A Year of Major Progress
Annual Report and Accounts 2015
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Midatech Pharma plc • Annual Report & Accounts 2015
What we do
Midatech is an international specialty pharmaceutical group of
companies focused on the development and commercialisation of
multiple, high-value, targeted therapies for major diseases with
unmet medical need.
Our business model and strategy, based on four key components,
intends to build long-term, profitable growth and sustainable
shareholder value.
Contents
Overview
What we do
Why we do it
Highlights
About Midatech
Chairman’s Review
Our Investment Case
IFC
01
02
04
06
08
Strategic Report
Chief Executive’s Statement
Our Business Model
Our Strategic and Outlook
Financial Review
Governance
Board of Directors
Remuneration Report
Corporate Governance
Directors’ Report
10
12
14
16
20
22
26
28
Midatech Pharma plc • Annual Report & Accounts 2015 • 01
Why we do it
To profitably use our nanomedicine and sustained release technology
platforms to improve patients’ lives and, in doing so, deliver and create
value for all our stakeholders.
Orphan Oncology
Midatech is developing improved
forms of cancer therapy for orphan
and rare indications using its platform
technologies that will reduce side
effects and increase efficacy.
Other Areas
ENDOCRINOLOGY
NEUROSCIENCE
Financial Statements
Independent Auditor’s Report
Consolidated statement
of comprehensive income
Consolidated statement
of financial position
Consolidated statement
of cash flows
Consolidated statement
of changes in equity
30
31
32
33
34
Notes Forming Part of the
Financial Statements
Company balance sheet
Parent Company statement
of changes in equity
Notes to the Parent Company
Statement of financial position
36
78
79
80
Other Information
Company information
85
OverviewGovernanceStrategic ReportFinancial StatementsOther Information
02 • Midatech Pharma plc • Annual Report & Accounts 2015
Highlights
Acquisition
of Dara
BioSciences,
Inc.
Highlights
Acquisition
of Zuplenz®
£16.7m cash
and deposits
Tax credit
receivable of
£1.01m
Agreement
signed with
Ophthotech
Corp.
First regional
supply for
Q-Octreotide
Turnover of
£1.37m
Operational
Financial
Midatech Pharma plc • Annual Report & Accounts 2015 • 03
OPERATIONAL HIGHLIGHTS
including post period end highlights
FINANCIAL HIGHLIGHTS
• Acquisition of DARA BioSciences, Inc., an oncology
• Total revenue for the year up 763% to £1.38m
supportive care pharmaceutical company, bringing an
attractive portfolio of cancer supportive care products
and an established commercial platform in the US
market with a field sales organisation – December 2015
(2014: £0.16m, 2013: £0.15m)
• £16.18m cash and deposits at 31 December 2015
(2014: £30.33m, 2013: £2.39m)
• Net loss after tax of £10.10m (2014: £8.82m, 2013: £4.08m)
with net cash outflow in the year of £14.17m
(2014: £27.94m inflow, 2013: £2.25m inflow)
• Tax credit receivable of £1.20m
(2014: £0.84m, 2013: £0.80m)
• Acquisition of marketed oncology product, Zuplenz®
(ondansetron), a marketed anti-emetic oral soluble
film for the prevention of post-operative,
chemotherapy and radiation-induced nausea
and vomiting – December 2015 with full launch
by Midatech in April 2016
• First regional supply agreement for Q-Octreotide
signed with Centurion Pharma, a Turkish company
focused on the development and commercialisation
of specialty products for the Turkish market –
December 2015
• Agreement signed with Ophthotech Corporation, to
explore the feasibility of using Midatech’s Q Sphera
microencapsulation technology for sustained delivery
formulations of select Ophthotech products for the
treatment of wet Age-related Macular Degeneration
and other ocular indications – August 2015
• Commencement of a Phase IIa open label, cross-over,
seven arm study of Midatech’s Insulin Buccal Soluble
Film (MSL-001) for type 1 diabetes mellitus – July 2015
(treatment phase completed in January 2016)
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 04 • Midatech Pharma plc • Annual Report & Accounts 2015
About Midatech
Midatech is an international specialty pharmaceutical
group of companies (“Midatech” or the “Group”) focused
on the development and commercialisation of multiple,
high-value, targeted therapies for major diseases with
unmet medical need.
Midatech is commercialising oncology treatment and
supportive care products through its US commercial
organisation, Midatech Pharma US (“Midatech Pharma
US”) (formerly DARA BioSciences, Inc.). In Europe,
Midatech is advancing a pipeline of novel clinical and
pre-clinical product candidates based on its proprietary
drug conjugate and sustained release delivery platforms
with a clear focus on the key therapeutic areas of
cancer, endocrine disorders such as diabetes, and
immunotherapy for autoimmune diseases.
Midatech’s strategy is to expand its US commercial arm
as well as develop its products in-house in rare cancers
and with partners in other indications, and to accelerate
growth of its business through strategic acquisition of
complementary products and technologies.
The Group’s two platform technologies are designed
to enable targeted delivery and sustained release of
existing therapeutic drugs to the “right place” at the
“right time”. The Group is not engaged in the discovery
of new drug compounds and hence does not carry the
same risk usually associated with the development of
new pharmaceuticals.
Midatech’s core technology platform is based on a
patented form of gold nanoparticles (“GNPs”), which has
been developed to improve key parameters of existing and
new drugs. GNPs target individual cell types with specific
targeting agents and deliver a therapeutic payload into the
cell, while ensuring this can be achieved safely. Midatech
believes that GNP technology represents the latest
generation of nanomedicine and is a fast growing sector
within the nanomedicine market with demonstrated safety
in the clinic to date.
Midatech’s secondary platform of sustained release
technology involves the consistent and precise
encapsulation of active drug compounds within polymer
microspheres. The microspheres are designed to
release the active drug compound into the body in a
highly controlled manner over a prolonged period of
time, from a number of weeks to three months and
potentially longer. Midatech believes that sustained
release technology provides the added capacity to
sustain the optimal range of drug concentrations,
which has wide medical applicability with diverse
pharmaceutically active molecules.
Midatech is collaborating with a number of universities,
and specialty and major pharmaceutical companies to
develop its platform technologies into a broad number
of products in order to achieve a range of potential
revenue opportunities within priority therapeutic areas.
Collaboration partners include several pharmaceutical
and biotechnology companies and the Dana-Faber
Cancer Institute (an affiliate of Harvard Medical School).
Furthermore, Midatech has a joint venture with MonoSol
to develop and commercialise transbuccal delivery, which
means the delivery administered through the cheek, of
insulin for diabetic patients using insulin conjugated GNPs
formulated into dissolvable, oral film strips.
The Group has developed a strong intellectual property
base and has a wide IP portfolio of 150 granted patents,
92 applications in process and 34 patent families covering
a range of technologies.
Acquisition of DARA BioSciences
On 4 December 2015, Midatech completed the acquisition
of DARA BioSciences Inc., now Midatech Pharma US,
a specialty pharmaceutical company primarily focused
on the commercialisation of oncology treatment and
supportive care pharmaceutical products. The acquisition
of Midatech Pharma US provides the Group with a
commercial arm in the United States, with access to a
portfolio of products and a revenue stream in Midatech’s
Midatech Pharma plc • Annual Report & Accounts 2015 • 05
targeted therapeutic area of oncology. Midatech Pharma
US holds exclusive US marketing rights to Soltamox®
(tamoxifen citrate) oral solution, which has been approved
by the US Food and Drug Administration (“FDA”) for the
prevention and treatment of breast cancer, Gelclair®
oral rinse gel, a FDA-cleared oral gel for the treatment
of certain approved indications in the United States,
including the management of pain due to oral mucositis,
and Oravig® (miconazole) which is the first and only
orally-dissolving buccal tablet approved for oral thrush.
Midatech Pharma US licensed the US rights to Soltamox®
from UK-based Rosemont Pharmaceuticals, Ltd,
Gelclair® from the Helsinn Group in Switzerland, and
Oravig® from Onxeo S.A. in France.
Acquisition of Zuplenz®
On 24 December 2015, following the acquisition of
Midatech Pharma US, Midatech acquired certain assets
related to Zuplenz® (ondansetron) Oral Soluble Film from
Galena Biopharma, Inc. (“Galena”). Zuplenz® is an FDA-
approved, marketed anti-emetic oral soluble film used in
adult patients for the prevention of highly and moderately
emetogenic chemotherapy-induced nausea and vomiting
(“CINV”), radiotherapy-induced nausea and vomiting
(“RINV”), and post-operative nausea and vomiting
(“PONV”). Zuplenz® is also approved in paediatric
patients with moderately emetogenic CINV.
Upcoming milestones and newsflow
ENDOCRINOLOGY
Insulin
GLP-1 / Q-Exenatide
2015
Phase II
2016
2017
Licence
Phase I
Phase II
GLP-1 / Insulin combination
Pre-clinical
Phase II
Phase II
Q-Ocreotide
Pre-clinical
Licence
CANCER
Brain (glioblastoma)
Ovary
Liver
Pancreas
Pre-clinical
Phase Ib/II
Pre-clinical
Med Chem
Pre-clinical
Med Chem
Pre-clinical
Phase I
Phase Ib
Phase Ib
Phase II
Pivotal
Phase II
Pivotal
Phase II
Q-Cancer Beads
Collaborative development
Product launch
CNS/OCULAR
OpsiSporin
Pre-clinical
Phase I
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 06 • Midatech Pharma plc • Annual Report & Accounts 2015
Chairman’s Review
In a little over a year Midatech has completed three
acquisitions as well as listing on AIM and on NASDAQ
Midatech has come a long way in the
two years that I have worked with the
Company. I joined Midatech because
I was excited by the potential of its
gold nanoparticle technology, but
back in early 2014 there was a lot of
work to be done. By the end of 2014
the Company had a new management
team, a clear, commercially-focussed
strategy and, with the acquisition of
the former Q Chip business, it had
a second platform technology and a
number of sustained release pipeline
products that were closer to market
than Midatech’s own. Finally, thanks
to a successful IPO and listing on
AIM, Midatech went into 2015 with the
funds to build on these technologies.
2015 has been no less exciting as
the Company has continued to
develop rapidly.
US ACQUISITIONS
The main highlight of the year
followed the announcement in June
that Midatech intended to acquire
the US-based pharmaceutical sales
organisation DARA BioSciences
Inc., which, following completion
in December 2015, was renamed
Midatech Pharma US Inc. (“MTPUS”).
I am a strong supporter of this
transaction as it de-risks Midatech
and expands the business in a
number of directions.
Most obvious is the addition of three
cancer supportive care products,
Gelclair®, Oravig® and Soltamox®
along with an established oncology
focussed, sales and marketing
capability in the biggest and
most profitable pharmaceuticals
market in the world. This is an
essential part of the commercial
development of Midatech as it will
provide an established, specialised
sales channel for the Company’s
oncology products currently under
development. Subject to regulatory
approval, they could reach the market
as early as 2018/19. MTPUS adds
solid top-line line revenue and good
growth potential that management
believes will bring forward the
Group’s monthly profitability.
2015 also saw significant progress
for both of Midatech’s platform
technologies; gold nanoparticle
nanotechnology, and sustained
release microsphere, where we
continue to move forward with a
broad range of programmes.
The MTPUS purchase further enabled
us to acquire the anti-nausea product
Zuplenz®. This product is highly
complementary to MTPUS’s existing
US product portfolio and is an
excellent opportunity to leverage the
sales and marketing capabilities of
this promising US business.
In tandem with the conclusion of the
MTPUS deal, in December Midatech
listed its shares on NASDAQ through
the issue of American Depositary
Receipts (“ADRs”). This dual-listing
is another exciting development
and, with the fundamental strength
of the Midatech business and the
wide range of anticipated news flow
over the next few months, which is
expected to bring the opportunity to
open up the US investor base as well
as further expand the UK one.
In summary, in a little over a year
Midatech has completed three
acquisitions as well as listing on AIM
and on NASDAQ through the issue
of ADRs. Furthermore, excellent
progress has been made on the
development pipeline. Management
has demonstrated its ability to execute
the Company’s strategy as presented
during the IPO and I am confident that
they will continue to do so over the
forthcoming months and years.
On behalf of the Board I should like
to thank Midatech’s shareholders,
the Board, management and staff for
their continuing support and I look
forward to further successes in 2016
and beyond.
Rolf Stahel
Chairman
Midatech Pharma plc • Annual Report & Accounts 2015 • 07
ACQUISITION OF ZUPLENZ®
On 24 December 2015, following
the acquisition of Midatech
Pharma US, Midatech acquired
certain assets related to Zuplenz®
(ondansetron) Oral Soluble Film
from Galena Biopharma, Inc.
Zuplenz® is an FDA-approved,
marketed anti-emetic oral soluble
film used in adult patients for the
prevention of highly and moderately
emetogenic chemotherapy-
induced nausea and vomiting
(“CINV”), radiotherapy-induced
nausea and vomiting (“RINV”),
and post-operative nausea and
vomiting (“PONV”). Zuplenz® is also
approved in paediatric patients with
moderately emetogenic CINV.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 08 • Midatech Pharma plc • Annual Report & Accounts 2015
Our Investment Case
Midatech has differentiated its risk as a business
through having a balanced mix of fast-growth marketed
oncology products, different types of development
programmes at different stages of progress and an
approach to research that reduces risk.
RAPID
PROFITABLE
GROWTH
TRAJECTORY
NICHE
MARKET
POTENTIAL
INTELLECTUAL
PROPERTY
Our commercialisation strategy
is intended to swiftly build a
long-term, profitable and
commercially focused enterprise.
We are advancing a pipeline of
product candidates in clinical
and pre-clinical development
for diseases for which there are
currently few or no treatment
options available.
The Group has developed a strong
intellectual property base and has
a wide IP portfolio of 150 granted
patents, 92 applications in process
and 34 patent families covering a
range of technologies.
With our infrastructure in the US
we are focussed on building our
commercial business through
product acquisitions, such as
Zuplenz® in December 2015, and
by launching our wholly-owned
products, leveraging the capabilities
of our own sales force, and thus
ensuring the quickest path to those
products becoming highly profitable.
Core to our business model is to
deliver strong revenue growth that
allows the organisation to become
sustainably profitable in the shortest
reasonable time.
Each of our niche cancer therapies,
currently in research and
development, has revenue potential of
well over $100m per year and in some
cases much more than this. We have
multiple programmes that allow us
to defray development risks and thus
be in a position to deliver benefits to
patients, healthcare professionals
and to deliver high growth revenue
for the company.
The foundation of our IP is on two
core platform technologies, which
have allowed multiple patent filings
and we continue to strive to protect
our future revenues and assets
using our technology advantages;
delivered by actively managing our
patent portfolio and know-how.
Focused
Commercial
Midatech Pharma plc • Annual Report & Accounts 2015 • 09
BALANCED
RISK REWARD
PROFILE
AMBITIOUS
LEADERSHIP
Our robust portfolio of
collaborations and internal product
pipeline positions Midatech for
multiple shots on goal.
Significant experience and track
record in the pharmaceutical
industry creating value out of high
growth companies.
Midatech has differentiated its
risk as a business through having
a balanced mix of fast-growth
marketed oncology products,
different types of development
programmes at different stages
of progress and an approach to
research that reduces risk by using
known chemical entities where
we improve the way they work
as medicines.
From our Board of Directors Chaired
by Rolf Stahel (former CEO of Shire
plc) through to the global, senior
leadership team (comprised of 11
executives), all of our senior staff
have been successful leaders in their
area of responsibility and bring their
knowledge and experience to bear in
order to ensure success at Midatech.
Balanced
Delivering value
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 10 • Midatech Pharma plc • Annual Report & Accounts 2015
Chief Executive’s Statement
Midatech has successfully evolved in line with strategy into
a revenue generating, US commercial-facing high-growth
specialty pharmaceutical business.
brought a portfolio of products
that are in commercial launch
or market growth phases. After
acquiring DARA, we moved swiftly to
acquire a complementary product,
Zuplenz®, to add to our sales
platform. Zuplenz® is a treatment
for chemotherapy and radiotherapy
induced nausea and vomiting and
is highly complementary to DARA’s
existing cancer supportive care
product portfolio. The acquisition
cost was approximately one fold
historic (un-promoted) sales, with
some additional milestone payments
that are only triggered once sales
exceed our current expectations
for the product. We are therefore
anticipating accelerating our revenue
growth for 2016 and beyond, in line
with our original strategic objectives.
Midatech’s full launch of this product
was announced on 11 April 2016.
Our platform technologies continued
to deliver new potential products
and collaborations in 2015, the
most important of which was the
collaboration with the US company,
Ophthotech, to work on two products
it has in development. This ongoing
work follows-on from previous
collaborations, affirming confidence
in our technology’s capabilities. Our
MidaSol joint venture in diabetes
completed a small Phase II trial in
type 1 diabetes with the transbuccal
insulin strip.
Elsewhere, our in-house
programmes all proceeded well,
with Q-Octreotide, the closest
to market, completing product
formulation work, and Q-Opsisporin
giving a good response to treatment
in pre-clinical testing.
Our work in targeted cancer therapies
continued apace and, in Q3 2015, led
to the first compassionate use request
for a Midatech treatment to be used
in a condition called Diffuse Intra
Pontine Glioma (“DIPG”) one of the
rarest brain cancers in children. This
programme has brought forward our
2015
£1.38m
£0.16m
2014
Revenues have grown by
763% year-on-year
YEAR IN REVIEW
2015 marked a year of transformational
progress in Midatech Pharma plc’s
delivery against the objectives set
around the time of the IPO in 2014,
and we are now being recognised as
a leading emerging specialty pharma
company, globally. In 2015, progress
was seen across all areas of the Group
and 2016 has already commenced with
a strong tailwind both operationally
and financially. Our key focus is now
moving towards oncology.
Total revenues for 2015 were
£1.38m, comfortably above market
expectations, and our operating
expenses were in line with
expectations. During 2015, the
business incurred certain non-
recurring expenses relating to the
two acquisitions, and we ended the
year with strong cash reserves of
£16.18m. Our negative EBIT, which
is fully expected for a company
with some development pipeline,
was (subject to exceptional items)
marginally better than the
market view.
PRODUCTS AND PIPELINE
Our M&A strategy delivered two
acquisitions in 2015, the first of
which, DARA BioSciences Inc.
(“DARA”), has given us a commercial
platform to launch our own products
into the key US market. DARA also
Midatech Pharma plc • Annual Report & Accounts 2015 • 11
ACQUISITION OF DARA BIOSCIENCES
On 4 December 2015, Midatech
completed the acquisition of
DARA BioSciences Inc., now
Midatech Pharma US, a specialty
pharmaceutical company primarily
focused on the commercialisation of
oncology treatment and supportive
care pharmaceutical products.
The acquisition of Midatech Pharma
US provides the Group with a
commercial arm in the United
States, with access to a portfolio of
products and a revenue stream in
Midatech’s targeted therapeutic area
of oncology. Midatech Pharma US
holds exclusive US marketing rights
to Soltamox® (tamoxifen citrate) oral
solution, which has been approved by
the US Food and Drug Administration
(“FDA”) for the prevention and
treatment of breast cancer, Gelclair®
oral rinse gel, a FDA-cleared oral gel
for the treatment of certain approved
indications in the United States,
including the management of pain
due to oral mucositis, and Oravig®
(miconazole) which is the first and
only orally-dissolving buccal tablet
approved for oral thrush. Midatech
Pharma US licensed the US rights to
Soltamox® from UK-based Rosemont
Pharmaceuticals, Ltd, Gelclair® from
the Helsinn Group in Switzerland, and
Oravig® from Onxeo S.A. in France.
product development and will lead
to patient treatments and possibly a
clinical trial in 2016. In March 2016, the
University of California, San Francisco,
requested use of our treatment and
Midatech will continue to manufacture
in line with demand.
GROUP GROWTH
At the year-end the Group had
81 employees plus a further 20
dedicated, outsourced sales force
across the US, UK and Spain, and we
have been fortunate to attract more
high quality people to work with us in
all departments. This means that in a
Group like Midatech, where business
execution is the key to success, we
are in a great place to be able to
deliver continuing growth and positive
news throughout 2016 and beyond.
SUMMARY AND OUTLOOK
Midatech has successfully
evolved in line with strategy into
a revenue generating, US
commercial-facing high-growth
specialty pharmaceutical business.
In the first three months of 2016 we
have seen strong revenues from our
marketed products and, as a result,
the Group is trading slightly ahead of
market expectations. In addition, our
clinical and preclinical pipelines are
advancing well and showing great
promise to patients.
Our supportive shareholders and
strong team of international staff
make our future very bright as we
look forward to continuing to build
the business on all fronts throughout
2016 and beyond.
Dr Jim Phillips
Chief Executive Officer
12 April 2016
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 12 • Midatech Pharma plc • Annual Report & Accounts 2015
Our Business Model
The Group is commercialising oncology treatments and supportive care products
through its US commercial organisation, Midatech Pharma US. In Europe, the Group
is principally engaged in the discovery and development of pharmaceutical products
in the fields of nanomedicine and sustained release technology.
Midatech’s business model has four components:
OWN PRODUCTS
Development and commercialisation
of products is done in-house without
engaging partners to support the
product. This applies particularly
to oncology applications.
ACQUISITIONS
Acquisitions of later stage, strategic
opportunities with complementary
focused portfolios, such as DARA; or
complementary technologies that are
synergistic to that of Midatech, accelerate
revenue, and are value accretive.
ESTABLISH WORLDWIDE
COMMERCIAL ORGANISATION
Build on US commercial infrastructure
and establish European commercial
organisation upon approval of own
product candidates.
PARTNER PRODUCTS
Development and commercialization
of Midatech’s partner-supported and
licensed products, principally in diabetes,
ophthalmology and neuroscience.
Midatech also aims to expand its vertical integration by leveraging its integrated
manufacturing capabilities.
Midatech Pharma plc • Annual Report & Accounts 2015 • 13
Key strengths
The Directors believe that Midatech’s key strengths include:
Established commercial platform
Established commercial platform and field sales
organisation in the US market with an attractive
portfolio of cancer supportive care products.
A rich science base
A rich science base having developed two platform
technologies with broad application in healthcare that
the Directors believe create value from multiple potential
revenue opportunities within priority therapeutic areas.
