Futura Medical plc Annual Report and Accounts For the year ended 31 December 2014 Stock Code: FUM Futura AR2014 Proof 9.indd 2 25/03/2015 10:17:02 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 About Futura Medical What we do Futura’s innovation strategy applies advanced science to develop products with compelling commercial potential using our advanced proprietary transdermal technology. Our key strengths Technological strengths We have strong IP on all products under development. Our expertise is in transdermal delivery. Commercial strengths We are focused on products for which there are substantial market opportunities. We currently have agreements with a number of key industry players. We specialise within the growing consumer healthcare sector. Financial strengths We maintain a high ratio of research and development spend relative to administrative costs and a ‘virtual’ organisational structure. www.futuramedical.com Contents About Futura Medical About Futura Medical Our Strategy Highlights Our Business Model Our Brand Blue Diamond® Our Expertise Our Pipeline Governance Chairman’s and Chief Executive’s Review Strategic Report Board of Directors Remuneration Report Corporate Governance Directors’ Report Independent Auditor’s Report Financial Statements Group Statement of Comprehensive Income Group Statement of Changes in Equity Group Statement of Financial Position Group Statement of Cash Flows Notes to the Group Financial Statements Parent Company Balance Sheet Notes to the Parent Company Financial Statements Company Information 01 02 03 04 05 06 07 12 18 20 25 28 30 31 32 33 34 35 55 56 59 Futura AR2014 Proof 9.indd 3 25/03/2015 10:17:07 23965.04 25 March 2015 10:15 AM Proof 9 www.futuramedical.com Stock Code: FUM 01 Our Strategy Futura’s innovation strategy applies advanced science to develop products with compelling commercial potential and is driven by the following four criteria. AdvAnced TrAnsdermAl Technology 1 Offering innovative delivery of proven compounds through the skin to improve their performance or to address new indications conTrolled developmenT risk 2 3 sTrong inTellecTuAl properTy commerciAlisATion 4 Using only approved compounds to control the risk profile Developing products where the group can secure strong patent protection Out-licensing products to leading healthcare companies which offer the optimum potential financial return l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F incorporATing exisTing chemicAl enTiTies Reduces investment and risk Reduces development costs Increases chances of regulatory approval N N SIO SIO U U F DIF DIF THE ACTIVE STARTS THE ACTIVE STARTS WORKING RAPIDLY WORKING RAPIDLY TARGETED DELIVERY TARGETED DELIVERY sexuAl heAlTh csd500 CSD500 PET500 MED2002 pAin relief TPR100 TIB200 SPR300 Licensing partners include Church & Dwight, Ansell, Saudi Pharmacy Group, RFSU and Kwang Dong Pharmaceutical. Launched in Holland and Belgium under blue diamond® brand. peT500 Licensing partner Ansell. innovATive drug delivery plATform Highly efficient and proprietary transdermal delivery technology 1 Application of gel with active 2 Seconds later* 3 Minutes later* SKIN SURFACE SKIN SURFACE DERMIS DERMIS TARGET AREA TARGET AREA N N O O I I T T A A R R U U T T A A S S TECHNOLOGIES TECHNOLOGIES WITHIN DERMASYS® WITHIN DERMASYS DRIVE THE ACTIVE DRIVE THE ACTIVE THROUGH THE SKIN THROUGH THE SKIN I I I G G N N N N O O T T T T R R A A P P I I I I For more information on Our Delivery Technology go to page 5 *These are estimates and will vary according to the therapeutic indication Futura AR2014 Proof 9.indd 1 25/03/2015 10:17:09 23965.04 25 March 2015 10:15 AM Proof 9 02 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com www.futuramedical.com Stock Code: FUM Stock Code: FUM Highlights ●● £12 million fundraising in March 2014 allows Futura to focus on building value in its product pipeline prior to out-licensing ●● CSD500 (condom containing an erectogenic gel) – launched online under Futura’s own brand Blue Diamond® in the Netherlands and Belgium; progress towards wider roll-out continues ●● MED2002 (topical treatment for erectile dysfunction) – first patient to be dosed in clinical trial programme by the end of Q2 and launch as a special product in the UK expected in H2 2015 ●● Pain Relief Portfolio – clinical trial programme under way ●● Net loss of £3.00 million (2013: net loss of £2.21 million) with net cash inflow in year of £8.50 million (2013: net cash outflow of £1.83 million) ●● Cash resources of £9.49 million at 31 December 2014 (31 December 2013: £0.99 million); tax credit receivable of £0.48 million at 31 December 2014 (31 December 2013: £0.31 million) Futura AR2014 Proof 9.indd 2 25/03/2015 10:17:09 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com www.futuramedical.com Stock Code: FUM Stock Code: FUM 03 Our Business Model Develop Protect License Commercial potential Our product development strategy is focused on creating products with a predicted high rate of return on investment and a low cost of development. We focus exclusively on topically applied pharmaceutical drugs and medical devices. We only incorporate existing well- characterised chemical entities into our products. Robust patent protection Strong IP underpins all our product development and commercialisation strategies. We develop and retain our intellectual property including manufacturing rights, patents, know-how and trademarks to protect the commercial position and competitiveness of our products and our partners. Strong partners Our products, once approved by the relevant regulatory authorities, will be brought to market through licensing agreements with partners that already have significant distribution networks. In return we receive upfront payments, milestones and royalty payments based on the sales of our products via these distribution partners. Licensing partnerships CSD500 - Futura has an exclusive licensing agreement with Church & Dwight Co. Inc. (“Church & Dwight”) for the distribution rights to CSD500 in North America and in a number of key European territories. Church & Dwight’s condom brand Trojan® is the number one condom brand in North America and the world’s second biggest condom brand by product sales. Futura has also licensed the rights to CSD500 to Saudi Pharmacy Group, a Middle Eastern healthcare company for 15 countries in the Middle East and North Africa region (“MENA”), to Ansell Limited (“Ansell”) for China and to RFSU AB (“RFSU”), the market leader for condoms in Scandinavia, for four countries in the Nordic region. In September 2014 Futura licensed the rights to CSD500 to Kwang Dong Pharmaceutical for South Korea. In addition in 2014 Futura licensed the rights to CSD500 to Bizzy Diamond BV for the Netherlands and Belgium. In October 2014, CSD500 was launched in the Netherlands and Belgium under our own brand Blue Diamond®. PET500 - Futura has an exclusive worldwide agreement with Ansell, one of the world’s major sexual health companies, for the commercialisation of PET500, our product for enhanced sexual control. PET500 is a topical spray that combines our DermaSys® AquaFree delivery system with a well-known mild topical anaesthetic to delay male ejaculation. PET500 is available in the USA under the brand name EPIC®. l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F Futura AR2014 Proof 9.indd 3 25/03/2015 10:17:13 23965.04 25 March 2015 10:15 AM Proof 9 04 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Our Brand Blue Diamond® In 2014 Futura launched CSD500 under its own brand Blue Diamond® in the Netherlands and Belgium. Blue Diamond® condoms were launched on 9 October 2014 as an online-only product by Bizzy Diamond BV, Futura’s distribution partner for the Benelux. The launch of the product has attracted significant local media coverage including national TV programmes and radio station interviews and reviews. Blue Diamond® is estimated to have accounted for approximately 17% of online condom sales (by value) in the Netherlands and about 10% in Belgium and the Netherlands combined during the remainder of 2014. Blue Diamond® was launched through a dedicated e-commerce website www.bluediamondcondom.nl. Since the launch, the distribution of Blue Diamond® has expanded to all main online condom specialist retailers. We are also in advanced discussions with retailers in the Netherlands and expect the product to be in-store from Q2 2015. Blue Diamond® is Futura’s own-brand of its CSD500 condom, which contains Futura’s erectogenic gel Zanifil®. CSD500 benefits from three marketing claims, which are unique, have been clinically proven and are approved by EU regulatory authorities: the maintenance of a firmer erection, maximised penile size and a longer lasting sexual experience for women. SKIN SURFACE SKIN SURFACE DERMIS DERMIS TARGET AREA TARGET AREA N N O O I I T T A A R R U U T T A A S S G G I N N I I N N O O I I T T I I T T R R A A P P N N SIO SIO U U F DIF DIF TECHNOLOGIES TECHNOLOGIES WITHIN DERMASYS® WITHIN DERMASYS DRIVE THE ACTIVE DRIVE THE ACTIVE THROUGH THE SKIN THROUGH THE SKIN THE ACTIVE STARTS THE ACTIVE STARTS WORKING RAPIDLY WORKING RAPIDLY TARGETED DELIVERY TARGETED DELIVERY Futura AR2014 Proof 9.indd 4 25/03/2015 10:17:21 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 05 Our Expertise DermaSys® is Futura’s advanced transdermal technology platform. Futura has developed a highly efficient and proprietary transdermal delivery technology, DermaSys®, for the absorption of active molecules through the skin. DermaSys® is a versatile technology that can be tailored to suit the specific active compound being used and the therapeutic indication. Such targeted delivery offers an optimised profile in terms of dose, onset time and duration of effect, as well as an improved safety profile through lower systemic uptake and the reduced risk of side effects. Whilst developing PET500, our product for enhanced sexual control, we also expanded the DermaSys® delivery technology platform by producing a new and unique delivery system, DermaSys® AquaFree, which does not contain water. MED2002 Topical gel for the treatment of erectile dysfunction PET500 Performance enhancement spray for men TPR100 Topical diclofenac pain relief gel TIB200 Topical ibuprofen pain relief gel SPR300 Topical methyl salicylate pain relief gel 1 Application of gel with active 2 Seconds later* 3 Minutes later* l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F SKIN SURFACE SKIN SURFACE DERMIS DERMIS TARGET AREA TARGET AREA N N O O I I T T A A R R U U T T A A S S TECHNOLOGIES TECHNOLOGIES WITHIN DERMASYS® WITHIN DERMASYS DRIVE THE ACTIVE DRIVE THE ACTIVE THROUGH THE SKIN THROUGH THE SKIN I I I G G N N N N O O T T T T R R A A P P I I I I N N SIO SIO U U F DIF DIF THE ACTIVE STARTS THE ACTIVE STARTS WORKING RAPIDLY WORKING RAPIDLY TARGETED DELIVERY TARGETED DELIVERY DermaSys® AquaFree enables drugs that are water sensitive (hydrolytically unstable or which have only limited hydrolytic stability) to be developed into potentially commercially attractive products with the additional benefit of rapid transdermal delivery. *These are estimates and will vary according to the therapeutic indication Futura AR2014 Proof 9.indd 5 25/03/2015 10:17:22 23965.04 25 March 2015 10:15 AM Proof 9 06 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Our Pipeline Sexual Healthcare Concept Development Commercialisation peT500 Description: Performance enhancement spray for men Status: Available in the USA csd500 Description: Condom containing an erectogenic gel Status: Launched in Holland and Belgium with further launches expected med2002 Description: Topical gel for erectile dysfunction Status: Phase IIA/III study preparation under way; commercialisation discussions under way Pain Relief Concept spr300 Development Commercialisation Description: Topical methyl salicylate pain relief gel Status: Clinical trial programme under way; commercialisation discussions under way TiB200 Description: Topical ibuprofen pain relief gel Status: Clinical trial programme under way; commercialisation discussions under way Tpr100 Description: Topical diclofenac pain relief gel Status: Clinical trial programme under way; commercialisation discussions under way Futura AR2014 Proof 9.indd 6 25/03/2015 10:17:24 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 07 Chairman’s and Chief Executive’s Review 2014 was another year during which we made considerable progress in the development of Futura. l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F The milestones achieved during the year were an oversubscribed placing to raise £12 million, the launch of our novel condom CSD500 under our own brand Blue Diamond® and substantial progress with our portfolio of earlier stage opportunities. The £12 million fundraising announced in March 2014 has allowed Futura’s strategy to evolve and for the Company to become a more broadly based business. Most importantly, the fundraising has allowed the Company to build greater value into its product pipeline by providing the finance for clinical trials and regulatory work. The result of this is that products can be licensed out at a later stage, potentially on commercially much more attractive terms. During the year, we began to deploy the proceeds of the fundraising, particularly in preparing for two clinical trial programmes which are now close to starting. The first patient will be dosed in April in the clinical trial programme of our pain relief products and we expect the first patient will be dosed in our clinical trial programme of MED2002, our novel gel for erectile dysfunction, in Q2. We are also progressing MED2002 towards launch as an unlicensed medicinal product (‘‘special’’) and expect it to become available on prescription as a special in the UK in the second half of the year. Blue Diamond®, our own brand of the CSD500 condom, was launched in the Netherlands and Belgium in October 2014. We were pleased by the launch and by progress to date given that it is a completely new condom brand with only one product type, available solely online and with limited advertising. Blue Diamond® is estimated to have accounted for approximately 17% of online condom sales (by value) in the Netherlands and about 10% in Belgium and the Netherlands combined during the remainder of 2014. Whilst we estimate online condom sales to make up only about 6% of total condom sales in these two countries, we believe that our market share is encouraging. We continue to believe in the longer term potential of the online opportunity for Blue Diamond®. We are also in advanced discussions with retailers in the Netherlands and expect the product to be in-store from Q2 2015. Futura AR2014 Proof 9.indd 7 25/03/2015 10:17:28 23965.04 25 March 2015 10:15 AM Proof 9 08 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Chairman’s and Chief Executive’s Review (continued) The customer feedback and pharmaco-vigilance data, which we have received following the launch of Blue Diamond®, has been of great use. We are sharing the data with the commercial partners with whom we have licensed CSD500 for the launch of the condom in key territories worldwide. Our commercial partners’ preference for a longer shelf life for CSD500 has determined the pace of the wider roll-out of the product. We are making progress in our work on the shelf life, which we expect to conclude during the next three months. Whilst this work continues, our licensing partners are using the information gained from the launch of Blue Diamond® to assist them in planning their own product launches. The use of the Blue Diamond® brand has been of interest to some existing and potential licensing partners. In September 2014 we announced an exclusive licensing agreement with Kwang Dong Pharmaceutical, which will market and distribute CSD500 in South Korea under the Blue Diamond® brand. sign of product efficacy as we use a standard size condom, consequently, we are looking at alternative sizes to address this as well as to provide further consumer choice and build greater presence on retail shelves. CSD500’s unique intellectual property position has been protected throughout the world including the principal consumer markets within Europe, the USA and Canada through patents now granted in 37 countries. We are fortunate with CSD500 to have an extensive patent estate with a