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Annual Report 2015

Plain-text annual report

S h i e l d T h e r a p e u t i c s p l c A n n u a l r e p o r t a n d a c c o u n t s 2 0 1 5 Shield Therapeutics plc Annual report and accounts 2015 Improving lives together Read more in the Chief Executive Officer’s statement from page 7 As a unified team we are constantly driven by and committed to our goals, seeking to deliver them with transparency and respect. Being consistent to this vision, while enjoying the journey, has brought us to where we are today and underpins our unwavering confidence in our ability to create a truly outstanding organisation that we are all proud to be part of and that will deliver value to all of our key stakeholders.Carl SterrittChief Executive Officer and co‑founderProviding solutions to unmet medical needs. Delivering value to our shareholders. Shield Therapeutics is a specialty pharmaceutical company focused on the development and commercialisation of late‑stage, hospital‑focused pharmaceuticals which address areas of high unmet medical need. Stay up to date at our investor relations website: www.shieldtherapeutics.com Strategic report 02 At a glance 03 What sets us apart 04 Feraccru® and the market opportunity 06 Chairman’s statement 07 Chief Executive Officer’s statement 10 Our strategy and values 11 Principal risks and risk management 13 Financial review Corporate governance 16 Board of Directors and Advisors 18 Meet the senior team 20 Corporate governance report 22 24 25 Directors’ report Statement of Directors’ responsibilities Independent auditor’s report Financial statements 26 Consolidated statement of profit and loss and other comprehensive income Balance sheets 27 28 Consolidated statement of changes in equity 29 Company statement of changes in equity Consolidated statements of cash flows 30 31 Notes (forming part of the financial statements) 48 Definitions and Glossary Shield Therapeutics plc Annual report and accounts 2015 01 At a glance Shield Therapeutics is a well-funded, high potential, commercial stage specialty-pharma company. Our lead product, Feraccru®, a novel oral treatment for iron deficiency anaemia in patients for whom intravenous iron or blood transfusions have been the only option to date, is now commercially available following receipt of marketing authorisation in early 2016. Our second asset, PT20, is a treatment for hyperphosphatemia that has successfully completed a first pivotal trial. In addition, the Group has earlier stage assets that it intends to develop or out-license over time. Pipeline Shield has a rare opportunity to build an integrated, highly profitable specialty pharma business, with an additional pipeline of three prescription pharmaceutical assets (PT20, PT30, PT40) with commercial synergies. Our most advanced pipeline asset, PT20, has completed its first pivotal study with one further pivotal Phase 3 study planned in order to seek regulatory approval in major markets. Product Indication Pre-clinical Phase I Phase II Phase III Filed Launch Target peak annual sales IDA in IBD (inflammatory bowel disease) IDA in CKD (chronic kidney disease) IDA in IBD + CKD Other indications Hyperphosphatemia Advanced IV iron formulation Generic IV iron formulation PT20 PT30 PT40 Our history US ANDA regulations 2018 2019 2019+ 2020 £500m+ opportunity £200m+ opportunity £100m+ opportunity 1980s–1990s Fundamental research 2000–2009 Commercial opportunity created Pre-clinical data provides rationale Increasing focus on costs to healthcare providers Clinical potential established Extensive pre-clinical and clinical scientific studies: • ADME and toxicology • Clinical pharmacology • Phase 2 studies of IDA in IBD Increasing focus on patient experience Development of aqueous synthesis Facilitates high purity, high yield and low cost manufacturing 02 Shield Therapeutics plc Annual report and accounts 2015 Strategic reportStrategic report What sets us apart Near term revenue potential The Group received MA approval in Europe for its lead product, Feraccru®, in February 2016. The Group commenced the launch of Feraccru® initially in the UK with its own commercial team in May 2016, with direct launches in other key markets in Europe planned for later in 2016 and 2017 thus expected to deliver revenues in the near term. Late-stage assets that have either been approved or have delivered proof of concept In addition to Feraccru®’s MA approval, the Phase 2b pivotal study with respect to PT20 has been successfully completed. In addition, further Phase 3 trials have commenced with Feraccru® in a second indication, CKD. Consequently, the Group has multiple complimentary late-stage assets. Large market opportunities with unmet needs Feraccru® addresses a large and structurally growing market with significant potential in the near term. GfK estimates there are approximately 1.4 to 1.5 million patients in Europe and the US with IBD who have the potential to be treated for IDA of which a significant proportion are currently ineffectively treated. GfK also estimates that there are over 3.4 million patients in the EU and US with IDA and CKD. Experienced management team with extensive expertise The Company has an experienced Board with extensive expertise in the pharmaceutical and biotechnology industry. Two of the Directors are members of the executive management team and have been heavily involved in the development of the Group and key to driving its success to date. Carl Sterritt has been CEO since he co-founded the Group in 2008 and Richard CM Jones has been CFO since 2011. The Board is supported by an experienced, skilled management team which provides a strong platform for future growth and gives strategic direction to the development and commercialisation of the Group’s products. The team grew significantly during 2015 in preparation for commercial launch of Feraccru®. Read more about the strength of our team on pages 18 to 19. Opportunity to create operational leverage across the product portfolio Initially Feraccru® and subsequently PT20, subject to any out-licensing, are being or are intended to be sold using the Company’s own commercial teams with its own central and field-based commercial infrastructure in major markets in EU. The Company will target specialist prescribers based in hospitals and private clinics providing the potential for significant operational leverage which could be enhanced with selective small scale bolt-on acquisitions or in-licensing of allied products. Strong intellectual property protection The Group’s assets are supported by a suite of strong intellectual property including key patents in major markets. Following MA approval, Shield has filed for the usual SPC extension to its key patent and it also benefits from data and marketing exclusivity in the EU (up to 10 years). The Group has been actively pursuing new patent applications and has filed five new patent applications for Feraccru® since its acquisition from Vitra Pharmaceuticals in 2010. The new patents, if granted, will provide significant additional patent protection up to 2035 in relation to Feraccru®. Attractive financial profile The proceeds of the recent IPO in February 2016, together with the future opportunity of receiving further funds as a result of the exercise of the Warrants (see financial review, page 15) provides a strong financial platform for the growth of the Group. The Directors expect the Company to generate near term revenues with inherently high gross margins following the recent launch of Feraccru®. Whilst development activity will continue for the foreseeable future, the Directors believe that the level of R&D spend should be relatively modest bearing in mind the potential revenues from Feraccru® and PT20. 2010–2013 Shield as product champion 2014–2015 2016 2010 Shield group established and Feraccru® acquired 2011 Shield acquires exclusive licence to PT20 from the MRC Feraccru® Phase I and III Clinical Trials conducted January 2014 Positive results announced for Feraccru®’s pivotal Phase 3 trial February 2016 • MA approval • Phosphate Therapeutics December 2014 MA filed May 2015 Positive results from PT20’s pivotal Phase 2B trial announced Ltd acquired • AIM IPO May 2016 Feraccru® launched in first EU market (UK) Shield Therapeutics plc Annual report and accounts 2015 03 Feraccru® and the market opportunity What is Feraccru®? Feraccru® is Shield’s high potential lead product. • Feraccru® is an oral alternative to hospital administered, expensive and potentially dangerous intravenous (“IV”) iron for treating iron deficiency anaemia (“IDA”). It is differentiated as the first oral therapy specifically indicated to treat IDA in inflammatory bowel disease (“IBD”) patients. • Feraccru® has demonstrated compelling efficacy and safety and has launched in the UK and plans to launch in Germany later in 2016. • Feraccru® was approved in Europe in February 2016 and is now being commercialised in a clear and attractive market. Insufficient control of blood loss, malabsorption and chronic inflammation in IBD IDA affects 36–76% of IBD patients Debilitating symptoms impairing physical and cognitive functioning Impact on quality of life: reduced social life, ability to travel and productivity at home, work or school More hospitalisations, surgeries for IBD and visits to gastroenterology clinics What is IDA? IDA is prevalent in IBD patients, impacting quality of life and leading to poor outcomes. 04 Shield Therapeutics plc Annual report and accounts 2015 Strategic reportWhy is Feraccru® different? Feraccru® is different from other oral iron medicines; it contains ferric maltol – a different type of iron compared with other oral iron medicines. The action of ferric maltol in the body allows it to be better absorbed in the intestines, minimising the possibility of side effects. In clinical studies, Feraccru® was found to be both well tolerated and effective in patients who had to stop taking another oral iron medicine due to side effects or who lacked a response to treatment. Feraccru® is the next appropriate medicine for those who didn’t tolerate other oral iron medicines. Feraccru® helps to correct IDA and improve patients’ symptoms, enabling them to take back control of their lives. Why is there an unmet need? Poor absorption of oral ferrous products leads to GI side effects and patient dissatisfaction • Only 10% of ingested ferrous iron is absorbed • Majority of oral iron dose ends up in distal parts of the bowels to generate reactive oxygen species • Exacerbation of inflammation • GI side effects in >50% of IBD patients in clinical setting • 21–31% discontinuation rates due to intolerance in trial and clinical settings • >70% dissatisfaction with oral ferrous products due to poor tolerability or lack of effectiveness IBD patients who have failed oral iron products have an unmet need for a well-tolerated oral alternative to IV iron. Among IBD patients who have failed oral iron products, due to intolerance or an insufficient response, there’s an unmet need for an IDA treatment that: • Is better tolerated than oral ferrous products • Normalises Hb and maintains normalised levels long term • Is convenient and easy to administer for the patient How does Feraccru® address the unmet need? leading to more efficient absorption compared with oral ferrous (Fe2+) products. alternative for your adult IBD patients with IDA who have failed oral ferrous products. 