First mover advantage in GNP
First mover advantage in GNPs and highly novel sustained
release technology which has enabled the Group to
focus on oncology and other therapeutic areas primarily
through the use of GNP carriers and sustained release
formulations for existing medications.
A strong intellectual property base
A strong intellectual property base comprising patents,
“know-how” and trade secrets, to maximise innovation,
protection and commercial success. The Group has an
IP portfolio of 150 granted patents, 92 applications in
process and 34 patent families covering major geographic
regions, owned solely by the Group, co-owned with others
or in-licensed.
In-house nanoparticle
manufacturing facility
In-house nanoparticle manufacturing facility which the
Directors believe is the first licensed nanoconjugate
cGMP facility of its kind in Europe. This state-of-the-art
facility, based in Bilbao, Spain, aids in the rapid execution
of projects, control of manufacturing quality and supply
of all aspects of Midatech’s GNP platform, thus avoiding
reliance on external manufacturing partners.
Innovative therapies
Innovative therapies utilising its broadly applicable drug
conjugate platforms for significant medical disorders with
few or no existing clinical therapeutic options. As such
the Directors believe that the Group’s therapies have the
potential to be transformative for patients and their families
as first or second therapies for disease treatment and can
yield high returns for these poorly treated indications.
Experienced management team
The management team’s significant experience in the
specialty pharmaceutical industry and of managing
high growth companies. The Group’s management team
comprises seasoned industry entrepreneurs, executives
and scientists, and the Directors believe that the team
is capable of executing a major value proposition in the
specialty pharma field.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 14 • Midatech Pharma plc • Annual Report & Accounts 2015
Our Strategy and Outlook
Midatech intends to leverage its US commercial
operation to drive the business to profitability.
Midatech’s business and
commercialisation strategy is
based on maturing its technology
platforms with a clear focus on its
key therapeutic areas of oncology,
endocrinology and neuroscience
(including ophthalmology), along
with strategic late stage product
focused acquisitions. Together, these
are expected to drive a commercial
pipeline of products with improved
essential parameters, over and
above the currently marketed
source compound, including safety,
tolerability, efficacy and compliance
profiles. The Board believes that its
management team has significant
industry and technical experience and
is highly capable of and committed to
building the value of Midatech.
In diabetes, Midatech, alongside its
MidaSol Therapeutics joint venture
partner MonoSol, has completed
a Phase IIa clinical trial with its
MidaForm™-Insulin-PharmFilm® in
humans with type 1 diabetes. Subject
to results, due in Q2 2016, Midatech
will look for potential out-licensing
deals given this asset is non-core to
the Group’s strategy.
In oncology, Midatech believes that
it has the opportunity to leverage its
own commercial capabilities in the
US and roll out similar infrastructure
in Europe around the market entry
of its orphan oncology program
products. Midatech believes that the
acquisition of Zuplenz® and DARA
will accelerate its progress towards
achieving this objective. These
products require small, dedicated
specialty pharmaceutical sales forces.
Midatech will also look for further
in-licensing acquisition opportunities
to grow revenues in this sector.
In neuroscience/ophthalmology,
commercialisation will focus on
products for the treatment of uveitis
and other conditions of the eye,
Parkinson’s disease, Alzheimer’s
disease and multiple sclerosis.
Midatech aims to achieve this
through partnerships with leading
specialty pharmaceutical companies
and academic institutions, where
Midatech would seek to earn license
payments, manufacturing revenue
and royalties.
Our products
The oncology and supportive care products marketed by Midatech Pharma US are:
Oravig®
Gelclair®
Zuplenz®
An orally-dissolving buccal tablet
indicated for the local treatment of
oropharyngeal candidiasis in adults.
An oral gel indicated for the
management and relief of pain due
to oral mucositis and other oral
lesions that can occur with common
cancer treatments.
An anti-emetic which does not need
to be injected or swallowed, offering
patients a differentiated alternative.
Soltamox®
Aquoral®
Ferralet® 90
The only liquid form of tamoxifen,
is indicated for the treatment of
metastatic breast cancer, the
adjuvant treatment of node-positive
breast cancer in premenopausal
women, the reduction in risk of
invasive breast cancer in women with
ductal carcinoma in situ (“DCIS”), and
for the reduction of the incidence of
breast cancer in women at high risk
for breast cancer.
An artificial saliva spray that is
intended to provide relief from
chemotherapy/radiation therapy-
induced dry mouth.
A prescription iron supplement
indicated for the treatment of all
anaemias that are responsive to
oral iron therapy.
Midatech Pharma US has an exclusive license to Soltamox® and Oravig®, an exclusive license
to distribute, promote and market Gelclair®, and a marketing agreement to co-promote two
Mission products: Ferralet 90® and Aquoral®. In addition, Midatech also holds the exclusive
license to Zuplenz®.
Midatech Pharma plc • Annual Report & Accounts 2015 • 15
Our commercialisation strategy
Midatech’s commercialisation strategy intends to build a long-term, profitable and commercially focused enterprise
with revenues generated as follows:
Research and
development
collaborations
Commercial
operations
Partner licensing
and royalty deals
In the near-term, revenues
are anticipated to be driven
by collaborations such as those
that currently exist and with
new potential customers using
Midatech’s technologies to address
their pharmaceutical challenges.
The main growth driver in the
period from 2016 to 2018 will
be the Midatech Pharma US
business with sales coming
from the existing commercial
product portfolio.
In the period from 2016 to 2018,
revenue growth will be supported
by licensing transactions from
those partnerships outlined herein,
as well as new potential partnerships,
with possible product royalties
realised from 2016 to 2017.
Own products
commercialisation
Acquisitions
In the third stage of Midatech’s
evolution, expected to be from
2018 – 2019, Midatech’s own products
are anticipated to reach market
in the specialised orphan sector,
and Midatech’s commercial sales
organisation to be deployed initially
in the US and then in Europe, to
drive sales and revenue growth from
Midatech’s own product launches.
In support of and in addition to
above, Midatech may from time
to time seek value accretive and
synergistic target companies, such
as DARA, and portfolios, such as
Zuplenz®, that would accelerate its
own product recurring revenues
and profitability through products
in market.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 16 • Midatech Pharma plc • Annual Report & Accounts 2015
Financial Review
Midatech generated consolidated total revenue of
£1.38m, an increase of 763% on the prior year and
ahead of expectation.
shares were delivered to former
DARA stockholders in the form
of American Depositary Receipts
(“ADRs”) with each ADR representing
the right to receive two ordinary
shares. The ADRs were admitted to
trading on the NASDAQ Stock Market
LLC trading platform (“NASDAQ”)
on 4 December 2015. Additional
consideration was paid in the form
of a preference share settlement
and the assumption of share
options and warrants.
DARA stockholders also received
one contingent value right (“CVR”),
which represents the right to receive
contingent payments if specified sales
milestones are achieved for the years
ended 31 December 2016 and 2017.
Cash of up to $0.27 per CVR, or $5.7m
in aggregate will be payable upon the
achievement of the stringent sales
milestones however, this amount has
not been accrued as the Board, as at
the time of the transaction, expected
the targets to not be achieved.
DARA provides the Group with
an attractive portfolio of cancer
supportive care products and an
established commercial platform
in the US market with a field sales
organisation. Subsequent to the
acquisition the name of DARA was
changed to Midatech Pharma US Inc.
The acquisition of DARA included
intangibles comprising £15.48m of
“product sales and marketing rights”
and £9.95m of goodwill.
On 24 December 2015, the Company
acquired Zuplenz® (ondansetron), a
marketed anti-emetic oral soluble
film from Galena Biopharma, Inc.
(Nasdaq: GALE) for the prevention
of chemotherapy-induced nausea
and vomiting (“CINV”), radiotherapy-
induced nausea and vomiting
(“RINV”), and post-operative nausea
and vomiting (“PONV”) for up front
consideration of $3.75 million in cash.
Further cash payments, totalling up
to $26 million, will become payable if
certain sales milestones are achieved,
the milestone period expires 31
December 2022 or at the date the
highest milestone target is achieved,
however, the Board does not expect
these to be achieved. These further
payments, if they become payable,
are expected to be self-financed by
milestone-generated cash flow.
The acquisition of Zuplenz® was
treated as a business combination
under the scope of IFRS 3 and included
intangibles comprising £2.51m
“product sales and marketing rights”
and £0.17m of negative goodwill.
INTRODUCTION
Midatech Pharma plc (the “Company”)
is a company domiciled in England and
was incorporated on 12 September
2014. The Midatech Group was formed
on 31 October 2014 when Midatech
Pharma plc acquired the entire issued
share capital of Midatech Limited and
its wholly owned subsidiaries.
On 4 December 2015, the Company
acquired the entire issued share
capital of US-based, DARA
BioSciences, Inc. (“DARA”),
an oncology supportive care
pharmaceutical company, through
the issue of 5,422,028 ordinary
shares valued at £14.43m. These
Key performance indicators
£
1
.
3
8
m
£
0
.
1
6
m
+763%
£
5
.
9
2
m
£
5
.
4
4
m
+9%
6
1
%
5
5
%
2014
2015
2014
2015
2014
2015
Total revenue
R&D Costs
R&D as a % of operating costs
(before listing and acquisition expenses)
To date, Midatech’s KPIs have been focussed on the key areas of cash management and operating results and, most
recently, R&D spend.
Midatech Pharma plc • Annual Report & Accounts 2015 • 17
• During the year the average
• In vivo studies of Midatech’s
FINANCIAL ANALYSIS
For the year ended 31 December 2015,
Midatech generated consolidated total
revenue of £1.38m (2014: £0.16m), an
increase of 763% on the prior year and
ahead of expectation.
Net cash outflows for the year were
£14.17m (2014: £5.91m excluding
proceeds from share issues) which
was in line with the forecast for the
year adjusted for the costs of the
DARA and Zuplenz® acquisitions as
well as the ADR listing on NASDAQ.
Cash management remains a major
focus for management.
Administrative costs
Midatech’s administrative costs
increased on the prior year to £7.93m
(2014: £4.41m), in part due to costs
associated with the acquisition of
DARA and listing ADRs on NASDAQ:
number of staff employed grew
by 36 to 74 (2014: 38) and the
payroll cost increased by £1.71m
to £4.52m (2014: £2.81m).
Research and
development expenditure
Research and development costs
also increased on the previous year
to £5.92m (2014: £5.44m, including
a charge of £1.80m relating to the
impairment of IPRD acquired with
Q Chip Limited) reflecting a
significant increase in the number
of active programmes. Activities
in the year included:
• Phase IIa study of Midatech’s
Insulin Buccal Soluble Film (MSL-
001) enabling needle-free insulin
delivery for type 1 diabetes mellitus
(developed via our diabetes joint
venture MidaSol Therapeutics).
• Midatech Pharma US, Inc. (“MPUS”)
• Pre-clinical trials of a number
and Zuplenz® were acquired
resulting in professional fees of
£2.99m which includes significant
professional fees in respect of the
listing of ADRs on NASDAQ which
formed a key component of
the consideration.
of compounds for the treatment
of glioblastoma (brain) and liver
cancers with Investigational New
Drug (“IND”) enabling programs
potentially planned for 2016 or 2017.
Q-Octreotide sustained release
treatment of acromegaly and
carcinoid syndrome. This project
will move into bio-equivalence
human studies in 2016.
• Pre-clinical formulation
development of Q-Cyclosporin
sustained release treatment for
uveitis. This internally funded
project is anticipated to reach
clinical stage in the second half
of 2016.
Capital expenditure
The total cash expenditure on
property, plant and equipment in
2015 was £0.92m (2014: £1.03m)
reflecting investment in 3 significant
programmes:
• Move to new headquarters and
research premises in Abingdon,
UK, that included fit-out of GNP
research laboratories.
• Investment in IT infrastructure
necessary for operational
effectiveness and data security.
• Implementation of Group-wide
business management system.
In addition, the Group spent
$3.75 (£2.53m) on the acquisition
of Zuplenz®, £2.51m was recorded in
intangible assets.
(
£
9
.
6
9
m
)
(
£
1
2
.
9
2
m
)
+33%
£
2
7
.
9
4
m
(
£
1
4
.
1
7
m
)
n/a
7
4
3
8
+95%
2014
2015
2014
2015
2014
2015
Loss from operations
Net cash (outflow)/inflow
for the year
Average headcount
KPIs relating to Midatech’s recently acquired US commercial operation and non-financial KPIs, including further KPIs
in respect of the research and development programmes, will be formalised in due course.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 18 • Midatech Pharma plc • Annual Report & Accounts 2015
Financial Review continued
Cash flow
Net cash outflow from operating
activities for the year was £12.42m
(2014: £5.46m) resulting in a net cash
outflow for the year of £14.17m (2014:
inflow of £27.94m). This, along with the
capital expenditure in the year, saw
the year end cash balance reduce to
£16.18m (2014: £30.33m).
CAPITAL STRUCTURE
On 4 December 2015, 5,422,028
Ordinary Shares of 0.005 pence each
were issued to the shareholders of
DARA BioSciences, Inc. (now Midatech
Pharma US) as the initial share
consideration for the acquisition of
the entire issued share capital of that
company. Additional consideration
was paid in the form of a preference
share settlement and the assumption
of share options and warrants. These
shares were delivered to former DARA
stockholders in the form of American
Depositary Receipts (“ADRs”) with
each ADR representing the right to
receive two ordinary shares. The
ADRs were admitted to trading on the
NASDAQ Stock Market LLC trading
platform (“NASDAQ”) on 4 December
2015. Additional, cash consideration
may become payable if specified
milestones are achieved within agreed
time periods, in accordance with the
terms and conditions of an associated
Contingent Value Rights Agreement
dated as of 4 December 2015. These
milestones are not expected to be
achieved however if they should
be then any further payments are
expected to be self-financed by
incremental milestone-generated
cash flow.
As a result of the above transactions,
and the exercise of employee share
options, as at 31 December 2015
Midatech Pharma plc had in issue
33,467,504 Ordinary Shares of 0.005
pence each.
PRINCIPAL RISKS AND UNCERTAINTIES
The Directors consider the principal risks facing the business to be as follows:
Regulation
Midatech operates in a regulated
sector where a number of
regulations need to be adhered to.
Government authorities in the
United Kingdom, United States and
in other countries and jurisdictions,
including the European Union,
extensively regulate, among other
things, the research, development,
testing, manufacture, quality
control, approval, distribution,
marketing, post-approval
monitoring and reporting of
pharmaceutical products. The
processes for obtaining regulatory
approvals, along with subsequent
compliance with applicable statutes
and regulations require the
expenditure of substantial time and
financial resources.
The Group’s GNP manufacturing
facility in Bilbao operates under the
cGMP guidelines for Investigational
Medicinal Products and has been
licensed to manufacture non-
sterile investigational medicinal
products since March 2011, with
indefinite validity (subject to
passing regular inspections).
The facility was refurbished in
2014 to enable the manufacture
of sterile injectables and the
amended certification of the
facility to include production of
sterile material was confirmed
in February 2016. Midatech
performs its investigational work
in accordance with the European
Commission recommendation
on a Code of Conduct for
responsible nanosciences and
nanotechnologies research.
The Group’s health and safety
control is subcontracted to a
specialist provider and complies
with all Spanish employee and
work regulations.
Waste solutions and products
are suitably disposed of under
contract with a licensed provider
for this purpose. Prior to disposal,
hazardous waste materials are
stored under appropriate conditions.
Solvents and other inflammable
reagents are stored in appropriate
fire containment storage cabinets.
The Group’s polymer microsphere
manufacturing activities in the
UK is outsourced to a contract
manufacturing organisation based
in Leicester, UK. This facility is
MHRA approved and product is
manufactured to cGMP standards at
an appropriate level for the Group’s
needs. Polymer manufacturing
is compliant with all health and
safety regulations. Waste handling
is undertaken by a contract firm
specialising in removal and disposal
of hazardous waste.
Competition and Technological
Advances
The Group’s drug conjugate
platform is among the latest
generation of nanomedicine
technology. Liposomes followed by
various polymeric nanoparticles
were the first nanotechnologies
and now inorganic nanoparticles
like Midatech GNPs are a rapidly
emerging technology within the
nanomedicine market.
Midatech Pharma plc • Annual Report & Accounts 2015 • 19
The Group’s sustained
release technology relies on a
manufacturing process that,
the Directors believe, is unique
in the pharmaceutical industry.
Competing sustained release
technologies are well established
in the market however Midatech’s
platform has the potential for
improved drug delivery kinetics
and manufacturing efficiency.
Success of Midatech’s portfolio of
commercial products and its product
candidates currently in development
depends in part on the market’s
acceptance of these products as well
as the successful operation of the
Group’s salesforce and marketing
operations. There and there can be
no guarantee that this acceptance
will be forthcoming or that Midatech’s
technologies will succeed as an
alternative to competing products.
Furthermore, demand for Midatech’s
products may decrease if competitor
products are introduced with
perceived advantages over Midatech’s
products or product candidates.
The speed and nature of
technological change means
that physical science is always
evolving and new competition
and alternatives are always a
possibility, however, the Directors
believe that Midatech has
established competitive advantage
over its peers. As a result of
the combination of its platform
technologies, intellectual property
and proprietary know-how, the
Group has a protected position in
the nanoparticle and sustained
release spaces which allows the
potential for highly differentiated
drugs serving high unmet needs,
such as orphan oncology, to
be rapidly and independently
manufactured and scaled.
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, consulting
with regulatory approval bodies
and by working with experienced
distribution partners.
FINANCIAL RISK MANAGEMENT
OBJECTIVES AND POLICIES
The Group is exposed to a variety
of financial risks which result from
both its operating and investing
activities. The Board is responsible
for coordinating the Group’s risk
management and focuses on actively
securing the Group’s short- to
medium-term cash flows.
Finance risk
The Group enters into very few
transactions involving significant
complexity, potential material
financial exposure or atypical risk.
The Group does not actively engage
in the trading of financial assets and
has no financial derivatives other
than an equity settled derivative
financial liability as set out in note 22.
Funding risk
The Group continues to incur
substantial operating expenses. The
IPO in December 2014 generated
sufficient cash to take the Group
toward break even and becoming
cash flow positive however until the
Group generates positive net cash
inflows from the commercialisation
of its products it may be required to
seek 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 be able to attract
such additional funding as may be
required, either 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 for 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 by keeping
shareholders informed of progress.
This report was approved by the
Board on 12 April 2016 and signed
on its behalf.
Nick Robbins-Cherry
Chief Financial Officer
12 April 2016
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 20 • Midatech Pharma plc • Annual Report & Accounts 2015
Board of Directors
As at 31 December 2015 the Board consisted of two Executive Directors and six Non-Executive Directors.
Brief biographies of the current Directors are set out below.
Executive
JAMES (JIM) PHILLIPS
Chief Executive Officer (53)
Jim is a physician by training and has a
strong background in company leadership
and business development. Jim founded
Talisker Pharma in 2004, which was the
first and cornerstone acquisition of EUSA
Pharma Inc. in 2006. As president of
Europe and senior vice president, corporate
development, of EUSA Pharma, Jim led the
strategy resulting in the acquisition of OPi
S.A. and which in turn lead to its ultimate
acquisition by Jazz Pharmaceuticals Inc.
in 2012. Jim is currently a non-executive
director of Herantis Pharma plc, listed in
Helsinki, Insense Limited, a private spin-out
from Unilever, and, until joining Midatech,
was chairman of Prosonix Limited, guiding
its successful transformation into a
respiratory-focused business. Prosonix
was acquired by Circassia Pharmaceuticals
PLC in 2015. Jim initially held senior
positions at Johnson & Johnson and
Novartis Pharmaceuticals. At Novartis, Jim
was in Clinical and Business Development
and was a board director of the $1.3 billion
arthritis, bone, gastrointestinal,
haematology and infectious diseases
business unit and a member of the
company’s Clinical Leadership Team.
NICHOLAS (NICK) ROBBINS-CHERRY
Chief Financial Officer (46)
Nick is a Chartered Accountant and MBA
with extensive commercial and finance
experience gained in the life sciences,
technology and consulting sectors,
including roles at CACI Limited, Johnson
& Johnson and ICI plc. Nick has a strong
track record in mergers and acquisitions
and of managing complex multi-national
businesses. Nick qualified with Coopers &
Lybrand (now PricewaterhouseCoopers)
and also has a BSc in Pharmacology.
Non-Executive
ROLF STAHEL
Non-Executive Chairman (71)
Mr Stahel has approximately 40 years of
experience in the pharmaceutical industry,
of which around 20 years were spent at
chief executive and board level in public
companies listed in the United Kingdom,
Switzerland and the United States and
private life science companies registered
in Europe, the United States and Asia.
Mr Stahel joined Shire as chief executive
in 1994 following a 27-year career at
Wellcome plc (now GlaxoSmithKline
plc). Mr Stahel is currently the non-
executive chairman of Connexios Life
Sciences Pvt Limited and Ergomed plc,
and was previously the non-executive
chairman of EUSA Pharma Inc., Cosmo
Pharmaceuticals SpA, PowderMed Limited
and Newron Pharmaceuticals SpA.
JOHN JOHNSTON
Non-Executive Director (57)
Mr Johnston is currently non-executive
Chairman of Constellation Healthcare
Technologies, non-executive director of
Flowgroup plc, Action Hotels, MaxCyte, Inc.
and prior to this, was managing director
of Institutional Sales at Nomura Code.
He was previously director of Sales and
Trading at Seymour Pierce from 2008 to
2011. In 2003, Mr Johnston founded Revera
Asset Management, where he oversaw an
investment trust, a unit trust and a hedge
fund, which he ran until 2007. From 1992
to 1997, Mr Johnston was Head of Small
Companies at Scottish Amicable, before
spending a year at Ivory and Sime, again
as Head of Small Companies from 1997 to
1998. He joined Legg Mason Investors for
three years as Director of Small Companies
Technology and Venture Capital Trusts,
from 2000 to 2003 having previously spent
two years as Head of Small Companies
with Murray Johnstone. Mr Johnston began
his investment career at the Royal Bank
of Scotland in 1981, working in the Trustee
and Investment department, before moving
to General Accident in 1985, holding the
position of Head of Retail Funds before his
move to Scottish Amicable.