remaining life of up to nine years, which could potentially be extended by a further ten years through the new intellectual property that we create through our ongoing R&D work. Our strategy is to license CSD500 on a territorial basis and to date we have licensed exclusive rights to CSD500 as follows: Company Territorial Licensing Rights We continue in discussions for the out-licensing of CSD500 in territories where a licensing partner has not already been appointed. We are also in discussions on the out-licensing of other products in our portfolio. However our principal focus with MED2002 and the pain relief portfolio is to build the value of the products through the completion of clinical trial programmes prior to entering into licensing arrangements. Portfolio updates - Sexual healthcare csd500: condom containing the erectogenic Zanifil® gel CSD500 benefits from three clinically proven claims: the maintenance of a firmer erection, maximised penile size and a longer lasting sexual experience for women. CSD500, which gained CE marking in 2013, represents real innovation in an industry where there has been limited new product development. Furthermore in the past six months two independent consumer studies on CSD500, conducted by two different potential distribution partners, have reported similar results to those shown in our original clinical study and also to results being observed since the launch in the Netherlands and Belgium. In summary, at least 55% of men and women reported an increase in their (or their sexual partner’s) penile firmness along with a longer lasting and improved sexual experience. We have received some feedback on the condom being too tight, which may be a Church & Dwight Saudi Pharmacy Group RFSU AB Ansell Bizzy Diamond BV Kwang Dong Pharmaceutical North America and certain European countries Key countries in the Middle East and North Africa The Nordic region China Netherlands, Belgium South Korea Discussions are ongoing in connection with further geographic regions. Some of these licensing partners will use their own brand names and others will use the Blue Diamond® brand. Bizzy Diamond BV, a Dutch condom distributor founded in 2003, launched Blue Diamond® in the Netherlands and Belgium last year. As outlined above, the launch of the product has provided us with valuable insights and data which we are sharing with our other commercial partners. This data includes consumer feedback, which will assist in the future development of the product range, along with in-market pharmaco-vigilance data. We are pleased that the in-market experience of the product to date is consistent with the product’s performance in clinical studies. We are also in advanced discussions with retailers in the Netherlands and expect the product to be in-store from Q2 2015. Futura AR2014 Proof 9.indd 8 25/03/2015 10:17:28 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 09 As we stated at the time of the half year results, the pace of the wider commercial roll-out of the product is being determined by work we are carrying out on the shelf life of the product and examining whether it can be extended. We are conducting a thorough study of all aspects of the product’s manufacture with the objective of identifying any areas that could contribute to a longer product shelf life to bring the product more in line with the traditional supply chain of the condom industry. Our commercial partners would like certainty on whether the CSD500 shelf life can be extended before making a decision on whether to launch the product with its existing shelf life of one year. As the launch of Blue Diamond® in the Netherlands and Belgium has demonstrated, the existing shelf life is adequate for the sale and use of the product though it does require some changes to the standard distribution practices of the condom industry. We have identified the components of the manufacturing process that impact shelf life and will have concluded this work during Q2 2015. med2002: eroxon®:Treatment for erectile dysfunction MED2002, which uses our DermaSys® drug delivery system, is the development name for our topical gel for the treatment of men with erectile dysfunction (“ED”). We hold worldwide rights to the product, which shares the same active ingredient as CSD500. We anticipate that MED2002, which will be branded Eroxon®, is likely to be a prescription-only product. During 2014 we made major progress with the development of MED2002, following the fundraising in March 2014. We have a dual strategy for its commercialisation comprising clinical work for a regulatory filing and the early launch of the product as a special. Special products, or unlicensed medicines, are medicines that have already been approved in one indication, giving doctors the authority, subject to certain conditions, to prescribe them in other indications and formats provided that other options have been exhausted and until such time as the product achieves regulatory approval in the applicable territory. MED2002 meets the criteria required within the UK for an unlicensed medicinal product (‘‘special’’) because of the estimated 7.5% of ED sufferers who cannot be prescribed PDE5 inhibitors (such as Viagra®) due to contraindications with other medications taken by them. We have already identified a specials manufacturer and we are working towards making MED2002 available to UK doctors as a special in the second half of this year. MED2002 production for the clinical study has now been completed and the technical transfer to enable the proposed specials manufacturer to make MED2002 is now underway. In addition to MED2002’s role as a special product we believe that it has significant potential amongst a much wider patient base owing to its fast onset of action and favourable safety profile. The first patient is expected to be dosed before the end of Q2 in a clinical trial programme of over 140 patients with ED. The primary outcome of the clinical trial, which will be a randomised, placebo-controlled, double blind, home use, crossover design, is statistically significant efficacy. The clinical trial is expected to report before the end of 2015. In Europe, MED2002 has patent protection until August 2025. We were pleased to announce last month that the US Patent & Trademark Office (“USPTO”) has granted a three-year extension to the patent protection of MED2002. The patent extension, until August 2028, reflects the time taken by the USPTO to process MED2002’s initial patent application. The patent extension is potentially significant as the final few years of a patent represent the product’s commercial window whereas the early years of a patent are devoted to product development. We estimate that MED2002’s commercial window will be effectively extended by around 40 per cent in the USA, the world’s largest pharmaceutical market, assuming US regulatory approval is obtained during 2018. l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F Futura AR2014 Proof 9.indd 9 25/03/2015 10:17:28 23965.04 25 March 2015 10:15 AM Proof 9 10 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Chairman’s and Chief Executive’s Review (continued) Two different strengths of TPR100, Futura’s novel diclofenac gel, will be compared against a market-leading diclofenac gel, against orally delivered diclofenac and against a placebo of TPR100’s gel. TIB200, Futura’s novel ibuprofen gel, will be compared against a market-leading topical gel containing ibuprofen, against orally delivered ibuprofen and against a placebo of TIB200’s gel. The endpoints for TPR100 and TIB200 include equivalence with the marketed topical products against which they are being compared and also how they compare with oral versions of the marketed products. Systemic absorption of the active ingredients will be studied to identify any differences in the absorption profiles of the test products and these will be correlated with the side effects profiles. In addition to equivalence, the study will identify any potential superiority of TPR100 and TIB200 compared with the marketed products, for example: onset of action, duration and/or degree of pain relief. SPR300 will be compared only against a placebo of the gel used in SPR300 as, following consultation with UK regulators, there is no appropriate marketed methyl salicylate product that can be used as an active comparator. The endpoints of the clinical trial for all three products are designed for regulatory approval requirements as well as to identify any potentially strong marketing claims. The clinical trial is of a randomised, double blind, crossover design in a total of 60 subjects, divided into three groups of 20 who will receive either TPR100, TIB200, SPR300 or controls. The results of the clinical trial are expected by the end of July 2015. Graphs showing the superior skin penetration of Futura’s three pain relief programmes are available at this link: www.futuramedical.com/archive/painreliefclinicalgraphs.pdf. peT500: enhanced sexual control PET500 is a topical spray that combines our highly efficient DermaSys® AquaFree delivery system with a well-known mild topical anaesthetic. PET500 is licensed to Ansell, one of the world’s major sexual health companies, who have worldwide rights to the product and have launched the product in the USA under the name EPIC® as part of their well-known LifeStyles® brand. Under the terms of the licensing agreement Futura will receive a significant royalty rate on sales. EPIC® is designed to take effect rapidly and to delay male ejaculation, thereby offering enhanced sexual control. Whilst EPIC® was made available in stores throughout the USA, its sales have been modest to the extent that it is no longer stocked by a major US retailer. We believe that the sales performance reflects a lack of promotional activity and we are currently in dialogue with Ansell on moving the product forwards. Portfolio updates - Pain relief management Topical pain relief The rapid skin permeation rates offered by Futura’s transdermal delivery system, DermaSys®, have created a major opportunity in topical pain relief. Rapid skin permeation offers potential benefits in pain management including: improved onset of action, duration and degree of pain relief. Futura has a portfolio of three pain relief products whose well characterised active ingredients include diclofenac, ibuprofen and methyl salicylate. Whilst some out-licensing discussions have already taken place our focus, following the fundraising in March 2014, has been on building value into the pipeline through clinical work prior to entering into out-licensing agreements. As announced on 18 March 2015, the clinical study of the pain relief portfolio is under way and the first patient will be dosed in April. All three products are being compared against placebo and/or against marketed products in a controlled induced pain model in which the skin of healthy volunteers will be carefully exposed to a controlled amount of ultra-violet light to increase the sensitivity of the skin to pain stimuli. This approach removes some of the subjectivity and variability associated with studying pain in patients being treated for painful conditions. Futura AR2014 Proof 9.indd 10 25/03/2015 10:17:28 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 11 David Davies resigned on 12 November 2014 and left the Company on 12 February 2015. We would like to thank him for his contribution over the years and wish him well for the future. We would also like to offer our sincere thanks to all our staff, external consultants, scientific advisers and commercial partners for their contribution to the development of the Company throughout the year. Outlook 2015 is set to be a year of significant news flow at Futura, with key value inflection points expected across the Company’s product portfolio. In the near term, we expect commencement of two pivotal clinical trial programmes and we also expect to complete our work on the potential for extending the shelf life of our novel condom CSD500. We also continue in discussions on further out-licensing agreements. This high level of activity has been facilitated by our significant equity fundraising in 2014. We enter 2015 with a strong balance sheet, a number of projects under way and with a determination to generate value for our shareholders. John Clarke Chairman James Barder Chief Executive The topical pain relief portfolio comprises: Tpr100: Topical pain relief A topical gel combining the Non-Steroidal Anti-Inflammatory Drug diclofenac with the DermaSys® delivery system. TPR100 has been shown to achieve in excess of eight times higher permeation through human skin and 35 times greater bioavailability than that achieved by the UK’s best- selling topically applied diclofenac based pain relief product, Voltaren® gel at a similar 1% diclofenac w/w concentration. TiB200: Topical ibuprofen A topical gel combining the well-known analgesic ibuprofen with the DermaSys® delivery system. TIB200 has been shown to achieve in excess of 20 times higher permeation through isolated human skin compared with the UK’s best-selling topically applied ibuprofen based topical pain relief product, Nurofen® gel at a similar 5% ibuprofen w/w concentration. spr300: sensory pain relief A topical gel combining methyl salicylate and menthol with the DermaSys® delivery system. SPR300 has been shown to achieve in excess of four times higher permeation through isolated human skin compared with the UK’s best-selling topically applied methyl salicylate/menthol based topical pain relief product, Deep Heat®. In addition SPR300 was directly compared with the best-selling over-the-counter topically applied gels sold in the USA, Icy Hot® and Bengay®, and showed similarly improved permeation rates. People The Futura R&D team has increased in the past nine months from three people to seven full time staff in addition to our pool of external consultants. Whilst we remain a virtual company, the additional staff reflect the broader base of the business and our desire to control and drive development and therefore build value. Futura now has 12 employees compared with seven a year earlier. It is not anticipated that staff numbers will grow significantly during the remainder of the current year. Following the launch of Blue Diamond® we have recognised the opportunity to roll-out the Blue Diamond® brand in other territories. To drive this we have recently appointed an experienced Brand Manager. l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F Futura AR2014 Proof 9.indd 11 25/03/2015 10:17:28 23965.04 25 March 2015 10:15 AM Proof 9 12 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Strategic Report Our strategy is to develop innovative products with compelling commercial potential in the consumer healthcare market, leveraging our core skills in transdermal drug delivery. • Advanced transdermal technology: offering innovative delivery of proven compounds through the skin to improve their performance or to address new indications. • Controlled development risk: using only approved compounds to control the risk profile. • Strong intellectual property: developing products where the Group can secure strong patent protection. • Commercialisation: out-licensing products to leading healthcare companies which offer the optimum potential financial returns. Our products CSD500 and MED2002 involve the application of the same active pharmaceutical ingredient, in each case in the sexual healthcare field. The development of our proprietary transdermal delivery technology, DermaSys®, has enabled the expansion of our product pipeline to include other new active pharmaceutical ingredients. PET500 and our portfolio of pain relief products represent the next applications of our DermaSys® delivery technology. Long lead times for product development characterise the pharmaceutical industry. However, the Board seeks to drive the business through to revenue generation as soon as is practicable with due regard to regulatory standards and an appropriate commercial approach. This is achieved through swift decision-making, highly capable staff and the involvement of external expertise. At the same time, the Board remains committed to keeping regular or fixed costs restricted to an appropriate The Strategic Report should be read in conjunction with the Chairman’s and Chief Executive’s Review on pages 7 to 11, the Group financial statements and the Notes to the Group Financial Statements set out on pages 31 to 54. Group strategy The Group strategy is to focus on developing innovative products for the consumer healthcare market. This strategy is aligned with the well-publicised demographic change of an ageing population, increasing prosperity, Government initiatives to increase self-medication, the natural desire for improved quality of life and the Directors’ expectations that consumer healthcare spending will increase as a result. The objective is to develop products such that each on its own has the potential to generate significant annual revenues. The Group’s innovation strategy applies advanced science to develop products with compelling commercial potential and is driven by the following four criteria: Futura AR2014 Proof 9.indd 12 25/03/2015 10:17:30 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 13 level through the continued and judicious use of external consultants and professional advisers. Clearly, the lower the Group’s regular and fixed costs, the earlier that on-going revenue generation would lead to a key future financial milestone of monthly break-even and profitability. These consumer healthcare markets are dominated by global pharmaceutical and consumer healthcare groups with established distribution networks. Smaller R&D companies, such as Futura, seek to out-license their innovative products to these larger entities. The consumer healthcare market and competitive environment The Group develops products that address the needs of the consumer healthcare market. The Group considers there to be two distinct categories in which it operates. The first category is the global transdermal delivery market, valued at US$21.5 billion in 2010.