus on niche medical areas in which
we can build a leading market position.
By integrating our research and
development, manufacturing, sales and
marketing and business development
activities, we can capture the full value
of our marketed products. We operate
internationally to expand the geographic
use of our products, selling directly in
the US and working elsewhere with local
partners. We target the needs of
specialist physicians and their patients,
which means our sales forces are small
and we can develop strong relationships
with our customers.
During the year, BTG developed a new
annual strategic planning cycle that
commences with “horizon scanning”
activities. These seek to understand
trends in the global healthcare
environment and changes in the
competitive landscape, so that
opportunities and challenges to our
business can be identified. The Board
and Leadership Team review corporate
strategy and plans in light of this
information. Strategic corporate
priorities are defined for the short- and
medium-term, which are cascaded into
divisional, team and individual goals
and used for budget development.
16
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BTG plc Annual Report and Accounts 2012
currently approved product in this
indication.
BTG has acquired US and EU
commercial rights from Wellstat
Therapeutics Corporation, which
is developing UTA.
Within Interventional Medicine, our
marketed products are: Bead Block®
and LC Bead™, both used for
embolising hypervascularised tumours
and arteriovenous malformations;
DC Bead®, used for chemoembolisation
of hypervascularised tumours; and
brachytherapy products, primarily
implantable seeds used to deliver
low-dose radiation to localised
prostate tumours.
We estimate, based on our own sales
and published data from other
manufacturers of interventional oncology
products, that the global annual
aggregate sales of these products have
experienced double-digit growth between
2007 and 2011 and reached about
$193m at the end of 2011. We believe
the global market has the potential to
reach $400m to $800m by 2020, with
growth driven by: clinical data leading
to extended approved uses for the
products; geographic expansion, in
particular into important Asian markets
where penetration rates are currently
very low; and product innovations that
increase their usefulness to
interventional radiologists.
BTG seeks to differentiate itself from
competitors in the implantable oncology
device market in a number of ways.
We have designed our beads to have
technical advantages over competing
products. For example, we are developing
beads that are pre-loaded with
chemotherapeutic agents that will
eliminate the need for the pharmacist to
load the beads in situ. We recognise that
data from high-quality clinical studies is
important to the physicians who manage
patients with liver tumours, so we are
continuing to invest in such studies to
generate data and to expand the
approved indications for our products.
We also aim to provide the best customer
service and follow-up in our sector.
Our marketplace
We choose to operate in niche markets
and selected geographies within the
global healthcare market, which share
certain characteristics:
— The physician customer groups are
relatively small and can be serviced
by small sales forces and support
functions.
— Market sizes for particular
specialisms are generally modest
and competition is often more
limited.
— Products often address relatively
small patient populations; hence
the size and cost of clinical trials
to gain approval are manageable
for a company of BTG’s scale and
resources.
— Reimbursement can usually be
achieved as the products often
address unmet needs.
Our current focus areas are Specialty
Pharmaceuticals, principally antidote
products, and Interventional Medicine,
principally interventional oncology
products for treating patients with
tumours in the liver and prostate.
Within Specialty Pharmaceuticals, we
have three marketed products: CroFab®,
which is the only approved treatment
for bites from North American pit viper
snakes; DigiFab®, which is the only
approved and available product for
treating life-threatening toxicity resulting
from treatment with digoxin; and
Voraxaze®, which is the only approved
treatment for life-threatening toxicity
due to renal impairment resulting from
treatment with high-dose methotrexate.
The market opportunity for these
products relates to the number of
incidents that occur – the number of
snakebites for CroFab® and the number
of toxic events associated with digoxin
and high-dose methotrexate use. Annual
revenue growth is anticipated to be in
the mid to high single digit range. Higher
growth in this franchise would result
from the addition of new approved
products. A potential future product
addition is uridine triacetate (UTA).
This is under development for treating
toxicity associated with use of the
chemotherapeutic 5-FU. There is no
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BTG bead revenues
£20.4m
£4.3m1
BTG brachytherapy revenues
£8.3m
£1.3m1
11/12
10/11
11/12
10/11
1 Includes approximately two months of trading
following the Biocompatibles acquisition.
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18
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The US remains one of the world’s
largest markets for healthcare products
and go-to-market costs are lower than
in other fragmented markets such as
Europe. Around 85% of BTG’s total
revenues are currently denominated in
US dollars, making it our most important
geographic market (although a proportion
of our dollar-denominated revenues,
for example royalties on BeneFIX® and
Zytiga®, derive from worldwide sales,
these are presented to BTG in dollars
by a US-based licensee).
For these reasons our strategy is to sell
our products directly in the US, where
we now have sales forces in Specialty
Pharmaceuticals and Interventional
Medicine. Elsewhere, we currently sell
through distributors, but we will review
this as we build our product portfolio and
our revenues outside of the US increase.
While CroFab® is used only in the
US, DigiFab® and Voraxaze® have the
potential for worldwide sales. We have
recently gained approval for DigiFab®
in Canada, Switzerland and the UK and
following the US approval of Voraxaze®,
we will work with other regulators to seek
to make Voraxaze® available in a range
of territories.
We believe there is significant scope
to expand the geographic use of our
bead products. In Asia, the underlying
incidence of primary liver cancer is seven
times higher than in Western countries,
reflecting the higher incidence in Asia of
hepatitis B and C, a major cause of liver
cancer. Penetration of beads into Asian
markets is currently very low.
BTG is working with partners in key
Asian markets to gain approvals and
reimbursement. In Japan, we are
partnered with Eisai and a marketing
application is currently under review
by the Japanese regulator. In China our
partner is SciClone; a 40-patient study
using the DC Bead® loaded with
doxorubicin has been completed, and
we are in discussion with the Chinese
regulator about additional requirements
before we can submit a marketing
authorisation application. In South Korea,
limited reimbursement has been
achieved and in Taiwan we are seeking
reimbursement approval.
Our relationships
We operate in a highly regulated
environment and are required to adhere
to specific regulations in addition to the
legal and regulatory frameworks that
apply to most businesses. Some of
these relate to our relationships with
stakeholders in the medical supply chain
including doctors, government officials
and agencies, patients, trade bodies,
suppliers and the worldwide media.
BTG’s policy is straightforward in that
we will uphold the law and all regulations
in territories where we work, and we will
act with transparency and integrity in our
dealings with all our stakeholders. Our
Code of Conduct describes our approach
in detail.
Our people
BTG’s success relies on attracting
and retaining talented people. It is as
important for us to employ people who
adhere to our values as it is that they
have the right technical skills and
experience. We aim to foster a high-
performance culture and have built
performance monitoring systems and
reward programmes to support that goal.
We employ around 525 people in the UK,
US, Australia and Germany, the majority
of whom are engaged in sales and
marketing, research and development,
manufacturing, corporate and support
roles. 52% of our employees are female.
For more information on our human
resources policies see our corporate
responsibility report on pages 30 to 34
and our remuneration report on pages
61 to 75.
Sustainability
We are building a business that we
believe is capable of delivering
sustainable, profitable growth. Our
strategy for this is to continue to develop
our business as a specialist healthcare
company focused on leadership in
Specialty Pharmaceuticals and
Interventional Medicine.
Sustainability is being achieved through:
strategic planning, so we can respond to
opportunities and challenges; research
and development, to bring new products
to market and to expand the use of
BTG plc Annual Report and Accounts 2012
Revenue
£197.0m
£111.4m
11/12
10/11
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Gross profit
£140.7m
£77.3m
11/12
10/11
existing products; business development, to acquire or in-license new products
and programmes; financial discipline, to make efficient use of our resources
to drive profitable growth and deliver shareholder value; and strong governance,
so we conduct all our affairs in a responsible way.
Performance in 2011/12
We use financial and non-financial indicators to monitor company performance.
The key financial indicators are: revenue; gross margin; underlying operating profit;
and cash management. Similar financial indicators are used in the Group’s annual
bonus scheme (see the Remuneration report on pages 61 to 75).
Each year the Board sets a number of corporate objectives which are cascaded
into divisional, team and individual goals for the year.
Our progress against the objectives set for 2011/12 is as follows.
2011/12 objectives
Performance
Financial management
— Achieve revenue, gross margin, profit
and cash targets
— Deliver acquisition synergies
Specialty Pharmaceuticals
— Deliver production, revenue
and profit targets
— Submit Voraxaze® BLA
Interventional Medicine
— Deliver production, revenue and profit
targets for beads and brachytherapy
products
— Ensure readiness to sell LC Bead™
directly in the US from 2012
— Progress beads expansion
in Asian markets
— Complete all treatments
in PEM Phase III trials
Licensing & Biotechnology
— Deliver targets from sale/out-
licensing of pipeline assets
— Delivered revenue of £197.0m
(10/11: £111.4m); gross margin of
71.4% (10/11: 69.4%); underlying
operating profit of £54.0m (10/11:
£1.7m); closing cash and equivalents
£111.9m (10/11: £73.9m)
— Delivered acquisition synergies
of £3.0m
— Achieved overall; contribution of
£39.4m
— Voraxaze® US BLA submitted in June
2011 and approved in January 2012
— Achieved overall; contribution
of £6.8m
— Achieved; commenced selling
LC Bead™ directly in the US in
January 2012
— Partially achieved; 40-person
study completed in China; limited
reimbursement achieved in
South Korea
— Achieved; all studies completed
— Not achieved
— Develop CellMed R&D/partnering
— Ongoing
plans
— Meet R&D programme timelines
— Achieved
Corporate
— Audit quality systems
— Audit global health and safety
and environmental policies and
procedures
— Achieved
— Achieved
— Grow company through product
— Achieved; UTA licensed from Wellstat
acquisitions
BTG plc Annual Report and Accounts 2012
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Corporate priorities
BTG’s corporate medium-term goals are grouped into four categories: financial;
delivering products for our customers and other stakeholders; enhancing internal
processes and capabilities; learning and growth. Many of the objectives span
a number of annual reporting periods. We will report progress against each
goal annually.
Corporate objectives
Financial management
— Achieve revenue, gross margin, profit and cash targets
Delivering products for our key stakeholders
— Submit PEM NDA and prepare for commercial launch
— Build a leading position in the interventional oncology space
— Maintain leadership in antidote/rescue therapies and expand Specialty
Pharmaceuticals business
— Identify and acquire new products to complement existing franchises
Internal processes/capabilities
— Focus R&D activities to best support growth in Interventional Medicine
and Specialty Pharmaceuticals businesses
— Be an excellent corporate citizen by embedding Compliance, Quality
and Environment, Health and Safety (EHS) in all activities
Learning and growth
— Enhance capabilities and capacity to support growth plans
— Define and implement global manufacturing strategy to support
current business efficiently and deliver on growth strategy
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Uridine triacetate
Specialty Pharmaceuticals
This antidote is in clinical
development for the treatment
of accidental overexposure to
5-fluorouracil (5-FU). We have
acquired US and EU commercial
rights from Wellstat Therapeutics
Corporation.
Financial review
Rolf Soderstrom
Chief Financial Officer
Our strong financial position enables
us to continue to invest in the business
to drive further profitable growth.
This has been another transformative
year for BTG operationally and the
step-change in the financial results
reflect this. Revenue has grown by 77%
to £197.0m as a result of direct selling
CroFab® and DigiFab® , the acquisition of
Biocompatibles in January 2011 and a
strong performance from the Group’s
royalty revenue streams. Gross margin,
at 71%, is slightly ahead of prior year,
generating gross profit of £140.7m in
the period, £63.4m higher than in the
prior year.
Operating profit of £19.9m compares to
an operating loss of £13.8m in the prior
year. Operating profit before acquisition
adjustments and reorganisation costs
has grown to £54.0m compared to
£1.7m in the prior year.
The Group generated £38.0m of
cash, resulting in cash and deposits of
£111.9m at 31 March 2012 (31 March
2011: £73.9m).
Specialty Pharmaceuticals
Revenue of £76.7m is more than twice
the prior year comparative of £35.4m.
This reflects the impact of the first full
year of BTG direct sales of CroFab®
and DigiFab® in the US. In the prior year
these products were sold through a
distributor for the first six months of
the financial year, with BTG direct
sales effective from 1 October 2010.
Underlying sales volumes into the end
market have also shown growth over
the prior year.
Gross margin at 76% (10/11: 75%) is in
line with expectations for this operating
segment, generating £58.0m gross
profit (10/11: £26.6m). After deducting
selling, general and administrative
expenses (SG&A) of £18.6m (10/11:
£15.8m) this segment generated a
profit contribution of £39.4m (10/11:
£10.8m) reflecting a 51% operating
margin (10/11: 31%).
Interventional Medicine
The Interventional Medicine segment
represents the portfolio of beads and
brachytherapy products acquired with
Biocompatibles. The acquisition of
Biocompatibles was completed at the
end of January 2011, meaning that the
year to 31 March 2012 was the first
full year of ownership. The prior year
comparative figures for Interventional
Medicine include only two months of
post-acquisition trading from this
business.
Revenue of £28.7m (10/11: £5.6m)
generated gross profit of £20.1m
(10/11: £2.7m), representing a gross
margin of 70% (10/11: 48%). Cost of
sales includes the final release of a fair
value uplift adjustment to inventory
recognised upon acquisition of £2.1m
(10/11: £1.7m). Excluding this
adjustment, gross margin is 77%
(10/11: 79%).
SG&A of £13.3m (10/11: £2.5m)
includes some set-up costs and around
half a year of direct sales force costs in
relation to the sale of LC Bead™ in the
US. The full run-rate of sales force costs
will be reflected in the results of the
current financial year.
Overall profit contribution margin from
this segment was 24% (31% excluding
fair value acquisition adjustments) and
our expectation is that a full year benefit
of direct sales in the US should see this
increase in the current financial year.
Licensing & Biotechnology
The Licensing & Biotechnology operating
segment includes revenues from BTG’s
licensed portfolio of intellectual property
as well as income from the acquired
Biocompatibles business.
Revenue of £91.6m is £21.2m ahead of
last year. Revenue consists of recurring
royalties of £79.2m (10/11: £60.3m),
milestones and one-offs of £11.1m
(10/11: £9.9m) and sales of CellMed
products of £1.3m (10/11: £0.2m).
The principal contributors to recurring
royalties are: BeneFIX® at £29.4m
(10/11: £28.7m), the Two-Part Hip Cup
at £13.0m (10/11: £12.4m) and for the
first time this financial year, Zytiga® at
£18.6m (10/11: nil).
The final Factor IX patent expired in
March 2011 and BTG continues to
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BTG plc Annual Report and Accounts 2012
Operating profit
Before acquisition adjustments
and reorganisation costs
The Group achieved an underlying
operating profit of £54.0m (10/11:
£1.7m), reflecting additional profit
contributions from the three operating
segments offset by the increased
investment in R&D. Foreign exchange
gains of £2.6m were recorded in the
year compared to losses of £2.0m in
the prior year. An impairment charge
of £3.0m has also been taken against
the property, plant and equipment
associated with the Novabel® product.
Acquisition adjustments and
reorganisation costs
Costs of £34.1m (10/11: £15.5m)
were recorded in the period, including
amortisation and impairment of acquired
intangible assets of £30.7m (10/11:
£10.0m). Impairment charges totalling
£12.4m (10/11: nil) are included in the
total £30.7m (10/11: £10.0m). These
were taken against the Group’s carrying
values of GLP-1 and Novabel® – two
assets acquired with Biocompatibles.
In the prior year, acquisition and
reorganisation costs of £3.8m were
incurred in relation to the acquisition
of Biocompatibles.
Net financial income
Net financial income of £3.1m (10/11:
£3.0m) includes the write-back of two
financial liabilities in the period. A loan
of £2.8m from Merz in relation to
Novabel® manufacturing fixed assets
has been written back as the directors
have no current expectation of repaying
it, based on an agreement termination
letter received from Merz. Also included
within net financial income is £1.1m in
relation to the Contingent Value Note
issued to certain Biocompatibles
shareholders upon acquisition. This is
included in the acquisition adjustments
and reorganisation costs column. The
termination by AstraZeneca of their
interest in the GLP-1 asset means that
the directors have no current expectation
of this amount being paid.
receive royalties on sales of inventory
held by Pfizer at the patent expiry date.
Further receipts in 2012/13 are yet to
be confirmed by Pfizer, but BTG expects
that it has now received the majority of
royalties due.
The approval of Zytiga® triggered two
milestone payments. Other contributors
within milestones include the continued
release of AZD9773 deferred income
and the final release of deferred income
in relation to the GLP-1 licence that was
terminated by AstraZeneca in May 2011.
In the prior year, the main contributors
to milestones were a patent settlement
over the MLC technology, the release
of deferred income on AZD9773 and
a milestone on submission of the US
regulatory application for Zytiga®.
The gross margin of 68% (10/11: 68%)
reflects the mix of licences contributing
to revenue, as each of the royalty
streams has its own onward obligation
to the original inventors. This is expected
to reduce in the current financial year
as income from the BeneFIX® patents
falls away.
SG&A includes the overheads specific to
the management of the royalty business
but also most centrally managed
support functions and corporate costs.
This has shown an increase of £1.6m
to £17.0m in the period, principally
reflecting the addition of the CellMed
business.
Overall, this segment generated a
profit contribution of £45.6m (10/11:
£32.6m), reflecting a contribution
margin of 50% (10/11: 46%).
Research and development
Expenditure on research and
development increased to £39.7m
(10/11: £32.1m). This increase
principally reflects a full year of
investment in the Biocompatibles R&D
portfolio. The other major components
of expenditure in the period were the PEM
US Phase III trials and associated CMC
and product development expenditures,
the Voraxaze® BLA submission and
associated work streams, the
BGC20-0134 Phase IIa study and
continued work in support of AZD9773.
BTG plc Annual Report and Accounts 2012
Underlying operating profit
£54.0m
£1.7m
11/12
10/11
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Profit/(loss) before tax
£23.0m
(£10.8m)
11/12
10/11
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Financial review
The mark-to-market of foreign exchange
forward contracts has resulted in a loss
of £1.5m (10/11: profit of £2.7m) being
recorded in the period.
Profit before tax
Group profit before tax has increased
to £23.0m from a loss of £10.8m in the
prior year. The principal drivers of this
increase are the improved operating
performance of the business segments
offset by increased investment in R&D
and asset impairments.
Tax
A tax charge of £8.4m has been
included in the accounts (10/11:
£20.0m credit). This reflects an effective
tax rate of 37%. Current tax is £3.9m
(10/11: £1.6m). Deferred tax is £4.5m
(10/11: credit of £21.6m). The prior
year’s figure includes a one-off credit of
£18.6m in relation to the recognition of
a deferred tax asset in the US following
a corporate restructuring that provided
us with increased certainty over the
future utilisation of these losses. The
utilisation of the losses results in a
deferred tax charge in each year that
they are utilised.
Earnings per share
Basic earnings per share was 4.5p
(10/11: 3.4p) on profit after tax of
£14.6m (10/11: £9.2m). Adjusting for
acquisition adjustments, restructuring
costs and the one-off deferred tax credit
recognised in the prior year, underlying
EPS increased by 10.4p to 11.4p.
Balance sheet
Non-current assets have reduced
from £358.9m at 31 March 2011 to
£331.5m at 31 March 2012. The
principal movements are amortisation,
impairments and depreciation of
£38.1m, and additions of £10.5m,
including £5.4m in respect of
distribution rights to Wellstat’s uridine
triacetate (UTA) development asset of
which £0.7m is contingent
consideration.
The Group’s defined benefit pension
fund liability, as measured under IAS19
– Employee Benefits, has reduced from
a liability of £2.0m at 31 March 2011
to a liability of £0.1m at 31 March 2012.
The principal movements are total
contributions by the Company of £5.2m
offset by actuarial losses of £2.9m and
an income statement charge of £0.4m.
The actuarial deficit at 31 March 2010,
the date of the last formal valuation and
measured in accordance with guidelines
set by the Pensions Regulator, was
£13.9m.
Current assets have increased by
£44.7m since 31 March 2011 to
£174.3m at 31 March 2012. The
principal movements relate to cash
and deposits (increase of £38.0m)
and an increase in receivables of
£7.4m reflecting accrued royalties
on Zytiga® and direct sales of bead
products for which there was no
prior year comparative.
Current and non-current liabilities, at
£99.6m are broadly in line with the
position as at 31 March 2011. The
principal movements relate to an
increase of £4.5m in deferred tax
liability following utilisation of losses
recognised as a deferred tax asset,
a net increase of £3.1m in trade and
other payables offset by reductions in
provisions of £1.2m, borrowings of
£2.9m and pension liability of £1.9m.
Cash flow
The Group’s cash and deposits have
increased by £38.0m from £73.9m
at 31 March 2011 to £111.9m at
31 March 2012.
Operating profit of £19.9m (10/11:
operating loss of £13.8m) has
generated £48.3m of operating cash
flow (10/11: operating cash outflow
of £10.7m). Non-cash charges for
depreciation, amortisation, impairments
and share-based payments of £40.7m
(10/11: £25.9m) have been offset by
contributions to the Group’s defined
benefit pension fund of £4.8m (10/11:
£3.3m) and an increase in working
capital of £7.5m (10/11: £17.1m).
The increase in working capital is a
result of a number of factors. We have
taken the decision as part of our risk
management strategy to build Specialty
Pharmaceuticals inventory; new royalty
accruals in relation to Zytiga® increase
receivables and direct selling of
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BTG plc Annual Report and Accounts 2012
Profit after tax
£14.6m
£9.2m
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Basic underlying earnings per share
11.4p
1.0p
11/12
10/11
Within the Licensing & Biotechnology
portfolio, the commercial launch of
Zytiga® is expected to result in a
significant new royalty stream that will
partially replace the BeneFIX® income
stream from which BTG has benefited
over the past 15 years.
Overall, we anticipate that revenue for
the year ended 31 March 2013 will be
in the range £180m to £190m.
Investments in our R&D portfolio
will continue at a similar level, focusing
on the development of PEM and studies
designed to explore additional uses for
our bead products.
BTG has entered the new financial
year in a strong position, confident of
continuing to deliver further profitable
growth in the medium term.
LC Bead™ in the US results in an
increase in receivables as we retain
100% of revenue whereas the balance
at 31 March 2011 was only that due
from our distributor.
The Group’s investing activities include
the purchase of US commercial rights
to Wellstat’s UTA for an initial payment
of US$7.5m and capital expenditure
around the Group’s manufacturing sites
of £3.7m. Capital expenditure includes
initial work at the Farnham site to which
we have transferred PEM development
and CMC activities.
Tax payments of £1.1m have been
made, principally in the UK, as profits in
this jurisdiction have arisen in statutory
entities with insufficient tax losses.
Overall, the Group ends the year in a very
strong financial position, with £111.9m
of cash and deposits.
Summary and outlook
This has been another successful
year for BTG. Operational progress
has continued at pace, with the first
full year of direct CroFab® and
DigiFab® sales generating increases
in end-market volumes; the launch
of our second direct field force on
1 January 2012 for LC Bead™ in
the US; the approval from the FDA
of Voraxaze® and positive results
from the PEM Phase III clinical trials.
Biocompatibles has been successfully
integrated and we have met our cost
savings and earnings enhancement
commitments in the first full year of
acquisition.
Looking ahead, the Specialty
Pharmaceuticals operating segment
is expected to see benefits from the
commercial launch of Voraxaze® in
the current financial year as we look
to leverage the existing infrastructure
to support this potentially life-saving
product.
The Interventional Medicine business
will benefit from the first full year of
direct sales of LC Bead™ in the US.
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Principal risks and uncertainties
Our performance and prospects may
be affected by risks and uncertainties
relating to our business and
operating environment. Our internal
controls include a risk management
process to identify key risks and,
where possible, manage the risks
through systems and processes
and by implementing specific
mitigation strategies.
The most significant risks identified
in an annual update of the Group’s
risk register that could materially
affect the Group’s ability to achieve its
financial and operating objectives are
summarised in this section. Other risks
are unknown or deemed less material.
Interruption to product supply
Patent invalidity, patent infringement
litigation and changes in patent laws
Risk:
BTG can be subject to patent challenge
at any time. Challenges can relate to the
validity of BTG’s patents or to alleged
infringement by BTG of intellectual
property rights of others, which might
result in litigation costs and/or loss of
earnings. BTG might be obliged to sue
third parties for their infringement of its
patents in order to protect revenue
streams. Failure by BTG to maintain or
renew key patents might lead to losses
of earnings and liabilities to licensees or
licensors. BTG may not be able to secure
the necessary intellectual property rights
in relation to products in development,
limiting the potential to generate value
from these products. Changes in patent
laws and other intellectual property
regulations in territories where BTG or
its licensees conduct business that
make it more difficult or time-consuming
to prosecute patents, or which reduce
the term of granted patents or periods
of market exclusivity protection, could
adversely impact the Group’s financial
performance. BTG’s patent portfolio is
currently subject to several challenges.
Controls and mitigating actions:
Dedicated internal resource
supplemented by external expertise
monitors patent portfolios, third-party
patent applications and intellectual
property rights; development and
implemention filing, defence and
enforcement IP strategies; robust
processes in place to automate patent
renewals; internal controls established
to avoid disclosure of patentable
material prior to filing patent
applications.
Risk:
BTG relies on third-party contractors for
the supply of many key materials and
services, such as filling and freeze-drying
of end products. These processes carry
risks of failure and loss of product.
Problems at contractors’ facilities
may lead to delays and disruptions in
supplies. Some materials and services
may be available from one source only
and regulatory requirements make
substitution costly, time-consuming or
commercially unviable. BTG’s polyclonal
antibody products rely on serum
produced from our sheep flocks in
Australia, which could be subject to
disease outbreaks or fire. BTG relies
on its single site in Wales for supply of
manufactured antibody products, with
the consequent possibilities for
disruption to supplies.
BTG manufactures its own bead and
brachytherapy products at single sites
in Farnham, UK, and Oxford, CT, USA,
respectively, with the consequent
possibilities for disruption to supplies.
BTG plans to undertake the manufacture
of PEM at its Farnham site, requiring the
establishment of new manufacturing
facilities to meet the requirements of
Good Manufacturing Practice. This site
will require regulatory approval and a
licence to support the commercialisation
of PEM. Any delay in establishing this
facility or obtaining the necessary
manufacturing licences may result in a
delay in the approval of PEM reducing
future earning potential. The continuity
of potential PEM revenues will also be
subject to single source risk.
Controls and mitigating actions:
Rigorous monitoring of suppliers;
dual sourcing implemented where
practicable; inventories maintained and
monitored through sales and operational
planning process and production
changes implemented where needed
to ensure continued product supply;
rigorous quality control procedures in
place; regular checks made on sheep
flock health; disaster recovery plans
under regular review.
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Patent expiry, competition may reduce
current revenues
Failure to comply with regulations
may result in product delays, failures,
regulatory actions and financial penalties
Product liability and other key risks may
not be capable of being adequately
insured
Risk:
The pharmaceutical industry is highly
regulated and the Group must comply
with a broad range of regulations relating
to the development, approval,
manufacturing and marketing of its
products. This is particularly true in the
US, from which the Group derives most
of its revenues and where the Group has
established its own sales and marketing
operations. Specific requirements
relating to quality assurance apply to
the Group’s manufacture of products,
particularly in the pharmaceutical area.
Regulatory regimes are complex and
dynamic, and alterations to the
regulations may result in delays in
product development, approval or
withdrawal. Ensuring compliance with
such regulations necessitates allocation
of significant financial and operating
resources.
Failure to comply with certain rules, laws
and regulations may result in criminal
and civil proceedings against the Group.
Significant breaches could result in large
financial penalties, which could
materially adversely impact the Group’s
financial performance and prospects.
Moreover, failure by BTG or a BTG
partner company to comply with
regulations may result in a product
being withdrawn from the market with
a subsequent loss of revenues.
Controls and mitigating actions:
A Code of Conduct has been
established, supported by a mandatory
training programme; robust compliance
systems are in place to ensure sales
and marketing activities comply
with regulations in the US and other
territories; standard operating
procedures are in place to ensure
compliance with good clinical and
manufacturing practice and to manage
pharmacovigilance requirements,
monitored through quality control
systems. Internal expertise is
maintained to manage these risks.
Risk:
BTG’s key current royalty-generating
products are expected to continue to
provide royalty revenues until their
patents or licence agreements expire.
Any unforeseen patent loss, supply,
safety or compliance issues with these
products could result in premature
cessation of the revenues.
BTG earns revenues from sales of its
acute care products CroFab®, DigiFab®
and Voraxaze®. CroFab® is patent
protected but DigiFab®and
Voraxaze® have no patent protection
at this time; CroFab® and DigiFab®
are protected by significant know-how
and complex manufacturing processes
and BTG expects revenues to continue
regardless of patent protection. However,
future competition cannot be ruled out
and competing products could materially
adversely impact BTG’s financial results.
Instituto Bioclon have announced the
completion of a Phase III clinical trial of a
potential competitor product to CroFab®.
BTG also earns revenues from sales
of its bead and brachytherapy products,
all of which are subject to competition.
While these medical devices benefit from
patent protection certain patents are
subject to challenge.
Controls and mitigating actions:
New royalty streams may emerge.
For example, regulatory approval
in the US and elsewhere of Zytiga®
as a treatment for men with advanced
prostate cancer has resulted in new
revenues during 2011/12; additional
future royalty streams would result if
alemtuzumab is approved to treat
multiple sclerosis and from AZD9773
if approved to treat severe sepsis. BTG
acquired US commercial rights to uridine
triacetate from Wellstat Therapeutics
Corporation in July 2011, and EU named
patient supply rights in May 2012 which
may lead to a new revenue stream if
approved. Mitigations with respect
to the bead products include product
development, geographic expansion,
appropriate IP lifecycle management and
the conduct of clinical studies to expand
their indicated uses and sales.
BTG plc Annual Report and Accounts 2012
Risk:
The manufacturing, testing, marketing
and sale of BTG’s products involve
significant product liability and business
interruption risks. As the developer,
manufacturer and/or seller of certain
products, BTG may be held liable for
death or personal injury to persons
receiving the products during
development or after the product is
approved.
Controls and mitigating actions:
BTG maintains product liability insurance
and operates quality systems relating
to the manufacture of its products
and a pharmacovigilance system to
monitor safety events arising with
respect to products sold. It may not
be commercially viable to adequately
insure against the occurrence of
other key risks.
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Principal risks and uncertainties
Inability to access new products and
programmes may limit
future growth
Risk:
BTG conducts limited fundamental
research to generate its own
development programmes but instead
seeks to acquire new products and
late-stage development programmes
from other organisations. There is
significant competition from other
companies also seeking to acquire
new products and programmes who
may have greater financial resources
and sales and marketing reach than
BTG. BTG may not be able to acquire
suitable products and programmes,
which will materially adversely impact
the Group’s financial future performance
and growth prospects.
Controls and mitigating actions:
Dedicated product acquisition team
in place; strategy is to focus on niche
opportunities that leverage BTG’s US
commercial operations and those that
may be a better fit with BTG than with
other organisations. Development teams
working to develop follow-on products
from existing technology platforms
such as embolisation beads.
The success of development activities
and market acceptance is uncertain
Risk:
The development of medical products is
inherently uncertain and the timelines
and costs to approval may vary
significantly from budget or expectation.
The product may not demonstrate the
expected safety and efficacy benefits
and may not be approved by regulatory
bodies, such as the US Food and Drug
Administration. Manufacturing
difficulties or patent litigation may cause
programmes to be delayed or halted or
products withdrawn. Failure of a late-
stage programme such as PEM would
materially adversely impact the Group’s
financial prospects. Regulatory approval
requirements may change, resulting in
further uncertainty. Even if a product is
approved that is no assurance of
commercial success.
Controls and mitigating actions:
Experienced development team in
place; focus is on acquiring late-stage
programmes that have already
demonstrated proof of concept and
potentially have lower-risk development
pathways; development programmes
monitored to identify risks and
challenges and recommend mitigating
and corrective actions. Certain products
are licensed to other companies who
may have greater resources to support
product development. Regulatory team
in place, consultation undertaken with
applicable regulatory authorities.
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Competition may erode revenues
Pricing and reimbursement pressures
are increasing
Currency and treasury effects can
adversely impact results
Risk:
Many of BTG’s revenues and receipts
are denominated in US dollars and
movements in foreign exchange rates
could adversely impact results.
Controls and mitigating actions:
BTG actively manages its exchange
risks where feasible, using short-term
hedging transactions guided by market
expectations and economic forecasts
to seek to match actual receipts and
payments over a rolling 12-month period
to those forecast. This policy can result
in both exchange gains and losses but
provides a level of certainty over
cash receipts.
Risk:
The Group operates in competitive
markets. The products on which BTG
currently earns revenues, or from which
it anticipates earning revenues once on
the market, face competition from other
products that are already approved or in
development. Competing products may
have superior efficacy and side effect
profiles, cost less to produce or be
offered at a lower price than BTG’s
products; such competition could
materially adversely impact Group
revenues.
Controls and mitigating actions:
BTG focuses on niche opportunities
addressing specialist markets where
there is limited competition and high
barriers to entry; CroFab® and
DigiFab® have no current competitors;
both products are complex to
manufacture. We differentiate the
embolisation and drug-eluting bead
products from competitors by supporting
a range of clinical studies to generate
safety and efficacy data to expand their
indicated uses.
Risk:
There is increasing pressure on
healthcare budgets causing payers
to demand increasing treatment and
economic benefits before agreeing to
reimburse product suppliers at all or
at appropriate prices. In March 2010,
healthcare reform legislation was
adopted in the US, requiring
manufacturers to increase the rebates
or discounts they give on products
reimbursed or paid for by public payers
including Medicaid and Medicare. The
purpose of the reform is to increase
healthcare coverage in the US
population and to manage treatment
of chronic conditions efficiently and
cost effectively. Management of acute
conditions is generally not affected.
BTG’s acute care and implantable
oncology products treat serious medical
conditions and the impact of existing
healthcare reform on current Group
revenues is not expected to be material
to the Group’s financial position.
Approval and commencement of sales in
the US of PEM, a potential treatment for
varicose veins, may result in the Group
increasing the discounts or rebates
given on its other reimbursed products
in the US. If BTG acquires products in
future that are more impacted by
healthcare reforms, revenue
expectations could be lower. Failure of
a product to qualify for government or
health insurance reimbursement or the
failure to achieve an appropriate sales
price could adversely impact the Group’s
financial performance. Future healthcare
reforms may become more onerous and
may have a negative impact on Group
revenues.
Controls and mitigating actions:
BTG focuses primarily on niche
products that address serious
unmet needs; early on in a product’s
development, the Group conducts
pricing and reimbursement studies; the
assessments of potential new products
will include an assessment of healthcare
reforms on pricing and reimbursement.
