Redx Pharma Plc Annual Report 2018

Plain-text annual report

ANNUAL REPORT For the year ended 30 September 2018 Registered number: 07368089 Contents Key Events & Results Chairman’s Statement Strategic Report Chief Executive’s Report Science Report – Oncology Science Report – Fibrosis Operational Review Principal Risks and Uncertainties Governance Introduction Board of Directors Directors’ Report Directors’ Responsibility Statement Corporate Governance Statement Directors’ Remuneration Report Independent Auditor’s Report Financial Statements 1 3 5 10 17 22 24 26 27 29 30 31 36 39 Consolidated Statement of Comprehensive Income 43 Consolidated Statement of Financial Position 44 Consolidated Statement of Changes in Equity 45 Consolidated Statement of Cash Flows 46 Notes to the Financial Statements 47 Company Statement of Financial Position 67 Company Statement of Changes in Equity 68 Notes to the Individual Financial Statements 69 Company Information 77 Key Events & Results Financial results Revenue: £0.1m Operating Expenditure: £10.6m R&D Expenditure: £5.7m Loss after tax: £8.8m Closing Cash: £6.5m Research & Development 6 February 2018 The ﬁ rst patient is dosed in Phase 1/2a of the Clinical trial of the oral Porcupine inhibitor RXC004. 29 March 2018 RXC004 Clinical trial is temporarily suspended. 22 March 2018 4 September 2018 The Group signs an option and license agreement with Deinove for it s NBTI anti-infective programme. The Group announces MHRA agreement in principal to restart the Phase 1/2a Clinical trial of RXC004. Corporate Post Year-end Events 14 November 2018 – RXC006 selected as Redx’s ﬁ rst development candidate in ﬁ brosis and now expects to be in clinical trials in 2020. 19 November 2018 – Announcement of appointment of new full time Chief Financial Ofﬁ cer, Dr James Mead, effective 1 February 2019 when current interim Chief Financial Ofﬁ cer will step down. 6 November 2017 – Following 5 months in Administration the share suspension from trading on AIM was lifted and a revised strategy announced under the leadership of a new Board of Directors comprising: Mr Iain Ross, Executive Chairman Mr Dominic Jackson, Chief Financial Ofﬁ cer Mr Peter Presland, Non-Executive Director, Chairman of the Audit, Risk & Disclosure Committee Dr Bernd Kirschbaum, Non-Executive Director, Chairman of Remuneration and Science Committees 22 January 2018 – Dr Andrew Saunders is appointed as Chief Medical Ofﬁ cer. 1 June 2018 – Following an extensive worldwide search Lisa Anson is appointed as Chief Executive Ofﬁ cer and Iain Ross reverts to the position of Non- Executive Chairman. Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 1 252658 Redx Pharma AR Cover-pp41_NEW.indd 1 252658 Redx Pharma AR Cover-pp41_NEW.indd 1 21/12/2018 08:49 21/12/2018 08:49 Iain G Ross Chairman of the Board of Directors “The ﬁ nancial year ending 30 September 2018 was a seminal year for the Group - lessons were learnt and action was taken.” 2 252658 Redx Pharma AR Cover-pp41_NEW.indd 2 252658 Redx Pharma AR Cover-pp41_NEW.indd 2 21/12/2018 08:49 21/12/2018 08:49 Chairman’s Statement Dear Shareholder The ﬁ nancial year ending 30 September 2018 was a seminal year for the Group - lessons were learnt and action was taken. New Leadership In November 2017 the Company emerged from Administration with a restructured Board and a new executive management team determined to re-build the Group on the basis of its proven world class scientiﬁ c capabilities. The Directors immediately embarked upon the search for, and recruitment of, a new CEO and in April 2018 we were pleased to announce the appointment of Lisa Anson, a high proﬁ le and experienced industry executive. Clear Strategy Since joining the Company in June 2018, Lisa Anson has provided the Redx team with ﬁ rm leadership and brought a sense of urgency, focus and realism. In a short period of time Lisa has met with the majority of stakeholders and third parties interested in the development of our scientiﬁ c programmes. Under her leadership the team in Alderley Park has been working tirelessly to prioritise and reﬁ ne our strategy to generate future sources of value. We now have a clear strategy focused on the development of novel medicines in oncology and ﬁ brotic diseases, whereby we will progress our current programmes to deliver clinical proof of concept, leverage our medicinal chemistry expertise to build our pipeline and thereafter aim to partner to drive further value. The Management goals are bold and ambitious and the team has the full support of the Board to execute a plan to fund, grow and develop the business over the next 12 months and thereby create sustainable shareholder value. Finance During the period under review, the Board and Management have continued to adopt a robust set of ﬁ nancial controls including a project based operating model and associated rolling short-term cash ﬂ ow forecasts to assist in the prioritisation of resources to projects resulting in greater transparency and project accountability. The team has delivered annualised cost savings of approximately £5.2m and has a cash runway into the second quarter of 2019. As a consequence, your Board is committed to strengthening the Group’s Balance Sheet in the short term and is in active discussions with shareholders, advisers, third party sector specialist investment groups and potential industry partners regarding funding and/or monetisation of early stage programme assets. Our CFO Dominic Jackson has done a sterling job overseeing our “ﬁ nancial health” over the last 12 months including the resolution of legacy issues post Administration. However, as originally planned Dominic will step down from the CFO role early next year and we are pleased to announce the appointment of a new full-time CFO with signiﬁ cant sector experience, Dr James Mead, effective 1 February 2019. On a personal basis and on behalf of the Board I would like to thank Dominic for his support and wish him well as he returns to the private equity sector. Strong Board and Governance The Directors continue to acknowledge the importance of high standards of corporate governance and I would refer you to the Chairman’s Corporate Governance Statement on page 31 of this report. Given the Group’s size and the constitution of the Board, the Directors have decided to adopt the principles set out in the QCA Corporate Governance Code for small and mid-sized companies published in April 2018 (‘‘QCA Code’’) in advance of the requirement to adopt the code under AIM rule 50. In addition, we continue to operate a robust framework of systems and controls to maintain high standards throughout the Group and Company and more details can be found in the Directors’ report. The Board believes that effective corporate governance assists us in the delivery of our corporate strategy, the sustainable generation of shareholder value and the safeguarding of our stakeholders’ long-term interests. Outlook The last twelve months have been challenging for all involved and as a result the Board has continued to focus upon total transparency and realism. I believe we have emerged as a stronger and more professional organisation whilst retaining a strong scientiﬁ c core and that the forthcoming year will be transformational. I look forward to an exciting future under Lisa’s leadership and on behalf of the Board, I would like to thank our employees for their hard work and dedication as well as our suppliers, business partners and shareholders for their continued support over the last year. (cid:1) Iain G Ross, Chairman of the Board of Directors Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 3 252658 Redx Pharma AR Cover-pp41_NEW.indd 3 252658 Redx Pharma AR Cover-pp41_NEW.indd 3 21/12/2018 08:49 21/12/2018 08:49 Lisa Anson Chief Executive Offi cer “Taken together our scientiﬁ c strength, our focused strategy, our new management team, and our streamlined organisation put us in a good position to deliver against our ambitions in the coming year.” 4 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR Cover-pp41_NEW.indd 4 252658 Redx Pharma AR Cover-pp41_NEW.indd 4 21/12/2018 08:49 21/12/2018 08:49 Chief Executive’s Report Strategic Report I am pleased to provide my ﬁ rst report as CEO of Redx Pharma Plc and to outline the progress we are making in creating high value drugs that treat signiﬁ cant unmet needs in cancer and ﬁ brosis. In my previous role, as President of AstraZeneca UK, I was part of a team that not only looked to develop, distribute and market innovative therapeutic products but also, where appropriate to partner, license or acquire products and technologies that would add value to patients, physicians and shareholders. The main reason I was attracted to join Redx is the scientiﬁ c strength of the Group. My initial view was that Redx was a Group whose unique capability in medicinal chemistry set it apart from many small biotech companies. I am conﬁ dent that despite the trials and tribulations of the previous twelve months the Group still has this core strength. On my arrival at the business on 1 June 2018, I led a detailed, systematic review of the business and its programmes and I met many stakeholders and advisers to gain their input and build a clear business plan. Five months into my new role, and having completed this review, my view remains the same; that the programmes and innovative science in our Group remain the foundation of its future success. Accordingly, in this report, as well as presenting the results for the period, I would like to lay out what I believe is a coherent strategy to build increasing shareholder value. I am excited about the challenge that lies before us and I am also very conﬁ dent that with the new management and the dedicated scientiﬁ c team coupled with the support of the Redx Board and shareholders we can deliver a very exciting future for this Group. Streamlined Organisation and new management team in place With the appointment of Dr Andrew Saunders (CMO) and Dr James Mead (CFO), combined with the experienced science leadership of Dr Richard Armer, I believe we have an ambitious and capable management team in place to lead the next stage of the organisation. As this set of results shows, Redx is operationally a stronger, leaner Company than in prior years. Since joining I have reviewed all aspects of the business and we have worked hard to ensure our costs are under control and resources are realistically prioritised. Our cost base in 2018 has reduced by a third compared to 2017. In addition, we are in the late stages of an agreement with our landlord to right-size our operational footprint at Alderley Park, reducing our space requirements by 57%. We have delivered £1.4M additional cash compared to the original plan through the effective resolution of ﬁ nancial and tax issues. The Redx team has worked determinedly to create a streamlined organisation whilst successfully retaining the core team of dedicated and talented scientists. This platform and transparent culture provide us with a sound basis for moving forward with our new business plan. Clear, Focused Strategy Following the business review we have a clear, focused strategy aimed at driving shareholder value. Redx’s ambition is to become a leading biotech Company focused on the development of novel medicines that have the potential to transform the treatment of oncology and ﬁ brosis. Oncology is a crowded area for drug development. However, it is also one where there is signiﬁ cant unmet need. In particular we believe that the role of precision medicines remains critical to unlocking the full potential of modulating critical pathways such as the Wnt pathway. This pathway can drive tumour growth and is increasingly implicated in shaping the immune environment around the tumour. As experts in this pathway, Redx is well positioned to unlock this potential. Fibrosis is an area where there are few treatments and a large and growing unmet need. Redx’s medicinal chemistry strengths combined with its depth of biology expertise, make it competitive to develop novel precision therapies to tackle the underlying ﬁ brosis in major diseases of the lung, liver, kidney and bowel. Within these areas of focus, the organisation’s strategy is ﬁ rst to progress the current programmes to deliver clinical proof of concept and to generate signiﬁ cant shareholder value. In the near term this entails taking our lead cancer asset RXC004, back into phase 1 in H1 2019, to demonstrate a safe dose. In ﬁ brosis, our aim is to select development candidates from the portfolio of three promising ﬁ brosis assets and the ﬁ rst of these selections was made, post period, in November 2018 with the announcement of RXC006 in idiopathic pulmonary ﬁ brosis (IPF). Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 5 252658 Redx Pharma AR Cover-pp41_NEW.indd 5 252658 Redx Pharma AR Cover-pp41_NEW.indd 5 21/12/2018 08:49 21/12/2018 08:49 Chief Executive’s Report continued The second part of the strategy is to leverage Redx’s core strength of medicinal chemistry expertise to generate value. We will therefore continue to invest our resources both in-house, to discover the next generation of differentiated drug candidates against biologically validated targets in our areas of therapeutic focus, and will also use our expertise and insights to identify and acquire appropriate molecules. Finally partnering will remain a critical part of the Redx strategy to enable additional development and to drive further shareholder value. Redx’s newly focused pipeline shows progress in Oncology and Fibrosis As a management team we have focused on prioritising and progressing our pipeline, as follows: The lead programme, RXC004, is a potential best-in-class porcupine inhibitor which has shown compelling animal efﬁ cacy data through impact on the Wnt signalling pathway. Redx is developing RXC004 as an oncology treatment including as an immuno-oncology combination and is preparing to re-start the Phase 1 trial in 1H19 at lower doses (0.5-3mg). RXC006, our lead ﬁ brosis programme, is a porcupine inhibitor being developed as a treatment for the orphan disease, Idiopathic Pulmonary Fibrosis (IPF), a life- threatening and progressive lung condition with a prognosis worse than many cancers. The nomination of Redx’s ﬁ rst development candidate in ﬁ brosis, post period, in November 2018 was a major milestone for the Group. The Group’s two programmes targeting rho associated protein kinase (ROCK) inhibition – ROCK2 selective inhibitors for the treatment of liver ﬁ brosis and gastrointestinal (GI) targeted ROCK inhibitors for the treatment of ﬁ brosis associated with Crohn’s disease - have both demonstrated strong data in preclinical models during the reporting period and are now approaching development candidate nomination decisions in 2019. 1 2 3 6 Lead asset RXC004 in Phase 1 Clinical Development Redx’s lead asset is RXC004, an oral potential best- in-class porcupine inhibitor aimed at treating cancer. RXC004 entered the clinic for the ﬁ rst time in February 2018 (NCT03447470). The trial was subsequently suspended due the emergence of on-target side-effects (dysgeusia (distortion of taste), diarrhoea and bone fragility) which were expected to be seen at higher doses than the initial 10mg start dose. Pharmacokinetic analysis of the exposure data indicated a much longer half-life than had been predicted from preclinical studies. Whilst the suspension of the trial and the resulting delay was initially disappointing, there were several positive observations, namely that RXC004 was well absorbed and had good pharmacokinetic parameters, no off-target side-effects were seen and that strong target engagement in skin tissue was achieved. Redx held a scientiﬁ c advice meeting with the MHRA in July 2018 where an amended protocol proposal was discussed. This included employing a lower start dose and escalation for the trial and the provision of enhanced safety entry criteria and safety monitoring. The MHRA agreed in principle with the new proposals and an amended protocol has been submitted for approval. Redx and its clinical investigators believe that the required RXC004 exposures can be achieved at lower doses (0.5-3mg) and reformulation work has been undertaken to allow the safety and tolerability phase 1a part of the trial in cancer ‘all comers’ to restart in 1H19. On this timeline, Redx anticipates initial safety and tolerability results from the study during 2H19 with full results in 2020. Porcupine is a key enzyme in the oncogenic Wnt signalling pathway. This pathway is implicated in a range of hard-to-treat cancers with poor prognosis such as colorectal, pancreatic, biliary and gastric cancers. Aberrant Wnt signalling pathway activity has been demonstrated to enhance tumour growth both directly and by weakening the host anti-cancer immune response. Redx’s Porcupine inhibitor, RXC004, is a potent and selective inhibitor of this enzyme and therefore the Wnt signalling pathway. Inhibition of this pathway, via Porcupine results in strong direct tumour growth inhibitory effect in a variety of cancer models. In addition, when administered either alone or together with an anti- Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR Cover-pp41_NEW1.indd 6 252658 Redx Pharma AR Cover-pp41_NEW1.indd 6 21/12/2018 09:33 21/12/2018 09:33 Chief Executive’s Report continued Strategic Report PD1 immune checkpoint inhibitor (ICI), RXC004 enhances anti-tumour immune effects. These data were presented at the prestigious AACR Oncology meeting1 and is in keeping with the external strong scientiﬁ c evidence for a role of the Wnt signalling pathway in resistance to ICI2,3. This emerging evidence supports Redx’s view that RXC004 has the potential to be used as a combination partner in immuno-oncology treatment paradigms with ICIs to enhance the response rate of ICIs and to overcome resistance to ICIs in a range of solid tumour types including colorectal cancer (CRC). Redx is now working with leaders in this ﬁ eld, including at Institut Gustave Roussy in Paris, to develop the evidence generation plan that will inform future development direction, including with potentially interested partners, once safety data is available from the phase 1 trial. Promising Fibrosis Portfolio Progressing Towards Clinic Fibrosis is an internal scarring process, which can occur in response to injury, where excess connective tissue is deposited in an organ or tissue, thereby impairing its function. Most chronic inﬂ ammatory diseases will result in ﬁ brosis, with progressive injury resulting in organ failure. Fibrotic disease can occur in nearly any tissue in the body and is a contributory factor in up to 45% of deaths in the developed world4. Solid organ ﬁ brosis can occur as a result of many different diseases, for example inﬂ ammatory bowel disease (IBD). Current therapeutic options are limited for these chronic and often life-threatening diseases. Redx’s experienced team of scientists has considerable expertise in understanding the molecular mechanisms underlying ﬁ brosis and hence the druggable targets on which to focus. Redx are developing cutting edge therapies that aim to stop and reverse the formation of ﬁ brotic tissue. By targeting pathways involved in the progression of these devastating diseases, these drugs are designed to be disease modifying rather than simply providing symptomatic relief. Redx is targeting lung, liver and intestinal ﬁ brosis with its lead projects which are all multi-billion-dollar addressable markets. The lead ﬁ brosis programme, is a Porcupine inhibitor targeted as a treatment of idiopathic pulmonary ﬁ brosis (IPF), a life-threatening lung disease with a prognosis worse than many cancers. REDX06109 has demonstrated excellent antiﬁ brotic activity in a range of ﬁ brosis disease models including ﬁ brosis of the kidney, liver and lung. Successful completion of Preclinical Development Candidate nomination work post reporting period has allowed REDX06109 to be nominated as the Group’s sixth development candidate, RXC006 and its ﬁ rst in Fibrosis. This represents a major milestone for the Group and RXC006 will now progress into preclinical manufacturing and safety studies during 2019 with the aim to enter ﬁ rst in man clinical trials during 2020. Redx have invested in two approaches targeting the Rho Kinase (ROCK) signalling pathway which is a key nodal enzyme in the development of tissue ﬁ brosis. Both projects are in the Lead Optimisation stage of research and decisions to select Preclinical Development Candidates are expected by mid- 2019 and if successful enter the clinic in 2020. Redx’s ROCK2 selective inhibitor programme is aimed at treating liver ﬁ brosis associated with the growing obesity and diabetes epidemic. The build- up of lipids and inﬂ ammation in the liver leads to a condition known as non-alcoholic steatohepatitis (NASH) which progressively leads to liver ﬁ brosis and ultimately life-threatening liver cirrhosis. There are currently no approved treatments for NASH. Redx has developed highly selective ROCK2 compounds that have an improved proﬁ le compared to competitor inhibitors. The lead compounds have demonstrated good pharmacokinetic and pharmacodynamic effects in preclinical models and are currently undergoing proof of concept testing in a range of ﬁ brosis disease models with data expected early in 2019. The GI-targeted ROCK project is aimed at treating intestinal ﬁ brosis associated with Crohn’s disease which leads to strictures and resection surgery for patients. There is currently no pharmaceutical therapy available to treat this condition and we believe that Redx’s compounds would be ﬁ rst-in- class agents. These GI-targeted ROCK inhibitors are restricted to the gut due to their limited absorption proﬁ le and rapid enzymatic metabolism of any absorbed material. They have demonstrated very strong anti-ﬁ brotic effects in GI ﬁ brosis disease models along with a good general and cardiovascular safety proﬁ le. Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 7 252658 Redx Pharma AR Cover-pp41_NEW.indd 7 252658 Redx Pharma AR Cover-pp41_NEW.indd 7 21/12/2018 08:49 21/12/2018 08:49 In September, Redx agreed to license the Novel Tricyclic Topoisomerase (NTTI) program through an option agreement with Kyrulem, a company focused upon the development of novel agents for the treatment of bacterial infections. Following this re-prioritisation Redx has made the decision to partner its pan-RAF programme rather than progress internally. Conclusion I am excited by the potential of the scientiﬁ c programmes we have in our portfolio outlined in the report and detailed further in our Science report. Taken together our scientiﬁ c strength, our focused strategy, our new management team, and our streamlined organisation put us in a good position to deliver against our ambitions in the coming year. Lisa Anson Chief Executive Offi cer Chief Executive’s Report continued Research Into Next Generation Therapies Redx is committed to continuing research against biologically validated targets in oncology and ﬁ brosis to maintain the pipeline. As part of the Strategy and Portfolio Review conducted mid 2018, the Group has focused its research activities on highly selected targets in research, although not all these targets have been publicly disclosed. A key highlight is the project to inhibit the SHP2 protein, a tyrosine phosphatase enzyme. By inhibiting the SHP2 protein we aim to overcome the multiple resistance mechanisms associated with receptor tyrosine Kinase treatments, with the ultimate aim of improving cancer patient survival. This SHP2 project has made good progress over the reporting period, with the identiﬁ cation of potent compounds with an improved safety proﬁ le which has allowed progression into the Lead Optimisation phase. Additionally, recent research has suggested an important role for SHP2 in immune checkpoint signalling, where Inhibition of SHP2 could enhance the ability of the immune system to ﬁ ght cancer. As a result of decisions to focus research investment, we have made a number of stop decisions. Redx has both intellectual property ﬁ lings and owns granted patents for its programmes, and management are conﬁ dent of obtaining patent protection in relevant chemical spaces. Partnering Activity As a result of the decision to focus the organisation on Fibrosis and Oncology, the anti-infectives business was closed in 2017. During the period the Group executed partnering deals for the anti- infective assets. In March 2018 Redx entered an option and license agreement with Deinove for the Novel Bacterial Topoisomerase Inhibitor (NBTI) programme, which is primarily focused upon combating multi-drug resistant Gram-negative bacteria. Under the terms of the agreement, Deinove has paid an option fee to allow them a nine-month option period to assess the NBTI programme for further development. Should the option be exercised at the end of this period, Redx will receive an additional license fee. 8 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR Cover-pp41_NEW.indd 8 252658 Redx Pharma AR Cover-pp41_NEW.indd 8 21/12/2018 08:49 21/12/2018 08:49 Science Report 9 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR Cover-pp41_NEW.indd 9 252658 Redx Pharma AR Cover-pp41_NEW.indd 9 21/12/2018 08:49 21/12/2018 08:49 Science Report: Oncology RXC004 – our lead cancer asset Aberrant activation of the Wnt signalling pathway is involved in the initiation and progression of cancer. Activation of the Wnt signalling pathway is also associated with poor prognosis and resistance of cancers to current therapies, including immune checkpoint inhibitors (ICIs). The pathway is initiated by the binding of Wnt ligands to Frizzled (Fzd) receptors resulting in disruption of the destruction complex, this allows β-catenin to accumulate, translocate to the nucleus and induce the transcription of multiple target genes, including Axin2 (Fig. 1). Porcupine is a key enzyme required for the release of all active Wnt ligands. Preclinical data demonstrates that RXC004, a potent and selective inhibitor of Porcupine, has signiﬁ cant anti- cancer effects in models of Wnt-ligand dependent cancer. These models include genetically-deﬁ ned tumours harbouring upstream pathway alterations (i.e. RNF43 mutant and RSPO-fusion in vitro and in vivo models), and models of immune resistance. RXC004 Clinical investigators: Professor Sarah P Blagden, PhD, FRCP Associate Professor of Experimental Cancer Medicines & Consultant Medical Oncologist/ Director of Early Phase Cancer trails unit & Oxford ECMC lead, University of Oxford, Department of Oncology. Dr. Natalie Cook, MBchB, MRCP, PhD Senior Clinical Lecturer in Experimental Cancer Medicine and Honorary Consultant, Christie Hospital. Professor Ruth Plumber, MA, DPhil, BMBch, MD, FRCP Clinical Professor of Experimental Cancer Medicine, Northern Institute of Cancer Research, Newcastle University. Figure 1: The Wnt signalling pathway Signalling through the Wnt pathway is highly regulated at the level of ligand (Wnt), receptor (Fzd/LRP) and downstream components (e.g. destruction complex – APC/Axin/GSK3β). Pathway activation stabilises β-catenin, allowing its translocation to the nucleus and the expression of target genes. 