¹ Although the Group develops transdermal products for prescription and over the counter (“OTC”) use, its focus is on developing non- prescription drugs. These comprise the sexual healthcare products PET500 and MED2002 and the pain relief products: TPR100, TIB200 and SPR300. The global topical OTC analgesics market was valued at US$4.1 billion in 20112 and the market leader for topical OTC analgesics has annual sales of US$406 million.3 As PET500 and MED2002 could form new categories within the OTC market, no published data is available on the OTC sexual healthcare market to substantiate market size estimates. The prescription market for erectile dysfunction treatments was estimated to be in excess of US$4.3 billion4 in 2013. The second category is the global consumer medical devices market. The Directors estimate that the market for consumer medical devices is worth between US$23 billion and US$26 billion. The consumer medical device being developed by the Group is the condom product CSD500 which addresses the global condom market, estimated to be worth US$3.5 billion.5 Futura offers its licensing partners its ability to identify commercially attractive consumer healthcare product opportunities coupled with a lower cost, expert and fast development model, backed by strong patent protection. In return for this, Futura seeks significant royalties from future sales of these products through its partners and their established distribution networks. Financial review The Group ended the year with costs firmly under control and with a more advanced and diverse development portfolio. Revenue Group revenue for the year ended 31 December 2014 was £44k (2013: £371k). The 2013 milestone revenue included £321k in respect of one licensing agreement. Losses The Group continues to maintain a focus on tight control of all expenditure. The Group’s operating loss for the year ended 31 December 2014 was £3.53 million (2013: £2.53 million). The Group’s loss after taxation for the year ended 31 December 2014 was £3.00 million (2013: £2.21 million). Loss per share for the year ended 31 December 2014 was 3.35 pence (2013: 2.85 pence). No dividends were paid and none are proposed by the Board of Directors (“the Board”) (2013: £nil). Notes 1 Transdermal Medicine Review and Outlook 2011, Pharmalive 2 2011 calendar year. Source: OTC Yearbook 2012 (MSP), Nicholas Hall & Company DB6 database 3 Source: (MSP), Nicholas Hall & Company 4 Futura estimate based on erectile dysfunction product sales data from 2013 Annual Reports for Pfizer, Lilly and Bayer 5 Source: “Condoms: A Global Strategic Business Report”, Oct. 2012, Global Industry Analysts, Inc. l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F Futura AR2014 Proof 9.indd 13 25/03/2015 10:17:30 23965.04 25 March 2015 10:15 AM Proof 9 14 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Strategic Report (continued) Group research and development costs Group R&D costs each year reflect the number of products being developed, the stage of development reached for each and the impact on their progress of external factors. R&D costs of £2,365,678 were higher (2013: £1,976,322) due principally to continued work on shelf life extension for CSD500. The table shows the trend in R&D costs and other administrative costs over the past five years ended 31 December: 2014 £ 2013 £ 2012 £ 2011 £ 2010 £ R&D costs 2,365,678 1,976,322 1,435,731 1,480,774 760,637 Other administrative costs 1,205,078 926,123 1,095,197 776,154 700,399 Total operating costs R&D ratio 3,570,756 2,902,445 2,530,928 2,256,928 1,461,036 66% 68% 57% 66% 52% The R&D ratio is the percentage of R&D costs relative to total operating costs. The Board monitors this ratio closely. Total R&D spend since the formation of the business in 1997 totals £18 million (58% of total cumulative operating costs). During the year, a subsidiary, Futura Medical Developments Limited continued to incur this R&D expenditure which has been accounted for as explained in accounting policy note 1.7 of the Notes to the Group Financial Statements and has been written off as incurred for all reporting periods prior to and including the year ended 31 December 2014. The Board considers that this overall total R&D spend relative to its pipeline of later stage products and emerging new products distinguishes the Group’s lower funding requirements and risk profile from more typical businesses in the wider pharmaceutical industry. The Group’s strategy is to focus on medical devices and pharmaceutical drugs that offer the potential for a significant return on the costs of development. As well as progressing its existing R&D programme, the Group continues to seek new opportunities for potential products to add to its portfolio. Futura AR2014 Proof 9.indd 14 25/03/2015 10:17:30 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 15 Other administrative costs Other administrative costs for the year ended 31 December 2014 were £1,205,078 (2013: £926,123). These comprised all other operating costs excluding those relating to product development and associated intellectual property. In particular the marketing support costs associated with the launch of CSD500 of £270k in the year have been included here. The main constituents of other administrative costs and their relative proportions were: Wages and salaries Legal and professional advisers Office costs and staff expenses Marketing support Year ended 31 December 2014 Year ended 31 December 2013 49% 13% 7% 31% 58% 13% 9% 20% 100% 100% Taxation A tax credit of £480,689 (2013: £313,677) in respect of R&D expenditure incurred has been recognised in the Group financial statements. Capital structure and funding The Group remains funded primarily by equity share capital. Equity funding (net of expenses) received since the formation of the business until 31 December 2014 totalled £34.38 million. On 27 January 2014 additional funds of £67,500 were raised following the issue of 120,000 shares at 56.25 pence each under the employee share option scheme. Equity funding of £12.0 million (before expenses) was raised in March 2014. On 31 December 2014 the Group raised £25,548 following the issue of 40,392 shares at 63.25 pence per share under the policy on Non-Executive Directors’ remuneration. l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F Futura AR2014 Proof 9.indd 15 25/03/2015 10:17:30 23965.04 25 March 2015 10:15 AM Proof 9 16 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Strategic Report (continued) Cash held by the Group at 31 December 2014 totalled £9.49 million comprising cash and cash equivalents (31 December 2013: £0.99 million). The Group had no bank borrowings at 31 December 2014 (2013: £nil). Other significant sources of funding received for the Group since formation of the business until 31 December 2014 comprised: R&D tax credits £2.57 million, interest £0.95 million and grants £0.28 million. As a result of this, the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. For these reasons the Directors continue to adopt the going concern basis in preparing the financial statements. Key performance indicators The Directors consider the successful achievement of development, licensing and commercialisation milestones and the number of products under development (beyond the evaluation stage) to be the major drivers of value creation for the Group. These are measures of the progress of the business towards its revenue generation goal and are considered by the Directors to be the key non-financial performance indicators used to determine achievement of Group strategy. The Group’s performance with regard to such milestones is discussed in the Chairman’s and Chief Executive’s Review on pages 7 to 11. The Directors consider Group cash and the absolute values of, and the ratio between, R&D costs and other administrative overhead costs as being the Group’s key financial performance indicators. The cost related indicators assist in monitoring financial control to reduce the hurdle to achieving a key future financial milestone of monthly break-even and profitability. The monitoring of cash gives due consideration to anticipated future spend required to prioritise development opportunities and to plan the resources required to achieve the goals of the business. Principal risks and uncertainties The development of pharmaceutical drugs and medical devices requires the necessary safety, stability and efficacy to be demonstrated in clinical programmes in order to meet the requirements of the appropriate regulatory bodies. These clinical programmes may not achieve their endpoints. The Directors consider that the key risks of the Group are: clinical development and regulatory risk There can be no guarantee that any of the Group’s products will be able to obtain or maintain the necessary regulatory approvals in any or all of the territories in respect of which applications for such approvals are made. Where regulatory approvals are obtained, there can be no guarantee that the conditions attached to such approvals will not be considered too onerous by the Group or its distribution partners in order to be able to market its products effectively. The Group seeks to reduce this risk by developing products using safe, well- characterised active compounds, by seeking advice from regulatory advisers, consultations with regulatory approval bodies and by working with experienced distribution partners. commercial risk There can be no guarantee that the Group will succeed in establishing and maintaining the necessary contractual relationships with licensing partners for the Group’s products under development. Even if the Group’s products are successfully developed and approved by the appropriate regulatory bodies, they may not be successfully launched by the Group’s licensing partners or enjoy commercial acceptance. The Group is reliant on commercial partners to carry out their contractual obligations and the degree to which these can be enforced by the Group is limited. The Group seeks to reduce this risk by selecting experienced licensing partners, maintaining and developing these relationships and seeking to develop new products of commercial interest to these and other partners. Futura AR2014 Proof 9.indd 16 25/03/2015 10:17:30 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 17 funding risk The Group continues to incur substantial operating expenses. Until the Group generates positive net cash inflows from the commercialisation of its products it remains dependent upon additional funding through the injection of equity capital from share issues. The Group may not be able to generate positive net cash inflows in the future or to attract such additional required funding at all, or on suitable terms. In such circumstances the development programmes may be delayed or cancelled and business operations cut back. The Group seeks to reduce this risk by keeping a tight control on expenditure, avoiding long-term supplier contracts (other than clinical trials), prioritising development spend on products closest to potential revenue generation, obtaining government grants (where applicable), maintaining a focused portfolio of products under development and keeping shareholders informed of progress. Treasury and financial risk Treasury and financial risk management policy is concerned with financial instruments and management of interest rate risk and foreign exchange rate risk. Financial risks are quantified in note 2 of the Notes to the Group Financial Statements and were not considered significant at the Group Statement of Financial Position date. The financial instruments held by the Group are disclosed in note 12 of the Notes to the Group Financial Statements. The Group policy on exposure to financial risk is disclosed in note 2 of the Notes to the Group Financial Statements. competition risk The Group’s current and future potential competitors include, amongst others, major multinational pharmaceutical and healthcare companies with substantially greater resources than those of the Group. There can be no assurance that competitors will not succeed in developing systems and products that are more effective or economic than any of those developed by the Group, with its distribution partners, or which would render the Group’s products obsolete or otherwise non-competitive. The Group seeks to reduce this risk by securing patent registration protection for its products, maintaining confidentiality agreements regarding Group know-how and technology, monitoring technological developments and by selecting leading businesses in their respective fields as licensing partners capable of addressing significant competition, should it arise. intellectual property risk The commercial success of the Group and its ability to compete effectively with other companies depend, amongst other things, on its ability to obtain and maintain patents sufficiently broad in scope to provide protection for the Group’s intellectual property rights against third parties and to exploit its pharmaceutical products. The absence of any such patents may have a material adverse effect on the Group’s ability to develop its business. The Group seeks to reduce this risk by only developing products where legal advice indicates patent protection would be available, seeking patent protection for the Group’s products, maintaining confidentiality agreements regarding Group know-how and technology and monitoring technological developments and the registration of patents by other parties. The commercial success of the Group also depends upon not infringing patents granted, now or in the future, to third parties who may have filed applications or who have obtained, or may obtain, patents relating to business processes which might inhibit the Group’s ability to develop and exploit its own products. By order of the Board Derek Martin Secretary l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F Futura AR2014 Proof 9.indd 17 25/03/2015 10:17:30 23965.04 25 March 2015 10:15 AM Proof 9 18 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Board of Directors The Board of Directors has overall responsibility for the Group. The Board of Directors (“the Board”) comprises the Non-Executive Chairman, the Chief Executive, the Finance Director and two independent Non-Executive Directors. The Board retains full control of the Group with day-to-day operational control delegated to the Executive Directors. The full Board meets bi-monthly and on any other occasions it considers necessary. The Board is responsible for approving interim and annual financial