1 Feraccru® provides a new oral ferric 2 Feraccru® contains ferric iron (Fe3+) 3 Feraccru® significantly improved Hb 4 Feraccru® demonstrated a safety profile concentration at Week 12 compared with placebo. comparable to placebo. Shield Therapeutics plc Annual report and accounts 2015 05 Chairman’s statement Dr Andrew Heath Non-Executive Chairman The past twelve months have been very busy, hugely exciting and a period of remarkable achievement for Shield Therapeutics. By any measure the past twelve months have been very busy, hugely exciting and a period of remarkable achievement for Shield Therapeutics. Less than six years after starting operations Shield achieved a marketing authorisation for Feraccru®, the first oral prescription pharmaceutical product approved across Europe for the treatment of iron deficiency anaemia in patients with inflammatory bowel disease. This approval has positioned the Company for transformational growth and the successful completion of the Group’s IPO during February 2016 has provided Shield with the resources to deliver this transformation. The support of investors at IPO provided £32.5m (gross) of new growth capital. This money is already fuelling the rollout of Feraccru®’s commercialisation, in-turn rapidly advancing Shield towards becoming a successful, revenue-generating specialty pharmaceutical company. In addition to these two substantial achievements, during 2015 Shield also successfully completed the first of PT20’s two pivotal trials that will be required for the Company to achieve a marketing authorisation. PT20 is being developed to treat the ever-increasing number of chronic kidney disease patients with hyperphosphatemia. The pharmaceutical model which grew out of the US in the latter half of the twentieth century is changing rapidly. Evidence based medicine, along with a recognition of the true costs - and savings - of drug therapy has led to payors taking more control over the purchase of drugs. Feraccru® is well positioned for this changing model as it is being targeted at patients who have failed existing oral iron therapies and therefore previously would only have had the option of intravenous iron infusions, which are costly and carry a small but significant risk of life-threatening anaphylactic reactions. Providing Feraccru® as an effective therapeutic option has the potential to prove a game-changer for both payors and prescribers as it will remove the large financial costs associated with the administration of intravenous irons, which are a significant burden to already fiscally over-stretched healthcare providers. On behalf of the Company I would like to thank all of Shield Therapeutics’ original investors, whose funding supported the Company to this point of transformation, as well as our previous Board members who served the Company and represented the shareholders so effectively from 2010 through 2015. I would also like to welcome our two new Board members, James Karis and Peter Llewellyn-Davies, who joined Shield Therapeutics as the Company listed. Of course none of these achievements would have been possible without the outstanding team that make up Shield Therapeutics’ staff and management and I thank them for their dedication, innovation and professionalism over the history of the Company and in particular the past twelve months. Finally, I would like to both thank and welcome all of our new shareholders who have joined the Company’s register through the IPO. We have exciting times ahead of us. Dr Andrew Heath Non-Executive Chairman 06 Shield Therapeutics plc Annual report and accounts 2015 Strategic reportChief Executive Officer’s statement Carl Sterritt Chief Executive Officer and co-founder Highlights • Pan-European Marketing Authorisation Approval of Feraccru® for the treatment of iron deficiency anaemia (“IDA”) in inflammatory bowel disease (“IBD”) received in February 2016 • Subsequent launch of Feraccru® utilising the Company’s own in-house commercial team in the UK during May 2016 • Feraccru® to be priced in the UK at £47.60 per pack (£1.70 per day equivalent) as agreed with the department of health • Two additional Phase 3 studies of Feraccru® have commenced to support future expansion of the market opportunity for Feraccru® • Successful completion of Phase 2b pivotal trial for PT20 in dialysis-dependent chronic kidney disease (”CKD”) patients and drug substance manufacturing for second pivotal study • Significant investment in Shield’s operational team with headcount now at 45, increased from 14 at the year end Introduction The period through 2015 into 2016 has been a transformational time for Shield Therapeutics. During this period, the Company has successfully achieved three key long term strategic objectives with its Initial Public Offering (IPO), the first approval and commencement of commercialisation of our lead product, Feraccru®, and the successful completion of the first pivotal trial of PT20. IPO Shield successfully completed an IPO in February 2016, raising £32.5 million (gross) of growth capital from a high quality group of new and existing investors and gained admission to the London Stock Exchange’s Alternative Investment Market (AIM). The IPO was a transformational event for the Company, providing the capital to deliver an in-house strategy for the commercialisation of Feraccru® in the major European pharmaceutical markets. Shield’s Board and management team believes that utilising its own commercial teams in these markets will enable the Company to build more effective relationships with prescribers, payors and patient associations, creating a key differentiator in the commercialisation of Feraccru®, which in turn should lead to greater value creation. In support of the Company’s own commercialisation activities, Shield is also actively pursuing licensing opportunities for Feraccru® in smaller markets. With a pipeline of innovative and value-added specialty pharmaceuticals, the Company’s talented, ambitious team has been energised by the resources the IPO has provided. Meet the Board of Directors and senior management from pages 16 to 19 Shield Therapeutics plc Annual report and accounts 2015 07 Strategic reportChief Executive Officer’s statement continued Feraccru®1 Feraccru® is the Company’s most advanced product and is a novel therapy for the treatment of iron deficiency anaemia that received marketing authorisation across Europe in February 2016. Feraccru® is the first oral iron therapy to be approved for the treatment of iron deficiency anaemia (IDA) in patients with inflammatory bowel disease (IBD). This novel secondary care product is estimated to have an achievable global peak annual sales opportunity in excess of £500 million. As outlined at the time of Shield’s IPO, the Company plans to use the new funds to commercialise Feraccru® via a phased roll-out across Europe in 2016 and 2017, as well as fund the additional clinical trials required to expand the product’s geographic and indication reach. The initial market for Feraccru® is the approximately 1 million IBD patients in Europe who have IDA and require pharmaceutical therapy. Beyond that, as Shield gathers additional clinical evidence and broader regulatory approval to (i) treat patients with IDA related to CKD in Europe and (ii) patients with IDA related to IBD or CKD in the USA, this market opportunity will increase to more than 4 million IDA patients. This commercial activity is supported by a strong body of data that is already published or has been accepted for publication in recognised and peer-reviewed scientific journals. These data provide the compelling clinical evidence needed to successfully commercialise a specialty care focused medicine. In the longer term, Shield will seek an even wider label for Feraccru® to enable iron deficiency anaemia to be targeted across a wide range of underlying causes, giving access to a treatable population of more than 33 million patients. PT20 The Company’s novel iron-based phosphate binder is initially being developed for the treatment of hyperphosphatemia related to chronic kidney disease (‘‘CKD’’). PT20 was invented in the UK by leading Cambridge-based scientists and the product is exclusively licensed from the Medical Research Council (MRC). Patients with late-stage renal disease suffer from hyperphosphatemia, which enhances the risk of vascular calcification, leading to increased morbidity and mortality. Low phosphate diets and regular dialysis sessions are unable to prevent gradual phosphate accumulation alone, therefore, oral phosphate binders are routinely used to reduce absorption of phosphate and thereby reduce blood phosphate levels. PT20 is a phase 3 asset and recently met all primary and secondary endpoints of the first pivotal study (the PEACH study) it was taken through. It is expected that PT20 will undergo one further pivotal study before a marketing authorisation application can be filed in major pharmaceutical markets. The Company believes there is a large and attractive market for PT20 as current treatments have limited therapeutic benefit due to issues such as low specificity, high pill loading, gastrointestinal side effects, calcium loading or significant toxicity concerns. Team expansion and launch of commercial operations Shield’s highly capable and deeply experienced management team was in place prior to the IPO and the approval of Feraccru®. Since the IPO, to meet the demands of Feraccru®’s commercialisation and an opportunity-enhancing clinical development programme for Feraccru®, the Company has grown significantly, increasing headcount from 14 employees at the time of the IPO to 45 currently. As part of this growth, the UK and Eire General Manager has recruited and trained a group of highly experienced hospital-focused Key Account Managers (KAMs) to form the UK commercial team and these KAMs are now active with customers in the field. The Medical team has expanded with the appointment of additional field-based Medical Science Liaisons based in the UK. Shield is also moving forward with the recruitment of a General Manager in Germany and has significantly enhanced its central infrastructure to facilitate the effective operations of the various in-country commercial teams and to support the regulatory commitments that come with the approval of a prescription pharmaceutical. Operational advances since IPO Looking forward, the Company’s attention is on making Shield Therapeutics a profitable and multi-product business. The core focus for the remainder of 2016 and into 2017 is the effective commercialisation of Feraccru® across Europe by both Shield’s own commercial team and with the use of licensing partners in non-core markets, with respect to which progress continues to be made. As such, the Company’s Manufacturing and Supply Chain experts are working hard to ensure Feraccru® is always readily available for doctors to prescribe and Shield’s Commercial and Medical teams are ensuring Feraccru® is effectively reimbursed and is included in local, national and pan-European treatment guidelines at the earliest opportunity. Shield has made great strides since the IPO having (i) agreed an attractive reimbursement level for Feraccru® of £47.60 per pack, equivalent to £1.70 per day, with the Department for Health in the UK and (ii) in Germany Shield has the agreement of the G-BA (Gemeinsamer Bundesausschuss) to set our own price for Feraccru®. Through 2016, Feraccru® will become commercially available in these critical markets as well as some other smaller European markets where the Company’s commercial partners can also set a price point. Positive data from the ongoing AEGIS Head to Head study (AEGIS H2H) should further facilitate reimbursement discussions and the effective launch of Feraccru® in the additional large markets of Europe during 2017. 