Midatech Pharma plc • Annual Report & Accounts 2015 • 21
The Directors believe that Midatech Pharma plc benefits from a strong, stable and proven Executive
and Senior Management team.
Non-Executive
SIMON TURTON
Senior Non-Executive Director (48)
Dr Turton previously headed Warburg
Pincus’ healthcare investing activities
in Europe and was a principal at Index
Ventures in Geneva. He has over 10 years
of experience investing in biopharma
companies following a ten-year career in
the international pharmaceutical industry
incorporating roles in research, business
development and general management.
Dr Turton has an MBA from INSEAD and a
SIJMEN DE VRIES
Non-Executive Director (56)
Ph.D. in pharmacy from the University of
London. He has been a board director of
private and public biomedical companies:
Archimedes Pharma, Eurand, ProStrakan
and Tornier. Dr Turton was most recently
chairman of Q Chip prior to its acquisition by
the Group. He is currently CEO of Gensmile,
a new dental corporate building a chain of
dental clinics in the UK.
Dr de Vries has extensive senior level
experience in both the pharmaceutical and
biotechnology industries. He is currently
chief executive officer of Pharming Group
N.V., the Euronext-listed pharmaceutical
company. Dr de Vries was previously chief
executive officer of Switzerland-based
4-Antibody and Morphochem AG, and prior
to this he worked at Novartis Pharma,
Novartis Ophthalmics and at SmithKline
Beecham Pharmaceuticals plc, where
he held senior business and commercial
positions. Dr de Vries holds an MD degree
from the University of Amsterdam and
a MBA in General Management from
Ashridge Management College (UK).
PAVLO PROTOPAPA
Non-Executive Director (49)
Mr Protopapa is the founder and
managing partner of Ippon Capital, a
private equity company based in Geneva,
Switzerland. He is the chairman and chief
executive officer of Spacecode Holdings,
a technology provider in healthcare and
luxury goods, which he founded in 2005.
He also serves as a non-executive director
and lead investor of Socure Inc, a SaaS-
based internet security company. Mr
Protopapa has a Bachelor of Commerce
MICHELE LUZI
Non-Executive Director (58)
(accounting, economics and commercial
law) and Bachelor of Accounting Science
(accounting) from the University of the
Witwatersrand and the University of
South Africa, respectively. He completed
his articles at KPMG in Johannesburg,
South Africa and has more than 15 years
of experience in international commerce
as chief financial officer of the Steinmetz
Diamond Group from 1997 to 2012.
Mr Luzi is a partner in Bain & Company,
based in the London office. He has recently
led Bain’s EMEA Telecommunications
Technology Media Practice for seven
years and he was a board director of Bain
& Company Global between 2006 and
2009. He has been a member of the World
Economic Forum Global Agenda Council
and of the Web Foundation Advisory Board.
Prior to joining Bain & Company, Mr Luzi
worked in international management
positions with Pirelli and also worked
in Agusta and with the Italian Trade
Commission. Mr Luzi earned his MBA from
INSEAD and graduated in Economics, with
Honours, from the University of Rome.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 22 • Midatech Pharma plc • Annual Report & Accounts 2015
Remuneration Report
Executive remuneration packages are designed to
attract and retain executives of the necessary skill
and calibre to run the Group.
THE REMUNERATION COMMITTEE
The Remuneration Committee assists the Board
in determining its responsibilities in relation to
remuneration, including making recommendations to the
Board on the Group’s policy on executive remuneration,
setting the over-arching principles, parameters and
governance framework of the Group’s remuneration
policy and determining the individual remuneration and
benefits package of each of the Executive Directors and
the Group Secretary.
The Remuneration Committee ensures compliance
with the UK Corporate Governance Code in relation to
remuneration wherever possible.
The Remuneration Committee is chaired by Sijmen de
Vries, and its other members are Simon Turton, Rolf
Stahel and Michele Luzi. The Remuneration Committee
meet not less than twice a year. During 2015 the
Remuneration Committee met on three occasions.
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 with reference to benchmarking comparable
groups. The Remuneration Committee recommends
remuneration packages to the Board by reference to
individual performance and uses the knowledge and
experience of the Committee members, published surveys
relating to AIM companies and the nanomedicine industry,
as well as advice from a UK remuneration specialist
company 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 no 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 staff and Executive Directors.
Benefits in kind are non-pensionable.
(ii) Share options and other share-based incentives
The Group currently operates approved share option
schemes for the Executive Directors and other employees
to motivate those individuals through equity participation.
Historically some unapproved share options have been
granted to staff and key consultants however, the Board
and Remuneration Committee do not plan on issuing
further unapproved share options. 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 all grants of share
options to the Board 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”) requires
a significant proportion of the total remuneration package
of Executive Directors to comprise performance related
elements of remuneration and should be designed to
align Executive Directors’ interests with those of the
shareholders. The Remuneration Committee currently
considers that the best alignment of these interests
is through the continued use of performance-based
incentives through the award of share options or other
share-based arrangements.
(iii) Bonus scheme
The Group has a discretionary bonus scheme for staff and
Executive Directors. Bonus payments are directly linked
to the achievement of corporate and personal objectives.
(iv) Pension contributions
The Group pays a defined contribution to the pension
schemes of Executive Directors and other employees.
The individual pension schemes are private and their
assets are held separately from the Group.
Midatech Pharma plc • Annual Report & Accounts 2015 • 23
Pavlo Protopapa (Non-Executive Director)
Mr Protopapa entered into a non-executive director
appointment letter with the Company on 2 December 2014.
Mr Protopapa was originally appointed as a non-executive
director of Midatech Limited on 5 December 2013
(subsequently terminated on 2 December 2014). The
appointment is terminable upon the election of the Board.
Simon Turton (Senior Independent Non-Executive Director)
Dr Turton entered into a non-executive director
appointment letter with Midatech Limited on
2 December 2014. Dr Turton was originally appointed
as chairman of Q Chip Limited on 24 March 2014
(subsequently terminated on 2 December 2014).
The appointment is terminable upon the election
of the Board.
Sijmen de Vries (Non-Executive Director)
Dr de Vries entered into a non-executive director
appointment letter with the Company on 2 December 2014.
Dr de Vries was originally appointed as a non-executive
director of Midatech Limited on 29 October 2004
(subsequently terminated on 2 December 2014). Dr de
Vries retired by rotation prior to the Company’s Annual
General Meeting held on 26 May 2015 during which he was
re-elected by the Company’s members. The appointment
is terminable upon the election of the Board.
Policy on Non-Executive Directors’ remuneration
The Non-Executive Directors receive a fee for their
services as a director, which is approved by the Board,
giving due consideration to the time commitment and
responsibilities of their roles and of current market rates
for comparable organisations and appointments. Non-
Executive Directors are reimbursed for travelling and
other incidental expenses incurred on Group business in
accordance with the Group expenses policy.
The Board encourages the ownership of Midatech
shares by Executives and in normal circumstances does
not expect Directors to undertake dealings of a short-
term nature.
Non-Executive Directors are preferred to remain
independent to the extent that they do not trade in
the Company’s shares themselves.
SERVICE CONTRACTS
Set out below are summary details of the service
agreements and letters of appointment entered into
between the Company and the Directors:
Executive Directors
Dr Jim Phillips (Chief Executive Officer)
Dr Phillips entered into a service agreement with
the Company to act as Chief Executive Officer on
2 December 2014. His continuous employment with the
Group commenced 1 May 2013. Dr Phillips retired by
rotation prior to the Company’s Annual General Meeting
held on 26 May 2015 during which he was re-elected by
the Company’s members. His appointment is terminable
upon one year’s notice.
Nick Robbins-Cherry (Chief Financial Officer)
Mr Robbins-Cherry entered into a service agreement
with the Company to act as Finance Director on
2 December 2014 and has since been appointed as the
Group’s Chief Financial Officer. Mr Robbins-Cherry’s
continuous employment with the Group commenced
4 February 2014. Mr Robbins-Cherry retired by rotation
prior to the Company’s Annual General Meeting held
on 26 May 2015 during which he was re-elected by the
Company’s members. His appointment is terminable
upon six months’ notice.
Non-Executive Directors
The service contracts of the Non-Executive Directors
are made available for inspection at the AGM.
Rolf Stahel (Non-Executive Chairman)
Mr Stahel entered into an agreement with Midatech
Limited on 15 April 2014 and was subsequently appointed
Chairman with effect from 1 March 2014. Mr Stahel
subsequently entered into a revised appointment
agreement with the Company on 2 December 2014.
With effect from 1 March 2015, the appointment
became terminable upon the election of the Board.
John Johnston (Non-Executive Director)
Mr Johnston entered into a non-executive director
appointment letter with the Company on 2 December
2014. The appointment is terminable upon the election
of the Board.
Michele Luzi (Non-Executive Director)
Mr Luzi entered into a non-executive director appointment
letter with the Company on 2 December 2014. Mr Luzi
was originally appointed as a non-executive director
of Midatech Limited on 20 August 2010 (subsequently
terminated on 2 December 2014). The appointment is
terminable upon the election of the Board.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 24 • Midatech Pharma plc • Annual Report & Accounts 2015
Remuneration Report continued
The emoluments of the Directors of Midatech Pharma plc are set out below. No emoluments were paid to any Director
by any other Group company:
Non-Executive Directors
Rolf Stahel
Jeff Brown (resigned 30 April 2015)
John Johnston
Michele Luzi
Pavlo Protopapa
Simon Turton
Sijmen de Vries
Executive Directors
Jim Phillips
Nick Robbins-Cherry
Salary
and fees
£
107,640
46,667
35,000
35,000
35,000
35,000
35,000
Bonus
£
Pensions
£
2015
£
–
–
–
–
–
–
–
–
–
–
–
–
–
–
107,640
46,667
35,000
35,000
35,000
35,000
35,000
2014
£
175,967
12,000
2,781
–
–
–
12,000
242,880
145,696
104,125
38,360
30,284
15,583
377,289
199,639
351,456
55,993
Directors’ remuneration
717,883
142,485
45,867
906,235
610,197
The 2014 emoluments include payments from all Group companies for that year. This includes emoluments earned in
their capacity as directors of Midatech Limited prior to their appointment as directors of Midatech Pharma plc. Where
they were not directors of Midatech Limited their emoluments commence from the date of appointment as a Midatech
Pharma plc director.
Details of the payments to other related parties are disclosed in note 31.
DIRECTORS’ INTERESTS IN SHARES
Non-Executive Directors
Rolf Stahel(1)
Jeff Brown (resigned 30 April 2015)
John Johnston
Michele Luzi
Pavlo Protopapa
Simon Turton(2)
Sijmen de Vries
Executive Directors
Jim Phillips
Nick Robbins-Cherry
31 December 2015
31 December 2014
Beneficial
Interests
Non-Beneficial
Interests
Beneficial
Interests
Non-Beneficial
Interests
527,215
–
14,981
121,344
–
215,328
8,802
36,871
500
–
–
–
69,328
1,649,334
–
65,014
–
–
527,215
–
14,981
121,344
–
215,328
8,802
31,339
–
–
–
–
69,328
1,649,334
–
65,014
–
–
(1)
At 31 December 2015 428,542 of Rolf Stahel’s shares were subject to restrictions preventing their disposal or transfer to another
party. These restrictions fall away on the following events:
a. 61,220 shares become unrestricted on 1 March 2016
b. 61,221 shares become unrestricted on each of and 1 March 2017 and 1 March 2018
c. 122,440 shares become unrestricted when the market capitalisation of the Company achieves £155m
d. 122,440 shares become unrestricted when the market capitalisation of the Company achieves £213m
(2)
Simon Turton is entitled to receive 35,086 Deferred Consideration Shares to be converted into Ordinary Shares up to 30 June 2016
subject to there not being any successful warranty claims against the sellers of Q Chip Limited.
Midatech Pharma plc • Annual Report & Accounts 2015 • 25
Other than as shown in the table and note above no Director had any interest in the shares of the Company or in any
subsidiary company.
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.
Non-Executive Directors
Rolf Stahel
Jeff Brown
John Johnston (resigned 30 April 2015)
Michele Luzi
Pavlo Protopapa
Simon Turton
Sijmen de Vries
Executive Directors
Jim Phillips
Nick Robbins-Cherry
31 December
2015
Options Held
over Ordinary
shares
31 December
2014
Options Held
over Ordinary
shares
–
–
–
–
–
–
18,976
36,696
–
–
–
–
17,000
17,000
600,000
60,000
600,000
60,000
All share options were granted with an exercise price at or above market value on the date of grant. The majority of
share options only vest when the Company’s share price achieves certain targets. Otherwise the main vesting condition
of all share options is that the Director or employee 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
Midatech Pharma plc Enterprise Management Incentive Scheme (included in totals in note 29) are set out below:
Non-Executive Directors
Michele Luzi(1)
Sijmen de Vries
Executive Directors
Jim Phillips
Nick Robbins-Cherry
Grant Date
20/04/2012
31/12/2008
20/04/2012
30/06/2014
09/05/2014
30/06/2014
30/06/2014
Number
Awarded
Exercise
Price/Share
£
Vesting
Criteria
Expiry Date
£
18,796
3,000
4,000
10,000
200,000
400,000
60,000
4.19
1.425
4.19
0.075
0.075
0.075
0.075
Fully vested
20/04/2022
Fully vested
31/12/2018
Fully vested
20/04/2022
Share price(2)
30/06/2024
Fully vested
01/05/2023
Share price(2)
30/06/2024
Share price(2)
30/06/2024
(1) Share options held by Michele Luzi were granted as part of a 2011 investment round in Midatech Limited.
(2)
For those options noted as vesting based on share price 50% vest when the share price reaches £5.31 per share, a further 25% vests
when the share price reaches £13.72 and the remaining 25% when the share price reaches £18.86.
Sijmen de Vries
Chairman of the Remuneration Committee
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 26 • Midatech Pharma plc • Annual Report & Accounts 2015
Corporate Governance
The Directors seek to build a mutual understanding of
objectives between the Company and its shareholders.
The Board meet regularly to consider strategy, performance
and the framework of internal controls.
BOARD OF DIRECTORS
As at 31 December 2015, the Board comprised eight
Directors, two of whom are Executive Directors and six
Non-Executive Directors, reflecting a blend of different
experience and backgrounds. The Group regards all of
the Non-Executive Directors as Independent. With a view
towards maintaining the independence of the Board no
remuneration is paid to either the Chairman or Non-
Executive Directors in the form of shares.
Although, as a company that has securities which are
traded on the Alternative Investment Market (“AIM”),
adherence to the UK Corporate Governance Code is not
compulsory, the Directors apply certain aspects of the UK
Corporate Governance Code to the extent appropriate to
the Group’s size, resources and stage of development.
The Company’s shares are also listed on the NASDAQ
Capital Market in the form of American Depositary Receipts
(“ADRs”) with each ADR representing the right to receive
two ordinary shares. The Company’s status as a Foreign
Private Issuer means that we are permitted to follow
English corporate law and the Companies Act 2006 with
regard to certain aspects of corporate governance; such
practices differ in significant respects from the corporate
governance requirements applicable to US companies
on NASDAQ. For the years ended 31 December 2015 and
2014, we have not been required to assess and report on
the effectiveness of our internal controls over financial
reporting under Section 404(a) of the Sarbanes-Oxley Act.
The Board is responsible for inter alia, 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.
The Board meet regularly to consider strategy, performance
and the framework of internal controls. To enable the
Board to discharge its duties, all Directors receive
appropriate and timely information. Briefing papers are
distributed to all Directors in advance of Board meetings.
The Company has established audit, nomination,
remuneration and disclosure committees of the Board
with formally delegated duties and responsibilities.
THE AUDIT COMMITTEE
The Audit Committee assists the Board in discharging
its responsibilities with regard to financial reporting,
external and internal audits and controls, including
reviewing and monitoring the integrity of the Group’s
annual and interim financial statements, advising on
the appointment of external auditors, reviewing and
monitoring the extent of the non-audit work undertaken
by external auditors, overseeing the Group’s relationship
with its external auditors, reviewing the effectiveness
of the external audit process and reviewing the
effectiveness of the Group’s internal control review
function. The ultimate responsibility for reviewing and
approving the annual report and accounts and the half-
yearly reports remains with the Board.
The Audit Committee is chaired by Pavlo Protopapa and
its other members are Simon Turton and John Johnston.
The Audit Committee meet not less than twice a year.
During 2015, the Audit Committee has met five times.
THE NOMINATION COMMITTEE
The Nomination Committee assist the Board in
discharging its responsibilities relating to the
composition and make-up of the Board and any
committees of the Board. It is responsible for
periodically reviewing the Board’s structure and
identifying potential candidates to be appointed as
Directors or committee members as the need may arise.
The Nomination Committee is responsible for evaluating
the balance of skills, knowledge and experience and
the size, structure and composition of the Board and
committees of the Board, retirements and appointments
of additional and replacement Directors and committee
members and will make appropriate recommendations
to the Board on such matters.
The Nomination Committee is chaired by Rolf Stahel and
its other members are all other members of the Board.
There has not as yet been any requirement to formally
convene the Nomination Committee.
Midatech Pharma plc • Annual Report & Accounts 2015 • 27
GOING CONCERN
As disclosed in the Directors’ Report on page 28
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.
RELATIONSHIP WITH SHAREHOLDERS
The Directors seek to build a mutual understanding of
objectives between the Company and its shareholders.
The Company reports formally to shareholders in its
Annual Report and Interim Statements setting out details
of the Group’s activities. In addition, the Company 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 and the Foreign Private Issuer reporting
requirements as set out in Rules 13a–16 or 15d–16 of
the United States Securities Exchange Act of 1934. The
Chief Executive and Chief Financial Officer meet with
institutional shareholders following interim and final
results. The Company also maintains investor relations
pages and other information regarding the business,
the Group’s products and activities on its website at
www.midatechpharma.com.
The Annual Report is made available to shareholders at
least 21 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
Company 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.
Nick Robbins-Cherry
Company Secretary
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 however this remains a
matter for ongoing review.
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
process. 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 development whereby the
Chief Financial Officer will present a report to the
Board each year on the key business risks.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 28 • Midatech Pharma plc • Annual Report & Accounts 2015
Directors’ Report
The Directors present their report and the consolidated
financial statements of the Group for the year ended
31 December 2015.
DIRECTORS
The Directors during the year were:
Rolf Stahel
Jeff Brown (resigned 30 April 2015)
John Johnston
Michele Luzi
Pavlo Protopapa
Simon Turton
Sijmen de Vries
Jim Phillips
Nick Robbins-Cherry
RESEARCH AND DEVELOPMENT
The Group is continuing to develop products within its
chosen areas of therapeutic focus.
MATTERS COVERED IN THE STRATEGIC REPORT
Details of the Group’s financial instruments are
presented in note 23 and future developments and
policies are given in the Strategic Report.
DIVIDEND
The Directors are not recommending the payment of a
dividend at this time due to the level of maturity of the
Group. The Directors intend implementing a dividend
policy of progressive payments when the Group reaches
the right stage of development.
DIRECTORS’ AND OFFICERS’
LIABILITY INSURANCE
The Company has, as permitted by s234 and 235 of
the Companies Act 2006, maintained insurance cover
on behalf of the Directors and Company Secretary
indemnifying them against certain liabilities which may
be incurred by them in relation to the Company.
EMPLOYEES
Midatech recognises the essential importance of
employees to the success of the business and ensures
that they are fully informed of events that directly affect
them and their working conditions. Information on
matters of concern to employees is given in briefings that
seek to provide a common awareness on the part of all
employees of the financial and economic factors affecting
the Group’s performance.
DISABLED EMPLOYEES
Applications for employment by disabled persons are
given full and fair consideration for all vacancies in
accordance with their particular aptitudes and abilities.
It is the policy of the Group that training and promotion
opportunities should be available to all employees.
DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Directors’
Report, Strategic 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 United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting
Standards and applicable law). Under company law the
Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the
state of affairs of the Group and Company and of the profit
or loss of the Group for that period. The Directors are
required to prepare financial statements in accordance
with the rules of the London Stock Exchange for companies
trading securities on the Alternative Investment Market.
The Directors are also required to prepare and file a Form
20-F in accordance with the rules of the US Securities
and Exchange Commission which require the financial
statements to also be prepared in accordance with
International Financial Reporting Standards as issued by
the International Accounting Standards Board (IASB).
Midatech Pharma plc • Annual Report & Accounts 2015 • 29
WEBSITE PUBLICATION
The Directors are responsible for ensuring the Annual
Report and the financial statements are made available
on a website. Financial statements are published on the
Group’s website in accordance with legislation in the United
Kingdom governing the preparation and dissemination
of financial statements, which may vary from legislation
in other jurisdictions. The maintenance and integrity of
the Group’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
Nick Robbins-Cherry
Chief Financial Officer
12 April 2016
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 and as
issued by the International Accounting Standards Board
(IASB), subject to any material departures disclosed
and explained in the financial statements; and
• prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
Group will continue in business.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Group’s transactions and disclose with reasonable
accuracy at any time the financial position of the Group
and enable them to ensure that the financial statements
comply with the requirements of the Companies Act 2006.
They are also responsible for safeguarding the assets of
the Group and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
DIRECTORS’ STATEMENT AS TO THE DISCLOSURE
OF INFORMATION TO AUDITORS.
All of the current directors have taken all the steps that
they ought to have taken to make themselves aware of
any information needed by the Group’s auditors for the
purposes of their audit and to establish that the auditors
are aware of that information. The Directors are not
aware of any relevant audit information of which the
auditors are unaware.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 30 • Midatech Pharma plc • Annual Report & Accounts 2015
Independent Auditor’s Report
to the Members of Midatech Pharma plc
We have audited the financial statements of Midatech
Pharma plc for the year ended 31 December 2015 which
comprise the consolidated statement of comprehensive
income, the consolidated statement of financial
position, the consolidated statement of cash flows,
the consolidated statement of changes in equity, the
parent Company balance sheet, the parent Company
statement of changes in equity 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), including Reporting Standard 102 'The
Financial Reporting Standard applicable in the UK
and Republic of Ireland'.
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 2015 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’s 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.
SEPARATE OPINION IN RELATION TO IFRSs
AS ISSUED BY THE IASB
As explained in note 1 to the group financial statements,
the Group in addition to applying IFRSs as adopted by the
European Union, has also applied IFRSs as issued by the
International Accounting Standards Board (“IASB”). In our
opinion the Group financial statements comply with IFRSs
as issued by the IASB.