statements, formulating and monitoring Group strategy, approving financial plans and reviewing performance, as well as complying with legal, regulatory and corporate governance matters. The Chairman provides strategic and operational guidance bringing to bear his extensive experience of the healthcare sector. He also oversees the duties performed by the Chief Executive and ensures that they are in line with Board expectations with a particular emphasis on monitoring product development. The Chief Executive manages the day-to-day running and strategic direction of the Group in line with policy decisions given by the Board and shareholder expectations with particular emphasis on the commercial direction of the Group. John Clarke Non-Executive Chairman James Barder Chief Executive current roles John Clarke became Chairman of Futura Medical plc in February 2012. He is a member of the Nominations Committee and the Remuneration Committee. He is also the Non-Executive Chairman of Science in Sport plc and Quantum Pharma Plc. past roles Appointed President of GSK Consumer Healthcare in 2006, a position from which he stepped down in October 2011. Under his leadership, GSK Consumer Healthcare became one of the fastest-growing companies in its industry. Director of Provexis plc and of the US-based Consumer Healthcare Products Association. current roles James Barder joined the Group as Chief Executive in June 2001. He assists the Remuneration Committee and the Nominations Committee (but is not a member of and does not vote on either). He has overall responsibility for all activities of the Group, is a principal contact for shareholder and investor relations matters and leads licensing and distribution negotiations. He first became involved with the Group in 1997. He is also a Non-Executive Director of Lorega Limited. past roles Managing Director of Aon Capital Markets Limited. He has predominantly worked in the field of insurance and finance including firms he founded. Brings to the Board Extensive experience of the healthcare sector, having worked at GSK for more than 35 years. Brings to the Board Over 25 years of experience in setting up, managing and running companies. Futura AR2014 Proof 9.indd 18 25/03/2015 10:17:32 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 19 Derek Martin, BSc (Hons), ACA Finance Director and Company Secretary Jonathan Freeman, BA (Hons), MBA Senior Independent Non- Executive Director and Chairman of Remuneration Committee and Audit Committee current roles Derek Martin joined the Board in September 2008. He oversees the Group’s finance function, its compliance procedures and is a principal contact for shareholder and investor relations matters. past roles Senior financial roles in a diverse range of industries including retail, software, telecoms and advertising, media and sales promotion. Brings to the Board Over 25 years of experience in finance. current roles Jonathan Freeman joined the Board in July 2003 and was appointed Senior Independent Non-Executive Director in November 2003. He chairs the Audit Committee and the Remuneration Committee and is also a member of the Nominations Committee. He is also a Director of PhotonStar LED Group plc. past roles Director of Beeson Gregory, Chief Executive Officer of Syndicate Asset Management plc and a Director of Hume Securities plc. Brings to the Board Over 20 years of experience in the financial services sector, guidance on City regulatory matters, corporate finance and investor relations. Lisa Arnold Independent Non- Executive Director and Chair of Nominations Committee current roles Lisa Arnold joined the Board in March 2008. She chairs the Nominations Committee and is also a member of the Remuneration Committee and the Audit Committee. She also has a number of appointments on the boards of pension funds including Allied Domecq, Whitbread, Tate & Lyle and is a Non-Executive Director of PIMCO Europe Limited. past roles Senior investment banking analyst positions at NatWest Markets, UBS and Commerzbank. She has also worked in consultancy and Non-Executive roles in the pensions, healthcare and technology sectors and was most recently a Non-Executive Director of the UK’s Medicines and Healthcare products Regulatory Agency (“MHRA”), for nine years where she also chaired the Risk & Audit Committee. Brings to the Board Over 20 years of experience of financial markets and healthcare sectors and associated governance frameworks. l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F Futura AR2014 Proof 9.indd 19 25/03/2015 10:17:37 23965.04 25 March 2015 10:15 AM Proof 9 20 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Remuneration Report Remuneration Committee: composition and terms of reference The Remuneration Committee comprises the three independent Non-Executive Directors and is chaired by Jonathan Freeman. The purpose of the Remuneration Committee is to ensure that the Executive Directors and other employees are fairly rewarded for their individual contribution to the overall performance of the Group. The Committee considers and recommends to the Board the remuneration of the Executive Directors and is kept informed of the remuneration packages of senior staff and invited to comment on these. There were three Remuneration Committee meetings during 2014. The Board retains responsibility for overall remuneration policy. The terms of reference of the Remuneration Committee are set out in the Governance pages of the Investors section on the Group’s website at www.futuramedical.com. Policy on Executive Directors’ remuneration Executive remuneration packages are designed to attract and retain executives of the necessary skill and calibre to run the Group. Direct benchmarking of remuneration is difficult given the specialised nature and size of the Group. The Remuneration Committee recommends to the Board remuneration packages by reference to individual performance and uses the knowledge and experience of the Committee members, published surveys relating to AIM companies, the pharmaceutical industry and market changes generally. The Remuneration Committee has responsibility for recommending any long-term incentive schemes. The Board determines whether or not Executive Directors are permitted to serve in roles with other companies. Such permission is only granted where a role is on a strictly limited basis, where there are no conflicts of interest or competing activities and providing there is not an adverse impact on the commitments required to the Group. Earnings from such roles are not disclosed to the Group. There are four main elements of the remuneration package for Executive Directors and staff: (i) Basic salaries and benefits in kind Basic salaries are recommended to the Board by the Remuneration Committee, taking into account the performance of the individual and the rates for similar positions in comparable companies. Benefits in kind comprising death in service cover and private medical insurance are available to all staff and Executive Directors. Benefits in kind are non-pensionable. (ii) share options and other share-based incentives The Group operates approved and unapproved share option schemes for the Executive Directors and other employees to motivate those individuals through equity participation. Unapproved share options are occasionally granted to key consultants. Exercise of share options under the schemes is subject to specified exercise periods and compliance with the AIM Rules. The schemes are overseen by the Remuneration Committee which recommends to the Board all grants of share options based on the Remuneration Committee’s assessment of personal performance and specifying the terms under which eligible individuals may be invited to participate. The UK Corporate Governance Code (“the Code”) refers to the requirement for the performance related elements of remuneration to form a significant proportion of the total remuneration package of Executive Directors and should be designed to align their interests with those of the shareholders. In the development phase of the Group and during the early stages of revenue generation, the Remuneration Committee currently considers that the best alignment of these interests is through the continued use of incentives for performance through the award of share options or other share-based arrangements. The Group operates a long-term incentive plan (“LTIP”). The quantum of any awards receivable by the staff, Executive Directors and the Chairman will depend on achieving set Group performance milestones and the share price at the time relative to targets set in advance. As a guide, if all of the approved milestones are achieved at the share price Futura AR2014 Proof 9.indd 20 25/03/2015 10:17:38 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 21 the average closing mid-price of the last ten trading days prior to the year end. The award for 2014 was settled on 31 December 2014 by the issue of 40,392 shares at 63.25 pence per share. The 2015 award has been determined at 35.50 pence per share and the Non-Executive Directors accrue these shares over 2015 and will receive them on 31 December 2015. The Board considers ownership of Futura shares by Non- Executive Directors as a positive alignment of their interest with shareholders. The Board will periodically review the shareholdings of the Non-Executive Directors and will seek guidance from its advisers if, at any time, it is concerned that a shareholding may, or could appear to, conflict with their duties as an independent Non-Executive Director of the Group. l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F targets over the next 48 months and if the Group exercised its discretion to settle the awards in equity then the additional shares issued in after tax settlement would be equivalent to approximately 0.83% of the issued share capital. (iii) Bonus scheme The Group has a discretionary bonus scheme for staff and Executive Directors. (iv) pension contributions The Group pays a defined contribution to the pension scheme of Executive Directors and other employees. The individual pension schemes are private and their assets are held separately from those of the Group. Salaries and benefits are reviewed in December to cover the following calendar year. The timing of the review enables the Group’s performance over the preceding financial year and the strategy for the forthcoming year to be considered. Service contracts The Executive Directors are employed under service contracts requiring six months’ notice by either party. Non- Executive Directors and the Chairman receive payments under appointment letters which are terminable by three months’ notice by either party. The service contracts of the Non-Executive Directors are made available for inspection at the AGM. Policy on Non-Executive Directors’ remuneration The Non-Executive Directors and the Chairman each receive a fee for their services as a Director, which is approved by the Board, mindful of the time commitment and responsibilities of their roles and of current market rates for comparable organisations and appointments. Non-Executive Directors and the Chairman are reimbursed for travelling and other incidental expenses incurred on Group business. The Board encourages the ownership of Futura shares by Executive and Non-Executive Directors alike and in normal circumstances does not expect Directors to undertake dealings of a short-term nature. The Non-Executive Directors receive a proportion of their remuneration in the form of shares. The quantum of shares is determined at the start of each calendar year based on Futura AR2014 Proof 9.indd 21 25/03/2015 10:17:38 23965.04 25 March 2015 10:15 AM Proof 9 22 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Remuneration Report (continued) Directors’ emoluments The emoluments of the Directors, who represent the key management personnel, were as follows: Year ended 31 December 2014 Salary & Directors’ Fees £ Bonus £ Share Awards £ Benefits In Kind £ Pension £ Total £ Year ended 31 December 2013 Total £ 217,221 20,500 152,248 17,260 129,093 12,980 – – – 5,440 3,050 4,434 9,409 252,570 231,548 22,026 194,584 193,948 14,062 160,569 146,615 49,400 28,800 28,800 – – – 24,700 8,229 8,229 – – – – – – 74,100 37,029 37,029 74,100 37,029 37,029 605,562 50,740 41,158 12,924 45,497 755,881 720,269 Executive Directors James Barder David Davies Derek Martin Non-Executive Directors John Clarke Jonathan Freeman Lisa Arnold Totals David Davies resigned as a Director on 12 November 2014. The above fees and emoluments exclude reimbursed expenditure incurred in the conduct of Group business. There were no cash bonuses or settlements under the LTIP in 2014 (2013: £nil). Directors’ interests in shares John Clarke James Barder Derek Martin Jonathan Freeman Lisa Arnold Totals 31 December 2014 31 December 2013 Beneficial Interests Non-beneficial Interests Beneficial Interests Non-beneficial Interests 76,968 – 53,537 – 616,330 392,500 616,330 392,500 280,000 22,382 26,999 – – – 280,000 14,920 17,500 – – – 1,022,679 392,500 982,287 392,500 David Davies resigned as a Director on 12 November 2014. Other than as shown in the table no Director had any interest in the shares of the Company at 31 December 2014 or at 31 December 2013. Futura AR2014 Proof 9.indd 22 25/03/2015 10:17:38 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 23 Directors’ interests in share options The Board uses share options to align Directors’ and employees’ interests with those of shareholders in order to provide incentives and reward them based on improvements in Group performance. James Barder Derek Martin Totals 31 December 2014 31 December 2013 Options Held Share-based Payment Expense Options Held Share-based Payment Expense 1,250,000 48,384 1,000,000 719,279 23,774 589,279 1,969,279 72,158 1,589,279 34,879 17,282 52,161 David Davies resigned as a Director on 12 November 2014 and left the Group on 12 February 2015, on which date all options held by him at 31 December 2014 lapsed. All share options were granted with an exercise price at or above market value on the date of grant. The main vesting condition of the share options is that the Director remain employed with the Group as at the date of exercise or continues to provide consultancy services as at the date of exercise. The share options of the Directors under the Futura Medical plc Enterprise Management Incentive Scheme (included in totals on page 52) are set out below: l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t Grant Date Number Awarded Exercise Price/Share Earliest Exercise Date Expiry Date l a i c n a n i F James Barder 6 July 2010 176,543 40.50 pence 1 August 2012 31 July 2017 James Barder 14 September 2012 250,000 61.50 pence 1 October 2014 30 September 2019 James Barder 23 September 2013 Derek Martin 28 September 2011 34,615 73,894 71.50 pence 1 October 2015 30 September 2020 56.50 pence 1 October 2013 30 September 2018 Derek Martin 14 September 2012 100,000 61.50 pence 1 October 2014 30 September 2019 Derek Martin 23 September 2013 130,000 71.50 pence 1 October 2015 30 September 2020 Derek Martin 11 September 2014 103,961 51.75 pence 1 October 2016 30 September 2021 Totals 869,013 David Davies resigned as a Director on 12 November 2014 and left the Group on 12 February 2015. Futura AR2014 Proof 9.indd 23 25/03/2015 10:17:38 23965.04 25 March 2015 10:15 AM Proof 9 24 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Remuneration Report (continued) Directors’ interests in long-term incentive plan Assuming that each remaining Group performance milestone is met, at the target share price and before the next target date ends, and if the awards were to be equity-settled then the number of shares that could be awarded before tax to the participants are: James Barder Derek Martin 2015 2016 2017 2018 145,000 145,000 145,000 145,000 108,750 108,750 108,750 108,750 At discretion of Remuneration Committee 471,250 471,250 471,250 471,250 Totals 725,000 725,000 725,000 725,000 The Directors consider that until a milestone has been met it is not appropriate to recognise any share-based remuneration charge in the Group Statement of Comprehensive Income in respect of the LTIP. Jonathan Freeman Chairman of the Remuneration Committee Futura AR2014 Proof 9.indd 24 25/03/2015 10:17:39 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 25 Corporate