BTG plc Annual Report and Accounts 2012
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Corporate responsibility report
Our business can only be a success
if we implement our strategy, behave
ethically, care for the environment,
and foster stronger relationships in
the communities where we operate.
This makes good business sense,
building reputation and trust with our
customers and driving more efficient
business processes.
BTG is a member of the FTSE4Good
index series, designed to measure
objectively the performance of
companies that meet globally
recognised corporate responsibility
standards.
BTG is also a constituent of the Kempen
SNS SRI Universe, which indicates that
we have passed stringent criteria and
can be considered a company that
demonstrates a clear strategy towards
corporate responsibility.
Our strategy is to grow our business
both organically and by acquisition,
retaining our focus on serving the needs
of specialist healthcare physicians
operating in niche markets.
Our corporate responsibility (CR)
reporting criteria, listed below, have been
chosen as the most relevant to us and
our stakeholders, following a review of
our business impacts and a comparison
with those of our peers.
1. Business ethics
2. Research and development
3. Suppliers and customers
4. Community
5. Environment
In this report we focus on the key
activities during the last year. A
comprehensive report on all of our
ongoing CR activities, together with key
policies and procedures, is accessible
in the Responsibility section of our
corporate website at www.btgplc.com.
1. Business ethics
Code of Conduct
Our Code of Conduct describes the
principles, policies and procedures
that we have developed to promote the
ethical behaviours that we expect from
all our employees globally. The core
principle is that every one of us must
take individual responsibility for
behaving ethically and compliantly and
that we are each accountable for our
actions. It is regularly updated to reflect
changes in legislation and best practice
and Code of Conduct training is a
mandatory requirement for all
employees.
Anti-bribery and corruption
In July 2011 the UK Bribery Act came
into effect. Our expanding commercial
activities sometimes mean that we find
ourselves operating in parts of the world
where bribery and corruption are more
prevalent. We take a zero-tolerance
approach to illegal activity and we are
committed to implementing and
enforcing effective systems to counter
it. We recently engaged the services
of an agency to assist us with global
anti-bribery compliance assessments.
We have also launched a new anti-
bribery and anti-corruption policy
and provided training for all of our
employees.
Human rights and anti-slavery
In January 2012, the “California
Transparency in Supply Chain Act” came
into effect requiring companies doing
business in the state of California, and
having annual worldwide gross receipts
in excess of $100m, to disclose their
efforts to eradicate slavery and human
trafficking from their direct supply chain.
BTG recognises numerous international
standards including the United Nations
Universal Declaration of Human Rights
and its subsequent changes. We are
developing a human rights policy,
defining a companywide standard for
human rights, that is consistent with
internationally recognised standards.
We are also in the process of developing
a business partner Code of Conduct
founded upon the Pharmaceutical
Supply Chain Initiative’s (PSCI)
Principles, the United Nations Global
Compact Principles, our Code of Conduct
and Values. We aim to finalise these key
initiatives within the 2012/13 financial
year.
Employee well-being
We operate a number of programmes
designed to protect and enhance
employee satisfaction, mental and
physical health. This contributes both
to retention and productivity of our
employees. In early 2012 we launched a
number of independent and confidential
Employee Assistance Programmes
(EAP) in all countries where we have
operations. These free services provide
employees and their families with
practical information and advice
concerning a range of topics affecting
health, family, money matters and work.
Training and development
Continuous learning is one of our core
company values. We recently launched
an annual learning and development
plan for all employees, encompassing
a range of core skills and mandatory
training, IT training, Environment,
Health and Safety (EHS) training, and
management development. Employees
also receive annual values training to
help them recognise the importance our
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“Our business is all about people, the
business partners we execute deals
with, the colleagues with whom we work
every day, and the investors who support
our growth. Most of all, it’s about our
customers, the patients who are treated
with our medicines and the specialist
healthcare physicians who serve them.
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All of these people depend on us and
we recognise our responsibility to them.”
Louise Makin
Chief Executive Officer
values play in building a strong
business. We incentivise and reward
values-based behaviour by including a
values-based assessment as part of
our annual employee appraisal process.
Status of targets for 2011/12
— Complete compliance training
for our new colleagues at former
Biocompatibles sites and roll out
a compliance certification process
for all employees. Completed.
— Complete Horizons 2, the second
companywide leadership training
programme. Completed.
Targets for 2012/13
— Responsible and ethical
commercialisation: Further
standardise and embed the
processes we use to review and
approve promotional materials
and external requests for financial
support.
— Transparency of business practices:
Provide visibility of our interactions
with healthcare professionals and
utilise robust monitoring and auditing
techniques to identify areas of non-
compliance with our policies.
— Ensuring our business partners
share our values, fighting corruption:
Continue to complete due diligence,
per our policies, on third-parties who
conduct business on behalf of BTG.
2. Research and development
We completed a number of clinical
trials during the last year including
some pivotal Phase III trials of PEM in
development as a treatment for varicose
veins. We perform our clinical trials in
accordance with the applicable
directives/laws and the global standards
of good practice, full details of which are
on our website. During the last year, we
launched online annual Good Clinical
Practices (GCP) certification training
for relevant employees and we aim to
expand this training during next year.
We obtain written informed consent
from trial subjects by providing fair
and balanced information to help them
understand the potential risks and
benefits associated with participation
in a given trial. The rights, safety and
well-being of trial subjects are
paramount and prevail over any
commercial or business interests. We
always protect the confidentiality of trial
subjects and abide by data protection
laws. We have set in place procedures to
monitor and report any adverse events
during trials to the relevant regulatory
authorities and we regularly update and
reissue these to reflect changes in
legislation and best practice and provide
training for all relevant employees.
Status of targets for 2011/12
— Launch online annual Good Clinical
Practices (GCP) certification training
companywide. Completed.
— Launch a new process to invite,
evaluate, approve and implement
independent programmes (grants,
investigator-initiated studies,
continuing medical education, etc.)
that deserve our support. Ongoing.
A new policy on investigator-initiated
studies is due to be launched shortly.
Targets for 2012/13
— Ensure we continue to meet our
ethical obligations to clinical trial
subjects: Update and relaunch our
internal procedures to evaluate and
respond to any serious adverse
events in our clinical trials.
— Launch and complete mandatory
training for all relevant employees on
Good Practices (GxP), including Good
Laboratory Practices (GLP), Good
Clinical Practices (GCP) and Good
Manufacturing Practices (GMP).
— Enhance processes for responding to
investigator-initiated studies: Finalise
new investigator-initiated study policy
and standard operating procedure,
and provide improved transparency
on grant support process.
3. Suppliers and customers
Suppliers
This year, as part of a new screening
process conducted when selecting new
suppliers of services or materials used
in the manufacture of our products, we
have started to complete an ethical
assessment. We aim to make this a
requirement over the longer term. The
results of the assessment are used by
us to help identify slavery-related human
rights concerns, and to inform the
business partner selection process.
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Corporate responsibility report
Employees from our Nashville office,
together with family members,
participated in Light the Night Walk,
the Leukemia and Lymphoma Society’s
annual fundraising walk to raise funds
for life-saving research and patient
services.
Charitable contributions made
by the Group during the year
£5,989
£12,9211
11/12
10/11
1 Included a €10,000 donation to the Red
Cross Japanese tsunami appeal.
We provide information, instruction
and training to our employees directly
involved in the selection of new suppliers
and ongoing management of existing
suppliers. This training covers
responsibilities for ensuring ethical
business practices. Our business
partner contracts ensure that all work
conducted by business partners on
our behalf is in accordance with all
applicable laws, regulations,
governmental requirements and
industry guidelines.
Customers
Sales and marketing compliance is
essential for all companies working in
the healthcare industry and mandatory
compliance training is given annually to
all employees. We also recognise our
obligation to ensure that all adverse
events are reported, so during the year
we harmonised pharmacovigilance
procedures across the Company for our
marketed and named patient products.
We pride ourselves on the close
relationships we forge with the specialist
physicians who prescribe our products.
During the last year we completed a
number of educational initiatives aimed
at supporting their treatment of patients.
We commissioned an educational video
on the management of North American
pit viper envenomation and a treatment
protocol to provide guidance on using
CroFab®.
During the year our brachytherapy
business provided over 4,200 kits
(including the loading service) to
patients in North America, Europe and
Australia for the treatment of early-stage
prostate cancer. This business also
operates an indigent patient programme
to decrease the burden poorer patients
may bear in the cost of their treatment.
In certain circumstances, we provide
financial assistance to patients who
have no insurance coverage and no
other source of reimbursement.
Status against targets for 2011/12
— Consolidate our different supplier
questionnaires incorporating CR
questions to provide evidence of
the level of ethical, quality and
compliance practices of BTG’s
contractors. Not completed. BTG has
separate supplier questionnaires/
processes in place for ethics/
compliance and quality. Each has
different objectives so after a
review the CR team decided that
consolidation was not merited.
— Launch the new quality policy manual
and provide training and development
for UK employees to emphasise the
importance of quality throughout the
organisation. Completed.
Targets for 2012/13
— Taking responsibility for our supply
chain: Formation of a responsible
supply chain policy, including written
supplier requirements.
— Ensuring patients have fair access
to our products: Finalise standard
operating procedure to make
unlicensed medicinal products
available for compassionate use
in the situation where there is no
distributor in place.
4. Community
Charitable giving
Our global Charitable Giving Policy,
launched in early 2012 aims to ensure
that our approach to charitable giving is
fair and in line with our company values.
We give to charities which principally
either support diseases or conditions in
which we are therapeutically focused as
a business or that benefit the local
communities in which we operate. In
addition, we encourage employees to
support events to raise money for their
chosen charities and we may match
individual donations up to a cap
of £250.
In the UK we operate a Give As You Earn
scheme. This enables employees to
donate efficiently, so money that would
normally be given in tax goes to their
chosen charity instead.
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Lost time accident rate 2011/12
1.29 days
per 100,000 hours worked1
1 This includes all accidents where one or
more days are lost. UK companies usually
only report when three or more days are lost.
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Water consumption at
production sites 2011/12
21,430m3
Waste from each of our
production sites 2011/12
3
2
1
1. Recycled
2. Hazardous waste
(incineration)
3. Landfill
345t (40%)
200t (23%)
327t (37%)
In October 2011 a number of employees
from our Nashville office, together with
family members, participated in Light
the Night Walk, the Leukemia and
Lymphoma Society’s annual fundraising
walk to raise funds for life-saving
research and patient services and bring
hope to people battling cancer. This is
particularly relevant to BTG as in early
2012 we received US regulatory
approval of Voraxaze®, used in the
treatment of methotrexate toxicity.
Methotrexate chemotherapy is often
used as a treatment for lymphoma.
Our London office organised Hunt Your
London during the year, a team based
treasure hunt around the City of London.
This was a fun team-building exercise
and also raised money for one of our
corporate charities, Contact the Elderly.
During the last year we made donations
to a number of charities and more
information on these is available on
our corporate website.
Status of targets for 2011/12
— Launch a new global Charitable
Giving Policy to provide guidance to
our employees and to ensure we are
fair in our approach to giving and do
so in line with our company values.
Completed.
— Organise community/charitable
activities at each site to raise money
for our local corporate charities.
Ongoing. Activities took place in
some but not all sites. To be rolled
out fully for the next financial year.
Targets for 2012/13
— Organise community/charitable
activities and initiatives at each of
our sites to raise money for our local
corporate charities.
— Review equivalent options to extend
our Give As You Earn scheme to other
territories.
5. Environment
Health and safety
In November 2011, we launched an
updated global Environment, Health
and Safety policy and provided training
for all employees. It states that in line
with our values we are committed to
taking all reasonable measures to
implement the following fundamental
principles throughout all aspects of
our business and in all regions where
we operate:
— We will protect the health and safety
of all employees, customers and
others who come into contact with
us through our business activities.
— We will protect the environment
and our communities by minimising
any potential adverse effects of our
operations.
— We will seek to support the long-term
growth of our business by reducing
our environmental impacts and
increasing our use of renewable
resources.
An internal monitoring and auditing
system for all sites commenced in
2012. Audits will be undertaken
periodically, against this Health and
Safety policy and the underpinning
standards.
This year we have started to report a lost
time accident rate for our employees,
the number of lost days per 100,000
hours worked and average length of time
off during the year.
Sustainability
We recognise that managing our
resources is an essential part of
our commitment to becoming more
sustainable. We have always monitored
and measured water consumption at
each of our production sites and this
year we have started reporting the figure
publicly. Water has always been a
valuable resource in Australia and it has
become a valuable resource at all of our
production sites in recent years as
global demand increases.
We recycle as much of our waste as we
can. This year we have started reporting
landfill from each of our production sites
as a quantitative reflection of our
non-recyclable waste.
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Status of targets for 2011/12
— Review and restructure Environment,
Health and Safety policies across all
sites, ensuring common policies are
in place and in use. Completed.
— Drive use of common metrics and
reporting standards across all sites.
Completed.
Targets for 2012/13
— Build a global environmental
management system.
— Apply an appropriate intensity metric
to our energy consumption figures
for 2012/13.
— Evaluate and set quantative
environmental targets for 2012/13.
Corporate responsibility report
Electricity consumed during 2011/12
6,441 MWh1
1 Data from all operational sites with more
than 20 employees, excludes transport.
Energy efficiency
We regularly assess the environmental
impact of our business to ensure
that we are taking advantage of all
opportunities to improve our
performance and efficiency.
CO2 equivalent emissions generated
during 2011/121
3
2
1
1. Purchased electricity
2. Oil heating
3. Gas heating
3,274t (72%)
676t (14%)
623t (14%)
1 Conversion factors used:
UK electricity, Gas & Oil UK Environment
Agency 2009.
Australia & Germany Electricity EA 2008.
US Electricity 2007.
We operate an international supply chain
for the manufacture of our acute care
products which involves international
transportation over long distances.
We aim to transport in bulk where
possible and use the most efficient
transportation to save money for the
Company and reduce our carbon
emissions. We have a number of
initiatives underway to evaluate whether
there are any manufacturing cost
savings or other efficiencies to be made
and aim to report progress during the
coming financial year.
We monitor electricity and gas
consumption at manufacturing sites
and offices which employ more than
20 people, and we try to reduce carbon
emissions and increase energy
efficiency wherever possible. This year
we have rebased our reported figures
providing a new base year for
comparison going forwards. We
participate in the Carbon Disclosure
Project. We currently fall below the
threshold for participation in the UK
government’s Carbon Reduction
Commitment Energy Efficiency Scheme.
34
Business review
BTG plc Annual Report and Accounts 2012
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DC Bead®
Interventional Medicine
An embolic drug-eluting bead for the
treatment of liver tumours, which are
particularly prevalent in the Far East
due to the high incidence of hepatitis.
Directors and governance
Board of directors
36 Board of directors
38 Directors’ report
43 Corporate governance
54 Audit Committee report
59 Nomination Committee report
61 Remuneration Committee report
76 Statement of directors’
responsibilities
77 Independent auditor’s report
to the members of BTG plc
Garry Watts
Chairman 1
Garry Watts, FCA, MBE, joined the Board of
BTG as non-executive Chairman in January
2012.
Garry is Chairman of Spire Healthcare
and of The GADA® Group. He is the senior
independent director of Stagecoach
Group plc and a non-executive director of
Coca-Cola Enterprises, Inc. Until December
2010, he was for seven years CEO of
SSL International plc and before that CFO.
Garry is a former partner at KPMG. He was
previously an executive director of Celltech
plc and of Medeva plc and a non-executive
director of Protherics PLC. Other roles have
included 17 years as a member of the UK
Medicines and Healthcare Products
Regulatory Agency Supervisory Board.
Louise Makin
Chief Executive Officer
Louise Makin, MA, PhD (Cantab), MBA, joined
BTG as Chief Executive Officer in October
2004 and she is a non-executive director of
Premier Foods plc.
From 2001, she was President,
Biopharmaceuticals Europe of Baxter
Healthcare, where she was responsible for
Europe, Africa and the Middle East. Louise
joined Baxter Healthcare in 2000 as Vice
President, Strategy & Business Development
Europe. Before joining Baxter, she was
Director of Global Ceramics at English China
Clay and prior to that she held a variety of
roles at ICI between 1985 and 1998.
Rolf Soderstrom
Chief Financial Officer
Rolf Soderstrom, BA, ACA, joined BTG as
Chief Financial Officer in December 2008
from Protherics PLC, where he was Finance
Director from August 2007.
From 2004, he was a Divisional Finance
Director of Cobham plc, managing a portfolio
of businesses across Europe and the USA.
From 2000 he was a Director of Corporate
Finance at Cable & Wireless plc. Prior to
this, he worked in the Corporate Recovery
and Corporate Finance Department of
PricewaterhouseCoopers after qualifying
as a Chartered Accountant.
Peter Chambré
Non-executive director
Peter Chambré joined BTG as a non-executive
director in September 2006. Peter is
Chairman of Xellia Pharmaceuticals AS,
OneMed AB, Cancer Research Technology
Ltd and 7TM Pharma A/S. He is also a
non-executive director of Spectris plc, the
precision instrumentation and controls
company.
Peter was Chief Executive Officer of
Cambridge Antibody Technology Group plc
from 2002 until its acquisition by
AstraZeneca plc in 2006. Previously he was
Chief Operating Officer of Celera Genomics
Group and Chief Executive of Bespak plc.
36
Directors and governance
BTG plc Annual Report and Accounts 2012
Giles Kerr 1
Non-executive director
Giles Kerr, FCA, joined BTG as a non-executive
director in October 2007 and is the
Company’s Senior Independent Director.
Melanie Lee
Non-executive director
Melanie Lee, PhD, CBE, FMedSci, DSc (Hons),
joined BTG as a non-executive director in
November 2010.
Giles is currently the Director of Finance with
the University of Oxford, UK. He is also a
non-executive director of Victrex plc, Elan
Corporation plc and Isis Innovation Ltd.
Previously Giles was the Group Finance
Director and Chief Financial Officer of
Amersham plc, acquired by GE Healthcare
in 2004. Prior to his role at Amersham, he
was a partner with Arthur Andersen in the UK.
He is a graduate of the University of York.
Melanie is the Chief Executive Officer of
Syntaxin Limited, a Founder and director of
the pharmaceutical consultancy Think10, and
a non-executive director of H Lundbeck A/S.
Melanie was previously the Chair of Cancer
Research Technology and a Trustee and
Deputy-Chair of Cancer Research UK. During
her career Melanie has held a number of
positions at Glaxo, GlaxoWellcome, Celltech
and UCB. In 2008, Melanie was honoured
with a CBE for her services to Medical
Science.
Key to Committees
Audit Committee
Remuneration Committee
Nomination Committee
1 Committee chairman
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Ian Much 1
Non-executive director
Ian Much joined BTG as a non-executive
director in August 2010.
Ian is currently a non-executive director and
the senior independent director of Chemring
Group PLC and Senior plc. Ian was Chief
Executive of De La Rue plc between 1998
and 2004 and Chief Executive of T&N plc
between 1996 and 1998. Previous non-
executive director appointments include
Manchester United plc, Camelot plc and
Admiral plc.
Jim O’Shea
Non-executive director
Jim O’Shea joined BTG as a non-executive
director in April 2009. He is a director of
Zalicus Inc., Trevi Therapeutics, Inc. and MAP
Pharmaceuticals, Inc. and a former Chairman
of the US National Pharmaceuticals Council.
From 2007 to 2008, he was Vice Chairman
of Sepracor, Inc., where he was also
President and Chief Operating Officer from
1999 to 2007. Previously Jim was Senior
Vice President of Sales & Marketing and
Medical Affairs for Zeneca Pharmaceuticals
(US), a business unit of Zeneca Inc. While at
Zeneca, he held several management
positions of increasing responsibility in
international sales and marketing in the
US and the UK.
BTG plc Annual Report and Accounts 2012
37
Directors and governance
Directors’ report
The directors present their report together with the financial statements and the
independent auditor’s report for the year ended 31 March 2012.
Principal activities and business review
The principal activity of the Group is as an international specialist healthcare
company, focusing on three business areas: Specialty Pharmaceuticals,
Interventional Medicine and Licensing & Biotechnology. The mission of the Group is
to bring to market medical products that meet the needs of specialist physicians and
their patients. The results of the Group are set out in detail on pages 80 to 84 and
the accompanying notes.
The Company is required by the Companies Act 2006 to set out a fair and balanced
review of the business, including the performance and development of the Company
during the year and at the year end and a description of the principal risks and
uncertainties it faces. This information is contained in the following statements and
reports, which are incorporated into this report by reference:
— The Chairman’s statement on page 6, the Chief Executive Officer’s review on
pages 8 to 14 and the business review on pages 16 to 20 provide details of the
Group’s principal activities and strategy, its performance during the year and its
prospects for future development opportunities.
— Details of the principal risks and uncertainties facing the Group are set out on
pages 26 to 29.
— Information relating to the environment, employees and stakeholders is set out in
the corporate responsibility report on pages 30 to 34.
This information is prepared solely to assist shareholders to assess the Company’s
strategies and the potential for those strategies to succeed. The directors’ report
should not be relied upon by any other party or for any other purpose. Forward-
looking statements have been made by the directors in good faith based on the
information available to them up to the time of their approval of this report and such
statements should be treated with caution due to the inherent uncertainties,
including economic and business risk factors.
Further information on the Group is available on the Company’s website:
www.btgplc.com. Notwithstanding the references made in this Annual Report to
the Company’s website, none of the information made available on the website
constitutes part of this Annual Report or shall be deemed to be incorporated by
reference herein.
Results and dividends
The results for the year and the financial position at 31 March 2012 are shown in
the consolidated income statement on page 80 and the consolidated statement of
financial position on page 82. The directors do not recommend the payment of a
dividend for the year (10/11: nil). The results of the Group for the year are explained
further on pages 22 to 25.
Directors and their powers and interests
The directors of the Company at the date of this report, together with their
biographical details and dates of appointment, are shown on pages 36 and 37.
The Board confirms that each of the directors who served during the year, with the
exception of the Chairman, have been formally appraised during the period and that
they continue to demonstrate commitment to the Group, the Board and to their role.
38
Directors and governance
BTG plc Annual Report and Accounts 2012
John Brown, who joined the Board in January 2008 and became Chairman in March
2008, retired from the Board on 31 December 2011. Garry Watts, who joined the
Board on 1 January 2012, was appointed Chairman in his place as from that date.
As Garry Watts had only recently joined the Company, it was considered too early to
undertake a formal appraisal process. His performance will be appraised in the
coming year.
In accordance with the UK Corporate Governance Code, all directors of the Company
will stand for election or re-election annually. The Board is proposing the election of
Garry Watts, who has been appointed to the Board since the last AGM, and the
re-election of all the other directors.
In accordance with the Company’s articles of association, throughout the year the
Company has maintained cover for its directors and officers and those of its
subsidiary companies under a directors’ and officers’ liability insurance policy as
permitted by sections 232 to 235 of the Companies Act 2006. The Company has
entered into separate Deeds of Indemnity in favour each of its directors to the extent
permitted by law. Neither the insurance nor the indemnities provide cover where the
relevant director or officer has acted fraudulently or intentionally breached the law.
Information on directors’ remuneration, contracts, options and their beneficial
interests, including those of their immediate families, in the shares of the Company
are shown in the remuneration report on pages 61 to 75. None of the directors had
an interest in any contract of significance to which the Company or any of its
subsidiaries was party during the year.
Corporate governance
A report on corporate governance can be found on pages 43 to 53.
Corporate responsibility
Information on the Company’s social, environmental, health and safety and ethical
considerations, charitable donations and policies regarding its employees may be
found in the corporate responsibility report on pages 30 to 34.
Share capital and shareholders
As at 31 March 2012 the issued share capital of the Company was £32,729,287,
divided into 327,292,865 shares of 10p each. During the year the share capital
increased by 566,959 shares due to the exercise and vesting of share awards by
employees and former employees under the Company’s employee share schemes.
The Company has only one class of shares and there are no restrictions on voting
rights or on the holding or transfer of these securities.
Details of the movements in the Company’s share capital are shown in note 21 to
the financial statements on page 111. At 31 March 2012, the Company had 10,727
shareholders (10/11: 12,080). Further details of shareholdings and Company
reporting dates may be found on page 141.
Under the terms of the acquisition of the Biocompatibles Group in January 2011,
shareholders were entitled to receive 1.6733 new shares in the Company and either
10p cash or a Contingent Value Note (CVN). The CVN entitled the recipient to
participate in value that potentially could have been achieved from Biocompatibles’
programme to develop a GLP-1 analogue product known as CM-3 in the area of
diabetes, which it had partnered with AstraZeneca. If that programme had been
successful, the holder would have been entitled to receive the sterling equivalent
of €0.56 in cash for each CVN held.
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BTG plc Annual Report and Accounts 2012
39
Directors and governance
Directors’ report
The Company announced on 13 May 2011 that AstraZeneca had terminated the
development and option agreement relating to CM-3. As a result of AstraZeneca’s
decision, the Company believes it is highly unlikely that any payment will be made in
relation to the CVNs. The payment obligation would only now arise if the Group
entered into another form of licence, sale or other disposal of the CM-3 asset to the
AstraZeneca Group prior to 31 December 2012. In light of AstraZeneca’s decision to
terminate the development and option agreement, the BTG Board does not believe
that there is any realistic possibility that this will occur.
The BTG Employee Share Trust holds shares in the Company which may be used for
the benefit of employees. The shares held by the Trust have the same rights as
those held by all other shareholders. Further details of the Trust are set out in note
27 to the financial statements on page 120.
Details of outstanding share options and awards are set out in note 26 to the
financial statements on pages 116 to 120.
As at 31 March 2012, and at the date of this report, the Company had been notified
of the following interests held, directly or indirectly, in 3% or more of the Company’s
issued share capital.
Invesco Asset Management
M&G Investment Management Ltd
AXA Framlington Investment Management Ltd
Standard Life Investments Ltd
Legal & General Investment Management Ltd
Aviva Investors
Shareholding
% holding
96,330,688
44,089,248
13,606,525
12,190,096
11,255,782
11,154,064
29.4
13.5
4.2
3.7
3.4
3.4
Articles of association
The Board may exercise all the powers of the Company, subject to the provisions
of relevant statutes, the Company’s articles of association (the Articles) and any
directions given by a special resolution of the shareholders. The Articles, for
instance, contain certain specific provisions and restrictions regarding the
Company’s power to borrow money. Powers relating to the issuing and buying back
of shares are included in the Articles and are subject to such authorities being
approved annually by shareholders at the Annual General Meeting (AGM). There is no
current intention of requesting the authority to buy back shares of the Company. The
rules for the election and re-election of directors are set out in the Articles however,
as reported on page 48 of the corporate governance report, the directors will stand
for annual re-election at the AGM, in accordance with the UK Corporate Governance
Code.
Change of control
There are a number of agreements that take effect after, or terminate upon, a change
of control of the Company, such as commercial contracts, bank facility agreements,
guarantees, property agreements and employee share plans. None of these are
considered to be significant in terms of their likely impact on the business of the
Group as a whole. Furthermore, the directors are not aware of any agreements
between the Company and its directors or employees that provide for compensation
for loss of office or employment following a takeover of the Company.
40
Directors and governance
BTG plc Annual Report and Accounts 2012
Research and development
Research and development (R&D) is an important part of the Group’s activities.
The Group focuses in the areas of Specialty Pharmaceuticals and Interventional
Medicine and developing and bringing new products to market is a very important
part of the Group’s business. The Group spent £39.7m (10/11: £32.1m) on R&D
during the year. See pages 16 and 23 for more information on the Group’s R&D
activities and areas of focus.
Policy on payment of creditors
It is the Group’s policy to abide by the terms of payment agreed with suppliers.
In many cases, the terms of payment are as stated in the supplier’s own literature.
In other cases, the terms of payment are determined by specific written or oral
agreement.
At 31 March 2012 the total owed to trade creditors by the Group was equivalent to
38 days average purchases (10/11: 33 days). The Company had no trade creditors
at that date (10/11: nil).
Treasury management
The Group’s policy on the use of financial instruments and the management of
financial risks is set out in note 29 to the accounts on pages 121 to 126.
Going concern
The Group’s business activities and the factors affecting its performance, position
and future development are set out in the Chief Executive’s review on pages 8 to 14
and the business review on pages 16 to 20.
The directors have reviewed the current and projected financial position of the Group,
making reasonable assumptions about future performance and taking into account
the Group’s cash balances. On the basis of this review, and after making due
enquiries, the directors have a reasonable expectation that the Company and the
Group have adequate resources to continue to operate for the foreseeable future.
For this reason they continue to adopt the going concern basis in preparing the
financial statements.
Annual General Meeting
The Annual General Meeting of the Company will be held at 2.00pm on 17 July 2012
at the offices of Stephenson Harwood LLP, 1 Finsbury Circus, London EC2M 7SH.
Matters to be considered at the meeting include resolutions to receive the Annual
Report and Accounts, to re-appoint the auditor and elect or re-elect the directors.
The Notice convening the meeting, together with the special business to be
considered and explanatory notes for each resolution, is distributed separately to
shareholders. It is also available on the Company’s website: www.btgplc.com, where
a copy can be viewed or downloaded in ‘PDF’ format by following the link to Investor
Relations and then Report and Accounts.
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BTG plc Annual Report and Accounts 2012
41
Directors and governance
Directors’ report
Disclosure of information to the auditor
The directors who held office at the date of approval of this Report confirm that,
so far as they are each aware, there is no relevant audit information of which the
Company’s auditor is unaware; and each director has taken all the steps that they
ought to have taken as a director to make themselves aware of any relevant audit
information and to establish that the Company’s auditor is aware of that information.
Auditor
Resolutions will be proposed at the forthcoming Annual General Meeting, to
re-appoint KPMG Audit Plc as auditor and to authorise the directors to determine
its remuneration.
By order of the Board
Dr Paul Mussenden
Company Secretary
18 May 2012
42
Directors and governance
BTG plc Annual Report and Accounts 2012
Corporate governance
Dear Shareholder
I am pleased to present the corporate governance report on behalf of the Board.
The corporate governance landscape continues to evolve and the financial crisis
in 2008/09 triggered a widespread reappraisal of corporate governance systems.
Following the Walker report issued last year recommending changes to the
governance of financial institutions, the Financial Reporting Council (FRC) produced
an updated code relating to governance in other listed companies.
The new UK Corporate Governance Code (the Code) came into force for accounting
periods beginning on or after 29 June 2010 and we comply with the Code from this
year’s reporting period although we implemented some provisions early, in particular
those relating to the annual re-election of directors.
Significant changes brought in by the Code include an emphasis on the role
of the Chairman, his responsibility for leadership of the Board and ensuring its
effectiveness; the annual re-election of directors and an emphasis on the diversity
of the Board, particularly in relation to gender diversity; the time commitment
required from directors; the requirement for external evaluation of boards at least
every three years; and an emphasis on the responsibility of boards for identifying
and monitoring risk.
Following the Davies Report recommendation that FTSE 350 companies should set
out the percentage of women they aim to have on their Boards in 2013 and 2015,
my predecessor, John Brown, issued a statement at last year’s AGM stating that we
already meet the recommended target (albeit for FTSE 100 boards) of 25% of the
members of the Board being women. We will continue to monitor the position to
ensure we have an appropriately diverse board, not just by way of gender but also in
a wider sense, to ensure the Board continues to be fit for purpose.
The Board believes that it is important to maintain an open dialogue with our
shareholders. During the year Louise Makin, our CEO, held over 30 meetings with
institutional investors and Rolf Soderstrom, our CFO, met with over 20 institutional
investors. In addition Louise Makin gave presentations at a number of conferences
which were attended by existing and potential shareholders as well as industry
representatives. My predecessor, John Brown and I both believe that it is important
for the Chairman to meet investors, along with other members of the Board, and so
have always sought to make ourselves available to meet any who wish to see us.
At the Company’s AGM on 17 July, all directors will attend and be available to meet
investors as usual for face-to-face discussions.
The following pages explain in detail how the Company applies the Code in its
day-to-day operations.
Garry Watts
Chairman
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BTG plc Annual Report and Accounts 2012
43
Directors and governance
Corporate governance
The Board believes it is important that the Company does not just follow the new
Code as a mechanical exercise but that it actively embeds an appropriate
governance culture throughout the organisation in order to continually improve
standards and build a successful company. This report explains how the Company
applies the principles of the Code. More information on the Code can be found on
the FRC website, www.frc.org.uk.
Board composition, responsibilities and balance
Board composition
The Board comprises six non-executive directors, including the Chairman, and two
executive directors. The Board was chaired by John Brown until his resignation on
31 December 2011. He was succeeded by Garry Watts, who joined the Board as
non-executive Chairman on 1 January 2012. The Chairman is responsible for leading
the Board and ensuring the effectiveness on all aspects of its role. The Chief
Executive Officer, Louise Makin, is primarily responsible for the running of the Group.
Rolf Soderstrom, Chief Financial Officer, is responsible for all financial reporting, tax
and financial control aspects of the Group, providing support to the CEO and the
wider business activities of the Group.
Giles Kerr has been the Company’s Senior Independent Director (SID) since July
2008. His principal role as SID is to support the Chairman in his role; to work with
the Chairman and other directors to resolve any significant issues that may arise; to
lead non-executive directors in the oversight of the Chairman and to ensure there is
a clear division of responsibility between the Chairman and Chief Executive Officer.
He is also available to shareholders to express concerns which the normal channels
have failed to resolve or which would be inappropriate.
The names and brief biographical details of all the directors are set out on pages
36 to 37. The table below details the composition of the Board, its Committees,
together with their attendance at meetings since the last annual report and the
Company’s assessment of the independence of the directors. Following the
appointment of Garry Watts, Committee membership was reviewed and various
changes were made, as shown in the table below.
Board and committee
composition and attendance
Total number of meetings
Executive directors
Louise Makin (CEO)
Rolf Soderstrom (CFO)
Non-executive directors
John Brown1
Garry Watts2
Peter Chambré
Giles Kerr
Melanie Lee
Ian Much
James O’Shea
Committee
memberships
to 31 December 2011
Committee
memberships
from 1 January 2012
Independent
Board
meetings
Nomination
Committee
Audit Remuneration
Committee
Committee
9
3
3
5
No
No
No3
No3
Yes
Yes
Yes
Yes
Yes
9/9
8/9
4/5
4/4
9/9
9/9
9/9
9/9
9/9
N/A
N/A
0/2
1/1
3/3
3/3
N/A
2/2
2/3
N/A
N/A
N/A
N/A
3/3
3/3
N/A
3/3
N/A
N/A
N/A
N/A
N/A
2/2
5/5
3/5
5/5
2/2
Nom4
N/A
Aud, Rem, Nom
Aud4, Rem, Nom
Rem
Aud, Rem4
Rem, Nom
N/A
Nom4
Aud, Nom
Aud4, Rem, Nom
Rem
Aud, Rem4, Nom
Nom
1 John Brown resigned from the Board and Nomination Committee with effect from 31 December 2011.
2 Garry Watts joined the Board on 1 January 2012 as Chairman of the Company and Chairman of the Nomination Committee.
3 John Brown and Garry Watts are excluded from the determination of independence by virtue of their role as Chairman of the Company.