OPINION ON OTHER MATTERS PRESCRIBED
BY THE COMPANIES ACT 2006
In our opinion the information given in the strategic report
and 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
12 April 2016
BDO LLP is a limited liability partnership registered in
England and Wales (with registered number OC305127).
Consolidated statement of comprehensive income
for the year ended 31 December 2015
Midatech Pharma plc • Annual Report & Accounts 2015 • 31
Revenue
Grant revenue
Total revenue
Cost of sales
Gross profit
Research and development costs
Distribution costs, sales and marketing
Administrative costs
Loss from operations before listing and acquisition expenses
Listing and acquisition expenses included in administrative costs
Loss from operations
Finance income
Finance expense
Loss before tax
Taxation
Loss after tax attributable to the owners of the parent
Other comprehensive income:
Items that will or may be reclassified subsequently to profit
or loss when specific conditions are met:
Note
3
4
4
6
6
7
2015
£’000
2014
(as restated)
£’000
2013
£’000
775
600
1,375
(70)
1,305
(5,920)
(374)
(7,929)
(9,927)
(2,991)
(12,918)
1,691
(5)
(11,232)
1,133
(10,099)
25
132
157
–
157
147
–
147
–
147
(5,439)
(1,925)
–
(4,405)
(8,752)
(935)
(9,687)
8
(161)
(9,840)
1,018
(8,822)
–
(2,721)
(4,499)
–
(4,499)
1
(385)
(4,883)
799
(4,084)
Exchange (losses)/gains arising on translation of foreign operations
Total other comprehensive income/(loss), net of tax
399
399
(151)
(151)
5
5
Total comprehensive loss attributable to the owners of the parent
(9,700)
(8,973)
(4,079)
Loss per share
Basic and diluted loss per ordinary share – pence
8
(36p)
(98p)
(71p)
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 32 • Midatech Pharma plc • Annual Report & Accounts 2015
Consolidated statement of financial position
at 31 December 2015
2015
£’000
2014
(as restated)
£’000
2013
£’000
Note
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Investment in equity accounted joint venture
Other receivables due in greater than one year
Current assets
Inventories
Trade and other receivables
Taxation
Cash and cash equivalents
Total assets
Liabilities
Non-current liabilities
Borrowings
Deferred tax liability
Current liabilities
Trade and other payables
Borrowings
Derivative financial liability – equity settled
Total liabilities
Issued capital and reserves attributable to owners of the parent
Share capital
Share premium
Merger reserve
Shares to be issued
Foreign exchange reserve
Accumulated deficit
Total equity
Total equity and liabilities
9
10
17
19
17
18
21
24
20
21
22
25
26
26
26
26
26
684
4
12
379
1,079
–
909
799
2,387
4,095
5,174
2,119
–
2,119
1,047
1,248
–
2,295
4,414
–
21,018
–
–
142
1,984
41,339
–
387
1,516
13,094
–
425
43,710
15,035
–
462
841
30,325
31,628
46,663
1,488
354
1,842
2,341
491
–
2,832
4,674
1,001
31,643
37,776
800
(9)
459
2,496
1,201
16,175
20,331
64,041
1,508
6,547
8,055
7,084
442
1,573
9,099
17,154
1,002
31,643
52,803
200
390
(39,151)
46,887
64,041
(29,222)
(20,400)
41,989
46,663
760
5,174
The financial statements were approved and authorised for issue by the Board of Directors on 12 April 2016 and were
signed on its behalf by:
Nick Robbins-Cherry
Chief Financial Officer
The notes form an integral part of these consolidated financial statements
Consolidated statement of cash flows
for the year ended 31 December 2015
Midatech Pharma plc • Annual Report & Accounts 2015 • 33
Cash flows from operating activities
Loss for the year after tax
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of intangible fixed assets
Loss on disposal of fixed assets
Net Interest (income)/expense
Impairment of IPRD
Gain on bargain purchase
Share-based payment expense
Taxation
Cash flows from operating activities before
changes in working capital
Increase in inventories
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Cash used in operations
Taxes received
Net cash used in operating activities
Investing activities
Purchases of property, plant and equipment
Purchase of intangibles
Acquisition of subsidiary, net of cash acquired
Acquisition of business, net of cash acquired
Interest received
Net cash used in investing activities
Financing activities
Interest paid
Payments to finance lease creditors
Repayment of borrowings
Issue of convertible debt
Loan finance raised
Share issues net of costs
Net cash (used in)/generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange gains on cash and cash equivalents
Cash and cash equivalents at end of year
2015
£’000
2014
(as restated)
£’000
2013
£’000
Note
(10,099)
(8,822)
(4,084)
501
236
–
(1,686)
–
(165)
170
321
1
89
153
1,800
–
–
246
1
–
384
–
–
–
(1,133)
(1,018)
(799)
(12,176)
(62)
(1,540)
711
(13,067)
646
(12,421)
(922)
(3)
1,867
(2,528)
53
(1,533)
(5)
(49)
(165)
–
–
–
(219)
(14,173)
30,325
23
16,175
(7,476)
(4,252)
–
761
466
(6,249)
794
(5,455)
(1,030)
–
115
–
8
–
(442)
(330)
(5,024)
588
(4,436)
(47)
(3)
–
–
–
(907)
(50)
(48)
(48)
(346)
–
890
33,852
34,300
27,938
2,387
–
30,325
(15)
(93)
(200)
1,251
–
5,797
6,740
2,254
133
–
2,387
9
10
13
12
13
18
The notes form an integral part of these consolidated financial statements.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 34 • Midatech Pharma plc • Annual Report & Accounts 2015
Consolidated statement of changes in equity
for the year ended 31 December 2015
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Shares to
be issued
£’000
Foreign
exchange
reserve
£’000
Accumulated
deficit
£’000
Total
equity
£’000
At 1 January 2015
1,001
31,643
37,776
800
(9)
(29,222)
41,989
Loss for the year
Foreign exchange translation
Total comprehensive loss
Transactions with owners
Shares issued on exercise of share options
Shares, warrants and share options issued as
consideration for a business combination –
4 December 2015
Share option charge
Shares issued as deferred consideration for business
combination
Total contribution by and distributions to owners
–
–
–
1
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
14,427
–
600
15,027
At 31 December 2015
1,002
31,643
52,803
–
–
–
–
–
–
(600)
(600)
200
–
399
399
(10,099)
(10,099)
–
399
(10,099)
(9,700)
–
–
–
–
–
–
–
1
14,427
170
170
–
–
–
14,598
390
(39,151)
46,887
Midatech Pharma plc • Annual Report & Accounts 2015 • 35
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Shares to
be issued
£’000
At 1 January 2014
Loss for the year as restated (see note 12)
Foreign exchange translation
Total comprehensive loss
Issue of Midatech Limited shares –
pre-share for share exchange
Transfer to merger reserve on the merger of Midatech
Pharma plc and Midatech Limited – 31 October 2014
–
–
–
–
–
–
Transfer of A Preference shares from liability to
equity (28 October 2014) and subsequent conversion to
Deferred shares – 8 December 2014
1,000
Issue of shares to settle A Preference share accrued
dividend – 8 December 2014
Shares issued as consideration for a business
combination – 8 December 2014
Shares to be issued as consideration for a business
combination – 8 December 2014
Issue of shares on placing – 8 December 2014
Costs associated with share placing
Total contribution by and distributions to owners
At 31 December 2014
–
–
–
1
–
1,001
1,001
21,018
–
–
–
3,202
–
–
–
–
–
(24,220)
24,220
–
994
–
–
32,000
(1,351)
10,625
31,643
–
–
13,556
–
–
–
37,776
37,776
–
–
–
–
–
–
–
–
–
800
–
–
800
800
1 January 2013
Loss for the year
Foreign exchange translation
Total comprehensive income/(loss)
Transaction with owners
Conversion of convertible loan notes
Issue of shares
Cost of share issues
Capital contribution
Total contribution by and distributions to owners
31 December 2013
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Shares to
be issued
£’000
–
–
–
–
–
–
–
–
–
–
11,966
–
–
–
–
9,093
(41)
–
9,052
21,018
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The notes form an integral part of these consolidated financial statements.
Foreign
exchange
reserve
£’000
As restated
Accumulated
deficit
£’000
As
restated
Total
Equity
£’000
142
(20,400)
760
–
(151)
(151)
(8,822)
(8,822)
–
(151)
(8,822)
(8,973)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,202
–
1,000
994
13,556
800
32,001
(1,351)
50,202
(9)
(29,222)
41,989
Foreign
exchange
reserve
£’000
Accumulated
deficit
£’000
Total
Equity
£’000
137
(17,194)
(5,091)
–
5
5
–
–
–
–
–
(4,084)
(4,084)
–
5
(4,084)
(4,079)
584
–
–
294
878
584
9,093
(41)
294
9,930
760
142
(20,400)
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 36 • Midatech Pharma plc • Annual Report & Accounts 2015
Notes forming part of the financial statements
for the year ended 31 December 2015
1 ACCOUNTING POLICIES
General information
Midatech Pharma plc (the “Company”) is a company domiciled in England. The Company was incorporated on
12 September 2014.
The Company is a public limited company, which has been listed on the Alternative Investment Market (“AIM”), which
is a submarket of the London Stock Exchange, since 8 December 2014.
In addition, since 4 December 2015 the Company has American Depository Receipts (“ADRs”) registered with the US
Securities and Exchange Commission (“SEC”) and is listed on NASDAQ.
Basis of preparation
The Group was formed on 31 October 2014 when Midatech Pharma plc entered into an agreement to acquire the entire
share capital of Midatech Limited and its wholly owned subsidiaries through the issue equivalent of shares in the
Company which took place on 13 November 2014.
The acquisition of the Midatech subsidiaries on 13 November 2014 was outside the scope of IFRS 3 “Business
combinations” and was treated under the principles of merger accounting as set out under UK GAAP. The capital
structure for 2013 reflects the former holding company, Midatech Limited. Following the Group reconstruction the
capital structure reflects that of Midatech Pharma plc.
Accordingly, although the units which comprise the Group did not form a legal group for the entire comparative period
ended 31 December 2014, the 2014 and 2013 results comprise the results of the subsidiary companies as if the Group
had been in existence throughout the entire period.
These financial statements have been prepared in accordance with International Financial Reporting Standards,
International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting
Standards Board (IASB) and as adopted by the European Union (“adopted IFRSs”) and are presented in £’000’s Sterling.
The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies
have been consistently applied to all the periods presented.
Adoption of new and revised standards
A number of new standards, amendments to standards, and interpretations are not effective for 2015, and therefore have
not been applied in preparing these accounts.
IFRS 9 Financial Instruments and subsequent amendments
On 24 July 2014 the IASB published the complete version of IFRS 9, Financial instruments, which replaces most of
the guidance in IAS 39. This includes amended guidance for the classification and measurement of financial assets by
introducing a fair value through other comprehensive income category for certain debt instruments. It also contains
a new impairment model which will result in earlier recognition of losses. No changes were introduced for the
classification and measurement of financial liabilities, except for the recognition of changes in own credit risk in other
comprehensive income for liabilities designated at fair value through profit or loss. IFRS 9 also includes a new hedging
guidance. It will be effective for annual periods beginning on or after 1 January 2018, subject to endorsement by the
European Union.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 specifies how and when a company will recognise revenue as well as requiring such entities to provide users of
financial statements with more informative, relevant disclosures. The standard provides a single, principles based five
step model to be applied to all contracts with customers as follows:
• Identify the contract(s) with a customer.
• Identify the performance obligations in the contract.
• Determine the transaction price.
• Allocate the transaction price to the performance obligations in the contract.
• Recognize revenue when (or as) the entity satisfies a performance obligation.
Midatech Pharma plc • Annual Report & Accounts 2015 • 37
IFRS 15 was issued in May 2014 and replaces IAS 11–Construction Contracts, IAS 18–Revenue, IFRIC 13–Customer
Loyalty Programmes, IFRIC 15–Agreements for the Construction of Real Estate, IFRIC 18–Transfers of Assets from
Customers and SIC 31–Revenue–Barter Transactions involving Advertising Services. The IASB has voted to publish
an Exposure Draft proposing a one-year deferral of the effective date of the revenue Standard to 1 January 2018.
The reason for deferring the effective date is that the IASB is planning to issue an Exposure Draft with proposed
clarifications to the Standard, stemming from the joint Transition Resource Group (TRG) meetings, as well as the desire
to keep the effective date of the IASB’s and the FASB’s revenue Standards aligned. Earlier adoption is permitted. IFRS
15 is subject to endorsement by the European Union.
IFRS 16, Leases
On 13 January 2016, the IASB issued IFRS 16, Leases, which provides lease accounting guidance. Under the new
guidance, lessees will be required to present right-of-use assets and lease liabilities on the statement of financial
position. At the lease commencement date, a lessee is required to recognize a lease liability, which is the lessee's
discounted obligation to make lease payments arising from a lease, as well as a right of use asset, representing the
lessee's right to use, or control the use of, a specified asset for the lease term. IFRS 16 is effective for annual reporting
periods beginning on or after 1 January 2019, subject to endorsement by the European Union.
Earlier application is permitted for entities that apply IFRS 15, Revenue from Contracts with Customers, at or before
the initial application of IFRS 16.
The directors are currently reviewing the impact of the above-mentioned Standards and Interpretations and are yet to
conclude on whether any such standards will have a significant impact on the financial statements of the Group in the
year of initial application.
The other standards, interpretations and amendments issued by the IASB (of which some still subject to endorsement
by the European Union), but not yet effective are not expected to have a material impact on the Group’s future
consolidated financial statements.
Basis of consolidation
Adoption of the other standards and interpretations referred to above is not expected to have a material impact on the
results of the Company. Application of these standards may result in some changes in presentation of information
within the Company’s financial statements.
The Group financial statements consolidate those of the parent Company and all of its subsidiaries. The parent controls
a subsidiary if it has power over the investee to significantly direct the activities, exposure, or rights, to variable returns
from its involvement with the investee, and the ability to use its power over the investee to affect the amount of the
investor’s returns. All subsidiaries have a reporting date of 31 December.
All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains
and losses on transactions between Group companies. Where unrealised losses on intra-group asset sales are
reversed on consolidation, the underlying asset is also tested for impairment from a Group perspective. Amounts
reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with
the accounting policies adopted by the Group.
The loss and other comprehensive income of Midatech Pharma US, Inc. (formerly DARA Biosciences, Inc) acquired during the
year are recognised from the effective date of acquisition i.e. 4 December 2015. Similarly the loss and other comprehensive
income of Zuplenz® acquired as a business by Midatech Pharma plc is recognised from the 24 December 2015.
The consolidated financial statements consist of the results of the following entities:
Entity
Midatech Pharma plc
Midatech Limited
Midatech Pharma (Espana) SL (formerly Midatech Biogune SL)
Midatech Andalucia SL
PharMida AG
Midatech Pharma (Wales) Limited (formerly Q Chip Limited)
Midatech Pharma US, Inc. (formerly DARA Biosciences, Inc.)
Dara Theraputics, Inc.
Midatech Pharma Pty
Summary description
Ultimate holding company
Trading company
Trading company
Dormant
Trading company
Trading company
Trading company
Dormant
Trading Company
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 38 • Midatech Pharma plc • Annual Report & Accounts 2015
1 ACCOUNTING POLICIES CONTINUED
Revenue
The Group’s income streams include milestone income from research and development contracts and the sale of
goods. Milestone income is recognised as revenue in the accounting period in which the milestones are achieved.
Milestones are agreed on a project by project basis and will be evidenced by set deliverables.
Revenue from the sales of goods by Midatech Pharma US, Inc. is recognised when the significant risks and rewards of
ownership are transferred to the buyer and it is probable the previously agreed upon payment will be received. These
criteria are considered to be met when the goods are delivered to the buyer.
Sales to wholesalers provide for selling prices that are fixed on the date of sale, although Midatech Pharma US, Inc.
offers certain discounts to group purchasing organisations and governmental programs. The wholesalers take title to
the product, bear the risk and rewards and have ownership of the inventory. The Group has sufficient experience with
their material wholesaler distribution channel to reasonably estimate product returns from its wholesalers while the
wholesalers are still holding inventory.
Grant revenue
Where grant income is received which is not a direct re-imbursement of related costs and at the point at which the
conditions have been met for recognition as income, these have been shown within grant revenue.
Government grants and government loans
Where government grants are received as a re-imbursement of directly related costs they are credited to research and
development expense in the same period as the expenditure towards which they are intended to contribute.
The Group receives government loans that have a below-market rate of interest. These loans are recognised and
measured in accordance with IAS 39. The benefit of the below-market rate of interest is measured as the difference
between the initial carrying value of the loan discounted at a market rate of interest and the proceeds received.
The difference is held within deferred revenue as a government grant and is released as a credit to research and
development expense in line with the expenditure to which it relates. In a situation where the proceeds were invested in
plant and equipment, the deferred revenue is credited to research and development within the income statement in line
with the depreciation of the acquired asset.
Business combinations and externally acquired intangible assets
Business combinations are accounted for using the acquisition method at the acquisition date, which is the date
at which the Group obtains control over the entity. The cost of an acquisition is measured as the amount of the
consideration transferred to the seller, measured at the acquisition date fair value, and the amount of any non-
controlling interest in the acquiree. The Group measures goodwill initially at cost at the acquisition date, being:
• the fair value of the consideration transferred to the seller, plus
• the amount of any non-controlling interest in the acquiree, plus
• if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree re-
measured at the acquisition date, less
• the fair value of the net identifiable assets acquired and assumed liabilities
Acquisition costs incurred are expensed and included in administrative costs. Any contingent consideration to be
transferred by the acquirer is recognised at fair value at the acquisition date. Subsequent changes to the fair value
of the contingent consideration, whether it is an asset or liability, will be recognised either as a profit or loss or as a
change to other comprehensive income. If the contingent consideration is classified as equity, it is not re-measured.
An intangible asset, which is an identifiable non-monetary asset without physical substance, is recognised to the extent
that it is probable that the expected future economic benefits attributable to the asset will flow to the Group and that
its cost can be measured reliably. The asset is deemed to be identifiable when it is separable or when it arises from
contractual or other legal rights.
Notes forming part of the financial statements continuedfor the year ended 31 December 2015 Midatech Pharma plc • Annual Report & Accounts 2015 • 39
Externally acquired intangible assets other than goodwill are initially recognised at cost and subsequently amortised on
a straight line basis over their useful economic lives where they are in use. The amortisation expense is included within
the administrative cost in the consolidated statement of comprehensive income. Goodwill is stated at cost less any
accumulated impairment losses.
The amounts ascribed to intangibles recognised on business combinations are arrived at by using appropriate valuation
techniques (see section related to critical estimates and judgements below).
In-process research and development (IPRD) programmes acquired in business combinations are recognised as assets
even if subsequent expenditure is written off because the criteria specified in the policy for development costs below
are not met. IPRD is subject to annual impairment testing until the completion or abandonment of the related project.
No further costs are capitalised in respect of this IPRD unless they meet the criteria for research and development
capitalisation as set out below.
As per IFRS 3, once the research and development of each defined project is completed, the carrying value of the acquired
IPRD is reclassified as a finite-lived asset and amortised over its useful life.
Product and marketing rights acquired in business combinations are recognised as assets and are amortised over their
useful life. Under the terms of various licenses, the Group holds the US rights to sell three products approved by the
Food and Drug Administration, Zuplenz®, Oravig® and Soltamox®.
The significant intangibles recognised by the Group and their useful economic lives are as follows:
Goodwill
IPRD
– Indefinite life
– In process, not yet amortising
IT and website costs
– 4 years
Product and marketing rights
– Between 2 and 13 years
The useful economic life of IPRD will be determined when the in-process research projects are completed.
Internally generated intangible assets (development costs)
Expenditure on the research phase of an internal project is recognised as an expense in the period in which it is incurred.
Development costs incurred on specific projects are capitalised when all the following conditions are satisfied:
• Completion of the asset is technically feasible so that it will be available for use or sale.
• The Group intends to complete the asset and use or sell it.
• The Group has the ability to use or sell the asset and the asset will generate probable future economic benefits (over
and above cost).
• There are adequate technical, financial and other resources to complete the development and to use or sell
the asset.
• The expenditure attributable to the asset during its development can be measured reliably.
Judgement is applied when deciding whether the recognition criteria are met. Judgements are based on the
information available. In addition, all internal activities related to the research and development of new projects are
continuously monitored by the Directors. The Directors consider that the criteria to capitalise development expenditure
are not met for a product prior to that product receiving regulatory approval in at least one country.
Development expenditure not satisfying the above criteria, and expenditure on the research phase of internal projects
are included in research and development costs recognised in the Consolidated Statement of Comprehensive Income
as incurred. No projects have yet reached the point of capitalisation.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 40 • Midatech Pharma plc • Annual Report & Accounts 2015
1 ACCOUNTING POLICIES CONTINUED
Impairment of non-financial assets
Assets that have an indefinite useful life, for example goodwill, or intangible assets not ready for use, such as IPRD,
are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not
be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.
An impairment charge of £1.8m was recognised in 2014 against the IPRD of Midatech Pharma (Wales) Limited cash
generating unit.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash flows (cash-generating units). The Group at 31 December 2015 had two cash generating units
(2014: One, 2013: None), see note 14. Non-financial assets other than goodwill that suffered impairment are reviewed
for possible reversal of impairment at each reporting date.
Impairment charges are included in profit or loss, except, where applicable, to the extent they reverse gains previously
recognised in other comprehensive income. An impairment loss recognised for goodwill is not reversed.
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.
Joint arrangements
The Group is a party to a joint arrangement when there is a contractual arrangement that confers joint control over the
relevant activities of the arrangement to the Group and at least one other party. Joint control is assessed under the
same principles as control over subsidiaries.
The Group classifies its interests in joint arrangements as either:
• Joint ventures: where the Group has rights to only the net assets of the joint arrangement.
• Joint operations: where the Group has both the rights to assets and obligations for the liabilities of the joint arrangement.
In assessing the classification of interests in joint arrangements, the Group considers:
• The structure of the joint arrangement.