1 GfK report from 2015 as included in IPO Admission Document 08 Shield Therapeutics plc Annual report and accounts 2015 Strategic reportIn respect of PT40, guidance has been received from the FDA indicating a clear route to regulatory approval. Looking more broadly, with a focus on the key objectives of (i) the commercialisation of Feraccru® in Europe and (ii) broadening the geographic and indication opportunities for Feraccru® and (iii) the further development of PT20, the Company has set itself on a path of significant organic growth. Shield was created via acquisition of a valuable late-stage asset in Feraccru® and the in-licensing of PT20 behaving therefore, from inception, as a specialty pharmaceutical company overwhelmingly focused on maximising commercialisation opportunities, rather than a classic biotech company focused on R&D. The Company is ambitious and recognises the potential benefits of portfolio and infrastructure expansion, thus when appropriate Shield will likely consider additional opportunities that could add value by more rapidly building a presence and revenues in key geographies or providing a broader, de-risked product portfolio. Summary and outlook In summary, over the past year, Shield has been transforming itself from a wholly development-focused and private company into a listed and increasingly commercially-focused, customer-facing organisation set up to sell its innovative and value-added specialty pharmaceuticals, such as Feraccru®, that solve clear unmet medical needs. Shield is now well positioned to become a fast growing, independent, international specialty pharmaceutical company and, due to the strength of its products and team, and with great thanks to all of our supportive shareholders, I look forward to the future with great excitement. Carl Sterritt Chief Executive Officer and co-founder Shield’s clinical development activities also continue to move forward. As well as advancing the development of a paediatric indication for Feraccru®, as agreed with the European Medicines Agency as part of Feraccru®’s Marketing Authorisation, the Company has two Phase 3 clinical studies ongoing. These are designed to further increase the product’s already highly significant commercial opportunity by achieving a broader label in Europe and giving access to the USA, the world’s largest and most profitable pharmaceutical market: • AEGIS-H2H is looking at the comparison of Feraccru® versus Ferinject, the leading IV iron product, in 240 subjects with IDA associated with IBD over both a twelve-week and 52-week treatment course. There are approximately 1 million IBD patients with treatment-requiring IDA in Europe and a successful study should better facilitate Feraccru®’s prescription in the 250,000 of these who are currently treated with IV iron therapies. It was initially envisaged that the study would recruit subjects across a total of approximately 40 expert gastro-intestinal centres in a handful of Western European countries. Approximately two-thirds of those centres are now in a position to recruit and this has taken a little longer than we hoped. Therefore we anticipate initial data will be available during the first half of 2017, slightly behind our previous timetable. However slower than planned start-up phase has created an opportunity for Shield, as following recent interactions with the FDA on an updated strategy for getting Feraccru® approved in the USA, we are now considering the addition of a number of US-based centres. • AEGIS-CKD is looking at Feraccru®’s potential to correct and maintain haemoglobin levels versus placebo in 170 patients with IDA associated with pre-dialysis chronic kidney disease over 16-week and 52-week time points. This study is Feraccru®’s first in this patient population and also the first study we have conducted for Feraccru® in the USA. With Dr Geoff Block from Denver as the Principal Investigator, it is being conducted in approximately 40 expert nephrology centres. We anticipate that positive data from this study will facilitate a New Drug Application being made to the US FDA as well as a label expansion request in Europe, eventually enabling Feraccru®’s access to a pool of approximately 2.5 million pre-dialysis CKD patients with IDA in the US and Europe. With respect to PT20, we have now manufactured the PT20 Drug Substance in preparation for development of a suitable formulation that we will use in the second and final pivotal study Shield is planning for PT20. In addition, the Company has commenced the search for co-development partners for PT20 as the preferred and de-risked way of funding this asset’s advancement. Shield Therapeutics plc Annual report and accounts 2015 09 Our strategy and values The commercial strategy of the Group has a number of key elements: 1 To launch Feraccru® into key markets using our own highly experienced field-based sales teams; 6 To consider, where appropriate, out-licensing opportunities for Feraccru® in peripheral markets; 2 To build a scalable supportive infrastructure to facilitate this and future commercialisation efforts including elements such as business development and marketing; 7 To consider in-licensing or acquiring other products, whether already marketed or close to market that would enhance the Group’s offering in its core markets, particularly focused on products that bolt onto the core iron deficiency offering with Feraccru® and enhance the indication specialisms; 3 To ensure best use of clinical and pharmaco-economic data to develop the commercial arguments that will facilitate reimbursement of Feraccru® at a premium price in its chosen markets, yet ensure payers recognise the significant cost advantages over IV iron in the pricing achieved; 8 To seek to change the treatment guidelines for the treatment of IDA in general and specifically in core indications such as IDA in IBD and CKD meaning Feraccru® is recognised as clear second line therapy ahead of IV iron; and 4 To develop plans and prepare for the launch of Feraccru® into the US market, informed by the launch in Europe, either using newly established field-based teams and utilising the established infrastructure, or via out-licensing with a suitable partner; 9 To consider further development or out-licence opportunities for other assets including PT40. 5 To evaluate opportunities to out-licence PT20 to a commercial partner to conduct Phase 3 trials and to launch PT20 in certain non-core markets with the Group potentially retaining the rights to core markets, where the Group will be able to leverage its then existing commercial infrastructure; Our values: • Patient centric: The patients our therapies treat are at the heart of why we do it • Ethical: Always professional with the highest of standards • Product focused: We have a great track record of identifying value and are always looking for more • Freedom to operate: It is “our” Company and we avoid hierarchy, we challenge to succeed • Relationships: Strong and human… everyone is valuable • Continuously develop: We only want people who are committed, effective and determined to succeed 10 Shield Therapeutics plc Annual report and accounts 2015 Strategic reportPrincipal risks and risk management The management of risk is a key responsibility of the Board of Directors. The Board ensures that all of the key risks are understood and are appropriately managed in light of the Group’s strategy and objectives and that an effective internal risk management process, including internal controls, is in place to identify, assess and manage important risks. The risk management strategy has a number of aspects. The senior management team meet at least once a week and participate in monthly strategy meetings to identify areas of risk and to communicate with the Board as appropriate. A detailed financial reporting and procedures framework was put in place prior to the IPO and is managed by the CFO. A risk register is being implemented during 2016 in line with the Group’s plans to continue to strengthen its internal controls, and this will be overseen by the audit and risk committee. The committee meets regularly to assess key risks. In addition, operational meetings chaired by the Finance team take place with the R&D team at least monthly to review progress on R&D projects. The Quality team meet monthly to review all aspects of quality across the business and specifically the Commercial and R&D departments which are themselves subject to significant external regulatory scrutiny. Risk description Mitigation Commercial Risk: Shield has not yet generated revenues from selling products. Risks relating to commercial success remain key. Feraccru® launched in 2016. Whilst regulatory approval in Europe has been obtained, this provides no guarantee that the product will receive levels of reimbursement in certain markets in line with the company’s expectations. There is also the risk that the adoption of Feraccru by prescribing physicians will be lower and take longer than the company expects. In addition, Shield has not yet established its full commercial operations across Europe and there is therefore the risk of delay in building the commercial infrastructure and obtaining the necessary approvals to launch Feraccru according to the Group’s plans. Shield have already confirmed, in both the UK and Germany, that health technology assessments through NICE and AMNOG respectively are not required. In addition, significant research has been undertaken in key markets that gives the Group confidence that its pricing and expectations of uptake will be met. In the UK the Department of Health has approved a price of £47.60 per 28 day pack (equivalent to £1.70 per day). The UK commercial team has been recruited and is now fully operational and plans are advanced for other core markets, in particular Germany, Feraccru®’s next launch country. Clinical Development: As with all pharmaceutical companies conducting clinical research there is the risk that clinical development programmes either do not meet primary endpoints or experience significant delay. Shield is currently conducting two Phase 3 studies in Feraccru® and is planning to launch a PK study in paediatrics with Feraccru® later in 2016. The first Phase 3 study commenced in 2015 and is being conducted across four countries in Europe. This study is an open-label head to head comparing Feraccru® with ferric carboxymaltose, an IV Iron. Whilst this study has seen a slight delay, as noted in the Chief Executive Officer’s statement, there is the risk of further delay to recruitment. The second Phase 3 study which commenced in 2016 is in pre-dialysis CKD patients with IDA and is being conducted in the US. Both of the Phase 3 studies are being managed by Shield but conducted by specialist contract research organisations (CROs) with significant experience in managing trials of this nature in these indications. The trial designs for the two Phase 3 studies closely follow the previous Phase 3 trial with Feraccru® in inflammatory bowel disease (IBD) patients giving the Company confidence of their ability to meet both primary and secondary endpoints. In addition, recruitment enhancing strategies are now in place for the Head to Head Phase 3 study. Finally, as Feraccru® is already approved in Europe for treatment of iron deficiency anaemia in IBD, the commercial launch of Feraccru® is not dependent on the timing or results from these studies, which are aimed at expanding the potential markets that Feraccru® can address. Shield Therapeutics plc Annual report and accounts 2015 11 Strategic reportPrincipal risks and risk management continued Risk description Mitigation Regulatory Risk: Shield operates in a highly regulated environment. This covers all aspects of pharmaceutical GxP including good manufacturing practice (GMP), good clinical practice (GCP) good distribution practice (GDP) and good pharmacovigilance practice (GvP). Regulatory marketing approval is only one of several regulatory approvals and in itself requires additional filing(s) and updates as the company develops further in order to remain valid. A number of regulatory requirements exist to be able to sell products in each territory involving interactions and approvals from national regulatory and reimbursement authorities. Any breach of applicable regulations could have material adverse consequences on the Group’s ability to sell its product(s) or to conduct clinical trials. Supply chain: Shield relies on third parties for supply of key materials and services. Problems at these suppliers, such as technical issues, contamination or regulatory issues could cause an interruption of supply and impact the Group’s ability to sell its marketed product or to continue its clinical development programme(s). Some materials may be only available from one source, as is the case in respect of Feraccru®’s commercial and clinical trial supplies currently. Shield has a comprehensive approach to management of its regulatory responsibilities. The in-house regulatory team, which has been recently expanded, has significant experience in both the EU and US. Shield has established an in-house pharmacovigilance system, backed by an external vendor to assist with its commercial responsibilities for Feraccru® post launch. In addition, the quality team includes our nominated registered person responsible for supply. Shield has regular interactions with both European and national agencies and has recently been audited by the MHRA as part of the process for the recent granting of our UK Wholesaler Dealer Licence. Shield has worked with its existing supply chain for a number of years and its manufacturing and technical specifications have been agreed with the regulatory authorities as part of the MA process. Feraccru® is a stable product with long shelf life in its Drug Substance (API) form as well as finished product allowing the Group to create strategic stock of inventory as part of its risk management strategy. In addition, Shield is currently undertaking a programme of validating strategic second sourcing for both its Feraccru® Drug Substance and Drug Product. In line with GMP, Shield audits all of its key suppliers who are also subject to regular inspection from national regulatory agencies. 