Governance Directors’ statement on corporate governance The Board of Directors is accountable to shareholders for the good corporate governance of the Group. Under the AIM rules compliance with the UK Corporate Governance Code (‘‘the Code’’) is voluntary. Although the Board has not formally adopted the Code, the Board is aware of the best practice defined by the Code and will seek to adopt procedures to institute good governance insofar as is practical and appropriate for a group of its size while retaining its primary focus on the success of the business. This statement sets out how certain principles of the Code are met through the Group’s application of best practice. Board of Directors The Board comprises a Non-Executive Chairman (“Chairman”), a Chief Executive, a Finance Director and two independent Non-Executive Directors. The Chairman and the Non-Executive Directors receive part of their remuneration in the form of shares but this does not constitute a material business relationship with the Group and is not considered to impair the independence of the Non-Executive Directors. The Board is satisfied that it has an appropriate mix of experience in its Non-Executive Directors. The roles of Chairman and Chief Executive are intended to remain separate. The Board retains full control of the Group with day-to-day operational control delegated to the Executive Directors. The full Board meets bi-monthly and on any other occasions it considers necessary. During 2014, there were 16 meetings of the full Board, three of the Remuneration Committee, two of the Audit Committee and one meeting of the Nominations Committee. All meetings were fully attended by their constituent Directors. Board responsibility The Board is responsible for approving interim and annual financial statements, formulating and monitoring Group strategy, approving financial plans and reviewing performance, as well as complying with legal, regulatory and corporate governance matters. There is a schedule of matters reserved for the Board. There have been no material changes to our corporate governance processes following our annual review. The Board considers that the remuneration of Executive Directors should include a performance related element which is almost entirely based on the award of share options or other share-based incentives as recommended by the Remuneration Committee and set out in the Remuneration Report on pages 20 to 24. Audit Committee The Audit Committee comprises the Non-Executive Directors, Jonathan Freeman and Lisa Arnold, and is chaired by Jonathan Freeman as Senior Independent Non-Executive Director. It meets as required and specifically to review the Interim Report and Annual Report and to consider the suitability and monitor the effectiveness of the internal control processes. There were two Audit Committee meetings during 2014. The Audit Committee reviews the findings of the external auditors and reviews accounting policies and material accounting judgements. The independence and effectiveness of the external auditor is reviewed annually and audit partners are rotated every five years. The possibility of undertaking an audit tender process is considered on a regular basis. The Audit Committee meets at least once per calendar year with the auditors to discuss their independence and objectivity, the Annual Report, any audit issues arising, internal control processes, appointment and fee levels and any other appropriate matters. As well as providing audit related services, the auditors also provide taxation advice. The fees in respect of audit and tax services are disclosed in note 4 of the Notes to the Group Financial Statements. Fees for non-audit services paid to the auditors are not deemed to be of such significance to them as to impair their independence and therefore the Audit Committee considers that the objectivity and independence of the auditors is safeguarded. The terms of reference of the Audit Committee are set out in the Investors/Governance section on the Group’s website at www.futuramedical.com. l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F Futura AR2014 Proof 9.indd 25 25/03/2015 10:17:39 23965.04 25 March 2015 10:15 AM Proof 9 26 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Corporate Governance (continued) Internal control The Board is responsible for establishing and maintaining the Group’s system of internal control and for reviewing its effectiveness. The system of internal control is designed to manage, rather than eliminate, the risk of failure of the achievement of business objectives and can only provide reasonable but not absolute assurance against material misstatement or loss. The Audit Committee continues to monitor and review the effectiveness of the system of internal control and report to the Board when appropriate with recommendations. The annual review of internal control and financial reporting procedures did not highlight any issues warranting the introduction of an internal audit function. It was concluded, given the current size and transparency of the operations of the Group, that an internal audit function was not required. The main features of the internal control system are outlined below: • A control environment exists through the close management of the business by the Executive Directors. The Group has a defined organisational structure with delineated approval limits. Controls are implemented and monitored by the Executive Directors. • The Board has a schedule of matters expressly reserved for its consideration and this schedule includes acquisitions and disposals, major capital projects, treasury and risk management policies and approval of budgets. • The Group utilises a detailed budgeting and forecasting system. Detailed budgets are prepared annually by the Executive Directors before submission to the Board for approval. Forecasts are updated at least quarterly to reflect changes in the business and are monitored by the Board including future cash flow projections. Actual results are monitored against annual budgets in detail on a monthly basis, with variances highlighted to the Board. • Financial risks are identified and evaluated for each major transaction for consideration by the Board and senior management. • Standard financial control procedures are operated throughout the Group to ensure that the assets of the Group are safeguarded and that proper accounting records are maintained. • A risk review process is in operation whereby the Chief Executive and Finance Director present a report to the Board each year on the key business risks. Going concern As disclosed in the Strategic Report, the Group financial statements have been prepared on the going concern basis as the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Nominations Committee The Nominations Committee comprises the two independent Non-Executive Directors and the Chairman and is chaired by Lisa Arnold. The Nominations Committee monitors the requirements of the Group in respect of Board composition as the Group evolves and with regard to succession planning. There was one meeting during 2014. The terms of reference of the Nominations Committee are set out in the Investors/Governance section on the Group’s website at www.futuramedical.com. Futura AR2014 Proof 9.indd 26 25/03/2015 10:17:39 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 27 Employees At 31 December 2014, the Group’s employees comprised: two Executive Directors and five full-time and one part- time members of staff, all of whom are employed by Futura Medical Developments Limited. The Executive Directors keep staff informed of the progress and development of the Group regularly through formal and informal meetings and employee feedback is encouraged. The Group has a policy of offering share options or other share-based incentives to all eligible employees with due consideration to the level of dilution to shareholders. The Group does not discriminate between employees and prospective employees on the grounds of age, race, disability, religion or gender. The Board recognises its obligation towards its employees to provide a safe and healthy working environment. The Group complies with health and safety legislation including conducting regular inspections and risk assessments. Environmental, social and community matters As a consequence of the size and nature of our operations, the impact of the Group’s operations on the local community and the environment is not considered to be significant. Recycling of office supplies is undertaken where possible. The Group operates in a highly regulated industry and clinical trials are conducted in compliance with regulatory requirements. The Group undertakes regular reviews of corporate social responsibility matters with policy updates and implements improvements to its operations where identified. Relationship with shareholders The Directors seek to build a mutual understanding of objectives between the Group and its shareholders. The Group reports formally to shareholders in its Interim Report and Annual Report setting out details of its activities. In addition, the Group keeps shareholders informed of events and progress through the issue of regulatory news in accordance with the AIM Rules for Companies (“AIM Rules”) of the London Stock Exchange. The Chief Executive and Finance Director meet with institutional shareholders following interim and final results. The Group also maintains investor relations pages and other information regarding the business, its products and activities on its website at www.futuramedical.com. The Annual Report is made available to shareholders at least 20 working days before the Annual General Meeting (“AGM”) along with notice of the AGM. Directors are required to attend the AGM, unless unable to do so for personal reasons or due to pressing commercial commitments, and shareholders are given the opportunity to vote on each separate resolution proposed at the AGM. The Group counts all proxy votes and will indicate the level of proxies lodged for each resolution, after it has first been dealt with by a show of hands. Derek Martin Secretary l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F Futura AR2014 Proof 9.indd 27 25/03/2015 10:17:39 23965.04 25 March 2015 10:15 AM Proof 9 28 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Directors’ Report Directors The Directors during the year were: John Clarke James Barder David Davies – resigned 12 November 2014 Derek Martin Jonathan Freeman Lisa Arnold Dividends No dividends were paid and none are proposed (2013: £nil). Group research and development costs The main area of R&D continues to be in the field of innovative pharmaceutical drugs and medical devices for the consumer healthcare market with the focus being on sexual healthcare and pain relief management. The Group aims to achieve cost-effective research and development (“R&D”) and to bring products to market through licensing partners as soon as is practicable. Directors’ qualifying third party indemnity provisions The Group has made qualifying third party indemnity provisions in favour of the Directors against liability in respect of proceedings brought by third parties and these remain in force at the date of this Directors’ Report. Adequacy of information supplied to auditors Each Director has taken all reasonable steps to make themself aware of any information needed by the Group’s auditors for the purpose of their audit and to establish that the auditors are aware of that information. The Directors are not aware of any relevant audit information of which the auditors are unaware. Statement of Directors’ responsibilities The Directors are responsible for preparing the Strategic Report, the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union and the Company financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice, (“UK GAAP”)). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the total comprehensive profit or loss of the Group for that period. The Directors are also required to prepare the financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. Futura AR2014 Proof 9.indd 28 25/03/2015 10:17:39 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 29 The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Website publication The Directors are responsible for ensuring that the Annual Report and the financial statements are made available on a website. Financial statements are published on the Company’s website, www.futuramedical.com, in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. By order of the Board Derek Martin Secretary 24 March 2015 l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F Futura AR2014 Proof 9.indd 29 25/03/2015 10:17:39 23965.04 25 March 2015 10:15 AM Proof 9 30 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Independent Auditor’s Report Independent auditor’s report to the members of Futura Medical plc We have audited the financial statements of Futura Medical plc for the year ended 31 December 2014, which comprise: Group Statement of Comprehensive Income, Group Statement of Changes in Equity, Group Statement of Financial Position, Group Statement of Cash Flows, Parent Company Balance Sheet and the related notes. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (“IFRSs”) as adopted by the European Union. The financial reporting framework that has been applied in preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). 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 auditors As explained more fully in the Statement of Directors’ Responsibilities, 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 Financial Reporting Council’s (“FRC’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 FRC’s website at www.frc.org.uk/auditscopeukprivate. Opinion on financial statements In our opinion: • • • • the financial statements give a true and fair view of the state of the Group’s and the parent company’s affairs as at 31 December 2014 and of the Group’s loss for the year then ended; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us 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 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. Christopher Pooles (senior statutory auditor) For and on behalf of BDO LLP, statutory auditor Reading United Kingdom 24 March 2015 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). Futura AR2014 Proof 9.indd 30 25/03/2015 10:17:39 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 31 Group Statement of Comprehensive Income For the year ended 31 December 2014 Revenue Research and development costs Administrative costs Operating loss Finance income Loss before tax Taxation Total comprehensive loss for the year attributable to owners of the parent company Year ended 31 December 2014 £ Year ended 31 December 2013 £ 43,929 370,902 (2,365,678) (1,976,322) (1,205,078) (926,123) (3,526,827) (2,531,543) 48,257 9,534 (3,478,570) (2,522,009) 480,689 313,677 Notes 1.5 4 7 8 (2,997,881) (2,208,332) l a c i d e M a r u u F t t u o b A e c n a n r e v o G Basic and diluted loss per share (pence) 9 (3.35 pence) (2.85 pence) s t n e m e a S t t All amounts relate to continuing activities. The notes on pages 35 to 54 form part of these Group financial statements. l a i c n a n i F Futura AR2014 Proof 9.indd 31 25/03/2015 10:17:40 23965.04 25 March 2015 10:15 AM Proof 9 32 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Group Statement of Changes in Equity For the year ended 31 December 2014 Share Capital £ Share Premium £ Merger Reserve £ Retained Losses £ Total Equity £ Notes At 1 January 2013 154,896 21,335,678 1,152,165 (19,769,463) 2,873,276 Total comprehensive loss for the year Share-based payment Shares issued during the year At 1 January 2014 Total comprehensive loss for the year Share-based payment Shares issued during the year Cost of share issues At 31 December 2014 17 16 17 16 – – – – 723 180,606 – – – (2,208,332) (2,208,332) 141,499 141,499 – 181,329 155,619 21,516,284 1,152,165 (21,836,296) 987,772 – – – – 42,426 12,050,622 – (538,171) – – – – (2,997,881) (2,997,881) 177,043 177,043 – – 12,093,048 (538,171) 198,045 33,028,735 1,152,165 (24,657,134) 9,721,811 Share premium represents amounts subscribed for share capital in excess of nominal value, less the related costs of share issues. Merger reserve represents the reserve arising on the acquisition of Futura