• The legal form of joint arrangements structured through a separate vehicle.
• The contractual terms of the joint arrangement agreement.
• Any other facts and circumstances (including any other contractual arrangements).
The Group accounts for its interests in joint ventures using the equity method. The equity accounted joint venture is
highly immaterial with a profit and loss impact of only £Nil during 2015 (2014: £12k, 2013: £67k).
Any premium paid for an investment in a joint venture above the fair value of the Group's share of the identifiable assets,
liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the investment in joint
venture. Where there is objective evidence that the investment in a joint venture has been impaired the carrying amount
of the investment is tested for impairment in the same way as other non-financial assets.
Amounts received under collaborative joint agreements, representing contributions to the Group’s research and
development programmes, are recognised as a credit against research and development expense in the period over
which the related costs are incurred. All costs related to these collaborative agreements are recorded as research and
development expenditure.
The Group accounts for its interests in joint operations by recognising its share of assets, liabilities, revenues and
expenses in accordance with its contractually conferred rights and obligations.
Notes forming part of the financial statements continuedfor the year ended 31 December 2015 Midatech Pharma plc • Annual Report & Accounts 2015 • 41
Foreign currency
Transactions entered into by subsidiaries entities in a currency other than the currency of the primary economic
environment, in which they operate, are recorded at the rates ruling when the transactions occur. Foreign currency
monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on
the retranslation of unsettled monetary assets and liabilities are recognised immediately in profit or loss.
The functional currency of the Company is Pounds Sterling, and the reporting currency is also Pounds Sterling. Foreign
subsidiaries use the local currencies of the country where they operate. On consolidation, the results of overseas
operations are translated into Pounds Sterling at rates approximating to those ruling when the transactions took place.
All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are
translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at
opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income and
accumulated in the foreign exchange reserve.
Exchange differences recognised in the profit or loss of Group entities on the translation of long-term monetary
items forming part of the Group’s net investment in the overseas operation concerned are reclassified to other
comprehensive income and accumulated in the foreign exchange reserve on consolidation.
On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve
relating to that operation up to the date of disposal are transferred to the consolidated statement of comprehensive
income as part of the profit or loss on disposal.
Financial assets
The Group does not have any financial assets which it would classify as fair value through profit or loss, available for
sale or held to maturity. Therefore, all financial assets are classed as loans and receivables as defined below.
Loans and receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but
also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction
costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using
the effective interest rate method, less provision for impairment.
Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the
part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the
amounts due under the terms, the amount of such a provision being the difference between the net carrying amount
and the present value of the future expected cash flows associated with the impaired receivable.
For trade receivables, which are reported net such provisions are recorded in a separate allowance account with the
loss being recognised within administrative expenses in the consolidated statement of comprehensive income. On
confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against
the associated provision.
The Group’s loans and receivables comprise trade and other receivables and cash and cash equivalents in the
consolidated statement of financial position.
Cash and cash equivalents include cash in hand, deposits held at call with original maturities of three months or less.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 42 • Midatech Pharma plc • Annual Report & Accounts 2015
1 ACCOUNTING POLICIES CONTINUED
Financial liabilities
The Group classifies its financial liabilities into one of two categories, depending on the purpose for which the liability
was acquired.
Fair value through profit and loss (“FVTPL”)
The Group assumed fully vested warrants and share options on the acquisition of DARA Biosciences, Inc. The number
of ordinary shares to be issued when exercised is fixed, however the exercise prices are denominated in US Dollars
being different to the functional currency of the parent company. Therefore, the warrants and share options are
classified as equity settled derivative financial liabilities through the profit and loss account. The financial liabilities
were valued using the Black-Scholes option pricing model. Financial liabilities at FVTPL are stated at fair value, with
any gains or losses arising on re-measurement recognised in profit or loss. The net gain or loss recognised in profit or
loss incorporated any interest paid on the financial liability and is included in the ‘other gains and losses’ line item in
the income statement. Fair value is determined in the manner described in note 23.
Other financial liabilities include the following items:
• Borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of
the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective
interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on
the balance of the liability carried in the consolidated statement of financial position. Interest expense in this context
includes initial transaction costs and premium payable on redemption, as well as any interest or coupon payable
while the liability is outstanding.
• Government loans received on favourable terms below market rate are discounted at a market rate of interest. The
difference between the present value of the loan and the proceeds is held as a government grant within deferred
revenue and is released to research and development expenditure in line with when the asset or expenditure is
recognised in the income statement.
• Redeemable preference shares are classified as liabilities as they accrued fixed interest payable in cash when
distributable profits are available and confer no right to assets or equity distributions of the Company.
• Trade payables and other short-term monetary liabilities are initially recognised at fair value and subsequently
carried at amortised cost using the effective interest method.
Share capital
Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition
of a financial liability or financial asset. The Group has two classes of share in existence:
• Ordinary shares of £0.00005 each are classified as equity instruments;
• Deferred shares of £1 each are classified as equity instruments.
Retirement benefits: defined contribution schemes
Contributions to defined contribution pension schemes are charged to the consolidated statement of comprehensive
income in the year to which they relate.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event,
it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a
reliable estimate can be made of the amount of the obligation.
Share-based payments
The Group operates a number of equity-settled, share-based compensation plans, under which the entity receives
services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee
services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed
is determined by reference to the fair value of the options granted:
• including any market performance conditions (including the share price);
• excluding the impact of any service and non-market performance vesting conditions (for example, remaining an
employee of the entity over a specified time period); and
• including the impact of any non-vesting conditions (for example, the requirement for employees to save).
Notes forming part of the financial statements continuedfor the year ended 31 December 2015 Midatech Pharma plc • Annual Report & Accounts 2015 • 43
Non-market performance and service conditions are included in assumptions about the number of options that are
expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the
specified vesting conditions are to be satisfied. Where vesting conditions are accelerated on the occurrence of a
specified event, such as a change in control or initial public offering, such remaining unvested charge is accelerated to
the income statement.
In addition, in some circumstances employees may provide services in advance of the grant date and therefore the
grant date fair value is estimated for the purposes of recognising the expense during the period between service
commencement period and grant date.
At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest
based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the
income statement, with a corresponding adjustment to equity. When the options are exercised, the Company issues
new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital
(nominal value) and share premium.
Leased assets
Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the
Group (a “finance lease”), the asset is treated as if it had been purchased outright. The amount initially recognised as an
asset is the lower of the fair value of the leased property and the present value of the minimum lease payments payable
over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analysed
between capital and interest. The interest element is charged to the consolidated statement of comprehensive income
over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The
capital element reduces the balance owed to the lessor.
Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an
“operating lease”), the total rentals payable under the lease are charged to the consolidated statement of
comprehensive income on a straight-line basis over the lease term. The aggregate benefit of lease incentives is
recognised as a reduction of the rental expense over the lease term on a straight-line basis.
Deferred taxation
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated
statement of financial position differs from its tax base, except for differences arising on:
• the initial recognition of goodwill;
• the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of
the transaction affects neither accounting or 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 profit 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
reporting date and are expected to apply when the deferred tax assets or liabilities are recovered or settled.
Shares to be issued
Deferred consideration shares of 299,624 Ordinary Shares were to be issued to the sellers of Midatech Pharma (Wales)
Limited in two tranches; 224,718 were issued on 8 December 2015 and 74,906 are to be issued on 30 June 2016 as
part consideration for the acquisition of 100% of the share capital. The number of shares will be revised downwards
following any warranty claims not considered as part of the purchase price.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 44 • Midatech Pharma plc • Annual Report & Accounts 2015
1 ACCOUNTING POLICIES CONTINUED
Property, plant and equipment
Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes
directly attributable costs.
Depreciation is provided on all items of property, plant and equipment so as to write off their carrying value over their
expected useful economic lives. It is provided at the following rates:
Fixtures and fittings
– 25% per annum straight line
Leasehold improvements
– 10% per annum straight line
Computer equipment
– 25% per annum straight line
Laboratory equipment
– 15% per annum straight line
Inventories
Inventories are stated at the lower of cost or net realisable value. Net realisable value is the market value. In evaluating
whether inventories are stated at the lower of cost or net realisable value, management considers such factors as the
amount of inventory on hand and in the distribution channel, estimated time required to sell such inventory, remaining
shelf life, and current and expected market conditions, including levels of competition.
If net realisable value is lower than the carrying amount a write down provision is recognised for the amount by which
the carrying value exceeds its net realisable value.
2 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of these consolidated financial statements requires the Group to make estimates, assumptions and
judgments that can have a significant impact on the reported amounts of assets and liabilities, revenue and expenses
and related disclosure of contingent assets and liabilities, at the respective dates of our financial statements. The
Group bases our estimates, assumptions and judgments on historical experience and various other factors that we
believe to be reasonable under the circumstances. Actual results may differ from these estimates under different
assumptions or conditions. Management evaluates estimates, assumptions and judgments on a regular basis and
makes changes accordingly, and discusses critical accounting estimates with the Board of Directors.
The following are considered to be critical accounting policies because they are important to the portrayal of the
financial condition or results of operations of the Group and they require critical management estimates and judgments
about matters that are uncertain.
Business combinations
The Directors determine and allocate the purchase price of an acquired business to the assets acquired and liabilities
assumed as of the business combination date. The purchase price allocation process requires the use of significant
estimates and assumptions, including the estimated fair value of the acquired intangible assets.
While the Directors use their best estimates and assumptions as part of the purchase price allocation process to
accurately value assets acquired and liabilities assumed at the date of acquisition, our estimates and assumptions are
inherently uncertain and subject to refinement. Examples of critical estimates in valuing certain of the intangible assets
we have acquired or may acquire in the future include but are not limited to:
• future expected cash flows from in-process research and development;
• the fair value of the property, plant and equipment; and
• discount rates.
Judgement has also been applied in the distinction of an asset purchase and business combination with regard to the
Zuplenz® acquisition. Judgement was applied in assessing the inputs, processes and outputs relevant to the acquisition
to arrive at the conclusion that the treatment should be a business combination.
Notes forming part of the financial statements continuedfor the year ended 31 December 2015 Midatech Pharma plc • Annual Report & Accounts 2015 • 45
Impairment of goodwill and intangible assets not yet ready for use
Goodwill and intangibles not yet ready for use are tested for impairment at the cash generating unit level on an annual
basis at the year end and between annual tests if an event occurs or circumstances change that would more likely
than not reduce the fair value of a cash generating unit below its carrying value. These events or circumstances could
include a significant change in the business climate, legal factors, operating performance indicators, competition, or
sale or disposition of a significant portion of a reporting unit.
Application of the goodwill impairment test requires judgment, including the identification of cash generating units,
assignment of assets and liabilities to such units, assignment of goodwill to such units and determination of the fair
value of a unit and for intangible assets not yet ready for use the fair value of the asset. The fair value of each cash
generating unit or asset is estimated using the income approach, on a discounted cash flow methodology. This analysis
requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts,
estimation of the long-term rate of growth for the business, estimation of the useful life over which cash flows will
occur and determination of our weighted-average cost of capital. The carrying value of our goodwill was £10.8 million
and intangibles not yet ready for use was £12.5 million, respectively, as at 31 December 2015.
The estimates used to calculate the fair value of a cash generating unit change from year to year based on operating
results and market conditions. Changes in these estimates and assumptions could materially affect the determination
of fair value and goodwill impairment for each such unit. Based on the analysis performed, there was no impairment
in the year ended 31 December 2015 for goodwill or in-process research and development intangibles. An impairment
charge of £1.8m was recognised against the IPRD of the Midatech Pharma (Wales) Limited cash generating unit in the
year ended 31 December 2014.
Share-based payments
The Group accounts for share-based payment transactions for employees in accordance with IFRS 2 Share-based
payment, which requires us to measure the cost of employee services received in exchange for the options on our
ordinary shares, based on the fair value of the award on the grant date.
The Directors selected the Black-Scholes-Merton option pricing model as the most appropriate method for determining
the estimated fair value of our share-based awards without market conditions. For performance-based options that
include vesting conditions relating to the market performance of our ordinary shares, a Monte Carlo pricing model was
used in order to reflect the valuation impact of price hurdles that have to be met as conditions to vesting.
The resulting cost of an equity incentive award is recognised as expense over the requisite service period of the award,
which is usually the vesting period. Compensation expense is recognised over the vesting period using the straight-line
method and classified in the consolidated statements of comprehensive income.
The assumptions used for estimating fair value for share-based payment transactions are disclosed in Note 29 to our
consolidated financial statements and are estimated as follows:
• Volatility is estimated based on the average annualised volatility of a number of publicly traded peer companies in
the biotech sector.
• The estimated life of the option is estimated to be until the first exercise period, which is typically the month after the
option vests.
• The dividend return is estimated by reference to our historical dividend payments. Currently, this is estimated to be
zero as no dividend has been paid in the prior periods.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 46 • Midatech Pharma plc • Annual Report & Accounts 2015
2 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS CONTINUED
Income Taxes
Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be
available against which the losses can be utilised. Significant management judgment is required to determine the
amount of deferred tax assets that can be recognised based upon the likely timing and the level of future taxable profits
together with future tax planning strategies.
In 2015, there were £23.29 million (2014: £16.02 million, 2013: £13.00 million) of gross unutilised tax losses carried
forward. No deferred tax asset has been provided in respect of these losses as there was insufficient evidence to
support their recoverability in future periods.
Intangible asset recognition
Research and development costs are charged to expense as incurred and are typically made up of salaries and
benefits, clinical and preclinical activities, drug development and manufacturing costs, and third-party service fees,
including for clinical research organisations and investigative sites. Costs for certain development activities, such
as clinical trials, are periodically recognised based on an evaluation of the progress to completion of specific tasks
using data such as patient enrolment, clinical site activations, or information provided by vendors on their actual costs
incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from
the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued expenses.
3 SEGMENT INFORMATION
Revenue
Geographical analysis of revenue by destination of customer
United Kingdom
Turkey
Austria
United States
2015
£’000
–
73
25
677
775
2014
£’000
2013
£’000
25
–
–
–
25
–
–
–
147
147
One customer in respect of pipeline R&D accounts for 11% of revenue in 2015. In 2014 and 2013 no meaningful analysis
of sales could be made.
Following the acquisition of Midatech Pharma US, Inc., the Group contains two reportable operating segments as follows:
• Pipeline Research and Development: The Pipeline Research and Development (“Pipeline R&D”) segment seeks to
develop products using the Group’s nanomedicine and sustained release technology platforms.
• Commercial: The Commercial segment distributes and sells the Group’s commercial products. Midatech Pharma
US promotes the Group’s commercial, cancer supportive care products in the US market, in which the Group has
exclusive licenses to Soltamox®, Oravig® and Zuplenz®, an exclusive license to distribute, promote and market
Gelclair®, and a marketing agreement to co-promote two other products: Ferralet® 90 and Aquoral®. As and
when new products are introduced the Commercial segment will include revenues from the marketing of these
commercial products.
The accounting policies of the reportable segments are consistent with the Group’s accounting policies described in
note 1. Segment result represents the result of each segment without the allocation of head office expenses, interest
expense, interest income and tax.
No measures of segment assets and segment liabilities are reported to the Group’s Board of Directors in order to
assess performance and allocate resources. There is no intersegment activity and all revenue is generated from
external customers.
Notes forming part of the financial statements continuedfor the year ended 31 December 2015 Midatech Pharma plc • Annual Report & Accounts 2015 • 47
Both the UK and Spanish entities meet the aggregation criteria and have therefore been presented as a single
reportable segment under Pipeline R&D. The research and development activities involve the discovery and
development of pharmaceutical products in the field of nanomedicine and sustained release technology. The US
operating Company is engaged in the sale and marketing of cancer supportive care products and is reported under
the Commercial segment.
Segmented results for the year ended 31 December 2015
Pipeline R&D
£’000
Commercial
£’000
Unallocated
Costs(1) £’000
Consolidated
£’000
Revenue:
Grant revenue
Total revenue
Cost of sales
Research and development costs
Distribution costs, sales and marketing
Other administrative costs
Depreciation
Amortisation
Segmental result/operating loss
Finance income
Finance expense
Loss before tax
Taxation
Loss after tax
273
600
873
–
(5,811)
–
(3,983)
(500)
(5)
(9,426)
502
–
502
(70)
(109)
(374)
(218)
(1)
(231)
(501)
–
–
–
–
–
(2,991)
–
–
(2,991)
775
600
1,375
(70)
(5,920)
(374)
(7,192)
(501)
(236)
(12,918)
1,691
(5)
(11,232)
1,133
(10,099)
(1) Unallocated costs represent fees associated with the acquisitions of Midatch Pharma US, Inc. and Zuplenz® in 2015.
For the years ended 31 December 2014 and 2013 there was only one reportable segment being Pipeline R&D, the
unallocated costs in respect of 2014 and 2013 were £1.216m and nil.
Non-current assets by location of assets
Spain
United Kingdom
United States
2015
£’000
1,433
14,019
28,258
43,710
2014
£’000
1,578
13,457
–
15,035
2013
£’000
951
128
–
1,079
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 48 • Midatech Pharma plc • Annual Report & Accounts 2015
4 LOSS FROM OPERATIONS
Loss from operations is stated after charging/(crediting):
Changes in inventories of finished goods and work in progress
Depreciation of property, plant and equipment
Amortisation of intangible assets
Fees payable to the Company’s auditor for the audit of the parent Company
Fees payable to the Company’s subsidiary auditors for the audits
of the subsidiary accounts
Fees payable to the Company’s auditor for:
– Corporate finance services
– Tax compliance
– Tax advisory
– Other services
Operating lease expense:
– Property
– Plant and machinery
Foreign exchange (gain)/loss
IPO costs (in addition to fees payable to the Company’s auditor)
Acquisition costs (in addition to fees payable to the Company's auditor)
Loss on disposal of property, plant and equipment
Gain on bargain purchase
2015
£’000
2014
£’000
2013
£’000
62
501
236
100
115
438
–
7
36
246
86
(23)
–
2,553
–
(165)
–
321
1
21
31
281
14
14
6
97
57
(37)
763
172
89
–
–
246
1
6
25
–
1
1
1
194
–
28
–
–
–
–
US listing and IPO costs primarily relate to the professional fees incurred on the admission of the Group to Nasdaq in
December 2015 and the IPO on AIM in December 2014.
Acquisition costs relate to professional fees incurred on the acquisition of Midatech Pharma US, Inc. and Zuplenz® in
2015 and Midatech Pharma (Wales) Limited in 2014.
Notes forming part of the financial statements continuedfor the year ended 31 December 2015 Midatech Pharma plc • Annual Report & Accounts 2015 • 49
5 STAFF COSTS
Staff costs (including Directors) comprise:
Wages and salaries
Defined contribution pension cost (note 28)
Social security contributions and similar taxes
Share-based payment
2015
£’000
2014
£’000
2013
£’000
3,731
2,322
1,866
183
431
170
169
322
–
177
295
–
4,515
2,813
2,338
Employee numbers
The average number of staff employed by the Group during the financial year amounted to:
2015
£’000
2014
£’000
2013
£’000
Research and development
General and administration
Sales and marketing
45
22
7
74
28
10
–
38
Key management personnel compensation
Key management personnel are those persons having authority and responsibility for planning, directing and
controlling the activities of the Group, including the Directors of the Company listed on page 20, and the Chief
Operating Officer.
Wages and salaries
Defined contribution pension cost
Payments made to third parties
Social security contributions and similar taxes
Benefits in kind
Share-based payment
2015
£’000
2014
£’000
850
59
223
88
7
170
1,397
546
36
184
78
36
–
880
22
7
–
29
2013
£’000
561
55
–
72
7
–
695
Emoluments disclosed above include the following amounts in respect of the highest paid Director. Directors'
emoluments are disclosed on page 24.
Salary
Total pension and other post-employment benefit costs
Benefits in kind
2015
£’000
2014
£’000
2013
£’000
347
24
6
377
323
22
–
345
192
19
2
213
None of the Directors has exercised share options during the year.
During the year 2 Directors (2014: 2) participated in a defined contribution pension scheme.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 50 • Midatech Pharma plc • Annual Report & Accounts 2015
6 FINANCE INCOME AND EXPENSE
Finance income
Interest received on bank deposits
Gain on equity settled derivative financial liability
Total finance income
2015
£’000
53
1,638
1,691
2014
£’000
2013
£’000
8
–
8
1
–
1
The gain on the equity settled derivative financial liability has arisen due to the reduction in the share price between the
date of acquisition of Midatech Pharma US, Inc. and the year end.
Finance expense
Bank loans
Other loans
Interest on convertible loans
Non-equity preference shares
Total finance expense
7 TAXATION
Current tax credit
Current tax credited to the income statement
Taxation payable in respect of foreign subsidiary
Deferred tax credit
Reversal of temporary differences
Total current tax and tax credit
2015
£’000
2014
£’000
2013
£’000
2
3
–
–
5
2015
£’000
1,002
–
1,002
131
1,133
126
–
35
–
161
3
50
195
137
385
2014
£’000
2013
£’000
663
(5)
658
360
1,018
799
–
799
–
799
Notes forming part of the financial statements continuedfor the year ended 31 December 2015 Midatech Pharma plc • Annual Report & Accounts 2015 • 51
The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the
United Kingdom applied to losses for the year are as follows:
Loss before income tax
2015
£’000
As restated
2014
£’000
(11,232)
(9,840)
2013
£’000
(4,883)
Expected tax credit based on the standard rate of United Kingdom corporation
tax at the domestic rate of 20.25% (2014: 21.49%, 2013: 20%)
(2,274)
(2,115)
(977)
Fixed asset differences
Expenses not deductible for tax purposes
Adjustments to brought forward values
Additional deduction for R&D expenditure
Surrender of tax losses for R&D tax refund
Adjust deferred tax opening/closing rate
Income not taxable
Difference in capital allowances and depreciation/amortisation
Other short-term timing differences
Unrelieved tax losses and other deductions arising in the period
Deferred tax not recognised
Total tax credited to the income statement
–
185
(8)
(789)
406
–
–
–
–
(78)
1,425
(1,133)
12
385
33
(566)
419
59
(44)
–
–
(35)
834
(1,018)
4
67
–
(811)
653
–
–
5
23
237
–
(799)
The taxation credit arises on the enhanced research and development tax credits accrued for the respective periods.