4 Committee Chairman.
5 Following the rescheduling of one of the Remuneration Committee meetings, Melanie Lee was unable to attend due to a pre-existing commitment that could not
be changed. John Brown, Garrry Watts and Rolf Soderstrom did not attend meetings where their own position was being discussed. James O’Shea did not
attend one meeting of the Nomination Committee, being a selection sub-committee of which he was not a member, being US-based.
6 Directors who are not committee members may attend meetings by invitation. Details are not included in the table.
7 The external auditor usually attends the Audit Committee meetings and the remuneration advisers usually attend the Remuneration Committee meetings.
8 Table shows, for each director, number of meetings attended/number of meetings eligible to attend.
44
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BTG plc Annual Report and Accounts 2012
The Board applies a rigorous process in order to satisfy itself that its non-executive
directors remain independent. The Board reviews the independence of the non-
executive directors every year, using its own judgement when applying the criteria in
the Code. Having undertaken this review, the Board confirms that all the non-
executive directors are considered to be independent in character and judgement. In
line with the recommendations of the Code, at least half the Board, excluding the
Chairman, are independent non-executive directors. Both John Brown and Garry
Watts were considered to be independent at the time of their appointment although,
in accordance with the Code, they are excluded from the determination of whether at
least half the Board are independent non-executive directors thereafter.
Board responsibilities and balance
The Board has a number of matters specifically reserved for its decision or approval.
These include the approval of the interim and annual financial statements, the
interim management statements and major public announcements, setting strategic
direction, budgets and long-term plans. Other areas include the approval of major
investments and disposals, major capital expenditure, decisions relating to major
litigation, significant financing, dividend policy and senior executive remuneration
and appointments.
The Board as a whole monitors operating performance, the performance of
management, succession planning, health, safety and environmental performance
and standards of ethical and social behaviour. It is also responsible for developing
robust corporate governance, legal compliance and risk management procedures
aimed at safeguarding the Company’s reputation and assets and the integrity of its
financial information and business conduct.
While the executive and non-executive directors are collectively responsible for the
success of the Company and have fiduciary duties towards shareholders, their roles
are strictly delineated. The executive directors have direct responsibility for the
business operations of the Company, the non-executive directors have a
responsibility to bring independent and objective judgement to Board decisions and
the Chairman’s primary responsibility is for the effective running of the Board. The
non-executive directors’ duties include helping to develop the Company’s strategy
and constructively challenging the executive directors where they consider it
appropriate.
Roles and responsibilities
The Board
The Board is collectively responsible for the success of the Company and specifically
to:
— Set the Company’s strategic objectives.
— Ensure the necessary financial and human resources are in place to support
strategy.
— Determine the significant risks that the Company is willing to take to achieve its
strategic aims and ensuring effective risk management controls are in place.
— Review management and Company performance.
— Monitoring and review of financial reporting.
— Ensure the proper discharge of the Company’s statutory and other legal and
regulatory responsibilities.
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BTG plc Annual Report and Accounts 2012
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Directors and governance
Corporate governance
The Chairman
The Chairman is responsible for creating conditions for overall Board and individual
director effectiveness and for ensuring the following:
— The Board devotes adequate time to the right agenda issues such as its role in
shaping strategy.
— Appropriate high-quality information is made available to the Board in a timely
manner.
— The Board discharges its responsibilities with respect to risk management.
— Board Committees are properly structured with appropriate terms of reference.
— Necessary relationships of mutual respect and open communication are fostered
between the executive and non-executive directors, providing support and advice
while respecting the executive responsibility.
— Effective communication with shareholders and other stakeholders.
The Senior Independent Director
The Senior Independent Director is responsible for:
— Supporting the Chairman’s delivery of objectives, and leading his evaluation.
— Working with the Chairman, other directors and shareholders at times of conflict
or stress to resolve significant issues.
Executive directors
The executive directors are responsible for leading, overseeing and managing the
whole business, they are also responsible for:
— Communicating to the Board their views on business issues to improve the
standard of Board discussion and, prior to final decision on an issue, explain
in a balanced way any divergence of view in the executive team.
— Encouraging the non-executive directors to thoroughly test proposals put forward
to the Board in the light of their wider experience.
— Providing input to the strategy formulation process to enable an effective and
evidence based approach and to ensure that the Board is well informed about all
aspects of the business and its operation which bear on its strategy.
— Delivering high-quality information to the Board to enable it to monitor the
performance of the whole business including the management of risk, and to
make critical decisions, e.g. on remuneration and investments.
Directors’ conflicts of interest
To address the effect of Section 175 of the Companies Act 2006 (directors’ conflicts
of interest), the Company’s Articles enable the Board to authorise situations that
might give rise to directors’ conflicts of interest. Directors complete a declaration
form in order to determine whether any actual or potential conflicts need
authorisation. The forms are reviewed annually to ensure that the information
provided is up to date and includes any disclosures made during the past year.
At the March 2012 Board meeting all directors were asked to review and make any
necessary amendments to their existing declarations. The Company Secretary has
reviewed the latest declarations and has confirmed that no conflicts have arisen.
Board members are reminded at regular intervals to disclose any conflicts should
they arise.
All such notifications are kept in a conflicts register maintained by the Company
Secretary. Any director who considers they may have a potential conflict of interest
should report this to the Chairman in the first instance, who may consult the
Nomination Committee and report their findings to the Board.
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There is an agreed procedure for directors to take independent professional advice,
if necessary, at the Company’s expense. Directors have direct access to the advice
and the services of the Company Secretary who is responsible for ensuring that
Board procedures are followed. The Company arranges appropriate directors’ and
officers’ liability insurance. The removal of a director or of the Company Secretary is
a matter for the Board as a whole.
Information and training, performance evaluation and re-election of directors
Information and training
The directors are sent an agenda and a full set of papers for each item to be
discussed, in advance of each Board or Committee meeting. Additional information
is provided as appropriate and senior executives regularly make presentations at
Board meetings on the results and strategies in their areas of responsibility. Board
meetings are sometimes held at different office locations enabling non-executive
directors an additional opportunity to visit other Company sites.
Upon joining the Company, each director receives a comprehensive induction
package, including written information and opportunities to meet key and relevant
members of staff. All directors refresh their knowledge regularly through publications
and conferences and through information provided by the Company and its advisers.
Performance evaluation
The CEO is responsible for appraising the performance of the CFO. The Chairman
and non-executive directors review the performance of the CEO. The non-executive
directors, led by the Senior Independent Director and following input from the
executive directors, normally evaluate the performance of the Chairman each year.
However, as Garry Watts only joined the Company in January 2012 it was considered
too early to perform a formal evaluation. This will take place during the current year.
The Committees also reviewed their performance and reported the results to the
Chairman and the Board as a whole. The non-executive directors meet at least once
a year without the executive directors in order to discuss the performance of the
executive directors and any concerns over their management of the Company’s
affairs.
In previous years, the Board has carried out an annual evaluation of its own
effectiveness and that of its Committees, both through measuring performance
against annual objectives and through an individual appraisal process. With the
requirement introduced by the Code for an external evaluation at least every three
years, it was decided to appoint external consultants, SCT Consultants Ltd, to assist
with the review. This was considered a valuable exercise particularly in light of the
continued growth of the business.
The process confirmed that the Board provided effective leadership of the Group and
proposed a number of recommendations for the coming year, including:
— To increase the strategic focus and content of Board discussions to contribute to
the ongoing transformation of the Group.
— To re-evaluate the membership and operation of the Board Committees to
streamline activities and allow additional focus where needed.
— To enhance the risk management process to ensure sound management controls
are in place.
— To ensure the information flows from the Board down through the organisation,
to give clarity, accountability and oversight of the effective implementation of key
decisions.
— To focus on the development needs of the organisation as a whole, having regard
to the capacity and capabilities needed in order for the organisation to deliver on
its existing objectives and future strategic objectives.
— To develop a stakeholder management plan which would define the basis of
communication and increase Board interaction with all stakeholders.
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Corporate governance
Board membership and election of directors
The Board reviews its constitution regularly and continues to refresh its members.
John Brown retired from the Board as non-executive Chairman on 31 December
2011, having served since 2008 and Garry Watts joined the Board as non-executive
Chairman on 1 January 2012. Following this change the Board comprised a non-
executive Chairman, five independent non-executive directors and two executive
directors. As reported in the Nomination Committee report on pages 59 and 60, the
Committee reviews the composition of the Board on a regular basis to ensure that,
as the business evolves, the Board continues to have the necessary skills to
support the development of the business.
Amongst the provisions in the Code is a proposal that the directors of all FTSE 350
companies should stand for election every year rather than every third year as
required previously. Along with many of other FTSE 350 companies, the Board
adopted that proposal last year.
Garry Watts, having been appointed to the Board since the last AGM is standing for
election for the first time while all the other directors are standing for re-election at
this year’s AGM. Having served three years on the Board, James O’Shea’s
appointment has been extended for a further three years, subject to re-election at
the AGM. Following a formal evaluation process, the Chairman is satisfied that each
of the directors continues to perform effectively and demonstrates commitment to
their role, including commitment of time for Board and Committee meetings and
their other duties.
Further information on the directors is shown in their biographies on pages 36 to 37.
Financial reporting and internal control
The statement of directors’ responsibilities in relation to the preparation of the
financial statements is set out on page 76 and the auditor’s statement on the
respective responsibilities of directors and the auditor is included within its report
set out on pages 77 and 78.
Communications with shareholders, be they results announcements, interim reports,
annual reports or AGM and trading updates, are reviewed carefully and approved by
the Board, or a sub-committee thereof, in order to ensure they are transparent and
balanced in the view they give of the Company’s progress and prospects.
The Board has overall responsibility for ensuring that the Group maintains an
adequate system of internal control and risk management and for reviewing its
effectiveness. The Audit Committee, on behalf of the Board, undertakes the detailed
monitoring of the controls, at least annually, and reports to the Board on its findings.
The Board has reviewed the system of internal controls including financial controls
for the year under review and up to the date of approval of this Annual Report and
Accounts. Such a system is designed to manage, rather than eliminate, the risk of
failure to achieve business objectives, and can only provide reasonable and not
absolute assurance against material misstatement or loss.
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The criteria applied by the directors, in judging the effectiveness of these controls,
are that they allow the maximisation of shareholder value by exploiting business
opportunities whilst ensuring that risks are properly identified and managed. The
controls are regularly reviewed to ensure that they enable the proper management of
business risks without so restricting efficiency and entrepreneurial nature that they
inhibit proper running of the business.
As a result of the increasing complexity of the Group, a dedicated full-time internal
auditor has been appointed to strengthen the control framework of the business.
Further information can be found in the Audit Committee report on pages 54 to 58.
Structure and reporting
The Group has a management structure with clear lines of responsibility and
accountability, staffed by appropriate personnel.
The Board is responsible for setting the overall strategy and reviewing the
performance of the Group.
The Company’s Leadership Team, chaired by the CEO, is responsible for the day-to-
day running of Group operations. Other team members include the CFO and senior
staff members from the business. The team is also responsible for making
recommendations to the Board on the Company’s strategy and subsequent
implementation. Other responsibilities include ensuring that appropriate internal
controls are in place to manage and assess risk, and that they are fully complied
with. The fundamental elements of the Group’s internal control and risk
management framework are described below.
The Group has well defined management structures and processes for the
acquisition, assessment and evaluation of business opportunities, and development
and execution of commercialisation strategies. A number of committees that
monitor various parts of the business report to the Leadership Team on a regular
basis:
— Development Leadership Team: Evaluates new technology opportunities, and is
intimately involved in the definition and execution of development strategies.
— Operational Leadership Team: Responsible for ensuring that the manufacturing
and supply chain are tightly controlled and their operations are optimised, (as far
as practicable), meeting all regulatory requirements.
— Performance Management Review: Monthly meeting of the Leadership Team and
senior staff to review progress against business plans and targets, both financial
and operational.
— Risk Committee: Responsible for monitoring risks throughout the organisation
and reporting findings to the Audit Committee twice yearly.
— Compliance Committee: Responsible for maintaining a complete compliance
system to ensure that the Group is fully compliant with all applicable laws
(including US Federal and State requirements) that relate to the commercial
operations of the Group, including its US sales and marketing teams. This
Committee reports to the Audit Committee at least twice yearly.
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Directors and governance
Corporate governance
— Corporate Responsibility Committee: Ensures the Group maintains high
standards in this area.
— Integration Committee: Following the acquisition of the Biocompatibles group
in January 2011, the Company set up an Integration Committee to manage all
aspects of bringing the two businesses together. The Committee completed its
work during the year.
The Leadership Team meets formally at least once each month to review business
performance measured against annual budgets, longer-term plans, an agreed set of
objectives and performance criteria for each business unit. Forecasts are monitored
monthly on the basis of detailed reviews of progress and prospects. Reporting to the
Board is based on the information provided to and reviewed by the Leadership Team.
The reports include non-financial as well as financial information and a review of
progress within the development portfolio.
Compliance and the review of risk and risk management are embedded throughout
the Group. The Audit Committee has reviewed the detailed reports of the Risk and
Compliance Committees and reported its findings to the whole Board. For further
details see the Audit Committee report on pages 54 to 58. The Board has reviewed
the risk management process and confirms that ongoing processes and systems
ensure that the Group continues to be compliant with the guidance on internal
control issued by the Code.
The Group has a system for supporting the protection and maintenance of patents
and other intellectual property rights. The Group also actively monitors its royalty
revenue streams and from time-to-time audits its major licensees to ensure
compliance with the terms of the relevant agreements.
Approval procedures
The Group has delegated authority structures that ensure that decisions are taken at
an appropriate level, with an appropriate level of input by internal and external expert
advisers. The delegated authority structure prescribes financial limits of approval at
each level and requires decisions with significant financial, legal or reputational
impact for the Group to be approved by the Board.
Corporate policies, values and compliance
Last year a new Code of Conduct was issued and all employees within the Group
received appropriate training on its key requirements. The Code of Conduct covers
all aspects of ethics, business practices and compliance, including an updated
whistle-blowing policy, an anti-bribery and corruption policy and policies related to the
ethical conduct of research and development and interactions with doctors and
other healthcare professionals. Relevant employees meet regularly to discuss
external changes in the regulatory, legal and financial environments in which the
Group operates to ensure it remains fully compliant with new legislation and best
practice. The Group also runs periodic ‘lunch and learn’ sessions updating staff on
key issues affecting the business.
The Board, through the Audit Committee, has reviewed the effectiveness of the
internal controls of the Group. The controls described above operate and are
embedded within the day-to-day business. There is an ongoing process for
identifying, evaluating and managing significant risks faced by the Group. A reporting
structure has been in place throughout the year, up to the date of approval of the
financial statements and is regularly reviewed by the directors in accordance with the
Code. Further information is given in the Audit Committee report on pages 54 to 58.
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Related parties and conflicts of interest
The Group maintains robust procedures to ensure that related party transactions
and potential conflicts of interest are identified, disclosed and managed. Directors
declare interests in other businesses on appointment to the Board and thereafter
complete an annual self-certification. Where it is identified that a related party
relationship exists, the Board agrees specific additional procedures to ensure the
effective management of potential conflicts of interest.
Giles Kerr, a non-executive director of the Board, is also the Director of Finance for
Oxford University and a director of Isis Innovations Limited, a wholly-owned
subsidiary of Oxford University. Wholly-owned subsidiaries of the Company entered
into technology commercialisation and revenue sharing agreements with these
organisations prior to Giles Kerr joining the Board. The Group has licensed the
intellectual property rights covered by these agreements to independent third-party
companies that are developing and/or selling the licensed products. Under these
licence agreements, the Group is entitled to receive milestone payments and/or
royalties on sales of the products sold by the third-party licensees.
Under the various revenue sharing agreements, the Group pays a share of any
income it receives to Oxford University or Isis Innovations, depending on the specific
technology that generated the income. As the revenue sharing agreements do not
permit these organisations to have any input over the commercialisation of the
licensed products or the amount payable under the relevant revenue sharing
agreement, Giles Kerr is not able to influence the amounts received in his position
outside the Group. Because he has no influence over any aspect of these
agreements in his role outside the Group, the Company considers that his
independence in relation to the BTG Group is not compromised.
Within the BTG Group, to avoid any possible conflict of interest, it has been agreed
that Giles Kerr will not participate in any discussions or decisions concerning the
relevant agreements either within the Board or in any other discussions or meetings
with the executives of its subsidiaries.
The Board has considered, and is satisfied with, this separation of duties.
See note 32 on page 127 for additional related party disclosures.
Market abuse directive
The Company has a Disclosure Committee, as required by the Market Abuse
Directive, comprising the CEO, CFO and the Director of Investor Relations. The
Committee reviews all significant items of business within the Group regularly, and
on an ad hoc basis if required, and maintains an Insider List recording both those
employed within the Group and at external advisers who may have access to inside
information. Whenever individuals are placed on or removed from the List they are
notified accordingly and advised of their responsibilities.
Relations with shareholders and constructive use of the AGM
Relations with shareholders
The Group endeavours to maintain good communications with shareholders through
formal and informal dialogue. The Company formally reports its results twice a year
with full year results announced in May and interim results in November. The CEO
and CFO give presentations of these results to the Company’s institutional
shareholders, analysts and the media. The presentations are broadcast live on the
internet for the information of all shareholders. The presentations are available,
thereafter, as an archive on the Company’s website and a webcast of the event
remains on the website for approximately a year. In addition, the Company prepares
interim management statements in January and July that are released to a
regulatory news service and are available on the Company’s website.
BTG plc Annual Report and Accounts 2012
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Corporate governance
The CEO and CFO meet regularly with institutional investors with support from the
Investor Relations department. The Chairman, Senior Independent Director and
other directors are available to meet with major shareholders on request. As part of
his role as the Senior Independent Director, Giles Kerr is available to shareholders
when contact with the executive directors or the Chairman may not be appropriate.
No requests have been received from major shareholders to meet with the
Chairman, Senior Independent Director or other non-executive directors during the
year. The Investor Relations department acts as a contact point for investors
throughout the year.
The directors receive a report from the Investor Relations department at each Board
meeting giving information on the changes in shareholdings and any feedback from
the Company’s brokers and investors. Following the twice-yearly results
announcements and any subsequent shareholder meetings held by management,
detailed feedback from external advisers and brokers is provided to the Board,
outlining the views and reactions of investors and analysts. This enables the Board
to develop an understanding of the issues and concerns of major shareholders.
The Annual Report contains a full business review and the Interim Report, which is
available on the Company’s website, gives an update at the half year. Extensive
information, including annual and interim reports, interim management statements
and all press releases, is published on the Group’s website (www.btgplc.com) for
access by all shareholders. In addition, through the website, individuals can register
to receive electronic copies of all Company announcements on the day they are
issued.
Annual General Meeting
The AGM is the principal opportunity for private shareholders to meet and discuss
the Group’s business with the directors and other senior management. A full
business presentation is given and there is an open question and answer session
during which shareholders may ask questions both about the resolutions being
proposed and the business in general. The directors are available after the meeting
for an informal discussion with shareholders.
The AGM will be held at 2.00pm on 17 July 2012, at the offices of Stephenson
Harwood LLP, 1 Finsbury Circus, London EC2M 7SH. The Notice convening the
meeting is distributed separately to shareholders at least 20 working days before
the meeting. It is also available on the Company’s website: www.btgplc.com, where
a copy can be viewed or downloaded in ‘PDF’ format by following the link to Investor
Relations and then Report and Accounts. The letter accompanying the AGM Notice
includes details of the resolutions and explanatory notes thereon.
Members of the Company unable to attend the meeting may elect to vote
electronically or using the proxy form accompanying the Notice. In order
to vote electronically, members should log on to Capita Registrar’s website
(www.capitashareportal.com) and follow the instructions on the screen. Crest
members may send their proxy votes to the Company’s registrars electronically.
At the AGM the number of proxy votes cast in favour, against and withheld in
respect of each resolution will be disclosed and subsequently published in a
market announcement and on the Company’s website. The Chairmen of the
Audit, Remuneration and Nomination Committees will be present at the AGM
to answer shareholders’ questions.
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Audit Committee and auditor
The Company has an established Audit Committee with the principal responsibilities
of overseeing financial reporting and internal control matters and maintaining
appropriate relations with the Company’s auditor. A report on the work of the
Committee is set out on pages 54 to 58.
Appointments to the Board
The Company has a Nomination Committee with responsibilities that include
reviewing the size and composition of the Board; making recommendations to
the Board on the appointment of executive and non-executive directors, and the
re-appointment of non-executive directors when their terms of appointment expire;
and for ensuring that succession planning is in place. The Committee also advises
the Board on matters generally relating to Board appointments and meets as
required but at least twice a year. A report on the work of the Committee is
set out on pages 59 and 60.
Compliance with the provisions of the UK Corporate Governance Code (the Code)
The Board considers that the Company complied in full with the principles set
out in the Code throughout the year ended 31 March 2012. Details of directors’
remuneration, as required by the Code and Schedule 8 to the Large- and Medium-
Sized Companies and Groups (Accounts and Reports) Regulations 2008, are
set out in the remuneration report on pages 61 to 75.
The Company’s auditor, KPMG Audit Plc, is required to review whether this corporate
governance statement reflects the Company’s compliance with nine of the Code’s
provisions as specified in the Listing Rules of the FSA, relating to Accountability and
Audit. Having conducted such a review KPMG is obliged to report if it considers this
statement of corporate governance does not reflect such compliance. The Company
confirms that no such report has been made.
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Audit Committee report
Dear Shareholder
The role of the Audit Committee is to monitor and enhance the integrity of the
Group’s internal controls and financial reporting. The increasing complexity of the
business and the current economic climate presents continuing challenges to the
Committee which it is required to address.
A major part of the Committee’s time is spent reviewing the financial reports, internal
controls and risks to the Group. Another area of particular focus during the year was
the impact of the UK anti-bribery legislation and the procedures being put in place to
ensure compliance throughout the Group and third-parties with which the Group
interacts. As reported last year, with the increasing size and complexity of the
business a dedicated full time internal auditor has been appointed which has
strengthened the internal control framework of the business.
The following report sets out the activities of the Committee over the past year
and how it has discharged its functions.
Giles Kerr
Chairman of the Audit Committee
The Committee and its membership
The Committee, established by the Board, is responsible for monitoring all aspects
of financial reporting and management of risk. The Committee’s full terms of
reference, reviewed and updated during the year, are available on the Company’s
website, or from the Company on request, and are summarised below:
Summary of the Committee’s terms of reference
— Reviewing the effectiveness of the Group’s financial reporting, internal control
policies and procedures for the identification, assessment and reporting of risk.
— Monitoring the integrity of the Group’s financial statements.
— Reviewing significant financial reporting issues and judgements.
— Monitoring the role and effectiveness of the internal audit function.
— Approving an annual programme of internal audit work.
— Considering and making recommendations to the Board on the appointment
of the auditor.
— Agreeing the scope of the auditor’s annual audit programme and reviewing
the output.
— Keeping the relationship with the auditor under review, including terms
of engagement, fees, their independence and expertise, resources and
qualifications; and assessing the effectiveness of the audit process.
— Developing and implementing a policy on the engagement of the auditor
to supply non-audit services.
Members
Members
Giles Kerr (Committee Chairman)
Peter Chambré
Ian Much
Details of attendance at meetings are shown in the table on page 44.
Committee member since
6 November 2007
1 November 2010
1 November 2010
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Committee members’ qualifications
Giles Kerr is a Fellow of the Institute of Chartered Accountants and Director of
Finance at Oxford University. He is considered by the Board to have the necessary
significant recent and relevant financial experience to qualify him to be the Chairman
of the Committee. He receives additional remuneration to compensate him for his
additional responsibilities, as set out on page 69. Other members bring substantial
experience in the pharmaceutical and international business areas as well as
financial expertise to the deliberations of the Committee. For further information,
see the directors’ biographies on pages 36 and 37.
Other attendees at Audit Committee meetings
The Chief Executive Officer, Chief Financial Officer, Group Director of Finance, Group
Financial Controller and Internal Auditor normally attend meetings. The external
auditor usually attends the meetings.
The Company Secretary or his deputy serves as secretary to the Committee.
Activities
A summary of matters considered at the Committee since the last Annual Report
and actions taken is shown below:
— Review of the Group’s half-year results to 30 September 2011 and full-year
results to 31 March 2012.
— Review of the reports from the external auditor on the half-year and full-year
results.
— Review of Internal Auditor’s work plan and results of site visits.
— Consideration of accounting issues, changes in accounting standards and their
impact on Group reporting.
— Review of the scope, nature, resource planning and fee estimate for the full-year
audit.
— Review of trading updates issued by the Group and amendments thereto.
— Assessment of the going concern basis.
— Review of risk management systems, internal controls and fraud procedures.
— Review of the Group’s compliance systems and policies and the results of
internal compliance monitoring and auditing.
— Review of the Group’s whistle-blowing policy.
— Review of the impact of the UK Bribery Act on the operations of the Group
and adoption of a new anti-bribery and anti-corruption policy.
— Review of the disclosures relating to material risks in the business review.
— Review and amendment of Committee terms of reference.
— Completion of an effectiveness review.
Financial results review
A key role of the Committee is to undertake detailed monitoring of the interim and
annual financial statements. As part of this review it discusses the audit findings
and auditor’s report with management and the external auditor and considers
significant judgements and issues contained in them, whether the financial
statements comply fully with the relevant statutes and accounting standards
and if they present a balanced assessment of the Company’s financial position
and prospects. Following this discussion the Chairman of the Committee reports
the results of its review to the full Board. The external auditor meets with the
non-executive directors in the absence of management at the time when the
half- and full-year results are discussed.
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Audit Committee report
Internal control and risk review
The Board has overall responsibility for ensuring that the Group maintains an
adequate system of internal control and risk management and for reviewing its
effectiveness. The Committee, on behalf of the Board, undertakes the detailed
monitoring of the controls and reports to the Board on its findings twice-yearly.
The Committee has reviewed the system of internal controls including financial,
operational, compliance and risk for the year under review and up to the date
of approval of this Annual Report and Accounts. Such a system is designed to
appropriately manage rather than eliminate the risk of failure to achieve business
objectives, and can only provide reasonable and not absolute assurance against
material misstatement or loss.
The criteria applied by the directors, in judging the effectiveness of these controls,
are that they allow the maximisation of shareholder value by exploiting business
opportunities while ensuring that risks are properly identified and managed. The
controls are regularly reviewed to ensure that they enable the proper management
of business risks without so restricting efficiency and entrepreneurial nature that
they inhibit proper running of the business.
The Committee has reviewed the effectiveness of the material controls of the Group,
which are embedded within the day-to-day business. The Committee with the Board
has an ongoing process for identifying, evaluating and managing significant risks
faced by the Group. A reporting structure has been in place throughout the year and
up to the date of approval of the financial statements and is regularly reviewed by the
directors in accordance with the Code.
The Risk Committee, chaired by the CFO and including staff from all sections of the
business, reviews the risks throughout the business and identifies and evaluates
risks which may impact on the Group’s strategic and business objectives. The Risk
Committee maintains a risk management plan that identifies and evaluates the key
risks. The plan is designed to assess the probability of those risks occurring, the
impact should they occur, how such risks may be mitigated and monitored and the
actions and individuals responsible for managing the risks and delivering the
mitigations. The Committee continues to monitor all areas of risk and the progress
of actions designed to mitigate such risks, including a consideration of what
comprises an acceptable level of risk in key areas and the optimal mitigation
strategy, having regard to the costs, timelines and likelihood of success of the
mitigation options. The Committee reports its findings twice-yearly through the
Audit Committee to the Board.
The Audit Committee received the latest report at its May 2012 meeting, and
was satisfied with actions being taken to control and mitigate risks identified.
The Group also has a Compliance Committee, which is responsible for maintaining
a compliance system to ensure that the Group is compliant with all applicable
laws (such as US Federal and State requirements) that relate to the commercial
operations of the Group including its US sales and marketing teams. The results are
reported to the Audit Committee alongside the twice-yearly risk management report.
For details of principal risks and uncertainties that may affect the business, see
pages 26 to 29 in the business review.
Following the decision last year to establish an internal audit function in the Group,
a full-time auditor has been appointed and an external consultant has also been
employed to provide additional guidance and insight in the formation of the
department. The Internal Auditor has direct access to the Chairman of the Audit
Committee, in addition to a reporting line within the Head Office finance function.
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In the initial period the Internal Auditor is concentrating on internal financial reviews
and visits to all major sites are taking place. This work is in addition to the
responsibility of each local finance function for internal control compliance in their
part of the organisation. The Committee approved the proposed work plan of the
Internal Auditor and received reports on the results of work carried out during the
year. The Committee noted that the work carried out by the Internal Auditor did not
identify any material weaknesses in internal control but approved proposals to
enhance control procedures. The Committee proposed that the internal audit work
plan should be expanded to increase the focus on key control risks and sales
compliance audit in the coming year in addition to the current work on financial
controls.
Whistle-blowing
The Committee is responsible for ensuring that arrangements under which
employees may, in confidence, raise concerns about possible improprieties in
matters of financial performance or other matters are operating effectively and that
appropriate follow-up action takes place. Included within the Code of Conduct are
details of the Group’s whistle-blowing policy and there are posters and pamphlets
prominently displayed at each site giving details of what employees should do if they
have concerns regarding any aspect of the business. Employees are encouraged to
report any concerns without fear of recrimination and an independent telephone line
is available should staff wish to use it. The arrangements were reviewed by the
Committee during the year.
UK Bribery Act
The UK Bribery Act, 2010 (Act) came into force on 1 July 2011, introducing
significant changes in UK anti-bribery and anti-corruption law. In response to the
Act, the Group has implemented enhanced policies and procedures to seek to
prevent bribery and corruption, both within the Group and by third parties with which
it works. The Group’s response to the Act is consistent with its corporate values and
is intended to be proportionate and practical yet ensure a significant reduction in the
risk of potential liabilities under the Act. The Group’s revised policies and procedures
take into account the guidance issued by the UK Ministry of Justice with respect to
what would constitute ‘adequate procedures’ for the purposes of establishing a
defence to the strict liability provisions of the Act in the event of the occurrence
of bribery or corruption within the Group or by third-party companies acting on its
behalf. These procedures, which are embedded in the delegated authority process,
require the Group to categorise the risk (‘high’, ‘medium’ or ‘low’) associated with
certain activities, relationships or territories, and apply more rigorous procedures
where there is a perception of increased risk. This process includes the conduct
of appropriate due diligence on third parties that will act on behalf of the Group,
especially in countries, or with respect to activities that are perceived to have
a higher bribery and corruption risk.
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Audit Committee report
Review of external auditor
The Committee reviews the overall performance of the auditor annually and approves
its terms of engagement and remuneration. The Committee discussed the auditor’s
proposed work plan prior to the commencement of the audit of the results for the
year to 31 March 2012 and also reviews the non-audit work carried out by the
Company’s auditor, KPMG Audit Plc (KPMG), to ensure that such services do not
impair its independence or objectivity. The Committee agreed a new process for
approving the use of the auditor for non-audit work detailing areas where the
auditors may not be used, areas where they may be used subject to the agreement
of the Committee and areas where prior approval is not required. Areas where prior
approval is not required include audit-related services as specified in the APB Ethical
Standards for Auditors and other services, that are routine in nature, where the fee
is not significant in the context of the audit fee and where the conduct of such
services will not adversely impact auditor independence or objectivity. The
Committee will receive a written annual report describing the fees paid to the
auditors for non-audit work and whether such services were pre-approved or
specifically approved by the Committee.
The auditor was employed to carry out the following non-audit work during the year:
Audit Committee approval
Task
Pre-approval required
Preparation of corporate tax returns for overseas Group undertakings
Fees
£’000
46
Total fees paid to the Company’s auditor, KPMG, are shown in note 8 on page 99.
The Committee believes that the use of KPMG was appropriate and efficient in the
circumstances and that independence was preserved as a partner other than the
audit partner was responsible for the work and the fees paid were insignificant in the
context of the size of KPMG as a whole.
The auditor is appointed by the shareholders at the AGM to ensure its independence.
The Committee regularly discusses the independence of the auditor and whether
there should be a need to rotate audit firms. Given the relative size of the Group to
that of KPMG and that the lead audit partner is changed on a regular basis (at least
every five years), the Committee is presently satisfied that KPMG is independent in
its reporting on the audit of the Group and rotation of firms is not necessary. The
current lead audit partner took over the audit as from the year ended 31 March
2009. The Group has noted the proposals relating to the rotation of auditors
included in proposed EU legislation and will take the appropriate action once any
legislation has been passed.
As part of corporate governance, the Committee also carried out a review of its
effectiveness and reported the results and its recommendations for improvement to
the Board.
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Nomination Committee report
The Committee, established by the Board, is responsible for appointments and
reviewing the structure of the Board and its Committees. The Committee’s full terms
of reference, updated during the year, are available on the Company’s website, or
from the Company on request, and are summarised below:
The Committee and its membership
Summary of the Committee’s terms of reference
— To review regularly the structure, size and composition of the Board and make
recommendations to the Board on any appropriate changes.
— To identify and nominate, for the Board’s approval, suitable candidates to fill
any vacancies for non-executive directors and, with the assistance of the Chief
Executive Officer, executive directors.
— To plan for the orderly succession of directors to the Board.
— To recommend to the Board the membership and chairmanship of the Audit and
Remuneration committees.
Members
Members
John Brown (Committee Chairman)1
Garry Watts (Committee Chairman)
Peter Chambré
Giles Kerr
Ian Much
James O’Shea
Committee member since
17 March 2008
1 January 2012
22 May 2007
16 July 2008
1 January 2012
13 May 2009
1 John Brown resigned from the Committee and the Board on 31 December 2011 and was succeeded as Chairman of the Committee and the Board
by Garry Watts.
2 Details of attendance at meetings are shown in the table on page 44.
Other attendees at Nomination Committee meetings
— The Chief Executive Officer may attend meetings by invitation.
— The Company Secretary or his deputy serves as secretary to the Committee.