12 Shield Therapeutics plc Annual report and accounts 2015 Strategic reportStrategic report Financial review Richard CM Jones ACA Chief Financial Officer Highlights • Successful completion of an initial public offering (IPO) on AIM of the London Stock Exchange in February 2016 raising £32.5m (gross) and further potential gross proceeds of £17.5m, subject to the full exercise of Warrants • Net loss for FY2015 of £24.5m on IFRS basis; EPS loss of £0.57 per share • Adjusted net loss for FY2015, excluding the impact of the pre-IPO capital and equity structure, of £5.3m, loss per share of £0.13 • Year end net cash of £0.7m; net cash as at 31 May 2016 of £28.8m The financial results for the Group to 31 December 2015 reflect a transitional stage of restructuring and development for Shield, which was completed with the IPO in February 2016. These results do not include the financial results for Phosphate Therapeutics Ltd, which was acquired by the Group at the time of the IPO itself, nor do they reflect the significant change to the capital structure that completed with the IPO including the £32.5m (gross) raised as part of the IPO onto the AIM market of the London Stock Exchange and the £3.6m raised via an institutional exercise of pre-existing options prior to IPO. The 2015 (and 2014) results include a number of non-cash items charged to the P&L under IFRS reflecting a complex private debt and equity capital structure pre-IPO including P&L charges relating to changes in the fair value of embedded derivatives relating to investor options. Consequently, Proforma financial information for 2015 has been included to illustrate how the accounts may have been presented if the acquisition of Phosphate Therapeutics and the IPO were assumed to have occurred at the start of the year, which the Directors believe is more representative of the underlying operational financial results. Financial performance During 2015 the Group continued to operate primarily as a development company with the focus of expenditure being R&D associated with the development and regulatory approval of Feraccru®. However, 2015 also saw the commencement of commercial activity in preparation for the launch of Feraccru® in 2016. These costs were funded out of shareholder investments raised privately and drawn down in various tranches within the Group during 2015 and in prior periods. Shield Therapeutics plc Annual report and accounts 2015 13 Financial review continued The IPO in February was transformational for the Group. The funds raised give Shield a robust balance sheet and the working capital required to build the commercial infrastructure to launch Feraccru® across key markets in Europe. Other operating income Income in the year of £0.2m (2014: £0.2m) represents the recharge of management team costs to manage the strategic development of assets owned by Phosphate Therapeutics Ltd via an arms-length operating agreement. This agreement terminated in February 2016 at the time of the IPO. Research and development costs Research and development expenditure of £5.3m (2014: £2.7m) include the following: • Commercial spend Total commercial spend in 2015 was £0.5m (2014: £nil) and related to the investment in the central commercial and medical affairs teams and associated infrastructure in anticipation of the launch of Feraccru® in 2016. • Development spend Total Development spend was £2.4m (2014: £1.7m) and included the balance of spend on Feraccru®’s phase 3 programme, initial costs relating to the Feraccru® Phase 3b head to head study in the EU, costs associated with the regulatory filing for MA approval and scale up of manufacturing activity. • Central costs Central costs were £2.4m (2014: £1.0m) and included £0.9m (2014: £0.2m) of non-cash share-based charge in respect of historic options granted under a pre-existing EMI option scheme. All options were exercised and all then existing share option schemes closed prior to the IPO in February 2016. The balance of expenditure relate to non-R&D related personnel and associated support costs including expenses and bonus in respect of 2015. Admin expenses Admin expenses were £1.4m (2014: £1.0m) and included establishment and legal and professional fees and one-off costs relating to the restructuring and IPO enabling work charged to P&L. Financial income Financial Income of £1.9m (2014: £0.2m) relates primarily to unrealised foreign exchange gains on the embedded derivative related to the pre-IPO capital structure. The underlying foreign exchange gain was £0.3m (2014: loss of £0.3m). 14 Shield Therapeutics plc Annual report and accounts 2015 Strategic reportFinancial expense Total net charge in 2015 was £20.0m (2014: £10.2m). This relates primarily to: • A non-cash IFRS P&L charge in respect of mark to market movements in the embedded derivative associated with the Group’s private capital structure. All such charges ended at the time of the IPO Post year-end events Acquisition of Phosphate Therapeutics Limited After the year end, effective on 26th February 2016, as part of the re-organisation of the Group, Shield acquired Phosphate Therapeutics Limited via the issue of 19,887,791 Shield shares representing £27m. This brought the assets PT20, PT30 and PT40 within the Group at IPO. • Interest charges in respect of Preference Shares, again in respect of the private company capital structure and, again, ending at IPO IPO On 26th February 2016, Shield completed an IPO onto AIM raising £32.5m (gross) with the issuance of 21.67m shares at a price of £1.50. Loss after tax Total net loss for 2015 was £24.5m (2014: £13.4m), equating to a loss per share of £0.57 (2014: £0.40). During the year, as part of the corporate re-organisation, a minority shareholding in a key subsidiary of the Group was eliminated. The actual allocation of losses to the minority was £0.9m (2014: £0.5m) during the year. Adjusting for the impact of IFRS charges in respect of the capital structure, underlying loss after tax attributable to the equity shareholders was £5.3 m (2014: £3.2m), equating to a loss per share of 13p (2014: 10p). The IPO also included the issuance of Warrants to participants in the placing. These Warrants are listed (under ticker STXW) and provide an opportunity for the Group to raise up to £17.5m by 30th June 2017 when the Warrants expire. Warrants have a subscription price of £1.50 per share. Any additional funding generated from warrant exercise will be utilised to support further development of the Group’s assets into the medium term. Proforma information In order to provide a better view of the underlying position of the Group, total losses for 2015 on a proforma underlying basis have been calculated using the following assumptions: Statement of financial position At 31st December 2015, total Group net cash was £0.7m (2014: £0.5m). This excluded significant post balance sheet events including: • PTL acquired on 1st January 2015 • Post IPO capital structure in place from 1 January 2015 • Exercise of pre-existing institutional options pre-IPO • All IPO and restructuring related costs excluded as one-off items to raise c. £3.6m • Subscription and placing to raise £32.5m (gross), or £30.1m (net) As at 31st May 2016, following the IPO transaction, total net cash was £28.8m including currencies translated into GBP equivalent. Net liabilities at 31st December 2015 were £19.8m. This negative position was extinguished post year end due to the positive impact of the change to the capital structure combined with the IPO. Intangible assets At 31st December 2015 intangible assets were £0.5m (2014: £0.4m). The Group did not capitalise any R&D expenditure during the year in respect of the development of Feraccru® as these costs were prior to the MA approval. The balance represents the cost of acquiring, maintaining and expanding the patent portfolio for Feraccru® net of amortisation during the year. Cashflow Net cash outflow from operating activities was £4.2m. This was funded by existing cash balances together with £4.6m raised through follow on financing from previously committed private venture capital and other funding into the Group during the year. On this basis, the total non-statutory proforma underlying loss after tax for the Group for 2015 would have been £7.8m (2014: £6.9m). On the same basis, basic loss per share would have been 6.9 pence per share (2014: 6.3p). On an underlying non-statutory proforma combined basis, taking into account the assets of Phosphate Therapeutics Limited, the subscription and placing associated with the IPO and the changes to the capital structure, total net assets at 31 December 2015 would have been £32.1m. Summary and outlook The IPO in February was transformational for the Group which had previously relied on tranche funding from private financing rounds. The funds raised give Shield a robust balance sheet and the working capital required to build the commercial infrastructure to launch Feraccru® across key markets in Europe and to continue a focused R&D programme in support of the expansion of Feraccru®’s market opportunity. Richard CM Jones ACA Chief Financial Officer Shield Therapeutics plc Annual report and accounts 2015 15 Board of Directors and Advisors Dr Andrew Heath Non-Executive Chairman Carl Sterritt Chief Executive Officer and co-founder Richard CM Jones ACA Chief Financial Officer and Company Secretary Skills and experience Dr Andrew Heath is a highly experienced healthcare and biopharmaceutical executive with in-depth knowledge of US and UK capital markets and international experience in marketing, sales, R&D and business development. Other appointments Dr Heath is currently Deputy Chairman and Senior Independent Director of Oxford BioMedica plc and is a non-executive director of Novacyt SA and IHT. He was formerly a director of the BioIndustry Association and he was Chief Executive Officer of Protherics plc from 1999 to 2008, taking the company from 30 to 350 staff and managing its eventual acquisition by BTG plc for £220 million. Prior to this Andrew served as Vice President of Marketing and Sales, for Astra Inc. in the US and held senior positions at Glaxo, Sweden. Skills and experience With around 20 years’ of management and executive level experience in pharmaceutical development and commercialisation in both large and small company settings, Carl has led the Group as its CEO since he co-founded SHG in 2008 and PTL in 2011. Previously, Carl held senior management roles at United Therapeutics and Encysive Pharmaceuticals, working on innovative therapies for the treatment of pulmonary arterial hypertension. Carl joined United Therapeutics to establish the company’s European operations in preparation for the marketing approval of Remodulin, running the subsidiary for six years. In collaboration with physicians in Germany, he was responsible for and holds patents related United Therapeutics’ decision to develop and commercialise treprostinil; now successfully commercialised in the US and Tyvaso. Carl was instrumental in the successful commercial launch of Thelin and the rapid growth of Encysive’s European operations. Carl founded SHG Therapeutics after Encysive was acquired by Pfizer Inc. for more than $300m. Skills and experience Richard has a strong track record in advising clients on a wide range of transactions and fundraisings including IPOs, M&A and fundraisings. With more than ten years’ advisory experience in the investment banking industry, his particular focus was in the healthcare sector where he developed extensive experience with a broad range of clients including private companies, private equity and UK and European quoted companies. Other appointments Richard was appointed a Non-Executive Director of SHG in early 2010 and Chief Financial Officer in April 2011. Richard has advised the Group since its inception in his previous role as an investment banker with both Brewin Dolphin Securities and Investec. Richard qualified as a Chartered Accountant with Coopers & Lybrand in 1991. 