The Finance Act 2013 includes provision for the main rate of corporation tax to reduce from 23% to 21% from 1 April
2014 and to 20% from 1 April 2015.
8 LOSS PER SHARE
Numerator
Total 2015
£’000
As restated
Total 2014
£’000
Total 2013
£’000
Loss used in basic EPS and diluted EPS
(10,099)
(8,822)
(4,084)
Denominator
Weighted average number of ordinary shares used in basic EPS
28,229,814
9,026,347
5,715,576
Basic and diluted loss per share – pence
(36p)
(98p)
(71p)
The 2013 loss per share is based on the Midatech Limited weighted average number of shares in issue which has been
restated to take account of the share division that took place on 28 November 2014 whereby each 0.001p Ordinary Share
was sub divided into two 0.0005p Ordinary Shares.
The 2014 loss per share before the prior year restatement (as discussed in note 11) was 82p.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 52 • Midatech Pharma plc • Annual Report & Accounts 2015
9 PROPERTY, PLANT AND EQUIPMENT
Fixtures
and fittings
£’000
Leasehold
improvements
£’000
Computer
equipment
£’000
Laboratory
equipment
£’000
Cost
At 1 January 2013
Additions
Exchange differences
At 31 December 2013
At 1 January 2014
Additions
Acquired through acquisition of subsidiary
Exchange differences
Disposals
At 31 December 2014
At 1 January 2015
Additions
Acquired through acquisition of subsidiary
Exchange differences
At 31 December 2015
Accumulated depreciation
At 1 January 2013
Charge for the year
Exchange differences
At 31 December 2013
At 1 January 2014
Charge for the year
Exchange differences
Disposals
At 31 December 2014
At 1 January 2015
Charge for the year
Exchange differences
At 31 December 2015
Net book value
At 31 December 2015
At 31 December 2014
At 31 December 2013
At 1 January 2013
716
16
16
748
748
524
3
(42)
(31)
1,202
1,202
183
–
(66)
1,319
321
102
7
430
430
102
(22)
(31)
479
479
3
(24)
458
861
723
318
395
746
15
6
767
767
259
19
(41)
(124)
880
880
283
–
(51)
1,112
400
86
9
495
495
67
(33)
(50)
479
479
282
(28)
733
379
401
272
346
147
15
3
165
165
18
15
(3)
–
195
195
173
–
(14)
354
94
22
2
118
118
24
(2)
–
140
140
48
(8)
180
174
55
47
53
161
1
–
162
162
229
207
–
(15)
583
583
385
16
(1)
983
79
36
–
115
115
128
3
–
246
246
168
(1)
413
570
337
47
82
Total
£’000
1,770
47
25
1,842
1,842
1,030
244
(86)
(170)
2,860
2,860
1,024
16
(132)
3,768
894
246
18
1,158
1,158
321
(54)
(81)
1,344
1,344
501
(61)
1,784
1,984
1,516
684
876
Included within the total net book value of tangible fixed assets is £266k (2014: £224k and 2013: £346k) in respect of assets
held under finance leases and similar hire purchase contracts. The depreciation charge for the year on these assets was
£26k (2014: £79k and 2013: £90k). These assets were held as security in respect of their finance lease obligations.
No other assets were held as security other than those on finance lease.
Notes forming part of the financial statements continuedfor the year ended 31 December 2015 Midatech Pharma plc • Annual Report & Accounts 2015 • 53
10 INTANGIBLE ASSETS
Cost
At 1 January 2013
Additions
At 31 December 2013
At 1 January 2014
Acquired in business combinations
At 31 December 2014
At 1 January 2015
Additions
Acquired in business combinations
Foreign exchange
At 31 December 2015
Accumulated amortisation
At 1 January 2013
Amortisation charge for the year
At 31 December 2013
At 1 January 2014
Amortisation charge for the year
Impairment charge for year
At 31 December 2014
Amortisation charge for the year
Foreign exchange
At 31 December 2015
Net book value
At 31 December 2015
At 31 December 2014 (restated)
At 31 December 2013
At 1 January 2013
(As restated)
In-process
research and
development
£’000
Product and
marketing
rights
£’000
(As
restated)
Goodwill
£’000
IT/Website
costs
£’000
–
–
–
–
12,600
12,600
12,600
–
–
–
12,600
–
–
–
–
–
1,800
1,800
–
–
1,800
10,800
10,800
–
–
–
–
–
–
–
–
–
–
17,989
332
18,321
–
–
–
–
–
–
–
235
8
243
18,078
–
–
–
–
–
–
–
2,291
2,291
2,291
–
9,952
213
12,456
–
–
–
–
–
–
–
–
–
–
12,456
2,291
–
–
9
3
12
12
–
12
12
3
–
–
15
7
1
8
8
1
–
9
1
–
10
5
3
4
2
Total
£’000
9
3
12
12
14,891
14,903
14,903
3
27,941
545
43,392
7
1
8
8
1
1,800
1,809
236
8
2,053
41,339
13,094
4
2
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 54 • Midatech Pharma plc • Annual Report & Accounts 2015
10 INTANGIBLE ASSETS CONTINUED
The individual intangible assets, excluding goodwill, which are material to the financial statements are:
Midatech Pharma (Wales) Limited
acquired IPRD
Midatech Pharma US, Inc.,
product and marketing rights
Zuplenz® product and marketing rights
Carrying amount
Remaining amortisation period
2015
£’000
2014
£’000
2013
£’000
10,800
10,800
15,570
2,508
–
–
28,878
10,800
–
–
–
–
2015
(years)
n/a in
process
Between
2 and 5
13
2014
(years)
n/a in
process
–
–
2013
(years)
–
–
–
11 PRIOR YEAR – ACQUISITION OF Q CHIP LIMITED – REVISED PROVISIONAL VALUES AND RESTATEMENT
On 8 December 2014, the Group acquired 100% of the voting equity of Q Chip Limited and its subsidiaries, a UK
company principally involved in design and development of the Q-SpheraTM drug encapsulation and delivery system
and underpinning microsphere manufacturing technology. On 20 January 2015 Q Chip Limited changed its name to
Midatech Pharma (Wales) Limited. The principal reason for this acquisition was to strengthen the Group’s technology
and product portfolios, and thereby diversify risk through the following:
a) Add controlled-release technology to Midatech gold nanoparticle and portfolio
b) Expand the number of development projects
c)
Q Chip’s product portfolio offered Midatech a lower risk profile than Midatech’s own technology thereby mitigating
against potential future failure
Notes forming part of the financial statements continuedfor the year ended 31 December 2015
Midatech Pharma plc • Annual Report & Accounts 2015 • 55
Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are:
Identifiable intangible assets:
In-process research and development
14,100
(1,500)*
12,600
Provisional
fair value
£’000
Adjustments
to provisional
values
£’000
(As restated)
Final fair
value
£’000
Property, plant and equipment
Receivables and other debtors
Payables and other liabilities
Deferred tax
Cash
Total net assets
Equity instruments (5,077,122 ordinary shares)
Deferred Equity instruments (299,624 deferred
consideration shares held as shares to be issued)
Total consideration – non cash movement
244
314
(494)
(2,820)
115
11,459
13,556
800
14,356
–
–
–
2,106**
–
606
–
–
–
244
314
(494)
(714)
115
12,065
13,556
800
14,356
Goodwill on acquisition
2,897
(606)***
2,291
*
The fair value of the intangible fixed assets has reduced by £1.50m, with a corresponding increase in the cost of goodwill.
**
The deferred tax liability has reduced by £2.11m, due to the identification of tax losses available for offset and a reduction of the fair value
of the identifiable intangible fixed assets of £1.5m, with a corresponding reduction in goodwill.
*** The net reduction in goodwill is £0.61m.
The main factors leading to the recognition of goodwill are the presence of certain intangible assets, such as the
assembled workforce of the acquired entity and the expected synergies of the enlarged Group which do not qualify for
separate recognition.
The goodwill and intangible assets recognised will not attract tax deductions.
Furthermore, subsequent to the approval and filing of the 2014 annual accounts, the Board and management of the
Company became aware of circumstances that indicated that one of the intangible assets acquired with Midatech
Pharma (Wales) Limited had become impaired as a result of a condition that existed at 31 December 2014. This resulted
in the following impact on the 31 December 2014 financial statements:
– The impairment of £1.80m of IPRD intangible assets through the income statement (see note 10).
– The release of £0.36m deferred tax credit to the income statement (see note 7).
– The combined impact of the restatement reduced net assets by £1.44m.
As disclosed in the financial statements for the year ended 31 December 2014, the value of the identifiable net assets
of Midatech Pharma (Wales) Limited had only been determined on a provisional basis due to a valuation carried out
on certain assets not being finalised at the time the 2014 financial statements were issued. Had the valuation been
finalised the 2014 financial statements would have differed to those previously reported as follows:
The revenue and net loss included in the Consolidated Statement of Comprehensive Income since 8 December 2014
contributed by Midatech Pharma (Wales) Limited was nil and £0.3m respectively.
If the acquisition had occurred on 1 January 2014, group revenue would have been £0.73m and group loss for the period
would have been £11.01m.
The net cash inflow in the year in respect of acquisition comprised net cash acquired of £0.1m.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 56 • Midatech Pharma plc • Annual Report & Accounts 2015
12 ACQUISITION OF MIDATECH PHARMA US, INC.
On 4 December 2015, the Group acquired 100% of the voting equity of DARA BioSciences, Inc. whose principal activity
is the sale and marketing of a portfolio of cancer supportive care pharmaceutical products. At completion of that
transaction DARA BioSciences, Inc. was merged into a wholly owned subsidiary of Midatech Pharma PLC and the name
of the merged entity was changed to Midatech Pharma US, Inc. The principal reason for this acquisition was to acquire
commercial infrastructure and capability in the US market.
The revenue included in the consolidated statement of comprehensive income since 4 December 2015 contributed by
Midatech Pharma US, Inc was £502k. Midatech Pharma US, Inc contributed a net loss of £238k over the same period.
If the acquisition had occurred at 1 January 2015 Group revenue would have been £3.67m and the Group loss for the
period would have been £19.34m. Acquisition related costs of £2.77m were incurred in relation to this acquisition and are
included within (administrative expenses) within the consolidated statement of comprehensive income for the period.
The main factors leading to the recognition of goodwill are the presence of certain intangible assets, such as the
assembled workforce of the acquired entity, its established commercial infrastructure and the expected synergies of
the enlarged Group which do not qualify for separate recognition.
In addition to the consideration outlined below additional, cash consideration may become payable (up to a maximum
of £3.85m/$5.7m) if specified sales milestones are achieved for the years ended 31 December 2016 and 2017. These
milestones are not expected to be achieved and therefore the fair value is nil. However, should they be achieved then
any further payments are expected to be self-financed by incremental milestone-generated cash flow.
The goodwill and intangible assets recognised will not attract tax deductions.
Identifiable intangible assets:
Product and marketing rights
Property, plant and equipment
Receivables and other debtors
Stock
Payables and other liabilities
Deferred tax
Cash
Total net assets
Equity instruments (5,422,028 ordinary shares)
Deferred Equity instruments
– Share options*
– Warrants*
– Preference share redemption**
Total consideration
Goodwill on acquisition
*
The share options and the warrants were valued using the Black-Scholes model.
**
The preference share redemption was valued on a cash basis
The net cash inflow in the year in respect of the acquisition of the subsidiary comprised:
Cash paid on completion – preferred share redemption
Net cash acquired
Provisional
fair value
£’000
15,477
16
515
152
(4,150)
(6,191)
2,289
8,108
14,427
1,056
2,155
422
18,060
9,952
£’000
(422)
2,289
1,867
Notes forming part of the financial statements continuedfor the year ended 31 December 2015 Midatech Pharma plc • Annual Report & Accounts 2015 • 57
Assumption of DARA BioSciences, Inc. share options and warrants
At the time of completion of the merger with DARA BioSciences, Inc. there were a number of outstanding and
unexercised options and warrants over common stock in DARA. Under the terms of the merger these options and
warrants became exercisable for a number of Midatech ordinary shares equal to the product of (A) the number of
shares of DARA common stock that were issuable upon exercise of the stock option or warrant immediately prior to
the merger, multiplied by (B) a factor of 0.272, that being the Exchange Ratio defined in the merger agreement, rounded
down to the nearest whole number of Midatech ordinary shares.
The per share exercise price for each Midatech ordinary share issuable upon exercise of each stock option or warrant
will be equal to (C) the exercise price per share of DARA common stock at which the DARA stock option or warrant was
exercisable divided by (D) the Exchange Ratio of 0.272, rounded up to the nearest whole cent. All other terms, notably
including expiration dates, remained materially the same.
As at 31 December 2015 there were DARA options outstanding over 721,000 Midatech ordinary shares with a weighted
average exercise price of $7.62 per share, within a range of $2.54 to $770.59, and a weighted average remaining
contractual life of 8.5 years. The risk free rate ranged from 0.63% to 1.81%, volatility from 59% to 79% and the expected
life from 1.9 – 8.6 years. The exercise of all options would raise additional cash of $5.50m.
Also at the year-end there were DARA warrants outstanding over 3,034,437 Midatech ordinary shares with a weighted
average exercise price of $9.67 per share, within a range of $3.06 to $164.71, and a weighted average remaining
contractual life of 3.1 years. The risk free rate ranged from 0.44% to 1.63%, volatility from 59% to 79% and the expected
life from 0.1 – 7.0 years. The exercise of all warrants would raise additional cash of $29.33m.
The share options and warrants were valued using the Black-Scholes model for the purpose of calculating the
consideration payable for the DARA business. These options and warrants are treated as an equity settled derivative,
held at fair value through profit and loss, see note 22.
13 ACQUISITION OF ZUPLENZ®
On 24 December 2015, the Group acquired US sales and marketing rights to the product Zuplenz®, an FDA-approved,
marketed anti-emetic oral soluble film used in adult patients for the prevention of highly and moderately emetogenic
chemotherapy-induced nausea and vomiting, radiotherapy-induced nausea and vomiting and post-operative nausea
and vomiting. This acquisition was deemed to be a business combination following a review of the inputs, processes and
potential for a market participant to generate outputs using the assets and agreements acquired.
The goodwill recognised will not attract a tax deduction.
Identifiable intangible assets:
Product and marketing rights
Stock
Total net assets
Cash consideration
Contingent consideration
Total consideration
Negative goodwill on acquisition
Provisional
fair value
£’000
2,512
231
(2,743)
2,528
50
2,578
(165)
*
The contingent consideration relates to various milestone payments which are dependent on the quarterly sales achieved in calendar
years 2016 and 2017 and annual sales from 2018 to 2022 exceeding specified sales targets.
No revenue or costs were contributed by Zuplenz® in the year. Acquisition related costs of £218k were incurred in
relation to this acquisition and are included within administrative expenses within the consolidated statement of
comprehensive income for the period.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 58 • Midatech Pharma plc • Annual Report & Accounts 2015
13 ACQUISITION OF ZUPLENZ® CONTINUED
The negative goodwill of £165k is included within administrative costs in the consolidated statement of comprehensive
income. It arose due to the seller of Zuplenz® seeking to conclude the transaction as quickly as possible.
No revenue was included in the consolidated statement of comprehensive income since 24 December 2015 by Zuplenz®.
Zuplenz® contributed a net loss of £nil over the same period. We are unable to quantity the impact on group revenue
and group loss had the occurred on 1 January 2015 due to the seller of the product not providing separable
accounting records.
The net cash outflow in the year in respect of the business acquisition comprised:
Cash paid on completion
14 IMPAIRMENT TESTING
Midatech Pharma (Wales) Ltd
Details of goodwill and IPRD allocated to the acquired cash generating unit and the valuation basis is as follows:
£’000
2,528
Name
CGU – Midatech Pharma (Wales) Ltd
2015
£’000
10,800
2014
£000
10,800
2015
£’000
2,291
2014
£000
Valuation
basis
£’000
2,291
Value in use
IPRD carrying amount
Goodwill carrying amount
An impairment charge of £1.8m and a related £0.36m deferred tax credit was recorded in the Midatech Pharma Wales
Ltd CGU as a result of the curtailment of an agreement with a commercial partner post acquisition. The carrying value
of a component of IPRD, was reduced from £1.8m to nil. The resulting impairment charge was recorded in research and
development expenditure within the consolidated statement of comprehensive income in 2014.
The remaining assets of the cash generating unit were not identified as being materially different to the fair values
determined at the acquisition date on 8 December 2014. The IPRD was valued using 15-16 year risk adjusted cash flow
forecasts, in line with patent life, that have been approved by the Board. A period longer than 5 years is appropriate on
the basis that the investment is long-term and the development and commercialisation process is typically in excess
of 5 years.
The key assumptions used in the model include the following:
Assumptions
Pre-tax discount rate
Cumulative probability of success of projects
2015 CGU – Q Chip Limited
and subsidiaries
2014 CGU – Q Chip Limited
and subsidiaries
17.7-19.5%
46% to 69%
17.7-19.5%
23% to 57%
Notes forming part of the financial statements continuedfor the year ended 31 December 2015 Midatech Pharma plc • Annual Report & Accounts 2015 • 59
2015
If any one of the following changes were made to the above key assumptions, applied to all projects, the carrying value
and recoverable amount would be equal.
Pre-tax discount rate for all projects
Cumulative probability of success of all projects
2014
2015 CGU – Q Chip Limited
and subsidiaries
Increase to 23.9%
44%
The value in use calculations used to value the acquired intangibles and appraise the remaining carrying value of the
intangibles at 31 December 2014 were materially the same. This is because of the impairment test date and acquisition
date being only 23 days apart. Any increase in the discount rate or decrease in the probability of success of projects
stated above would result in an impairment.
Midatech Pharma US, Inc
Details of goodwill and intangibles allocated to the acquired cash generating unit and the valuation basis is as follows:
Name
Goodwill
carrying
amount 2015
£000
Product and
marketing
rights carrying
amount 2015
£000 Valuation basis
CGU – Midatech Pharma US, Inc
9,952
15,477
Value in use
The remaining assets of the cash generating unit were not identified as being materially different to the fair values
determined at the acquisition date on 4 December 2015. The IPRD was independently valued using a 10-year risk
adjusted cash flow forecasts, in line with patent life, that have been approved by the Board. Cash flows were modelled
going forward until the point where cash flows on a present value basis reduce to a minimal amount.
The key assumptions used in the model include the following:
Assumptions
Pre-tax discount rate
2015
CGU – Midatech Pharma US, Inc
23.2%
The value in use calculations used to value the acquired intangibles and appraise the remaining carrying value of the
intangibles at 4 December 2015 were materially the same. This is because of the impairment test date and acquisition
date being only 27 days apart and no event occurred during that period that would lead to a revision in the underlying
assumptions of the forecast.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 60 • Midatech Pharma plc • Annual Report & Accounts 2015
15 SUBSIDIARIES
The subsidiaries of Midatech Pharma plc, all of which are 100% owned and have been included in these financial
statements in accordance with the details set out in the basis of preparation and basis of consolidation note 1, are
as follows:
Name
Country of
incorporation
Nature of
Business
Midatech Limited
United Kingdom
Trading company
Midatech Pharma (Espana) SL
Midatech Andalucia SL
Spain
Spain
Trading company
Dormant
PharMida AG
Switzerland
Trading company
Midatech Pharma (Wales) Limited
United Kingdom
Trading company
Midatech Pharma US, Inc
Dara Therapeutics, Inc.
USA
USA
Trading company
Dormant
Midatech Pharma Pty
Australia
Trading company
Notes
(a)
(b)
(c)
(d)
(e)
Notes:
(a) Midatech Biogune SL was renamed Midatech Pharma (Espana) Limited on 16 April 2015.
(b) PharMida AG became dormant in January 2016.
(c) Q Chip Limited was renamed Midatech Pharma (Wales) Limited on 23 January 2015.
(d)
DARA Bio Sciences, Inc. was acquired on 4 December 2015 through a merger with a specially incorporated subsidiary
of Midatech Pharma plc. This merger subsidiary was renamed Midatech Pharma US, Inc. on 4 December 2015.
(e) Midatech Pharma Pty was incorporated on 16 February 2015.
16 JOINT ARRANGEMENTS
Name
Syntara LLC
Country of
incorporation
Nature of business
Type of arrangement
USA
Dormant
Joint venture
MidaSol Therapeutics GP
Cayman Islands
Research and development partner
Joint operation
The Group has a 50% (2014: 50%) interest in two joint arrangements: Syntara LLC and MidaSol Therapeutics. The
primary activity of these joint arrangements was to provide the partners with collaborative research and development
on drug delivery systems in the market, which is in line with the Group’s strategy to develop a safe and effective drug
delivery system.
Syntara LLC is a dormant joint venture where the Group has joint control over the separate legal entity. The Group
equity accounts for its interests in this arrangement; the results are immaterial to the financial statements.
MidaSol Therapeutics has a separate legal entity however no costs or revenues pass through it. The Group and its
collaborative partner incur costs in respect of research and development and periodically agree on a contribution from
either side to ensure that both parties have incurred 50% of the total costs. Contributions from their research partner
are netted against the costs to which they relate within research and development and the arrangement is accounted
for as a joint operation.
Research and development spend on MidaSol Therapeutics
Year-end receivable due from joint operation partner
2015
£’000
776
219
2014
£’000
248
–
2013
£’000
542
146
Notes forming part of the financial statements continuedfor the year ended 31 December 2015 Midatech Pharma plc • Annual Report & Accounts 2015 • 61
17 TRADE AND OTHER RECEIVABLES
Trade receivables
Prepayments
Other receivables
Total trade and other receivables
Less: non-current portion (rental deposit and bond)
Current portion
2015
£’000
985
685
1,213
2,883
(387)
2,496
2014
£’000
189
49
649
887
(425)
462
2013
£’000
160
68
1,060
1,288
(379)
909
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 Consolidated Statement of Financial Position date is the fair value of each
class of receivable.
Book values approximate to fair value at 31 December 2015, 2014 and 2013.