Activities
The principal activities during the year related to the recruitment of a new Chairman
and the commencement of a search for a new Chief Financial Officer, as outlined
below.
At the start of the process for appointing new directors, the Committee prepares
a full description of the role, desired skills and capabilities required for the
appointment. External search consultants are usually appointed to assist with
finding suitable candidates. The Committee interviews candidates and then
produces a shortlist for a subsequent interview by all Board members. In assessing
candidates for board roles, the Committee has regard to the objective of ensuring
appropriate diversity (including gender diversity) of Board composition.
Following the decision of John Brown to resign, the Committee commenced a search
for a new Chairman led by Giles Kerr, Senior Independent Director. The Committee
instructed Zygos LLP to find suitable candidates for interview. The Committee carried
out a rigorous interview and selection process and their shortlisted candidates were
also interviewed by the other non-executive directors and the Chief Executive Officer.
The Committee, taking into account the views of the other directors, then
recommended to the Board that Garry Watts be appointed to succeed John Brown as
Chairman. The Board accepted the recommendation and Garry Watts was appointed
to the Board with effect from 1 January 2012.
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Following the announcement of the intended resignation of Rolf Soderstrom as
Executive Director and Chief Financial Officer on 1 November 2011, the Committee
commenced the search for a replacement by engaging Egon Zehnder. This search
was terminated following agreement that Rolf Soderstrom would stay with the
Company and continue in his current role.
Following the appointment of new non-executive directors, the Committee ensures
that they receive a full induction programme. As part of the induction process the
new director is given a full briefing on the financial history of the Company and
details of its strategy, operating plans, budgets and forecasts for future years.
Arrangements are also made for the new director to meet with the heads of the
various business units and functions for an in-depth briefing on the areas in which
the Company is involved. A briefing on corporate governance and directors’
responsibilities may also be given and the opportunity to attend external courses is
also available.
The Committee reviews succession plans and plans for emergency cover of key
managers and directors on a regular basis.
As part of corporate governance, the Committee also carried out a review of its
effectiveness and reported the results and its recommendations for improvement to
the Board.
Garry Watts
Chairman of the Nomination Committee
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Remuneration Committee report
Dear Shareholder
The Committee has made few changes to the remuneration arrangements for the
Executive Directors during the 2011/12 financial year. When making salary
increases for 2012/13 the Committee has been mindful of the prevailing economic
environment. While Rolf Soderstrom, CFO has received a one-off uplift in salary as
from 1 April 2012, the salary increase for the Chief Executive Officer is in line with
those for the wider workforce.
The Company performed very well against the targets set for the 2011/12 annual
bonus, which reflected the Company’s focus on delivering a balance between
profitability, growth and cash flow while ensuring the Company is laying the
foundations for longer term success. Reflecting this, the bonuses awarded to
executive directors in respect of 2011/12 were near the maximum levels.
During 2012/13 the Committee intends to undertake a detailed review of its
remuneration policy for the executive directors, to ensure that it remains appropriate
as the Company develops. If the Committee proposes to make substantive changes
to the executive director remuneration policy it will, as part of the review process,
consult with shareholders. Any changes to the policy will be explained to
shareholders in next year’s report.
Ian Much
Chairman of the Remuneration Committee
Introduction and compliance
This report has been prepared by the Remuneration Committee on behalf of the
Board in accordance with the requirements of Schedule 8 to the Large- and Medium-
Sized Companies and Groups (Accounts and Reports) Regulations 2008
(Regulations), and explains how the Company has applied the principles of the UK
Corporate Governance Code (the Code) in respect of directors’ remuneration. The
report has been divided into two sections: Part A, which describes the Company’s
policy for the remuneration of executive and non-executive directors for the coming
year and which is not subject to audit; and Part B, subject to audit, which provides
details of the directors’ emoluments, shareholdings, long-term incentive awards and
pensions.
In accordance with the Regulations, a resolution inviting shareholders to approve the
report will be put to the Annual General Meeting (AGM) on 17 July 2012.
Part A: About the Remuneration Committee and its advisers
The Remuneration Committee has been established by the Board and is responsible
for executive remuneration. During the year the Committee reviewed and updated its
terms of reference, which are available in full on the Company’s website or from the
Company on request, and are summarised below:
Summary of the Committee’s terms of reference
— To make recommendations to, and determine on behalf of the Board,
remuneration packages for each of the executive directors in accordance with
current best practice.
— To give advice and make recommendations on the framework and broad policy for
all aspects of the remuneration of senior management and on the overall policy
for total compensation for all other employees.
— To determine policy and advise on equity participation schemes, employee share
trust matters, pensions and other benefits.
BTG plc Annual Report and Accounts 2012
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Remuneration Committee report
Members
Members
Ian Much (Chairman)
Peter Chambré1
Giles Kerr
Melanie Lee
James O’Shea2
1 Peter Chambré resigned from the Committee on 31 December 2011.
2 James O’Shea resigned from the Committee on 31 December 2011.
3 Details of attendance at meetings are shown in the table on page 44.
Committee member since
28 September 2010
26 September 2006
3 November 2009
23 March 2011
13 May 2009
Other attendees at Remuneration Committee meetings
The Chairman, Chief Executive Officer, Chief Financial Officer and Head of HR & IT
may attend meetings by invitation, other than when their own remuneration is being
considered.
The Company Secretary or his deputy serves as secretary to the Committee.
Committee advisers
The Committee appoints its own advisers as it sees fit and has appointed New
Bridge Street (NBS) (a brand of Aon Hewitt Limited, part of Aon plc) to act as
advisers to the Committee and a representative usually attends the meetings. NBS
advises the Committee on all remuneration issues including the vesting of long-term
incentive arrangements.
The Group continues to use NBS to advise on other matters including remuneration
matters in general. The firm also assists with the total shareholder return (TSR)
performance measurement and the implementation of employee share schemes
and, through Aon plc’s Radford brand, provides the Company with advice on matters
specific to the US employment market. The Group also uses Mercer Ltd and
PricewaterhouseCoopers to advise on remuneration issues, particularly in relation
to pension schemes.
Remuneration policy
The policy for remuneration for executive directors is to enable the Company to offer
a package of rewards that:
— Is sufficiently competitive to enable the Company to attract and retain the
management talent it needs to ensure the Group is successful;
— Supports the achievement of the Company’s strategy by providing the potential to
receive significant rewards linked to the long-term performance of the Company;
— Aligns executives with shareholders and helps to retain them by delivering a
significant element of remuneration in shares; and
— Is flexible enough to cope with the Company’s changing needs as it grows and the
strategy evolves.
The Committee believes that the bonus opportunity aligned with the deferral into
shares and forfeiture provisions, together with other elements of the long-term
incentive plans, provides a balanced market-competitive package for the executive
team. However the Committee keeps such targets under regular review in order to
ensure they remain appropriate.
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The Committee’s specific policy for each element of remuneration is as follows:
Element
Fixed pay
Policy
— Provides market competitive fixed remuneration that takes account of individual responsibilities.
Base salary
— Set at a broadly mid-market level and reviewed annually taking account of the incumbent’s
Benefits
Pension
responsibilities and performance.
— Remuneration levels for executive directors are benchmarked using data from NBS on levels of
remuneration among two comparator groups as well as on level of salary increases in the wider
economy.
— The two comparator groups used comprise a general industry group of companies selected on
the basis of market capitalisation and a sector group of companies within the pharmaceutical and
biotechnology sectors.
— Increases are determined by the Committee taking account of planned increases and bonus levels for
the rest of the Group.
— Chiefly comprise medical benefits and permanent health insurance.
— Louise Makin is a member of the Company’s contributory defined benefit pension scheme under
which she receives benefits up to the HMRC Earnings Cap. In addition, she makes additional pension
contributions to a separate defined contribution Executive Pension Scheme.
— Following changes to pension legislation, the Company ceased making employer contributions
to Louise Makin’s defined contribution scheme. Additional cash payments were made to her to
compensate her for the loss of employer pension contributions. See the table on page 69 for further
information.
— The Company makes a contribution to a defined contribution pension scheme on behalf of Rolf
Soderstrom equal to 20% of base salary. Following changes to pension legislation, part of the
Company’s contribution was made in the form of an additional cash payment to him as set out in the
table on page 69.
Variable pay
— Enables significant rewards to be earned for achieving the Company’s short- and long-term aims.
— Intended to be a significant proportion of overall remuneration with a greater emphasis on long-term
rather than short-term remuneration.
— Subject to demanding performance conditions and the intention is that around 50% of executive
directors’ remuneration should be fixed and 50% variable.
Annual bonus
— Purpose: link reward to the Company’s short-term aims.
— All employees including the executive directors participate.
— Maximum of 100% of salary for executive directors with 50% payable for on-target performance.1
— Performance targets for the executive directors for 2012/13 focus on growth in revenue, trading profit,
operating cash and individual objectives.
Deferred Share
Bonus Plan (DSBP)
— Purpose: deferral of part of bonus provides an element of lock-in and alignment with shareholders.
— 50% of any bonus paid is deferred under the Company’s DSBP. Once the director has achieved a
shareholding in excess of 100% of salary, executives will normally only be required to defer any bonus
earned above the target bonus level.1 A lower percentage may be deferred for those senior staff who
also participate.
— DSBP awards are structured as conditional awards over shares, to be held for three years.
— Other than in ‘good leaver’ circumstances, awards will normally lapse should the recipient leave the
Company during the deferral period.
1 Amended as from 2011/12 bonus year.
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Remuneration Committee report
Element
Policy
Long-term
incentives
Shareholding
guidelines
Clawback
— Purpose: support the strategy to transition the business from an R&D-focused specialty pharma
company to an earnings-driven international specialist healthcare company and ensure that packages
for the executive directors include a strong emphasis on the absolute growth in shareholder value
(by the use of share option grants) and also reward the delivery of superior shareholder returns and
sustained financial performance. As such, long-term incentive awards to executive directors are granted
as a mix of awards under the Executive Share Option Plan (ESOP) and the Performance Share Plan
(PSP), the vesting of which are subject to the achievement of relative TSR and cumulative profit targets.
— Maximum PSP award of 100% of salary.
— Maximum ESOP award of 100% of salary (150% in exceptional circumstances).
— Performance measured over three years.
— 2012/13 performance conditions are as follows:
— 50% of awards: TSR versus companies in a specific FTSE 250 index (described in more detail later).
Measured over the three years from grant by NBS.
— 50% of awards: cumulative trading profit over the three financial years from the most recent year
ending prior to the grant of awards.
— The Company believes that broad-based employee participation in share schemes is an important tool
in delivering value for shareholders. Other senior staff are also able to receive awards of long-term
incentives at a lower maximum percentage of salary. In addition, BTG operates all-employee share
arrangements in which all other employees can participate.
— Executive directors are required to build significant shareholdings of 100% of base salary in the
Company to increase alignment with shareholders.
— For all awards granted post 1 July 2011, awards made under the DSBP, PSP and ESOP are subject
to clawback in the event of a material misstatement of the financial results of the Company for the
financial year to which an award relates is discovered, an error in the calculation of performance for an
award or individual misconduct resulting in dismissal.
Alterations to
plans and takeover
situations
— No changes may be made to plans by the Committee without shareholder approval, other than for minor
alterations to benefit the administration of plans or changes to performance conditions which will, in
the opinion of the Committee, be no less materially difficult to satisfy than those they replace.
Risk
— In the event of a takeover of the Company, performance conditions will continue to apply to the release
of share awards and the extent to which they have been achieved will be decided by the Committee on
such reasonable basis as it decides.
— In line with the Association of British Insurers’ Guidelines on Responsible Investment Disclosure, the
Committee will ensure that the incentive structure for executive directors and senior management will
not raise environmental, social or governance (ESG) risks by inadvertently motivating irresponsible
behaviour. More generally, the Committee will ensure that the overall remuneration policy does not
encourage inappropriate operational risk-taking. NBS reports to the Committee towards the end of each
year on risks associated with the executive directors’ remuneration policy.
Summary of each executive director’s package for 2012/13
Base salary as at 1 April 2012
Base salary as at 1 April 2011
Percentage increase in salary1
On-target bonus (% of salary)
Maximum bonus (% of salary)
PSP award (% of salary)
ESOP award (% of salary)
Shareholding guidelines – target (% of salary)
Value of current shareholding at 31 March 2012 (% of salary)
Louise Makin
£472,032
£458,275
3%
50%
100%
100%
100%
100%
348%
Rolf Soderstrom
£350,000
£297,879
17.5%
50%
100%
100%
100%
100%
102%
Contract
12-month rolling contract
12-month rolling contract
1
The increase for Louise Makin is broadly in line with the level of increases awarded in the rest of the Group, which were generally in the range of 3 to 5% on
average. Rolf Soderstrom’s salary was rebased to £350,000, effective from 1 April 2012, following his decision to withdraw his resignation. The Company’s
search for a replacement Chief Financial Officer had established that a salary of £350,000 represented the market rate for this role.
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The balance of fixed and variable remuneration is illustrated below for the two
executive directors. The chart is a theoretical model showing the on-target value
of annual bonus and the fair value of PSP and ESOP awards (assuming PSP
awards have a fair value of 60% of salary and ESOP awards have a fair value
of 30% of salary):
On-target mix of pay for executive directors
3
3
2
1
1. Fixed
2. Annual bonus
3. LTI
2
1
46%
19%
35%
Annual bonus for the year to 31 March 2012
For the year ended 31 March 2012 bonuses were subject to a maximum of 100%
of base salary for executive directors and up to 75% for other senior staff.
Bonus targets were set at the start of the financial year for both Louise Makin and
Rolf Soderstrom based on the achievement of certain objectives. These were the
achievement of targets for a trading profit measure, cash generation and growth in
the business. The Committee set threshold, intermediate and stretch levels for the
various targets. The bonus is calculated on base salary with a percentage pay out of
between 20% and 100% dependent on performance levels attained. Pay out
between these levels is calculated on a straight line basis.
The trading profit measure, used for both bonuses and long-term incentives,
is a normalised measure relating to earnings before amortisation of intangibles,
restructuring and acquisition costs, group foreign exchange movements and
movements in derivatives. They are calculated as follows:
Profit before tax/cash flow
Adjustments:
Forward exchange contracts and derivatives
Amortisation of business intangibles
Restructuring and other acquisition costs
Reduction in long-term bank deposits
Trading profit/cash flow for bonus purposes
Trading profit
£m
Cash flow
£m
23.0
1.5
30.7
2.3
–
57.5
43.1
–
–
–
(5.2)
37.9
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Trading profit
Operating cash (outflow)/inflow
Growth in the business
Total
The performance achieved against the bonus targets are summarised as follows:
Weighting
(% of total bonus)
Threshold
(£m)
Stretch
(£m)
35%
35%
30%
9.3
(2.1)
N/A
25.0
10.2
N/A
Actual
(£m)
57.5
37.9
N/A
Pay out
(% of
maximum)
35%
35%
25%
95%
1 The above table shows the financial targets set for the threshold and stretch levels.
Cumulative trading profit
Less than £56.8m
£56.8m
£66.8m
£76.8m
£96.8m
Long-term incentive performance targets for 2011/12
Trading profit targets for the awards made during 2011/12 were based on
cumulative targets measured over a three-year period with a range of performance
levels between threshold and stretch. Trading profit will be measured on a
normalised basis over the three-year period.
Percentage of trading profit element that vests
0%
20%
50%
80%
100%
Pay outs for performance between each point
calculated on a straight line basis
Long-term incentive performance targets for 2012/13
Executive directors and senior managers, together with all other employees,
are eligible to participate in the Company’s share schemes as operated from
time to time.
The Committee’s current policy for executive directors is that awards of long-term
incentives should be made annually and consist of a mix of performance shares and
share options. These are granted under the Performance Share Plan 2006 (PSP) and
the Executive Share Option Plan 2009 (ESOP), respectively. The executive directors
will receive awards under each of the plans equal to 100% of salary. Members of the
Leadership Team will also receive awards under either one or both of the plans equal
to 100% of salary in total.
Vesting of the awards granted in 2012/13 will be subject to achievement of
performance conditions based on a combination of a trading profit target (as
described on page 65) (50%) and total shareholder return (TSR) (50%) measured
over three financial years.
The Company’s TSR will be compared with that of a peer group comprising FTSE 250
companies excluding investment trusts, companies in the financial services sector
(banks, life and non-life insurance, equity and non-equity investment trusts, financial
services, real estate investment and services, and real estate investment trusts
etc.) and companies in the consumer discretionary sector (general retailers, media,
travel and leisure, and leisure goods) with opening and closing TSR values averaged
over three months prior to the start and end of the performance period. The
performance scale for this award is shown in the table opposite.
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TSR performance against the comparators
Percentage of TSR element that vests
Below median
Median
0%
25%
Between median and upper quartile
25% – 100% on a straight line basis
Above upper quartile
100%
Other share plans
The Company operates other shares plans as follows:
— An HMRC-approved save-as-you-earn scheme, open to all eligible employees
(including executive directors), with a 36 month savings period enabling UK
employees to acquire shares at a price not less than 80% of the market value
of the shares at the date of grant. The Scheme provides an international
section to allow for the participation of Australian and German employees;
— A US Internal Revenue Service 423 Plan with a 24 month savings period under
which its US employees are able to acquire shares at not less than 85% of the
market value of the shares at the date of grant; and
— A new Senior Management Performance Share Plan was approved by the Board
during the year in order to award nil paid shares to certain senior employees
below board level where it is not appropriate to make awards under the PSP.
Awards under this plan can be made over market purchase shares only and are
normally subject to different performance criteria to awards made under the PSP.
External appointments
The Board believes that it may be beneficial to the Company for executives to hold
non-executive directorships outside the Group. Any such appointments are subject
to approval by the Board and the director may retain any fees payable. Louise Makin
received fees from her position at Premier Foods plc of £67,500 during the year to
31 March 2012 (10/11: £67,500). Rolf Soderstrom does not currently hold any
outside directorships.
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Executive
Louise Makin
Rolf Soderstrom
Non-executive
Garry Watts
Peter Chambré
Giles Kerr
Ian Much
Melanie Lee
James O’Shea
Service contracts
The Company’s policy on directors’ service contracts is that, in line with the best
practice provisions of the Code, they should be terminable by the Company on a
maximum of one year’s notice, and contracts do not provide for predetermined
compensation in the event of termination or provision for enhanced payments
in the event of a takeover of the Company. The Company may terminate the
contracts of the executive directors with immediate effect by making a payment
in lieu of notice. Any payments made would be determined by reference to normal
contractual principles with mitigation being applied as wherever relevant or
appropriate. The directors’ contracts do not provide for automatic entitlement
to bonus or share-based payments.
The non-executive directors do not have service contracts, but have letters of
appointment for an initial period of three years, which may be renewed by mutual
agreement, normally for a further three-year term. The terms of appointment provide
for a notice period in the event of early termination of six months for the Chairman
and three months for other non-executive directors, other than if they are not
re-elected at an AGM.
Details of contracts and letters of appointment, for directors serving at the date of
this report, are as set out below.
Date of
appointment
Notice
period
Date of expiry
of current contract
19 October 2004 12 months
4 December 2008 12 months
N/A
N/A
1 January 2012 6 months
26 September 2006 3 months
1 October 2007 3 months
1 August 2010 3 months
29 November 2010 3 months
2 April 2009 3 months
31 December 2014
25 September 2012
30 September 2013
31 July 2013
28 November 2013
1 April 2015 1
1 Having served three years on the Board, James O’Shea’s appointment has been extended for a further three years, subject to re-election at the AGM.
Non-executive directors’ fees
The Chairman, in consultation with the executive directors, is responsible for
proposing changes to the non-executive directors’ fees. The Senior Independent
Director, in consultation with the executive directors, is responsible for proposing
changes to the Chairman’s fees. In each case this follows advice on appropriate fee
levels supplied by NBS. In proposing such fees, account is also taken of the time
commitments of the Company’s non-executive directors. The decision on fee
changes is taken by the Board as a whole. Individual non-executive directors do not
take part in discussions on their remuneration. Non-executive directors do not
receive benefits or pension contributions from the Group and do not participate in
any Group incentive scheme.
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Set out in the table below are the annual fees for the year ended 31 March 2012
and proposed fees for the year ended 31 March 2013.
Director
Chairman1
Non-executive director
Senior independent director fee
Audit Committee chairmanship fee
Remuneration Committee chairmanship fee
As from
Year ended
1 April 2012 31 March 2012
£
£
175,000
39,264
3,000
6,000
6,000
175,000
38,110
3,000
6,000
6,000
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1 The Chairman’s fee relates to Garry Watts who receives a fee of £175,000 pa as from the date of his appointment on 1 January 2012. John Brown received a
fee of £115,000 pa for the period from 1 April 2011 to his resignation on 31 December 2011.
The increase in the Chairman’s fee followed a review of the scope of the role as part
of the recruitment process and reflects the increasing complexity of the business
and the amount of time Garry Watts is expected to devote to the Company. The fee is
fixed for the first three years of his appointment. Fees for the other non-executive
directors were increased by 3% from 1 April 2012.
Part B (audited): Directors’ emoluments, shareholdings and long-term
incentive awards
Directors’ emoluments
Salary/
fees
£’000
Bonus
paid in
cash
£’000
Bonus
deferred in
shares1
£’000
Cash
in lieu of
pension2
£’000
Benefits9
£’000
Executive directors
Louise Makin3
Rolf Soderstrom4
Non-executive directors
Garry Watts5
Peter Chambré
Giles Kerr
Melanie Lee
Ian Much
James O’Shea
Ex-directors
John Brown6
Colin Blakemore7
William Jenkins8
458
298
229
149
206
134
66
24
44
38
47
38
44
38
144
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,149
378
340
90
2
2
–
–
–
–
–
–
–
–
–
4
2012
Total
£’000
961
607
44
38
47
38
44
38
144
–
–
2011
Total
£’000
2012
DC pension
contributions
£’000
2011
DC pension
contributions
£’000
765
484
–
37
46
13
26
37
100
18
43
–
43
42
57
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,961
1,569
43
99
1 Element of bonus deferred into the DSBP.
2 The additional payments represent a cash supplement in lieu of employer pension contributions following the changes to pension legislation.
3 Pension contributions shown for Louise Makin represent amounts paid to an Executive Pension Plan for her benefit.
4 Pension contributions shown for Rolf Soderstrom represent amounts paid to a defined contribution pension scheme for his benefit.
5 Fees were paid to Garry Watts for the period from his appointment to the Board on 1 January 2012.
6 Fees were paid to John Brown for the period to his retirement from the Board on 31 December 2011. Included in his fees for 2011/12 was an additional
sum of £57,500 paid in lieu of notice.
7 Fees were paid to Colin Blakemore for the period to his retirement from the Board on 13 July 2010.
8 Fees were paid to William Jenkins for the period to his retirement from the Board on 4 February 2011.
9 Benefits shown above for Louise Makin and Rolf Soderstrom relate principally to the provision of life assurance and medical benefits.
10 All directors’ fees, salaries and bonuses are subject to UK income tax.
11 As disclosed last year, in 2010/11 an administrative error was found in respect of payments made under the defined benefit pension fund to Rusi Kathoke,
a former director. The overpayment of benefits for 2011/12 was £5,993. The additional payments will cease when he attains 65 years in December 2012.
The additional payments are covered by contributions to the fund by the Company.
BTG plc Annual Report and Accounts 2012
69
Directors and governance
Remuneration Committee report
Louise Makin is a member of the BTG Pension Fund. The Fund is a contracted-out
defined benefit arrangement which provides a pension based on an accrual rate of
either one sixtieth or one eightieth of basic salary (up to the HMRC Earnings Cap),
depending on the level of contributions paid by members of 7% or 5% respectively.
Members are able to retire at any time from age 60 without any actuarial reduction
to the pension payable. Under current legislation, if members continue to work
beyond age 60, they may continue to pay contributions and enhance their pension
entitlement, subject to a maximum of 40 years pensionable service. Pension
payments post retirement are increased annually by inflation for pensionable service
earned up to 5 April 2006 and inflation subject to a ceiling of 2.5% for pensionable
service earned after that date. Members may take early retirement, once they have
reached 55 years of age, although any pension paid will be subject to an actuarial
reduction. Ill-health retirements may be permitted from an earlier age subject to
meeting certain medical conditions. In the event of the death of a member, the Fund
provides for a spouse’s pension to be payable equal to two-thirds of the deceased
member’s pension. For current active members, a lump sum death benefit equal to
four times basic salary (up to the earnings cap) plus refund of the member’s
contributions is also payable.
During the year Louise Makin contributed £9,072 (10/11: £8,652) to the Fund,
representing 7% of her salary up to the earnings cap and the Company contributed
£26,827 (10/11: £21,136). In addition, she made contributions of £11,000 to a
separate defined contribution Executive Pension Scheme to which the Company did
not contribute during the year (10/11: £41,713).
Details of the value of her individual pension entitlement and information relating to
defined benefits available as required under the Regulations and the Listing Rules,
are shown below:
Increase
in accrued
pension during
year ended
31 March
2012
(including
inflation)2
£
Accrued
pension
at 31 March
2012 1
£
Increase
in accrued
pension during
year ended
31 March
2012
(excluding RPI
inflation)
£
Transfer value
of the increase
in accrued
pension
(excluding
RPI inflation)
at 31 March
2012 less
director’s
contributions
£
Increase in
transfer value
less directors’
contributions3
£
Transfer value Transfer value
of accrued
benefits
at 31 March
2011
£
of accrued
benefits
at 31 March
2012
£
Louise Makin
15,526 p.a. 2,522 p.a.
300,671
207,968
83,631 1,793 p.a. 24,140 p.a.
1 The accrued pension at 31 March 2012 is the leaving service benefit to which Louise Makin would have been entitled to if she had left the BTG Pension Fund
at that date.
2 This equals the accrued pension as at 31st March 2012 less the equivalent pension as at 31st March 2011 disclosed in the 2011 Annual Report.
3 This is the transfer value as at 31 March 2012 less the transfer value as at 31 March 2011 less the contributions paid by the director in the year.
70
Directors and governance
BTG plc Annual Report and Accounts 2012
Directors’ share awards
The directors have the following interests in BTG plc shares under the Company’s
various plans. Full details of their holdings at the start and end of the financial year
and at 21 May 2012 are set out below.
Louise Makin
Date of grant/award
Share options
11 Nov 20041
Exercise
price (p)/market
price on date of
award (p)
At 1 April
2011
Granted
in year
Exercised
Lapsed
At 31 March
2012
Exercise
period/
vesting date
Share
price on
exercise (p)
–
–
92.00
32,608
32,608
–
–
31 Jul 20092
179.25 233,974
13 Jul 2010
201.30 216,816
6 Jul 2011
298.90
– 163,356
Sharesave
15 Jul 20083
129.20
1,455
2 Sep 2009
146.70
2,474
1 Sep 2010
146.67
2,454
–
–
4 Jul 2011
219.52
–
822
Total option awards
–
–
–
1,455
–
–
–
Performance share awards
28 May 20081
22 Jul 20092
13 Jul 2010
6 Jul 2011
121.25 316,824
174.00 246,633
201.30 218,751
286.60
– 281,973
–
–
–
–
– 149,831
Deferred share awards
28 May 20081
22 Jul 2009
13 Jul 2010
22 Jul 2011
Total other awards
Total awards
85,185
121.25
174.00 105,808
98,386
201.30
–
286.60
–
–
–
53,288
85,185
–
–
–
– 233,974
– 216,816
– 163,356
–
–
–
–
–
2,474
2,454
822
619,896
34,851
–
– 246,633
– 218,751
– 149,831
–
–
– 105,808
98,386
–
53,288
–
872,697
1,492,593
274.65
265.00
11 Nov 2007 –
10 Nov 2014
31 Jul 2012 –
30 Jul 2019
13 Jul 2013 –
12 Jul 2017
6 Jul 2014 –
5 Jul 2021
1 Sep 2011 –
28 Feb 2012
1 Oct 2012 –
31 Mar 2013
1 Sep 2013 –
1 Mar 2014
1 Sep 2014 –
1 Mar 2015
274.65
274.65
28 May 2011
22 Jul 2012
13 Jul 2013
6 Jul 2014
28 May 2011
22 Jul 2012
13 Jul 2013
22 Jul 2014
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1 PSP awards made prior to March 2009 are subject to cumulative pre-tax profit and relative TSR performance conditions with each determining the vesting of
50% of an award. The total gain on the exercise or vesting of share options and PSP awards in the year was £833,997.
2 Following measurement of the TSR performance condition by NBS (which placed BTG in the 4th decile against the comparators) and the measurement of the
performance against the profit measure, the Committee approved the exercise or vesting of 187,179 shares to Louise Makin under the 2009 ESOP award and
197,306 under the 2009 PSP award, the balance of 96,122 shares will lapse. The shares are due to vest on 22 July 2012.
3 The aggregate gain on the exercise of sharesave options in the year was £1,976.
4 See table on page 73 for details of performance conditions for share awards.
BTG plc Annual Report and Accounts 2012
71
Directors and governance
Remuneration Committee report
Rolf Soderstrom
Date of grant/award
Exercise
price (p)/market
price on date of
award (p)
At 1 April
2011
Granted
in year
Exercised
Lapsed
At 31 March
2012
Exercise
period/
vesting date
Share
price on
exercise (p)
Share option awards
31 Jul 20091
179.25 145,048
13 Jul 2010
201.30 140,930
–
–
6 Jul 2011
298.90
–
99,658
Total option awards
Performance share awards
22 Jul 20091
13 Jul 2010
6 Jul 2011
174.00 152,896
201.30 142,188
286.60
–
– 103,913
–
–
–
–
–
–
– 145,048
– 140,930
–
99,658
385,636
– 152,896
– 142,188
– 103,913
31 Jul 2012 –
30 Jul 2019
13 Jul 2013 –
12 Jul 2020
6 Jul 2014 –
6 Jul 2021
22 Jul 2012
13 Jul 2013
6 Jul 2014
Special award under LR9.4.2 R
22 Jul 20092
174.00
76,448
–
22,934
53,514
–
22 Jul 2011
291.60
Deferred share awards
22 Jul 2009
13 Jul 20103
22 Jul 2011
Total other awards
Total awards
174.00
201.30
286.60
45,476
60,954
–
–
–
34,637
–
–
–
22 Jul 2012
13 Jul 2013
22 Jul 2014
–
–
–
45,476
60,954
34,637
540,064
925,700
1 Following measurement of the TSR performance condition by NBS (which placed BTG in the 4th decile against the comparators) from NBS on the TSR
performance and the measurement of the performance against the profit measure, the Committee approved the release of 116,037 shares under the 2009
ESOP award and 122,316 shares under the 2009 PSP award, the balance of 59,593 shares will lapse. The shares are due to vest on 22 July 2012.
2 The total gain on the release of the special award in the year was £66,875.
3 See table opposite for details of performance conditions for share awards.
72
Directors and governance
BTG plc Annual Report and Accounts 2012
Date of award
Performance measure
Percentage
Parameters
Performance conditions for share awards
Plan
PSP
28 May 2008
Cumulative pre-tax profit 40%
TSR (FTSE Small Cap)
60%
Option
PSP
31 July 2009
22 July 2009
EBITDA and TSR
Combined matrix
measure
Three-year normalised pre-tax profit period
between threshold and stretch; range
£54m–£88m.
Three-year comparison with index between
median and 30% outperformance of index.
Three-year normalised EBITDA period
between threshold and stretch; range
£38m–£76m and TSR range between
1st and 10th decile.
Special
22 July 2009
EBITDA and TSR
Combined matrix
measure
Two-year normalised EBITDA period between
threshold and stretch; range £24m–£41m
and TSR range between 1st and 10th decile.
Option
PSP
13 July 2010
13 July 2010
Cumulative trading profit 50%
TSR
50%
Option
PSP
6 July 2011
6 July 2011
Cumulative trading profit 50%
TSR
50%
Three-year normalised trading profit period
between threshold and stretch; range
£24m–£60m.
Three-year comparison with index between
median and upper quartile.
Three-year normalised trading profit period
between threshold and stretch; range
£56m–£97m.
Three-year comparison with index between
median and upper quartile.
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Unless otherwise stated the Company’s TSR will be compared with that of a peer group comprising FTSE 250 companies excluding investment trusts, companies
in the financial services sector (banks, life and non-life insurance, equity and non-equity investment trusts, financial services, real estate investment and services,
and real estate investment trusts etc.) and companies in the consumer discretionary sector (general retailers, media, travel and leisure, and leisure goods.
Share options and performance shares were granted for nil consideration. The price
used for calculating the number of shares awarded under the PSP and DSBP was
based on average of the closing share prices over the five days immediately prior to
the award date. Share options are awarded using the closing mid-market price on the
date before grant. Sharesave options were granted on the condition that participants
agreed to enter into a monthly savings contract.
Awards other than DSBP awards are normally satisfied using new issue shares.
The Company’s share plans comply with recommended guidelines on dilution limits
and the Company has always operated within these limits. Assuming none of the
extant options lapse and will be exercised and, having included all exercised options,
the Company has utilised 3.6% of the 10% in ten years and 3.3% of the 5% in ten
years in accordance with the Association of British Insurers (ABI) guidance on
dilution limits.
The Committee, with advice from NBS, is responsible for assessing whether the
relevant performance conditions have been achieved.
BTG plc Annual Report and Accounts 2012
73
Directors and governance
Remuneration Committee report
Louise Makin
Rolf Soderstrom
Peter Chambré
Executive director
Louise Makin
Rolf Soderstrom
Directors’ shareholdings
The directors’ beneficial interests, including interests of connected persons, in the
shares of the Company at the end of the financial year and at 18 May 2012 are
shown below. None of the directors had any non-beneficial interest at any time in the
period 1 April 2011 to 18 May 2012. None of the directors who held office at the
end of the financial period had any beneficial interest in the shares of other Group
companies.
Interest at
31 March 2012
Ordinary shares 10p
Interest at
31 March 2011
Ordinary shares 10p
478,308
90,823
3,000
376,853
79,857
3,000
The executive directors have a beneficial interest in ordinary shares of the Company
by direct holdings and by virtue of their entitlements in the Company’s employee
share option schemes. As employees of the Group, all executive directors also have
an interest in any unallocated shares held on behalf of all employees in the BTG
Employee Share Trust, which at 31 March 2012 amounted to 715,129 ordinary
shares in the Company. The non-executive directors are not entitled to participate
in any of the Company’s employee share schemes.
Alignment with shareholders
The Committee operates shareholding guidelines requiring executives to build
and maintain a holding of Company shares worth at least 100% of salary.