10 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR Cover-pp41_NEW.indd 10 252658 Redx Pharma AR Cover-pp41_NEW.indd 10 21/12/2018 08:49 21/12/2018 08:49 Strategic Report Redx held a scientiﬁ c advice meeting with the MHRA in July 2018 where an amended protocol proposal was discussed. This included employing a lower start dose and escalation for the trial and the provision of enhanced safety entry criteria and safety monitoring. The MHRA agreed in principle with the new proposals and an amended protocol has now been submitted for approval (Fig. 3). Redx believes that the required safe and efﬁ cacious RXC004 exposures can be achieved at lower doses (0.5-3 mg) and reformulation work has been undertaken to allow the safety and tolerability phase 1a part of the trial in cancer ‘all comers’ to restart in 1H19. On this timeline, Redx anticipate initial safety and tolerability results from the study during 2H19. Phase 1 (Module 1 Part A) trial of RXC004 will be conducted in patients with advanced cancer and will allow Redx to select a suitable dose and schedule for both Module 1 Part B and Module 2 Combinations (NCT03447470). Comparison of predicted drug exposure of RXC004 based on preclinical models (black line) with actual exposure achieved in patient 001 (orange line). Predicted exposure of proposed new starting dose 0.5 mg RXC004 based on patient 001 (blue line). Grey box depicts the concentration range predicted to give efﬁ cacy in patients. RXC004 clinical trial due to restart in 1H2019 In February 2018, RXC004 entered the clinic for the ﬁ rst time in a Phase 1 clinical trial (NCT03447470). The trial was subsequently suspended due the emergence of on-target side-effects (dysgeusia (distortion of taste), diarrhoea and bone fragility) which were expected to be seen at higher doses than the initial 10 mg start dose. Pharmacokinetic analysis of the exposure data indicated a much longer half-life than had been predicted from preclinical studies (Fig. 2). Whilst the suspension and resulting delay was initially disappointing, there were several positive observations, namely: • RXC004 was well absorbed and had good pharmacokinetic parameters • No off-target side-effects were seen • Strong target engagement was achieved in tissue Figure 2: RXC004 Plasma Concentration ) l m / g n ( n o i t a r t n e c n o C a m s a P l 1000 100 10 1 0 2 4 6 8 10 12 14 16 18 20 22 24 Hours 10mg RXC004 original prediction 10mg RXC004 data from patient 001 0.5mg prediction Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 11 252658 Redx Pharma AR Cover-pp41_NEW.indd 11 252658 Redx Pharma AR Cover-pp41_NEW.indd 11 21/12/2018 08:49 21/12/2018 08:49 Science Report: Oncology continued Figure 3: RXC004 Phase 1/2a Trial Design Phase 1 (Part A) trial of RXC004 will be conducted in patients with advanced cancer and will allow Redx to select a suitable dose and schedule for both Module 1 Part B and Part 2a (NCT03447470). Phase 1, Dose Escalation Monotherapy, Single Ascending Dose/ Multiple Ascending Dose (3+3 design) 1.0mg Cohort 2 N=3-6 Starting Dose, 0.5mg Cohort 1 N=3-6 3.0mg Cohort 6 N=3-6 2.5mg Cohort 5 N=3-6 2.0mg Cohort 4 N=3-6 1.5mg Cohort 3 N=3-6 Multiple decision points expand/escalate/hold based on emerging safety data (Dose Limiting Toxicity, DLT) pharmacodynamic markers and clinical efﬁcacy. Phase 1 Part a Dose escalation cohorts: To assess the safety and tolerability of RXC004 in an all-comers cohorts of advanced cancer patients. 3-5 UK sites; 12-18 months. Phase 1 Part b Dose expansion cohorts: To assess the efﬁ cacy of RXC004 monotherapy in biomarker selected patients (eg CRC, gastric and pancreatic cancer patient cohorts) 3-5 UK sites. Phase 2a To assess the safety, tolerability and efﬁ cacy of RXC004 in combination with standard of care therapies, including ICIs, in e.g. CRC. 12 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR Cover-pp41_NEW.indd 12 252658 Redx Pharma AR Cover-pp41_NEW.indd 12 21/12/2018 08:49 21/12/2018 08:49 Science Report: Oncology continued Strategic Report Enhancing immune-checkpoint response with RXC004 Immune checkpoint inhibitors (ICIs) such as anti-PD-1 and anti-PD-L1 antibodies, have revolutionised the treatment of cancer, but they do not work in all patients. Many tumours that are not responsive to ICI therapy are described as “cold” in that the tumour-killing immune cells are not present at the tumour site. The role of the Wnt signalling pathway in immune evasion by tumours (i.e. promoting “cold” tumours) has been the subject of several recent high-proﬁ le reviews2,3. Activation of the Wnt signalling pathway has been described to: • • Drive critical mechanisms for tumour immune evasion Inhibit multiple cell types required for an anti- tumour immune response There is strong preclinical evidence to support that RXC004 will block activation of the Wnt signalling pathway and restore the ability of the immune system to ﬁ ght the tumour. RXC004 will have the ability to make “cold” tumours “hot” by facilitating entry of tumour ﬁ ghting immune cells into the tumour microenvironment. In addition to this strong preclinical data, Novartis recently presented (AACR, 2018) the ﬁ rst clinical demonstration of their porcupine inhibitor, WNT974 (LGK974), promoting a tumour ﬁ ghting microenvironment as a monotherapy. This is in line with our internal preclinical mouse model data on RXC0041. In response to these data Novartis have now refocused the development of WNT974 as an immune-oncology agent which is currently recruiting for phase 1 both as monotherapy and in combination with Novartis’ anti-PD-1 inhibitor, Spartalizumab (ClinicalTrials.gov Identiﬁ er: NCT01351103). Redx scientists have demonstrated the ability of RXC004 to enhance the immune system response to cancer in preclinical models1 . These data suggest RXC004 alone or in combination with ICIs (such as anti-PD-1, anti-PD-L1 antibodies) may help to address the shortcomings of this exciting class of therapies by increasing the response rates and the duration of the response. In line with these data, Redx is exploring clinical opportunities for a RXC004 combination approach with ICIs, with the ultimate aim of increasing patient response rates to immuno-oncology therapy. Extract from a recent high impact review from (Wang et al. 2018), Trends in Pharmacological Sciences, highlighting the opportunity for Wnt signalling pathway inhibitors, such as RXC004 as potential cancer immunotherapy agents. ‘Despite some success with checkpoint inhibitors in cancer patients, cancer immunotherapy has met challenges regarding the low response rates in major cancer patients and tumour relapse after initial response. As a well-known therapeutic target of cancer, Wnt signalling pathway is focused mainly on tumor cells. Increasing evidence highlights the essential role of Wnt signalling pathway in the cancer immunity system. By directly controlling the expression of critical regulators of dendritic cells, eff ector T cells, regulatory T cells, T helper cells, and tumor cells, abnormal activation of Wnt signalling pathway disrupts the tumor- immune cycle and facilitates cancer development. Combination therapy with modulation of Wnt signalling pathway is expected to overcome the primary, adaptive, and acquired resistance to cancer immunotherapy’ Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 13 13 252658 Redx Pharma AR Cover-pp41_NEW.indd 13 252658 Redx Pharma AR Cover-pp41_NEW.indd 13 21/12/2018 08:49 21/12/2018 08:49 Science Report: Oncology continued RXC004 in preclinical immune-oncology models RXC004 monotherapy inhibited tumour growth and improved survival of mice in a melanoma model (Fig. 4) by reducing the proportion of immune supressing myeloid derived suppressor cells (MDSCs) in the tumour microenvironment. (Fig. 5) Anti-PD-1 alone had no effect on this immunologically “cold” model. In a mouse colorectal cancer model (CT26) RXC004, in combination with anti-PD-1, improved anti-tumour immune response by increasing the ratio of cytotoxic (tumour ﬁ ghting) to regulatory (immune suppressive) T-cells. (Fig. 6) The model for this mechanism of action is shown in (Fig. 7). Figure 4: Survival: B16F10 tumours RXC004 increased survival of mice implanted with the B16F10 melanoma tumour cell line. 3 l m m 0 0 5 2 f o e m u o v r u o m u t o t e m T i Control RXC004 5mg/kg p<0.0001 100 50 0 21 25 29 33 37 41 45 Treatment Day Figure 5: Model of RXC004 impact on immune cells Working model of RXC004 effects on MDSC tumour inﬁ ltrate. MDSCs are known to suppress T cell immune responses via multiple mechanisms; through reducing tumour MDSCs, we propose RXC004 increases immune response to the tumour. MDSCs Low T cell inﬁltrate – Immunologically cold tumour MDSCs Increased T cell inﬁltrate – Immunologically hot tumour 14 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR Cover-pp41_NEW.indd 14 252658 Redx Pharma AR Cover-pp41_NEW.indd 14 21/12/2018 08:49 21/12/2018 08:49 Science Report: Oncology continued Strategic Report RXC004 combines with anti-PD-1 to enhance the anti-tumour immune environment. Flow cytometry of day 14 tumour inﬁ ltrate shows signiﬁ cant increase in the ratio of cytotoxic T-cells to regulatory T-cells when RXC004 and anti-PD-1 are combined. Figure 6: Cytotoxic/Regulatory T Cell Ratio 60 40 20 0 Control Anti-PD1 RXC004 5mg/kg RXC004 5mg/kg + anti-PD1 Control Anti-PD1 RXC004 5mg/kg RXC004 5mg/kg + anti-PD1 **** p<0.0001 *** p<0.001 ** p<0.01 Redx is currently working with Prof Aurélien Marabelle MD, PhD, Clinical Director of Cancer Immunotherapy at the Gustave Roussy Institute, to further reﬁ ne our clinical plan for RXC004 trials in combination with checkpoint inhibitors. “I look forward to continue to work with the Redx Pharma team to help optimise the immuno-oncology clinical development plan for RXC004. With the recent excitement around Wnt signalling pathway being an important immune checkpoint inhibitor resistance mechanism, I believe that with an appropriate clinical trial design, inhibition of Porcupine by RXC004, would be a very interesting approach to exploit these scientiﬁ c breakthroughs as it is a key upstream regulator of the Wnt signalling pathway.’’ Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 15 252658 Redx Pharma AR Cover-pp41_NEW.indd 15 252658 Redx Pharma AR Cover-pp41_NEW.indd 15 21/12/2018 08:49 21/12/2018 08:49 Science Report: Oncology continued Figure 7: Model of RXC004 eff ects on Dendritic cells (DC) Wnt produced within the tumour microenvironment leads to immunosuppressive dendritic cells, with increased levels of β-catenin and IDO1; causing ↑ regulatory T-cells and ↓cytotoxic T-cells (CD8+). RXC004 treatment reduces Wnt, ↓ regulatory T-cells and allow s DCs to ↑ cytotoxic T-cells in the tumour. Low T cell inﬁltrate – Immunologically cold tumour Increased T cell inﬁltrate – Immunologically hot tumour RXC004 in genetically-deﬁ ned cancers Cancers harbouring genetic alterations upstream in the Wnt signalling pathway have been demonstrated to be sensitive to RXC004 monotherapy via a direct tumour targeting (anti-proliferative) mechanism. Loss of function mutations in the RNF43 gene and fusions in RSPO, both result in an increase of Fzd receptors at the cell surface and an increased dependence on Wnt ligand for the tumour cell. These upstream Wnt pathway mutations are present in multiple cancer types including approximately 16% of colorectal cancers. By selecting patients with these genetic alterations, RXC004 has a unique opportunity to both target tumour proliferation directly, in addition to having an immune enhancing effect. Figure 8: RXC004 causes tumour growth inhibition in tumour models with both RNF43 mutation and RSPO fusions. Pancreatic Cancer Xenograft (RNF43 mutation) Colorectal Cancer Xenograft (RSPO3 fusion) 600 400 200 0 ) 3 m m l ( e m u o V r u o m u T 2500 2000 1500 1000 500 0 ) 3 m m l ( e m u o V r u o m u T Vehicle Control RXC004 5mg BID Vehicle BID RXC004 1.5mg/kg BID 16 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR Cover-pp41_NEW.indd 16 252658 Redx Pharma AR Cover-pp41_NEW.indd 16 21/12/2018 08:49 21/12/2018 08:49 Science Report: Fibrosis Strategic Report Porcupine inhibitor RXC006 for the treatment of IPF Idiopathic pulmonary ﬁ brosis (IPF) is a life-threatening lung disease with a prognosis worse than many cancers (Fig. 9). There is considerable evidence supporting a pathogenic role for Wnt signalling in IPF. IPF patients show a re-activation of the Wnt signalling pathway accompanied by an increased expression of Wnt target genes. An increase in Wnt7B expression has also been correlated with IPF lung impairment and the Wnt co-receptors Lrp5/6, markers of disease progression and severity in humans with IPF, have been associated with increased mortality rate5,6. Overall, increased Wnt signalling pathway expression is associated with poor patient prognosis in IPF. RXC006 is Redx’s lead porcupine inhibitor of the Wnt signalling pathway for the treatment of IPF. RXC006 has demonstrated excellent antiﬁ brotic activity in a range of ﬁ brosis disease models including ﬁ brosis of the kidney, liver and lung. An example of this is shown in (Fig. 10). Successful completion of Preclinical Development Candidate nomination work has resulted in the nomination of REDX06109 as the Company’s sixth development candidate, RXC006. RXC006 will now progress into preclinical manufacturing and safety studies during 2019 with the aim to enter ﬁ rst in man clinical trials during 2020. RXC006 is from a different chemical series compared to RXC004 and is protected by a separate composition of matter patent. Figure 9: Images from CT scan of normal lungs and lungs from a patient with IPF In the normal lung the black image indicates healthy tissue, ﬁ lled with air. In the IPF lung scarring forms a typical ‘honeycomb’ pattern, showing ﬁ brotic areas and restricted lung capacity9. Normal lung IPF lung Honeycomb scarring Figure 10: Redx Porcupine inhibitor RXC006 suppresses ﬁ brosis in a murine model of IPF Small region of dense collagenous connective tissue (ﬁ brosis; black arrows demarcate) and lymphocyte inﬁ ltrates/aggregates (*) are present following bleomycin injury. Therapeutic treatment with RXC006 reduced ﬁ brosis areas. Bronchiole (Br) and blood vessels (BV) are indicated. Untreated Bleomycin + vehicle Bleomycin + RXC006 25mg/kg QD Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 17 252658 Redx Pharma AR Cover-pp41_NEW.indd 17 252658 Redx Pharma AR Cover-pp41_NEW.indd 17 21/12/2018 08:49 21/12/2018 08:49 Science Report: Fibrosis continued ROCK as a therapeutic target for ﬁ brosis The Rho associated coiled-coil containing protein kinase (ROCK) serine/threonine kinases, ROCK1 and ROCK2, are signalling proteins central to the regulation of various cellular responses that are often inappropriately activated in ﬁ brosis pathology (Fig. 11). These pathways include cell migration, proliferation, apoptosis, cytokine expression, gene transcription and integrin-mediated cell-to-cell adhesions. Aberrant wound healing, tissue remodelling and ﬁ brosis processes have been shown to be highly dependent on ROCK signalling with pan-ROCK inhibitors able to suppress tissue injury and ﬁ brosis in a number of animal models including models of liver, lung and kidney ﬁ brosis. Figure 11: ROCK is a central node in signalling pathways associated with ﬁ brosis Angiotensin, ET-1 TGFβ-BB, CTGF Collagen, matrix stiffness Hormones Growth factors ECM/mechanical Recruitment of inﬂammatory cells Metastases Cell migration ROCK Proliferation Cell contraction Gene expression ROCK inhibitor ↑α-SMA ↑col1α2 Apoptosis/survival Inﬂammatory response Myoﬁbroblasts survival (apoptosis resistance) Macrophage activation B and T cell activation Fibroblast differentiation into myoﬁbroblasts Fibrosis Pro-inﬂammatory and pro-ﬁbrotic gene expression drives disease MCP-1, MMPs, TIMPs, TGFβ, CTGF Increased extracellular matrix, activation of ﬁbroblasts and epithelial cells 18 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR Cover-pp41_NEW.indd 18 252658 Redx Pharma AR Cover-pp41_NEW.indd 18 21/12/2018 08:49 21/12/2018 08:49 Science Report: Fibrosis continued Strategic Report GI-Targeted ROCK inhibitor for the treatment of Crohn’s associated ﬁ brosis The GI-targeted ROCK project is aimed at treating intestinal ﬁ brosis associated with Crohn’s disease. Fibrotic tissue can cause stricture formation and obstruction of the intestine often requiring invasive surgical intervention. Fibrosis commonly recurs in these patients, necessitating further surgeries that can ultimately result in short bowel syndrome. Approximately 1.5m people globally suffer from Crohn’s disease of which 50% will develop strictures or complications at some point. There is currently no pharmaceutical therapy available to treat intestinal ﬁ brosis associated with Crohn’s disease, and furthermore anti-inﬂ ammatory agents used in Crohn’s disease do not halt the progression of ﬁ brosis. We believe that Redx’s compounds would be ﬁ rst-in-class agents. Redx’s GI-targeted ROCK inhibitors are restricted to the gastrointestinal tract due to their limited absorption and rapid enzymatic metabolism of any absorbed material. They have demonstrated very strong anti-ﬁ brotic effects in GI ﬁ brosis disease models (Fig. 12) along with a good general and cardiovascular safety proﬁ le7 . A ﬁ rst in class Preclinical Development Candidate is due to be selected in 1H19. Figure 12: Redx GI-targeted ROCK inhibitor reduces collagen deposition in a murine model of Crohn’s ﬁ brosis. Increase of collagen expression, shown in blue with Trichrome Stain, in the DSS treated animals. Treatment with GI-targeted ROCK inhibitor at 3 mg/kg reduced the deposition of collagen seen as a reduction in staining. Untreated 2.5% DSS 9 wk DSS + GI-t ar geted ROCK inhibitor 3 mg/kg QD Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 19 252658 Redx Pharma AR Cover-pp41_NEW.indd 19 252658 Redx Pharma AR Cover-pp41_NEW.indd 19 21/12/2018 08:49 21/12/2018 08:49 Science Report: Fibrosis continued ROCK2 selective inhibitor for the treatment of NASH ROCK2 has been shown to be upregulated in acute inﬂ ammation and in metabolic and ﬁ brotic diseases. A speciﬁ c role for ROCK2 in the pathogenesis of ﬁ brosis has been demonstrated in mouse models, where heterozygous ROCK2 knockout mice have reduced disease severity. ROCK2 speciﬁ c inhibitors also show anti-ﬁ brotic effects in a number of murine ﬁ brosis models. Redx’s ROCK2 selective inhibitor programme is aimed at treating liver ﬁ brosis associated with the growing obesity and diabetes epidemic. The build-up of lipids and inﬂ ammation in the liver leads to a condition known as non-alcoholic steatohepatitis (NASH) which progressively leads to liver ﬁ brosis and ultimately life-threatening liver cirrhosis (Fig. 13). Redx has developed highly selective ROCK2 compounds that have an improved proﬁ le compared to competitor ROCK2 selective compounds. The lead compounds have demonstrated good pharmacokinetic and pharmacodynamic effects in preclinical models and in October 2018 Redx scientists presented the encouraging project progress at a major US scientiﬁ c conference8. Lead compounds are currently undergoing proof of concept testing in a range of ﬁ brosis disease models with data expected early in 2019 and the best in class Preclinical Development Candidate is due to be selected 2H19. Figure 13: Liver injury induced by western diet leads to a fatty liver where fat accumulates in the liver and causes inﬂ ammation and injury (steatosis). As this injury continues this leads to scarring and ﬁ brosis and the development of NASH. NASH is a progressive disease and if untreated the scarring process may continue to cirrhosis where the liver is no longer functional and the only treatment at this point is liver transplant. We believe our ROCK2 inhibitor will reduce ﬁ brosis progression and reverse liver inﬂ ammation and ﬁ brosis in NASH patients. Science Report - References: 1 Bhamra I, Armer R, Bingham M, Eagle C, Edmenson Cook A, Phillips C, Woodcock S. Porcupine inhibitor RXC004 enhances immune response in pre-clinical models of cancer. 2018 July, Cancer Research 78 (13 Supplement): 3764-3764 2 Spranger S, Gajewski TF. Impact of oncogenic pathways on evasion of antitumour immune responses. Nat Rev Cancer. 2018 Mar;18(3):139-147 3 Wang B, Tian T, Kalland KH, Ke X, Qu Y. Targeting Wnt/β-Catenin Signaling for Cancer Immunotherapy.Trends Pharmacol Sci. 2018 Jul;39(7):648-658. 4 Bollong M. et al, Small molecule-mediated inhibition of myoﬁ broblast trans-differentiation for the treatment of ﬁ brosis PNAS,May 2, 2017,vol. 114,no. 18,4683 5 Meuten T, Hickey A, Franklin K, Grossi B, Tobias J, Newman DR, Jennings SH, Correa M, Sannes PL. WNT7B in ﬁ broblastic foci of idiopathic pulmonary ﬁ brosis. Respir Res. 2012 Jul 28;13:62. 6 Lam AP, Herazo-Maya JD, Sennello JA, Flozak AS, Russell S, Mutlu GM, Budinger GRS, DasGupta R, Varga J, Kaminski N, Gottard CJ. Wnt Coreceptor Lrp5 Is a Driver of Idiopathic Pulmonary Fibrosis. Am J Respir Crit Care Med. 2014 Jul 15; 190(2): 185-195 7 Holvoet T, Devriese S, Castermans K, Boland S, Leysen D, Vandewynckel YP, Devisscher L, Van den Bossche L, Van Welden S, Dullaers M, Vandenbroucke RE, De Rycke R, Geboes K, Bourin A, Defert O, Hindryckx P, De Vos M, Laukens D. Treatment of Intestinal Fibrosis in Experimental Inﬂ ammatory Bowel Disease by the Pleiotropic Actions of a Local Rho Kinase Inhibitor. Gastroenterology. 2017 Oct;153(4):1054-1067 8 Offer E.P., Guisot, N.E.S., Best, S.A, Pesnot, T., MacFaul, P., Ceccarelli, S., Eckersley, K., Pitt, G.R., Bunyard, P.R., Jones, C.D., Armer, R. Abstract TH-PO877. ROCK2 inhibitors for the treatment of chronic kidney disease. In ASN Kidney Week, 2018 Oct 23-28, San Diego, CA 9 IPF Webinar for the British Lung Foundation 2012: Dr. Helen Parfrey 20 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR Cover-pp41_NEW.indd 20 252658 Redx Pharma AR Cover-pp41_NEW.indd 20 21/12/2018 08:49 21/12/2018 08:49 Strategic Report Redx team working in their laboratory at Alderley Park, Cheshire, UK Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 21 252658 Redx Pharma AR Cover-pp41_NEW.indd 21 252658 Redx Pharma AR Cover-pp41_NEW.indd 21 21/12/2018 08:49 21/12/2018 08:49 Operational Review The Directors present this Operational Review for the year ended 30 September 2018 and cover issues not covered elsewhere in their Strategic review, namely: Key Performance Indicators, Financial Review and the Principal Risks and Uncertainties. The principal activities of the business continue to be the discovery and development of proprietary, small molecule drugs to address areas of high, unmet medical need. New Management Team Lisa Anson was appointed as Chief Executive Ofﬁ cer on 1 June 2018 at which time Iain Ross reverted to Non-executive Chairman from his role as Executive Chairman. Lisa is an experienced industry leader following a twenty year career at AstraZeneca Plc most recently as President of AstraZeneca UK and was also the President of the Association of British Pharmaceutical Industries (ABPI) until August 2018. The new executive team includes Dr Andrew Saunders who was appointed Chief Medical Ofﬁ cer in 2018, a critical new role in the new management team, alongside the experience of Dr Richard Armer (Chief Scientiﬁ c Ofﬁ cer). Mr Dominic Jackson (Interim Chief Financial Ofﬁ cer) will step down at the end of January 2019, and Dr James Mead (Chief Financial Ofﬁ cer designate) takes up the role on 1 February 2019. Dr Matilda Bingham (Head of Research and Operations) left the business during the year and Mr Nicholas Adams (Chief Business Ofﬁ cer) left the business, post the reporting period, and their roles are not being replaced on the Executive team. Key Performance Indicators (KPIs) The Group’s key performance indicators include a range of ﬁ nancial and non-ﬁ nancial measures. The Board considers pipeline progress, and in particular progress towards the clinic, to be the main KPI, and updates about the progress of our research programs are included in the CEO Report and in more detail in the Science Report. Below are the ﬁ nancial KPIs considered pertinent to the business. Cash at year end 2018 £m 6.5 2017 £m 23.8 2016 £m 5.8 2015 £m 9.4 A considerable amount of expenditure in the year related to the settling of legacy issues from the Administration, including Regional Growth Fund (RGF) clawbacks and creditor claims. The Board works to ensure that the Group has access to sufﬁ cient funding to enable it to carry out its full business plan in order to maximise shareholder value, and as such will be seeking additional funding during the coming year. 2018 £m 2017 £m 2016 £m 2015 £m Total operating expenditure 10.6 15.8 16.5 11.4 The Group has in prior years stated its expectation of a reduction in operating expenditure by circa £4m per annum; this has now been achieved. Continued efforts will be made to maintain rigorous cost control, reducing expenditure further if possible, whilst seeking to prioritise resources for scientiﬁ c programs. 