18 CASH AND CASH EQUIVALENTS AND CASH FLOW SUPPORTING NOTES
Cash at bank available on demand
Significant non-cash transactions are as follows:
2015
£’000
16,175
2014
£’000
30,325
2013
£’000
2,387
2015
£’000
2014
£’000
2013
£’000
Financing activities
Conversion of convertible local notes into equity
–
–
3,255
Share issues net of costs – cash transactions
Funds raised on the Initial Public Offering
Costs of raising funds on Initial Public Offering/listing
Issue of shares in Midatech Limited pre flotation
2015
£’000
–
–
–
–
2014
£’000
32,000
(1,350)
3,202
33,852
2013
£’000
–
–
5,797
5,797
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 62 • Midatech Pharma plc • Annual Report & Accounts 2015
19 INVENTORIES
Work in progress
Finished goods
Total inventories
20 TRADE AND OTHER PAYABLES
Current
Trade payables
Other payables
Accruals
Total financial liabilities, excluding loans and borrowings,
classified as financial liabilities measured at amortised cost
Tax and social security
Deferred revenue
Total trade and other payables
2015
£’000
230
229
459
2014
£’000
–
–
–
2013
£’000
–
–
–
2015
£’000
2014
£’000
2013
£’000
2,285
35
3,101
5,421
183
1,480
7,084
981
177
732
1,890
274
177
2,341
522
177
58
757
78
212
1,047
Book values approximate to fair value at 31 December 2015, 2014 and 2013.
All current trade and other payables are payable within 3 months of the period end date shown above.
Government grants in UK
The Group received development grant funding from the European Commission of £0.15m on 18 August 2014 and
£0.07m on 16 December 2014 under the Health Cooperation Work Programme of the 7th Framework Programme of
which £0.15m (2013: £0.21m) is recorded as deferred revenue. The collaborative project supported by this grant is part
of the EE-ASI European Research network.
Government grants/loans in Spain
Five tranches of government loans have been received by Midatech Pharma Espana SL (formerly Midatech Biogune
SL) for the finance of research, technical innovation and the construction of their laboratory. The loans are term
loans which carry an interest rate below the market rate, and are repayable over periods through to 2022. The loans
carry default interest rates in the event of scheduled repayments not being met. On initial recognition the loans are
discounted at a market rate of interest with the credit being classified as a grant within deferred revenue. The deferred
grant revenue is released to the consolidated statement of comprehensive income within research and development
costs in the period to which the expenditure is recognised.
The debt element of the government loans is designated within note 21 as borrowings, the gross contractual repayment
of the loans is disclosed in note 23.
Notes forming part of the financial statements continuedfor the year ended 31 December 2015 Midatech Pharma plc • Annual Report & Accounts 2015 • 63
2015
£’000
2014
£’000
2013
£’000
9
70
363
–
442
20
1,420
–
68
1,508
9
37
445
–
491
31
1,457
–
–
1,488
–
47
138
1,063
1,248
–
1,006
1,075
38
2,119
21 LOANS AND BORROWINGS
Current
Bank loans
Finance lease
Government and research loans
Preference share dividends payable
Total
Non-current
Bank loans
Government and research loans
Preference shares
Finance lease
Total
Book values approximate to fair value at 31 December 2015, 2014 and 2013.
Obligations under finance leases are secured by a fixed charge over the fixed assets to which they relate.
The Group had no undrawn committed borrowing facilities at any year end.
22 DERIVATIVE FINANCIAL LIABILITY – CURRENT
Equity settled derivative financial liability
On acquisition – 5 December 2015
Gain recognised in finance income within the
consolidated statement of comprehensive income
At 31 December
2015
£’000
1,573
3,211
(1,638)
1,573
2014
£’000
2013
£’000
–
–
–
–
–
–
–
–
Equity settled derivative financial liability is not a liability that is to be settled for cash. The Group assumed fully vested
warrants and share options on the acquisition of DARA Biosciences, Inc. The number of ordinary shares to be issued
when exercised is fixed, however the exercise prices are denominated in US Dollars being different to the functional
currency of the parent company. Therefore, the warrants and share options are classified as equity settled derivative
financial liabilities through the profit and loss account. The financial liabilities were valued using the Black-Scholes
option pricing model. Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re-
measurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporated any interest
paid on the financial liability and is included in the ‘other gains and losses’ line item in the income statement. Fair value
is determined in the manner described in note 23. A key input in the valuation of the instrument is the company share
price. The share price of the company reduced from £2.65 at the date of acquisition of DARA Biosciences, Inc. to £1.74 at
31 December 2015, resulting in a gain of £1.638m on re-measurement which has been credited to finance income.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 64 • Midatech Pharma plc • Annual Report & Accounts 2015
23 FINANCIAL INSTRUMENTS – RISK MANAGEMENT
The Group is exposed through its operations to the following financial risks:
• Credit risk
• Foreign exchange risk
• Liquidity risk
In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments.
This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to
measure them. The Board does not believe that its risk exposure to financial instruments, its objectives, policies and
processes for managing those risks or the methods used to measure them from previous periods unless otherwise
stated in this note has changed in the past year.
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:
• Trade and other receivables
• Cash and cash equivalents
• Trade and other payables
• Accruals
• Loans and borrowings
• Derivative financial liability
A summary of the financial instruments held by category is provided below:
Financial assets – loans and receivables
Cash and cash equivalents
Trade receivables
Other receivables
Total financial assets
Financial liabilities – amortised cost
Trade payables
Other payables
Accruals
Loans and borrowings
Total financial liabilities – amortised cost
Financial liabilities – fair value through profit and loss – current
Equity settled derivative financial liability
2015
£’000
16,175
985
1,213
18,373
2015
£’000
2,285
35
3,101
1,950
7,371
2015
£’000
1,573
2014
£’000
30,325
189
649
31,163
2014
£’000
981
177
732
1,979
3,869
2014
£’000
–
2013
£’000
2,387
160
1,060
3,607
2013
£’000
522
177
58
3,367
4,124
2013
£’000
–
Notes forming part of the financial statements continuedfor the year ended 31 December 2015 Midatech Pharma plc • Annual Report & Accounts 2015 • 65
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and,
whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes
that ensure the effective implementation of the objectives and policies to the Group’s Management.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting
the Group’s competitiveness and flexibility. Further details regarding these policies are set out below:
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by
valuation technique:
• Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities;
• Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are
observable, either directly or indirectly; and
• Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on
observable market data.
The fair value of the Group’s financial liability is measured at fair value on a recurring basis.
The following table gives information about how the fair value of this financial liability is determined:
Financial
liabilities
Fair value as
at 31/12/2015
Fair value
hierarchy
Valuation
technique(s)
and key input(s)
Significant
unobservable
input(s)
Equity settled
financial
derivative
liability
£1,573k
Level 3
Black-Scholes
option pricing
model
Volatility rates between
a range of 59% and
76% determined using
historical volatility of
comparable companies.
Expected life between
a range of 0.1 and 8.6
years determined using
the remaining life of the
share options.
Risk-free rate between
a range of 0.44% and
1.81% determined
using the expected
life assumptions.
Relationship
of unobservable
inputs to fair value
The higher the volatility
the higher the fair value.
The shorter the
expected life the
lower the fair value.
The higher the risk-
free rate the higher
the fair value.
If the above unobservable volatility input to the valuation model were 10% higher while all other variables were held
constant, the carrying amount of shares would increase by £273k.
If the above unobservable expected life input to the valuation model were 1 year shorter while all other variables were
held constant, the carrying amount of shares would decrease by £70k.
If the above unobservable risk free rate input to the valuation model were 10% higher while all other variables were
held constant, the carrying amount of shares would increase by £5k.
There were no transfers between Level 1 and 2 in the period.
The financial liability measured at fair value on Level 3 fair value measurement represents consideration relating to a
business combination.
The Group had no material financial instruments carried at fair value in the statement of financial position on
31 December 2014 or 31 December 2013.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 66 • Midatech Pharma plc • Annual Report & Accounts 2015
23 FINANCIAL INSTRUMENTS – RISK MANAGEMENT CONTINUED
General objectives, policies and processes continued
Credit risk
Credit risk is the risk of financial loss to the Group if a development partner or a counterparty to a financial instrument
fails to meet its contractual obligations. The Group is mainly exposed to credit risk from amounts due from
collaborative partners which is deemed to be low.
Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. For banks
and financial institutions, only independently rated parties with high credit status are accepted.
The Group does not enter into derivatives to manage credit risk.
Quantitative disclosures of the credit risk exposure in relation to financial assets are set out in note 17. This includes
details regarding trade and other receivables, which are neither past due nor impaired.
The total exposure to credit risk of the Group is equal to the total value of the financial assets held at each year end as
noted above.
Cash in bank
The Group is continually reviewing the credit risk associated with holding money on deposit in banks and seeks to
mitigate this risk by holding deposits with banks with high credit status.
Foreign exchange risk
Foreign exchange risk arises because the Group has a material operation located in Bilbao, Spain, and operations in
the US whose functional currencies are not the same as the functional currency of the Group. The Group’s net assets
arising from such overseas operations are exposed to currency risk resulting in gains or losses on retranslation into
sterling. Given the levels of materiality, the Group does not hedge its net investments in overseas operations as the cost
of doing so is disproportionate to the exposure.
Foreign exchange risk also arises when individual Group entities enter into transactions denominated in a currency
other than their functional currency; the Group’s transactions outside the UK to the US, Europe and Australia drive
foreign exchange movements where suppliers invoice in currency other than sterling. These transactions are not
hedged because the cost of doing so is disproportionate to the risk.
As of 31 December 2015, 2014 and 2013, the Group’s exposure to foreign exchange risk was not material, however, the
board will monitor the situation going forward.
Notes forming part of the financial statements continuedfor the year ended 31 December 2015 Midatech Pharma plc • Annual Report & Accounts 2015 • 67
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.
It is the Group’s aim to settle balances as they become due.
The Group’s current financial position is such that the Board does not consider there to be a short-term liquidity
risk however the Board will continue to monitor long-term cash projections in light of the development plan and will
consider raising funds as required to fund long-term development projects. Development expenditure can be curtailed
as necessary to preserve liquidity.
The following table sets out the contractual maturities (representing undiscounted contractual cash-flows) of
financial liabilities:
2015
Trade and other payables
Bank loans
Finance leases
Government research loans
Total
2014
Trade and other payables
Bank loans
Finance leases
Government research loans
Total
2013
Trade and other payables
Finance leases
Government research loans
Preference shares
Preference share dividends payable
Total
Up to
3 months
£’000
5,421
2
7
36
5,466
Up to
3 months
£’000
1,890
2
11
–
1,903
Between
3 and 12
months
£’000
Between
1 and 2
years
£’000
Between
2 and 5
years
£’000
Over
5 years
£’000
–
7
71
352
430
–
9
27
195
231
–
13
56
644
713
–
–
–
755
755
Between
3 and 12
months
£’000
Between
1 and 2
years
£’000
Between
2 and 5
years
£’000
Over
5 years
£’000
–
7
27
485
519
–
9
–
207
216
–
24
–
891
915
Up to
3 Months
£’000
Between
3 and 12
months
£’000
Between
1 and 2
years
£’000
Between
2 and 5
years
£’000
757
12
–
–
1,063
1,832
–
35
159
–
–
194
–
38
169
–
–
207
–
–
535
–
–
535
–
–
–
351
351
Over
5 years
£’000
–
–
445
1,075
–
1,520
More details which regard to the line items above are included in the respective notes:
• Trade and payables – Note 20
• Loans and borrowings – Note 21
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 68 • Midatech Pharma plc • Annual Report & Accounts 2015
23 FINANCIAL INSTRUMENTS – RISK MANAGEMENT CONTINUED
Capital risk management
The Group monitors capital which comprises all components of equity (i.e. share capital, share premium, foreign
exchange reserve and accumulated deficit).
The Group’s objectives when maintaining capital are:
• to safeguard the entity’s ability to continue as a going concern, and
• to have sufficient resource to take development projects forward towards commercialisation.
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 and government funding. 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.
There have been no changes to the Group’s objectives, policies and processes for managing capital and what the Group
manages as capital, unless otherwise stated in this note, since the past year.
24 DEFERRED TAX
Deferred tax is calculated in full on temporary differences under the liability method using tax rates applicable in the tax
jurisdictions where the tax asset or liability would arise.
The movement on the deferred tax account is as shown below:
Liability at 1 January 2015
Arising on business combination
Credited to income on impairment of IPRD
Credited to income statement
Foreign exchange gain
Liability at 31 December 2015
2015
£’000
354
6,191
–
(131)
133
6,547
(As restated)
2014
£’000
–
714
(360)
–
–
354
A deferred tax liability has arisen due to deferred tax on intangible assets acquired during the period. The liability
recognised on the 2014 acquisition was restated due to the availability of tax losses in the acquired entity which
qualifies for offset, see note 11.
An intangible asset was impaired in the restated financial statements for the year ended 31 December 2014 by £1.8m
and consequently a £0.36m credit was recognised in the income statement.
Notes forming part of the financial statements continuedfor the year ended 31 December 2015 Midatech Pharma plc • Annual Report & Accounts 2015 • 69
Unused tax losses carried forward, subject to agreement with local tax authorities, were as follows:
31 December 2013
31 December 2014 – Restated
31 December 2015
Gross
losses
£’000
13,004
16,017
23,286
Unrecognised
deferred tax
asset
£’000
2,601
3,203
4,191
With the exception of the £1.63m (2014: £1.81m) deferred tax asset which qualifies for offset against the deferred tax
liability arising on the acquisition of Midatech Pharma (Wales) Limited and the remaining potential deferred tax asset
has not been provided in these accounts due to uncertainty as to the whether the asset would be recovered.
Details of the deferred tax liability are as follows:
2015
Business Combinations
2014
Business Combinations
25 SHARE CAPITAL
Allotted and fully paid –
classified as equity
At 1 January
Asset
£'000
1,625
Liability
£'000
(8,172)
Net
£'000
(6,547)
1,806
(2,160)
(354)
2015
Number
2015
£
2014
Number
2014
£
2013
Number
2013
£
Ordinary shares of 0.005p each
33,467,504
1,673
27,794,258
1,390
2,889,229
Deferred shares of £1 each
1,000,001
1,000,001
1,000,001
1,000,001
–
C preference shares of 0.01p each
–
–
–
–
565,064
Total
1,001,674
1,001,391
2015
Number
2015
£
2014
Number
2014
£
2013
Number
289
–
57
346
2013
£
Allotted and fully paid up –
classified as liabilities
A 7.5% preference shares
of £1 each
B 15% preference shares
of £1 each
Total
–
–
–
–
–
–
–
–
–
–
1,000,000
1,000,000
75,000
75,000
1,075,000
In accordance with the Articles of Association for the Company adopted on 13 November 2014, the share capital of
the Company consists of an unlimited number of ordinary shares of nominal value 0.005 pence each. Ordinary and C
preference shares were recorded as equity.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 70 • Midatech Pharma plc • Annual Report & Accounts 2015
25 SHARE CAPITAL CONTINUED
Rights attaching to the shares prior to the incorporation of Midatech Pharma plc
Shares classified as equity
The holders of ordinary shares and C preference shares in the capital of the Company had the following rights and
ranked pari passu with one another:
(a) to receive notice of, to attend and to vote at all general meetings of the Company, in which case shareholders shall
have one vote for each share of which they are the holder.
(b) to receive such dividend as is declared by the Board on each share held.
In the event of a distribution of assets, the capital return would be distributed as follows:
(a) C preference shareholders to receive original issue price.
(b) A and B preference shareholders to receive an agreed amount per share as set out in the Company’s Articles.
(c) C preference and ordinary shareholders to receive remaining capital and rank pari passu.
Shares classified as liabilities
The A and B preference shares have a nominal value of £1 and have right to a fixed cumulative, preferential dividend at a
rate of 7.5% and 15% respectively, dividends ceased to accrue from 28 October 2013. Accrued dividends ranked equally
amongst A and B preference shares and were compounded at the end of each period. Preference dividends are ranked
before any other class of share. The preference dividends did not confer any further rights to participation in the profits
or assets of the Company. The preference shares only became redeemable on a listing or change of control. Preference
shareholders were entitled to attend and speak at general meetings of the Company but did not have the right of a vote.
A and B preference shares were categorised as liabilities and held at amortised cost until the right to a fixed dividend
ceased to accrue.
Notes forming part of the financial statements continuedfor the year ended 31 December 2015 Midatech Pharma plc • Annual Report & Accounts 2015 • 71
Rights attaching to the shares following the incorporation of Midatech Pharma plc
Shares classified as equity
The holders of ordinary shares in the capital of the Company have the following rights:
(a) to receive notice of, to attend and to vote at all general meetings of the Company, in which case shareholders
shall have one vote for each share of which he is the holder.
(b) to receive such dividend as is declared by the Board on each share held.
The holders of Deferred Shares in the capital of the Company:
(a) shall not be entitled to receive notice of or to attend or speak at any general meeting of the Company or to vote on
any resolution to be proposed at any general meeting of the Company;
(b) shall not be entitled to receive any dividend or other distribution of out of the profits of the Company.
In the event of a distribution of assets, the Deferred shareholders shall receive the nominal amount paid up on such
share after the holder of each ordinary share shall have received (in cash or specie) the amount paid up or credited as
paid up on such ordinary share together with an additional payment of £100 per share. The Company has the authority
to purchase the Deferred Shares and may require the holder of the Deferred Shares to sell them for a price not
exceeding 1p for all the Deferred Shares.
Type of
Share Issue
Ordinary
Shares
Number
A
Preference
Shares
Number
B
Preference
Shares
Number
C
Preference
Shares
Number
Share
Price
£
Total
consideration
£’000
Date of Issue
2013
As at 1 January 2013
Brought forward
2,457,493
1,000,000
75,000
11 February 2013
Convertible loan
234,196
21 February 2013
Subscription option
16,489
27 February 2013
Subscription option
133,808
30 April 2013
10 May 2013
03 June 2013
18 June 2013
04 July 2013
15 July 2013
Subscription option
Subscription option
Subscription option
Subscription option
5,474
4,806
962
5,715
Subscription option
14,286
Subscription option
05 August 2013
Subscription option
08 August 2013
Subscription option
26 September 2013
Subscription option
27 September 2013
Subscription option
05 December 2013
Convertible
05 December 2013
Share issue
5,715
2,857
1,428
3,000
3,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
144,552
420,512
–
8.38
13.70
8.38
13.70
13.70
13.70
17.50
17.50
17.50
17.50
17.50
17.50
17.50
8.95
8.81
Total 2013
2,889,229
1,000,000
75,000
565,064
–
1,963
226
1,120
75
66
13
100
250
100
50
25
53
53
1,294
3,705
9,093
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 72 • Midatech Pharma plc • Annual Report & Accounts 2015
25 SHARE CAPITAL CONTINUED
Date of Issue
2014
Type of
Share Issue
Ordinary
Shares
Number
A
Preference
Shares
Number
B
Preference
Shares
Number
C
Preference
Shares
Number
Deferred
Shares
Number
Share
Price
£
Total
consideration
£’000
As at 1 January 2014
2,889,229
1,000,000
75,000
565,064
30 January 2014
Equalisation round
19 April 2014
Subscription option
13 June 2014
Subscription option
4 September 2014
Rights issue
12 September 2014
Share redemption
39,853
244,881
8,250
105,314
–
–
–
–
–
–
–
–
–
–
–
–
–
511,738
(75,000)
–
Total pre-share for share
exchange – Midatech Limited 3,287,527
1,000,000
12 September 2014
Subscriber share –
Midatech Pharma plc
1
13 November 2014
Share for share exchange
3,287,527
1,000,000
13 November 2014
28 November 2014
Sub-division of
subscriber share
Warrant exchange
share issue
28 November 2014
Share conversion
28 November 2014
Share conversion
Total ordinary shares
pre-subdivision
28 November 2014
Share sub division
8 December 2014
Share issue on acquisition
of Q Chip Limited
8 December 2014
Public offering
9,999
628,356
(10,000)
1,076,802
4,992,685
9,985,370
5,077,122
11,985,019
–
–
–
–
–
–
–
8 December 2014
Share conversion
746,747
(1,000,000)
27,794,258
–
–
–
–
–
–
–
–
–
–
–
–
1,076,802
1,076,802
–
–
–
(1,076,802)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
–
–
–
–
1,000,000
1,000,001
–
–
0.15
0.15
5.13
–
1.0000
–
0.0001
0.0001
–
–
–
2.67
2.67
–
9,093
–
37
1
3,165
–
12,296
–
–
–
–
–
–
–
–
32,000
–
32,000
Type of
Share Issue
Ordinary
Shares
Number
A
Preference
Shares
Number
B
Preference
Shares
Number
C
Preference
Shares
Number
Deferred
Shares
Number
Share
Price
£
Total
consideration
£’000
Date of Issue
2015
As at 1 January 2015
24 April 2015
25 September 2015
Exercise of employee
share options
Exercise of employee
share options
4 December 2015
Share issue on acquisition
of DARA BioSciences, Inc.
23 December 2015
Deferred consideration re:
acquisition of Q Chip Limited
As at 31 December 2015
27,794,258
16,500
10,000
5,422,028
224,718
33,467,504
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,000,001
32,000
–
–
–
–
0.00005
0.00005
2.63
2.67
1,000,001
–
–
14,240
600
46,840
Notes forming part of the financial statements continuedfor the year ended 31 December 2015
Midatech Pharma plc • Annual Report & Accounts 2015 • 73
26 RESERVES
The following describes the nature and purpose of each reserve within equity:
Reserve
Share premium
Merger reserve
Description and purpose
Amount subscribed for share capital in excess of nominal value.
Represents the difference between the fair value and nominal value of shares issued on the
acquisition of subsidiary companies where the Company has elected to take advantage of
merger relief. This is added to the share premium of Midatech Limited prior to the merger as
set out in note 1.
Shares to be issued
Shares for which consideration has been received but which are not yet issued and
which form part of consideration in a business combination.
Foreign exchange reserve
Gains/losses arising on retranslating the net assets of overseas operations into sterling.
Accumulated deficit
All other net gains and losses and transactions with owners (e.g. dividends) not
recognised elsewhere.