Based on the shares, share options and awards held at 31 March 2012 (assuming
full vesting and having taken account of any relevant exercise costs), the following
table illustrates the value each executive director has at risk and how this has
fluctuated during the year, using the lowest, highest and closing share prices for
the year of 217.1p, 372.4p and 333.8p respectively, for illustrative purposes.
Type of holding
Number
Shareholding
Options/awards
478,308
1,492,593
Lowest
217.1p
£’000
1,038
2,021
Highest
372.4p
£’000
1,781
4,206
Closing
333.8p
£’000
1,597
3,629
1,970,901
3,059
5,987
5,226
Shareholding
Options/awards
90,823
925,700
197
1,250
338
2,606
303
2,248
1,016,523
1,447
2,944
2,551
The Committee has approved the introduction of a trading plan to enable the
executive directors to sell shares from their holdings from time-to-time. Provided
that executive directors have achieved and continue to maintain the minimum
level of holding required under the shareholding guidelines of 100% of basic salary,
executive directors will be permitted to sell shares in addition to those required
to meet their tax liabilities within a 30 day period from the announcement of the
Company’s results and completion of investor roadshows for any period or on
vesting if later.
74
Directors and governance
BTG plc Annual Report and Accounts 2012
Total shareholder return
The performance of the Company’s ordinary shares compared with the FTSE 250
(excluding Investment Trusts) (the Index) for the five-year period ended on 31 March
2012 is shown in the graph below.
)
£
(
l
e
u
a
V
300
280
260
240
220
200
180
160
140
120
100
80
60
40
31 March
2007
31 March
2008
31 March
2009
31 March
2010
31 March
2011
31 March
2012
BTG plc
FTSE 250 (excl. Investment Trusts)
Source: Thomson Reuters
This graph shows the value at 31 March 2012 of £100 invested in BTG plc on
31 March 2007 compared with £100 invested in the Index. The other points
plotted are the values at intervening financial year-ends.
The Company has chosen the Index as a comparator as it believes that it gives
shareholders a reasonable comparison with the total shareholder return (TSR) of
other equity investments in companies of a broadly similar size across all sectors.
The TSR performance has been measured by NBS.
The middle market price of an ordinary share on 31 March 2012 was 333.8p.
During the year the share price ranged from a low of 217.1p to a high of 372.4p.
Directors’ interests in contracts
Except as described in note 32 on page 127 to the financial statements, ‘Related
party transactions’, during or at the end of the financial year no director or connected
person had any material interest in any contract of significance in relation to the
Group’s business with a third party.
This report was approved by the Board on 18 May 2012 and signed on its behalf by
Ian Much
Chairman of the Remuneration Committee
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BTG plc Annual Report and Accounts 2012
75
Directors and governance
Statement of directors’
responsibilities in respect
of the Annual Report and
the financial statements
Under applicable law and regulations,
the directors are also responsible for
preparing a compliant directors’ report,
directors’ remuneration report and
corporate governance statement.
Legislation in the UK governing the
preparation and dissemination of
financial statements may differ from
legislation in other jurisdictions.
The directors are responsible for the
maintenance and integrity of the
corporate and financial information
included on the Company’s website.
Directors’ responsibility statement
pursuant to DTR4
We confirm that to the best of our
knowledge:
— The financial statements, prepared
in accordance with the applicable set
of accounting standards, give a true
and fair view of the assets, liabilities,
financial position and profit or loss of
the Company and the undertakings
included in the consolidation taken
as a whole; and
— The directors’ report includes a
fair review of the development and
performance of the business of the
Group and the position of the issuer
and the undertakings included in
the consolidation taken as a whole,
together with a description of the
principal risks and uncertainties
that they face.
By order of the Board
Dr Louise Makin
Chief Executive Officer
Rolf Soderstrom
Chief Financial Officer
18 May 2012
The directors are responsible for
preparing the Annual Report and
the Group and Company financial
statements in accordance with
applicable law and regulations.
Company law requires the directors to
prepare Group and Company financial
statements for each financial year.
Under that law they are required to
prepare the Group financial statements
in accordance with IFRSs as adopted
by the EU and applicable law and have
elected to prepare the Company financial
statements on the same basis.
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 their
profit or loss for that period. In preparing
each of the Group and Company financial
statements, the directors are required
to:
— Select suitable accounting policies
and then apply them consistently;
— Make judgements and estimates
that are reasonable and prudent;
— State whether they have been
prepared in accordance with IFRSs
as adopted by the EU; and
— Prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Group and 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 its
financial statements comply with the
Companies Act 2006. They have general
responsibility for taking such steps
as are reasonably open to them to
safeguard the assets of the Group and
to prevent and detect fraud and other
irregularities.
76
Directors and governance
BTG plc Annual Report and Accounts 2012
Independent auditor’s report
to the members of BTG plc
We have audited the financial
statements of BTG plc for the year
ended 31 March 2012 set out on
pages 80 to 137. The financial
reporting framework that has been
applied in their preparation is applicable
law and International Financial Reporting
Standards (IFRSs) as adopted by the
EU and, as regards the Parent Company
financial statements, as applied in
accordance with the provisions of the
Companies Act 2006.
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.
Respective responsibilities of directors
and auditor
As explained more fully in the Directors’
Responsibilities Statement set out on
page 76, the directors are responsible
for the preparation of the financial
statements and for being satisfied
that they give a true and fair view. Our
responsibility is to audit, and express
an opinion on, the financial statements
in accordance with applicable law and
International Standards on Auditing (UK
and Ireland). Those standards require
us to comply with the Auditing Practices
Board’s (APB’s) Ethical Standards for
Auditors.
Scope of the audit of the financial
statements
A description of the scope of an audit of
financial statements is provided on the
APB’s website at www.frc.org.uk/apb/
scope/private.cfm.
Opinion on financial statements
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 March 2012 and of
the Group’s profit for the year then
ended;
— The Group financial statements have
been properly prepared in accordance
with IFRSs as adopted by the EU;
— The Parent Company financial
statements have been properly
prepared in accordance with IFRSs
as adopted by the EU 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 and, as regards the Group
financial statements, Article 4 of
the IAS Regulation.
Opinion on other matters prescribed
by the Companies Act 2006
In our opinion:
— The part of the directors’
remuneration report to be audited
has been properly prepared in
accordance with the Companies
Act 2006;
— The information given in the
directors’ report for the financial year
for which the financial statements
are prepared is consistent with the
financial statements; and
— Information given in the corporate
governance statement set out on
pages 43 to 53 in BTG plc’s Annual
Report and Accounts 2012 with
respect to internal control and risk
management systems in relation
to financial reporting processes
and about share capital structures
is consistent with the financial
statements.
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BTG plc Annual Report and Accounts 2012
77
Directors and governance
Independent auditor’s report
to the members of BTG plc
Matters on which we are required
to report by exception
We have nothing to report in respect
of the following:
Under the Companies Act 2006 we are
required to report to you if, in our
opinion:
— Adequate accounting records
have not been kept by the Parent
Company, or returns adequate for our
audit have not been received from
branches not visited by us; or
— The Parent Company financial
statements and the part of the
directors’ remuneration report to be
audited 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; or
— A corporate governance statement
has not been prepared by the
Company.
Under the Listing Rules we are required
to review:
— The directors’ statement, set out on
page 41, in relation to going concern;
— The part of the corporate governance
statement on pages 43 to 53 in BTG
plc’s Annual Report and Accounts
2012 relating to the Company’s
compliance with the nine provisions
of the June 2010 UK Corporate
Governance Code specified for our
review; and
— Certain elements of the report
to shareholders by the Board on
directors’ remuneration.
David Bills
(Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc,
Statutory Auditor
Chartered Accountants
15 Canada Square
London E14 5GL
18 May 2012
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Directors and governance
BTG plc Annual Report and Accounts 2012
Financials
80 Consolidated income statement
81 Consolidated statement of
comprehensive income
82 Consolidated statement
of financial position
Consolidated statement
of cash flows
83
84 Consolidated statement
of changes in equity
85 Notes to the consolidated
financial statements
131 Company statement
of financial position
132 Company statement
of cash flows
133 Company statement
of changes in equity
134 Notes to the Company
financial statements
138 Appendix 1: Unaudited
pro-forma consolidated
income statement
139 Five-year financial record
141 Shareholder information
143 Cautionary statement
144 Trade marks
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Financials
Consolidated income statement
Year ended 31 March 2012
Year ended 31 March 2011
Results before
acquisition
adjustments and
reorganisation
costs
£m
Note
Acquisition
adjustments
and
reorganisation
costs
£m
Results before
acquisition
adjustments and
reorganisation
costs
£m
Total
£m
Acquisition
adjustments
and
reorganisation
costs
£m
Revenue
Cost of sales
Gross profit
Operating expenses:
Amortisation and impairment of acquired
intangible assets
Amortisation of purchase of contractual rights
Foreign exchange gains/(losses)
Selling, general and administrative expenses
Operating expenses: total
Research and development
Profit on disposal of intangible assets
and investments
Amounts written off property,
plant and equipment
Acquisition and reorganisation costs
Amounts written off investments
Operating profit/(loss)
Financial income
Financial expense
Profit/(loss) before tax
Tax (charge/credit)
Profit for the year
Basic earnings per share
Diluted earnings per share
4
4
15
5
16
6
7
8
10
11
12
13
13
197.2
(54.2)
143.0
(0.2)
(2.1)
(2.3)
197.0
(56.3)
111.4
(32.4)
140.7
79.0
–
(1.7)
(1.7)
–
–
2.6
(48.9)
(46.3)
(39.7)
(30.7)
–
–
–
(30.7)
–
(30.7)
–
2.6
(48.9)
(77.0)
(39.7)
–
(9.6)
(2.0)
(33.7)
(45.3)
(32.1)
(10.0)
–
–
–
(10.0)
–
Total
£m
111.4
(34.1)
77.3
(10.0)
(9.6)
(2.0)
(33.7)
(55.3)
(32.1)
0.2
–
0.2
1.5
–
1.5
(3.0)
–
(0.2)
54.0
3.6
(1.6)
–
(1.1)
–
(34.1)
1.1
–
(3.0)
(1.1)
(0.2)
19.9
4.7
(1.6)
23.0
(8.4)
14.6
4.5p
4.4p
–
–
(1.4)
1.7
3.1
(0.1)
–
(3.8)
–
(15.5)
–
–
–
(3.8)
(1.4)
(13.8)
3.1
(0.1)
(10.8)
20.0
9.2
3.4p
3.4p
All activity arose from continuing operations.
The notes on pages 85 to 130 form part of these financial statements.
80
Financials
BTG plc Annual Report and Accounts 2012
Consolidated statement of comprehensive income
Profit for the year
Other comprehensive income
Foreign exchange translation differences
Actuarial (loss)/gain on defined benefit pension plan
Change in fair value of equity securities available-for-sale
Other comprehensive income for the year
Total comprehensive income for the year
The notes on pages 85 to 130 form part of these financial statements.
Note
21
25
21
Year ended
31 March
2012
£m
Year ended
31 March
2011
£m
14.6
9.2
(0.3)
(2.9)
–
(3.2)
11.4
(2.7)
3.9
(0.1)
1.1
10.3
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81
Financials
Consolidated statement of financial position
ASSETS
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Other investments
Deferred tax asset
Biological assets
Current assets
Inventories
Trade and other receivables
Taxation
Derivative instruments
Held to maturity financial assets
Cash and cash equivalents
Total assets
EQUITY
Share capital
Share premium account
Merger reserve
Other reserves
Retained earnings
Total equity attributable to equity holders of the parent
LIABILITIES
Non-current liabilities
Trade and other payables
Borrowings
Employee benefits
Deferred taxation
Provisions
Current liabilities
Trade and other payables
Taxation
Provisions
Total liabilities
Total equity and liabilities
31 March
2012
£m
31 March
2011
£m
Note
14
15
16
17
12
18
19
12
23
20
20
21
22
24
25
12
28
22
12
28
59.2
246.0
22.0
3.0
1.0
0.3
59.2
271.0
24.8
2.7
0.9
0.3
331.5
358.9
21.8
40.1
–
0.5
5.0
106.9
174.3
505.8
20.0
32.7
1.0
2.0
10.2
63.7
129.6
488.5
32.7
188.3
317.8
(4.0)
(128.6)
32.7
188.2
317.8
(3.7)
(142.7)
406.2
392.3
5.0
–
0.1
35.2
1.0
41.3
55.4
2.1
0.8
58.3
99.6
7.1
2.9
2.0
30.7
1.2
43.9
50.2
0.3
1.8
52.3
96.2
505.8
488.5
The notes on pages 85 to 130 form part of these financial statements.
The financial statements were approved by the Board on 18 May 2012 and were signed on its behalf by:
Dr Louise Makin
Chief Executive Officer Chief Financial Officer
Rolf Soderstrom
Registered No: 2670500
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BTG plc Annual Report and Accounts 2012
Consolidated statement of cash flows
Profit after tax for the year
Tax
Financial income
Financial expense
Operating profit/(loss)
Adjustments for:
Profit on disposal of intangible assets and investments
Amounts written off investments
Amortisation and impairment of intangible assets
Amounts written off property, plant and equipment
Depreciation on property, plant and equipment
Share-based payments
Pension plan funding
Costs of acquisition recognised in equity
Other
Cash from operations before movements in working capital
Increase in inventories
Increase in trade and other receivables
Increase/(decrease) in trade and other payables
Decrease in provisions
Cash from operations
Taxation paid
Net cash inflow/(outflow) from operating activities
Investing activities
Interest received
Purchases of intangible assets
Purchases of property, plant and equipment
Net proceeds from disposal of investments and intangible assets
Net expenditure on investments
Net cash acquired from acquisition of Biocompatibles International plc
Net inflow from held to maturity financial assets
Net cash outflow from investing activities
Cash flows from financing activities
Repayment of finance leases
Proceeds of share issues
Net cash from financing activities
Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at start of year
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at end of year
The notes on pages 85 to 130 form part of these financial statements.
Year ended
31 March
2012
£m
Year ended
31 March
2011
£m
Note
15
16
16
34
20
14.6
8.4
(4.7)
1.6
19.9
(0.2)
0.2
31.9
3.0
3.2
2.4
(4.8)
–
0.2
55.8
(1.8)
(7.5)
3.0
(1.2)
9.2
(20.0)
(3.1)
0.1
(13.8)
(1.5)
1.4
21.5
–
2.4
0.6
(3.3)
(0.6)
(0.3)
6.4
(5.4)
(6.7)
(5.0)
–
48.3
(10.7)
(1.1)
(1.3)
47.2
(12.0)
0.8
(6.0)
(3.7)
0.3
(0.5)
–
5.2
(3.9)
(0.3)
0.1
(0.2)
43.1
63.7
0.1
0.4
(10.1)
(11.2)
1.5
(0.5)
14.4
–
(5.5)
(0.7)
0.1
(0.6)
(18.1)
82.6
(0.8)
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106.9
63.7
BTG plc Annual Report and Accounts 2012
83
Financials
Consolidated statement of changes in equity
Share
capital
£m
Share
premium
£m
Merger
reserve
£m
Other
reserves
£m
Retained
earnings
£m
Total
equity
£m
At 1 April 2010
25.8
188.1
158.1
(0.9)
(155.9)
215.2
Profit for the year
Foreign exchange translation differences
Actuarial gain on defined benefit pension scheme
Change in fair value of equity securities available-for-sale
Total comprehensive income for the year
Transactions with owners:
Issue of BTG plc ordinary shares
Issued on acquisition of Biocompatibles International plc
Movement in shares held by the Trust
Share-based payments
–
–
–
–
–
–
6.9
–
–
–
–
–
–
–
–
–
–
–
–
0.1
–
–
–
–
159.7
–
–
–
(2.7)
–
(0.1)
(2.8)
–
–
–
–
9.2
–
3.9
–
9.2
(2.7)
3.9
(0.1)
13.1
10.3
–
–
(0.5)
0.6
0.1
166.6
(0.5)
0.6
At 31 March 2011
32.7
188.2
317.8
(3.7)
(142.7)
392.3
Share
capital
£m
Share
premium
£m
Merger
reserve
£m
Other
reserves
£m
Retained
earnings
£m
Total
equity
£m
At 1 April 2011
32.7
188.2
317.8
(3.7)
(142.7)
392.3
Profit for the year
Foreign exchange translation differences
Actuarial loss on defined benefit pension scheme
Total comprehensive income for the year
Transactions with owners:
Issue of BTG plc ordinary shares
Share-based payments
–
–
–
–
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
–
(0.3)
–
(0.3)
14.6
–
(2.9)
11.7
14.6
(0.3)
(2.9)
11.4
–
–
–
2.4
0.1
2.4
At 31 March 2012
32.7
188.3
317.8
(4.0)
(128.6)
406.2
The notes on pages 85 to 130 form part of these financial statements.
84
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BTG plc Annual Report and Accounts 2012
Notes to the consolidated financial statements
1 General information
BTG plc (the Company) is a company incorporated and domiciled in the United Kingdom and listed on the London Stock
Exchange. The consolidated financial statements of the Company for the year ended 31 March 2012 comprise the results
of the Company and its subsidiary undertakings (together referred to as the Group) and the Group’s interest in associates.
The financial statements were approved for issue by the Board on 18 May 2012.
The financial statements have been prepared in accordance with the Group’s accounting policies as approved by the Board
and described below.
Accounting standards adopted in the year
No accounting standards adopted in the year have had a significant effect on the financial statements. Other amendments
and standards have been adopted, but have had no significant effect on the reported results or financial position of the Group.
Accounting standards issued but not yet effective
The Group does not consider that any of the other standards or interpretations issued but as yet not effective will have
a significant impact on the financial statements.
Going concern basis
After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis
in preparing the Annual Report and Accounts.
This conclusion has been reached having considered the effect of liquidity risk on the Group’s ability to operate effectively.
Currently, liquidity risk is not considered a significant business risk to the Group given its level of net cash and cash flow
projections. The Group does not currently require significant levels of debt financing to operate its business. Further details
of the Group’s policies and objectives around liquidity risk are given in note 29 and are discussed in the business review on
pages 16 to 20. The key liquidity risks faced by the Group are considered to be the failure of banks where funds are deposited
and the failure of key licensees, distribution partners, wholesalers or insurers.
In addition to the liquidity risks considered above, the directors have also considered the following factors when reaching
the conclusion to continue to adopt the going concern basis:
— The Group’s principal licensees are global industry leaders in their respective fields and the Group’s royalty-generating
intellectual property consists of a broad portfolio of both licensees and industries;
— The Group’s marketed products are life-saving in nature, providing some protection against an uncertain economic
outlook; and
— The Group remains in a cash generative position for the year with cash, cash equivalents and held to maturity financial
assets totalling £111.9m as at 31 March 2012.
Acquisition adjustments and reorganisation costs
The consolidated income statement includes a separate column to disclose significant acquisition adjustments and
reorganisation costs arising on corporate acquisitions. Adjustments relate to the acquisitions of:
— Biocompatibles International plc on 27 January 2011; and
— Protherics PLC on 4 December 2008.
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The costs relate to the following:
— The release of the fair value uplift of inventory acquired;
— Amortisation and impairment arising on intangible assets acquired;
— Transaction costs incurred with professional advisers in relation to the completion of the acquisition;
— Reorganisation costs comprising acquisition related redundancy programmes, property costs, and asset impairments; and
— Fair value adjustments to contingent consideration on corporate acquisitions.
BTG plc Annual Report and Accounts 2012
85
Financials
Notes to the consolidated financial statements
2 Significant accounting policies
The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies
have been consistently applied to all years presented unless otherwise stated.
(a) Basis of accounting and preparation of financial statements
The Group financial statements have been prepared and approved by the directors in accordance with International Financial
Reporting Standards as adopted by the EU (Adopted IFRSs). The consolidated financial statements also comply fully with IFRSs
as issued by the International Accounting Standards Board.
The Group financial statements are presented in Sterling and all values are rounded to the nearest £0.1m except where
otherwise indicated and have been prepared on the historical cost basis modified to include revaluation to fair value of certain
financial instruments and business combination assets as set out below.
The preparation of the financial statements in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates. Judgements made by the directors in the application of these accounting policies that have significant effect
on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 3.
(b) Basis of consolidation
(i) Subsidiary undertakings
Subsidiary undertakings are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly,
to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control,
potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiary
undertakings are included in the consolidated financial statements from the date that control commences until the date that
control ceases.
(ii) Associates
Associates are those entities in which the Group has significant influence, but not control, over the financial and operating
policies. The consolidated financial statements include the Group’s proportionate share of the total recognised gains and losses
of associates on an equity-accounted basis, from the date that significant influence commences until the date that significant
influence ceases. When the Group’s share of losses exceeds the carrying value of its interest in an associate, the Group’s
carrying amount is reduced to nil and no further losses are recognised except to the extent that the Group has incurred legal or
constructive obligations or made payments on behalf of an associate.
(iii) Acquisition accounting
The purchase method is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured
as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange.
Identifiable assets acquired and liabilities and contingent liabilities assumed are measured initially at their fair values on the
date of acquisition, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value
of the Group’s share of identifiable net assets, including intangible assets acquired, is recorded as goodwill. If the cost of
acquisition is less than the fair value of the Group’s share of net assets of the subsidiary acquired, the difference is recognised
directly in the income statement.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring accounting policies used into line
with those used by the Group.
(iv) Merger reserve
A merger reserve is used where more than 90% of the shares in a subsidiary are acquired and the consideration includes
the issue of new shares by the Company, thereby attracting merger relief under s612 and s613 of the Companies Act 2006.
(v) Translation reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements
of foreign operations that are not integral to the operations of the Company.
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2 Significant accounting policies continued
(vi) Fair value reserve
The fair value reserve includes the cumulative net change in the fair value of available-for-sale investments. If an investment
suffers impairment due to a prolonged or significant decline in the fair value below acquisition cost, its share of the reserve is
recycled to the income statement and any further declines in fair value of that investment are no longer charged to the reserve
but immediately taken to the income statement.
(vii) Transactions eliminated on consolidation
Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions, are
eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates are
eliminated to the extent of the Group’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised
gains, but only to the extent that there is no evidence of impairment.
(c) Operating segments
An operating segment is defined as a component of the Group (i) that engages in business activities from which it may earn
revenues and incur expenses; (ii) whose operating results are regularly reviewed by the Group’s chief operating decision maker
(the Leadership Team) to make resource allocation decisions and monitor its performance; and (iii) for which discrete financial
information is available.
(d) Foreign currency
(i) Foreign currency transactions
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate
ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary
assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate
at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair
value are translated at foreign exchange rates ruling at the dates the fair value was determined. Exchange gains/losses on
retranslation of foreign currency transactions and balances within trading intercompany balances are recognised in the income
statement within ‘Operating expenses’.
(ii) Financial statements of foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are
translated into sterling at exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations
are translated into sterling at rates approximating to the exchange rates ruling at the dates of the transactions. Foreign
exchange differences arising on retranslation are recognised directly in the translation reserve.
(iii) Net investment in foreign operations
Exchange differences arising from the translation of the net investment in foreign operations are taken to the translation
reserve. They are released into the income statement upon disposal of the investment.
(e) Derivative financial instruments
Derivative financial instruments are recognised at fair value and are designated as being measured at fair value through the
income statement on inception. The gain or loss on remeasurement to fair value is recognised immediately in the income
statement through ‘Financial income’ or ‘Financial expense’ as appropriate.
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The fair value of forward exchange contracts is their quoted market price at the balance sheet date, being the present value
of the quoted forward price.
(f) Goodwill
All business combinations are accounted for by applying the purchase method. Goodwill represents amounts arising on the
acquisition of subsidiary undertakings and associates. In respect of business combinations that have occurred since 1 April
2004, goodwill represents the difference between the cost of the acquisition and the fair value of the identifiable assets,
including intangible assets, liabilities and contingent liabilities acquired.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested
annually for impairment (see 2(m)). In respect of associates, the carrying value of goodwill is included in the carrying value of the
investment in the associate.
BTG plc Annual Report and Accounts 2012
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Notes to the consolidated financial statements
2 Significant accounting policies continued
(g) Intangible assets
(i) Initial recognition
Intangible assets acquired as a result of a business combination are initially recognised at their fair value in accordance with
IFRS3 – ‘Business Combinations’.
Other intangible assets are initially recognised at cost. Cost includes the cost of obtaining patent protection for intellectual
property rights, the cost of acquisition of patents and the costs of the internal patent attorney specific to obtaining the initial
grant of a patent. Income from patents is derived through licensing and other agreements.
(ii) Amortisation
Intangible assets are amortised in a manner calculated to write off the cost, on a straight-line basis, over the effective life
of the asset. In determining the appropriate life of the asset, consideration is given to the expected cash generating life of the
asset or remaining patent life if different.
The effective life of each class of asset is determined as follows:
— Developed technology: expected cash generating life, taking into account specific product and market characteristics
for each developed technology;
— Contractual relationships: period to expiry of the contract;
— In-process research and development: amortisation is not charged until the asset is generating an economic return,
at which point the effective life is assessed by reference to the remaining patent life;
— Computer software: the shorter of the licence period and three years;
— Patents: period to patent expiry; and
— Purchase of contractual rights: period to expiry of the contract.
In the event that an intangible asset is no longer used or a patent is abandoned, the balance of unamortised expenditure
is written off immediately.
The following useful economic lives are applied:
Developed technology
Contractual relationships
In-process research and development
Computer software
Patents
Purchase of contractual rights
2 to 25 years
2 to 15 years
12 to 25 years
3 years
20 years
2 to 10 years
(iii) Income statement disclosure
Amortisation and impairment of intangible assets is included within Operating expenses in the income statement.
(iv) Subsequent expenditure
Expenditure subsequent to the initial acquisition of intangible assets is capitalised only when it increases the future
economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.
(v) Impairment
If an intangible asset is considered to have suffered impairment in value it is written down to its estimated recoverable
amount in accordance with the Group’s policy on impairment (see note 2(m)).
(h) Property, plant and equipment
(i) Owned assets
Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses
(see note 2(m)).
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2 Significant accounting policies continued
(ii) Depreciation
Depreciation is charged to the income statement on a straight-line basis to write assets down to their residual value using the
following useful economics lives:
Buildings and improvements
Leasehold improvements
Plant and machinery
Furniture and equipment
Motor vehicles
Computer hardware
10 to 20 years
2 to 10 years
3 to 15 years
2 to 15 years
5 years
3 to 5 years
Depreciation is not charged until the asset is brought into use. The residual value is reassessed annually.
(iii) Income statement disclosure
Depreciation and impairment of property, plant and equipment is included within Operating expenses in the income statement.
Profits and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in
profit/(loss) on sale of property, plant and equipment in the income statement.
(iv) Subsequent expenditure
Expenditure subsequent to the initial acquisition of a property, plant and equipment asset is capitalised only when it is probable
that the Group will realise future economic benefits from the asset.
(v) Impairment
If a property, plant and equipment asset is considered to have suffered impairment in value it is written down to its estimated
recoverable amount in accordance with the Group’s policy on impairment (see note 2(m)).
(i) Investments
Investments in debt and equity securities held by the Group, classified as being available-for-sale, are stated at fair value, with
any resultant gain or loss being recognised directly in equity, except for impairment losses and, in the case of monetary items
such as debt securities, foreign exchange gains and losses which are taken to the income statement. When these investments
are no longer recognised as assets, the cumulative gain or loss previously recognised directly in equity is recognised in the
income statement. Where these investments are interest-bearing, interest calculated using the effective interest method is
recognised in the income statement.
(j) Inventories
Inventories are valued at the lower of cost and net realisable value. The first in, first out method of valuation is used. Cost
comprises materials, direct labour and a share of production overheads appropriate to the relevant stage of production.
Provision is made for obsolete, slow-moving or defective items where appropriate. Net realisable value is determined at the
balance sheet date on commercially saleable products based on estimated selling price less all further costs to completion
and all relevant marketing, selling and distribution costs.
Inventories relating to research and development projects are fully written down in the income statement unless the Group
considers it probable to realise economic value from their sale or use. If the circumstances that previously caused these
inventories to be written down below cost subsequently change and there is clear evidence of an increase in realisable value,
the write down is reversed.
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(k) Trade and other receivables
Trade and other receivables do not carry interest and are stated at amortised cost less impairment losses (see 2(m)).
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Notes to the consolidated financial statements
2 Significant accounting policies continued
(l) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and
form an integral part of the Group’s cash management and for which the Group has a legal right of set-off are included
as a component of cash and cash equivalents for the purpose of the statement of cash flows.
Cash deposits with a maturity of greater than three months are classified as held to maturity financial assets.
(m) Impairment
Impairment testing is performed for all assets when there is an indicator of impairment.
In addition, for goodwill and unamortised intangible assets, impairment testing is performed both in the year of acquisition
and annually at each balance sheet date. An impairment loss is recognised whenever the carrying amount of an asset or its
cash-generating unit exceeds its recoverable amount.
Other specific categories of asset are treated as follows:
(i) Equity investments
Impairment is deemed to arise when there is a significant or prolonged decline in the fair value of the equity instrument.
Impairment losses are recognised in the income statement.
(ii) Property, plant and equipment
Property, plant and equipment is subject to impairment testing at each balance sheet date and whenever there are events that
indicate that an impairment may have occurred. An impairment loss is recognised if an asset’s carrying amount exceeds the
greater of its value in use and fair value less costs to sell. Impairment losses are recognised within Operating expenses in the
income statement.
(iii) Amortised intangible assets
Amortised intangible assets are also tested for impairment whenever there are indications that the carrying value may
not be recoverable. Intangible assets are grouped at the lowest level for which there are separately identifiable cash flows.
Any impairment losses are recognised immediately in the income statement. When assessing the recoverable amount
of an intangible asset the Group uses a risk adjusted discounted cash flow model.
(iv) Available-for-sale assets
When a decline in the fair value of an available-for-sale asset has been recognised directly in equity and there is objective
evidence that the asset is impaired, the cumulative loss that had been recognised directly in equity is recognised in the income
statement. The amount of the cumulative loss that is recognised in the income statement is the difference between the
acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in the income
statement.
An impairment loss in respect of an investment in an equity instrument classified as available-for-sale is not reversed through
the income statement. If the fair value of a debt instrument classified as available-for-sale increases and the increase can
be objectively related to an event occurring after the impairment loss was recognised in the income statement, the impairment
loss shall be reversed, with the amount of the reversal recognised in the income statement.
(n) Government grants
Government grants towards staff retraining costs are recognised as income over the periods in which the related costs
are incurred and are deducted in reporting the related expense.
Government grants relating to property, plant and equipment are treated as deferred income and released to the income
statement over the useful lives of the assets concerned.
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2 Significant accounting policies continued
(o) Employee benefits
(i) Defined contribution plans
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as
incurred. Payments made to state-managed retirement benefit schemes are dealt with in the same manner as payments to
defined contribution plans where the Group’s obligations under the plans are equivalent to a defined contribution retirement
benefit plan. The funds of the schemes are independent of the Group’s finances.
(ii) Defined benefit plan
For the Group’s defined benefit pension plan, the cost of providing benefits is determined using the projected unit credit method,
with actuarial valuations being carried out at each balance sheet date. Allowance is made in the assessment of the defined
benefit obligation for future costs of administering the scheme. The assumptions used to determine the valuation are shown
in note 25. Actuarial gains and losses are recognised in full in the period in which they occur. Actuarial gains and losses are
recognised outside the income statement and presented in the consolidated statement of comprehensive income.
Past service cost is recognised immediately to the extent that the benefits have already vested, and otherwise is amortised
on a straight-line basis over the average period until the benefits become vested.
The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation,
reduced by the fair value of plan assets. The retirement benefit obligation includes an allowance for future administrative costs
of running the plan. Any asset resulting from this calculation is limited to past service cost, plus the present value of available
refunds and reductions in future contributions to the plan.
Assets of the pension plan are held separately from the Group’s assets.
(iii) Share-based payments
In accordance with the transition provisions of IFRS1 (First-time Adoption of International Financial Reporting Standards),
IFRS2 (Share-based Payments) has been applied to all share-based grants made to employees after 7 November 2002 that
had not vested as of 1 January 2005.
The share option programme allows Group employees to acquire shares of the Company, subject to certain criteria. The fair
value of options granted is recognised as an expense of employment in the income statement with a corresponding increase
in equity. The fair value is measured at the date of grant and spread over the period during which the employees become
unconditionally entitled to the options. The fair value of the options granted is measured using a binomial lattice model, taking
into account the terms and conditions upon which the options were granted. The amount recognised as an expense in any year
is adjusted to reflect the actual number of share options that vest. However if share options fail to vest due to share prices
not achieving the designated performance threshold for vesting, no such adjustment takes place.
(p) Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result
of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect
is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and, where appropriate, the risks specific to the liability.
A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are
lower than the unavoidable cost of meeting its obligations under the contract.
A charge for reorganisation costs is taken to the income statement when the Group has approved a detailed and formal
reorganisation plan, and the reorganisation has either commenced or the Group has a constructive obligation, for example
having made an announcement publicly to the employee or the Group as a whole.
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Notes to the consolidated financial statements
2 Significant accounting policies continued
(q) Trade and other payables
Trade and other payables are not interest bearing and are stated at amortised cost except for the contingent value note
and other contingent considerations which are recognised at fair value.
(r) Revenue recognition
Revenue represents amounts received or receivable in respect of the sale of marketed products to customers during the
year, net of trade discounts given and value added tax, and in respect of royalty arrangements.
A description of the various elements of revenue and the associated accounting policies is given below:
(i) Marketed products
The Group recognises revenue for marketed product sales when each condition of IAS18, paragraph 14 is wholly satisfied.
Where sales arrangements specify a second element of revenue contingent upon a specified event, this revenue is not
recognised until this event has occurred and it is certain that the economic benefit triggered by this event will flow to the Group.
In cases where product is sold to a customer with a right of replacement, the Group views the transaction as a multi-element
arrangement and a portion of the value from the sale is deferred and allocated to the replacement right based on the fair value
of the replacement right. Revenue is recognised net of any trade discounts that may be given from time-to-time.
(ii) Royalties
Revenues from the Group’s licensed programmes are generated following the grant of a licence to a third party to undertake
additional development and commercialisation of a research and development programme or other intellectual property rights.
In addition to an upfront payment, BTG may be entitled to additional revenues such as milestone payments or royalties on
revenues generated by the licensee. Revenues associated with royalty arrangements may in turn be linked to additional
obligations on BTG. These revenues are accounted for in line with IAS18 as follows:
Upfront and milestone payments
Non-refundable upfront and milestone payments are recognised as the earnings process is completed. This may result in full
recognition in the year in which the income is received. However, where the Group has ongoing performance obligations such
as the delivery of products or services, upfront payments are deferred over the period in which these obligations are satisfied.