2018 £m 2017 £m 2016 £m 2015 £m Net cash ﬂ ow (including certain one-off payments) (17.3) 18.0 (3.7) 6.5 Reﬂ ecting both the expenditure in the year on scientiﬁ c research, together with the settling of various legacy issues connected with Administration. 2018 % 2017 % 2016 % 2015 % R & D expenditure (as a proportion of total operating expenditure) 70 76 84 83 The Group’s continuing focus is to maximise the amount of operating expenditure spent on research and development activities, deﬁ ned as direct R&D expenditure per note 10 plus scientiﬁ c staff costs (excluding Board & key management). More recent years have been affected by increased accommodation costs, which as noted in the Financial Review, the Board is taking steps to address. The above is prepared on a comparable basis to prior years, however going forward more costs can be attributed to projects and it is anticipated that this percentage will rise in future. 22 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR Cover-pp41_NEW.indd 22 252658 Redx Pharma AR Cover-pp41_NEW.indd 22 21/12/2018 08:49 21/12/2018 08:49 Operational Review continued Strategic Report Option agreement for Anti-infectives programme The successful partnering of one of our Anti-Infective programmes with Deinove for an initial sum of £129k increased our focus on the core areas of oncology and ﬁ brosis and has created liquidity for the Group whilst retaining further upside value creation. Cashﬂ ows Overall negative net cash ﬂ ow for the year was £17.3m, (2017: £18.0m inﬂ ow). 2017 saw signiﬁ cant inﬂ ow, generated from the BTK sale and the share issue. As previously noted, a signiﬁ cant proportion of the current year’s outﬂ ow is with regard to ﬁ nalising legacy issues caused by the Administration and took place prior to control being returned to the Directors in November 2017. Reorganisation A major reorganisation of the Group took place in spring 2017, resulting in a signiﬁ cant reduction in staff numbers. The cost of this was £0.8m. Average headcount reduced to 131 in 2017 falling further to 52 over the year to 30 September 2018. Actual headcount at 30 September 2018 was 51. A reorganisation of the Board following the Group’s exit from Administration resulted in further non-recurring costs of £0.2m. Taxation The Group continues to claim Research and Development expenditure credits, with £726k received in the year and with a further £1.1m due at 30 September 2018 (2017: £1.1m). Financial Review Financial position At 30 September 2018, the Group had cash resources of £6.5m (2017: £23.8m). The Group exited Administration on 2 November 2017 with a remaining £13.9m in cash, after a £6.1m clawback of RGF funding was repaid in October 2017, together with ﬁ nal costs associated with the Administration. This signiﬁ cant use of funds in reducing exceptional liabilities is highlighted in the Consolidated Statement of Cashﬂ ows and is legacy in nature. Cost savings The Group had targeted £4m of year on year ﬁ xed cost savings and this target has been signiﬁ cantly exceeded, with operational costs running at £5.2m less in 2018 versus 2017 noting that 2017’s operating costs already reﬂ ected some of the restructuring savings and that 80% of the reduction is overhead related. Accommodation (Alderley Park) The Group also set itself the target of re-aligning its accommodation with its reduced headcount, with a view to further reduce costs. Agreement in heads of terms, subject to ﬁ nal contract has been reached with landlords to reduce the footprint occupied, without cash penalty through a warrant agreement, from 72,000 sq ft to 31,000 sq ft., a 57% reduction. As a result, an onerous lease provision of £752k has been established as described further in note 21. Establishment of the provision has no cash ﬂ ow consequences in the current ﬁ nancial year. Signiﬁ cantly, future lease obligation have been reduced From £13.4m to £6.7m (note 27), and the beneﬁ t of these savings, together with associated savings in rates and service charges, which will beneﬁ t the Group going forward. Impact of Administration As detailed elsewhere in the Annual Report, two Group companies, Redx Pharma Plc and Redx Oncology Ltd were placed into Administration on 24 May 2017. The principal ﬁ nancial impacts of this in the current year were the recognition of the ﬁ nal costs of the Administration (note 1) of £177k. Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 23 252658 Redx Pharma AR Cover-pp41_NEW.indd 23 252658 Redx Pharma AR Cover-pp41_NEW.indd 23 21/12/2018 08:49 21/12/2018 08:49 Operational Review continued Principal Risks and Uncertainties Redx is a biopharmaceutical Group and, in common with other companies operating in this ﬁ eld, is subject to a number of risks and uncertainties. The principal risks and uncertainties identiﬁ ed by Redx for the year ended 30 September 2018 are below. Research and Development The Group is at a relatively early stage of development and may not be successful in its efforts to use and to build a pipeline of product candidates and develop approved or marketable products. Technical risk is present at each stage of the discovery and development process with challenges in both chemistry (including the ability to synthesise novel molecules) and biology (including the ability to produce candidate drugs with appropriate safety, efﬁ cacy and usability characteristics). Additionally, drug development is a highly regulated environment which itself presents technical risk through the need for study designs and data to be accepted by regulatory agencies. Furthermore, there can be no guarantee that the Group will be able to, or that it will be commercially advantageous for the Group to, develop its intellectual property through entering into licensing deals with emerging, midsize and large pharmaceutical companies. Commercial The biotechnology and pharmaceutical industries are very competitive. The Group’s competitors include major multinational pharmaceutical companies, biotechnology companies and research institutions. Many of its competitors have substantially greater ﬁ nancial, technical and other resources, such as larger numbers of research and development staff. The Group’s competitors may succeed in developing, acquiring or licensing drug product candidates that are more effective or less costly than any product candidate which the Group is currently developing or which it may develop, and that competition may have a material adverse impact on the Group. Clinical Trials The Group does not know whether any future clinical trials with any of its product candidates will be completed on schedule, or at all, or whether its ongoing or planned clinical trials will begin or progress on the time schedule it anticipates. The commencement of future clinical trials could be substantially delayed or prevented by several factors, including: • • • • • • • delays or failures to raise additional funding; results of future meetings with the MHRA, EMA, FDA and/or other regulatory bodies; a limited number of, and competition for, suitable patients with particular types of cancer for enrolment in our clinical trials; delays or failures in obtaining regulatory approval to commence a clinical trial; delays or failures in obtaining sufﬁ cient clinical materials; delays or failures in obtaining approval from independent institutional review boards to conduct a clinical trial at prospective sites; or delays or failures in reaching acceptable clinical trial agreement terms or clinical trial protocols with prospective sites. The completion of the Group’s clinical trials could be substantially delayed or prevented by several factors, including: • • • • • • • • • • • delays or failures to raise additional funding; slower than expected rates of patient recruitment and enrolment; further protocol amendments; failure of patients to complete the clinical trial; delays or failures in reaching the number of events pre-speciﬁ ed in the trial design; the need to expand the clinical trial; delays or failures in obtaining sufﬁ cient clinical materials; unforeseen safety issues; lack of efﬁ cacy during clinical trials; inability or unwillingness of patients or clinical investigators to follow our clinical trial protocols; and inability to monitor patients adequately during or after treatment. Additionally, the Group’s clinical trials may be suspended or terminated at any time by the MHRA, other regulatory authorities, or by the Group itself. Any failure to complete or signiﬁ cant delay in completing clinical trials for the Group’s product candidates could harm the commercial prospects for its product candidates, and therefore, its ﬁ nancial results. 24 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR Cover-pp41_NEW.indd 24 252658 Redx Pharma AR Cover-pp41_NEW.indd 24 21/12/2018 08:49 21/12/2018 08:49 Operational Review continued Strategic Report Regulatory Operational The Group’s future development and prospects depend to a signiﬁ cant degree on the experience, performance and continued service of its senior management team, including the Directors. The Group has invested in its management team at all levels. The Directors also believe that the senior management team is appropriately structured for the Group’s size and is not overly dependent upon any particular individual. The Group has entered into contractual arrangements with these individuals with the aim of securing the services of each of them. Retention of these services or the identiﬁ cation of suitable replacements, however, cannot be guaranteed. The loss of the services of any of the Directors or other members of the senior management team and the costs of recruiting replacements may have a material adverse effect on the Group and its commercial and ﬁ nancial performance and reduce the value of an investment in the Ordinary Shares. The Board continually monitors these risks and uncertainties and takes corrective action if considered necessary. This report was approved by the Board on 18 November 2018 and signed on its behalf by Lisa Anson Chief Executive Ofﬁ cer The Group’s operations are subject to laws, regulatory approvals and certain governmental directives, recommendations and guidelines relating to, amongst other things, product health claims, occupational safety, laboratory practice, the use and handling of hazardous materials, prevention of illness and injury, environmental protection and human clinical studies. There can be no assurance that future legislation will not impose further government regulation, which may adversely affect the business or ﬁ nancial condition of the Group. Intellectual Property (IP) The Group’s success depends largely on its ability to obtain and maintain patent protection for its proprietary technology and products in the United States, Europe and other countries. If the Group is unable to obtain or maintain patent protection for its technology and products, or if the scope of the patent protection is not sufﬁ ciently broad, competitors could develop and commercialise similar technology and products which would materially affect the Group’s ability to successfully commercialise its technology and products. The Group is exposed to additional IP risks, including infringement of intellectual property rights, involvement in lawsuits and the inability to protect the conﬁ dentiality of its trade secrets which could have an adverse effect on its success. Financial The Group has a limited operating history, has incurred signiﬁ cant losses other than in the prior year, and does not currently have any approved or revenue-generating products. The Group expects to incur losses for the foreseeable future, and there is no certainty that the business will generate future proﬁ ts. The Group may not be able to raise additional funds that may be needed to support its product development programs or commercialisation efforts, and any additional funds that are raised could cause dilution to existing investors. Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 25 252658 Redx Pharma AR Cover-pp41_NEW.indd 25 252658 Redx Pharma AR Cover-pp41_NEW.indd 25 21/12/2018 08:49 21/12/2018 08:49 Governance Introduction It is the Chairman’s responsibility, working with Board colleagues, to ensure that good standards of corporate governance are embraced throughout the Group. As a Board, we set clear expectations concerning the Group’s culture, values and behaviours. The Directors acknowledge the importance of high standards of corporate governance and, given the Group’s size and the constitution of the Board, have decided to adopt the principles set out in the Corporate Governance Code for small and mid-sized companies published by the QCA in April 2018 (‘‘QCA Code’’) in advance of the requirement to adopt the code under AIM rule 50. The Board comprises ﬁ ve Directors: an independent Non-Executive Chairman, two full time Executive Directors and two Non-Executive Directors (both being independent), reﬂ ecting a blend of different experiences and backgrounds. The function of the Chairman is to supervise and manage the Board and to ensure its effective control of the business. The Board believes that the composition of the Board brings a desirable range of skills and experience in light of the Group’s challenges and opportunities as a public Company, while at the same time ensuring that no individual (or a small group of individuals) can dominate the Board’s decision-making. The Board meet regularly to review, formulate and approve the Group’s strategy, budgets, corporate actions and oversee the Group’s progress towards its goals. The Board has established the following committees to fulﬁ l speciﬁ c functions – Audit, Risk & Disclosure committee (the ‘‘Audit Committee’’) and a Remuneration committee (the ‘‘Remuneration Committee’’) with formally delegated duties and responsibilities. Each of these committees meet on a regular basis and at least two times a year. The Board has elected not to constitute a dedicated nomination committee, instead retaining such decision- making with the Board as a whole. This approach is considered appropriate to enable all Board members to take an active involvement in the consideration of Board candidates and to support the Chair in matters of nomination and succession. From time to time, separate committees may also be set up by the Board to consider speciﬁ c issues when the need arises. 26 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR Cover-pp41_NEW.indd 26 252658 Redx Pharma AR Cover-pp41_NEW.indd 26 21/12/2018 08:49 21/12/2018 08:49 Board of Directors Governance Mr Iain Ross (Chairman) Mrs Lisa Anson (CEO) Mr Dominic Jackson (Chief Financial Offi cer – Interim) Iain was appointed Non-Executive Chairman of Redx in May 2017 assuming the role of Interim Executive Chairman in October 2017 which he held until the appointment of Lisa Anson on 1 June 2018, at which time he reverted to the role of Non-Executive Chairman. In addition, he is Chairman of e-Therapeutics Plc (AIM:ETX), Kazia Ltd (ASX: KZA / NASDAQ:KZIA) and Biomer Technology Limited. He is a qualiﬁ ed Chartered Director, and a Former Vice Chairman of the Council of Royal Holloway, London University. Previously, he has held signiﬁ cant roles in multi-national companies including Sandoz, Hoffman La Roche, Reed Business Publishing and Celltech Group Plc. He has advised banks and private equity Groups on numerous company turnarounds. These include, as CEO of Quadrant Healthcare, taking the Company public, signing numerous collaborations before selling the business to Elan in 2001. As Chairman and Chief Executive Ofﬁ cer at Allergy Therapeutics, he re-structured the Company balance sheet to position Allergy Therapeutics as a virtually debt free cash generative company prior to its subsequent IPO. As Executive Chairman at Silence Therapeutics Plc (formerly SR Pharma Plc), he turned the business around through M&A and established collaborations with Pﬁ zer, AstraZeneca and Dainippon Sumitomo before completing a merger with Intradigm Inc. Lisa has been President of AstraZeneca UK since 2012 and has signiﬁ cant leadership experience in pharmaceuticals. Over a 20 year career at AstraZeneca Plc, Lisa has held a number of senior management roles in both the US and the UK including Global Vice President, Oncology and as Vice President of emerging brands where she worked closely with the Research and Development teams. Lisa holds an MBA (awarded with distinction) from INSEAD, France and a First Class honours degree in Natural Sciences from Cambridge University in the UK. Upon graduating she joined KPMG in London as a management consultant and then moved to California where she worked for Salick Health Care (now Aptium), a California based cancer disease management company, prior to joining Zeneca Pharmaceuticals (USA) in 1998 as a business development manager. Lisa has also been President of the Association of the British Pharmaceutical Industry (ABPI), a position from which she stepped down in 2018 in order to assume her current role. She was a Board member of the ABPI from 2012 during which time she has chaired a number of UK industry committee’s and worked closely with the UK Government. In 2018 she was elected to the Board of the Bio Industry Association (BIA). Dominic has worked in private equity since 2007 (DIC Europe, Merrill Lynch Global Private Equity and latterly for multiple ﬁ nancial sponsors) and in M&A prior to that (Deutsche Bank, PricewaterhouseCoopers). He has been seconded into portfolio companies as CFO on numerous occasions to stabilise distressed core businesses and implement value initiatives. Within the healthcare space, Dominic has completed a variety of deals as principal including the £450m sale of IDH to Carlyle, the carve-out and €485m sale of Euromedic’s Dialysis division to Fresenius Medical Care (14x EBITDA), and the reﬁ nancing and syndication of €565m term debt tranches within Euromedic’s diagnostic imaging business. Dominic has extensive situational distressed experience having acquired Peverel (UK’s largest property manager, now Knight Square) for £65m out of Administration, following which his secondment into the business contributed to its successful turnaround and sequential reﬁ nancings with Electra Partners and RBS. He was also heavily involved in the private equity portfolio of a recent landmark bank work-out as well as the $8bn restructuring of a Middle Eastern sovereign wealth fund. Dominic qualiﬁ ed as a Chartered Accountant with PricewaterhouseCoopers and is a member of the Chartered Institute of Securities and Investment and the Institute for Turnaround. Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 27 252658 Redx Pharma AR Cover-pp41_NEW.indd 27 252658 Redx Pharma AR Cover-pp41_NEW.indd 27 21/12/2018 08:49 21/12/2018 08:49 Board of Directors continued Dr James Mead (Chief Financial Offi cer Designate) Mr Peter Presland (Independent Non-Executive Director) Dr Bernhard Kirschbaum (Independent Non-Executive Director) James will be appointed on 1 February 2019. James has held a variety of highly relevant Finance leadership roles over a 16 year career with AstraZeneca Plc. As Chief Financial Ofﬁ cer of AstraZeneca Netherlands – a $200 million turnover business – he was a core member of a management team accountable for delivery of stretching annual P&L targets and other balanced scorecard objectives during a period of signiﬁ cant change. As R&D Portfolio Finance Director he was responsible for ﬁ nancial analysis of the entire R&D portfolio in order to support decision-making at the CEO-chaired AZ Portfolio Investment Board. He has been the Finance Director of multiple clinical development project teams, guiding assessment of the valuation impact of key decisions such as clinical trial design, commercial launch strategy and product lifecycle management. Additionally, James has gained capital markets experience through positions in AstraZeneca’s Investor Relations and Corporate Finance teams. James holds a PhD in Molecular Biology and a First Class honours degree in Biochemistry, both awarded by Cardiff University. He is also an Associate Member of the Chartered Institute of Management Accountants. Peter has over 45 years’ experience in business, much of that at the highest levels of management within both public and private companies. A law graduate at King’s College, London, he also qualiﬁ ed as a Chartered Accountant with Arthur Andersen. In 1980, he joined C E Heath Plc, a major publicly quoted international insurance Group, as Group Accountant/ Treasurer and became in 1985 the youngest ever PLC Director when appointed Group Finance Director at the age of 34. He was promoted to become Heath’s Group Chief Executive in 1990, and in 1996, he devised the demerger of C E Heath’s computer services operations into a separate publicly listed company, Rebus Group Plc, becoming its Chief Executive and in 1999 its Executive Chairman. Shareholders doubled their money in three years. Since 2001, Peter has pursued a portfolio non-executive career. These appointments include the Chairmanship in 2003 of LINK, the UK ATM network, where he led a major corporate governance change and completed the merger of LINK with Voca, the provider of the BACS service, becoming Chairman of VocaLink in 2007. From 2012 to 2015, he served as Chairman of the Audit and Governance Committee of East Kent Hospitals NHS Trust and has recently joined the Audit and Governance Committee of The Lord’s Taverners, a high-proﬁ le charity. Bernd joined the Board in January 2016. Bernd has over 25 years’ experience in pharmaceutical research and drug development, having held leadership roles at Merck/Merck Serono, Sanoﬁ -Aventis, Aventis and Hoechst Marion Roussel. He has expertise in a broad range of disease areas including oncology, immuno-oncology, immunology, neurological disorders and cardiometabolic diseases. In the eight years to 2013, he worked at Merck/ Merck Serono, becoming a member of the Board and Executive Vice-President, Global Research & Early Development. He was responsible for a budget of 1 billion euros and a global team of over 2,500 associates. In his last three years at Merck Serono, he led the successful growth of the company’s R&D portfolio, with over 70 programs, doubling the number of phase II assets in this period. Bernd is currently a board member of BioMedX, Protagen Diagnostics, OMEICOS Therapeutics, Enlivex Therapeutics and an advisor to the board of KAHR Therapeutics and FutuRx. 