27 LEASES
The Group had commitments under non-cancellable operating leases as set out below:
2015
Expiring In one year or less
Expiring Between one and five years
2014
Expiring in one year or less
Expiring between one and five years
2013
Expiring in one year or less
Expiring between one and five years
Land and
buildings
£’000
Other
£’000
313
410
723
150
159
309
48
50
98
1
2
3
79
–
79
67
56
123
28 RETIREMENT BENEFITS
The Group operates a defined contribution pension scheme for the benefit of its employees. The assets of the scheme
are administered by trustees in funds independent from those of the Group. The pension costs charged for each year
are listed below:
Defined contribution pension scheme
2015
£’000
183
2014
£’000
169
2013
£’000
177
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 74 • Midatech Pharma plc • Annual Report & Accounts 2015
29 SHARE-BASED PAYMENTS
Share Options
The Group has issued options over ordinary shares under the Midatech Limited 2008 unapproved share option scheme
and Midatech Limited 2013 approved Enterprise Incentive scheme. Exercise of an option is subject to continued
employment. All options were originally issued over shares in Midatech Ltd however they were reissued during the year
as options over shares in Midatech Pharma plc
Details of all share options granted under the Midatech Limited schemes are set out below:
Granted in
2015
Exercised in
2015
Forfeited in
2015
At
31 December
2015
Exercise
Price
Date of grant
31 December 2008
31 December 2008
1 April 2010
20 August 2010
13 September 2011
20 April 2012
3 April 2014
9 May 2014
30 June 2014
11 July 2014
At
1 January
2015
26,122
15,500
25,110
59,666
3,000
35,796
26,500
200,000
880,000
11,000
1,282,694
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(26,500)
–
–
–
–
–
–
(17,900)
–
–
–
–
–
(6,000)
26,122
15,500
25,110
41,766
3,000
35,796
–
200,000
880,000
5,000
(26,500)
(23,900)
1,232,294
Options exercisable at 31 December 2015
Weighted average exercise price of outstanding options at 31 December 2015
Weighted average exercise price of options exercised in 2015
Weighted average exercise price of options forfeited in 2015
Weighted average exercise price of options granted in 2015
Weighted average remaining contractual life of outstanding options at 31 December 2015
£1.425
£3.985
£4.00
£4.19
£4.19
£4.19
£0.075
£0.075
£0.075
£0.075
366,044
£0.502
£0.075
£4.19
n/a
7.8 years
Notes forming part of the financial statements continuedfor the year ended 31 December 2015 Midatech Pharma plc • Annual Report & Accounts 2015 • 75
At
1 January
2014
Granted in
2014
Exercised in
2014
Forfeited in
2014
At
31 December
2014
Exercise
Price
44,622
15,500
12,500
25,000
25,110
59,666
3,000
47,796
100,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
43,000
200,000
880,000
11,000
(16,500)
–
–
–
(18,500)
–
(12,500)
(25,000)
–
–
–
(12,000)
(100,000)
–
–
–
–
26,122
15,500
–
–
25,110
59,666
3,000
35,796
–
26,500
200,000
880,000
11,000
333,194
1,134,000
(16,500)
(168,000)
1,282,694
Options exercisable at 31 December 2014
Weighted average exercise price of outstanding options at 31 December 2014
Weighted average exercise price of options forfeited in 2014
Weighted average exercise price of options granted in 2014
Weighted average remaining contractual life of outstanding options at 31 December 2014
At
1 January
2013
Granted in
2013
Exercised in
2013
Forfeited in
2013
At
31 December
2013
Exercise
Price
46,222
15,500
25,000
12,500
25,000
25,110
59,666
3,000
47,796
–
259,794
–
–
–
–
–
–
–
–
–
100,000
100,000
–
–
–
–
–
–
–
–
–
–
–
(1,600)
–
(25,000)
–
–
–
–
–
–
–
(26,600)
44,622
15,500
–
12,500
25,000
25,110
59,666
3,000
47,796
100,000
333,194
Options exercisable at 31 December 2013
Weighted average exercise price of outstanding options at 31 December 2013
Weighted average exercise price of options forfeited in 2013
Weighted average exercise price of options granted in 2013
Weighted average remaining contractual life of outstanding options at 31 December 2013
Options granted in 2014 relate to the Midatech Limited 2013 approved Enterprise Incentive scheme.
Date of grant
31 December 2008
31 December 2008
1 September 2009
13 November 2009
1 April 2010
20 August 2010
13 September 2011
20 April 2012
1 May 2013
3 April 2014
9 May 2014
30 June 2014
11 July 2014
Date of grant
31 December 2008
31 December 2008
25 March 2009
1 September 2009
13 November 2009
1 April 2010
20 August 2010
13 September 2011
20 April 2012
1 May 2013
£1.425
£3.985
£3.985
£4.00
£4.00
£4.19
£4.19
£4.19
£6.85
£0.075
£0.075
£0.075
£0.075
125,847
£0.54
£5.43
£0.08
8.5 years
£1.425
£3.985
£3.985
£3.985
£4.00
£4.19
£4.19
£4.19
£4.19
£6.85
148,528
£4.57
£3.83
£6.85
6.0 years
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 76 • Midatech Pharma plc • Annual Report & Accounts 2015
Notes forming part of the financial statements continued
for the year ended 31 December 2015
29 SHARE-BASED PAYMENT CONTINUED
The 200,000 options issued on 9 May 2014 contained the following conditions:
• 25,000 vested immediately;
• 25,000 vest on 1 May 2015, a further 25,000 on 1 May 2016 and a further 25,000 on 1 May 2017;
• 50,000 vest when the ordinary price of a share reaches £13.70;
• 50,000 vest when the ordinary price of a share reaches £27.40; and
• On the event of an initial public offering all of the options vest immediately and have therefore vested.
The 880,000 and 11,000 share options granted on 9 May 2014 and 11 July 2014 only vest when the Company’s share price
achieves certain targets as follows:
• 50% vest when the share price reaches £5.31 per share;
• A further 25% vests when the share price reaches £13.72; and
• The remaining 25% when the share price reaches £18.86.
Otherwise the main vesting condition of all share options is that the Director or employee remain employed with the
Group as at the date of exercise or continues to provide consultancy services as at the date of exercise.
The following information is relevant in the determination of the fair value of options granted during the year 2014 under
the equity share-based remuneration schemes operated by the Group. No share options were granted by the Company
in 2015, however, a number of share options and warrants were assumed by the Company on the acquisition of Dara
BioSciences, Inc. (see note 12).
Number of options
Option pricing models used
Share price
Exercise price of options issued in year
Contractual life
Volatility
Expected dividend yield
Risk free rate
2014
1,134,000
Black-Scholes/Monte Carlo
£2.67*
7.5p
9–10 years
60%**
0%
1.51%
*
The share price used in the determination of the fair value of the options granted in 2014 was the price of ordinary shares issued at initial
public offering in December 2014.
** Volatility was calculated with reference to the historic share price volatility of comparable companies measured over a four-year period.
All other share options relate to the Midatech Limited 2008 unapproved share option scheme. 2013 comparative figures
have been restated to reflect the share split in that year.
On 13 November 2009 subscription options over 12,500 ordinary shares exercisable over a 5-year period were issued
at an exercise price of £8.00 per share. On 5 December 2013 the expiry date of part of this option over 9,375 ordinary
shares was extended to 13 November 2019.
On 15 June 2010 an option to subscribe for up to 133,808 ordinary shares was issued over a 3-year period. The option
was exercised in full on 27 February 2013 for a cash consideration of £1,121,311.
Midatech Pharma plc • Annual Report & Accounts 2015 • 77
Upon the issuance of convertible loan notes on 20 August 2010, subscription options over 1,282,813 ordinary shares
were issued as follows:
• A subscription option of 29,833 ordinary shares exercisable over 5 years at an exercise price of £8.38 per share.
On 5 December 2013 the expiry date of part of this option over 20,883 ordinary shares was extended to 20 August 2020.
• A subscription option of up to a maximum of 417,660 ordinary shares exercisable over 6 months from 19 December 2010
at an exercise price of £8.38 per share. On 19 June 2011, pursuant to the exercise of this option, 251,635 ordinary shares
of 0.01p each were issued for a cash consideration of £2.1 million.
• Two subscription options of up to a maximum of 417,660 ordinary shares each at an exercise price of £8.38 per share
exercisable on a “follow on” basis to match any exercise of the above option. Following the exercise of the above option,
the two options of 251,635 ordinary shares each were to be exercised by 19 December 2011. On 5 December 2011,
119,332 options were exercised and the remaining options over 383,938 shares were exercised on 19 December 2011.
• On 29 October 2012 the Company issued subscription options over 119,332 ordinary shares at an exercise price of
£8.38 per share and over 182,482 ordinary shares at an exercise price of £13.70 per share. Both options were valid
until 30 June 2013. On 31 January 2013 options over 16,489 ordinary shares were exercised for an aggregate cash
consideration of £225,899.
30 CAPITAL COMMITMENTS
The Group had no capital commitments at 31 December 2015, 31 December 2014 and 31 December 2013.
31 RELATED PARTY TRANSACTIONS
Details of Directors’ remuneration are given on page 24 and in note 5.
Transactions with Monosol RX, LLC
The Directors consider Monosol RX, LLC to be a related party by virtue of the fact that Monosol RX, LLC is a
shareholder of the Company and are a collaborative partner in the MidaSol Therapeutics joint operation.
During the period, £317k (2014: £273k, 2013: £542k) was receivable from Monosol RX, LLC for research services and
was credited to research and development expenditure. The year-end receivable due from Monsol RX LLC was £219k
(2014: Nil, 2013: £146k).
32 CONTINGENT LIABILITIES
The Group had no contingent liabilities at 31 December 2015, 31 December 2014 or 31 December 2015.
33 ULTIMATE CONTROLLING PARTY
The Directors do not consider that there is an ultimate controlling party.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 78 • Midatech Pharma plc • Annual Report & Accounts 2015
Company balance sheet
for the year ended 31 December 2015
Fixed assets
Intangible assets
Investments
Property, Plant & Equipment
Current assets
Inventories
Debtors
Cash at bank
Creditors: amounts due falling due within one year
Net current assets
Total assets less current liabilities
Capital and reserves
Called up share capital
Share premium account
Accumulated deficit
Total equity attributable to owners of the parent company
Note
2015
£’000
230
8,874
14,324
23,428
(3,331)
3
4
5
6
7
8
9
14
14
2014
£’000
–
1,051
29,599
30,650
(236)
2015
£’000
2,561
7,405
335
10,301
20,097
30,398
1,002
31,643
(2,247)
30,398
2014
£’000
1,001
–
–
1,001
30,414
31,415
1,001
31,643
(1,229)
31,415
The financial statements on pages 79 to 84 were approved and authorised for issue by the Board of Directors on
12 April 2016 and were signed on its behalf by:
Nick Robbins-Cherry
Chief Financial Officer
The notes on pages 79 to 84 form part of these financial statements.
Parent Company statement of changes in equity
for the year ended 31 December 2015
Midatech Pharma plc • Annual Report & Accounts 2015 • 79
At 1 January 2015
Loss for the year
Total comprehensive loss
Transactions with owners
Shares issued on exercise
of share options
Share option charge
Total contribution by and distributions to owners
At 31 December 2015
At 1 January 2014
Loss for the year
Total comprehensive loss
Transactions with owners
Share
capital
£’000
1,001
Share
Premium
£’000
Accumulated
deficit
£’000
31,643
(1,229)
–
–
1
–
1
–
–
–
–
–
(1,188)
(1,188)
–
170
170
Total
equity
£’000
31,415
(1,188)
(1,188)
1
170
171
1,002
31,643
(2,247)
30,398
–
–
–
–
–
–
–
–
(1,229)
(1,229)
(1,229)
(1,229)
Shares issued as consideration for a business combination –
8 December 2014
Total contribution by and distributions to owners
At 31 December 2014
1,001
1,001
1,001
31,643
31,643
31,643
–
(1,229)
(1,229)
32,644
32,644
31,415
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 80 • Midatech Pharma plc • Annual Report & Accounts 2015
Notes forming part of the Company financial statements
for the year ended 31 December 2015
1 ACCOUNTING POLICIES
Basis of preparation
Midatech Pharma plc is a Company incorporated in England & Wales under the Companies Act. The address of the
registered office is given on the contents page and the nature of the Group’s operations and its principal activities are
set out in the strategic report. The financial statements have been prepared in accordance with FRS 102, the Financial
Reporting Standard applicable in the United Kingdom and the Republic of Ireland ("FRS 102").
These financial statements are the first financial statements prepared under FRS 102. The preparation of financial
statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires Group
management to exercise judgement in applying the Group’s accounting policies.
Parent company disclosure exemptions
In preparing the separate financial statements of the parent company, advantage has been taken of the following
disclosure exemptions available in FRS 102:
• Only one reconciliation of the number of shares outstanding at the beginning and end of the period has been
presented as the reconciliations for the Group and the parent company would be identical;
• No cash flow statement has been presented for the parent company;
• Disclosures in respect of the parent company’s financial instruments and share-based payment arrangements have
not been presented as equivalent disclosures have been provided in respect of the Group as a whole; and
• No disclosure has been given for the aggregate remuneration of the key management personnel of the parent
company as their remuneration is included in the totals for the Group as a whole.
The following principal accounting policies have been applied:
Valuation of investments
Investments in subsidiaries are measured at cost less accumulated impairment. Where merger relief is applicable, the
cost of the investment in a subsidiary undertaking is measured at the nominal value of the shares issued together with
the fair value of any additional consideration paid. Costs of acquisition of investments are capitalised.
Intangible assets
Externally acquired intangible assets are initially recognised at cost and subsequently amortised on a straight
line basis over their useful economic lives where they are in use. The amortisation expense is included within the
administrative cost in the profit and loss account income.
The amounts ascribed to intangibles recognised on business combinations are arrived at by using appropriate valuation
techniques.
Goodwill
Goodwill represents the excess of the cost of a business combination over the fair value of the Group's share of the net
identifiable assets of the acquired business at the date of acquisition. Acquisition costs of a business are capitalised
within goodwill. Goodwill on acquisitions is included in ‘intangible assets'. Goodwill is carried at cost less accumulated
amortisation and accumulated impairment losses. Goodwill amortisation is calculated by applying the straight-line
method to its estimated useful life. If a reliable estimate cannot be made, the useful life of goodwill is presumed to be
5 years. Goodwill is being amortised to ‘administrative expenses’ over a period of 5 years.
Inventories
Inventories are stated at the lower of cost or net realisable value. Net realisable value is the market value. In evaluating
whether inventories are stated at the lower of cost or net realisable value, management considers such factors as the
amount of inventory on hand and in the distribution channel, estimated time required to sell such inventory, remaining
shelf life, and current and expected market conditions, including levels of competition.
If net realisable value is lower than the carrying amount a write down provision is recognised for the amount by which
the carrying value exceeds its net realisable value.
Midatech Pharma plc • Annual Report & Accounts 2015 • 81
Revenue
The income streams comprise milestone income from research and development contracts and the sale of goods.
Milestone income is recognised as revenue in the accounting period in which the milestones are achieved. Milestones
are agreed on a project by project basis and will be evidenced by set deliverables.
Impairment of goodwill and intangible assets
Where there is any indication that an asset may be impaired, the carrying value of the asset (or cash-generating unit
to which the asset has been allocated) is tested for impairment. An impairment loss is recognised for the amount by
which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's
(or CGUs) fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped
at the lowest levels for which there are separately identifiable cash flows (CGUs). Non-financial assets that have been
previously impaired are reviewed at each reporting date to assess whether there is any indication that the impairment
losses recognised in prior periods may no longer exist or may have decreased.
Product marketing rights acquired in business combinations are recognised as assets and are amortised over their
useful life.
Product and marketing rights
–
Between 2 and 7 years
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.
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.
Going concern
Accounting standards require the Directors to consider the appropriateness of the going concern basis when preparing
the financial statements. The Directors are of the opinion that they consider the going concern basis will remain
appropriate. The Directors have taken notice of the Financial Reporting Council guidance "Going Concern and Liquidity
Risk: Guidance for Directors of UK Companies 2010" which requires the reasons for this decision to be explained. The
Directors regard the going concern basis as remaining appropriate as the Group has adequate resources to continue
in operational existence for the foreseeable future. Thus the Directors continue to adopt the going concern basis of
accounting in preparing the annual financial statements.
Depreciation
Depreciation on assets is charged so as to allocate the cost of assets less their residual value over their estimated
useful lives, using the straight-line method. The estimated useful lives range as follows:
Leasehold Improvements
Computer Equipment and Software
Fixtures and Fittings
–
–
–
The term of the lease
4 years
4 years
The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted prospectively if
appropriate, if there is an indication of a significant change since the last reporting date.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised
within "other operating income or losses" in the statement of comprehensive income.
2 LOSS ATTRIBUTABLE TO SHAREHOLDERS
Under Section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own profit
and loss account. The loss for the financial period, of the holding Company, as approved by the Board, was £1.19m
(2014: £1.23m).
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 82 • Midatech Pharma plc • Annual Report & Accounts 2015
Notes forming part of the Company financial statements
for the year ended 31 December 2015 continued
3
INTANGIBLES
Cost
At 1 January 2015
Additions
At 31 December 2015
Amortisation
At 1 January 2015
Charge for year
At 31 December 2015
NBV
At 31 December 2015
Product and
marketing
rights
£'000
Goodwill
£'000
–
2,512
2,512
–
4
4
–
2,508
–
53
53
–
–
–
–
53
£165k of negative goodwill relating to the acquisition of Zuplenz® arose in the consolidated financial statements
(see note 13 of the of the consolidated financial statements). The treatment under FRS 102 is different due to the
capitalisation of acquisition costs of £218k.
4
INVESTMENTS
Brought forward 1 January
Additions
Total investments at 31 December
2015
£’000
1,001
6,404
7,405
Total
£'000
–
2,565
2,565
–
4
4
–
2,561
2014
£’000
–
1,001
1,001
At 31 December 2015 the Company held share capital in the following subsidiaries and joint arrangements:
Name
Country of incorporation
Nature of business
Proportion held
Notes
Midatech Pharma Wales Limited
United Kingdom
Midatech Limited
United Kingdom
Midatech Pharma (Espana) SL
Midatech Andalucia SL
Spain
Spain
PharMida AG
Switzerland
MidaSol Therapeutics GP
Cayman Islands
Syntara LLC
Midatech Pharma US, Inc
DARA Therapeutics, Inc.
Midatech Pharma Pty
United States
United States
United States
Australia
(a) All 100% owned via Midatech Limited.
(b) Joint venture, with 50% owned by Midatech Limited.
PharMida AG became dormant from January 2016.
Trading company
Trading company
Trading company
Dormant
Trading
Trading
Dormant
Trading
Dormant
Trading
100%
100%
100%
100%
100%
50%
50%
100%
100%
100%
(a)
(a)
(a)
(b)
(b)
Midatech Pharma plc • Annual Report & Accounts 2015 • 83
5 PROPERTY, PLANT AND EQUIPMENT
Fixtures
and fittings
£’000
Leasehold
improvements
£’000
Computer
equipment and
software
£’000
Cost
At 1 January 2015
Additions
At 31 December 2015
Depreciation
At 1 January 2015
Charge for year
At 31 December 2015
NBV
At 31 December 2015
6
INVENTORIES
Work in progress
7 DEBTORS
–
4
4
–
1
1
3
Trade Debtors
Amounts due from group companies
Other debtors
Prepayments
8 CREDITORS: AMOUNTS DUE FALLING DUE WITHIN ONE YEAR
Trade creditors
Amounts due to group companies
Accruals
Other creditors
Derivative financial liability
–
229
229
–
30
30
–
144
144
–
11
11
Total
£’000
–
377
377
–
42
42
199
133
335
2015
£’000
230
2015
£’000
172
8,161
276
265
8,874
2015
£’000
1,087
–
599
72
1,573
3,331
2014
£’000
–
2014
£’000
–
1,035
16
–
1,051
2014
£’000
92
130
14
–
–
236
Details of the derivative financial liability are provided in note 22 of the consolidated financial statements.
OverviewGovernanceStrategic ReportFinancial StatementsOther Information 84 • Midatech Pharma plc • Annual Report & Accounts 2015
Notes forming part of the Company financial statements
for the year ended 31 December 2015 continued
9 SHARE CAPITAL
Allotted and fully paid
Ordinary shares of 0.005p each
Deferred shares of £1 each
Total
2015
Number
2015
£’000
2014
Number
33,467,504
1,000,001
2
27,794,260
1,000
1,002
1,000,001
2014
£’000
1
1,000
1,001
Details of shares issued by the Company in the year are given in note 25 to the consolidated financial statements.
10 CAPITAL COMMITMENTS
The Company had no capital commitments at 31 December 2015 and 31 December 2014.
11 CONTINGENT LIABILITIES
The Company had no contingent liabilities at 31 December 2015 and 31 December 2014.
12 ULTIMATE CONTROLLING PARTY
There is not an ultimate controlling party.
13 FIRST TIME ADOPTION OF FRS 102
This is the first year that the company has prepared its financial statements in accordance with FRS 102, the Financial
Reporting Standard applicable in the United Kingdom and Republic of Ireland. The last financial statements prepared
in accordance with accounting standards previously applicable in the United Kingdom and Republic of Ireland were
for the year ended 31 December 2014. The date of transition to FRS 102 was 1 January 2014. There are no changes to
previously reported profit or loss and equity between the previous accounting framework and FRS 102.
14 RESERVES
The following describes the nature and purpose of each reserve within equity:
Reserve
Description and purpose
Share premium
Amount subscribed for share capital in excess of nominal value.
Accumulated deficit
All other net gains and losses and transactions with owners (e.g. dividends)
not recognised elsewhere.
Company information
Midatech Pharma plc • Annual Report & Accounts 2015 • 85
Directors
Rolf Stahel
James Phillips
Nicholas Robbins-Cherry
John Johnston
Michele Luzi
Pavlo Protopapa
Simon Turton
Sijmen de Vries
Secretary
Nicholas Robbins-Cherry
Registered office
65 Innovation Drive
Milton Park
Abingdon
Oxfordshire
OX14 4RQ
United Kingdom
Registered number
09216368
Auditor
BDO LLP
Kings Wharf
20–30 Kings Road
Reading
RG1 3EX
United Kingdom
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OverviewGovernanceStrategic ReportFinancial StatementsOther Information
MIDATECH PHARMA PLC
Registered office
65 Innovation Drive
Milton Park
Abingdon
Oxfordshire
OX14 4RQ
United Kingdom