16 Shield Therapeutics plc Annual report and accounts 2015 Corporate governanceJames Karis Non-Executive Director Peter Llewellyn‑Davies Non-Executive Director Skills and experience James is a life sciences and healthcare industry executive with over 35 years of experience in the pharmaceutical, healthcare services, technology and medical device industries. James has previously held senior management and executive roles at CollabRx, Entelos, Inc., PAREXEL International, Pharmaco International and Baxter International. He has a B.S. in Management and Economics from Purdue University and a M.A. in Applied Economics from The American University. Other appointments James is currently Chief Executive Officer of privately held MAPI Group, a company focused on conducting late phase studies as well as providing regulatory and reimbursement support to the pharmaceutical and device industries. A proven entrepreneur he is also an experienced Board member for public and private companies with extensive experience in corporate strategy, M&A and all aspects of company financing. Skills and experience Peter is a strategic CFO with an over 25 year track record in international M&A deals, company turnarounds, licensing transactions and financing activities with particular experience in chemical and healthcare industries. Peter is a founder of Accellerate Partners, focused on executing change and supporting private and listed companies and advising venture capital and private equity firms. Peter read business management, banking, marketing and controlling in London, St. Gallen and Munich, and has a certificate in business studies from the University of London. Other appointments Peter has been CFO of Medigene AG since 2012 and has supported the turnaround process by outlicensing marketed and legacy products and enhancing shareholder value with a large international investor base. Prior to that he was CFO of Wilex AG, having orchestrated their IPO in 2006 to fund a later stage pipeline and conclude subsequent partnering deals and acquisitions. Peter was nominated for appointment to the Board pursuant to the Relationship Agreement. Advisors Nominated Advisor and Broker Liberum Ropemaker Place 25 Ropemaker Street London EC2Y 9LY Auditors KPMG LLP Quayside House 110 Quayside Newcastle Upon Tyne NE1 3DX Legal Advisors Stephenson Harwood LLP 1 Finsbury Circus London EC2M 7SH Tax Advisors Ernst & Young LLP Citygate St James’ Boulevard Newcastle upon Tyne NE1 4JD Registrar Capita Registrars Ltd The Registry 34 Beckenham Road Beckenham Kent Financial PR Consilium Strategic Communications 41 Lothbury London EC2R 7HG Shield Therapeutics plc Annual report and accounts 2015 17 Meet the senior team Paul Steckler Dr Mark Sampson VP Commercial Operations Chief Medical Officer Emma Chaffin General Manager, UK and Ireland Paul Steckler is a commercial leader with more than 17 years of pharmaceutical experience across a broad range of therapeutic areas. Paul gained a BSc in Microbiology and Virology from Warwick University before joining the pharmaceutical industry in 1997. Paul spent the majority of his career at Pfizer working across multiple therapy areas including Genotropin®, Somavert®, Zyvox®, Vfend, Ecalta, Rapamune® and Tygacil. Since leaving Pfizer in 2012 Paul has worked with a number of smaller pharmaceutical companies with a focus on specialty medications including launching Jinarc (in polycystic kidney disease) for Otsuka Pharmaceuticals. Mark has more than 25 years of medical practice and pharmaceutical development and commercialisation experience. He has outstanding pedigree in the development and leadership of Medical and Clinical Development activities at companies such as GSK, Amgen and Gilead, having been a key element of a number of successful commercialisation projects. Mark is a highly experienced pharmaceutical physician who combines broad medical knowledge and business acumen, with an outstanding record of achievement in Medical and Clinical Strategies at affiliate, regional and global levels across pharmaceutical, biotech and consumer products. In addition Mark was a member of the UK Prescription Medicines Code of Practice Appeals Board for 13 years. Emma has more than 20 years’ experience in the healthcare industry. Qualifying as a pharmacist from Aston University, she spent 5 years in the NHS in a variety of clinical roles whilst completing a Masters in Clinical Pharmacy (University of London). She then moved into pharmaceutical industry consulting with a broad range of top-tier clients across the EU, Middle East and Africa, specialising in Commercial organisation design/ effectiveness and Market Access. More recently she has been the commercial lead for both LEO and Otsuka, successfully launching products in various therapy areas. Emma also has an MBA from Ashridge Business School. 18 Shield Therapeutics plc Annual report and accounts 2015 Corporate governanceDavid Childs Manufacturing Director Angela Hildreth UK Finance Director Dr Jackie Mitchell VP Regulatory Affairs and Quality David joined the SHG Group in August 2011 as Director of Manufacturing. During his tenure at Wellcome, GlaxoWellcome and GlaxoSmithKline (GSK), David gained over 18 years’ experience in chemical and pharmaceutical development. He has led several successful projects including Promacta and Relovair and has successfully led teams of scientists in the development of synthetic processes and analytical methodologies. During his tenure at GSK, David worked closely with several outsourcing partners as well as across GSK’s international network of manufacturing sites to ensure timely product delivery and successful methodology transfer between internal and external sites. Angela has been with Shield since 2011. She set up all aspects of the Group’s financial processes and reporting procedures and managed the financial reporting aspects of the IPO. She manages day-to-day financial aspects of the Group’s operations and is directly involved in commercial contractual negotiations as well as influencing the Group’s strategy as part of the senior leadership team. She has developed a strong financial team that has been expanded since the IPO to reflect the increased levels of activity and reporting as a PLC. Jackie has over 20 years’ experience in regulatory affairs. She holds an MA in biochemistry from Lady Margaret Hall at Oxford University, where she also obtained a doctorate in immunology and molecular biology. Following completion of her academic studies, Jackie spent a number of years working as a research scientist, including a period at Johns Hopkins School of Medicine in Baltimore, USA. Since moving into the pharmaceutical industry, Jackie has worked in regulatory affairs for large, medium and small pharmaceutical companies, including Boehringer Ingelheim, Abbott and Archimedes. She has been involved in a broad range of global, EU and national applications across many therapeutic areas and has led several major regulatory projects, including successful MAA and NDA submissions, including MAAs for NCEs such as Kaletra and Humira. Jackie has run SHGs regulatory activities since 2012. Shield Therapeutics plc Annual report and accounts 2015 19 Corporate governance report During the year, Shield was wholly a private Group. Its corporate governance was dictated by the requirements of its key institutional investors. From February 2016, the Board comprises of five members, being the Chairman, two Executive Directors and two Non-Executive Directors. Details of the Board are set out on pages 16 and 17. Audit, Remuneration and Nomination Committees The Board has established Audit, Remuneration and Nomination Committees with effect from admission. Audit Committee The Audit Committee has responsibility for, among other things, the monitoring of the financial integrity of the financial statements of the Group and the involvement of the Group’s auditors in that process, reviewing the effectiveness of the Group’s internal control systems and risk management systems and overseeing the process for managing risks across the Group, including reviewing the Group’s corporate risk profile. It focuses in particular on compliance with legal requirements, accounting standards and ensuring that an effective system of internal financial controls is maintained. The ultimate responsibility for reviewing and approving the annual report and accounts and the half-yearly reports remains with the Board. The Audit Committee will normally meet at least two times a year at the appropriate times in the reporting and audit cycle. The terms of reference of the Audit Committee cover such issues as membership and the frequency of meetings, together with quorum requirements and the right to attend meetings. The responsibilities of the Audit Committee covered in the terms of reference are: external audit, internal audit, financial reporting, internal controls and risk management. The terms of reference also set out the authority of the committee to carry out its responsibilities. The members of the Audit Committee are Peter Llewellyn-Davies and James Karis. Peter Llewellyn-Davies is regarded as having recent and relevant financial experience. The committee chair is Peter Llewellyn-Davies. Remuneration Committee The Remuneration Committee has responsibility for determination of specific remuneration packages for each of the Executive Directors and any applicable senior executive management of the Company, including pension rights and any compensation payments and recommending and monitoring the level and structure of remuneration for senior management, and the implementation of share option, or other performance-related schemes. The Remuneration Committee will meet at least once a year. Board composition The Board composition during the year consisted of the following representatives on the Board of Shield Holdings AG, the ultimate holding company up until the establishment of Shield Therapeutics PLC in September 2016. Chairman and CEO: Carl Sterritt Non‑Executive Director and shareholder representative: Ashok Dhanrajgir Non‑Executive Director: Dr Lynn Drummond Iron Therapeutics Holdings AG had the following member in addition to the Board of Shield Holdings AG: Non‑Executive Director and shareholder representative: Günther Krumpl During the period September 2016 to 12 February 2016, Shield Therapeutics PLC had the following Board members: Executive Director: Carl Sterritt Executive Director: Richard CM Jones In preparation for the IPO in February 2016, a new Board was constituted and formally appointed in full on 12 February 2016, just prior to the IPO. As set out in the Company’s admission document, following the IPO, Shield Therapeutics is required to comply with the AIM Rules for Companies. The Board recognises the importance of sound corporate governance and with that aim, the Group has adopted policies and procedures which reflect to principles of the QCA’s Corporate Governance Guidelines for Smaller Quoted Companies (‘‘QCA Code’’) as are appropriate to a Group whose shares are admitted to trading on AIM. The Group has chosen to comply with the Corporate Governance Code in so far as it is appropriate for a company whose shares are admitted to trading on AIM. Board composition and independence The Board is committed to the highest standards of corporate governance and maintaining a sound framework for the control and management of the Group’s business. The Board is responsible for leading and controlling the Group and has overall authority for the management and conduct of the Group’s business and the Group’s strategy and development. The Board is also responsible for ensuring the maintenance of a sound system of internal control and risk management (including financial, operational and compliance controls, and for reviewing the overall effectiveness of systems in place) and for the approval of any changes to the capital, corporate and/or management structure of the Group. 