28 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR Cover-pp41_NEW.indd 28 252658 Redx Pharma AR Cover-pp41_NEW.indd 28 21/12/2018 08:49 21/12/2018 08:49 Directors’ Report Governance The Directors present their annual report on the affairs of the Group, together with the ﬁ nancial statements and auditor’s report for the year ended 30 September 2018. The Corporate Governance Statement on pages 31 – 35 and the governance section on page 26 also forms part of this report. Directors The Directors who were in ofﬁ ce during the year and up to the date of signing the ﬁ nancial statements, unless stated, were: Executive Lisa Anson – Appointed 1 June 2018 Dominic Jackson – Appointed 3 November 2017 Dr Neil Murray – Resigned 3 November 2017 Non-Executive Iain Ross* Dr Bernhard Kirschbaum Peter Presland – Appointed 3 November 2017 Norman Molyneux – Resigned 3 November 2017 * Mr Ross was appointed Interim Executive Chairman on 3 November 2017 and returned to a non-executive capacity on 1 June 2018 The Company maintained Directors’ and ofﬁ cers’ liability insurance cover throughout the year. Principal activities of the Group Details of current and future trading as well as the principal risks and uncertainties are included in the Strategic Report on pages 5 – 25 . Business review The Strategic Report on pages 5 – 25 provides a review of the business, the Group’s trading for the year ended 30 September 2018, key performance indicators and an indication of future developments and risks and forms part of this Directors’ Report. Financial results and dividend The Group’s loss after tax for the year was £8.845m (2017 proﬁ t £1.528m). The Directors do not recommend the payment of a dividend. (2017 £nil). Research and development The Group is continuing to research products within its chosen areas of therapeutic focus. Employee involvement Employee involvement in the overall performance of the Group is encouraged through both formal and informal meetings which deal with a whole range of issues from the Group’s ﬁ nancial performance and future developments to health and safety issues. Copies of both the Annual Report and Interim Report are made available to all employees. Information given to the Auditor Each of the persons who is a Director at the date of approval of this Annual Report conﬁ rms that: • • So far as the Director is aware, there is no relevant audit information of which the Group’s Auditor is unaware, and The Director has taken all steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Auditor is aware of that information. Strategic report The Company has chosen in accordance with Companies Act 2006, section 414C (11) to set out in the Company’s strategic report on pages 5 to 25 information required to be contained in the Directors’ Report by Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, Sch. 7, where not already disclosed in the Directors’ Report. Independent Auditor RSM UK Audit LLP have expressed their willingness to continue in ofﬁ ce as Auditors for the ﬁ nancial year under review. A resolution to appoint Auditors will be proposed at the forthcoming Annual General Meeting. Approved by the board of Directors and signed on behalf of the board. Financial instruments Information regarding Financial instruments can be found in note 22. Lisa Anson Chief Executive Ofﬁ cer 18 November 2018 Directors’ interest in share options Details of the Directors’ interests, share options and service contracts are shown in the Directors’ Remuneration report. Redx Pharma Plc Block 33, Mereside, Alderley Park Macclesﬁ eld, SK10 4TG Company registration number: 07368089 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 29 252658 Redx Pharma AR Cover-pp41_NEW.indd 29 252658 Redx Pharma AR Cover-pp41_NEW.indd 29 21/12/2018 08:49 21/12/2018 08:49 Directors’ Responsibilities Statement The directors are responsible for preparing the Strategic Report, the Directors’ Report and the ﬁ nancial statements in accordance with applicable law and regulations. prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and ﬁ nancial information included on the Redx Pharma Plc website. Legislation in the United Kingdom governing the preparation and dissemination of ﬁ nancial statements may differ from legislation in other jurisdictions. Lisa Anson Chief Executive Ofﬁ cer Dominic Jackson Chief Financial Ofﬁ cer Company law requires the directors to prepare group and company ﬁ nancial statements for each ﬁ nancial year. The directors are required by the AIM Rules of the London Stock Exchange to prepare group ﬁ nancial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and have elected under company law to prepare the company ﬁ nancial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The group ﬁ nancial statements are required by law and IFRS adopted by the EU to present fairly the ﬁ nancial position and performance of the group; the Companies Act 2006 provides in relation to such ﬁ nancial statements that references in the relevant part of that Act to ﬁ nancial statements giving a true and fair view are references to their achieving a fair presentation. Under company law the directors must not approve the ﬁ nancial statements unless they are satisﬁ ed that they give a true and fair view of the state of affairs of the group and the company and of the proﬁ t or loss of the group for that period. In preparing each of the group and company ﬁ nancial statements, the directors are required to: a. b. c. select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; for the group ﬁ nancial statements, state whether they have been prepared in accordance with IFRSs adopted by the EU and for the company ﬁ nancial statements state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the company ﬁ nancial statements; d. prepare the ﬁ nancial statements on the going concern basis unless it is inappropriate to presume that the group and the company will continue in business. The directors are responsible for keeping adequate accounting records that are sufﬁ cient to show and explain the group’s and the company’s transactions and disclose with reasonable accuracy at any time the ﬁ nancial position of the group and the company and enable them to ensure that the ﬁ nancial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the group and the company and hence for taking reasonable steps for the 30 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR Cover-pp41_NEW.indd 30 252658 Redx Pharma AR Cover-pp41_NEW.indd 30 21/12/2018 08:49 21/12/2018 08:49 Corporate Governance Statement Governance The Board believes in the importance of corporate governance and is aware of its responsibility for overall corporate governance, and for supervising the general aff airs and business of the Company and its subsidiaries. The Company is listed on the Alternative Investment Market (‘AIM’) of the London Stock Exchange and is subject to the continuing requirements of the AIM Rules. The Board has adopted the principles set out in the Corporate Governance Code for small and mid-sized companies published by the QCA in April 2018 (‘‘QCA Code’’). This section provides general information on the Group’s adoption of the QCA Corporate Governance Code. Our Strategy, business model and approach to risk The Group’s strategy is the commercialisation of novel medicines for indications for which there are no existing or only inadequate therapies. The Group’s current focus is on indications in the ﬁ eld of oncology and ﬁ brotic diseases. The Group invests its efforts and ﬁ nancial resources into the process of identifying suitable pharmaceutical product candidates which it then intends to take through an extensive development process. The nature of this work is inherently risky. There is no certainty that any of its product candidates will progress successfully through preclinical and clinical trials and become marketable products. Redx’s internal development expertise and unique knowledge of the therapeutic areas in which it operates should however allow it to identify and develop valuable products in a manner that will substantially reduce, but which cannot eliminate, this risk in the future. All of the Group’s activities involve an ongoing assessment of risks and the Group seeks to mitigate such risks where possible. The Board has undertaken an assessment of the principal risks and uncertainties facing the Group, including those that would threaten its business model, future performance, solvency and liquidity. In addition, the Board has considered the longer-term viability of the Group including factors such as the prospects of the Group and its ability to continue in operation for the foreseeable future. The Board considers that the disclosures outlined in the Group’s Strategic Report on pages 5 to 25 , are appropriate given the stage of development of the business. The Board considers that these disclosures provide the information necessary for shareholders to assess the Group’s future viability and potential requirements for further capital to fund its operations. Having carried out a review of the level of risks that the Group is taking in pursuit of its strategy, the Board is satisﬁ ed that the level of retained risk is appropriate and commensurate with the ﬁ nancial rewards that should result from achievement of its strategy. Board of Directors During the year under review there were a number of changes to the composition of the Board as set out on page 29 . Following the Group’s exit from Administration on 2 November 2017 the Board was re-structured. On 3 November 201 7 Neil Murray, Executive Director and CEO and Norman Molyneux non-executive director both resigned and concurrently Non- Executive Chairman, Iain Ross was appointed interim Executive Chairman until Lisa Anson’s appointment as Executive Director and Chief Executive Ofﬁ cer on 1 June 2018, at which time he reverted to being Non-Executive Chairman. On 3 November 2017 Dominic Jackson was appointed as an Executive Director and Chief Financial Ofﬁ cer. Bernd Kirschbaum remained as an independent Non -Executive director throughout the period under review and on 3 November 2017, Peter Presland was appointed as an independent Non-Executive Director. As of the date of this Report the Board comprises ﬁ ve Directors in total: an independent Non-Executive Chairman, two Executive Directors and two Non-Executive Directors (both being independent), reﬂ ecting a blend of different experiences and backgrounds. The skills and experience of the Board are set out in their biographical details on pages 27 - 28. The experience and knowledge of each of the Directors give them the ability to challenge strategy constructively and to scrutinize performance. The Board is responsible to the shareholders for the proper management of the Group and meets typically bi-monthly to set the overall direction and strategy of the Group, to review scientiﬁ c, operational and ﬁ nancial performance, and to advise on management appointments. The Board has also convened, when necessary, by telephone conference during the year to review the strategy and activities of the business. All key operational and investment decisions are subject to Board approval. The Company Secretary is responsible for ensuring that Board procedures are followed and applicable rules and regulations are complied with. The number of meeting attended by each Director can be found on page 33 . There is a clear separation of the roles of Chief Executive Ofﬁ cer (CEO) and Non-Executive Chairman. The Chairman is responsible for overseeing the running of the Board, ensuring that no individual or group dominates the Board’s decision- making and ensuring the Non-Executive Directors are properly briefed on matters. The Chief Executive Ofﬁ cer has the responsibility for implementing the strategy of the Board and managing the day-to-day business activities of the Group. Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 31 252658 Redx Pharma AR Cover-pp41_NEW.indd 31 252658 Redx Pharma AR Cover-pp41_NEW.indd 31 21/12/2018 08:49 21/12/2018 08:49 Corporate Governance Statement continued Time Commitments On joining the Board, Non-Executive Directors receive a formal appointment letter, which identiﬁ es the terms and conditions of their appointment and, in particular, the time commitment expected of them. A potential Director candidate (whether an Executive Director or Non-Executive Director) is required to disclose all signiﬁ cant outside commitments prior to their appointment. The Board is satisﬁ ed that both the Chairman and the other Non-Executive Directors are able to devote sufﬁ cient time to the Group’s business. Independence of Directors The Directors acknowledge the importance of the principles of the QCA Code which recommends that a company should have at least two independent Non-Executive Directors. The Board considers it has sufﬁ cient independence on the Board and, that all the Non-Executive Directors are of sufﬁ cient competence and calibre to add strength and objectivity to the Board, and bring considerable experience in scientiﬁ c, operational and ﬁ nancial development of biopharmaceutical products and companies. Speciﬁ cally the Board has considered and d etermined that since the date of their respective appointments Bernd Kirschbaum and Peter Presland are independent in character and judgement and that they: • Have not been employees of the Company within the last ﬁ ve years; • Have not, or have not within the last three years, a material business relationship with the Group; • Have no close family ties with any of the Group’s advisers, Directors or senior employees • Do not hold cross directorships or have signiﬁ cant links with other Directors through involvement in other companies or bodies • Do not represent a signiﬁ cant shareholder. The Company Secretary maintains a register of outside interests and any potential conﬂ icts of interest are reported to the Board. The Non-Executive Directors have regular opportunities to meet without Executive Directors being present (including time after Board and Committee meetings). Professional Development Throughout their period in ofﬁ ce, the Directors are continually updated on the Group’s business, the competitive and regulatory environments in which it operates, corporate social responsibility matters and other changes affecting the Group and the industry it operates in as whole by written brieﬁ ngs and meetings with senior executives. Directors are also advised on appointment of their legal and other duties and obligations as a Director of an AIM-Listed company both in writing and in face to face meetings with the Company Secretary and Nominated Adviser (“NOMAD”). All of the Directors are subject to election by shareholders at the ﬁ rst Annual General Meeting (‘AGM’) after their appointment to the Board. Non-Executive Directors will continue to seek re-election at least once every three years. Board Committees In view of the events of the prior year the Board Committees were streamlined on exit from Administration on 2 November 2017. As was stated in the 2017 Annual Report there is no longer a separate Nominations and Corporate Governance Committee as these matters are deemed sufﬁ ciently important such that the full Board will address these matters going forward. The full terms of reference of the Board committees are published on the Group’s website at www. Redxpharma.com. Audit Risk & Disclosure Committee During the year under review, and with effect from the exit from Administration on 2 November 2017, the members of the Audit, Risk & Disclosure Committee were Mr Peter Presland, Mr Iain Ross and Mr Bernd Kirschbaum. Mr Peter Presland is the Chairman of the Committee. The responsibilities of the committee include the following: • Monitoring the integrity of the ﬁ nancial statements of the Group • Reviewing accounting policies, accounting treatment and disclosures in the ﬁ nancial reports • Reviewing the Group’s internal ﬁ nancial controls and risk management systems • Overseeing the Group’s relationship with external auditors, including making recommendations to the Board as to the appointment or re-appointment of the external auditors, reviewing their terms of engagement, and monitoring the external auditors’ independence, objectivity and effectiveness. During the year, the Committee met to review audit planning and ﬁ ndings with regard to the Annual Report, and planning and ﬁ ndings from the review of the interim Financial Statements. In addition it reviewed the appointment of auditors, and after a tender process involving a number of ﬁ rms, agreed unanimously to re-elect RSM UK Audit LLP. Remuneration Committee During the year under review, and with effect from the exit from Administration on 2 November 2017, the members of the Remuneration Committee were Dr Bernd Kirschbaum, Mr Iain Ross and Mr Peter Presland. Dr Bernd Kirschbaum is the Chairman of the Remuneration Committee. The responsibilities of the committee include the following: • Determining and agreeing with the Board on the remuneration policy for all Directors. 32 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR Cover-pp41_NEW.indd 32 252658 Redx Pharma AR Cover-pp41_NEW.indd 32 21/12/2018 08:49 21/12/2018 08:49 Corporate Governance Statement continued Governance • Within the terms of the agreed policy, determining the total individual remuneration package for Executive Directors. • an annual budget set by the Board with regular review of progress; • Overseeing the evaluation of executive ofﬁ cers. • monthly management accounts; • Determining bonuses payable under the Group’s cash • dual bank signatories for all payments with pre-determined bonus scheme. authority limits for speciﬁ c Directors and employees; • Determining the vesting of awards under the Group’s long- • regular meetings of Executive Directors and Senior term incentive plans and exercise of share options. During the year it met to discuss staff remuneration, options packages, bonus schemes and remuneration packages for new Directors. managem ent to review management information and follow up on operational issues or investigate a ny exceptional circumstances: • a risk register; The Directors’ Remuneration Report is presented on pages 36 to 38 . • clear levels of authority, delegation and management structure; Attendance at meetings The Board meets regularly on a bi-monthly basis, together with further meetings as required. The Audit and Remuneration committees meet as required, but with a minimum of two meetings each year. The Directors attended the following meetings during the year: Audit Remuneration 6/6 7/7 Mr Iain Ross Mrs Lisa Anson (appointed 1 Jun 2018) Mr Dominic Jackson (appointed 3 Nov 2017) Board* 10/10 2/2 9/10 Dr Bernd Kirschbaum 10/10 6/6 Mr Peter Presland (appointed 3 Nov 2017) Dr Neil Murray (resigned 3 Nov 2017) Mr Norman Molyneux (resigned 3 Nov 2017) 10/10 6/6 Nil Nil 7/7 7/7 * No Board meetings were held during the period of Administration ending on 2 November 2017. Risk Management and Internal Control The Board is responsible for the systems of internal controls and for reviewing their effectiveness. The internal controls are designed to manage rather than eliminate risk and provide reasonable but not absolute assurance against material misstatement or loss. The Board reviews the effectiveness of these systems annually by considering the risks potentially affecting the Group. Redx is an entrepreneurial company with strong ﬁ nancial and management controls within the business. Examples of control procedures include: • Board review and approval of signiﬁ cant contracts and overall project spend; • a Quality Management System to support the clinical trial activities the Company conducts, ensuring compliance with clinical trial legislation and guidelines; • annual audits and other contractor management procedures to ensure good vendor performance; • restriction of user access to IT systems; and ongoing review of the need for IP protection of core assets and processes. The Company’s system of internal control is designed to safeguard the Company’s assets and to ensure the reliability of information used within the business. The system of controls manages appropriately, rather than eliminates, the risk of failure to achieve business objectives and provides reasonable, but not absolute, assurance against material misstatement or loss. The Group does not consider it necessary to have an internal audit function due to the small size of the administrative function. Instead there is a detailed monthly review and authorisation of transactions by the Chief Financial Ofﬁ cer and Chief Executive Ofﬁ cer. The independent Auditor does not perform a comprehensive review of internal control procedures, but reports to the Audit Committee on the outcomes of its annual audit process. The Board conﬁ rms that the effectiveness of the system of internal control, covering all material controls including ﬁ nancial, operational and compliance controls and risk management systems, has been reviewed during the year under review and up to the date of approval of the Annual Report. The Group maintains appropriate insurance cover in respect of actions taken against the Directors because of their roles, as well as against material loss or claims against the Group. The insured values and type of cover are comprehensively reviewed on a periodic basis. Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 33 252658 Redx Pharma AR Cover-pp41_NEW.indd 33 252658 Redx Pharma AR Cover-pp41_NEW.indd 33 21/12/2018 08:49 21/12/2018 08:49 Corporate Governance Statement continued Board eff ectiveness and performance evaluation The Board is mindful that it needs to continually monitor and identify ways in which it might improve its performance and recognises that board evaluation is a useful tool for enhancing a board’s effectiveness. Alongside the formal annual evaluation, the Chairman routinely assesses the performance of the Board and its members and discusses any problems or shortcomings with the relevant Directors. As a consequence, during the period, the Board has undertaken a rigorous and formal annual evaluation of its own performance, balance of skills, experience, independence, diversity (including gender diversity) and other factors relevant to its effectiveness (and also of that of its Committees) and the performance of its individual Directors. During the review, the Chairman undertook a formal discussion with the other Non-Executive Directors regarding the performance of the Board and its Committees and the other Non-Executive Directors’ own individual contributions and performance. In preparation, the Chairman solicited the views of the other Directors, including the completion by each Director of a conﬁ dential questionnaire. With regard to the evaluation of the Board itself, the discussions focused in particular on: • Board roles and responsibilities; • the Board’s contribution to developing and testing strategy and to risk management; • the composition of the Board (i.e. mix of skills, experience and expertise); • the effectiveness of internal and external relationships and communication; • the effectiveness in anticipating and responding to challenges and crises; • the effectiveness of Board Committees; and the ﬂ exibility of the Board in dealing with a wide range issues. The evaluation of the performance of individual Directors encompassed: • preparation and meeting attendance; • preparedness to understand key Company issues; • quality of contribution at Board and Committee meetings; • contribution to the development of strategy and risk management; • use of previous experience to contribute to key issues and strategy; • building successful relationships with other Board members, management and advisers; and communication with and inﬂ uence on other Board members, management and key Shareholders. In addition to the above, the Chairman was evaluated on his: • effective leadership of the Board; • management of relationships and communications with Shareholders; • identiﬁ cation of development needs of individual Directors with a view to enhancing the overall effectiveness of the Board as a team; • promotion of the highest standards of corporate governance; and management of Board meetings and ensuring effective implementation of Board decisions. Following the reviews, the Chairman shared his observations and any actions arising, where appropriate, with the other Non-Executive Directors and the Executive Directors. These individual evaluations aim to conﬁ rm that each Director continues both to contribute effectively and to demonstrate commitment to the role (including the allocation of necessary time for preparation and attendance at Board and Committee meetings and any other duties). The Chief Executive Ofﬁ cer reports to the Board and the Chairman reviews her performance on behalf of the Board. The Chief Executive Ofﬁ cer reviews the performance of the other Executive Director. The Executive Directors and the other Non-Executive Directors are responsible for evaluating the performance of the Chairman. Following the 2018 evaluation process, the Company considers that the Board and its individual members continue to perform effectively, that the Chairman performs his role appropriately and that the process for evaluation of his performance has been conducted in a professional and rigorous manner. Corporate Social Responsibility The Board recognises the growing awareness of social, environmental and ethical matters and it endeavours to take into account the interest of the Group’s stakeholders, including its investors, employees, suppliers and business partners, when operating the business. Employment The Group endeavours to appoint employees with appropriate skills, knowledge and experience for the roles they undertake and thereafter to develop and incentivise staff. • effectiveness in challenging assumptions, in maintaining own views and opinions and in following up main areas of concern; The Board recognises its legal responsibility to ensure the well- being, safety and welfare of its employees and maintain a safe and healthy working environment for them and for its visitors. 34 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR Cover-pp41_NEW.indd 34 252658 Redx Pharma AR Cover-pp41_NEW.indd 34 21/12/2018 08:49 21/12/2018 08:49 Corporate Governance Statement continued Governance Relations with shareholders The Board recognises the importance of communication with its shareholders to ensure that its strategy and performance is understood and that it remains accountable to shareholders. The website, www.redxpharma.com, has a section dedicated to investor matters and provides useful information for the Company’s shareholders. The Board as a whole is responsible for ensuring that a satisfactory dialogue with shareholders takes place, while the Chairman and Chief Executive Ofﬁ cer ensure that the views of the shareholders are communicated to the Board as a whole. The Board ensures that the Group’s strategic plans have been carefully reviewed in terms of their ability to deliver long-term shareholder value. Fully audited Annual Reports are published, and Interim Results statements notiﬁ ed via Regulatory Information Service announcements. All ﬁ nancial reports and statements are available on the Company’s website. During the period under review the Board believes that the communication with the Shareholders has been effective in that Iain Ross and/or Lisa Anson have had meetings and/or calls with the majority of institutional shareholders, high net worth shareholders and during the period there have been several shareholder brieﬁ ng sessions involving Directors and senior managers. Shareholders are welcome to attend the Group’s AGM, where they have the opportunity to meet the Board. All shareholders will have at least 21 days’ notice of the AGM at which the Directors will be available to discuss aspects of the Group’s performance and question management in more detail. The Board is committed to continued engagement with its shareholders. The Board believes that the Group has a strong governance culture and this has been re-inforced by the adoption of the QCA Code and recognition of the 12 principles of corporate governance set out in the QCA Code, which the Board continually considers in a manner appropriate for a company of its size. (cid:1) Iain G. Ross Chairman Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 35 252658 Redx Pharma AR Cover-pp41_NEW.indd 35 252658 Redx Pharma AR Cover-pp41_NEW.indd 35 21/12/2018 08:49 21/12/2018 08:49 Directors’ Remuneration Report This report sets out the remuneration policy operated by Redx in respect of the Executive and Non-Executive Directors. The remuneration policy is the responsibility of the Remuneration Committee, a sub-committee of the Board. No Director is involved in discussions relating to their own remuneration. Remuneration policy for Executive Directors The Remuneration Committee sets a remuneration policy that aims to align Executive Directors’ remuneration with shareholders’ interests and attract and retain the best talent for the beneﬁ t of the Group. The remuneration of the Executive Directors during the year 2017/18 is set out below. Basic salary Executive Directors service contracts and termination provisions The service contracts of Executive Directors are approved by the Board. The service contract may be terminated by either party giving notice to the other. The details of the Directors’ contracts are summarised below: Date of Contract Notice period Lisa Anson 1 June 2018 Dominic Jackson 3 November 2017 6 months 3 months Basic salaries are reviewed annually. The review process is managed by the Remuneration Committee with reference to market salary data, and the Executive Directors’ performance and contribution to the Group during the year. Mrs Lisa Anson was appointed CEO and an Executive Director on 1 June 2018. She is paid £300,000 per annum and qualiﬁ es for employee beneﬁ ts including participation in the annual performance bonus and option schemes. Bonuses Annual bonuses are based on achievement of Group strategic and ﬁ nancial targets, and personal performance objectives. The Non-Executive Directors believe that bonuses are an incentive to achieve the targets and objectives, and represent an important element of the total compensation awards to the Executive Directors. Longer term incentives In order to further incentivise the Executive Directors and employees, and align their interests with shareholders, the Company has granted share options in the current and previous years. The share options will vest at various future dates as described in the table on page 38 . There are no conditions attached to vesting other than service conditions. Pension The Group operates a deﬁ ned contribution pension scheme which is available to all employees. The assets of the scheme are held separately from those of the Group in independently administered funds. Mr Dominic Jackson was appointed CFO and an Executive Director, on 3 November 2017. He is paid £100,000 per annum and qualiﬁ es for employee beneﬁ ts including participation in the annual performance bonus and option schemes. Non-Executive Directors’ service contracts and remuneration The remuneration of the Non-Executive Directors is determined by the Remuneration Committee, with regard to market comparatives, and independent advice is sought to ensure parity is maintained with similar businesses. The Non-Executive Directors do not receive any pension, bonus, beneﬁ ts or option grants from the Group. The Non- Executive Directors Letters of Appointment are reviewed by the Board annually. 