Medical Developments Limited in 2001 via a share for share exchange accounted for as a group reconstruction using merger accounting under UK GAAP. Retained losses represent cumulative net losses recognised in the Group Statement of Comprehensive Income. The total comprehensive loss for the year represents the total recognised income and expense for the year. The notes on pages 35 to 54 form part of these Group financial statements. Futura AR2014 Proof 9.indd 32 25/03/2015 10:17:40 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 33 Group Statement of Financial Position As at 31 December 2014 Assets Non-current assets Plant and equipment Total non-current assets Current assets Inventories Trade and other receivables Taxation Cash and cash equivalents Total current assets Liabilities Current liabilities Trade and other payables Total liabilities Total net assets Capital and reserves attributable to owners of the parent company Share capital Share premium Merger reserve Retained losses Total equity As at 31 December 2014 £ As at 31 December 2013 £ Notes 10 11 13 8 14 11,115 11,115 7,849 7,849 141,517 204,600 480,689 9,491,776 35,007 118,670 313,677 990,567 10,318,582 1,457,921 15 (607,886) (477,998) (607,886) (477,998) 9,721,811 987,772 16 198,045 155,619 33,028,735 21,516,284 1,152,165 1,152,165 (24,657,134) (21,836,296) 9,721,811 987,772 The Group financial statements were approved and authorised for issue by the Board on 24 March 2015. The notes on pages 35 to 54 form part of these Group financial statements. James Barder Chief Executive By order of the Board l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F Futura AR2014 Proof 9.indd 33 25/03/2015 10:17:40 23965.04 25 March 2015 10:15 AM Proof 9 34 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Group Statement of Cash Flows For the year ended 31 December 2014 Cash flows from operating activities Loss before tax Adjustments for: Depreciation Finance income Share-based payment charge Year ended 31 December 2014 £ Year ended 31 December 2013 £ Notes (3,478,570) (2,522,009) 10 7 17 4,527 (48,257) 3,783 (9,534) 177,043 141,499 Cash flows from operating activities before changes in working capital (3,345,257) (2,386,261) Increase in inventories Increase in trade and other receivables Increase in trade and other payables Cash used in operations Income tax received Net cash used in operating activities Cash flows from investing activities Purchase of plant and equipment Interest received Cash generated by investing activities Cash flows from financing activities Issue of ordinary shares Expenses paid in connection with share issues Cash generated by financing activities Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year 11 (106,510) (27,783) (58,524) (3,750) 15 129,888 143,045 (3,380,403) (2,274,749) 313,677 260,791 (3,066,726) (2,013,958) 10 (7,793) (5,048) 20,851 11,217 13,058 6,169 16 12,093,048 181,329 (538,171) – 11,554,877 181,329 8,501,209 (1,826,460) 990,567 2,817,027 Cash and cash equivalents at end of year 14 9,491,776 990,567 The notes on pages 35 to 54 form part of these Group financial statements. Futura AR2014 Proof 9.indd 34 25/03/2015 10:17:40 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 35 Notes to the Group Financial Statements For the year ended 31 December 2014 1. Accounting policies 1.1 Basis of preparation The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union. The accounting policies set out below have been applied to all periods presented in these Group financial statements and are in accordance with IFRSs as adopted by the European Union, and International Financial Reporting Interpretations Committee (“IFRIC”) interpretations that were applicable for the year ended 31 December 2014. 1.2 going concern The Group had cash balances of £9.49 million at 31 December 2014, with a net cash inflow of £8.50 million in the year. The Group financial statements have been prepared on the going concern basis which assumes that the Group will continue in operational existence for the foreseeable future. The Group financial statements do not reflect any adjustments that would be required if they were to be prepared on a basis other than the going concern basis. 1.3 Accounting developments The following new standards have been adopted in the year, however, the Directors do not expect them to have a material effect on the Group financial statements: • IFRS 10 Consolidated Financial Statements • IFRS 11 Joint Arrangements • IFRS 12 Disclosure of Interests in Other Entities • IAS 27 Separate Financial Statements • IAS 28 Investments in Associates and Joint Ventures • Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) • Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) • Recoverable amounts disclosures for non-financial assets (Amendments to IAS 36) • Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39) The following new standards and interpretations, which are not yet effective and have not been adopted early in these financial statements, will or may have an effect on the Group’s future financial statements: • Defined Benefit Plans: Employee Contributions: Amendments to IAS 19 (effective for periods beginning on or after 1 July 2014) • Accounting for Acquisitions of Interests in Joint Operations: Amendments to IFRS 11 (effective 1 January 2016) l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F Futura AR2014 Proof 9.indd 35 25/03/2015 10:17:41 23965.04 25 March 2015 10:15 AM Proof 9 36 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Notes to the Group Financial Statements (continued) For the year ended 31 December 2014 1. Accounting policies (continued) • Clarification of Acceptable Methods of Depreciation and Amortisation: Amendments to IAS 16 and IAS 38 (effective 1 January 2016) • Equity Method in Separate Financial Statements (Amendments to IAS 27) (effective 1 January 2016) • Sale or contribution of assets between an investor and its associate or joint venture (Amendments to IFRS 10 and IAS 28) (effective 1 January 2016) • IFRS 15 Revenue from Contracts with Customers (effective 1 January 2017) • IFRS 9 Financial Instruments (effective 1 January 2018) • Disclosure Initiative: Amendments to IAS 1 (effective 1 January 2016) 1.4 Basis of consolidation Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business, so as to obtain benefits from its activities, it is classified as a subsidiary. The Group financial statements present the results of the Company and its subsidiaries Futura Medical Developments Limited and Futura Consumer Healthcare Limited as if they formed a single entity (the “Group”). Intra-group transactions and balances are eliminated in preparing the Group financial statements. 1.5 revenue Revenue comprises the fair value received or receivable for: exclusivity arrangements, consultancy fees, milestone income or royalties, net of value added tax. The accounting policies for the principal revenue streams of the Group are as follows: (i) Exclusivity arrangements and similar agreements are recognised as revenue in the accounting period in which the related services, or required activities, are performed or specified conditions are fulfilled in accordance with the terms of completion of the specific transaction. (ii) Consultancy fees are recognised as revenue in the accounting period in which the revenue becomes receivable. (iii) Non-refundable milestone income is recognised as revenue in the accounting period in which the milestones are achieved. If any milestone income is creditable against royalty payments then it is deferred and released to the Group Statement of Comprehensive Income over the accounting periods in which the royalties would otherwise be receivable. (iv) Royalty income relating to the sale by a licensee of licensed product is recognised on an accruals basis in accordance with the substance of the relevant agreement and based on the receipt from the licensee of the relevant information to enable calculation of the royalty due. 1.6 leased assets Leases which contain terms whereby the Group does not assume substantially all the risks and rewards incidental to ownership of the leased item are classified as operating leases. Operating lease rentals are charged to the Group Statement of Comprehensive Income on a straight-line basis over the lease term. The Group does not hold any assets under finance leases. Futura AR2014 Proof 9.indd 36 25/03/2015 10:17:41 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 37 1.7 intangible assets Research and development (“R&D”) Expenditure incurred on the development of internally generated products is capitalised if it can be demonstrated that: • it is technically feasible to develop the product for it to be sold; • adequate resources are available to complete the development; • there is an intention to complete and sell the product; • the Group is able to out-license or sell the product; • sale of the product will generate future economic benefits; and • expenditure on the project can be measured reliably. Capitalised development costs are amortised over the periods in which the Group expects to benefit from selling the products developed but not exceeding five years. The amortisation expense is included in R&D costs recognised in the Group Statement of Comprehensive Income. The useful life and the value of the capitalised development cost are assessed for impairment at least annually. The value is written down immediately if impairment has occurred and the unimpaired cost amortised over the reduced useful life. The Directors consider that the criteria to capitalise development expenditure are not met for a product prior to that product being commercially launched in at least one country. Development expenditure, not satisfying the above criteria, and expenditure on the research phase of internal projects are included in R&D costs recognised in the Group Statement of Comprehensive Income as incurred. Patents and trademarks The costs incurred in establishing patents and trademarks are either expensed or capitalised in accordance with the corresponding treatment of the development expenditure for the product to which they relate. 1.8 plant and equipment Plant and equipment is initially recognised at cost, and subsequently at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is charged to the Group Statement of Comprehensive Income at rates calculated to write off the cost, less estimated residual value, of each asset on a straight-line basis over their estimated useful lives. The assets’ residual values and useful lives are determined by the Directors and reviewed and adjusted if appropriate at each Group Statement of Financial Position date. 1.9 impairment of non-financial assets Assets that are subject to depreciation are reviewed for impairment on a half-yearly basis and when events or circumstances suggest that the carrying amount may not be recoverable. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). An impairment loss is recognised immediately in the Group Statement of Comprehensive Income for the amount by which the asset’s carrying amount exceeds its recoverable amount. l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F Futura AR2014 Proof 9.indd 37 25/03/2015 10:17:41 23965.04 25 March 2015 10:15 AM Proof 9 38 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Notes to the Group Financial Statements (continued) For the year ended 31 December 2014 1. Accounting policies (continued) Recoverable amount is the higher of fair value, less disposal costs, and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods. A reversal of an impairment loss is recognised immediately in the Group Statement of Comprehensive Income. 1.10 inventories Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost includes materials, related contract manufacturing costs and other direct costs. Cost is calculated using the first in, first out method. Net realisable value is based on estimated selling price, less further costs expected to be incurred to completion and disposal. A provision is recognised immediately in the Group Statement of Comprehensive Income in respect of obsolete, slow- moving or defective items, where appropriate. 1.11 financial instruments Financial assets The Group classifies its financial assets in the category of loans and receivables, comprising ‘trade and other receivables’ and ‘cash and cash equivalents’. They are recognised initially at fair value and subsequently at amortised cost using the effective interest rate method. Trade and other receivables are recognised initially at fair value and are subsequently measured at amortised cost using the effective interest rate method, less an estimate made for impairment based on a review of all past due amounts at the year end. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due. If an impairment loss is required the carrying amount of the trade or other receivable is reduced through the use of an allowance account and the amount of the loss recognised immediately in the Group Statement of Comprehensive Income in administrative costs. Medium-term deposits, comprising sterling fixed rate deposits, with original maturities of more than twelve months are included in trade and other receivables. Cash and cash equivalents are financial assets and comprise cash in hand and sterling fixed rate short-term deposits with original maturities of twelve months or less which are held by the Group so as to be available to meet short-term cash commitments. The Group assesses at each Statement of Financial Position date whether there is objective evidence that a financial asset is impaired. Financial liabilities The Group’s financial liabilities comprise ‘trade and other payables’ recognised initially at fair value and subsequently at amortised cost using the effective interest rate method. Futura AR2014 Proof 9.indd 38 25/03/2015 10:17:41 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 39 1. Accounting policies (continued) 1.12 Taxation Income tax is recognised or provided at amounts expected to be recovered or to be paid using the tax rates and tax laws that have been enacted or substantively enacted at the Group Statement of Financial Position date. R&D tax credits are recognised on an accruals basis and are included as an income tax credit under current assets. Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability on the Group Statement of Financial Position date differs from its tax base, except for differences arising on: • • the initial recognition of an asset or liability in a transaction which is not a business combination and which at the time of the transaction affects neither accounting profit nor taxable profit; and investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profits will be available against which the difference can be utilised. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the Group Statement of Financial Position date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered). Deferred tax balances are not discounted. Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either: • the same taxable group company; or • different group entities which intend to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, on each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered. 1.13 foreign currency translation Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Group Statement of Comprehensive Income in the period in which they arise. l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F Futura AR2014 Proof 9.indd 39 25/03/2015 10:17:41 23965.04 25 March 2015 10:15 AM Proof 9 40 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Notes to the Group Financial Statements (continued) For the year ended 31 December 2014 1. Accounting policies (continued) 1.14 employee benefits (i) Defined contribution plans The Group provides retirement benefits to all employees and Executive Directors who wish to participate in defined contribution pension schemes. The assets of these schemes are held separately from those of the Group in independently administered funds. Contributions made by the Group are charged to the Group Statement of Comprehensive Income in the period in which they become payable. (ii) Accrued holiday pay Provision is made at each Group Statement of Financial Position date for holidays accrued but not taken at the salary of the relevant employee at that date. The expected cost of compensated short-term absence (i.e. holidays) is charged to the Group Statement of Comprehensive Income on an accruals basis. (iii) Share-based payment transactions The Group operates an equity-settled share-based compensation plan. For all share options awarded to employees, and others providing similar services, the fair value of the share options at the date of grant is charged to the Group Statement of Comprehensive Income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each Group Statement of Financial Position date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of share options that eventually vest. There are no market vesting conditions. If the terms and conditions of share options are modified before they vest, the change in the fair value of the share options, measured immediately before and after the modification, is also charged to the Group Statement of Comprehensive Income over the remaining vesting period. The proceeds received when share options are exercised, net of any directly attributable transaction costs, are credited to share capital (nominal value) and the remaining balance to share premium. All employee share option holders enter into an HM Revenue & Customs joint election to transfer the employers’ national insurance contribution potential liability to the employee, therefore no Group asset or liability arises. (iv) Long-term incentive plan The Group operates a long-term incentive plan for staff, the Executive Directors and the Chairman. The quantum of any awards receivable will depend on the Group achieving set milestones and the share price at the time relative to targets set in advance. The Group can exercise discretion in settling any award in equity or in cash. 1.15 finance income Interest income is recognised on a time-proportion basis using the effective interest rate method. 1.16 critical accounting estimates and judgements Critical accounting estimates, assumptions and judgements are continually evaluated by the Directors based on available information and experience. As the use of estimates is inherent in financial reporting, actual results could differ from these estimates. Judgements (i) Revenue recognition Fees invoiced in respect of non-refundable milestones have been recognised as revenue in the Group Statement of Comprehensive Income in the period when all criteria for revenue recognition have been met. Futura AR2014 Proof 9.indd 40 25/03/2015 10:17:41 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 41 1. Accounting policies (continued) (ii) Intangible asset recognition The Directors consider that the criteria to capitalise development expenditure are not met for a product prior to that product being commercially launched in at least one country. (iii) Deferred tax recognition The Directors consider that, given the current stage of development of the business, deferred tax assets should not be recognised before the Group is generating sufficient recurring royalty revenue. estimates and assumptions (iv) Useful lives of plant and equipment Plant and equipment is amortised or depreciated over its useful life. Useful lives are based on the Directors’ estimates of the periods over which the assets will be used in developing revenue generating products and the estimates are reviewed annually for continued appropriateness. The estimated useful lives are between two and five years for computer equipment and between three and ten years for furniture and fittings. Changes to estimates can result in significant variations in the carrying value and amounts charged to the Group Statement of Comprehensive Income in specific periods. (v) Fair value of financial instruments The Group determines the fair value of financial instruments using valuation techniques which can be significantly affected by the assumptions used, including interest and discount rates and estimates of future cash flows. (vi) Inventories The Group reviews the net realisable value of its inventories on a half-yearly basis to provide assurance that recorded inventories are stated at the lower of cost or net realisable value. Factors that could impact realisable value include: the timing and success of future technological innovations in relation to product R&D, competitor and Government actions, supplier prices and economic trends. (vii) Share-based payments The Group operates an equity-settled share-based compensation plan as detailed in note 17. Employee (and similar) services received and the corresponding increase in equity are measured by reference to the fair value of the equity instruments as at the date of grant. 2. Financial risk management 2.1 financial risk factors The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange rate risk, cash flow interest rate risk and fair value interest rate risk); credit risk and liquidity risk. It is Group policy not to enter into speculative positions using complex financial instruments. The Group’s primary treasury objective is to minimise exposure to potential capital losses whilst at the same time securing favourable market rates of interest on Group cash deposits using money market deposits with banks. Cash balances used to settle the liabilities from operating activities are also maintained in current accounts which earn interest at variable rates. l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F Futura AR2014 Proof 9.indd 41 25/03/2015 10:17:41 23965.04 25 March 2015 10:15 AM Proof 9 42 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Notes to the Group Financial Statements (continued) For the year ended 31 December 2014 2. Financial risk management (continued) (i) Market risk Foreign exchange rate risk The Group primarily enters into supplier contracts which are to be settled in sterling. However, some contracts involve other currencies including the US dollar and the euro. Where supplier contracts of more than £100,000 total value are to be settled in foreign currencies consideration is given to settling the sums to be paid through conversion of sterling deposits to the appropriate foreign currency holdings at the outset of the contract to minimise the risk of adverse currency fluctuations. For contracts with smaller values the foreign exchange rate risk is not considered sufficient to require the establishment of foreign currency accounts unless specific circumstances are identified which warrant this. At 31 December 2014 the Group had trade payables of £55,809 denominated in a foreign currency (31 December 2013: £40,215). Cash flow interest rate risk and fair value interest rate risk The Group’s interest rate risk arises from short-term money market deposits. Deposits which earn variable rates of interest expose the Group to cash flow interest rate risk. Deposits at fixed rates expose the Group to fair value interest rate risk. The Group analyses its interest rate exposure on a dynamic basis. The impact in the year ended 2014, of a defined interest rate shift of a 1% higher rate of interest earned per annum applied to the term deposits over the period of the deposit, on the post-tax loss for the year and net assets would have been £110,629 reduction/increase (2013: £21,608 reduction/increase). The impact in the year ended 2014, of a defined interest rate shift of a 1% lower (or to zero) rate of interest earned per annum applied to the term deposits over the period of the deposit, on the post-tax loss for the year and net assets would have been £20,775 increase/reduction (2013: £11,149 increase/reduction). (ii) Credit risk Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions as well as credit exposure in relation to outstanding receivables. The Group policy is to spread deposits over at least two institutions with investment grade A1 or better (Standard & Poor’s credit rating) and deposits are made in sterling only. The Group does not expect any losses from non-performance by these institutions. (iii) Liquidity risk Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. Prudent liquidity risk management involves maintaining sufficient cash and cash equivalents and the monitoring of rolling forecasts of the Group’s liquidity reserve on the basis of expected cash flow. The Group had trade and other payables at the Group Statement of Financial Position date of £607,886 (2013: £477,998) as disclosed in note 15, which fall due within one year. Futura AR2014 Proof 9.indd 42 25/03/2015 10:17:41 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 43 2. Financial risk management (continued) 2.2 capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for equity holders of the Company and benefits for other stakeholders and to maintain an optimal capital structure to minimise the cost of capital. 2.3 fair value estimation The Group uses amortised cost, using the effective interest rate method, to determine subsequent fair value, after initial recognition, for its financial instruments. 3. Segment reporting The Group is organised and operates as one business segment. The main area of R&D continues to be in the field of innovative products for consumer healthcare using the Group’s advanced proprietary transdermal technology. The Group manages any overseas R&D from the UK, the primary business segment. Segment revenue is based on the geographical location of the Group’s customers. Since there is currently only one business segment and one geographical segment, no separate segment reporting has been prepared. l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t 4. Operating loss Operating loss is stated after charging Depreciation of plant and equipment (note 10) Inventories consumed in R&D Wages and salaries (note 5) Operating lease costs: property Loss on foreign exchange l a i c n a n i F Year ended 31 December 2014 £ Year ended 31 December 2013 £ 4,527 41,317 3,783 6,868 1,360,443 1,229,672 69,603 68,151 1,314 5,398 Futura AR2014 Proof 9.indd 43 25/03/2015 10:17:41 23965.04 25 March 2015 10:15 AM Proof 9 44 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Notes to the Group Financial Statements (continued) For the year ended 31 December 2014 4. Operating loss (continued) The fees of the Group’s auditor, BDO LLP, for services provided are analysed below: Audit services Parent company Subsidiaries Tax compliance services Parent company Subsidiaries Total fees 5. Wages and salaries Year ended 31 December 2014 £ Year ended 31 December 2013 £ 27,500 7,500 1,000 5,000 26,000 4,000 900 4,350 41,000 35,250 The average monthly number of persons (including all Directors) employed by the Group during the year was 10 (by category: R&D 4, administration 6) (2013: 10, by category: R&D 4, administration 6) and their aggregate emoluments were: Wages and salaries Social security costs Other pension and insurance benefits costs Total cash-settled emoluments Accrued holiday pay Share-based payment remuneration charge (note 17) Total emoluments All employees of the Group are employed by Futura Medical Developments Limited. Year ended 31 December 2014 £ Year ended 31 December 2013 £ 953,830 867,551 120,064 109,035 115,050 107,100 1,188,944 1,083,686 (5,544) 4,487 177,043 141,499 1,360,443 1,229,672 Futura AR2014 Proof 9.indd 44 25/03/2015 10:17:42 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 45 6. Directors’ emoluments Aggregate emoluments Employer pension contributions Subtotals per remuneration report (page 22) Share-based payment remuneration charge Employer’s national insurance charge Total emoluments Year ended 31 December 2014 £ Year ended 31 December 2013 £ 710,384 655,439 45,497 64,830 755,881 720,269 110,866 97,265 80,063 89,861 964,012 890,193 l a c i d e M a r u u F t t u o b A e c n a n r e v o G Emoluments disclosed above include the following amounts in respect of the highest paid Director: s t n e m e a S t t l a i c n a n i F Aggregate emoluments Employer pension contributions Subtotals per remuneration report (page 22) Share-based payment remuneration charge Employer’s national insurance charge Total emoluments Year ended 31 December 2014 £ Year ended 31 December 2013 £ 243,161 205,230 9,409 26,318 252,570 231,548 48,384 30,418 34,879 28,044 331,372 294,471 There were no share options exercised by the Directors during the year. In 2013 two Directors exercised share options under the Group share option scheme and realised a combined gain of £19,182. In respect of the highest paid Director the realised gain in 2013 was £nil. During the year, three Directors (2013: three Directors) participated in a private money purchase defined contribution pension scheme. Emoluments for individual Directors are disclosed within the Remuneration Report on page 22. Futura AR2014 Proof 9.indd 45 25/03/2015 10:17:42 23965.04 25 March 2015 10:15 AM Proof 9 46 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Notes to the Group Financial Statements (continued) For the year ended 31 December 2014 7. Finance income Interest receivable on fixed rate short-term deposits 8. Taxation current tax UK corporation tax credit reported in the Group Statement of Comprehensive Income Year ended 31 December 2014 £ Year ended 31 December 2013 £ 48,257 9,534 Year ended 31 December 2014 £ Year ended 31 December 2013 £ 480,689 313,677 The tax assessed for the year is different from the standard rate of corporation tax in the UK. The differences are explained below: Loss on ordinary activities before tax Loss on ordinary activities at an average standard rate of corporation tax in the UK of 20% (2013: 20%) Expenses not deductible for tax purposes Difference between depreciation and capital allowances Other short-term timing differences Unutilised tax losses Tax relief on share options exercised Additional relief attaching to R&D tax credit claims UK corporation tax credit reported in the Group Statement of Comprehensive Income Year ended 31 December 2014 £ Year ended 31 December 2013 £ 3,478,570 2,522,009 695,714 504,402 (481) 653 (36) 253 (36,795) (28,925) (354,615) (236,813) 2,100 12,384 174,113 62,412 480,689 313,677 The Group has tax losses of £17,272,460 (2013: £15,500,889) available for offset against future taxable profits. Futura AR2014 Proof 9.indd 46 25/03/2015 10:17:42 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 47 8. Taxation (continued) deferred tax Deferred tax assets amounting to £3,475,177 (2013: £3,249,939) have not been recognised on the basis that their future economic benefit is not certain. Assuming a prevailing tax rate of 20% (2013: 20%) when the timing differences reverse, the unrecognised deferred tax asset comprises: Depreciation in excess of capital allowances Tax relief on unexercised share options Other short-term timing differences Unutilised tax losses Year ended 31 December 2014 £ Year ended 31 December 2013 £ 10,071 10,724 6,757 3,857 136,567 2,470 3,454,492 3,100,178 3,475,177 3,249,939 l a c i d e M a r u u F t t u o b A e c n a n r e v o G 9. Loss per share (pence) The calculation of the loss per share is based on a loss of £2,997,881 (2013: loss of £2,208,332) and on a weighted average number of shares in issue of 89,452,302 (2013: 77,591,370). The loss attributable to equity holders of the Company for the purpose of calculating the fully diluted loss per share is identical to that used for calculating the basic loss per share. The exercise of share options, disclosed in note 17, or the issue of shares under the long-term incentive plan, would have the effect of reducing the loss per share and is therefore anti-dilutive under the terms of IAS 33 ‘Earnings per Share’. s t n e m e a S t t l a i c n a n i F Futura AR2014 Proof 9.indd 47 25/03/2015 10:17:42 23965.04 25 March 2015 10:15 AM Proof 9 48 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Notes to the Group Financial Statements (continued) For the year ended 31 December 2014 10. Plant and equipment Cost At 1 January 2014 Additions Disposals At 31 December 2014 Depreciation At 1 January 2014 Charge for year Disposals At 31 December 2014 Net book value At 31 December 2014 At 31 December 2013 Cost At 1 January 2013 Additions At 31 December 2013 Depreciation At 1 January 2013 Charge for year At 31 December 2013 Net book value At 31 December 2013 At 31 December 2012 Computer Equipment £ Furniture and Fittings £ Total £ 59,958 52,146 112,104 5,719 2,074 7,793 (31,738) (1,119) (32,857) 33,939 53,101 87,040 52,500 51,755 104,255 4,233 294 4,527 (31,738) (1,119) (32,857) 24,995 50,930 