20 Shield Therapeutics plc Annual report and accounts 2015 Corporate governanceExternal Audit The group’s external auditor, KPMG LLP, is engaged to provide its independent opinion on the Group’s financial statements. The terms of reference and audit findings of the auditors have been reviewed by the Audit Committee as part of the approval process for the 2015 annual report and accounts. During the year, as part of the Group’s review of its external audit, the Group appointed Ernst & Young LLP to be its ongoing group tax advisor to ensure a separation of audit from other key advisory work. Going concern The Board of Directors has confidence that the Group has sufficient resources to continue operations for the foreseeable future. Accordingly it continues to adopt the going concern basis in preparing the annual report and financial statements. At 31 December 2015 the Group had £0.7m of cash and no debt other than shareholder investments classed as debt under IFRS. Following completion of the restructuring and IPO, the Group had no debt and significant cash resources available. As at 31 May 2016 total cash, including foreign currency translated at the appropriate rate, amounted to £28.8m. The Group prepares detailed forecasts which show that it has sufficient resources to settle all of its liabilities as they fall due. The terms of reference of the Remuneration Committee cover such issues as membership and the frequency of meetings, together with the quorum requirements and the right to attend meetings. The responsibilities of the Remuneration Committee covered in the terms of reference are: determining and monitoring policy on and setting levels of remuneration, contracts of employment, early termination, performance-related pay, pension arrangements, reporting and disclosure, share-schemes and remuneration consultants. The terms of reference also set out the reporting responsibilities and the authority of the committee to carry out its responsibilities. The members of the Remuneration Committee are James Karis and Andrew Heath. The committee is chaired by James Karis. Nomination Committee The Nomination Committee is responsible for considering and making recommendations to the Board in respect of appointments to the Board, the Board committees and the chairmanship of the Board committees. It is also responsible for keeping the structure, size and composition of the Board under regular review, and for making recommendations to the Board with regard to any changes necessary. The Nomination Committee will meet at least once a year. The Nomination Committee’s terms of reference deal with such things as membership, quorum and reporting responsibilities. It also considers succession planning, taking into account the skills and expertise that will be needed on the Board in the future. The members of the Nomination Committee are Dr Andrew Heath, Peter Llewellyn-Davies and James Karis. The committee is chaired by Dr Andrew Heath. Board meetings The Board aims to meet at least five times a year. In addition, each year the Board plans to attend a strategy day at least once a year with the wider executive team to review performance against the Group’s strategic objectives and to review targets. The first of these strategic Board meetings took place on 23rd March 2016, shortly following admission to AIM. Internal Controls The Audit Committee is responsible for reviewing the Group’s financial controls. The Audit Committee has met twice following admission, on 23 March 2016 and 25th May 2016 to agree its terms of reference and review the Group’s financial controls and policies following admission to AIM. Shield Therapeutics plc Annual report and accounts 2015 21 Directors’ report The Directors present their annual report on the affairs of the Group, together with the financial statements and auditor’s report, for the year ended 31 December 2015. Principal activities Shield Therapeutics PLC is a specialty pharmaceutical company specialising in the development and commercialisation of late-stage, hospital-focused pharmaceuticals which address areas of high unmet medical need. Future development Our strategy is set out on page 10. Capital Structure The capital structure throughout 2015 reflected the private company status, together with the nature of the historic funding of the Group. During the year the Company completed the first stage of its restructuring. This consisted of the following key steps; The shareholder convertible debt in the subsidiary, Iron Therapeutics Holdings AG, was converted into equity; the minority interest in Iron Therapeutics Holdings AG was extinguished through a share-for-share hive-up into Shield Holdings AG, the ultimate parent at the time; share options held in Shield Holdings AG were exercised and the schemes closed; Shield Therapeutics PLC was established; and shareholders in Shield Holdings AG became shareholders in Shield Therapeutics PLC through a share-for-share exchange. These re-organisation steps were in anticipation of an IPO. Post year-end in February 2016, the restructuring was completed and this extinguished shareholder debt and the two tier capital structure of preference and ordinary share capital. At 31 December 2015 Group cash balances were £0.7m. After the year end the Company competed two additional fundraisings. Firstly share options were exercised raising c. £3.6m and secondly the placing and subscription associated with the IPO raised an additional £32.5m (gross). Taking into account operational expenditure since the year end, group cash balances were £28.8m at 31 May 2016. Results and dividend The consolidated statement of profit and loss and other comprehensive income is set out on page 26. The Group’s loss after taxation for the year was £24.5m. After taking into account non-cash adjustments under IFRS relating to the capital structure in place pre-IPO, adjusted net loss for the year was £5.3m (see Note 10 on page 36). On a proforma unaudited basis, assuming Phosphate Therapeutics Limited had been acquired on 1 January 2015, adjusted net loss would have been £7.8m. The Directors do not recommend the payment of a dividend in respect of the year ended 31 December 2015. During the year ended 31 December 2015 the Group made political donations of £nil (2014: £nil) and charitable donations of £nil (2014: £nil). Directors The current Directors of the Group are shown on pages 16 and 17. Page 20 sets out details of the Directors who were in place for the year ended 31 December 2015. These Directors were in place for the whole of the year, except in the case of Shield Therapeutics PLC which was a newly formed company in September 2015, in respect of which the Directors were in place from formation until the end of the year. Directors’ indemnities The Group has made qualifying third party indemnity provisions for the benefit of its Directors, which were made during the year and subsequently to reflect the changes to the Board structure and which remain in force at the date of this report. Directors’ remuneration report As the group is AIM listed, the Directors are not required, under Section 420(1) of the Companies Act 2006, to prepare a Directors’ remuneration report for each financial year of the Group. Due to the significant change to the composition of the Board post-year end the Directors do not believe a remuneration report is relevant but intend to prepare a remuneration report in future years as a voluntary disclosure. Significant post balance sheet events There were two significant post balance sheet events: Acquisition of Phosphate Therapeutics Limited In February 2016, as part of the IPO restructuring, and as disclosed in Note 29 on page 47 the Group acquired Phosphate Therapeutics Limited for an all share consideration of 19,887,791. The acquisition will be accounted for under IFRS at a fair value of £27,047,396. IPO and associated placing and open offer As set out in Note 29 on page 47, Shield Therapeutics PLC was admitted to trading on AIM on 26 February 2016 having completed a placing and open offer to raise £32.5m (gross) through the issue of 21.7m shares at £1.50 per share. The shares trade under the ticker symbol STX. In addition, and as part of the offer, placees received 7 Warrants for every 13 shares acquired, with a total of 11.7m Warrants issued. These Warrants have a par value of £1.50 and are exercisable at any point up to their expiry on 30 June 2017. If all Warrants are exercised this would provide an additional £17.5m of working capital for the Group. The Warrants are listed and trade under ticker symbol STXW. 22 Shield Therapeutics plc Annual report and accounts 2015 Corporate governanceMajor interests As at the date of this report, the following shareholders had major interests in the shares of Shield Therapeutics PLC: W Health LP Irorph GmbH Carl Sterritt Christian Schweiger JPMorgan Asset management AVIVA 49.996% 11.6% 9.3% 5.2% 3.8% 3.7% Auditors Each person who is a Director at the date of approval of this annual report confirms that: • so far as the Director is aware, there is no relevant audit information of which the Group’s auditors are unaware; and • the Director has taken all reasonable steps as a Director in order to make himself aware of any relevant audit information and to establish that the Group’s auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006. KPMG LLP have expressed their wish to continue as auditors and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting. Annual General Meeting The Annual General Meeting of the Company will be held at Stephenson Harwood, 1 Finsbury Circus, London EC2M 7SH, at 10.00am on Thursday 4 August 2016. By order of the Board Carl Sterritt Chief Executive Officer 13 June 2016 Shield Therapeutics plc Annual report and accounts 2015 23 Statement of Directors’ responsibilities in respect of the annual report and the financial statements The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare group and parent company financial statements for each financial year. Under that law they have elected to prepare both the Group and the parent company financial statements in accordance with IFRSs as adopted by the EU and applicable law. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of their profit or loss for that period. In preparing each of the Group and parent company financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgments and estimates that are reasonable and prudent; • state whether they have been prepared in accordance with IFRSs as adopted by the EU; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. By order of the Board Carl Sterritt Chief Executive Officer 13 June 2016 24 Shield Therapeutics plc Annual report and accounts 2015 Corporate governanceCorporate governance Independent auditor’s report to the members of Shield Therapeutics plc Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Nick Plumb (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants Quayside House 110 Quayside Newcastle upon Tyne NE1 3DX 13 June 2016 We have audited the financial statements of Shield Therapeutics plc for the year ended 31 December 2015 set out on pages 26 to 47. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and auditor As explained more fully in the statement of Directors’ responsibilities set out on page 24, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. Opinion on financial statements In our opinion: • the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2015 and of the group’s loss for the year then ended; • the group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; • the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Shield Therapeutics plc Annual report and accounts 2015 25 Consolidated statement of profit and loss and other comprehensive income for the year ended 31 December Other operating income Research and development expenditure Administrative expenses Operating loss Financial income Net loss on financial instruments designated as fair value through profit or loss Financial expense Loss before tax Taxation Loss for the period Attributable to: Equity holders of the parent Non-controlling interests Other comprehensive income Items that are or may be reclassified subsequently to profit or loss: Foreign currency translation differences – foreign operations Total comprehensive income for the year Attributable to: Equity holders of the parent Non-controlling interests Total comprehensive income for the year Earnings per share Basic and diluted loss per share Non-GAAP measure Adjusted loss per share Notes 6 9 9 11 2015 £000 221 (5,284) (1,371) (6,434) 1,941 (18,123) (1,872) 2014 £000 244 (2,668) (967) (3,391) 206 (8,585) (1,660) (24,488) — (13,430) — (24,488) (13,430) (23,627) (861) (12,905) (525) (257) 248 (24,745) (13,182) (23,884) (861) (12,657) (525) (24,745) (13,182) 10 10 £0.57 £0.40 £0.13 £0.10 26 Shield Therapeutics plc Annual report and accounts 2015 Financial statementsBalance sheets at 31 December Notes 13 12 14 15 16 17 18 Group Company 2015 £000 513 17 — 530 1,605 725 2,330 2,860 2014 £000 436 12 — 448 79 477 556 2015 £000 — — 75,600 75,600 — — — 1,004 75,600 (3,502) — (73) (694) (8,258) (50) (3,575) (9,002) — — — — 18 19 — (17,928) (197) (10,089) — (17,928) (17,928) (10,286) (17,928) (21,503) (19,288) (17,928) (18,643) (18,284) 57,672 23 690 - 28,358 (39) (47,652) (18,643) — 365 2,393 — 218 (23,006) (20,030) 1,746 690 — 117,323 — (60,341) 57,672 — (18,643) (18,284) 57,672 Non-current assets Intangible assets Property, plant and equipment Investments Current assets Other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Interest-bearing loans and borrowings Other liabilities Non-current liabilities Interest-bearing loans and borrowings Other financial liabilities Total liabilities Net liabilities Equity Share capital Share premium Merger reserve Currency translation reserve Retained earnings Equity attributable to owners of the parent Non-controlling interest Total equity These financial statements were approved by the board of Directors on 13 June 2016 and were signed on its behalf by: Richard CM Jones ACA Director Company registered number: 9761509 Shield Therapeutics plc Annual report and accounts 2015 27 Financial statementsConsolidated statement of changes in equity for the year ended 31 December Issued capital £000 Share premium £000 Merger reserve £000 Currency translation reserve £000 Balance at 1 January 2014 Loss for the year Other comprehensive income Additional investment of non-controlling interest shareholder Increase in non-controlling interest* Equity-settled share-based payment transactions Balance at 31 December 2014 Balances at 1 January 2014 Loss for the period Other comprehensive income Group reorganisation** Equity-settled share-based payment transactions Balance at 31 December 2015 365 — — — — — 365 365 — — 325 — 690 2,393 — — — — — 2,393 2,393 — — (2,393) — — — — — — — — — — — 28,358 — Retained earnings £000 (10,792) (12,905) — — 444 247 Non- controlling interest £000 747 (525) — 1,968 (444) — Total £000 (7,317) (13,430) 248 1,968 — 247 (30) — 248 — — — 218 (23,006) 1,746 (18,284) 218 — (257) — — (23,006) (23,627) — (1,901) 882 1,746 (861) — (885) — (18,284) (24,488) (257) 23,504 882 — 28,358 (39) (47,652) — (18,643) * Increase in non-controlling interest relates to the additional investment of £1,968,000 of non-controlling interest shareholder, resulting in the non-controlling interest ownership increasing from 8.60% to 16.47% in 2014. ** Included in the reserves account in 2015 is a merger reserve balance amounting to £28.4 million arising from the Group reorganisation activity. Please see Note 30 for details. 28 Shield Therapeutics plc Annual report and accounts 2015 Financial statementsCompany statement of changes in equity for the year ended 31 December Balances at 3 September 2015* Issuance of share capital Loss for the period Group reorganisation Balance at 31 December 2015 Issued capital £000 — 690 — — Merger reserve £000 — — — 117,323 Retained earnings £000 — — (60,341) — Total £000 — 690 (60,341) 117,323 690 117,323 (60,341) 57,672 * Shield Therapeutics plc was incorporated on 3 September 2015, the profit/(loss) for the period represents the Company’s profit/(loss) from 3 September 2015 to 31 December 2015. Shield Therapeutics plc Annual report and accounts 2015 29 Financial statementsConsolidated statements of cash flows for the year ended 31 December Cash flows from operating activities Loss for the period Adjustments for: Depreciation and amortisation Loss on derivative financial instruments Equity-settled share-based payment expenses Financial expense Unrealised foreign exchange (gains)/loss Decrease/(increase) in trade and other receivables Increase/(decrease): Trade and other payables Other liabilities Net cash flow from operating activities Cash flows from investing activities Acquisitions of intangible assets Acquisition of property, plant and equipment Net cash from investing activities Cash flows from financing activities Investment of non-controlling interest shareholder Issuance of convertible bonds Issuance of preference shares Net cash flow from financing activities Net increase/(decrease) in cash Cash and cash equivalents at 1 January Cash and cash equivalents at period end 2015 £000 2014 £000 (24,488) (13,430) 50 18,123 882 1,872 (1,927) (5,488) (1,526) 2,808 23 36 8,585 247 1,660 (250) (3,152) 22 (225) 14 (4,183) (3,341) (123) (9) (132) — 1,062 3,501 (80) (12) (92) 1,968 392 — 4,563 2,360 248 477 725 (1,073) 1,550 477 Shield Therapeutics plc was incorporated on 3 September 2015. The only cash transaction in the Company during the period from 3 September 2015 to 31 December 2015 was the £2 investment in Ordinary Shares of Shield Holdings, AG. 30 Shield Therapeutics plc Annual report and accounts 2015 Financial statementsFinancial statements Notes (forming part of the financial statements) for the year ended 31 December 1. General information Shield Therapeutics plc (the "Company") was incorporated in England and Wales as a public limited company on 3 September 2015. The Company is domiciled in England and the registered office of the Company is at Northern Design Centre, Baltic Business Quarter, Gateshead Quays NE8 3DF. Shield Therapeutics plc is the parent entity that holds investments in a number of subsidiaries. Its trading subsidiaries are engaged in the development of clinical state pharmaceutics to treat unmet medical needs. The previous legal parent of the consolidated Group in the prior year was Shield Holdings AG. The incorporation of Shield Therapeutics plc during the financial year and the restructuring of the Group to make it the new legal parent of the Shield Group has been accounted for as a Group reorganisation. See Basis of consolidation below. Subsidiaries and their countries of incorporation are presented in Note 24. 2. Accounting policies The consolidated and parent company financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”). The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial statements. The financial statements are prepared on the historical cost basis except for derivative financial instruments that are stated at their fair value. The functional currency of the Company is GBP. The consolidated financial statements are presented in GBP and all values are rounded to the nearest thousand (£000), except otherwise indicated. Company income statement As permitted by Section 408 of the Companies Act 2006, the company has not presented its own income statement. The loss for the financial year per the accounts of the Company was £60.3 million. The total comprehensive income for the year comprises the net profit and is wholly attributable to the equity holders of Shield Therapeutics plc; therefore no statement of comprehensive income has been disclosed. Going concern The Company’s working capital and product development funding requirements are met through cash reserves from funds raised to date. The Company remains in a product development stage and meets its working capital requirements through funds raised through the issuance of convertible loans and preference shares. In addition, the Company raised funds through an IPO on the 26 February 2016 (refer to Note 29). The Directors consider that this should enable the Company to continue in operational existence for the foreseeable future. Based on the Company’s available financial resources, the Directors believe that it remains appropriate to prepare the financial statements on a going concern basis. Basis of consolidation The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2015. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full. Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. Group reorganisations are accounted for as a continuation of the existing Shield Group. Accordingly, the consolidated financial statements of Shield Therapeutics plc have been prepared as a continuation of the existing group. Shield Holdings AG in effect remains the accounting parent entity. The consolidated financial statements reflect any difference in share capital between Shield Therapeutics plc and Shield Holdings, AG as an adjustment to equity. Foreign currency Transactions in foreign currencies are translated to the Group’s functional currency at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional currency at the foreign exchange rate ruling at the date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are retranslated to the functional currency at foreign exchange rates ruling at the dates the fair value was determined. Shield Therapeutics plc Annual report and accounts 2015 31 Notes (forming part of the financial statements) continued for the year ended 31 December 2. Accounting policies continued Foreign currency continued The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to the Group’s presentational currency, Sterling, at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated at an average rate for the year where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. Exchange differences arising from this translation of foreign operations are reported as an item of other comprehensive income and accumulated in the translation reserve or non-controlling interest, as the case may be. Classification of financial instruments issued by the Group Following the adoption of IAS 32, financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions: • they include no contractual obligations upon the company to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Company; and • where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the Company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal form of the Company’s own shares, the amounts presented in these financial statements for called up share capital and share premium account exclude amounts in relation to those shares. Where a financial instrument that contains both equity and financial liability components exists these components are separated and accounted for individually under the above policy. Non-derivative financial instruments Non-derivative financial instruments comprise other receivables, cash at bank and in hand, restricted cash, loans and borrowings, and trade and other payables. Trade and other receivables Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment losses. Trade and other payables Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method. Cash and cash equivalents Cash and cash equivalents comprises cash balances in the bank and restricted cash. Interest-bearing loans and borrowings Interest-bearing loans and borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost using the effective interest method, less any impairment losses. Embedded derivatives Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value through the profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss. Intangible assets Research and development The Group’s activities are still considered to be in the research phase and therefore all related expenditure has been recognised as an expense in the income statement. As there has been no expenditure on development activities, there has been no capitalisation of research and development costs. Expenditure in relation to patents registration and renewal of current patents are capitalised and recorded as intangible assets. Registration costs are continually incurred as the Group registers these patents in different countries. Intangible assets are stated at cost less accumulated amortisation and less accumulated impairment losses. 