36 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR Cover-pp41_NEW.indd 36 252658 Redx Pharma AR Cover-pp41_NEW.indd 36 21/12/2018 08:49 21/12/2018 08:49 Directors’ Remuneration Report continued Governance Directors’ remuneration The Directors received the following remuneration during the year: Salaries, bonuses and fees £ Pension contributions £ Share based payments £ Total 2017/18 £ Salaries, bonuses and fees £ Pension contributions £ Share based payments £ Total 2016/17 £ Executive L Anson1 D Jackson2 Dr N Murray3 100,000 91,667 243,974 8,787 4,583 949 Non-Executive Iain Ross4 *1250,000 Dr B Kirschbaum P Presland5 N Molyneux6 F Armstrong7 P Jackson8 P McPartland9 D Lawrence10 46,000 41,250 3,833 - - - - - - - - - - - - 62,875 171,662 22,708 118,958 - - - - - - - - - - - - - - - - - 244,923 200,000 10,000 4,021 214,021 250,000 *283,333 46,000 41,250 46,000 - 3,833 *271,000 - - - - 33,000 19,000 23,000 32,604 - - - - - - - - - - - 83,333 46,000 - 4,021 75,021 12,699 45,699 4,021 23,021 - - 23,000 32,604 776,724 14,319 85,583 876,626 507,937 10,000 24,762 542,699 L. Anson was appointed as a Director on 1 June 2018. I. Ross was appointed as a Director on 1 May 2017. P. Presland was appointed as a Director on 3 November 2017. 1 2 D. Jackson was appointed as a Director on 3 November 2017. 3 Dr N. Murray resigned as a Director on 3 November 2017, payments reﬂ ect contractual obligations. 4 5 6 N. Molyneux resigned as a Director on 3 November 2017. F. Armstrong resigned as a Director on 20 April 2017. 7 P. Jackson resigned as a Director on 31 March 2017. 8 P. McPartland resigned as a Director on 20 April 2017. 9 10 D. Lawrence resigned as a Director on 14 August 2017. *1 Includes additional payments as detailed below totalling £120,000 relating to the period as Executive Chairman, and a bonus of £50,000 paid on 30 June 2018 relating to the successful appointment of, and handover to the new CEO. In addition to their non-executive Directors’ fees, Mr I Ross and Mr N Molyneux received one-off bonuses of £50,000 and £25,000 respectively to recognise the additional work undertaken whilst the Company was in Administration. These amounts are included in the remuneration table above. *2 In addition to Mr N. Molyneux’s remuneration in 2016/17 and 2017/18 disclosed above, £6,000 (2017: £90,000) was paid for consultancy and secretarial services to Acceleris Capital Ltd, a related party (note 28). In addition to Dr F. Armstrong’s remuneration in 2016/17 disclosed above, expenses of £2,000 were paid to Dr Frank M. Armstrong Consulting Ltd, a related party as detailed in note 28. No compensation for loss of ofﬁ ce was paid in the years ended 30 September 2018 or 30 September 2017. Consequential arrangements upon exiting Administration on 2 November 2017 Dr Neil Murray resigned from the Board and his contractual obligations were met. For the avoidance of doubt, he did not receive an annual bonus for 2016/17 nor did he receive any compensation for loss of ofﬁ ce. Mr Norman Molyneux resigned from the Board and did not receive any compensation for loss of ofﬁ ce. On 3 November 2017 Iain Ross was appointed Interim Executive Chairman and was paid an additional monthly fee of £15,000 up until one month following the appointment of the CEO. Mr Ross then reverted to being non-executive Chairman. Mr Ross, Mr Presland and Dr Kirschbaum will not participate in the Group Option Scheme. Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 37 252658 Redx Pharma AR Cover-pp41_NEW.indd 37 252658 Redx Pharma AR Cover-pp41_NEW.indd 37 21/12/2018 08:49 21/12/2018 08:49 Directors’ Remuneration Report continued Directors’ shareholdings The Directors who served during the year, together with their beneﬁ cial interest in the shares of the Company are as follows: Ordinary shares of 1p each Executive L Anson D Jackson N Murray Non-Executive I Ross P Presland B Kirschbaum N Molyneux *As at the date of resignation on 3 November 2017. Directors Share options At 30 September 2018 At 1 October 2017 - - - - *1,293,655 1,293,655 600,000 120,000 50,000 *283,436 - - - 283,436 Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire Ordinary Shares in the Company granted to or held by the Directors. There are no performance conditions attached to the vesting of these options other than service conditions. Details of the options are as follows: At 1 October 2017 Granted during the period/ (exerc’d) At 30 September 2018 Price per share (p) Date from which exercisable Expiry date Date of grant 1-June-18 1-June-18 1-June-18 1-June-18 1-June-18 1-June-18 21-Dec-17 21-Dec 17 21-Dec 17 Director L Anson D Jackson N Murray 26-March-15 26-March-15 26-March-15 25,050 24,975 24,975 75,000 N Molyneux 26-March-15 200,475 26-March-15 26-March-15 24,975 24,975 250,425 - - - - - - - - - - - 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 3,600,000 3,600,000 166,666 166,667 166,667 500,000 - - - - - - - - 166,666 166,667 166,667 500,000 25,050 24,975 24,975 75,000 200,475 24,975 24,975 250,425 13.75 2-June-20 1-June-28 20.0 27.0 35.0 42.5 50.0 22.0 33.0 50.0 2-June-20 1-June-28 2-June-20 1-June-28 2-June-20 1-June-28 2-June-20 1-June-28 2-June-20 1-June-28 22-Dec 19 21-Dec-27 22-Dec 19 21-Dec-27 22-Dec 19 21-Dec-27 85.0 27-March-15 26-March-25 85.0 27-March-16 26-March-25 85.0 27-March-17 26-March-25 85.0 27-March-15 26-March-25 85.0 27-March-16 26-March-25 85.0 27-March-17 26-March-25 The options held by N. Murray and N. Molyneux remain for a period of 5 years from their date of resignation. Bernd Kirschbaum Chairman of the Remuneration Committee 38 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR Cover-pp41_NEW.indd 38 252658 Redx Pharma AR Cover-pp41_NEW.indd 38 21/12/2018 08:49 21/12/2018 08:49 Independent Auditor’s report to the members of Redx Pharma Plc Governance Opinion We have audited the ﬁ nancial statements of Redx Pharma Plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 30 September 2018 which comprise the consolidated statement of comprehensive income, the consolidated statement of ﬁ nancial position, the consolidated statement of changes in equity, the consolidated statement of cash ﬂ ows and notes to the consolidated ﬁ nancial statements, including a summary of signiﬁ cant accounting policies, the company statement of ﬁ nancial position, the company statement of changes in equity and notes to the company ﬁ nancial statements, including a summary of signiﬁ cant accounting policies. The ﬁ nancial reporting framework that has been applied in the preparation of the group ﬁ nancial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The ﬁ nancial reporting framework that has been applied in the preparation of the parent company ﬁ nancial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice). In our opinion: • the ﬁ nancial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 30 September 2018 and of the group’s loss for the year then ended; • • • the group ﬁ nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company ﬁ nancial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and the ﬁ nancial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the ﬁ nancial statements section of our report. We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the ﬁ nancial statements in the UK, including the FRC’s Ethical Standard as applied to SME listed entities and we have fulﬁ lled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufﬁ cient and appropriate to provide a basis for our opinion. Material uncertainty related to going concern We draw attention to the accounting policy on going concern on page 49 of the ﬁ nancial statements, which indicates that the cash ﬂ ow forecast prepared by the directors estimate that the Group has sufﬁ cient funds to support the current level of activities into the second quarter of 2019 and therefore needs to raise additional funds. As stated in the accounting policy on going concern, these events or conditions, along with the other matters as set forth on page 49 indicate that a material uncertainty exists that may cast signiﬁ cant doubt on the Group’s ability to continue as a going concern. Our opinion is not modiﬁ ed in respect of this matter. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most signiﬁ cance in our audit of the ﬁ nancial statements of the current period and include the most signiﬁ cant assessed risks of material misstatement (whether or not due to fraud) we identiﬁ ed, including those which had the greatest effect on the overall audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the ﬁ nancial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Onerous lease provision (Refer to page 50 regarding the accounting policy in respect of provisions, page 52 in respect of critical judgements and estimates applied by the Directors and note 21 to the ﬁ nancial statements on page 60 ). The risk As disclosed in note 21 the Group has made a provision at the period end in respect of an onerous leave provision due to the Group vacating certain leased units. As a consequence, there is a signiﬁ cant judgement in respect of the value of this provision at the period end. At the 30 September 2018, the carrying value of the provision amounted to £782k (2017: £nil) in the Consolidated Statement of Financial Position. Our response We obtained management’s onerous lease provision assessment and underlying calculations prepared to support the carrying value of the ﬁ nancial provision. We have audited these costs, where applicable, by checking back to the existing lease agreements. In addition, we reviewed and challenged the assumptions made by the directors in respect of the overall expected future lease costs, proposed discount rate and assumed vacancy. Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 39 252658 Redx Pharma AR Cover-pp41_NEW.indd 39 252658 Redx Pharma AR Cover-pp41_NEW.indd 39 21/12/2018 08:49 21/12/2018 08:49 Independent Auditor’s report to the members of Redx Pharma Plc continued Carrying value of intra-group balances in the company balance sheet (Refer to page 52 regarding the accounting policy in respect of Trade and other receivables and Group debtors, page 52 in respect of critical judgements and estimates applied by the Directors and note 9 to the ﬁ nancial statements on page 55 ). The risk The Company has material receivables from subsidiary undertakings that are currently loss making. As a consequence, there is a signiﬁ cant risk that these are impaired and need to be written down. At the 30 September 2018, the carrying value of amounts due from group undertakings amounted to £13,835k (2017: £4,330k) in the Company Statement of Financial Position. Our response We identiﬁ ed amounts due from each subsidiary undertaking and discussed with management whether each balance was recoverable taking into account the strategic plans established by the board in respect of each subsidiary undertaking. We also obtained management’s impairment review and underlying calculations prepared to support the carrying value of the ﬁ nancial assets. We reviewed forecasts and considered whether they were consistent with the forecasts prepared by management in relation to going concern. In addition, we reviewed and challenged the assumptions utilised in the model and as many of these were based on publicly available information, we agreed a sample of these back to supporting information. Our application of materiality When establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, timing and extent of our audit procedures and to evaluate the effects of misstatements, both individually and on the ﬁ nancial statements as a whole. During planning we determined a magnitude of uncorrected misstatements that we judge would be material for the ﬁ nancial statements as a whole (FSM). During planning FSM was calculated as £286,000, which was updated during the course of our audit to £307,000. We agreed with the Audit Committee that we would report to them all unadjusted differences in excess of £10,000, as well as differences below those thresholds that, in our view, warranted reporting on qualitative grounds. An overview of the scope of our audit The audit was scoped to ensure that the audit team obtained sufﬁ cient and appropriate audit evidence in relation to signiﬁ cant operations of the Group during the year ended 30 September 2018. This included the performance of full statutory audits on each of the subsidiary undertakings. As part of our planning we assessed the risk of material misstatement including those that required signiﬁ cant auditor consideration at the component and group level. Procedures were designed and performed to address the risk identiﬁ ed and for the most signiﬁ cant assessed risks of material misstatement, the procedures performed are outlined above in the key audit matters section of this report. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the ﬁ nancial statements and our auditor’s report thereon. Our opinion on the ﬁ nancial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the ﬁ nancial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the ﬁ nancial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the ﬁ nancial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • • the information given in the Strategic Report and the Directors’ Report for the ﬁ nancial year for which the ﬁ nancial statements are prepared is consistent with the ﬁ nancial statements; and the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. 40 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR Cover-pp41_NEW.indd 40 252658 Redx Pharma AR Cover-pp41_NEW.indd 40 21/12/2018 08:49 21/12/2018 08:49 Independent Auditor’s report to the members of Redx Pharma Plc continued Governance A further description of our responsibilities for the audit of the ﬁ nancial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Graham Bond FCA (Senior Statutory Auditor) For and on behalf of RSM UK Audit LLP, Statutory Auditor Chartered Accountants 3 Hardman Street Manchester M3 3HF 18 November 2018 Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identiﬁ ed material misstatements in the Strategic Report or the Directors’ Report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • • • • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company ﬁ nancial statements are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration speciﬁ ed by law are not made; or we have not received all the information and explanations we require for our audit. Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 30 , the directors are responsible for the preparation of the ﬁ nancial statements and for being satisﬁ ed that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of ﬁ nancial statements that are free from material misstatement, whether due to fraud or error. In preparing the ﬁ nancial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the ﬁ nancial statements Our objectives are to obtain reasonable assurance about whether the ﬁ nancial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to inﬂ uence the economic decisions of users taken on the basis of these ﬁ nancial statements. Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 41 252658 Redx Pharma AR Cover-pp41_NEW.indd 41 252658 Redx Pharma AR Cover-pp41_NEW.indd 41 21/12/2018 08:49 21/12/2018 08:49 Financial Statements 252658 Redx Pharma AR pp42-pp46_NEW.indd 42 252658 Redx Pharma AR pp42-pp46_NEW.indd 42 21/12/2018 08:50 21/12/2018 08:50 Consolidated Statement of Comprehensive Income For the year ended 30 September 2018 Financial Statements Continuing operations Revenue Operating expenses Onerous lease charge RGF clawback Costs of Administration Write-off of derivative instrument Other Administration costs Non-recurring reorganisation costs Derecognition of non-current asset Release of accrued accommodation expenses Share based compensation Other operating income (Loss)/proﬁ t from operations Finance costs Finance income (Loss)/proﬁ t before taxation Income tax Total comprehensive (loss)/proﬁ t for the year attributable to owners of Redx Pharma Plc (Loss)/earnings per share (pence) From continuing operations Basic Diluted Note 2 10 21 3 6 1 4 17 5 7 8 9 9 11 12 12 Year ended 30 September 2018 £’000 Year ended 30 September 2017 £’000 129 (10,606) (752) - - (177) (215) - 548 (282) 1,186 (10,169) (1) 24 (10,146) 1,301 30,474 (15,768) - (6,086) (3,560) (2,930) (791) (641) - (13) 1,291 1,976 (368) 38 1,646 (118) (8,845) 1,528 (7.0) (7.0) 1.4 1.4 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 43 252658 Redx Pharma AR pp42-pp46_NEW.indd 43 252658 Redx Pharma AR pp42-pp46_NEW.indd 43 21/12/2018 08:50 21/12/2018 08:50 Consolidated Statement of Financial Position At 30 September 2018 Company No. 7368089 Assets Non-current assets Property, plant and equipment Intangible assets Total non-current assets Current assets Trade and other receivables Current tax Cash and cash equivalents Total current assets Total assets Liabilities Current liabilities Trade and other payables Provisions Total current liabilities Non-current liabilities Provisions Total liabilities Net assets Equity Share capital Share premium Share-based compensation Capital redemption reserve Retained deﬁ cit Equity attributable to shareholders Note 14 15 18 19 20 21 21 24 25 2018 £’000 191 423 614 2,023 1,211 6,471 9,705 2017 £’000 222 430 652 2,588 643 23,806 27,037 10,319 27,689 3,803 147 3,950 605 13,362 - 13,362 - 4,555 13,362 5,764 14,327 1,265 33,263 1,162 1 (29,927) 5,764 1,265 33,263 880 1 (21,082) 14,327 The ﬁ nancial statements were approved and authorised for issue by the Board on 18 November 2018 and were signed on its behalf by : Lisa Anson Director 44 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR pp42-pp46_NEW.indd 44 252658 Redx Pharma AR pp42-pp46_NEW.indd 44 21/12/2018 08:50 21/12/2018 08:50 Consolidated Statement of Changes in Equity For the year ended 30 September 2018 Financial Statements At 1 October 2016 Share options exercised Share issue Share issue costs Transactions with owners in their capacity as owners Proﬁ t and total comprehensive income for the year Share based compensation Movement in year At 30 September 2017 Transactions with owners in their capacity as owners Loss and total comprehensive income for the period Share based compensation Movement in year Share capital £’000 936 1 328 - Share premium £’000 22,526 69 11,966 (1,298) 329 10,737 - - 329 1,265 - - 10,737 33,263 - - - - - - - - At 30 September 2018 1,265 33,263 Share based payment £’000 867 Capital Redemption Reserve £’000 Retained Deﬁ cit £’000 1 (22,610) Total Equity £’000 1,720 70 12,294 (1,298) 11,066 1,528 13 12,607 14,327 - - - - 1,528 - 1,528 (21,082) - - (8,845) - (8,845) (29,927) (8,845) 282 (8,563) 5,764 - - - - - 13 13 880 - - 282 282 1,162 - - - - - - - 1 - - - - 1 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 45 252658 Redx Pharma AR pp42-pp46_NEW.indd 45 252658 Redx Pharma AR pp42-pp46_NEW.indd 45 21/12/2018 08:50 21/12/2018 08:50 Consolidated Statement of Cash Flows For the year ended 30 September 2018 Net cash ﬂ ows from operating activities (Loss)/proﬁ t for the year Adjustments for: Income tax Finance costs Finance income Depreciation and amortisation Share based compensation Onerous lease provision Release of accrued accommodation expenses Derecognition of non-current asset Write-off of derivative asset Proﬁ t on disposal of assets Movements in working capital Decrease/(increase) in trade and other receivables (Decrease)/increase in trade and other payables Cash (used in)/generated by operations Tax credit received Interest received Year ended 30 September 2018 £’000 Year ended 30 September 2017 £’000 Note (8,845) 1,528 (1,301) 1 (24) 164 282 752 (548) - - (17) 572 (8,963) (17,927) 727 23 118 368 (38) 327 13 - - 641 3,560 (107) (1,185) 8,871 14,096 - 2 Net cash (used in)/generated by operations (17,177) 14,098 Cash ﬂ ows from investing activities Purchase of Intangible assets Sale of property, plant and equipment Purchase of property, plant and equipment Net cash (used in) investing activities Cash ﬂ ows from ﬁ nancing activities Proceeds from share issue Share issue costs Purchase of derivative ﬁ nancial instrument Receipt from derivative ﬁ nancial instrument Interest paid Loan repaid by AMR Centre LCC loan repaid Net cash (used in)/from ﬁ nancing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year 19 - 23 (132) (109) - - - - (49) - - (49) (17,335) 23,806 6,471 (121) 124 (33) (30) 12,364 (1,298) (3,666) 106 (1,551) 25 (2,000) 3,980 18,048 5,758 23,806 As at 30 September 2017, £23.7m of the above amount was held in bank accounts operated by FRP Advisory LLP. All cash from these accounts was returned to the control of the directors of the relevant companies on exit from Administration. 46 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR pp42-pp46_NEW.indd 46 252658 Redx Pharma AR pp42-pp46_NEW.indd 46 21/12/2018 08:50 21/12/2018 08:50 Notes to the Financial Statements Financial Statements Accounting policies The principal accounting policies adopted in the preparation of these ﬁ nancial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of preparation Redx Pharma Plc (“Redx” or “the Company”) is a public limited company incorporated in the UK as Redx Pharma Ltd on 7 September 2010, and domiciled in the UK. Its shares are listed on AIM, a market operated by The London Stock Exchange. The principal activity of the Group is drug discovery, pre-clinical development and licensing. The Group ﬁ nancial statements are presented in pounds Sterling, which is the Group’s presentational currency, and all values are rounded to the nearest thousand (£000) except where indicated otherwise. They have been prepared under the historical cost convention and in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS) and with those parts of the Companies Acts 2006 applicable to entities reporting under IFRS. New standards, amendments and interpretations adopted during the year ended 30 September 2018. The IASB and IFRIC have issued the following standards and interpretations which the Directors consider relevant to the group and have been adopted during the year. The adoption of these standards and interpretations has not had a material impact on the Group. Standard Key requirements Amendments to IAS 7, Disclosure Initiative The amendments require additional disclosures to be made regarding changes in liabilities arising from ﬁ nancing activities to enable users of ﬁ nancial statements to better understand changes in the Group’s debt. Having reviewed the Group’s liabilities, the Directors do not expect adoption of these amendments to have a material impact on the Group. Amendments to IAS 12, Recognition of Deferred Tax The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable proﬁ ts against which it may make deductions on the reversal of unrealised losses on debt instruments measured at fair value. As the Group currently has no debt instruments measured at fair value, the Directors do not expect adoption of these amendments to have an impact on the Group. New standards, amendments and interpretations issued but not effective for the ﬁ nancial year beginning 1 October 2017 and not early adopted. The IASB and IFRIC have issued the following standards and interpretations with effective dates as noted below: Standard Key requirements IFRS 9, Financial Instruments Annual IFRS Improvements Process (2015-17) IFRS 15, Revenue from Contracts with Customers This standard replaces IAS 39. Whilst the standard changes the basis of measurement of ﬁ nancial assets, introduces a new impairment model and changes the hedge accounting provisions the directors do not expect the implementation of the new standard to have a material impact on our reported results or ﬁ nancial position. The 2017 Annual improvements cycle covered amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards, IAS 28 Investments in Associate s and Joint Ventures and IFRS 12 Disclosure of Interests in Other Entities. The standard speciﬁ es how and when a company will recognise revenue as well as requiring such entities to provide users of ﬁ nancial statements with more informative, relevant disclosures. The standard provides a single, principles based, ﬁ ve-step model to be applied to all contracts with customers. Having considered the impact of the new standard on the recognition of the income from the sale of the BTK programme, the directors do not expect the implementation of the new standard to have a material impact on how it is recognised and measured revenue in the current period. Effective date (for annual periods beginning on or after) 1 January 2018 1 January 2019 1 January 2018 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 47 252658 Redx Pharma AR pp47-pp66_NEW1.indd 47 252658 Redx Pharma AR pp47-pp66_NEW1.indd 47 21/12/2018 08:51 21/12/2018 08:51 Notes to the Financial Statements continued Standard Key requirements Effective date (for annual periods beginning on or after) 1 January 2019 IFRS 16, Leases Amendments to IFRS 2: Classiﬁ cation and Measurement of Share-based Payment Transactions IFRIC 22, Foreign Currency Transactions and Advance Consideration The standard requires lessees to account for all leases under a single on- balance sheet model in a similar way to ﬁ nance leases under IAS 17. At the commencement date of a lease, a lessee will recognise a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term. Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right of use asset. The group is still assessing the impact of this standard on the ﬁ nancial statements and have not yet quantiﬁ ed this. The amendment clariﬁ es how to account for certain types of share-based payment transactions and provide requirements on the accounting for: 1 January 2018 – the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments; – share-based payment transactions with a net settlement feature for withholding tax obligations; and – a modiﬁ cation to the terms and conditions of a share-based payment that changes the classiﬁ cation of the transaction from cash-settled to equity- settled. The interpretation clariﬁ es that in determining the spot exchange rate to use on initial recognition of a related asset, expense or income on the derecognition of a non-monetary asset or liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or liability arising from the advance consideration. As the Group has not been involved in any transactions including advance consideration in foreign currencies, the Directors do not expect adoption of this interpretation to have an impact on the Group. 1 January 2018 IFRIC 23 Uncertainty over Income Tax Treatment The interpretation is to be applied to the determination of taxable proﬁ t (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. 1 January 2019 There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group. Basis of consolidation The consolidated ﬁ nancial statements incorporate the ﬁ nancial statements of the Company and entities controlled by the Company. Control is achieved when the Company has the power over the investee; is exposed, or has rights, to variable return from its involvement with the investee; and, has the ability to use its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Speciﬁ cally, the results of subsidiaries acquired or disposed of during the period are included in the Consolidated Statement of Comprehensive Income from the date the Company gains control until the date when the Company ceases to control the subsidiary. During the period of Administration, Redx Pharma Plc retained control of all its’ subsidiary undertakings within the elements of control listed above. Where necessary, adjustments are made to the ﬁ nancial statements of subsidiaries to bring the accounting policies used into line with the Group’s accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash ﬂ ows relating to transactions between the members of the Group are eliminated on consolidation. Business Combinations Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets transferred by or to the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued by the Group in exchange for control of the acquiree. Acquisition related costs are recognised in proﬁ t or loss as incurred. 48 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR pp47-pp66_NEW1.indd 48 252658 Redx Pharma AR pp47-pp66_NEW1.indd 48 21/12/2018 08:51 21/12/2018 08:51 Notes to the Financial Statements continued Financial Statements At the acquisition date, the identiﬁ able assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that: – – deferred tax assets or liabilities and assets or liabilities related to employee beneﬁ t arrangements are recognised and measured in accordance with IAS 12 ‘Income Taxes’ and IAS 19 ‘Employee Beneﬁ ts’ respectively; and assets (or disposal groups) that are classiﬁ ed as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition date amounts of the identiﬁ able assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition date amounts of the identiﬁ able assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in proﬁ t or loss as a bargain purchase gain. Going concern As part of their going concern review the Directors have followed the guidelines published by the Financial Reporting Council entitled “Guidance on the Going Concern Basis of Accounting and Reporting on Solvency Risks – Guidance for directors of companies that do not apply the UK Corporate Governance Code”. The Group and Parent Company are subject to a number of risks similar to those of other development stage pharmaceutical companies. These risks include, amongst others, generation of revenues in due course from the development portfolio and risks associated with research, development, testing and obtaining related regulatory approvals of its pipeline products. Ultimately, the attainment of proﬁ table operations is dependent on future uncertain events which include obtaining adequate ﬁ nancing to fulﬁ l the Group’s commercial and development activities and generating a level of revenue adequate to support the Group’s cost structure. The Group made a net loss of £8.8m during the year, and at 30 September 2018 had total equity of £5.8m including an accumulated deﬁ cit of £29.9m. As at that date, the Group had cash and cash equivalents of £6.5m. The Directors have prepared detailed ﬁ nancial forecasts and cash ﬂ ows looking beyond 12 months from the date of the approval of these ﬁ nancial statements. In developing these forecasts, the Directors have made assumptions based upon their view of the current and future economic conditions that are expected to prevail over the forecast period. The Directors estimate that the cash held by the Group together with known receivables will be sufﬁ cient to support the current level of activities into the second quarter of 2019. The Directors are continuing to explore sources of ﬁ nance available to the Group and based upon initial discussions with a number of existing and potential investors they have a reasonable expectation that they will be able to secure sufﬁ cient cash inﬂ ows for the Group to continue its activities for not less than 12 months from the date of approval of these ﬁ nancial statements; they have therefore prepared the ﬁ nancial statements on a going concern basis. Because the additional ﬁ nance is not committed at the date of approval of these ﬁ nancial statements, these circumstances represent an uncertainty as to the Group’s ability to continue as a going concern. Should the Group be unable to obtain further ﬁ nance such that the going concern basis of preparation were no longer appropriate, adjustments would be required including to reduce balance sheet values of assets to their recoverable amounts, to provide for further liabilities that might arise. Segmental information Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision- maker. The Board of Directors and the Chief Financial Ofﬁ cer are together considered the chief operating decision-maker and as such are responsible for allocating resources and assessing performance of operating segments. The Directors consider that there are no identiﬁ able business segments that are subject to risks and returns different to the core business. The information reported to the Directors, for the purposes of resource allocation and assessment of performance is based wholly on the overall activities of the Group. Therefore, the Directors have determined that there is only one reportable segment under IFRS8. Currencies (a) Functional and presentational currency Items included in the Financial Statements are measured using the currency of the primary economic environment in which the Company and its subsidiaries operate (“the functional currency”) which is UK sterling (£). The Financial Statements are accordingly presented in UK sterling. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or at an average rate for a period if the rates do not ﬂ uctuate signiﬁ cantly. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Consolidated Statement of Comprehensive income. Non- monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 49 252658 Redx Pharma AR pp47-pp66_NEW1.indd 49 252658 Redx Pharma AR pp47-pp66_NEW1.indd 49 21/12/2018 08:51 21/12/2018 08:51 Notes to the Financial Statements continued Revenue Revenue is measured at the fair value of the consideration received or receivable. Revenues from the sale of intellectual property, where there are no obligations subsequent to delivery, are recognised when signiﬁ cant risks and rewards have transferred which is considered to be the point at which all patents and other information in accordance with the substance of the agreement are handed over. Revenues from the grant of an option over a license agreement, where there are no obligations subsequent to the granting of the option, are recognised as soon as all information in accordance with the substance of the agreement is handed over. Income received as a contribution to on-going costs, together with grant income, is treated as Other operating income within the Consolidated Statement of Comprehensive income. Government grants Government grants are recognised as Other operating income on a systematic basis over the periods in which the associated expenses are recognised. Grants that are receivable as compensation for expenses or losses previously incurred or for the purpose of giving immediate ﬁ nancial support with no future related costs are recognised in the period in which they become receivable. Provisions Where, at the reporting date, the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that the Group will settle the obligation, a provision is made in the statement of ﬁ nancial position. Provisions are made using best estimates of the amount required to settle the obligation and are discounted to present values using a pre-tax rate that reﬂ ects current market assessments of the time value of money and the risks speciﬁ c to the obligation. Changes in estimates are reﬂ ected in proﬁ t or loss in the period they arise. Current and deferred tax The tax expense or credit represents the sum of the tax currently payable or recoverable and the movement in deferred tax assets and liabilities. (a) Current tax Current tax is based on taxable income for the period and any adjustment to tax from previous periods. Taxable income differs from net income in the Consolidated Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other periods or that are never taxable or deductible. The calculation uses the latest tax rates for the period that have been enacted by the reporting date. (b) Deferred tax Deferred tax is calculated at the latest tax rates that have been substantially enacted by the reporting date that are expected to apply when any deferred tax assets or liabilities are settled. It is charged or credited in the Consolidated Statement of Comprehensive Income, except when it relates to items credited or charged directly to equity, in which case it is also dealt with in equity. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the ﬁ nancial information and the corresponding tax bases used in the computation of taxable income, and is accounted for using the liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable income will be available in future accounting periods against which the asset can be utilised. Such assets are reduced to the extent that it is no longer probable that the asset can be utilised. Deferred tax assets and liabilities are offset when there is a right to offset current tax assets and liabilities and when the deferred tax assets and liabilities relate to taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. Impairment of non-current assets At each reporting date, the Directors review the carrying amounts of property, plant and equipment assets, Intellectual property (IP) and goodwill to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash ﬂ ows that are independent from other assets, the Directors estimate the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. Furthermore, the Directors review at each reporting date the carrying value of Goodwill in accordance with IAS 36. 50 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR pp47-pp66_NEW1.indd 50 252658 Redx Pharma AR pp47-pp66_NEW1.indd 50 21/12/2018 08:51 21/12/2018 08:51 Notes to the Financial Statements continued Financial Statements In assessing value in use, the estimated future cash ﬂ ows are discounted to their present value using a pre-tax discount rate that reﬂ ects current market assessments of the time value of money and the risks speciﬁ c to the asset for which the estimates of future cash ﬂ ows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately. Property, plant and equipment Property, plant and equipment and leasehold improvements are stated at cost less accumulated depreciation and any impairment losses. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Such assets acquired in a business combination are initially recognised at their fair value at acquisition date. Depreciation is charged so as to write off the costs of assets over their estimated useful lives, on a straight-line basis starting from the month they are ﬁ rst used, as follows: – Laboratory Equipment – 2 or 3 years – Computer Equipment – 2 or 3 years – Leasehold improvements – over the term of the lease The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the Consolidated Statement of Comprehensive Income. Operating leases Leases in which a signiﬁ cant portion of the risks and rewards of ownership are retained by the lessor are classiﬁ ed as operating leases. Rentals payable under operating leases (net of any incentives received from the lessor) are charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over the term of the relevant lease. The minimum term of the lease is estimated if it is not clear. Intangible assets Expenditure on research activities is recognised as an expense in the period in which it is incurred. All on-going development expenditure is currently expensed in the period in which it is incurred. Due to the regulatory and other uncertainties inherent in the development of the Group’s programmes, the criteria for development costs to be recognised as an asset, as prescribed by IAS 38, ‘Intangible assets’, are not met until the product has been submitted for regulatory approval, such approval has been received and it is probable that future economic beneﬁ ts will ﬂ ow to the Group. The Group does not currently have any such internal development costs that qualify for capitalisation as intangible assets. Development costs are capitalised when the related products meet the recognition criteria of an internally generated intangible asset, the key criteria being as follows: – – – – – technical feasibility of the completed intangible asset has been established; it can be demonstrated that the asset will generate probable future economic beneﬁ ts; adequate technical, ﬁ nancial and other resources are available to complete the development; the expenditure attributable to the intangible asset can be reliably measured; and the Group has the ability and intention to use or sell the asset. Expenses for research and development include associated wages and salaries, material costs, depreciation on non-current assets and directly attributable overheads. All research and development costs, whether funded by third parties under licence and development agreements or not, are included within operating expenses and classiﬁ ed as such. The cost of a purchased intangible asset is the purchase price plus any cost directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended. Purchased intangible assets are capitalised even if they have not yet demonstrated technical feasibility. The intangible asset relating to intellectual property rights for the programme purchased from Amakem in 2017 is estimated to have a useful life of 20 years, and is amortised over this period. Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 51 252658 Redx Pharma AR pp47-pp66_NEW1.indd 51 252658 Redx Pharma AR pp47-pp66_NEW1.indd 51 21/12/2018 08:51 21/12/2018 08:51 Notes to the Financial Statements continued Pension costs The Group operates a deﬁ ned contribution pension scheme for the beneﬁ t of its employees. The Group pays contributions into an independently administered fund via a salary sacriﬁ ce arrangement. The costs of providing these beneﬁ ts are recognised in the Consolidated Statement of Comprehensive Income and consist of the contributions payable to the scheme in respect of the period. Share-based compensation The Group issues share-based payments to certain employees and Directors. Equity-settled share-based payments are measured at fair value at the date of grant and, if material, are expensed immediately or on a straight-line basis over any vesting period, along with a corresponding increase in equity. At each reporting date, the Directors revise their estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of any revision is recognised in the Consolidated Statement of Comprehensive Income, with a corresponding adjustment to equity reserves. The fair value of share options is determined using a Black-Scholes model, taking into consideration the best estimate of the expected life of the option and the estimated number of shares that will eventually vest. The cost of each option is spread evenly over the period from grant to expected vesting. When options expire or are cancelled, a corresponding credit is recognised. Financial instruments Financial assets and ﬁ nancial liabilities are recognised in the Group’s Consolidated Statement of Financial Position when the Group becomes party to the contractual provisions of the instrument. Financial assets are de-recognised when the contractual rights to the cash ﬂ ows from the ﬁ nancial asset expire or when the contractual rights to those assets are transferred. Financial liabilities are de-recognised when the obligation speciﬁ ed in the contract is discharged, cancelled or expired. (a) Other receivables Other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method less provision for impairment. Appropriate provisions for estimated irrecoverable amounts are recognised in the Consolidated Statement of Comprehensive Income when there is objective evidence that the assets are impaired. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. (b) Cash and cash equivalents Cash and cash equivalents consist of cash on hand and at bank, demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insigniﬁ cant risk of changes in value. (c) Trade and other payables Trade and other payables are initially measured at their fair value and are subsequently measured at their amortised cost using the effective interest rate method; this method allocates interest expense over the relevant period by applying the “effective interest rate” to the carrying amount of the liability. Critical accounting estimates and judgements The Directors consider there to be no signiﬁ cant accounting judgements, however critical accounting estimates are set out in the Financial Information and include: (a) Share based compensation The Group has issued a number of share options to certain employees. The Black-Scholes model was used to calculate the appropriate charge for the period of issue and subsequent periods. The use of this model to calculate a charge involves using a number of estimates and judgements to establish the appropriate inputs to be entered into the model, covering areas such as the use of an appropriate interest rate and dividend rate, exercise restrictions and behavioural considerations. A signiﬁ cant element of judgement is therefore involved in the calculation of the charge. The total charge recognised and further information on share options can be found in Notes 7 and 26. (b) Goodwill The goodwill arose on the original purchase of the business and assets of Bradford Pharma in 2012. The Directors consider the goodwill to be intrinsic to the whole Group’s on-going business. Goodwill is not amortised but each year the Directors undertake a review for potential impairment, which requires them to make assumptions about key variables and forecasts. 52 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR pp47-pp66_NEW1.indd 52 252658 Redx Pharma AR pp47-pp66_NEW1.indd 52 21/12/2018 08:51 21/12/2018 08:51 Notes to the Financial Statements continued Financial Statements (c) Onerous lease provision As a result of a change in the accommodation occupied by the Group, the Directors consider that a provision is required in respect of an onerous lease (note 21). In calculating the provision required, using a discounted cash ﬂ ow model, the Directors were required to make assumptions regarding an appropriate discount rate and likely occupancy levels which could be achieved by way of sub-let or license. 1. Administration On 24 May 2017, two companies within the Group, Redx Pharma Plc and Redx Oncology Limited were placed into Administration as a result of the default on repaying a loan from Liverpool City Council, which was subsequently repaid in full together with accrued interest in August 2017 (see the Consolidated Statement of Cash Flows). FRP Advisory LLP were appointed as Administrators. As at 30 September 2017 those companies remained in Administration. They exited Administration on 2 November 2017, when control was returned to the Directors. The costs directly associated with the Administration, principally Administrators’ costs, legal costs and taxation costs, have been separately disclosed on the face of the Consolidated Statement of Comprehensive income, and total £0.18m. (2017: £2.93m). 2. Revenue In August 2017, the Group sold its BTK inhibitor drug development programme and related IP to Loxo Oncology Inc. for $40m. The sale included certain patents, intellectual property, contracts for product manufacture, and physical materials relating to that program. In March 2018, the Group granted an option for a license agreement on its NBTI programme to Deinove, a French drug discovery company. Option fees Sale of scientiﬁ c programme and related IP 2018 £’000 129 - 129 2017 £’000 - 30,474 30,474 3. Clawback of Regional Growth Fund grant funding The Group has, in past years, received Regional Growth Funds (RGF) grants administered by the Department of Business, Energy and Industrial Strategy of the UK Government. At the end of the prior year the Group had received total grants as follows: RGF 2 RGF 3 RGF 5 2018 £’000 - - - - 2017 £’000 5,920 4,700 3,007 13,627 Under the terms of the grant awards, clawback amounts totalling £9.7m became repayable on Redx Pharma Plc entering Administration. During the course of the Administration, a full and ﬁ nal settlement was reached in the sum of £6.1m. This amount is included within Trade and Other Payables, Note 20. It was repaid in October 2017, as part of the exit from Administration. 4. Reorganisation costs In March 2017, the Board of Directors agreed a proposal to undertake a restructuring of the Group, leading to a signiﬁ cant reduction in headcount across all areas of operation. The non- recurring costs relating to Directors, incurred in the restructuring of the Board were £215,000. The 2017 costs of £791,000 related to the wider restructuring of the Group. 5. Release of accrued accommodation expenses As a result of a positive outcome from negotiations regarding legacy accommodation costs, an accrual for potential expenses of £548,000 is no longer required, and has been released. (2017: nil). Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 53 252658 Redx Pharma AR pp47-pp66_NEW1.indd 53 252658 Redx Pharma AR pp47-pp66_NEW1.indd 53 21/12/2018 08:51 21/12/2018 08:51 Notes to the Financial Statements continued 6. Write off of Derivative ﬁ nancial instrument On 1 March 2017 the Company issued 11,500,000 new ordinary shares of 0.1p each (“Ordinary Shares”) at a price of 37.5p per share to Lanstead Capital for £4,312,500. The Company simultaneously entered into an equity swap with Lanstead for 85 per cent of these shares with a reference price of 50p per share (the “Reference Price”). The equity swap was for an 18-month period ending in October 2018. All 11,500,000 Ordinary Shares were allotted with full rights on the date of the transaction. Of the subscription proceeds of £4,312,500 received from Lanstead, £3,665,625 (85 per cent) was invested by the Company in the equity swap. Investment in the equity swap was a condition of the placing with Lanstead. In the period to 24 May 2017, which was the date Redx Pharma Plc entered Administration, £106,000 had been received by the Group under the terms of the swap. As a consequence of entering Administration, the terms of the equity swap were such that it terminated with no further beneﬁ t to the Company. The remaining balance of £3.56m was therefore written off. 7. Share-based compensation Share options have been issued to certain Directors and staff, and the charge arising is shown below. The fair value of the options granted has been calculated using a Black Scholes model. There are no further conditions attached to the vesting of the options other than employment service conditions. Further information on options is given in Note 26. Outstanding at the beginning of the year Options exercised in period Options forfeited in period Options granted and vesting in future periods Outstanding at the end of the year 2018 Number 2017 Number 2,963,417 3,907,784 - (173,854) 7,360,000 (145,319) (799,048) - 10,149,563 2,963,417 Weighted average exercise price information is given in Note 26. The weighted average share price at the date of exercise of options in the prior year was 56.43p. Charge to Statement of Comprehensive Income in period £’000 282 Assumptions used were an option life of 5 years, a risk free rate of 2% and no dividend yield. Other inputs were as follows: Volatility (based on historic information) Assumed share price at grant date Exercise price 8. Other operating income Reimbursement of costs Government grants receivable RDEC income £’000 13 40% £ 40% £ 0.1375 to 0.85 0.415 to 0.85 0.1375 to 0.85 0.33 to 0.85 2018 £’000 1,213 - (27) 1,186 2017 £’000 278 377 636 1,291 54 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR pp47-pp66_NEW1.indd 54 252658 Redx Pharma AR pp47-pp66_NEW1.indd 54 21/12/2018 08:51 21/12/2018 08:51 Notes to the Financial Statements continued Financial Statements 9. Finance expense and ﬁ nance income Finance expense Loan interest Other interest and similar charges Finance income Bank and other short term deposits Loan interest 10. (Loss)/proﬁ t before taxation The following items have been included in arriving at (loss)/proﬁ t before taxation Research and development Staff costs – Note 13 (excluding share based compensation, reorganisation & relocation costs) Establishment and general: Depreciation of owned property, plant and equipment Amortisation of intangible assets Operating leases on land and buildings Operating leases – other Exchange losses on translation Amounts payable to RSM UK Audit LLP and their associates by the Company and its subsidiaries amounted to: Audit of subsidiaries Audit of parent Company and consolidation Other services – interim review 11. Income tax Current income tax Corporation tax Research and Development Expenditure credit Adjustment in respect of previous periods Income tax charge per the Consolidated Statement of Change in Income 2018 £’000 - 1 1 24 - 24 2018 £’000 5,732 3,296 157 7 1,365 - 3 13 23 10 2017 £’000 319 49 368 2 36 38 2017 £’000 8,168 5,321 327 - 1,423 143 329 13 34 10 10,606 15,768 2018 £’000 50 - (1,351) (1,301) 2017 £’000 124 - (6) 118 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 55 252658 Redx Pharma AR pp47-pp66_NEW1.indd 55 252658 Redx Pharma AR pp47-pp66_NEW1.indd 55 21/12/2018 08:51 21/12/2018 08:51 Notes to the Financial Statements continued The difference between the total tax shown above and the amount calculated by applying the standard rate of UK corporation tax to the (loss)/proﬁ t before tax is as follows: (Loss)/proﬁ t before tax (Loss)/proﬁ t on ordinary activities multiplied by standard rate of corporation tax in the UK of 19% (2017: 19.5%) Effects of: R&D expenditure credits Expenses not deductible for tax purposes Adjustment in respect of previous periods Deferred tax losses not recognised/(utilised) Total taxation 12. (Loss)/earnings per share 2018 £’000 (10,146) (1,928) 50 299 (1,351) 1,629 (1,301) 2017 £’000 1,646 321 124 1,015 (6) (1,336) 118 Basic (loss)/earnings per share is calculated by dividing the total comprehensive loss for the period attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the period. In the case of diluted amounts, the denominator also includes ordinary shares that would be issued if any dilutive potential ordinary shares were issued following exercise of share options. The basic and diluted calculations are based on the following: (Loss)/proﬁ t for the period attributable to the owners of the Company Weighted average number of shares – basic Weighted average number of shares – diluted (Loss)/earnings per share – basic (Loss)/earnings per share – diluted 2018 £’000 (8,845) 2017 £’000 1,528 Number Number 126,447,914 113,022,840 126,447,914 113,046,401 Pence (7.0) (7.0) Pence 1.4 1.4 The loss and the weighted average number of shares used for calculating the diluted loss per share in 2018 are identical to those for the basic loss per share. This is because the outstanding share options would have the effect of reducing the loss per share and would therefore not be dilutive under IAS 33 Earnings per Share. 13. Employees and key management Staff costs (including Directors) comprise Wages and salaries Social security costs Pension costs Non-recurring reorganisation costs (Note 4) Total employee related costs 2018 £’000 2,821 349 126 3,296 215 3,511 2017 £’000 4,538 467 231 5,236 791 6,027 56 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR pp47-pp66_NEW1.indd 56 252658 Redx Pharma AR pp47-pp66_NEW1.indd 56 21/12/2018 08:51 21/12/2018 08:51 Notes to the Financial Statements continued Financial Statements 2018 number 2017 number Number of employees Average number of employees (including Directors) Management & Admin R&D – Chemistry R&D – Biology R&D – Analytical Directors’ remuneration Short term remuneration Pension costs 14 15 17 6 52 2018 £’000 777 14 791 Retirement beneﬁ ts are accruing to 3 Directors (2017: 1) Further information relating to Directors remuneration can be found in the Remuneration Report on page 36 . Key management (including Directors) Short term remuneration Social security costs Pension costs Share based compensation 2018 £’000 1,362 144 45 170 1,721 23 57 36 15 131 2017 £’000 508 10 518 2017 £’000 1,243 154 61 18 1,476 Key management are considered to be the Directors and other members of the Executive Management Team. Payments to Directors consist of basic salaries, fees and pension. The amounts in respect of the highest paid Director are as follows: Short term employment beneﬁ ts Pension contributions 2018 £’000 250 - 250 2017 £’000 200 10 210 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 57 252658 Redx Pharma AR pp47-pp66_NEW1.indd 57 252658 Redx Pharma AR pp47-pp66_NEW1.indd 57 21/12/2018 08:51 21/12/2018 08:51 Notes to the Financial Statements continued 14. Property, plant and equipment Leasehold Improvements £’000 Laboratory equipment £’000 Computer equipment £’000 Cost At 1 October 2016 Additions Disposals At 30 September 2017 At 1 October 2017 Additions Disposals At 30 September 2018 Depreciation At 1 October 2016 Charge for the year Disposals At 30 September 2017 At 1 October 2017 Charge for the year Disposals At 30 September 2018 Net book value At 30 September 2018 At 30 September 2017 At 1 October 2016 15. Intangible Assets Cost At 1 October 2016 Additions At 30 September 2017 At 1 October 2017 Additions At 30 September 2018 Accumulated impairment At 1 October 2016 Impairment At 30 September 2017 At 1 October 2017 Amortisation At 30 September 2018 Net carrying value At 30 September 2018 At 30 September 2017 114 - - 114 114 - - 114 2 11 - 13 13 12 - 25 89 101 112 1,072 32 (191) 913 913 126 (33) 1,006 786 243 (174) 855 855 82 (28) 909 97 58 286 310 1 (22) 289 289 6 (23) 272 175 73 (22) 226 226 63 (22) 267 5 63 135 Intellectual property £’000 Goodwill £’000 - 121 121 121 - 121 - - - - 7 7 114 121 309 - 309 309 - 309 - - - - - - 309 309 Total £’000 1,496 33 (213) 1,316 1,316 132 (56) 1,392 963 327 (196) 1,094 1,094 157 (50) 1,201 191 222 533 Total £’000 309 121 430 430 - 430 - - - - 7 7 423 430 58 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR pp47-pp66_NEW1.indd 58 252658 Redx Pharma AR pp47-pp66_NEW1.indd 58 21/12/2018 08:51 21/12/2018 08:51 Notes to the Financial Statements continued Financial Statements The goodwill arose on the original purchase of the business and assets of Bradford Pharma in 2012. The Directors consider the goodwill to be intrinsic to the whole Group’s on-going business, and as such the calculations have been made based on forecasts and predictions relating to the Group as a single entity. The Directors undertook a detailed review by preparing a discounted cash ﬂ ow model, using the agreed budgets and forecasts up to September 2020. The key variables that were used included: A terminal growth rate thereafter of 2%. A pre-tax discount rate of 11.5%, which the Directors believe to be prudent given the Groups historic capital costs. Based on the results of the above detailed testing, the Board do not believe that any impairment under IAS 36 is required. Purchased intellectual property is estimated to have a useful life of 20 years. Because of the date of purchase, and the sums involved, the Directors decided to commence amortisation from 1 October 2017. 16. Subsidiaries A list of the signiﬁ cant investments in subsidiaries, including the name, country of incorporation, proportion of ownership interest is given in note 8 to the Company’s separate ﬁ nancial statements. 17. Derecognition of non-current receivable Loan Derecognition 2018 £’000 - - - 2017 £’000 641 (641) - The loan of £714k was granted to Redag Crop Protection Ltd as part of the sale of the former subsidiary. It bears interest at 5% repayable with the principal sum. The loan is unsecured, and is only repayable on the sale, listing, or change of control of Redag Crop Protection Ltd. At 30 September 2017, the total amount outstanding (including accrued interest), was £821k. The ﬁ nancial statements reﬂ ected that value less a fair value adjustment made at 30 September 2016 amounting to £180k. Following review, and as a result of the conditionality attached to the repayment of the loan, the Directors derecognised it as an asset in accordance with International Accounting Standards. There have been no further changes in the current year. Whilst the loan has been de-recognised as an asset, the Directors do not consider it to be extinguished and will continue to seek full repayment under its terms. 18. Trade and other receivables VAT recoverable Other receivables Accrued income Prepayments 2018 £’000 159 772 46 1,046 2,023 2017 £’000 915 712 - 961 2,588 The Directors believe that the carrying value of other receivables represents their fair value. Details of the Group’s credit risk management policies are shown in Note 22. The Group does not hold any collateral as security for its other receivables. Included within Other receivables is an amount of £219,000 which is past due, the Directors continue to consider that it is recoverable. Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 59 252658 Redx Pharma AR pp47-pp66_NEW1.indd 59 252658 Redx Pharma AR pp47-pp66_NEW1.indd 59 21/12/2018 08:51 21/12/2018 08:51 Notes to the Financial Statements continued 19. Cash and cash equivalents Cash at bank and in hand 2018 £’000 6,471 6,471 2017 £’000 23,806 23,806 No interest is earned on immediately available cash balances. Short term deposits are made for varying periods of up to 90 days, and earn interest at the respective short-term deposit rates. At 30 September 2017, £23.7m of the above amount was held in bank accounts operated by FRP Advisory LLP. All cash from these accounts was returned to the control of the Directors of the relevant companies on exit from Administration. 20. Trade and other payables Trade payables Employee taxes and social security Other payables RGF Clawback (see Note 3) Accruals 2018 £’000 1,685 177 30 - 1,911 3,803 Trade and other payables principally consist of amounts outstanding for trade purchases and on-going costs. They are non-interest bearing and are normally settled on 30 to 45 day terms. 21. Onerous lease provision Current Brought forward Recognised in the year Carried forward Non-current Brought forward Recognised in the year Carried forward 2018 £’000 - 147 147 - 605 605 752 2017 £’000 3,991 201 151 6,085 2,934 13,362 2017 £’000 - - - - - - - As at 30 September 2018, the Group no longer occupied the premises at Block 3 Alderley Park, Macclesﬁ eld, having relocated all its activities to Block 33. On this basis the Director’s believe the lease for Block 3 fulﬁ ls the criteria to be regarded as onerous under International Accounting Standard 37. Following discussions with the landlord, the outstanding period of liability for the lease on Block 3 has been agreed at 2 years (previously over 6 years) in heads of terms, subject to ﬁ nal contract. Total potential costs relating to the remaining portion of this lease (rent & service charges) amount to £1.47m. The Directors estimate that £0.72m of this expenditure can be recovered via existing sub-leases and licenses. Accordingly a provision of £0.75m has been recognised. Given the short timescale involved, no discount rate has been applied. In total, agreement in the Heads of Terms, has been reached to reduce the footprint leased by the Group, without cash penalty through a warrant agreement, from 72,000 sq ft to 31,000 sq ft., a 57% reduction. Total future lease obligations have been reduced from £13.4m to £6.7m (note 27), and the beneﬁ t of these savings, together with associated savings in rates and service charges, which will beneﬁ t the Group going forwards. 60 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR pp47-pp66_NEW1.indd 60 252658 Redx Pharma AR pp47-pp66_NEW1.indd 60 21/12/2018 08:51 21/12/2018 08:51 Notes to the Financial Statements continued Financial Statements 22. Financial instruments The Group’s ﬁ nancial instruments comprise cash and cash equivalents, and various items such as other receivables and trade and other payables arising directly from the Group’s operations. The main purpose of these ﬁ nancial instruments is to ﬁ nance the Group’s operations. Classes and fair values of ﬁ nancial instruments are as follows: Loans and receivables Other receivables Cash and cash equivalents Financial liabilities measured at amortised cost Trade payables Other payables RGF clawback The principal ﬁ nancial risks faced by the Group are: Currency risk Carrying value 2018 £’000 Carrying value 2017 £’000 279 6,471 6,750 1,685 30 - 1,715 200 23,806 24,006 3,991 151 6,085 10,227 The Group’s exposure to foreign currency risk is limited; as most of its invoicing and payments are denominated in Sterling. Accordingly, no sensitivity analysis is presented in this area as it is considered immaterial. In the prior year, revenue generated from the disposal of the BTK programme was originally denominated in US$. It was converted to Sterling by the Administrators at the rate ruling on the day of receipt. Market risk The Group’s activities expose it primarily to the ﬁ nancial risks of changes in foreign currency exchange rates and interest rates. In the year, both these risks are considered to have been minimal. Credit risk The Group gives careful consideration to which organisations it uses for banking in order to minimise credit risk. The Group holds cash with one large bank in the UK, an institution with an A credit rating (long term, as assessed by Moody’s). The amounts of cash held with that bank at the reporting date can be seen in the ﬁ nancial assets table. All of the cash and cash equivalents held with the bank were denominated in Sterling. Liquidity risk and capital management Liquidity risk The Directors manage liquidity risk by regularly reviewing the Group’s cash requirements by reference to short term cash ﬂ ow forecasts and medium term working capital projections. Capital management The Group considers capital to be its equity. The Group’s objective when managing capital is to safeguard the Group’s ability to continue as a going concern. The Group is currently meeting this objective. In order to maintain or adjust the capital structure the Group may issue new shares or sell assets to reduce debt. Financial risk factors Accounts receivable and accounts payable, arising from normal trade transactions, are expected to be settled within normal credit terms. All of the Group’s ﬁ nancial liabilities have a contractual maturity within one year. (2017: all within one year). Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 61 252658 Redx Pharma AR pp47-pp66_NEW1.indd 61 252658 Redx Pharma AR pp47-pp66_NEW1.indd 61 21/12/2018 08:51 21/12/2018 08:51 Notes to the Financial Statements continued 23. Deferred tax Liabilities At 30 September 2017 and 2018 Accelerated capital allowances £’000 - Other £’000 - Total £’000 - Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 17% (2017:17%). Deferred tax assets in relation to losses carried forward of £6.8m, (2017: £5.1m) which represent trading losses carried forward, have not been recognised on the grounds that there is insufﬁ cient evidence of sufﬁ cient taxable trading proﬁ ts arising in the future to allow recovery. 24. Share Capital Number of shares in issue Ordinary Shares of £0.01 Share Capital at par, fully paid Ordinary Shares of £0.01 Movement in year Ordinary shares of £0.01 Total movement in year Share issues 2018 Numbers 2017 Numbers 126,477,914 126,477,914 £’000 £’000 1,265 1,265 - - 329 329 On 11 October 2016, pursuant to the exercise of options, 145,319 Ordinary shares were issued (110,025 at £0.50 each and 35,294 at £0.425 each). The weighted average share price on this date was £0.56. On 15 February 2017, the Company issued 5,999,999 Ordinary shares at £0.375 each pursuant to a placing and admission to trading on AIM. On 1 March 2017, the Company issued a further 26,779,958 Ordinary shares pursuant to a placing and open offer, and admission to trading on AIM. The gross amount raised being £12.36m. 25. Share premium Brought forward Share issue Share issue costs Exercise of share options 2018 £’000 33,263 - - - 33,263 2017 £’000 22,526 11,966 (1,298) 69 33,263 Description of other reserves: Share premium Amount subscribed for share capital in excess of nominal value. Share based payment The share based payment reserve arises as the expense of issuing share-based payments is recognised over time (share option grants). Capital redemption reserve A statutory, non-distributable reserve into which amounts are transferred following the redemption or purchase of a company’s own shares. Retained deﬁ cit The retained deﬁ cit records the accumulated proﬁ ts and losses less any subsequent elimination of losses, of the Group since inception. 62 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR pp47-pp66_NEW1.indd 62 252658 Redx Pharma AR pp47-pp66_NEW1.indd 62 21/12/2018 08:51 21/12/2018 08:51 Notes to the Financial Statements continued Financial Statements 26. Share based payments Movements on share options during the period were as follows: Exercise Price per share 30 September 2017 Granted Exercised Lapsed/ Cancelled 30 September 2018 Date from which exercisable Expiry date 50p 50p 50p 50p 50p 50p 56p 56p 56p 85p 85p 85p 33.2p 42.5p 42.5p 42.5p 22p 33p 50p 13.75p 20p 27p 35p 42.5p 50p Total 36,675 36,675 36,675 131,650 131,650 131,650 78,875 78,875 78,875 1,223,300 187,100 178,775 432,642 66,666 66,667 66,667 - - - - - - - - - - - - - - - - - - - - - - - - - 1,253,320 1,253,339 1,253,341 600,000 600,000 600,000 600,000 600,000 600,000 2,963,417 7,360,000 Weighted average exercise price 66.29p 33.27p - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 36,675 27.03.2015 26.03.2025 36,675 17.06.2015 26.03.2025 36,675 17.06.2016 26.03.2025 131,650 26.03.2016 26.03.2025 131,650 26.03.2017 26.03.2025 131,650 26.03.2018 26.03.2025 78,875 27.03.2015 26.03.2025 78,875 01.09.2015 26.03.2025 78,875 01.09.2016 26.03.2025 1,223,300 27.03.2015 26.03.2025 187,100 27.03.2016 26.03.2025 178,775 27.03.2017 26.03.2025 (113,854) 318,788 01.05.2019 26.02.2026 - - - 66,666 01.04.2017 26.03.2025 66,667 01.04.2018 26.03.2025 66,667 01.04.2019 26.03.2025 (20,000) 1,233,320 22.12.2019 22.12.2027 (20,000) 1,233,339 22.12.2019 22.12.2027 (20,000) 1,233,341 22.12.2019 22.12.2027 - - - - - - 600,000 02.06.2020 01.06.2028 600,000 02.06.2020 01.06.2028 600,000 02.06.2020 01.06.2028 600,000 02.06.2020 01.06.2028 600,000 02.06.2020 01.06.2028 600,000 02.06.2020 01.06.2028 (173,854) 10,149,563 33.82p 42.90p The number of exercisable share options at 30 September 2018 was 2,464,108 and their weighted average exercise price was 72.74p. Subsequent to the year end a warrant for 750,000 options was issued. Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 63 252658 Redx Pharma AR pp47-pp66_NEW1.indd 63 252658 Redx Pharma AR pp47-pp66_NEW1.indd 63 21/12/2018 08:51 21/12/2018 08:51 Notes to the Financial Statements continued During the prior year: Exercise Price per share 30 September 2016 Granted Exercised 50p 50p 50p 50p 50p 50p 50p 56p 56p 56p 85p 85p 85p 33.2p 42.5p 42.5p 42.5p 42.5p Total Weighted average exercise price 36,675 36,675 36,675 191,650 161,650 161,650 110,025 78,875 78,875 78,875 1,239,950 187,100 178,775 1,095,040 66,666 66,667 66,667 35,294 3,907,784 59.59p - - - - - - - - - - - - - - - - - - - - Lapsed/ Cancelled 30 September 2017 Date from which exercisable Expiry date - - - 36,675 27.03.2015 26.03.2025 36,675 17.06.2015 26.03.2025 36,675 17.06.2016 26.03.2025 (60,000) (30,000) (30,000) 131,650 26.03.2016 26.03.2025 131,650 26.03.2017 26.03.2025 131,650 26.03.2018 26.03.2025 - - - - - 26.03.2015 26.03.2025 78,875 27.03.2015 26.03.2025 78,875 01.09.2015 26.03.2025 78,875 01.09.2016 26.03.2025 (16,650) 1,223,300 27.03.2015 26.03.2025 - - 187,100 27.03.2016 26.03.2025 178,775 27.03.2017 26.03.2025 (662,398) 432,642 01.05.2019 26.02.2026 - - - - 66,666 01.04.2017 26.03.2025 66,667 01.04.2018 26.03.2025 66,667 01.04.2019 26.03.2025 - 01.04.2016 26.03.2025 - - - - - - (110,025) - - - - - - - - - - (35,294) (145,319) (799,048) 2,963,417 48.18p 36.80p 66.29p The number of exercisable share options at 30 September 2017 was 2,265,791, their weighted average exercise price was 74.95p. The weighted average share price at the date of exercise of options was 56.43p. The Group has accounted for the charge arising from the issue of share options as below: The total charge recognised in the year to 30 September 2018 is £282,000 (2017: £13,000). The fair values of the options granted have been calculated using a Black-Scholes model. Assumptions used were an option life of 5 years, a risk free rate of 2 per cent, a volatility of 40 per cent and no dividend yield. Other inputs are shown in Note 7. The share options are exercisable with no further conditions to be met. 64 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR pp47-pp66_NEW1.indd 64 252658 Redx Pharma AR pp47-pp66_NEW1.indd 64 21/12/2018 08:51 21/12/2018 08:51 Notes to the Financial Statements continued Financial Statements 27. Operating lease arrangements – minimum lease payments Property Plant and equipment 2018 £’000 2017 (as restated) £’000 2018 £’000 2017 £’000 1,122 3,362 2,178 6,662 2,027 5,981 5,418 13,426 - - - - - - - - Outstanding commitments for future minimum lease payments under non-cancellable operating leases expiring: Within one year In the second to ﬁ fth years In greater than ﬁ ve years 28. Related Parties Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and other related parties are disclosed below: Trading transactions As a result of the restructuring of the Board in November 2017, a number of previously related parties no longer meet that criteria. Where this is the case, transactions have been disclosed to the date that the criteria failed to be met, and outstanding balances are shown as of that date. The Group has purchased services in the normal course of business from the following companies related to individuals who are or were Directors of the Group: • • • Acceleris Capital Ltd – of which Mr N. Molyneux is a Director. (Mr Molyneux ceased to be a Director of Redx Pharma on 3 November 2017, at which point Acceleris Capital Ltd ceased to meet the criteria of a related party.) Dr Frank M Armstrong Consulting Ltd – owned by Dr F. Armstrong. (Dr Armstrong ceased to be a Director of Redx Pharma on 20 April 2017, at which point Dr Frank M Armstrong Consulting Ltd ceased to meet the criteria of a related party.) The Group has also purchased administration services from Mrs. J. Murray, who is the wife of Dr N. Murray. (Dr Murray ceased to be a Director of Redx Pharma on 3 November 2017, at which point Mrs. Murray ceased to meet the criteria of a related party.) The Group has (in the prior year) purchased other services, and has paid deal fees and commissions, in connection with external fundraising services from Acceleris Capital Ltd. These are also set out below, and were charged to the share premium account. The Group has provided services in the normal course of business to the following companies related to individuals who are or were Directors of the Group: • • Redag Crop Protection Ltd – of which Mr N. Molyneux is a Director. (Mr Molyneux ceased to be a Director of Redx Pharma on 3 November 2017, at which point Redag Crop Protection Ltd ceased to meet the criteria of a related party.) AMR Centre Ltd – of which P Jackson is a Director. Mr Jackson ceased to be a Director of Redx Pharma on 31 March 2017, at which point AMR Centre Ltd ceased to meet the criteria of a related party.) The amounts outstanding are unsecured. On 10 June 2016, a short term, interest free loan of £25,000 was made to AMR Centre Ltd, of which P. Jackson is a Director. This loan was repaid on 18 August 2017. Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 65 252658 Redx Pharma AR pp47-pp66_NEW1.indd 65 252658 Redx Pharma AR pp47-pp66_NEW1.indd 65 21/12/2018 08:51 21/12/2018 08:51 Notes to the Financial Statements continued Purchases from/(charges to) related parties Redag Crop Protection Ltd (to 3 November 2017) Acceleris Capital Ltd (to 3 November 2017) Acceleris Capital Ltd (fundraising items) Dr Frank M Armstrong Consulting Ltd (to 20 April 2017) AMR Centre Ltd (to 31 March 2017) Mrs J Murray (to 3 November 2017) Amounts owed to/(by) related parties Redag Crop Protection Ltd (at 3 November 2017) Acceleris Capital Ltd (at 3 November 2017) AMR Centre Ltd – short term loan (at 31 March 2017) AMR Centre Ltd (at 31 March 2017) Mrs J Murray (at 3 November 2017) 2018 £’000 (20) 6 - - - 2 (12) 2018 £’000 (73) 15 - - 14 2017 £’000 (257) 90 139 2 (2) 24 (4) 2017 £’000 (71) 77 (25) (1) 12 At 30 September 2018 there were no balances due either from or to parties meeting the criteria of “related”. 2017 balances relate to 30 September 2017 unless otherwise stated. Amounts owed to/by related parties were disclosed in other receivables (Note 18) and within trade payables (Note 20). 29. Capital Commitments At 30 September 2018, the Group had no capital commitments (30 September 2017: £nil). 30. Contingent liabilities As at 30 September 2018, the Group had no contingent liabilities. 66 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR pp47-pp66_NEW1.indd 66 252658 Redx Pharma AR pp47-pp66_NEW1.indd 66 21/12/2018 08:51 21/12/2018 08:51 Company Statement of Financial Position At 30 September 2018 Company No. 7368089 Financial Statements Fixed assets Intangible assets Tangible assets Investments Current assets Debtors Cash at bank and in hand Total current assets Notes 6 7 8 9 2018 £’000 301 94 357 752 14,432 2,633 17,065 2017 £’000 322 150 225 697 6,490 23,065 29,555 Creditors: amounts falling due within one year 10 (1,425) (12,288) Net current assets Net assets Capital and reserves Share capital Share premium Capital redemption reserve Share based payments reserve Proﬁ t and loss account Shareholders’ funds 15,640 17,267 16,392 17,964 1,265 33,263 1 1,162 (19,299) 16,392 1,265 33,263 1 880 (17,445) 17,964 11 12 12 The Company has taken advantage of s408 of the Companies Act 2006 and has not included its own proﬁ t and loss account in these ﬁ nancial statements. The Company’s result for the year was a loss of £1,854,000 (2017 loss: £23,408,000). The ﬁ nancial statements were approved and authorised for issue by the board and signed on its behalf by: Lisa Anson Director 18 November 2018 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 67 252658 Redx Pharma AR pp67-pp77_NEW.indd 67 252658 Redx Pharma AR pp67-pp77_NEW.indd 67 21/12/2018 08:51 21/12/2018 08:51 Company Statement of Changes in Equity For the year ended 30 September 2018 At 1 October 2016 Share options exercised Share issue Share issue costs Transactions with owners in their capacity as owners Proﬁ t and total comprehensive income for the year Share based compensation Movement in year At 30 September 2017 Transactions with owners in their capacity as owners Loss and total comprehensive income for the period Share based compensation Movement in year Share capital £’000 936 1 328 - Share premium £’000 22,526 69 11,966 (1,298) 329 10,737 - - 329 1,265 - - 10,737 33,263 - - - - - - - - At 30 September 2018 1,265 33,263 Share based payment £’000 867 - - - - - 13 13 880 - - 282 282 1,162 Capital Redemption Reserve £’000 1 - - - - - - - 1 - - - - 1 Proﬁ t & loss account £’000 5,963 - - - - Total Equity £’000 30,293 70 12,294 (1,298) 11,066 (23,408) (23,408) - (23,408) (17,445) 13 (12,329) 17,964 - - (1,854) - (1,854) (19,299) (1,854) 282 (1,572) 16,392 68 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR pp67-pp77_NEW.indd 68 252658 Redx Pharma AR pp67-pp77_NEW.indd 68 21/12/2018 08:51 21/12/2018 08:51 Notes to the individual Financial Statements of Redx Pharma Plc Financial Statements 1. Accounting Policies (i) Basis of preparation The Company’s ﬁ nancial statements have been prepared in accordance with Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” and the Companies Act 2006. The ﬁ nancial statements have been prepared under the historical cost convention. Financial Reporting Standard 102 – reduced disclosure exemptions The Company has taken advantage of the following disclosure exemptions in preparing these ﬁ nancial statements, as permitted by FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”: • • • • • the requirements of Section 7 Statement of Cash Flows; the requirement of Section 3 Financial Statement Presentation paragraph 3.17(d); the requirements of Section 11 Financial Instruments paragraphs 11.39 to 11.48A; the requirements of Section 26 Share-based Payment paragraphs 26.18(b), 26.19 to 26.21 and 26.23; and the requirement of Section 33 Related Party Disclosures paragraph 33.7. (ii) Deferred taxation Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date, where transactions or events that result in an obligation to pay more, or a right to pay less tax in the future have occurred at the balance sheet date. Deferred tax assets are recognised only to the extent that the Directors consider that it is more likely than not that there will be suitable taxable proﬁ t from which the future reversal of the underlying timing differences can be deducted. Deferred tax is measured at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantially enacted at the balance sheet date. (iii) Operating leases Leases in which a signiﬁ cant portion of the risks and rewards of ownership are retained by the lessor are classiﬁ ed as operating leases. Rentals payable under operating leases (net of any incentives received from the lessor) are charged to the Statement of Comprehensive Income on a straight-line basis over the term of the relevant lease. The minimum term of the lease is estimated if it is not clear. (iv) Goodwill Goodwill, being the amount paid in connection with the acquisition of a business in 2010, is being amortised evenly over its estimated useful life of twenty years. It is reviewed annually by the Directors for potential impairment. Purchased intangible assets The cost of a purchased intangible asset is the purchase price plus any cost directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended. Purchased intangible assets are capitalised even if they have not yet demonstrated technical feasibility. The intangible asset relating to intellectual property rights for the programme purchased from Amakem is estimated to have a useful life of 20 years, and it will be amortised over this period, commencing on 31 October 2017. (v) Going Concern As part of their going concern review the Directors have followed the guidelines published by the Financial Reporting Council entitled .”Guidance on the Going Concern Basis of Accounting and Reporting on Solvency Risks – Guidance for directors of companies that do not apply the UK Corporate Governance Code”. The Group and Company are subject to a number of risks similar to those of other development stage pharmaceutical companies. These risks include, amongst others, generation of revenues in due course from the development portfolio and risks associated with research, development, testing and obtaining related regulatory approvals of its pipeline products. Ultimately, the attainment of proﬁ table operations is dependent on future uncertain events which include obtaining adequate ﬁ nancing to fulﬁ l the Group’s commercial and development activities and generating a level of revenue adequate to support the Group’s cost structure. The Group made a net loss of £8.8m during the year, and at 30 September 2018 had total equity of £5.8m including an accumulated deﬁ cit of £29.9m. As at that date, the Group had cash and cash equivalents of £6.5m. Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 69 252658 Redx Pharma AR pp67-pp77_NEW.indd 69 252658 Redx Pharma AR pp67-pp77_NEW.indd 69 21/12/2018 08:51 21/12/2018 08:51 Notes to the individual Financial Statements of Redx Pharma Plc continued The Directors have prepared detailed ﬁ nancial forecasts and cash ﬂ ows looking beyond 12 months from the date of the approval of these ﬁ nancial statements. In developing these forecasts, the Directors have made assumptions based upon their view of the current and future economic conditions that are expected to prevail over the forecast period. The Directors estimate that the cash held by the Group together with known receivables will be sufﬁ cient to support the current level of activities into the second quarter of 2019. The Directors are continuing to explore sources of ﬁ nance available to the Group and based upon initial discussions with a number of existing and potential investors they have a reasonable expectation that they will be able to secure sufﬁ cient cash inﬂ ows for the Group to continue its activities for not less than 12 months from the date of approval of these ﬁ nancial statements; they have therefore prepared the ﬁ nancial statements on a going concern basis. Because the additional ﬁ nance is not committed at the date of approval of these ﬁ nancial statements, these circumstances represent an uncertainty as to the Company’s ability to continue as a going concern. Should the Company be unable to obtain further ﬁ nance such that the going concern basis of preparation were no longer appropriate, adjustments would be required including to reduce balance sheet values of assets to their recoverable amounts, to provide for further liabilities that might arise . (vi) Property, plant and equipment All property, plant and equipment are stated at historical cost less depreciation. Cost includes the original purchase price of the asset and the costs attributable to bringing the assets to its working condition for its intended use. Finance costs are not included. Depreciation is calculated on the straight-line method to write off the cost of assets to their residual values over their estimated useful lives as follows. Laboratory equipment - 2 or 3 years Computer equipment - 2 or 3 years Leasehold improvements - Over the term of the lease Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating proﬁ t. Repairs and maintenance are charged to the proﬁ t and loss account during the ﬁ nancial period in which they are incurred. (vii) Financial instruments Financial assets and ﬁ nancial liabilities are recognised in the Company’s Statement of Financial Position when the company becomes party to the contractual provisions of the instrument. Financial assets are de-recognised when the contractual rights to the cash ﬂ ows from the ﬁ nancial asset expire or when the contractual rights to those assets are transferred. Financial liabilities are de-recognised when the obligation speciﬁ ed in the contract is discharged, cancelled or expired. (a) Trade and other receivables and Group debtors Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method less provision for impairment. Appropriate provisions for estimated irrecoverable amounts are recognised in the Statement of Comprehensive Income when there is objective evidence that the assets are impaired. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. (b) Cash and cash equivalents Cash and cash equivalents consist of cash on hand and in bank, demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insigniﬁ cant risk of changes in value. (c) Trade and other payables and Group creditors Trade and other payables are initially measured at their fair value and are subsequently measured at their amortised cost using the effective interest rate method; this method allocates interest expense over the relevant period by applying the “effective interest rate” to the carrying amount of the liability. (viii) Investments Investments in subsidiaries are stated at cost less provision for impairment in value, and are detailed in Note 8. 70 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR pp67-pp77_NEW.indd 70 252658 Redx Pharma AR pp67-pp77_NEW.indd 70 21/12/2018 08:51 21/12/2018 08:51 Notes to the individual Financial Statements of Redx Pharma Plc continued Financial Statements (ix) Share-based compensation The Company issues share-based payments to certain employees and Directors. Equity-settled share-based payments are measured at fair value at the date of grant and if material are expensed immediately or on a straight-line basis over any vesting period, along with a corresponding increase in equity. Where such payments are made to employees of subsidiary undertakings, but relate to the shares of the parent, they are recognised as additional capital contributions to the subsidiary, along with a corresponding increase in equity. At each reporting date, the Directors revise their estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of any revision is recognised in Statement of Comprehensive Income, with a corresponding adjustment to equity reserves. The fair value of share options is determined using a Black-Scholes model, taking into consideration the best estimate of the expected life of the option and the estimated number of shares that will eventually vest. The cost of each option is spread evenly over the period from grant to expected vesting. When options expire or are cancelled, a corresponding credit is recognised. (x) Critical accounting estimates and judgements Details of signiﬁ cant accounting judgements and critical accounting estimates are set out in this Financial Information and include: (a) Share-based compensation The Company has issued a number of share options to certain employees. The Black-Scholes model was used to calculate the appropriate charge for the period of issue and subsequent periods. The use of this model to calculate a charge involves using a number of estimates and judgements to establish the appropriate inputs to be entered into the model, covering areas such as the use of an appropriate interest rate and dividend rate, exercise restrictions and behavioural considerations. A signiﬁ cant element of judgement is therefore involved in the calculation of the charge. The total charge recognised and further information on share options can be found in Notes 7 and 26 to the Consolidated Financial Statements. (b) Group balances The Directors are required to make judgements regarding the recoverability of balances due from subsidiary companies and decide if any impairment is appropriate. In making these judgements they review potential revenue streams and other information, including net present value calculations. 2. Administration On 24 May 2017, Redx Pharma Plc was placed into Administration as a result of the default on repaying a loan from Liverpool City Council (“LCC”) by its subsidiary undertaking Redx Oncology Limited. FRP Advisory LLP were appointed as Administrators by LCC. As at 30 September 2017 the Company remained in Administration. It exited Administration on 2 November 2017, when control was returned to the Directors. Those costs directly associated with the Administration, principally Administrators costs, legal costs and taxation costs are included in the Company’s loss for the year, and total £177,000. (2017:£2,814,000). 3. Clawback of Regional Growth Fund grant funding The Group has, in past years, received Regional Growth Funds grants administered by the Department of Business, Energy and Industrial Strategy of the UK Government. At the end of the prior year the Group had received total grants as follows: RGF 2 RGF 3 RGF 5 2018 £’000 - - - - 2017 £’000 5,920 4,700 3,007 13,627 Under the terms of the grant awards, clawback amounts totalling £9.7m became repayable by the Company on entering Administration. During the course of the Administration, a full and ﬁ nal settlement was reached in the sum of £6.1m. This amount was disclosed within Creditors – amounts falling due within one year, Note 10. It was repaid in October 2017, prior to the exit from Administration. Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 71 252658 Redx Pharma AR pp67-pp77_NEW.indd 71 252658 Redx Pharma AR pp67-pp77_NEW.indd 71 21/12/2018 08:51 21/12/2018 08:51 Notes to the individual Financial Statements of Redx Pharma Plc continued 4. Write off of derivative ﬁ nancial instrument In March 2017 the Company issued 11,500,000 new ordinary shares of 0.1p each (“Ordinary Shares”) at a price of 37.5p per share to Lanstead for £4,312,500. The Company simultaneously entered into an equity swap with Lanstead for 85 per cent of these shares with a reference price of 50p per share (the “Reference Price”). The equity swap was for an 18-month period ending in October 2018. All 11,500,000 Ordinary Shares were allotted with full rights on the date of the transaction. Of the subscription proceeds of £4,312,500 received from Lanstead, £3,665,625 (85 per cent) was invested by the Company in the equity swap. Investment in the equity swap was a condition of the placing with Lanstead. In the period to 24 May 2017, £106,000 had been received under the terms of the swap. As a consequence of entering Administration, the terms of the equity swap were such that it terminated with no further beneﬁ t to the company. The remaining balance of £3.56m was therefore written off. 5. Staff Costs Staff costs (including Directors) comprise Wages and salaries Social security costs Pension costs Non-recurring reorganisation costs Total employee related costs Number of employees Average number of employees (including Directors) Management & Admin 2018 £’000 1,015 165 39 1,219 215 1,434 2017 £’000 1,043 126 51 1,220 10 1,230 2018 number 2017 number 6 10 Directors remuneration is disclosed in note 13 of the Group accounts and the Directors remuneration report beginning on page 36 . 6. Intangible ﬁ xed assets Cost At 1 October 2017 Additions At 30 September 2018 Amortisation At 1 October 2017 Charge for the year At 30 September 2018 Net book value At 30 September 2018 At 30 September 2017 Intellectual property £’000 Goodwill £’000 Total £’000 121 - 121 - 6 6 115 121 309 - 309 108 15 123 186 201 430 - 430 108 21 129 301 322 72 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR pp67-pp77_NEW.indd 72 252658 Redx Pharma AR pp67-pp77_NEW.indd 72 21/12/2018 08:51 21/12/2018 08:51 Notes to the individual Financial Statements of Redx Pharma Plc continued Financial Statements 7. Tangible ﬁ xed assets Cost At 1 October 2017 Additions At 30 September 2018 Depreciation At 1 October 2017 Charge for the year At 30 September 2018 Net book value At 30 September 2018 At 30 September 2017 Laboratory equipment £’000 Computer equipment £’000 Leasehold Improvements £’000 87 - 87 77 10 87 - 10 95 4 99 56 38 94 5 39 114 - 114 13 12 25 89 101 8. Investments in subsidiaries During the year the Company made additional capital contributions to subsidiary undertakings by way of share based compensation to employees of those companies. At 1 October Additional capital contribution – Redx Oncology Ltd Additional capital contribution – Redx Anti-Infectives Ltd Additional capital contribution – Redx Immunology Ltd At 30 September At 30 September 2018 the Company held share capital in the following subsidiaries: 2018 £’000 225 46 37 49 357 Total £’000 296 4 300 146 60 206 94 150 2017 £’000 206 19 - - 225 Name Redx Oncology Limited Block 33, Mereside, Alderley Park, Macclesﬁ eld SK10 4TG Redx Anti-Infectives Limited Block 33, Mereside, Alderley Park, Macclesﬁ eld SK10 4TG Redx Immunology Limited Block 33, Mereside, Alderley Park, Macclesﬁ eld SK10 4TG Redx MRSA Limited Block 33, Mereside, Alderley Park, Macclesﬁ eld SK10 4TG Country of incorporation Percentage held Nature of business England & Wales 100% Pre-clinical drug development licensing Direct/Indirect holding Direct England & Wales 100% Pre-clinical drug development licensing Direct England & Wales 100% Pre-clinical drug development licensing Direct England & Wales 100% Dormant Indirect Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 73 252658 Redx Pharma AR pp67-pp77_NEW.indd 73 252658 Redx Pharma AR pp67-pp77_NEW.indd 73 21/12/2018 08:51 21/12/2018 08:51 Notes to the individual Financial Statements of Redx Pharma Plc continued 9. Debtors Amounts falling due within one year: VAT recoverable Amounts due from Group undertakings Other debtors Prepayments and accrued income Amounts falling due after more than one year Other Debtor – Loan Total 2018 £’000 70 13,835 280 247 14,432 - 14,432 2017 £’000 644 5,578 184 84 6,490 - 6,490 Amounts due from Group undertakings: Following a review by the Directors of the forecasts of one of its Group undertakings, it was considered that the balance owed is unlikely to be recovered in the foreseeable future due to a decision to focus on oncology and immunology assets, as such they have decided to further impair the balance owed in relation to this undertaking in the sum of £1,676,000 taking the total impairment to £11,983,000. (2017: £10,307,000). A loan of £714k was granted in prior years to Redag Crop Protection Ltd as part of the sale of the former subsidiary. It bears interest at 5% repayable with the principal sum. The loan is unsecured, and is only repayable on the sale, listing, or change of control of Redag Crop Protection Ltd. At 30 September 2017, the total amount outstanding (including accrued interest), was £821k. The ﬁ nancial statements reﬂ ected that value less a fair value adjustment made at 30 September 2016 amounting to £180k. Following review, and as a result of the conditionality attached to the repayment of the loan, the Directors derecognised it as an asset in 2017. There have been no further changes in the current year. Whilst the loan has been de-recognised as an asset, the Directors do not consider it to be extinguished and will continue to seek full repayment under its terms. 10. Creditors: Amounts falling due within one year Trade creditors Social security and other taxes Amounts owed to Group undertakings Other creditors RGF Clawback (see Note 3) Accruals 11. Share Capital Number of shares in issue Ordinary Shares of £0.01 Share Capital at par, fully paid Ordinary Shares of £0.01 Movement in year Ordinary shares of £0.01 Total movement in year 2018 £’000 878 42 - 6 - 499 1,425 2017 £’000 2,399 64 2,953 127 6,085 660 12,288 2018 Number 2017 Number 126,477,914 126,477,914 £’000 £’000 1,265 1,265 - - 329 329 74 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR pp67-pp77_NEW.indd 74 252658 Redx Pharma AR pp67-pp77_NEW.indd 74 21/12/2018 08:51 21/12/2018 08:51 Notes to the individual Financial Statements of Redx Pharma Plc continued Financial Statements Share issues On 11 October 2016, pursuant to the exercise of options, 145,319 Ordinary shares were issued (110,025 at £0.50 each and 35,294 at £0.425 each) for a total consideration of £70,262. On 15 February 2017, the Company issued 5,999,999 Ordinary shares at £0.375 each pursuant to a placing and admission to trading on AIM. On 1 March 2017, the Company issued a further 26,779,958 Ordinary shares pursuant to a placing and open offer, and admission to trading on AIM. The gross amount raised was £12.36m. 12. Reserves As at 1 October 2017 Loss for the year Share-based compensation As at 30 September 2018 Share premium £’000 33,263 - - Proﬁ t & loss account £’000 (17,445) (1,854) - 33,263 (19,299) Share based payments reserve £’000 880 - 282 1,162 Capital redemption reserve £’000 1 - - 1 Total £’000 16,699 (1,854) 282 15,127 13. Operating lease arrangements – minimum lease payments Property Plant and equipment 2018 £’000 2017 £’000 2018 £’000 2017 £’000 Outstanding commitments for future minimum lease payments under non-cancellable operating leases expiring: Within one year In the second to ﬁ fth years In greater than ﬁ ve years 14. Related Parties 747 2,987 2,178 5,912 1,026 4,480 4,387 9,893 - - - - - - - - Related party information disclosed in note 28 to the Group accounts is also applicable to the Company. 15. Contingent liabilities The Company has agreed to support its subsidiary undertakings for 12 months from the signing of these ﬁ nancial statements. The Directors estimate this support could be in the region of £10m. 16. Ultimate controlling party There is no ultimate controlling party. Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 75 252658 Redx Pharma AR pp67-pp77_NEW.indd 75 252658 Redx Pharma AR pp67-pp77_NEW.indd 75 21/12/2018 08:51 21/12/2018 08:51 Scientiﬁ c Abbreviations AACR: American association for cancer research BID: Twice daily CRC: Colorectal cancer CTGF: Connective tissue growth factor DC: Dendritic cell ET-1: Endothelin 1 Fzd: Frizzled receptor GI: Gastrointestinal IBD: Inﬂ ammatory bowel disease ICI: IPF: Immune checkpoint inhibitor Idiopathic pulmonary ﬁ brosis MCP-1: Monocyte chemoattractant protein 1 MDSC: Myeloid derived suppressor cell MHRA: Medicines and Healthcare Products Regulatory Agency MMP: Matrix metalloproteinase NASH: Non-alcoholic steatohepatitis NBTI: Novel bacteria topoisomerase inhibitor NTTI: Novel tricyclic topoisomerase inhibitor QD: Once daily ROCK: Rho associated coiled-coil containing protein kinase RNF43: Ring ﬁ nger protein 43 RSPO: R-spondin ð-SMA: Alpha-smooth muscle actin TGFß: Transforming growth factor beta TIMP: Tissue inhibitor of metalloproteinase 76 Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 252658 Redx Pharma AR pp67-pp77_NEW.indd 76 252658 Redx Pharma AR pp67-pp77_NEW.indd 76 21/12/2018 08:51 21/12/2018 08:51 Company Information Directors Iain G Ross (Chairman) Lisa Anson (Chief Executive Officer) Dominic Jackson (Chief Financial Officer) Dr Bernhard Kirschbaum (Non-Executive Director) Peter Presland (Non-Executive Director) Secretary Andrew Booth Company number 07368089 Principal place of business Block 33 Mereside & registered office Alderley Park SK10 4TG Auditor Nomad Broker RSM UK Audit LLP 3 Hardman Street Manchester M3 3HF Cantor Fitzgerald Europe One Churchill Place Canary Wharf London E14 5RB W G Partners LLP 85 Gresham Street London EC2V 7NQ Redx Pharma plc Annual Report and Accounts for the year ended 30 September 2018 77 Block 33 Mereside Alderley Park SK10 4TG www.redxpharma.com

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