75,925 8,944 7,458 2,171 391 11,115 7,849 Computer Equipment £ Furniture and Fittings £ Total £ 54,910 52,146 107,056 5,048 – 5,048 59,958 52,146 112,104 48,821 51,651 100,472 3,679 104 3,783 52,500 51,755 104,255 7,458 6,089 391 495 7,849 6,584 All fixed assets of the Group are held in Futura Medical Developments Limited. Futura AR2014 Proof 9.indd 48 25/03/2015 10:17:43 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 49 11. Inventories Raw materials and consumables 12. Financial instruments by category 31 December 2014 £ 31 December 2013 £ 141,517 35,007 The accounting policies for financial instruments have been applied to the line items below: Assets as per Group Statement of Financial Position Loans and receivables Trade receivables (note 13) Cash and cash equivalents (note 14) Total loans and receivables Liabilities as per Group Statement of Financial Position Financial liabilities at amortised cost 13. Trade and other receivables Amounts receivable within one year: Trade receivables Other receivables Prepayments and accrued income 31 December 2014 £ 31 December 2013 £ – 12,000 9,491,776 990,567 9,491,776 1,002,567 31 December 2014 £ 31 December 2013 £ 395,645 186,503 31 December 2014 £ 31 December 2013 £ – 111,350 93,250 12,000 27,307 79,363 204,600 118,670 Trade and other receivables do not contain any impaired assets. The Group does not hold any collateral as security and the maximum exposure to credit risk at the Group Statement of Financial Position date is the fair value of each class of receivable. l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F Futura AR2014 Proof 9.indd 49 25/03/2015 10:17:43 23965.04 25 March 2015 10:15 AM Proof 9 50 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Notes to the Group Financial Statements (continued) For the year ended 31 December 2014 14. Cash and cash equivalents Cash at bank and in hand Sterling fixed rate short-term deposits 15. Trade and other payables Trade payables Social security and other taxes Accrued expenses and deferred income 31 December 2014 £ 31 December 2013 £ 176,914 63,835 9,314,862 926,732 9,491,776 990,567 31 December 2014 £ 31 December 2013 £ 395,645 186,503 40,187 48,973 172,054 242,522 607,886 477,998 16. Share capital Authorised 31 December 2014 Number 31 December 2013 Number 31 December 2014 £ 31 December 2013 £ Ordinary shares of 0.2 pence each 500,000,000 500,000,000 1,000,000 1,000,000 Allotted, called up and fully paid 31 December 2014 Number 31 December 2013 Number 31 December 2014 £ 31 December 2013 £ Ordinary shares of 0.2 pence each 99,022,600 77,809,576 198,045 155,619 The number of issued ordinary shares as at 1 January 2013 was 77,447,946. Futura AR2014 Proof 9.indd 50 25/03/2015 10:17:43 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 51 16. Share capital (continued) During the year ended 31 December 2013, the Company issued shares of 0.2 pence each as follows: Month April 2013 April 2013 May 2013 Reason for issue Share option exercise at 40.50 pence per share Share option exercise at 56.25 pence per share Share option exercise at 40.50 pence per share September 2013 Share option exercise at 56.25 pence per share September 2013 Share option exercise at 40.50 pence per share October 2013 Share option exercise at 56.50 pence per share December 2013 Non-Executive Director award at 58.15 pence per share Gross Consideration £ 12,150 8,438 39,300 64,688 8,100 18,362 30,291 Shares Issued Number 30,000 15,000 97,038 115,000 20,000 32,500 52,092 181,329 361,630 The number of issued ordinary shares as at 1 January 2014 was 77,809,576. During the year ended 31 December 2014, the Company issued shares of 0.2 pence each as follows: Month Reason for issue Gross Consideration £ Shares Issued Number January 2014 Share option exercise at 56.25 pence per share 67,500 120,000 March 2014 Share placing at 57.00 pence per share 12,000,000 21,052,632 December 2014 Non-Executive Director award at 63.25 pence per share 25,548 40,392 12,093,048 21,213,024 l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F Futura AR2014 Proof 9.indd 51 25/03/2015 10:17:43 23965.04 25 March 2015 10:15 AM Proof 9 52 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Notes to the Group Financial Statements (continued) For the year ended 31 December 2014 17. Share options At 31 December 2014, the number of ordinary shares of 0.2 pence each subject to share options granted under the Company’s Approved and Unapproved Share Option Schemes were: Exercise Period 1 February 2009 – 31 January 2014 1 August 2011 – 31 July 2016 1 August 2012 – 31 July 2017 Exercise Price per Share Pence 56.25 24.25 40.50 At 1 January 2014 Number 120,000 314,279 662,962 1 October 2013 – 30 September 2018 56.50 827,500 1 October 2014 – 30 September 2019 61.50 860,000 1 October 2015 – 30 September 2020 71.50 950,000 Grants During Year Number – – – – – – 1 October 2016 – 30 September 2021 51.75 – 1,240,000 Options Exercised Number (120,000) – – – – – – At 31 December 2014 Number – 314,279 662,962 827,500 860,000 950,000 1,240,000 3,734,741 1,240,000 (120,000) 4,854,741 On 12 September 2014 share options over 1,240,000 new ordinary shares were granted to employees and a consultant (including Directors). Details of share options exercised by employees in 2014, given in note 16, generated additional funds of £67,500 for the Group. The share options outstanding at 31 December 2014 represented 4.9% of the issued share capital as at that date (2013: 4.8%) and would generate additional funds of £2,662,100 (2013: £2,087,900) if fully exercised. The weighted average remaining life of the share options was 57 months (2013: 59 months), with a weighted average remaining exercise price of 54.84 pence (2013: 55.90 pence). The share options exercisable at 31 December 2014 totalled 2,664,741 (2013: 1,924,741) with an average exercise price of 50.33 pence (2013: 45.71 pence) and would have generated additional funds of £1,341,150 (2013: £879,750) if fully exercised. The Group’s share option scheme rules apply to 4,199,741 of the share options outstanding at 31 December 2014 (31 December 2013: 3,029,741) and include a rule regarding forfeiture of unexercised share options by a Director or employee upon the cessation of their employment (except in specific circumstances). There were no market vesting conditions within the terms of the grant of the share options. The Black–Scholes formula is the option pricing model applied to the grants of all share options made in respect of calculating the fair value of the share options. Futura AR2014 Proof 9.indd 52 25/03/2015 10:17:44 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 53 17. Share options (continued) Inputs to share option pricing model Grant date Number of shares under option Share price as at date of grant Option exercise price 31 December 2014 31 December 2013 12 September 23 September 1,240,000 950,000 51.75 pence 71.50 pence 51.75 pence 71.50 pence Expected life of options: based on previous exercise history 3 years 3 years Expected volatility: based on 50 day median fluctuations over 3 years 42.96% 42.72% Dividend yield: no dividends assumed 0% 0% Risk-free rate: yield on 3 year treasury stock as at date of grant 1.24% p.a. 0.95% p.a. Outputs generated from share option pricing model Fair value per share under option Total expected charge over the vesting period Recognised in the Group Statement of Comprehensive Income The share-based remuneration charge (note 5) comprises: 31 December 2014 31 December 2013 15.71 pence 21.37 pence £194,804 £203,015 31 December 2014 £ 31 December 2013 £ Share-based payments 177,043 141,499 l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F Futura AR2014 Proof 9.indd 53 25/03/2015 10:17:44 23965.04 25 March 2015 10:15 AM Proof 9 54 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Notes to the Group Financial Statements (continued) For the year ended 31 December 2014 18. Pension costs The pension charge represents contributions payable by the Group to independently administered funds which during the year ended 31 December 2014 amounted to £93,993 (2013: £86,746). Pension contributions payable one month in arrears at 31 December 2014 included in accrued expenses at the relevant Group Statement of Financial Position date totalled £4,139 (2013: £2,748). 19. Commitments At 31 December 2014 the Group had operating lease commitments in respect of property leases cancellable on one month’s notice of £5,829 (2013: £5,714). 20. Related party transactions Related parties, as defined by IAS 24 ‘Related Party Disclosures’, are the wholly owned subsidiary companies, Futura Medical Developments Limited, Futura Consumer Healthcare Limited and the Board. Transactions between the Company and the wholly owned subsidiary companies have been eliminated on consolidation and are not disclosed. key management compensation The Directors represent the key management personnel. Details of their compensation and share options are given in note 6 and within the Remuneration Report on pages 20 to 24. Futura AR2014 Proof 9.indd 54 25/03/2015 10:17:44 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 55 Parent Company Balance Sheet For the year ended 31 December 2014 Company No. 04206001 Fixed assets Investment Current assets Debtors – due within one year Debtors – due after more than one year Total debtors Cash at bank and in hand Total current assets As at 31 December 2014 £ As at 31 December 2013 £ Notes 3 4 4 945,020 767,977 9,117 4,257 23,776,856 20,648,739 23,785,973 20,652,996 9,314,862 926,732 33,100,835 21,579,728 l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F Creditors: amounts falling due within one year 5 (13,307) (41,043) Net current assets Total net assets Capital and reserves Called up share capital Share premium account Profit and loss account Equity shareholders’ funds 33,087,528 21,538,685 34,032,548 22,306,662 6 7 7 198,045 155,619 33,028,735 21,516,284 805,768 634,759 34,032,548 22,306,662 These financial statements were approved and authorised for issue by the Board on 24 March 2015. The notes on pages 56 to 58 form part of these parent company financial statements. By order of the Board James Barder Chief Executive Futura AR2014 Proof 9.indd 55 25/03/2015 10:17:44 23965.04 25 March 2015 10:15 AM Proof 9 56 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Notes to the Parent Company Financial Statements For the year ended 31 December 2014 1. Accounting policies The parent company financial statements have been prepared under the historical cost convention and in accordance with UK GAAP. share-based employee remuneration The Company has no employees but does issue shares to satisfy share option awards made by its subsidiary company. The Company has applied Financial Reporting Standard 20 ‘Share-based Payment’ to all share options granted to employees of the subsidiary. The Company’s investment in the subsidiary is increased by the capital contribution equivalent to the fair value of the share-based payment charge incurred by the subsidiary. Taxation Current tax, including UK corporation tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. There are no unutilised tax losses in 2014 (2013: £nil). A deferred tax asset in respect of unutilised tax losses has not been recognised on the basis that the future economic benefit was not certain. 2. Profit attributable to shareholders As permitted by section 408 of the Companies Act 2006, no separate Company profit and loss account has been included in these financial statements. The Group loss for the year includes a loss after tax of £6,034 (2013: profit £127,111) which is dealt with in the financial statements of the Company. The total fees of the Company’s and Group’s auditor, BDO LLP, for services provided are analysed in note 4 to the Group financial statements. 3. Investment The investment represents 100% of the issued ordinary shares in the subsidiary undertaking Futura Medical Developments Limited and its 100% subsidiary Futura Consumer Healthcare Limited both incorporated in England and Wales, and are stated at cost plus capital contribution to the subsidiary in respect of share-based payment charge, less any provision for impairment. The principal activity of the subsidiary companies is the research and development of pharmaceutical drugs and medical devices and their commercial exploitation. The results of the subsidiary companies are included in the Group financial statements on pages 31 to 54. Cost The addition in the year represents the share-based payment charge. 31 December 2014 £ 31 December 2013 £ 945,020 767,977 Futura AR2014 Proof 9.indd 56 25/03/2015 10:17:44 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 57 4. Debtors Amounts receivable within one year: prepayments Amounts receivable after more than one year: 31 December 2014 £ 31 December 2013 £ 9,117 4,257 Amounts owed by subsidiary 23,776,856 20,648,739 5. Creditors: amounts falling due within one year l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t Trade creditors Accruals and deferred income 6. Called up share capital Authorised 31 December 2014 £ 31 December 2013 £ 7,500 5,807 13,307 5,038 36,005 41,043 31 December 2014 Number 31 December 2013 Number 31 December 2014 £ 31 December 2013 £ l a i c n a n i F Ordinary shares of 0.2 pence each 500,000,000 500,000,000 1,000,000 1,000,000 Allotted, called up and fully paid 31 December 2014 Number 31 December 2013 Number 31 December 2014 £ 31 December 2013 £ Ordinary shares of 0.2 pence each 99,022,600 77,809,576 198,045 155,619 Details of shares issued by the Company in the year are given in note 16 to the Group financial statements and details of share options outstanding are given in note 17 to the Group financial statements. Futura AR2014 Proof 9.indd 57 25/03/2015 10:17:44 23965.04 25 March 2015 10:15 AM Proof 9 58 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM Notes to the Parent Company Financial Statements (continued) 7. Reserves At 1 January 2013 Retained profit for the year Share-based payment Shares issued during the year At 1 January 2014 Retained loss for the year Share-based payment Shares issued during the year Costs of share issues At 31 December 2014 8. Related party transactions Details are given in note 20 to the Group financial statements. Share Premium Account £ Profit and Loss Account £ 21,335,678 366,149 – – 127,111 141,499 180,606 – 21,516,284 634,759 – – (6,034) 177,043 12,050,622 (538,171) – – 33,028,735 805,768 Futura AR2014 Proof 9.indd 58 25/03/2015 10:17:45 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 www.futuramedical.com Stock Code: FUM 59 Company Information Non-Executive Chairman Chief Executive Finance Director Non-Executive Director Non-Executive Director Company number 04206001 Directors John Clarke James Barder Derek Martin Jonathan Freeman Lisa Arnold Audit Committee Jonathan Freeman Lisa Arnold Secretary and registered office Derek Martin Futura Medical plc Surrey Technology Centre 40 Occam Road Guildford Surrey GU2 7YG Nominated adviser and broker N+1 Singer 1 Bartholomew Lane London EC2N 2AX Principal solicitors Memery Crystal LLP 44 Southampton Buildings London WC2A 1AP Remuneration Committee Jonathan Freeman Lisa Arnold John Clarke Auditors BDO LLP Kings Wharf 20–30 Kings Road Reading Berkshire RG1 3EX Patent attorneys Withers & Rogers LLP 4 More London Riverside London SE1 2AU Principal bankers Butterfield Private Bank 99 Gresham Street London EC2V 7NG Nominations Committee Lisa Arnold Jonathan Freeman John Clarke Registrars Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Public relations advisers Buchanan Communications Limited 107 Cheapside London EC2V 6DN Investment managers Royal London Asset Management Limited 55 Gracechurch Street London EC3V 0UF l a c i d e M a r u u F t t u o b A e c n a n r e v o G s t n e m e a S t t l a i c n a n i F Futura AR2014 Proof 9.indd 59 25/03/2015 10:17:45 23965.04 25 March 2015 10:15 AM Proof 9 Futura Medical plc Annual Report and Accounts for the year ended 31 December 2014 Futura AR2014 Proof 9.indd 4 25/03/2015 10:17:48 23965.04 25 March 2015 10:15 AM Proof 9 Surrey Technology Centre 40 Occam Road, Guildford, Surrey, GU2 7YG Telephone: +44 (0) 1483 685 670 Fax: +44 (0) 1483 685 671 Email: info@futuramedical.com Web: www.futuramedical.com Futura AR2014 Proof 9.indd 1 25/03/2015 10:17:48 23965.04 25 March 2015 10:15 AM Proof 9