Associated costs of performance obligations are expensed in the period to which they relate. In determining the performance
obligations under the contract, consideration is given as to whether elements of the obligations meet the criteria for separate
accounting. The Group applies the substantive milestone method in accounting for subsequent milestone payments. Milestone
payments that are considered substantive are recognised into income in the year in which they are received. Milestones that do
not satisfy the criteria to be considered as substantive are amortised over the remaining period in which the Group expects to
fulfil its performance obligations under the agreement. The Group considers the following when assessing whether a milestone
is considered substantive:
— Are the milestone payments non-refundable?
— Does the achievement of the milestone involve a degree of risk that was not reasonably assured at the inception
of the arrangement?
— Is substantive effort involved in achieving the milestone?
— Is the amount of the milestone payment reasonable in relation to the effort expended or the risk associated with
the achievement of the milestone?
— How does the time that passes between the payments compare to the effort required to reach the milestone?
Outlicensed product royalties
Royalty income is generated by sales of products incorporating the Group’s proprietary technology. Royalty revenues are
recognised once the amounts due can be reliably estimated based on the sale of underlying products and recoverability
is assured. Where there is insufficient historical data on sales and returns to fulfil these requirements, for example in the
case of a new product, the royalty revenue will not be recognised until the Group can reliably estimate the underlying sales.
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2 Significant accounting policies continued
(iii) Sales/assignments of IPR
Outright sales or assignments of IPR are treated as disposals of non-current assets.
(iv) Revenues received in relation to development programmes
Revenue received in relation to development programmes is recognised based on the percentage of completion of the
programme. Where payments may be earned in such programmes based on the achievement of uncertain milestones, revenue
is restricted to the cumulative cash receivable for the programme.
(s) Research and development
Research and development expenditure is charged to the income statement in the period in which it is incurred. Expenditure
incurred on development projects (relating to the design and testing of new or improved products) is recognised as intangible
assets when it is probable that the project will generate future economic benefit, considering factors including its commercial
and technological feasibility, status of regulatory approval, and the ability to measure costs reliably. Other development
expenditures are recognised as an expense as incurred. Development expenditure previously recognised as an expense
is not recognised as an asset in a subsequent period. Development expenditure that has a finite useful life and which has
been capitalised is amortised from the commencement of the commercial production of the product on a straight-line basis
over the period of its expected benefit.
No development expenditure has been capitalised in either the current or prior year.
Property, plant and equipment used for research and development is depreciated in accordance with the Group’s policy
and the cost is included within ‘Research and development’ in the income statement.
(t) Cost of sales
Cost of sales includes the direct costs incurred in manufacturing and bringing products to sale in the market and revenue
sharing costs.
Revenue sharing costs represent amounts due under royalty arrangements to licensors or assignees of technology and similar
directly attributable items. Amounts are recognised upon recognition by the Group of amounts due from a licensee. They are
recognised on an accruals basis in accordance with the individual agreements relating to the relevant technology, in line with
revenue recognition.
(u) Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards
of ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are initially recognised as assets of the Group at their fair value or, if lower, at the present
value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor
is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and
reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance
charges are charged directly against income. Such assets are depreciated over the shorter of their estimated useful lives
or the length of the lease. Assets purchased under hire purchase agreements are accounted for similarly, except that these
assets are depreciated over their estimated useful lives.
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Rentals under operating leases are charged to the income statement on a straight-line basis over the term of the relevant
lease within the appropriate functional expenditure heading.
(v) Net financial income
Net financial income comprises interest income less interest payable during the year, calculated using the effective interest
rate method, and fair value adjustments relating to foreign exchange forward contracts, contingent considerations payable
upon corporate and non-corporate acquisitions and borrowings.
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Notes to the consolidated financial statements
2 Significant accounting policies continued
(w) Income tax
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income
statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at
the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying value
of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary
differences are not provided for: where the deferred tax liability arises from the initial recognition of goodwill or of an asset or
liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting
profit nor taxable profit or loss; and in respect of taxable temporary differences associated with investments in subsidiaries
and associates, where it is probable that the temporary differences will not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying value
of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against
which the asset can be utilised.
(x) BTG Employee Share Trust
Included within the Group’s financial results are those of the BTG Employee Share Trust, the costs of which are expensed
within the financial statements of the Trust as incurred.
In the Company accounts, the cost of BTG shares held by the Trust is deducted from shareholders’ funds.
(y) Financial guarantees
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its
Group, the Company considers these to be insurance arrangements, and accounts for them as such. In this respect, the
Company treats the guarantee contracts as a contingent liability until such time as it becomes probable that the Company
will be required to make a payment under the guarantee.
(z) Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at
amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in
the statement of comprehensive income over the period of the borrowings using the effective interest rate.
(aa) Biological assets
Biological assets are recognised when the asset is controlled by the Group and it is probable future economic benefit will arise
from activities associated with the asset. Biological assets are measured at fair value less estimated point-of-sale costs.
Any gains or losses in fair value are recognised in the income statement.
3 Critical accounting judgements and key sources of estimation uncertainty
Critical accounting judgements
In the process of applying the Group’s accounting policies, described in note 2, management and the Audit Committee
discussed and agreed the selection, application and disclosure of the Group’s critical accounting policies and the estimates
used in the preparation of the accounts.
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3 Critical accounting judgements and key sources of estimation uncertainty continued
Revenue recognition
As described in note 2, it is the Group’s policy to recognise non-refundable upfront payments over the period in which any
performance obligations are satisfied. On 4 December 2008, the Group acquired Protherics which had received £16.3m from
AstraZeneca UK Ltd in a Patent and know-how Licence Agreement for AZD9773 (CytoFab™). The Group considers that its
obligations under the licence agreement consist of the licence, provision of development services, regulatory support and
steering committee participation. The Group considers that the development services and the regulatory support it can supply
will cease with the approval of AZD9773 (CytoFab™) by the FDA and while the steering committee continues to operate after
product approval by the FDA, the Group has received confirmation that its participation after this date would become voluntary.
Based on the clinical development plan to be undertaken by AstraZeneca, the Group currently estimates that its performance
under the agreement will be completed over the period to 31 December 2015 and, therefore, is recognising the £16.3m on a
straight-line basis, over the estimated performance period.
In determining the revenue recognition period, management considered the detailed criteria for the recognition of revenue per
IAS18, Revenue, and is satisfied that all requirements have been met by the Group.
Acquisitions
Judgements have been made in respect of the identification of intangible assets made on acquisitions based on pre-acquisition
forecasts, analysis and negotiations. In addition to the judgements and estimates made in establishing the intangible assets
acquired and their value, in certain instances these assets are in development and are only amortised once the development
phase has been completed, although these assets are subjected to impairment review in accordance with the accounting policy
described in note 2(m).
In addition to significant fair value adjustments in relation to intangible assets, the Group has recognised other fair value
adjustments on assets and liabilities acquired. Each adjustment has been calculated in line with the requirements of IFRS3
(revised). The most significant of these relate to:
— Inventory; where inventory acquired has been uplifted in value to be held at estimated selling price less costs to complete,
costs of disposal and a reasonable profit allowance; and
— Deferred tax; where estimates of deferred tax liabilities arising on acquired intangible assets have been recognised. Where
appropriate an associated deferred tax asset, representing management’s estimation of the value of tax losses that would
be available to the Group to offset the deferred tax liability (see below), has also been recognised.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial
year, are discussed below.
Impairment of goodwill and other intangibles
Determining whether goodwill and other intangibles are impaired requires an estimation of the value in use of the cash-
generating units to which goodwill or other intangible assets have been allocated. The value in use calculation requires
estimation of future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order
to calculate present value. There is a risk of a material adverse impact on the income statement should an impairment
adjustment be required to be reflected in the financial statements. See note 2(m) for further details.
Fair value of listed and unlisted investments
Note 17 explains the basis for estimating the fair value of listed and unlisted investments.
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Pension assumptions
Note 25 details the key actuarial assumptions used to establish the pension funding position. These represent management’s
best estimates and are chosen based on historic experience and future expectations. Should the discount rate used to
establish scheme liabilities or the long-term expected rate of return on investment vary significantly then the pension fund
valuation would be impacted.
BTG plc Annual Report and Accounts 2012
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Notes to the consolidated financial statements
3 Critical accounting judgements and key sources of estimation uncertainty continued
Deferred tax
The Group has significant deferred tax assets principally in relation to losses in the US and the UK. The assets have been
recognised on the basis that management estimates demonstrate that it is more likely than not that future taxable profit
will arise in the jurisdictions in which the losses are available. If actual events differ from management’s estimates or the
estimates are changed in the future, this could have a significant effect on the balance sheet net asset position of the Group.
In recognising deferred tax assets and liabilities, management has taken into account expected changes in tax rates in each
relevant jurisdiction.
4 Operating segments
Following the acquisition of Biocompatibles International plc on 27 January 2011, subsequent integration activities have
resulted in a change to the Group’s reportable segments, effective from 1 April 2011. The Group has aligned behind three
reportable segments, being Specialty Pharmaceuticals, Interventional Medicine and Licensing & Biotechnology.
In assessing performance and making resource allocation decisions, the Leadership Team (which is BTG’s chief operating
decision-making body) reviews contribution by segment. Contribution is defined as being gross profit less directly attributable
selling, general and administrative costs (SG&A). The Licensing & Biotechnology operating segment includes SG&A relating
to the Group’s centrally managed support functions and corporate overheads. This reflects the management structure and
stewardship of the business. No allocation of central overheads is made across the Specialty Pharmaceuticals or Interventional
Medicine operating segments. Research and development continues to be managed on a global basis, with investment
decisions being made by the Leadership Team as a whole. It is not managed by reference to the Group’s operating segments,
though each programme within the pipeline would ultimately provide revenues for one of the operating segments if successful.
There are no inter-segment transactions that are required to be eliminated on consolidation.
Prior period comparative numbers are presented in accordance with the new segmental reporting.
Year ended 31 March 2012
Specialty
Pharmaceuticals
£m
Interventional
Medicine
£m
Licensing &
Biotechnology
£m
Revenue
Cost of sales1
Gross profit
Selling, general and administrative expenses
Contribution
Amortisation and impairment of acquired intangibles
Foreign exchange gains
Research and development
Amounts written off property, plant and equipment
Profit on disposal of intangible assets and investments
Acquisition and reorganisation costs
Amounts written off investments
76.7
(18.7)
58.0
(18.6)
39.4
28.7
(8.6)
20.1
(13.3)
91.6
(29.0)
62.6
(17.0)
Total
£m
197.0
(56.3)
140.7
(48.9)
6.8
45.6
91.8
(30.7)
2.6
(39.7)
(3.0)
0.2
(1.1)
(0.2)
19.9
4.7
(1.6)
23.0
(8.4)
14.6
505.8
BTG plc Annual Report and Accounts 2012
Operating profit
Financial income
Financial expense
Profit before tax
Tax
Profit for the year
Unallocated assets
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Year ended 31 March 2011
Specialty
Pharmaceuticals
£m
Interventional
Licensing &
Medicine Biotechnology
£m
£m
35.4
(8.8)
26.6
(15.8)
10.8
5.6
(2.9)
2.7
(2.5)
0.2
70.4
(22.4)
48.0
(15.4)
32.6
Revenue
Cost of sales1
Gross profit
Selling, general and administrative expenses
Contribution
Amortisation and impairment of acquired intangibles
Amortisation of repurchase of contractual rights
Foreign exchange losses
Research and development
Profit on disposal of intangible assets and investments
Acquisition and reorganisation costs
Amounts written off investments
Operating loss
Financial income
Financial expense
Loss before tax
Tax
Profit for the year
Unallocated assets
Total
£m
111.4
(34.1)
77.3
(33.7)
43.6
(10.0)
(9.6)
(2.0)
(32.1)
1.5
(3.8)
(1.4)
(13.8)
3.1
(0.1)
(10.8)
20.0
9.2
488.5
1 2012 includes a £2.1m (10/11: £1.7m) release of the fair value uplift of inventory purchased on the acquisition of Biocompatibles International plc on
27 January 2011 within the Interventional Medicine segment representing the reversal of a fair value uplift of inventory purchased on acquisition recognised
through the income statement when the product was sold.
Revenue analysis
Analysis of revenue, based on the geographical location of customers and the source of revenue is provided below:
Geographical analysis
USA
UK
Europe (excluding UK)
Other regions
Year ended
31 March
2012
£m
Year ended
31 March
2011
£m
168.1
10.0
15.1
3.8
96.2
9.3
5.0
0.9
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111.4
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Notes to the consolidated financial statements
4 Operating segments continued
Revenue from major products and services
Product sales
Royalties
Other
Year ended
31 March
2012
£m
Year ended
31 March
2011
£m
106.7
79.2
11.1
41.2
60.3
9.9
197.0
111.4
Major customers
Products that utilise the Group’s intellectual property rights are sold by licensees. Royalty income is derived from over
70 licences. Two licences individually generated royalty income in excess of 10% of Group revenue, being £29.4m and
£24.4m respectively (10/11: Two licences generated £28.7m and £12.4m respectively).
The Group’s marketed products are sold both directly and through several distribution agreements in the USA, Europe and
Asia Pacific region. Two wholesalers individually generated income in excess of 10% of Group revenue, being £22.3m and
£21.9m respectively (10/11: One distribution agreement generated £12.4m).
5 Profit on disposal of intangible assets and investments
Profit on disposal of patents1
1 The prior year profit is shown net of £1.8m to be shared with the inventive source.
Loss relief has absorbed the tax due in respect of the profit on disposals.
6 Acquisition and reorganisation costs
BTG plc and Biocompatibles International plc costs
Year ended
31 March
2012
£m
Year ended
31 March
2011
£m
0.2
1.5
Year ended
31 March
2012
£m
Year ended
31 March
2011
£m
1.1
3.8
The Group considers ‘Acquisition and reorganisation costs’ to include transaction costs of completing the acquisition and those
costs resulting directly from decisions to rationalise both operating sites and business operations. In the prior year transaction
costs of £3.0m were expensed in relation to the acquisition of Biocompatibles International plc.
7 Amounts written off investments
Amounts written off investments
Year ended
31 March
2012
£m
Year ended
31 March
2011
£m
0.2
1.4
In the prior year an impairment charge of £1.4m was recognised in the consolidated income statement in relation to one of the
Group’s equity investments in an unlisted drug development company.
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8 Operating profit/(loss)
Year ended 31 March 2012
Year ended 31 March 2011
Existing
operations
£m
Acquisitions
£m
Continuing
operations
£m
Existing
operations
£m
Acquisitions
£m
Revenue
Cost of sales1
Gross profit
Operating expenses
Research and development
Profit on disposal of assets and investments
Amounts written off property, plant and equipment
Acquisition and reorganisation costs
Amounts written off investments
Operating profit/(loss)
197.0
(56.3)
140.7
(77.0)
(39.7)
0.2
(3.0)
(1.1)
(0.2)
19.9
–
–
–
–
–
–
–
–
–
–
197.0
(56.3)
140.7
(77.0)
(39.7)
0.2
(3.0)
(1.1)
(0.2)
19.9
105.4
(31.1)
74.3
(52.8)
(30.6)
1.5
–
(3.8)
(1.4)
(12.8)
6.0
(3.0)
3.0
(2.5)
(1.5)
–
–
–
–
(1.0)
Continuing
operations
£m
111.4
(34.1)
77.3
(55.3)
(32.1)
1.5
–
(3.8)
(1.4)
(13.8)
1 In accordance with IFRS3 Revised, Business Combinations, inventory acquired upon corporate acquisitions has been adjusted to fair value to reflect the profit
earned based on the stage of manufacture at the date of acquisition (see note 34). During the year £2.1m (10/11: £1.7m) of fair value adjustments was
incorporated within the cost of sales as the inventory was sold to customers.
Operating profit/(loss) has been arrived at after charging/(crediting):
Depreciation and other amounts written off property, plant and equipment
Amortisation and impairment of intangible assets
Amounts written off investments
Net foreign exchange (gains)/losses
Research and development expenses
Staff costs
Operating lease rentals payable on property
Operating lease rentals receivable on property
Reorganisation costs, including release of onerous lease provision
The analysis of the auditor’s remuneration is as follows:
The auditing of accounts of any associate of the company
Audit related assurance services
Taxation compliance services
All services relating to corporate finance transactions entered into or proposed
to be entered into by or on behalf of the Company or any of its associates
All other non audit services
Year ended
31 March
2012
£m
Year ended
31 March
2011
£m
6.2
31.9
0.2
(2.6)
39.7
40.6
1.9
–
1.1
2.4
21.5
1.4
2.0
32.1
26.8
1.3
(0.3)
3.8
Note
16
15
7
9
6
Year ended
31 March
2012
£’000
Year ended
31 March
2011
£’000
418
50
46
–
–
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433
47
380
21
A description of the work of the Audit Committee is set out on pages 54 to 58 and includes an explanation of how auditor
objectivity and independence is safeguarded when non-audit services are provided by the auditor.
BTG plc Annual Report and Accounts 2012
99
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Notes to the consolidated financial statements
9 Staff costs
Staff costs (including directors’ emoluments and reorganisation costs) are as follows:
Salaries
Social security costs
Defined contribution pension costs
Defined benefit pension costs
Equity-settled transactions
Year ended
31 March
2012
£m
Year ended
31 March
2011
£m
32.8
3.3
1.7
0.4
2.4
40.6
21.6
2.1
1.3
0.7
1.1
26.8
Staff costs in the year ended 31 March 2011 include those relating to Biocompatibles International plc for the period from
acquisition to the end of the financial year, being approximately 2 months.
Key management personnel are considered to be the directors and their remuneration is disclosed within the Remuneration
Report on pages 61 to 75. In addition to the disclosures in the Remuneration Report, the charge to income in respect of
equity-settled transactions of key management personnel, in accordance with IFRS2, was £0.9m (10/11: £0.6m).
The average number of persons employed by the Group during the year (including executive directors), analysed by category,
was as follows:
Management
Research and production
Administration and business support
Year ended
31 March
2012
Number
Year ended
31 March
2011
Number
50
312
136
498
36
213
82
331
Staff numbers in the year ended 31 March 2011 include those relating to Biocompatibles International plc for the period from
acquisition to the end of the financial year, being approximately 2 months.
10 Financial income
Interest receivable on money-market and bank deposits
Fair value changes on Contingent Value Notes1
Fair value changes of borrowings2
Fair value changes of foreign exchange forward contracts
Year ended
31 March
2012
£m
Year ended
31 March
2011
£m
0.7
1.1
2.9
–
4.7
0.4
–
–
2.7
3.1
1 Contingent Value Notes
As part of BTG’s acquisition of Biocompatibles on 27 January 2011, 487 Biocompatibles shareholders elected to receive
in aggregate 10,722,465 Contingent Value Notes (CVNs) providing a right to a payment of the Sterling equivalent of €0.56 per
Biocompatibles share if AstraZeneca exercised its option to enter into a licence agreement relating to CM-3 on the pre-agreed
terms. As a result of AstraZeneca’s decision to terminate the development and option agreement (see note 15), it is highly unlikely
that any payment will be made in relation to the CVNs. The payment obligation would only now arise if BTG enters into another form
of licence, sale or other disposal of the GLP-1 asset to AstraZeneca prior to 31 December 2012. The BTG Board does not believe
that there is any realistic possibility that this will occur. Accordingly, the Group has derecognised a liability of £1.1m in relation
to the CVN through the income statement in financial income in the acquisition adjustments and reorganisation costs column.
100
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BTG plc Annual Report and Accounts 2012
10 Financial income continued
2 Borrowings
Following the withdrawal of the Novabel® product from the market, termination of the supply agreement with Merz and
subsequent impairments recognised within property, plant and equipment and intangible assets, the Group has derecognised
a £2.8m loan from Merz as there is no obligation for this to be repaid. The loan was received to fund the purchase of property,
plant and equipment for use in the manufacture of Novabel® and was repayable out of revenues.
11 Financial expense
Interest payable on finance lease and hire purchase borrowings
Fair value changes of foreign exchange forward contracts
Others
12 Tax
An analysis of the tax charge/(credit) for the year, all relating to current operations, is as follows:
Current tax
UK corporation tax charge
Overseas corporate tax charge
Overseas income tax
Adjustments in respect of prior years
Total current tax
Deferred taxation
Deferred tax
Reduction in UK tax rate
Deferred tax recognised following US reorganisation
Total tax charge/(credit) for the year
Year ended
31 March
2012
£m
Year ended
31 March
2011
£m
–
1.5
0.1
1.6
0.1
–
–
0.1
Year ended
31 March
2012
£m
Year ended
31 March
2011
£m
2.8
0.9
–
0.2
3.9
5.3
(0.8)
–
8.4
–
0.2
1.4
–
1.6
(5.8)
2.8
(18.6)
(20.0)
UK corporation tax is calculated at 26% (10/11: 28%) of the estimated taxable profit for the year. Taxation for other jurisdictions
is calculated at the rates prevailing in the respective jurisdictions.
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101
Financials
Notes to the consolidated financial statements
12 Tax continued
Reconciliation of the effective tax rate:
Profit/(loss) before tax
Tax using UK corporation tax rate of 26% (10/11: 28%)
Effect of overseas tax rates
Overseas withholding tax
Unrecognised losses
Non-deductible expenses
Additional tax credit for research and development expenditure
Change in unrecognised deferred tax assets
Adjustment to tax rates
Adjustments in respect of prior years
Year ended
31 March
2012
£m
Year ended
31 March
2011
£m
23.0
(10.8)
5.9
2.9
–
0.5
0.3
(0.6)
1.6
(0.8)
(1.4)
8.4
(3.0)
(1.2)
1.4
(0.7)
1.5
(0.6)
(20.2)
2.8
–
(20.0)
An analysis of amounts included in the consolidated statement of financial position in respect of income taxes is shown below:
Current assets
UK corporation tax receivable
Current liabilities
UK corporation tax payable
Overseas corporate tax payable
Overseas tax payable on royalties
Year ended
31 March
2012
£m
Year ended
31 March
2011
£m
–
1.0
0.9
1.2
–
2.1
–
0.2
0.1
0.3
Deferred taxation
The movements in the deferred tax asset and liabilities (prior to the offsetting of balances within the same jurisdiction as
permitted by IAS12, Income Taxes) during the year are as shown below. The deferred tax asset and liabilities are only offset
where there is a legally enforceable right of offset and there is an intention to settle the balance net.
Deferred tax asset
Deferred tax asset recognised at 1 April
Income statement credit
Exchange differences
Deferred tax asset recognised at 31 March
Year ended
31 March
2012
£m
Year ended
31 March
2011
£m
0.9
0.1
–
1.0
0.6
0.2
0.1
0.9
The deferred tax asset relates to short-term timing differences in Australia. It has been recognised using a tax rate of 30%
(10/11: 30%) because the directors are of the opinion, based on recent and forecast trading, that the level of profits in Australia
in the forthcoming years will lead to the realisation of this asset.
102
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BTG plc Annual Report and Accounts 2012
12 Tax continued
Deferred tax liability
The deferred tax liability of £35.2m (10/11: £30.7m) represents the net position after taking into account the offset of deferred
tax assets against deferred tax liabilities in each jurisdiction. Deferred tax liabilities of £72.7m arise on intangible assets
recognised at fair value on acquisitions and £0.4m on accelerated capital allowances. Deferred tax assets relate to brought
forward trading losses. The table below summarises the gross and net position at each balance sheet date:
At 1 April 2010
Acquisitions
Income statement credit/(debit)
Exchange differences
At 1 April 2011
Adjustments re prior years
Income statement credit/(debit)
Exchange differences
Other
At 31 March 2012
Deferred
tax assets
£m
Deferred
tax liabilities
£m
Net deferred
tax liability
£m
15.0
19.1
22.1
(0.8)
55.4
(1.4)
(16.2)
0.1
–
(48.4)
(39.5)
(0.7)
2.5
(86.1)
2.8
9.9
(0.1)
0.4
(33.4)
(20.4)
21.4
1.7
(30.7)
1.4
(6.3)
–
0.4
37.9
(73.1)
(35.2)
In the prior year the Group recognised an additional deferred tax asset of £18.6m in relation to brought forward US tax losses.
In accordance with IAS12, this asset was set off against the Group’s aggregate US deferred tax liability. The asset was
recognised following the completion of a tax-free reorganisation of certain of the Group’s US taxable entities on 31 March 2011.
As a result of this, when performing its annual assessment of the probability of utilising such losses, management concluded
that there was sufficient certainty over the future utilisation of the losses to recognise a deferred tax asset.
The 2012 Budget on 21 March 2012 announced that the UK corporation tax rate will reduce to 22% by 2014. A reduction in the
rate from 26% to 25% (effective from 1 April 2012) was substantively enacted on 5 July 2011, and a further reduction to 24%
(effective from 1 April 2012) was substantively enacted on 26 March 2012. This will reduce the Group’s future current tax
charge accordingly. The UK deferred tax asset and liability at 31 March 2012 has been calculated based on the rate of 24%
substantively enacted at the balance sheet date. It has not yet been possible to quantify the full anticipated effect of the
announced further 2% rate reduction, although this will further reduce the Group’s future current tax charge and reduce the
Group’s deferred tax asset and liability accordingly.
Unrecognised tax losses
In addition to the losses on which a deferred tax asset has been recognised, the Group has additional tax losses and other
timing differences in the UK and the US which arose as a result of the research and development incurred during the start
up of the Group’s activities. These losses and timing differences are shown below. The UK tax losses can be carried forward
indefinitely. The US tax losses can be carried forward for 20 years and the first year in which they expire is 2013. A deferred
tax asset has not been recognised in respect of the losses and timing differences shown below as there is uncertainty as
to whether such losses and timing differences can be used. The total amount of tax losses and timing differences not
recognised is shown below:
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Tax losses
Deductible temporary differences
Year ended
31 March
2012
£m
Year ended
31 March
2011
£m
157.4
15.9
180.4
12.2
173.3
192.6
BTG plc Annual Report and Accounts 2012
103
Financials
Notes to the consolidated financial statements
13 Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
Profit for the financial year (£m)
Profit per share (p)
Basic
Diluted
Number of shares (m)
Weighted average number of shares – basic
Effect of share options on issue
Weighted average number of shares – diluted
The basic and diluted earnings per share from underlying earnings are based on the following data:
Profit for the financial year (£m)
Add back:
Fair value adjustment on acquired inventory1
Fair value adjustment on royalty income
Amortisation of acquired intangible fixed assets2
Acquisition and reorganisation costs including CVN write back3
Reorganisation of US corporate structure4
Underlying earnings
Underlying profit per share (p)
Basic
Diluted
Year ended
31 March
2012
Year ended
31 March
2011
14.6
9.2
4.5
4.4
3.4
3.4
325.9
3.4
268.5
2.5
329.3
271.0
Year ended
31 March
2012
Year ended
31 March
2011
14.6
9.2
2.1
0.1
19.3
(0.1)
1.0
37.0
11.4
11.2
1.7
–
6.6
3.8
(18.6)
2.7
1.0
1.0
Adjustments to profit are shown after taking into account the tax effect of such adjustments on the results as shown in the
consolidated income statement as follows:
1 No tax adjustment is required on the fair value of acquired inventory.
2
The release of deferred tax liability of £11.4m (10/11: £3.4m) has been deducted from the amortisation and impairment
of acquired intangible assets of £30.7m (10/11: £10.0m) as shown in the consolidated income statement.
In the year ended 31 March 2012, £0.1m of tax effect of reorganisation costs has been adjusted on the basis that the
tax charge would have been £0.1m higher had it not been for deductions available against reorganisation costs paid
in the financial year. In the year ended 31 March 2011 a reorganisation cost of £3.8m in the consolidated income
statement was not adjusted for tax as there was no expectation of the costs being deductible for tax in that financial year.
An adjustment was made for the deferred tax credit recognised as a result of the completion of a tax-free reorganisation
in the prior year and subsequent review of such items in the current year.
3
4
104
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BTG plc Annual Report and Accounts 2012
14 Goodwill
At 1 April 2010
Additions
At 1 April 2011
Additions
At 31 March 2012
Accumulated impairment losses
At 1 April 2010, 1 April 2011 and 31 March 2012
Net book value at 31 March 2012
Net book value at 1 April 2011
Net book value at 1 April 2010
£m
30.3
28.9
59.2
–
59.2
–
59.2
59.2
30.3
Additions of £28.9m in the year ended 31 March 2011 relate to the acquisition of Biocompatibles International plc on
27 January 2011 (see note 34).
Impairment review – goodwill and intangible assets
An impairment review of the carrying value of goodwill and unamortised intangible assets was conducted as at 31 March 2012.
Goodwill arose on the acquisitions of Protherics PLC and Biocompatibles International plc (see note 34). This has been allocated
across the Group’s cash generating units, being its operating segments (see note 4). Goodwill recognised on acquisitions has
been allocated across operating segments in proportion to the anticipated benefits of that goodwill on the operating segment,
having regard for the assets and liabilities acquired. The carrying value of goodwill has been allocated as relating to Specialty
Pharmaceuticals, £16.4m (10/11: £16.4m), as relating to Interventional Medicine, £22.6m (10/11: £22.6m) and in relation
to Licensing & Biotechnology, £20.1m (10/11: £20.1m). Prior period comparative numbers are presented in accordance with
the new segmental reporting.
The impairment review required the estimation of the recoverable amount based on the value in use of the underlying cash
generating unit. Near-term projections are based on the Group’s approved three-year plan. Longer term projections through
to the end of an asset’s estimated useful economic life are included due to the long-term nature of pharmaceutical product
development and product life cycles.
The main assumptions on which the forecast cash flows were based include market share and gross margin for the marketed
products, individual probability-adjusted cash flow models for all in-process research and development and an assessment
of the net present value of future net royalty income for licensed patents.
Cash flow projections for all assets were included for a period equal to the estimated useful economic life of the assets.
No terminal values were applied. All cash flows were discounted back to present value using a pre-tax discount rate of between
7% (10/11: 7%) for net royalty income and 28% (10/11: 28%) for in-process research and development, which takes into
account the individual risk characteristics of each particular asset and related income stream.
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For developed technology, the Group uses its approved three-year plan for its near-term sales projections, adjusting for expected
changes in future conditions, including those anticipated as a result of our knowledge of competitor activity and our assessment
of future changes in the pharmaceutical industry for long-term projections.
For contractual relationships, the Group uses the same basic methodology as for developed technology but limits the projection
period to the appropriate useful economic life of the contractual relationship.
BTG plc Annual Report and Accounts 2012
105
Financials
Notes to the consolidated financial statements
14 Goodwill continued
For in-process research and development the key assumptions are the chance of product launch, market share and overall
market size. Industry average statistics are used to assess the chance of product launch, taking into account the stage
of development of the asset, the therapeutic area targeted and any known specific characteristics of the asset. Market share
and overall market size are assessed by reference to independent industry market reports.
In assessing whether there has been an impairment, the net present value of future cash flows is compared to the carrying
value in the accounts.
15 Intangible assets
Cost
At 1 April 2010
Additions
Acquired with Biocompatibles
Disposals
Currency movements
At 1 April 2011
Additions
Transfers
Disposals
Currency movements
At 31 March 2012
Amortisation
At 1 April 2010
Provided during the year
Impairments
Write back on disposals
Currency movements
At 1 April 2011
Provided during the year
Impairments
Write back on disposals
Currency movements
At 31 March 2012
Net book value
At 31 March 2012
At 1 April 2011
At 1 April 2010
Developed
technology
£m
Contractual
relationships
£m
In-process
research and
development
£m
Computer
software
£m
Purchase
of contractual
rights
£m
Patents
£m
117.4
–
118.8
–
(6.0)
230.2
–
3.9
–
–
234.1
6.3
6.2
–
–
(0.5)
12.0
12.3
5.0
–
(0.2)
29.1
205.0
218.2
111.1
35.2
–
6.7
–
(1.9)
40.0
–
–
–
0.1
40.1
5.4
3.8
–
–
(0.4)
8.8
4.7
–
–
–
13.5
26.6
31.2
29.8
7.7
–
11.0
–
0.1
18.8
–
(3.9)
–
(0.1)
14.8
0.8
0.1
–
–
–
0.9
–
8.8
–
–
9.7
5.1
17.9
6.9
–
–
0.3
–
–
0.3
0.3
–
–
–
0.6
–
–
–
–
–
–
0.1
–
–
–
0.1
0.5
0.3
–
13.0
0.4
–
(0.1)
(0.1)
13.2
0.3
–
(0.2)
–
13.3
8.1
0.6
1.2
(0.1)
–
9.8
0.6
0.3
(0.2)
0.1
10.6
2.7
3.4
4.9
Total
£m
173.3
10.1
136.8
(0.1)
(8.1)
312.0
6.7
–
(0.2)
0.1
–
9.7
–
–
(0.2)
9.5
6.1
–
–
0.1
15.7
318.6
–
9.6
–
–
(0.1)
9.5
0.1
–
–
–
9.6
20.6
20.3
1.2
(0.1)
(1.0)
41.0
17.8
14.1
(0.2)
(0.1)
72.6
6.1
246.0
–
–
271.0
152.7
Amortisation relating to acquired intangibles is shown on the face of the income statement within ‘Amortisation of acquired
intangibles’. All other amortisation and impairment is shown within ‘Selling, general and administrative expenses’ in ‘Operating
expenses’.
106
Financials
BTG plc Annual Report and Accounts 2012
15 Intangible assets continued
Developed technology
Developed technology relates to both the antidote assets acquired in Protherics PLC, comprising principally of the rights
to CroFab® and DigiFab®, and the bead assets acquired in Biocompatibles International plc, comprising principally of the rights
to the DC Bead® and LC Bead™. The carrying value of individually significant assets within developed technology is:
CroFab®
DigiFab®
DC Bead® and LC Bead™
31 March
2012
£m
31 March
2011
£m
Remaining
amortisation
period at
31 March
2012
72.8
23.5
98.3
75.9
24.5
105.4
21.7 years
21.7 years
13.8 years
Contractual relationships
Contractual relationships relates to contracts acquired in Protherics PLC and Biocompatibles International plc. The carrying
value and remaining amortisation period of individually significant contracts is:
31 March
2012
£m
31 March
2011
£m
Remaining
amortisation
period at
31 March
2012
Licence agreement with AstraZeneca for AZD9773 (CytoFab™)
22.9
24.9
10.7 years
Purchase of contractual rights
On 6 July 2011 BTG signed an agreement with Wellstat Therapeutics Corporation to acquire the US commercial rights for
product candidate uridine triacetate. BTG paid Wellstat an upfront fee of $7.5m and will make milestone payments upon NDA
acceptance and approval and inventory purchase payments based on manufacturing costs and a significant percentage of net
sales. The purchase price was capitalised at 6 July 2011 and will be amortised over the 10 year period starting from marketing
approval, representing the length of the exclusive period and point at which BTG will begin to generate economic returns from
the product.
On 27 August 2010 BTG signed an agreement with Nycomed US Inc. concerning the accelerated transition to BTG on 1 October
2010 of marketing rights to CroFab® and DigiFab®. Under the terms of the agreement, BTG purchased the exclusive rights to sell
the products for which a consideration of £9.7m was paid in October 2010. The purchase price was capitalised and amortised
over the six-month period ending 31 March 2011 representing the length of the exclusive period.
Impairments
Impairment charges have been made within the acquisition adjustments and reorganisation costs column against two acquired
intangible assets in the period:
— On 13 May 2011 the Group announced that they had been informed by AstraZeneca that AstraZeneca had terminated
the development and option agreement relating to CM-3, a GLP-1 analogue being developed by BTG’s CellMed subsidiary
for use in type 2 diabetes and other indications. The carrying value of the intangible asset associated with the GLP-1 asset
was £8.8m which has been fully impaired in the year and is included within in-process research and development.
— A further £3.6m impairment charge has been made in the period against the Group’s carrying value of the Novabel®
intangible asset and is included within developed technologies. The product has been withdrawn from the market since
June 2010 and Merz has terminated the supply agreement with the Group.
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107
Financials
Notes to the consolidated financial statements
16 Property, plant and equipment
Cost or valuation
At 1 April 2010
Additions
Acquired with Biocompatibles
Transfers
Disposals
Currency movements
At 1 April 2011
Additions
Transfers
Disposals
Currency movements
At 31 March 2012
Depreciation
At 1 April 2010
Provided during the year
Transfers
Disposals
Currency movements
At 1 April 2011
Provided during the year
Impairments
Disposals
Currency movements
At 31 March 2012
Net book value at 31 March 2012
Net book value at 1 April 2011
Net book value at 1 April 2010
Leasehold
improvements
£m
Freehold land
and buildings
£m
Plant and
machinery,
furniture and
equipment
£m
Assets in the
course of
construction
£m
2.4
0.1
0.3
(1.6)
–
–
1.2
–
0.2
(0.1)
–
1.3
0.7
0.2
(0.7)
–
–
0.2
0.2
–
(0.1)
–
0.3
1.0
1.0
1.7
1.2
9.3
–
1.6
–
0.8
12.9
0.2
–
–
0.1
13.2
0.3
0.4
0.7
–
0.1
1.5
0.6
–
–
–
2.1
11.1
11.4
0.9
12.8
1.7
1.2
–
(0.7)
0.3
15.3
2.0
0.2
(1.6)
–
15.9
4.8
1.8
–
(0.7)
0.3
6.2
2.4
3.0
(1.5)
0.1
10.2
5.7
9.1
8.0
–
0.1
3.1
–
–
0.1
3.3
1.6
(0.4)
(0.2)
(0.1)
4.2
–
–
–
–
–
–
–
–
–
–
–
4.2
3.3
–
Total
£m
16.4
11.2
4.6
–
(0.7)
1.2
32.7
3.8
–
(1.9)
–
34.6
5.8
2.4
–
(0.7)
0.4
7.9
3.2
3.0
(1.6)
0.1
12.6
22.0
24.8
10.6
The net book value of plant and machinery and furniture, fixtures and equipment includes £0.5m (10/11: £1.8m) in respect
of assets held under finance lease and hire purchase agreements. Depreciation for the year on those assets was £0.2m
(10/11: £0.3m).
An impairment charge of £3.0m has been made against tangible fixed assets that would have been used exclusively for
production of Novabel®. The product has been withdrawn from the market since June 2010 and Merz has terminated the supply
agreement with the Group. This adjustment has not been reflected in acquisition adjustments and reorganisation costs column.
108
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BTG plc Annual Report and Accounts 2012
17 Other investments
At 1 April
Additions
Fair value movements
Impairment charge
Currency movements
At 31 March
2012
£m
2.7
0.5
–
(0.2)
–
3.0
2011
£m
3.7
0.5
(0.1)
(1.5)
0.1
2.7
Other investments comprise non-current equity investments which are available-for-sale that are recorded at fair value at each
balance sheet date. The fair value of unlisted investments is estimated to be the valuation following the latest round of equity
funding. In the absence of specific market data the Group determines that cost is equal to fair value.
Where the fair value of an available-for-sale asset is impaired, the impairment charge is recognised in the income statement,
together with any amounts recycled from the fair value reserve (see note 21). These impairments initially arise from the
prolonged or significant decline in the fair value of the equity investments below acquisition cost, subsequent to which any
further decline in fair value is immediately taken to the income statement. In the prior year £0.1m was recycled from the fair
value reserve on the impairment of investments.
18 Inventories
Raw materials and consumables
Work in progress
Finished goods
31 March
2012
£m
31 March
2011
£m
6.6
12.4
2.8
21.8
4.4
11.1
4.5
20.0
During the period a fair value adjustment of £2.1m (10/11: £1.7m) was recognised through cost of sales (see note 34) leaving
£nil (10/11: £2.1m) of fair value uplift recognised on the acquisition of Biocompatibles International plc remaining. Inventory
to the value of £1.5m (10/11: £nil) was written off through cost of sales.
19 Trade and other receivables
Due within one year
Revenues receivable, net of provisions
Other debtors
Prepayments and accrued income
31 March
2012
£m
31 March
2011
£m
20.4
3.6
16.1
40.1
15.8
4.5
12.4
32.7
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109
Financials
Notes to the consolidated financial statements
19 Trade and other receivables continued
Managing credit risk:
‘Revenues receivable, net of provisions’ represents accrued royalty income for the period to 31 March 2012 and certain other
amounts receivable under licence agreements.
The ageing of these amounts was as follows:
Not past due
0–30 days
31–90 days
> 90 days
Total
31 March 2012
31 March 2011
Gross
£m
19.8
0.5
0.1
0.8
21.2
Provision
£m
–
–
–
(0.8)
(0.8)
Gross
£m
14.3
0.4
–
1.8
16.5
Provision
£m
–
–
–
(0.7)
(0.7)
Provisions for bad debts of £0.8m (31 March 2011: £0.7m) have been made to write down the value of doubtful receivables
to estimated recoverable amounts. The charge to income for the year to 31 March 2012 in respect of provisions for bad debts
was £0.5m (10/11: £nil).
20 Cash and cash equivalents
Bank balances
Cash and cash equivalents in statement of cash flows
31 March
2012
£m
106.9
106.9
31 March
2011
£m
63.7
63.7
Cash deposits with a maturity of greater than three months are classified as held to maturity financial assets.
Held to maturity financial assets
Bank deposits
31 March
2012
£m
31 March
2011
£m
5.0
10.2
The effective interest rate on held to maturity financial assets was 3.5% (31 March 2011: 2.4%) and these deposits had an
average maturity of ten months.
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BTG plc Annual Report and Accounts 2012
21 Equity
Other reserves are analysed as follows:
At 1 April 2010
Total recognised income and expense
At 1 April 2011
Total recognised income and expense
At 31 March 2012
Translation
reserve
£m
Fair value
reserve
£m
Total other
reserves
£m
(1.1)
(2.7)
(3.8)
(0.3)
(4.1)
0.2
(0.1)
0.1
–
0.1
(0.9)
(2.8)
(3.7)
(0.3)
(4.0)
The merger reserve is used where more than 90% of the shares in a subsidiary are acquired and the consideration includes
the issue of new shares by the Company, thereby attracting merger relief under s612 and s613 of the Companies Act 2006.
The balance on the merger reserve has arisen through the acquisitions of Biocompatibles International plc on 27 January 2011
(see note 34) and Protherics PLC on 4 December 2008 and includes directly attributable costs of issuing shares of £1.1m
relating to the acquisition of Biocompatibles International plc.
The issued and fully paid share capital of the Company is shown below:
Ordinary shares of 10p each
At 1 April
Issued for cash
Issued in consideration of Biocompatibles acquisition (note 34)
326,725,906
566,959
–
At 31 March
327,292,865
2012
Number
2011
Number
257,637,576
365,086
68,723,244
326,725,906
£m
32.7
–
–
32.7
£m
25.8
–
6.9
32.7
The share issued in the current and prior year were as a result of the acquisition of the Biocompatibles Group and the exercise
of share awards.
Share awards
Details of outstanding share awards are set out in note 26.
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111
Financials
Notes to the consolidated financial statements
22 Trade and other payables
Amounts falling due within one year
Trade payables
Accruals and deferred income
Other creditors
Amounts falling due after more than one year
Accruals and deferred income
Contingent value note (see note 34)
Other creditors
23 Derivative financial instruments
Contracts with positive fair values:
Forward foreign exchange contracts
Derivative instrument assets
31 March
2012
£m
31 March
2011
£m
6.0
45.9
3.5
55.4
4.7
–
0.3
5.0
8.2
38.8
3.2
50.2
5.4
1.1
0.6
7.1
31 March
2012
£m
31 March
2011
£m
0.5
0.5
2.0
2.0
The Group utilises foreign currency derivatives to hedge significant future transactions and cash flows.
At 31 March 2012 the Group had forward contracts to sell US$25m in the period to September 2012 at rates in the range
£1:US$1.54–£1:US$1.60. The fair value of these derivative financial instruments was marked-to-market at 31 March
2012 at £0.5m.
At 31 March 2012 the Group had a forward contract to buy AU$1m in April 2012 at a rate of £1:AU$1.52. The fair value
of this forward contract was marked-to-market at 31 March 2012 at £nil.
At 31 March 2011 the Group had forward contracts to sell US$49m in the period to March 2012 at rates in the range
£1:US$1.44–£1:US$1.60 and €1m in the period to August 2011 at rates in the range of £1:€1.1982–£1:€1.1987.
The fair value of these derivative financial instruments was marked-to-market at 31 March 2011 at £2.0m.
The fair value loss for the year associated with these forward contracts was included within ‘Financial expense’ (10/11: gain
included within ‘Financial income’).
A 5% weakening of the US$ as at 31 March 2012, all other variables being unchanged, would result in an additional £0.8m
gain within ‘Financial income’ in the income statement and a fair value asset increase of £1.3m within ‘Derivative instruments’
within current assets. A 5% strengthening of the US$ would result in a £0.8m reduction within ‘Financial income’ and a
decrease in ‘Derivative instruments’ to £nil within current assets with the Group recognising a current liability of £0.3m within
‘Derivative instruments’.
112
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BTG plc Annual Report and Accounts 2012
24 Borrowings
Amounts falling due after more than one year
31 March
2012
£m
31 March
2011
£m
–
2.9
Following the withdrawal of the Novabel® product from the market, termination of the supply agreement with Merz and
subsequent impairments recognised within tangible and intangible assets, the Group has derecognised a £2.8m loan from
Merz as there is no obligation for this to be repaid. The loan was received to fund the purchase of property, plant and equipment
for use in the manufacture of Novabel® and was repayable out of revenues. This has been recognised within Financial income
in the consolidated income statement but not in the acquisition adjustments and reorganisation costs column.
The Group had no undrawn committed borrowing facilities at 31 March 2012 (31 March 2011: £nil).
25 Retirement benefit plans
Defined benefit plan
For eligible UK employees the Group operates a funded pension plan providing benefits based on final pensionable emoluments.
The plan was closed to new entrants as of 1 June 2004. The assets of the plan are held in a separate trustee administered
fund. The plan has a history of granting increases to pensions in line with price inflation, and these increases are reflected
in the measurement of the obligation.
The results of the formal valuation of the plan as at 31 March 2010 were updated to the accounting date by an independent
qualified actuary in accordance with IAS19.
In July 2010, the government announced its intention that future statutory minimum pension indexation would be measured
by the Consumer Prices Index, rather than the Retail Prices Index (RPI). The Group continues to value its pension fund liability
on the basis of RPI.
The expected rate of return on assets for the financial year ending 31 March 2012 was 5.4% pa (10/11: 5.6% pa). This rate
is derived by taking the weighted average of the long-term expected rate of return on each of the asset classes that the plan
was invested in at 31st March 2011, based on the plan’s long-term investment strategy at that date.
The estimated amount of total employer contributions expected to be paid to the plan during 2012/13 is £4.9m (2011/12
actual: £5.2m). The estimate is based on the current schedule of contributions agreed as part of the formal valuation of the
plan as at 31 March 2010.
The following table sets out the key IAS19 assumptions used for the plan:
31 March
2012
31 March
2011
31 March
2010
Retail price inflation
Discount rate
Pension increases in deferment – RPI inflation
Pension increases in payment – RPI inflation
Pension increases in payment – inflation capped at 2.5%
General salary increases
Life expectancy at age 60 of a male age 60 at the accounting date
Life expectancy at age 60 of a male age 40 at the accounting date
3.5% p.a. 3.7% p.a. 3.9% p.a.
4.7% p.a. 5.5% p.a. 5.5% p.a.
3.5% p.a. 3.7% p.a. 3.9% p.a.
3.5% p.a. 3.7% p.a. 3.9% p.a.
2.3% p.a. 2.3% p.a. 2.4% p.a.
3.5% p.a. 3.7% p.a. 3.9% p.a.
88.2
90.4
87.3
88.8
87.3
88.9
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Notes to the consolidated financial statements
25 Retirement benefit plans continued
The amount included in the statement of financial position arising from the Group’s obligations in respect of the plan is as follows:
Present value of defined benefit obligation
Fair value of scheme assets
Net liability recognised in the statement of financial position
This amount is presented in the statement of financial position within non-current liabilities.
The amounts recognised in the income statement in respect of the plan are as follows:
Employer’s part of current service cost
Interest cost
Expected return on plan assets
Total expense included in income statement
31 March
2012
£m
(108.6)
108.5
31 March
2011
£m
31 March
2010
£m
(96.8)
94.8
(98.3)
89.1
(0.1)
(2.0)
(9.2)
Year ended
31 March
2012
£m
Year ended
31 March
2011
£m
0.4
5.2
(5.2)
0.4
0.4
5.3
(5.0)
0.7
The expense has been included in ‘Operating expenses: Selling, general and administrative expenses’.
The allocation of the plan’s assets is as follows:
Equity instruments
Diversified growth funds
Debt instruments
Cash/net current assets
Changes in the present value of the defined benefit obligation are as follows:
Defined benefit obligation at 1 April
Employer part of current service cost
Interest cost
Contributions from plan members
Actuarial loss/(gain) on scheme liabilities
Benefits paid
Defined benefit obligation at 31 March
31 March
2012
%
31 March
2011
%
31 March
2010
%
15
14
70
1
17
14
68
1
19
14
66
1
100
100
100
31 March
2012
£m
31 March
2011
£m
96.8
0.4
5.2
0.1
10.6
(4.5)
108.6
98.3
0.4
5.3
0.1
(3.0)
(4.3)
96.8
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BTG plc Annual Report and Accounts 2012
25 Retirement benefit plans continued
Changes in the fair value of the plan assets are as follows:
Fair value of plan assets at 1 April
Expected return on plan assets
Actuarial gains on scheme assets
Contributions by the employer
Contributions by plan members
Benefits paid
Fair value of plan assets at 31 March
31 March
2012
£m
31 March
2011
£m
94.8
5.2
7.7
5.2
0.1
(4.5)
108.5
89.1
5.0
0.9
4.0
0.1
(4.3)
94.8
The actual return on the plan’s assets over the year was £12.9m (10/11: £5.9m).
The amount recognised outside profit and loss in other comprehensive income for 2012 is a loss of £2.9m (10/11: gain of £3.9m).
The cumulative amount recognised outside profit and loss as at 31 March 2012 is a loss of £10.7m (10/11: loss of £7.8m)
The history of experience adjustment is as follows:
Present value of defined benefit obligations
Fair value of plan assets
31 March
2012
£m
(108.6)
108.5
31 March
2011
£m
31 March
2010
£m
31 March
2009
£m
31 March
2008
£m
(96.8)
94.8
(98.3)
89.1
(74.9)
74.9
(81.8)
76.9
Deficit in the scheme
(0.1)
(2.0)
(9.2)
–
(4.9)
Experience adjustments on plan assets
Amount of (gain)/loss (£m)
Percentage of plan assets (%)
Experience adjustments on plan liabilities
Amount of loss/(gain) (£m)
Percentage of the present value of plan liabilities (%)
31 March
2012
31 March
2011
31 March
2010
31 March
2009
31 March
2008
(7.7)
7
1.5
1
(0.9)
1
3.4
4
(10.4)
12
(2.5)
(3)
7.4
(10)
–
–
(0.4)
–
6.3
8
The sensitivities regarding the principal assumptions used to measure the plan liabilities are:
Increase
in liabilities
31 March
2012
£m
31 March
2011
£m
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Discount rate
Decrease of 0.1%
1.8
1.7
Defined contribution plans
The Group offers defined contribution pension plans for its UK, US, European and Australian employees. The total income
statement charge in relation to these plans was £1.7m (10/11: £1.3m).
The Group’s defined contribution plans are operated by external providers. The only obligation of the Group with respect
to these plans is to make the specified contributions.
BTG plc Annual Report and Accounts 2012
115
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Notes to the consolidated financial statements
26 Share-based payments
Share options
The Group makes awards under an equity-settled share option plan that entitles employees to purchase shares in the
Company. In accordance with the rules of the plan, options are granted at the market price of the shares on the date of grant
with a vesting period of generally three years. They may only be exercised upon the attainment of certain performance criteria.
If the performance criteria are not met by the date specified at the time of grant, the options do not vest and will lapse. If the
options remain unexercised after a period of ten years from the date of grant, the options expire. Furthermore, options are
forfeited if the employee leaves the Group before the options vest unless the conditions under which they leave are such that
they are considered to be a ‘good leaver’. In this case their options remain exercisable for a limited period of time. For further
details of current awards, see the Remuneration Report on pages 61 to 75.
Option pricing
For the purposes of valuing options to arrive at the share-based compensation charge, a binomial lattice option pricing model
has been used. The assumptions used in the model are as follows:
Risk-free interest rate
Dividend yield
Volatility
Expected lives of options and awards granted under:
– Share option plan
– Sharesave plan
– Stock purchase plan
– Restricted share awards
– Performance share plan
– Deferred share bonus plan
Weighted average fair value for share option plan grants in the year
Weighted average fair value for sharesave grants in the year
Weighted average fair value for stock purchase plan grants in the year
Weighted average fair value for performance share awards in the year
Weighted average fair value for deferred share bonus awards in the year
31 March
2012
0.8% to 2.5%
Nil
27% to 41%
6 years
3.25 years
2.13 years
n/a
2 to 3 years
3 years
119.3p
114.8p
69.4p
264.6p
298.9p
31 March
2011
1.4% to 5.8%
Nil
41% to 73%
5 years
3.25 years
2.25 years
2 to 3 years
2 to 3 years
3 years
119.8p
86.6p
65.6p
119.8p
181.4p
The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the share
options, restricted or performance shares), adjusted for any expected changes to future volatility due to publicly-available
information.
Share options are granted under a service condition, a non-market condition and a market condition. Service and non-market
conditions are not taken into account in calculating the fair value measurement of the services received.
Performance shares are awarded under a service condition, a non-market condition and a market condition. Service and
non-market conditions are not taken into account in calculating the fair value measurement of the services received.
116
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BTG plc Annual Report and Accounts 2012
26 Share-based payments continued
Awards of share options and performance share awards made in 2009 and later years have a market condition based on a
TSR measure using the FTSE 250 companies excluding investment trusts, companies in the financial services sector (banks,
life and non-life insurance, equity and non-equity investment trusts, financial services, real estate investment and services,
and real estate investment trusts etc.) and companies in the consumer discretionary sector (general retailers, media, travel
and leisure, and leisure goods). The number of shares to vest depends on the relative performance of BTG’s share price
against the index. Earlier share options and performance shares used the FTSE SmallCap (excluding Investment Trusts) index.
If the Company’s share price at least matched the performance of the relevant index over the vesting period, the market-based
performance condition was considered to have been achieved.
The fair value of an award of shares under the share option and performance share plans have been adjusted to take
into account this market-based performance condition using a pricing model based on expectations about volatility and the
correlation of share price returns in the relevant index and which incorporates into the valuation the interdependency between
share price and index performance. This adjustment increases the fair value relative to the share price at the date of grant.
See the Remuneration Report on pages 61 to 75 for further information.
Restricted shares were awarded to certain management employees under a service condition and a non-market performance
condition. There were no market conditions related to the restricted share awards.
Details of options and awards under the Group’s share plans are shown in the tables below.
2012
2011
Number of
share options
(000)
Weighted
average
exercise
Number of
price share options
(000)
(p)
Share options
Outstanding at 1 April
Granted during year
Lapsed during year
Exercised during year
Outstanding at 31 March
Exercisable at 31 March
Sharesave plan
Outstanding at 1 April
Granted during year
Lapsed during year
Exercised during year
Outstanding at 31 March
Exercisable at 31 March
Stock purchase plan
Outstanding at 1 April
Granted during year
Lapsed during year
Exercised during year
Outstanding at 31 March
Exercisable at 31 March
BTG plc Annual Report and Accounts 2012
927
550
(2)
(48)
175.8
298.9
776.5
96.6
1,427
225.2
139
120.9
309
237
(28)
(43)
475
–
49
43
(6)
(20)
66
–
144.9
219.5
137.9
134.0
183.5
–
166.0
243.1
202.2
156.4
216.4
–
597
358
(6)
(22)
927
190
301
90
(26)
(56)
309
–
30
30
(11)
–
49
–
Weighted
average
exercise
price
(p)
157.3
201.3
106.3
106.3
175.8
120.9
134.9
146.7
145.6
94.2
144.9
–
162.2
173.2
175.1
–
166.0
–
117
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26 Share-based payments continued
Options outstanding at 31 March 2012
Share options granted in year ended 31 March
2005
2007
2010
2011
2012
Sharesave plan options granted in year ended 31 March
2010
2011
2012
Stock purchase plan options granted in year ended 31 March
2011
2012
Weighted
exercise
price
(p)
Latest
exercise date
year ended
31 March
106.3
143.5
179.3
201.3
298.9
2015
2017
2020
2021
2022
146.7
146.7
219.5
2013
2014
2015
173.2
243.1
2013
2014
Number
(000)
85
55
379
358
550
1,427
160
81
234
475
25
41
66
Restricted share awards
The Company established a restricted share scheme for the purpose of making awards to selected members of senior
management below Board level. The vesting period is either two or three years. Awards are forfeited if the employee leaves the
Group before the awards vest, unless the conditions under which they leave are such that they are considered to be a ‘good
leaver’; in which case their award is released following their departure. For further details see the Remuneration Report on
pages 61 to 75.
118
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BTG plc Annual Report and Accounts 2012
26 Share-based payments continued
Movement in the number of restricted shares awarded is as follows.
Outstanding at 1 April
Exercised during year
Lapsed during year
Outstanding at 31 March
Exercisable at 31 March
2012
Number of
share awards
(000)
2011
Number of
share awards
(000)
–
–
–
–
–
200
(183)
(17)
–
–
Performance share awards
Following approval of the Performance Share Plan by shareholders at the 2006 AGM, the Company has made awards
to the executive directors and other employees with a vesting period of three years. Awards are forfeited if the director or
other employee leaves the Group before the awards vest, unless the conditions under which they leave are such that they
are considered to be a ‘good leaver’; in which case their award is released following their departure. If the Remuneration
Committee decide that a departing beneficiary of an award is a ‘good leaver’, so their award may be released early, the award
will only be released subject to the achievement of the performance conditions set out at the time of the granting of the award
and may be subject to proration for time, at the discretion of the Committee. For further details see the Remuneration Report
on pages 61 to 75.
Movement in the number of performance share awards is as follows.
Outstanding at 1 April
Granted during year
Lapsed during year
Exercised during year
Outstanding at 31 March
Exercisable at 31 March
2012
Number of
share awards
(000)
2011
Number of
share awards
(000)
2,621
1,321
(280)
(554)
1,971
945
(11)
(284)
3,108
2,621
–
–
Deferred share bonus plan
The Company established a deferred share bonus plan. The executive directors, members of the Leadership Team and certain
other senior staff have part of their bonus awarded in shares. The shares will vest on the third anniversary of the grant date.
Awards are forfeited if the employee leaves the Group before the awards vest, unless the conditions under which they leave
are such that they are considered to be a ‘good leaver’; in which case their award is released following their departure, though
it may be prorated for time at the discretion of the Remuneration Committee. For further details see the Remuneration Report
on pages 61 to 75.
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Notes to the consolidated financial statements
26 Share-based payments continued
Movement in the number of deferred bonus shares awarded is as follows.
Outstanding at 1 April
Granted during year
Lapsed during year
Exercised during year
Outstanding at 31 March
Exercisable at 31 March
2012
Number of
share awards
(000)
2011
Number of
share awards
(000)
591
195
(19)
(85)
682
–
380
378
–
(167)
591
–
The Biocompatibles Group had a number of share schemes prior to the date of acquisition by the Company. With the exception
of the Share Incentive Plan (SIP), all share schemes ceased just prior to that date and share awards under the various schemes
vested and/or exercised to the extent to which performance conditions had been achieved. No grants or awards remained
outstanding at the date of acquisition.
Shares invested in the SIP were exchanged for BTG shares in the same ratio as other shareholders received in the acquisition:
1.6733 BTG shares for each Biocompatibles share plus 10p cash. While no further contributions may be invested in the SIP
post the date of acquisition, shares already held in the SIP may remain until the date of closure of the Plan in 2016.
As at 31 March 2012, 353,456 ordinary shares in BTG plc, issued and subscribed for by the Biocompatibles International plc
Share Incentive Plan Trust, had not vested unconditionally.
27 BTG Employee Share Trust
The Group includes an employee share trust, the BTG Employee Share Trust (the Trust), which was established in Guernsey in
1992. It holds shares for the general benefit of all employees who may eventually become legally entitled to them. At 31 March
2012 the Trust held 1,214,313 (31 March 2011: 1,308,793) shares in BTG plc and a further 12,596 (31 March 2011: 12,596)
shares in Torotrak plc. The Trust may distribute these shares to employees of the Group on the recommendation of the Company.
These distributions may be as a result of awards under the Restricted Share Scheme, the Deferred Share Bonus Plan or the
recently set up Senior Management Performance Share Plan.
At 31 March 2012 the Trust has 499,184 shares set aside under the Deferred Share Bonus Plan.
120
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BTG plc Annual Report and Accounts 2012
28 Provisions
At 1 April
Acquired with Biocompatibles
Provisions utilised during year
Provisions made during year
Difference on exchange
At 31 March
Balance due within one year
Balance due after more than one year
2012
Leases Reorganisation
£m
£m
2.0
–
(0.3)
0.1
(0.1)
1.7
0.7
1.0
1.7
1.0
–
(0.9)
–
–
0.1
0.1
–
0.1
Total
£m
3.0
–
(1.2)
0.1
(0.1)
1.8
0.8
1.0
1.8
2011
Leases Reorganisation
£m
£m
1.1
1.3
(0.4)
–
–
2.0
0.8
1.2
2.0
0.7
–
(0.9)
1.2
–
1.0
1.0
–
1.0
Total
£m
1.8
1.3
(1.3)
1.2
–
3.0
1.8
1.2
3.0
Lease provisions relate to onerous leases and represent the net present value of future obligations and where relevant,
not covered by income from tenants (see 2(p)).
The provision for reorganisation costs arose as a result of the Group’s rationalisation activities following the acquisition
of Biocompatibles International plc on 27 January 2011 (note 34) and Protherics PLC on 4 December 2008. The provision
principally comprises redundancy and other site closure costs.
29 Financial risk management objectives and policies
Overview
The Group has exposure to credit, liquidity and market risks from its use of financial instruments. This note sets out the Group’s
key policies and processes for managing these risks.
Credit risk
Credit risk is the risk of financial loss to the Group if a licensee fails to meet its contractual obligations or a customer fails
to pay for goods and services received. The Group’s primary objective with respect to credit risk is to minimise the risk of default
by licensees or customers.
A substantial element of the Group’s revenue is derived from royalties which are only payable if a licensee is generating income
from sales of licensed products. In such instances the Group’s exposure to credit risk is considered to be inherently relatively
low, although is influenced by the unique characteristics of individual licensees. The Group’s policy is to provide against bad
debts on a specific licence by licence basis.
Following the transition from a distribution agreement to direct sales during the prior year, the majority of the marketed
product revenues are currently generated from sales to several key wholesalers in the U.S. Management maintains
regular communication with the customers and monitors both sales to and payments from customers to minimise the credit
risk exposure.
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Notes to the consolidated financial statements
29 Financial risk management objectives and policies continued
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to
managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities as they fall due,
under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group has limited debt facilities in the form of borrowings (see note 24) and its obligations for assets held under finance
leases are immaterial. The Group has substantial cash balances to fund its operations.
The Group’s policy is to place surplus cash resources on short- and medium-term fixed interest deposits, to the extent that cash
flow can be reasonably predicted. Term deposits are denominated in UK sterling with institutions rated as A or higher by both
Moody’s and Standard & Poor’s.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect
the Group’s income or the value of its holdings in financial instruments. The Group has little exposure to interest rate risk other
than that returns on short-term fixed interest deposits will vary with movements in underlying bank interest rates. The Group’s
principal market risk exposure is to movements in foreign exchange rates.
Foreign currency risk
The Group has several overseas subsidiary undertakings, the revenues and the expenses of which are denominated in local
currencies being US dollars, Euros and Australian dollars. As a result the Group’s sterling income statement, statement of
financial position and cash flows may be affected by movements in sterling exchange rates with these currencies. The Group’s
primary objective with respect to managing foreign exchange risk is to provide certainty over the value of future cash flows.
A significant element of the Group’s revenue is denominated in US dollars with the remainder split between Sterling, Euros,
Yen and other currencies. The majority of the Group’s operating expenses are in sterling along with smaller elements in
US dollars and Australian dollars. Where possible, anticipated foreign currency operating expenses are matched to foreign
currency revenues. The excess exposure over and above this natural hedge, to the extent that cash flows are predictable,
is managed using forward contracts (see note 23).
Sensitivity analysis
A 5% weakening of the US$ at 31 March 2012 would have resulted in the following (decreases)/increases in equity and profit
or loss:
Profit or loss
Equity
31 March
2012
£m
31 March
2011
£m
(2.7)
(3.5)
(5.7)
0.9
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29 Financial risk management objectives and policies continued
Interest rate risk
The Group seeks to mitigate partially against increased interest rates while maintaining a degree of flexibility to benefit from
decreasing rates of interest by holding a mix of fixed and floating rate financial liabilities. The Group seeks to maximise the
amount of interest income from its cash balances by using a variety of short-term, fixed high-interest deposit and money-market
accounts. The Group does not consider the impact of interest rate risk to be material to its results or operations and accordingly
no sensitivity analysis is shown.
Market price risk
It is, on occasion, deemed appropriate to take equity stakes in early-stage companies utilising the Group’s technology as part
of the overall licensing arrangement and small loans may be granted to these companies to further technology development.
These investments will be realised at an appropriate time in the development cycle. Regular reports are made to the Board
on the status of investments. These investments form part of the Group’s overall technology portfolio and do not materially
affect liquidity.
Capital management
The Group defines the capital that it manages as the Group’s total equity. The Group’s objectives when managing capital are:
— To safeguard the Group’s ability to continue as a going concern;
— To provide an adequate return to investors based on the level of risk undertaken;
— To have available the necessary financial resources to allow the Group to invest in areas that may deliver future benefits
for inventive sources and returns to investors; and
— To maintain sufficient financial resources to mitigate against risks and unforeseen events.
The Group believes it has sufficient ongoing cash and cash equivalents to meet its stated capital management objectives.
The Group’s capital and equity ratio are shown in the table below.
Total equity – capital and reserves attributable to BTG shareholders
Total assets
Equity ratio
31 March
2012
£m
406.2
505.8
80.3%
31 March
2011
£m
392.3
488.5
80.3%
The Group is not subject to regulatory capital adequacy requirements as known in the financial services industry.
Financial instruments
The Group’s financial instruments comprise cash, short- and medium-term deposits, foreign currency forward contracts,
contingent value notes, contingent considerations and various items such as trade debtors and creditors which arise directly
from operations. In addition, a number of debt and equity investments, both quoted and unquoted, are held in technology-based
companies along with borrowings including obligations under finance leases.
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Notes to the consolidated financial statements
29 Financial risk management objectives and policies continued
Fair values
The fair values of the Group’s financial assets and liabilities, together with the carrying values shown in the statement of
financial position, are as follows:
31 March 2011
Cash and cash equivalents
Held to maturity financial assets
Forward contracts
Other investments
Trade and other receivables
Trade and other payables
Borrowings
31 March 2012
Cash and cash equivalents
Held to maturity financial assets
Forward contracts
Other investments
Trade and other receivables
Trade and other payables
Designated
at fair value
£m
Forward
contracts at
fair value
£m
Available
for sale
£m
Amortised
cost
£m
–
–
–
2.7
–
(1.1)
–
–
–
–
3.0
–
(0.7)
–
–
2.0
–
–
–
–
–
–
0.5
–
–
–
–
–
–
–
0.1
–
–
–
–
–
–
0.1
–
63.7
10.2
–
–
32.6
(55.6)
(2.9)
106.9
5.0
–
–
40.0
(59.7)
Total
carrying
value
£m
63.7
10.2
2.0
2.7
32.7
(56.7)
(2.9)
106.9
5.0
0.5
3.0
40.1
(60.4)
Fair
value
£m
63.7
10.2
2.0
2.7
32.7
(56.7)
(2.9)
106.9
5.0
0.5
3.0
40.1
(60.4)
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value,
grouped into Levels 1 to 3 based on the degree to which the fair value is observable:
Level 1 – quoted prices in active markets for identical assets and liabilities.
Level 2 – observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3 – unobservable inputs.
Fair value hierarchy of financial assets and liabilities
At 31 March 2011
Financial assets recognised at fair value
Investments
Forward contracts
Financial liabilities recognised at fair value
Contingent value notes
At 31 March 2012
Financial assets recognised at fair value
Investments
Forward contracts
Financial liabilities recognised at fair value
Fair value of other contingent consideration
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
–
–
–
–
–
–
2.7
2.0
–
–
2.7
2.0
–
(1.1)
(1.1)
3.0
0.5
–
–
3.0
0.5
–
(0.7)
(0.7)
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29 Financial risk management objectives and policies continued
Level 2 – financial assets and liabilities represent forward foreign exchange contracts to sell US$ and Euros which are marked-
to-market at each balance sheet date and other investments held at fair value as disclosed in note 17.
Level 3 – financial liabilities in the current year represent the contingent consideration payable upon the purchase of the US
commercial rights of product candidate uridine triacetate representing contingent milestone payments upon NDA
acceptance and approval of the product candidate. In the prior year level 3 represented the contingent loan note upon
acquisition of Biocompatibles International plc (see note 34). Profits for the year related to these liabilities of £1.1m
have been recognised in the consolidated income statement.
Contractual maturity analysis of financial assets
Forward foreign exchange contracts that mature within:
0–3 months
3–6 months
6–12 months
31 March
2012
£m
31 March
2011
£m
0.1
0.4
–
0.5
0.8
0.4
0.8
2.0
Net gains and losses on financial assets and liabilities
Foreign exchange gains of £2.6m (10/11: losses of £2.0m) were recognised within Operating profit in relation to settlement
of trade receivables and payables.
The Group recognised a fair value loss of £1.5m (10/11: gain of £2.7m) relating to forward foreign exchange contracts within
‘Financial expense’ (10/11: ‘Financial income’).
Fair value gains of £nil (10/11: £0.1m) were recycled from the fair value reserve within equity in relation to investments impaired
during the prior year.
Estimation of fair values
The following summarises the methods and assumptions used in estimating the fair values of financial instruments reflected
in the table.
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Notes to the consolidated financial statements
29 Financial risk management objectives and policies continued
Other investments
These comprise both listed and unlisted investments, available-for-sale (see note 17). The figure recorded in the statement
of financial position is the best estimate of fair value.
Borrowings and finance leases
The fair values of such balances are estimated by discounting the future cash flows at the market rate.
Trade receivables, trade payables and cash and cash equivalents
Trade payables and receivables have a remaining life of less than one year so their value recorded in the statement of financial
position is considered to be a fair approximation of fair value. The contingent value notes and other contingent considerations
are fair valued at each reporting period.
30 Operating leases
Total non-cancellable operating lease rentals are due in the following periods:
Within one year
Between two and five years
Greater than five years
31 March 2012
31 March 2011
Vehicles, plant
Property and equipment
£m
£m
Vehicles, plant
Property and equipment
£m
£m
1.7
4.3
0.7
6.7
–
–
–
–
1.7
5.3
1.1
8.1
–
–
–
–
Operating lease payments represent rentals payable for certain of its office properties, plant and equipment under non-
cancellable operating lease agreements.
The Group leases a number of offices and facilities in the UK, the US, Germany, and Australia. These leases have terms of up
to seven years.
The leases contain options to extend for further periods. In the event of renewal, the lease contracts contain market review clauses.
None of the property leases provide the Group with an option to purchase the leased asset at the expiry of the lease period.
126
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31 Other financial commitments
The Group has entered into agreements with a number of early-stage companies and venture capital funds. At 31 March 2012
the Group is committed to invest £0.2m under these agreements (10/11: £0.4m).
As with any business whose core assets are intellectual property, the Group will from time-to-time resort to litigation or threats
of litigation, or other legal processes, to defend its rights. Litigation costs are regarded as a cost of doing business and will vary
from year to year. In the current year the Group incurred £2.1m in litigation costs (10/11: £4.0m).
The Company has entered into an agreement to guarantee payments under the lease of a US subsidiary undertaking.
The Company has provided a Guarantee to certain subsidiary undertakings in respect of the BTG Pension Plan up to a maximum
amount equal to the lowest non-negative amount which, when added to the assets of the Plan, would result in the plan being at
least 105% funded on the date on which any liability arose, calculated on the basis set out in section 179 of the Pensions Act
2004, were a valuation to be conducted as at that date.
The Company has also provided a Guarantee to the same subsidiary undertakings for a maximum amount of £12.7m, being
the deficit repair contributions agreed with the Trustees of the Plan following the finalisation of the last actuarial valuation.
The Guarantee reduces as payments are made and expires on 31 January 2013.
32 Related parties
Identity of related parties
The Group has a related-party relationship with its subsidiary undertakings (see note 2(b)), its associates (see note 2(b)) and its
directors. During the year the Group invested a further £0.5m in its investments (see note 17). No dividends were received from
associates in the years ended 31 March 2012 or 2011.
In relation to the related party relationship identified on page 51 concerning Giles Kerr, payments made by BTG to Oxford
University and Isis Innovations Ltd under the relevant licence agreements were £0.8m during the year ended 31 March 2012.
There are no amounts still outstanding and payable by BTG under these agreements as at 31 March 2012.
Key management personnel are considered to be the directors and their remuneration is disclosed within the Remuneration
Report on pages 61 to 75.
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Financials
Notes to the consolidated financial statements
33 Group entities
The significant subsidiary undertakings of BTG plc at 31 March 2012 are all wholly owned, incorporated in the United Kingdom
and registered in England and Wales, unless shown otherwise. All subsidiary undertakings operate in their country of
incorporation and are consolidated in the Group’s financial statements.
Class of capital
Principal activity
BTG International (Holdings) Ltd1
Provensis Ltd1
BTG International Ltd
Ordinary
Ordinary
Ordinary
Investment in IPR management companies
Development and commercialisation of IPR
Development, management and
commercialisation of IPR
Ordinary
Trustee company
Protherics Medicines Development Ltd
Ordinary
BTG Employee Share Schemes Ltd
Guernsey
BTG Investment (Holdings) Ltd
British Technology Group
Inter-Corporate Licensing Ltd
BTG Management Services Ltd
(formerly Protherics Limited)1
BTG International Inc.
(formerly Protherics Inc.)
Delaware, USA
Enact Pharma Ltd
Protherics UK Ltd
BTG Australasia Pty Ltd
Australia
Protherics Utah Inc.
Tennessee, USA
Protherics Salt Lake City Inc.
Utah, USA
Biocompatibles International Ltd1
Biocompatibles UK Ltd
Biopolymerix Inc.
Delaware, USA
Biocompatibles, Inc.
Delaware, USA
CellMed AG
Germany
1 Indicates direct subsidiary of BTG plc.
Ordinary
Ordinary
Ordinary
Common stock
Ordinary
Ordinary
Ordinary
Common stock
Common stock
Ordinary
Ordinary
Investment in IPR management companies
Development, management and
commercialisation of IPR
Investment and management of
group companies
Development, management and
commercialisation of IPR
Research, development, manufacture
and sale of pharmaceutical products
and potential drugs
Development, management and
commercialisation of IPR
Research, development, manufacture
and sale of pharmaceutical products
and potential drugs
Manufacture and sale of pharmaceutical
products and potential drugs
Research, development, manufacture
and sale of pharmaceutical products
and potential drugs
Development, management and
commercialisation of IPR
Investment and management of group companies
Commercialisation of bead products
Common stock
Research and development
Common stock
Commercialisation of brachytherapy products
No par value shares
Research and development
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34 Acquisition of business operations
On 27 January 2011, the Company acquired 100% of the issued share capital of Biocompatibles International plc (subsequently
re-registered as Biocompatibles International Ltd), a listed UK company. Biocompatibles International Ltd was the parent
company of the Biocompatibles Group, a leading international medical technology company in the field of drug device
combination products. This transaction has been accounted for by the purchase method of accounting.
The acquisition was settled by the issuance of 68,723,244 new BTG plc ordinary shares of 10p each plus either 10p in cash
for each Biocompatibles share or a contingent value note.
Equity settled consideration
The fair value of equity settled consideration was £167.7m, based on the share price of £2.44 in existence at the time of the
acquisition.
Cash consideration
Shareholders owning 30,349,200 Biocompatibles shares (73.9% of all Biocompatibles shares acquired) opted to receive
10p in cash per share, resulting in a cash payment of £3.0m.
Contingent value note (CVN)
As an alternative to 10p cash consideration, Biocompatibles shareholders could elect to receive an entitlement to a contingent
right to payment of the Sterling equivalent of €0.56 per Biocompatibles share in cash by participating in the value that may
potentially be achieved from part of Biocompatibles’ programme to develop the GLP-1 Compound which it has partnered with
AstraZeneca. Shareholders owning 10,722,465 Biocompatibles shares (26.1% of all Biocompatibles shares acquired) opted
to receive the CVN. The CVN would be paid in full if, prior to 31 December 2012, either:
— AstraZeneca exercises an option to license the GLP-1 compound on agreed terms; or
— BTG, otherwise than on the agreed terms of the option, enters into any other licence, sale or other disposal or other
arrangement with similar effect with AstraZeneca with respect to the rights of the GLP-1 compound.
The liability would be paid in full or not at all. The fair value of each CVN was assessed at acquisition date as being 10p per
Biocompatibles share, based on probability adjusted net present value calculations of AstraZeneca exercising its option
to license the GLP-1 compound. This fair value was also supported by the alternative offer to shareholders of 10p in cash.
The fair value of the CVN as at 31 March 2011 is shown in note 22 to the accounts at £1.1m.
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Notes to the consolidated financial statements
34 Acquisition of business operations continued
Net assets acquired
Details of the net assets of acquired arising from the acquisition of Biocompatibles International plc are set out in the table
below:
Book value
£m
Fair value
adjustment
£m
Fair value
£m
Non-current assets:
Intangible assets
Goodwill
Property, plant and equipment
Current assets:
Inventories
Trade and other receivables
Cash and cash equivalents
Held to maturity financial assets
Current liabilities:
Trade and other payables
Deferred income
Non-current liabilities:
Trade and other payables
Borrowings
Deferred tax liabilities
Total assets acquired
Goodwill
Total consideration
Settled by equity
Contingent consideration
Cash paid
Cash and cash equivalents included in undertaking acquired
Cash consideration paid
Net cash inflow per cash flow statement
Directly attributable costs settled1
Net cash inflow arising on acquisition
127.3
(2.8)
–
136.8
–
4.6
9.5
2.8
4.6
0.9
6.0
17.4
10.2
(3.7)
(9.3)
(0.9)
(2.8)
(1.1)
3.8
–
–
–
–
0.3
–
–
(19.3)
33.6
109.3
4.7
6.0
17.4
10.2
(3.7)
(9.0)
(0.9)
(2.8)
(20.4)
142.9
28.9
171.8
(167.7)
(1.1)
3.0
17.4
(3.0)
14.4
(3.6)
10.8
1 Total costs relating to the acquisition were £4.1m, of which £3.6m had been paid by 31 March 2011. The remainder was settled in April 2011. Of the total
costs of £4.1m, £3.0m was included in ‘Acquisition and reorganisation costs’ in the consolidated income statement in the year ended 31 March 2011
(see note 6) and £1.1m was debited to the merger reserve in the year ended 31 March 2011 (see note 21).
The goodwill arising on acquisition resulted from assets which could not be recognised separately including early-stage pipeline
products and a highly skilled workforce. The fair value adjustments were considered final.
The main elements of the significant fair value adjustments are described below:
— Intangible assets in respect of the marketed products, in-process research and development and contractual relationships
in accordance with IFRS3 Revised – Business Combinations;
— Revaluation of inventory reflecting profit accrued up to the stage of production at the time of the transaction; and
— Deferred tax liabilities in relation to the acquired intangible assets over and above £21.2m of deferred tax assets
in recognition of acquired accumulated tax losses.
130
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BTG plc Annual Report and Accounts 2012
Company statement of financial position
ASSETS
Non-current assets
Investment in subsidiaries
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
EQUITY
Share capital
Share premium account
Merger reserve
Retained earnings
Total equity attributable to equity holders of the parent
LIABILITIES
Non-current liabilities
Trade and other payables
Current liabilities
Trade and other payables
Taxation
Provisions
Total liabilities
Total equity and liabilities
The notes on pages 134 to 137 form part of these financial statements.
The financial statements were approved by the Board on 18 May 2012 and were signed on its behalf by:
Dr Louise Makin
Chief Executive Officer Chief Financial Officer
Rolf Soderstrom
Registered No: 2670500
31 March
2012
£m
31 March
2011
£m
Note
4
365.9
5
6
6
6
6
6
7
7
364.4
364.4
218.4
–
218.4
582.8
32.7
188.2
317.8
39.8
365.9
217.1
–
217.1
583.0
32.7
188.3
317.8
41.1
579.9
578.5
–
–
3.0
0.1
–
3.1
3.1
1.1
1.1
2.3
0.1
0.8
3.2
4.3
583.0
582.8
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Financials
Company statement of cash flows
Loss after tax for the year
Decrease in trade and other receivables
Decrease in trade and other payables
(Decrease)/increase in provisions
Costs of acquisition recognised in equity
Other items
Net cash (outflow)/inflow from operating activities
Investing activities
Costs relating to acquisition of Biocompatibles International plc
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds of share issue
Net cash from financing activities
Decrease in cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
The notes on pages 134 to 137 form part of these financial statements.
Year ended
31 March
2012
£m
Year ended
31 March
2011
£m
(1.1)
1.3
(0.4)
(0.8)
–
0.9
(0.1)
–
–
0.1
0.1
–
–
–
(2.8)
10.5
(6.1)
0.8
(0.6)
0.9
2.7
(3.0)
(3.0)
0.1
0.1
(0.2)
0.2
–
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BTG plc Annual Report and Accounts 2012
Company statement of changes in equity
At 1 April 2010
Loss for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners:
Issue of BTG plc ordinary shares
Issued on acquisition of Biocompatibles International plc (note 34)
Movement in shares held by the Trust
Share-based payments
Share
capital
£m
Share
premium
£m
Merger
reserve
£m
Retained
earnings
£m
Total
equity
£m
25.8
188.1
158.1
42.5
414.5
–
–
–
–
6.9
–
–
–
–
–
0.1
–
–
–
–
–
–
–
159.7
–
–
(2.8)
–
(2.8)
–
–
(0.5)
0.6
(2.8)
–
(2.8)
0.1
166.6
(0.5)
0.6
At 31 March 2011
32.7
188.2
317.8
39.8
578.5
At 1 April 2011
Loss for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners:
Issue of BTG plc ordinary shares
Share-based payments
At 31 March 2012
Share
capital
£m
Share
premium
£m
Merger
reserve
£m
Retained
earnings
£m
Total
equity
£m
32.7
188.2
317.8
39.8
578.5
–
–
–
–
–
–
–
–
0.1
–
–
–
–
–
–
(1.1)
–
(1.1)
–
2.4
(1.1)
–
(1.1)
0.1
2.4
32.7
188.3
317.8
41.1
579.9
The notes on pages 134 to 137 form part of these financial statements.
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Notes to the company financial statements
1 Accounting policies
The accounting policies adopted in the preparation of these Company financial statements are the same as those set out
in note 2 to the Group financial statements with the addition of the following:
Investments
Investments in subsidiaries are stated at cost less provision for impairment.
Accounting for transactions under common control
Where the Company acquires or disposes of shares in another Group company either in a share for share exchange or as
disposal of part of the business, the cost is determined by reference to the fair value of the consideration received (i.e. the
fair value of the company in which shares have been received) at the date of transfer.
If the Company receives shares following the sale of its subsidiary or part of its business, any gain or loss is credited or charged
to the income statement. Where the Company issues shares following the acquisition of a subsidiary or part of another
business, any gain or loss is credited or charged to reserves.
Share-based payments
The Company has elected to apply IFRS2 to all share-based awards and options granted post 7 November 2002 that had not
vested by 1 January 2005. The carrying amount of an investment in a subsidiary is increased to the extent that share-based
payments relate to employees of that subsidiary. Share-based payment expenses relating to employees of the Company are
expensed within the income statement.
These policies have been applied consistently to the periods presented.
The functional currency of the Company is sterling and all values are rounded to the nearest £0.1m except where otherwise
indicated.
2 Loss for the year
As permitted by section 408 of the Companies Act 2006, the Company has elected not to present its own income statement
for the year. The loss after tax of the Company amounted to £1.1m (10/11: £2.8m).
The analysis of the auditor’s remuneration is as follows:
The auditing of accounts of the Company
Audit related assurance services
All services relating to corporate finance transactions entered into or proposed
to be entered into by or on behalf of the Company or any of its associates
All other non audit services
3 Staff costs
The employees are based in the United Kingdom.
Year ended
31 March
2012
£’000
Year ended
31 March
2011
£’000
93
50
–
–
123
43
380
21
Disclosures of individual directors’ remuneration and associated costs required by the Companies Act 2006 and specified
by the Financial Services Authority are included within the remuneration report on pages 61 to 75 and form part of these
audited accounts.
The employees of the Company are members of the Group pension plans as detailed in note 25 of the Group financial
statements. The Company receives a charge based upon the employer contribution to the Group’s defined benefit pension
scheme. No additional contributions are paid by the Company.
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BTG plc Annual Report and Accounts 2012
4 Investment in subsidiary undertakings
Cost
At 1 April 2010
Acquisition of Biocompatibles International plc
Share-based payments
At 1 April 2011
Share-based payments
At 31 March 2012
£m
192.0
171.8
0.6
364.4
1.5
365.9
A list of the Company’s principal subsidiary undertakings is shown in note 33 to the Group financial statements. The acquisition
of Biocompatibles International plc is outlined in note 34 to the Group financial statements.
5 Trade and other receivables
Due within one year
Prepayments
Amounts owed by subsidiary undertakings
6 Capital and reserves
At 1 April 2010
Loss for financial year
Total recognised loss for the year
Movement in shares held by Trust
Issued on acquisition of Biocompatibles (note 34)
Other share capital issued
Share-based payments
At 1 April 2011
Loss for financial year
Total recognised loss for the year
Other share capital issued
Share-based payments
At 31 March 2012
31 March
2012
£m
31 March
2011
£m
0.4
216.7
–
218.4
217.1
218.4
Share
capital
£m
Share
premium
£m
Merger
reserve
£m
Retained
earnings
£m
Total
£m
25.8
188.1
158.1
42.5
414.5
–
–
–
6.9
–
–
–
–
–
–
0.1
–
–
–
–
159.7
–
–
(2.8)
(2.8)
(0.5)
–
–
0.6
(2.8)
(2.8)
(0.5)
166.6
0.1
0.6
32.7
188.2
317.8
39.8
578.5
–
–
–
–
–
–
0.1
–
–
–
–
–
(1.1)
(1.1)
–
2.4
(1.1)
(1.1)
0.1
2.4
32.7
188.3
317.8
41.1
579.9
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The merger reserve is used where more than 90% of the shares in a subsidiary are acquired and the consideration includes
the issue of new shares by the Company, thereby attracting merger relief under s612 and s613 of the Companies Act 2006.
The balance on the merger reserve has arisen through:
1 The acquisition of Protherics PLC on 4 December 2008 and includes directly attributable costs of issuing the shares
of £0.4m.
2 The acquisition of Biocompatibles International plc on 27 January 2011 and includes directly attributable costs of issuing
of shares of £1.1m.
BTG plc Annual Report and Accounts 2012
135
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Notes to the company financial statements
6 Capital and reserves continued
Details of Company’s share capital are disclosed in note 21 to the Group financial statements. Details of share awards granted
by the Company are set out in note 26 to the Group financial statements. Details of shares in the Company held by subsidiaries
are shown in note 27 to the Group financial statements.
7 Trade and other payables
Amounts falling due within one year
Accruals and deferred income
Amounts falling due after more than one year
Contingent value note
The directors consider the fair value to be equal to the book value.
8 Financial assets and liabilities
31 March 2011
Trade and other receivables
Trade and other payables
31 March 2012
Trade and other receivables
Trade and other payables
31 March
2012
£m
31 March
2011
£m
3.0
2.3
–
1.1
Designated
at fair value
£m
Amortised
cost
£m
Total carrying
value
£m
Fair value
£m
–
(1.1)
218.4
(2.3)
218.4
(3.4)
218.4
(3.4)
–
–
217.1
(3.0)
217.1
(3.0)
217.1
(3.0)
Financial liabilities classified as ‘Designated at fair value’ in the prior year comprise the contingent value notes, details
of which are disclosed in note 34 of the Group financial statements.
Credit risk
The Company’s credit risk is the risk that one of its subsidiaries is unable to repay intercompany amounts owing. The recoverability
of the Company’s intercompany receivable is considered at each balance sheet date.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company does
not hold significant cash balances as Group cash is managed centrally within its subsidiaries. Accordingly the Company is
funded by its subsidiaries as its liabilities fall due.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect
the Group’s income or the value of its holdings in financial instruments. As the holding company of the BTG Group, the Company
does not have significant exposure to movements in market prices and accordingly no additional disclosure is provided. There
are no foreign currency balances within the Company’s statement of financial position.
Capital Management
Details of the Company’s objectives with respect to managing capital are disclosed in note 29 to the Group financial statements.
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9 Guarantees and contingent liabilities
The Company has entered into an agreement to guarantee payments under the lease of its US subsidiary undertaking.
The Company has provided a Guarantee to certain subsidiary undertakings in respect of the BTG Pension Fund up to a maximum
amount equal to the lowest non-negative amount which, when added to the assets of the Fund, would result in the Fund being
at least 105% funded on the date on which any liability arose, calculated on the basis set out in section 179 of the Pensions Act
2004, were a valuation to be conducted as at that date.
The Company has also provided a Guarantee to the same subsidiary undertakings for a maximum amount of £12.7m, being
the deficit repair contributions agreed with the Trustees of the Fund following the finalisation of the last actuarial valuation.
The Guarantee reduces as payments are made and expires on 31 January 2013.
10 Related party transactions
The Company has a related-party relationship with its subsidiary undertakings and its directors.
In relation to the related party relationship identified on page 51 concerning Giles Kerr, payments made by BTG to Oxford
University and Isis Innovations Ltd under the relevant licence agreements were £0.8m during the year ended 31 March 2012.
There are no amounts still outstanding and payable by BTG under these agreements as at 31 March 2012.
Key management personnel are considered to be the directors and their remuneration is disclosed within the Remuneration
Report on pages 61 to 75.
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Appendix 1
Unaudited pro-forma consolidated income statement
for the year ended 31 March 2012
Royalties
Marketed products
Biocompatibles
Revenue
Cost of sales: royalties
Cost of sales: marketed products
Biocompatibles
Gross profit
Operating expenses: foreign exchange gains/(losses)
Operating expense: other
Operating expenses: total
Research and development
Profit on disposal of assets and investments
Amounts written off property, plant and equipment
Amounts written off associates and investments
Operating profit
Financial income
Financial expense
Profit before tax
Tax
Profit for the year
Basic earnings per share
Diluted earnings per share
Year ended
31 March
2012
£m
Year ended
31 March
2011
£m
84.5
76.6
36.1
197.2
(28.0)
(18.8)
(7.4)
70.0
35.4
33.9
139.3
(22.4)
(8.8)
(7.7)
143.0
100.4
2.6
(48.9)
(46.3)
(39.7)
0.2
(3.0)
(0.2)
54.0
3.6
(1.6)
56.0
(19.0)
37.0
11.4p
11.2p
(1.7)
(52.4)
(54.1)
(41.8)
1.5
–
(1.4)
4.6
3.5
(0.2)
7.9
(0.4)
7.5
2.3p
2.3p
All activity arose from continuing operations.
Basis of preparation
The financial information contained in this appendix is pro-forma and does not constitute full statutory accounts within the
meaning of section 435 of the Companies Act 2006. The information has been extracted from the records of BTG plc and
Biocompatibles International plc combining the results for both companies for the years ended 31 March 2012 and 31 March
2011. The information has been prepared using the accounting policies and basis of preparation set out in note 2 to the
Group financial statements, except that, for comparative purposes, the following items have been excluded from the pro-forma
information:
— Amortisation of business combination intangibles.
— Effect of fair value adjustments on inventory arising from IFRS3 – Business Combinations.
— One-off transaction related expenses and reorganisation costs.
— Impact of deferred tax asset and liabilities recognised upon acquired intangible assets.
— Impact of US tax-free reorganisation, which resulted in a one-off deferred tax asset of £18.6m being recognised in the year
ended 31 March 2011.
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Five-year financial record
Consolidated income statement
for the year ended 31 March
Revenue
Cost of sales
Gross profit
Operating and administrative expenses
Restructuring costs
Operating expenses
Research and development
Share of results of associates
2012
£m
197.0
(56.3)
2011 1
£m
111.4
(34.1)
2010
£m
98.5
(32.8)
2009 2
£m
84.8
(37.1)
2008
£m
75.0
(32.1)
140.7
77.3
65.7
47.7
42.9
(46.3)
(1.1)
(45.3)
(3.8)
(29.3)
0.7
(20.6)
(10.9)
(13.8)
(8.1)
(47.4)
(49.1)
(28.6)
(31.5)
(21.9)
(39.7)
–
(32.1)
–
(26.7)
(0.3)
(21.2)
(0.4)
(12.2)
(0.7)
Research and development expenses
(39.7)
(32.1)
(27.0)
(21.6)
(12.9)
Profit on disposal of assets and investments
Amounts written off associates and investments
Amounts written off property, plant and equipment
Amortisation and impairment of business combination intangibles
Operating profit/(loss)
Net financial income
Profit/(loss) before tax
Tax
Profit/(loss) after tax for the year
Earnings/(loss) per share
Basic
Diluted
Gross profit
Royalties from launched products
Income from new agreements and milestone payments
Gross profit from marketed products
Gross profit from Biocompatibles
Gross profit
0.2
(0.2)
(3.0)
(30.7)
19.9
3.1
23.0
(8.4)
14.6
1.5
(1.4)
–
(10.0)
(13.8)
3.0
(10.8)
20.0
1.1
–
–
(9.1)
2.1
7.0
9.1
2.2
9.2
11.3
2.6
(3.4)
–
(3.0)
(9.2)
(2.1)
(11.3)
(1.8)
(13.1)
4.5p
4.4p
3.4p
3.4p
4.4p
4.4p
(7.1p)
(7.1p)
2012
£m
51.3
5.0
58.0
26.4
140.7
2011 1
£m
43.2
4.5
26.6
3.0
77.3
2010
£m
38.0
8.6
19.1
–
65.7
2009 2
£m
32.1
11.0
4.6
–
47.7
0.4
–
–
–
8.5
2.2
10.7
(1.9)
8.8
5.9p
5.9p
2008
£m
24.9
18.0
–
–
42.9
1 The results for the year ended 31 March 2011 include the results of Biocompatibles International plc from the date of acquisition, being 27 January 2011.
2 The results for the year ended 31 March 2009 include the results of Protherics PLC from the date of acquisition, being 4 December 2008.
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Financials
Five-year financial record
Consolidated statement of financial position
as at 31 March
Goodwill
Intangible assets
Property, plant and equipment
Investment in associates
Other investments
Deferred tax asset
Biological assets
Total non-current assets
Current assets
Total assets
Equity
Share capital
Share premium account
Merger reserve
Reserves
Retained earnings
Total equity
Total non-current liabilities
Total current liabilities
Total liabilities
Total equity and liabilities
2012
£m
59.2
246.0
22.0
–
3.0
1.0
0.3
331.5
174.3
2011 1
£m
59.2
271.0
24.8
–
2.7
0.9
0.3
358.9
129.6
2010
£m
30.3
152.7
10.6
–
3.7
0.6
–
197.9
113.1
2009 2
£m
30.0
165.8
11.1
0.3
3.2
0.7
–
211.1
118.3
505.8
488.5
311.0
329.4
2008
£m
–
6.8
0.8
0.7
5.8
–
–
14.1
72.2
86.3
32.7
188.3
317.8
(4.0)
(128.6)
32.7
188.2
317.8
(3.7)
(142.7)
25.8
188.1
158.1
(0.9)
(155.9)
25.5
187.3
156.5
(0.1)
(156.6)
15.1
187.0
–
(1.4)
(145.5)
406.2
392.3
215.2
212.6
41.3
58.3
99.6
43.9
52.3
96.2
52.4
43.4
95.8
47.1
69.7
116.8
505.8
488.5
311.0
329.4
55.2
6.9
24.2
31.1
86.3
1 The statement of financial position for 31 March 2011 includes the assets and liabilities acquired from Biocompatibles International plc during the year.
2 The statement of financial position for 31 March 2009 includes the assets and liabilities acquired from Protherics PLC during the year.
Consolidated cash flow statement
for the year ended 31 March
Net cash from/(used in) operating activities
Net cash (used in)/from investing activities
Net cash (used in)from financing activities
Increase/(decrease) in cash and cash equivalents
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at start of year
2012
£m
47.2
(3.9)
(0.2)
43.1
0.1
63.7
2011 1
£m
(12.0)
(5.5)
(0.6)
(18.1)
(0.8)
82.6
Cash and cash equivalents at end of year
106.9
63.7
2010
£m
5.8
(2.6)
1.4
4.6
(0.2)
78.2
82.6
2009 2
£m
(1.8)
21.8
(0.1)
19.9
1.3
57.0
78.2
2008
£m
13.4
0.8
–
14.2
(0.2)
43.0
57.0
1 The results for the year ended 31 March 2011 include the results of Biocompatibles International plc from the date of acquisition, being 27 January 2011.
2 The results for the year ended 31 March 2009 include the results of Protherics PLC from the date of acquisition, being 4 December 2008.
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Shareholder information
Financial calendar
Circulation of annual report for the year ended 31 March 2012
Annual General Meeting
Announcement of interim results for the six months ended 30 September 2012
Preliminary announcement of annual results for the year ended 31 March 2013
15 June 2012
17 July 2012
November 2012
May 2013
Shareholders
At 31 March 2012 there were 10,727 holders of ordinary shares in the Company. Their shareholdings are analysed as follows:
Size of shareholding
1–5,000
5,001–50,000
50,001–100,000
100,001–500,000
Over 500,000
Total
Shareholders are further analysed as follows:
Size of owner
Bank and nominee companies
Private shareholders
Limited companies
BTG Employee Share Trust
Insurance companies and pension funds
Total
Number of
shareholders
Percentage
of total
number of
shareholders
Number
of ordinary
shares
Percentage
of ordinary
shares
9,889
588
72
102
76
92.2
5.4
0.7
1.0
0.7
6,825,235
8,417,053
5,114,170
24,170,463
282,765,944
2.1
2.5
1.6
7.4
86.4
10,727
100.0
327,292,865
100.0
Number of
shareholders
Percentage
of total
number of
shareholders
Number
of ordinary
shares
Percentage
of ordinary
shares
976
9,561
71
1
118
9.1
89.1
0.7
-
1.1
304,422,613
17,312,103
1,512,953
1,214,313
2,830,883
93.0
5.3
0.5
0.4
0.8
10,727
100.0
327,292,865
100.0
Mutual funds and other institutions, and private shareholders holding their shares within PEPs and ISAs, are included
within ‘Bank and nominee companies’.
Capita share dealing services
A quick and easy share dealing service is available from Capita Registrars, to either buy or sell more shares. An online
and telephone dealing facility is available providing shareholders with an easy-to-access and simple-to-use service.
For further information on this service, or to buy and sell shares, please contact: www.capitadeal.com (online dealing)
or +44 (0) 871 664 0446 (telephone dealing – calls cost 10p per minute plus network extras). Full terms, conditions
and risks apply and are available on request or by visiting www.capitadeal.com.
This is not a recommendation to buy or sell shares. The price of shares can go down as well as up, and you are
not guaranteed to get back the amount that you originally invested.
Shareholder change of address
The Company offers the facility, in conjunction with Capita Registrars, our Registrars, to conduct a number of
routine matters via the web including the ability to notify any change of address. If you are a shareholder and are
either unable or would prefer not to use this facility, please do not send the notification to the Company’s registered
office. Please write direct to Capita Registrars, at their address shown overleaf, where the register is held.
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Shareholder information
Registered office and head office
Advisers
BTG plc
5 Fleet Place
London
EC4M 7RD
Tel: +44 (0)20 7575 0000
Fax: +44 (0)20 7575 0010
info@btgplc.com
www.btgplc.com
Registered number 2670500
Stockbrokers
J.P. Morgan Cazenove
10 Aldermanbury
London EC2V 7RF
Tel: +44 (0)20 7742 4000
Deutsche Bank AG London
Winchester House
1 Great Winchester Street
London EC2N 2DB
Tel: +44 (0)20 7545 8000
Auditors
KPMG Audit Plc
15 Canada Square
London E14 5GL
Tel: +44 (0)20 7311 1000
Registrars
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Callers from the UK:
Tel: +44 (0)871 664 0300
(Please note that calls cost
10p per minute, plus network
extras. Lines are open
8.30am–5.30pm, Monday –Friday).
Callers from outside the UK:
Tel: +44 (0)20 8639 3399
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Cautionary note regarding forward looking statements
This Annual Report and Accounts contains certain forward-looking statements with respect to BTG’s business, performance and
prospects. Statements and other information included in this report that are not historical facts are forward-looking statements.
Words such as ‘expects’, ‘anticipates’, ‘intends’, ‘plans’, ‘believes’, ‘seeks’, ‘estimates’ and ‘potential’, variations of these
words and similar expressions are intended to identify forward-looking statements. These statements are based on current
expectations and involve risk and uncertainty because they relate to events and depend upon circumstances which may or may
not occur in the future. There are a number of factors which could cause actual results or developments to differ materially
from those expressed or implied by these forward-looking statements. Current principal risks and uncertainties are described
on pages 26 to 29 of this report. Any of the assumptions underlying these forward-looking statements could prove inaccurate
or incorrect and therefore any results contemplated in the forward-looking statements may not actually be achieved. BTG
undertakes no obligation to update publicly any forward-looking statement, whether as a result of new information, future
events or otherwise.
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Trade marks
BTG and the BTG roundel logo are registered trade marks of BTG International Ltd.
The following is a non-exhaustive list of trade marks of the BTG International group of companies:
Advantage I-125™
AnchorLoad™
AnchorMarker™
AnchorSeed®
Applicator Kit™
Bead Block®
CoVaccine HT™
CroFab®
CRTS™ – Custom Real-Time Strands
DC Bead®
DC BeadM1™
DigiFab®
EchoStrand™
LC BeadM1™
LC Bead™
PARAGON Bead®
PRECISION Bead®
ReGel®
RTS™ – Real-Time Strands
SeedLock3™
StandardLoad™
StandardStrand™
StrandPort Pre-Loaded™ (SPPL)
VariLoad™
Varisolve®
VariStrand™
Voraxaze®
VVSymQ™
Zytiga® is registered trade mark of Johnson & Johnson, Inc.
Campath® is a registered trade mark of Genzyme Corporation, a Sanofi company.
BeneFIX® is a registered trade mark of Genetics Institute, now part of Pfizer, Inc.
Lemtrada™ is a proprietary name submitted to health authorities for Genzyme Corporation’s
investigational multiple sclerosis agent alemtuzumab. Genzyme Corporation is a Sanofi company.
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www.btgplc.com
Please refer to our website
for more information on BTG
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