32 Shield Therapeutics plc Annual report and accounts 2015 Financial statements2. Accounting policies continued Intangible assets continued Amortisation Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of the patents. Patent assets are amortised from the date they are available for use. The estimated useful life of the patent suite is until 2026. Operating income Other operating income is measured at the fair value of consideration received or receivable for management services supplied to related parties. Income is recognised when the service has been delivered. Expenses Financing income and expenses Financing expenses comprise interest payable, finance charges on shares classified as liabilities and net foreign exchange losses that are recognised in the income statement (see foreign currency accounting policy). Financing income comprise interest receivable on funds invested, dividend income, and net foreign exchange gains. Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method. Dividend income is recognised in the income statement on the date the entity’s right to receive payments is established. Foreign currency gains and losses are reported on a net basis. Taxation Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Share-based payments Employees of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for share options (equity-settled transactions). The fair value of options granted is recognised as an employee expense with a corresponding increase in the share premium account. The fair value is measured at the grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using an appropriate option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. Share options have also been offered to contractors and suppliers of the Group. The fair values of the option provided have been determined with reference to the fair value of the services provided to the Group. 3. Critical accounting judgments and key sources of estimation uncertainty In the application of the Group’s accounting policies, which are described in Note 2, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires the determination of the most appropriate inputs to the valuation model including the expected life of the share option and volatility and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 25. Shield Therapeutics plc Annual report and accounts 2015 33 3. Critical accounting judgments and key sources of estimation uncertainty continued Fair value of derivative instruments Where the fair value of derivative instruments recorded in the statement of financial position cannot be derived from active markets, their fair value is determined using valuation techniques. The inputs to these models are taken from observable markets where possible. Where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as entity value and volatility. Deferred tax assets Estimates of future profitability are required for the decision whether or not to create a deferred tax asset. To date no deferred tax assets have been recognised. 4. New standards and interpretations The Group has adopted the following IFRSs in these financial statements for the first time. The adoption of these pronouncements has not had a material impact to the Group’s accounting policies, financial position or performance: • Amendment to IAS 19- Defined Benefit Plans: Employee Contributions. • Annual Improvements to IFRSs – 2010-2012 Cycle. The definition of a "related party" is extended to include a management entity that provides key management personnel services to the reporting entity, either directly or through a Group entity. • Annual Improvements to IFRSs – 2011-2013 Cycle. The following Adopted IFRSs have been issued but have not been applied by the Group in these financial statements. Their adoption is not expected to have a material effect on the financial statements unless otherwise indicated: • Accounting for Acquisitions of Interests in Joint Operations – Amendments to IFRS 11 (effective date 1 January 2016). • Amendments to IAS 16 and IAS 41: Bearer Plants (effective date 1 January 2016). • Clarification of Acceptable Methods of Depreciation and Amortisation – Amendments to IAS 16 and IAS 38 (effective date 1 January 2016). • Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations (effective date 1 January 2016). • Annual Improvements to IFRSs 2012–2014 Cycle (effective date 1 January 2016). • Amendments to IAS 1: Disclosure Initiative (effective date 1 January 2016). • Amendments to IAS 27: Equity Method in Separate Financial Statements (effective date 1 January 2016). 5. Segmental reporting The Board regularly reviews the Group’s performance and balance sheet position for its operations and receives financial information for the Group as a whole. As a consequence the Group has one reportable segment, which is Clinical Development. Segmental profit is measured at operating loss level, as shown on the face of the Income Statement. As there is only one reportable segment whose losses, expenses, assets, liabilities and cash flows are measured and reported on a basis consistent with the financial statements, no additional numerical disclosures are necessary. 6. Expenses and auditor’s remuneration Loss for the period has been arrived at after charging: Research and development expenditure Audit of these financial statements 34 Shield Therapeutics plc Annual report and accounts 2015 Year ended 31 December 2015 £000 Year ended 31 December 2014 £000 (5,284) 32 (2,668) 51 Notes (forming part of the financial statements) continuedfor the year ended 31 DecemberFinancial statements7. Staff numbers and costs The average number of persons employed by Group (including Directors) during the year, analysed by category, was as follows: Number of employees Clinical operations Manufacturing Finance and administration The aggregate payroll costs of these persons were as follows: Wages and salaries Share-based payments (see Note 25) Other employee benefits 8. Directors’ remuneration A Heath C Sterritt R Jones J Karis P Llewellyn-Davies 2015 Salary/fees £000 Bonus £000 Taxable benefits £000 Total £000 Salary/fees £000 — 209 181 — — 390 — 209 177 — — 386 — 14 14 — — 28 — 432 372 — — 804 — 180 160 — — 340 2015 £000 5 1 9 15 2015 £000 1,656 883 12 2,551 2014 Taxable benefits £000 — 14 18 — — 32 2014 £000 8 1 5 14 2014 £000 1,067 179 13 1,259 2014 Total £000 — 194 178 — — 372 Directors’ remuneration includes remuneration due to the Directors of Shield Therapeutics plc. 2014 amounts represent remuneration paid to the Directors of the historic Group and are presented for comparative purposes. The aggregate of remuneration and amounts receivable under long term incentive schemes of the highest paid Director was £432,000 (2014: £194,000). One Director exercised share options in the year (2014: nil). One Director received shares or share options under long term incentive schemes in the year (2014: one). £45,000 was paid to third parties in respect of director services (2014: £18,000). 9. Finance income and expenses Financial income Net foreign exchange gain Financial expense Total interest expense on financial liabilities measured at amortised cost Bank charges Year ended 31 December 2015 £000 Year ended 31 December 2014 £000 1,941 206 (1,866) (6) (1,872) (1,655) (5) (1,660) Shield Therapeutics plc Annual report and accounts 2015 35 10. Loss per share Basic EPS is calculated by dividing the profit for the year attributable to ordinary equity holders of the parent by the weighted average number of Ordinary Shares outstanding during the year. Diluted EPS is calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of Ordinary Shares outstanding during the year plus the weighted average number of Ordinary Shares that would be issued on conversion of all the dilutive potential Ordinary Shares into Ordinary Shares. The diluted loss per share is identical to the basic loss per share in both years, as potential dilutive shares are not treated as dilutive since they would reduce the loss per share. The table below reflects the income used in the basic, diluted and adjusted (non-GAAP) EPS computations: Loss for the period as used for calculating basic EPS Interest on preference shares FX movement of preference shares Fair value remeasurement of preference share embedded derivative Interest on convertible bonds FX movement on convertible bonds Fair value remeasurement of convertible bond embedded derivative Fair value remeasurement of Troy options Loss attributable to ordinary equity holders of the parent adjusted for the effect of one off items as used for calculating Adjusted EPS Weighted average number of Ordinary Shares for basic and Adjusted EPS 11. Taxation Recognised in the income statement: Current income tax: Current income tax expense Foreign income taxes Tax expense/(credit) relating to prior year Deferred tax: Relating to origination and reversal of temporary differences Effect of changes in the tax rate Total tax expense Reconciliation of total tax expense: Loss excluding taxation Standard rate of corporation tax in the UK Tax using the UK corporation tax rate Expenses not deductible for tax purposes Effect of tax rates in foreign jurisdictions Unrelieved tax losses Utilised tax losses Total tax expense 2015 £000 (23,627) 1,761 (259) 15,610 139 10 1,146 (59) 2014 £000 (12,905) 1,654 (489) 8,585 — — — — (5,279) 41,507 (3,155) 31,893 2015 £000 2014 £000 — — — — — — — — — — 2015 £000 2014 £000 (24,488) (13,430) 20.25% (4,959) — 3,153 1,806 — — 21.5% (2,888) 37 1,856 1,093 (98) — Factors affecting the future tax charge Reductions in the UK corporation tax rate from 23% to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. Further reductions to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015. This will reduce the Company’s future current tax charge accordingly. The deferred tax assets and liabilities at 31 December 2015 have been calculated based on these rates. 36 Shield Therapeutics plc Annual report and accounts 2015 Notes (forming part of the financial statements) continuedfor the year ended 31 DecemberFinancial statements11. Taxation continued Unrecognised deferred tax assets There is a potential deferred tax asset in respect of the unutilised tax losses, which has not been recognised due to the uncertainty of available future taxable profits. Unutilised Swiss tax losses to carry forward Potential deferred tax asset thereon Unutilised UK tax losses to carry forward Potential deferred tax asset thereon 12. Property, plant and equipment Cost Beginning balance Additions Disposals Ending balance Accumulated depreciation Beginning balance Charge for the period On disposals Ending balance Net book values 13. Intangible assets Cost Beginning balance Additions during the year Ending balance Accumulated amortisation: Beginning balance Amortisation during the year Ending balance Net book values 2015 £000 13,610 1,100 15,440 2,780 2014 £000 11,628 957 3,254 651 2015 £000 2014 £000 12 9 — 21 — 4 — 4 17 2015 £000 566 123 689 130 46 176 513 5 12 (5) 12 — 5 (5) — 12 2014 £000 486 80 566 99 31 130 436 14. Investments The investment represents Shield Therapeutics plc’s 100% ownership interest in Shield Holdings, AG. The initial recognition of the investment during the year was as at £136.0 million. An impairment loss was recognised on the investment based on an assessment of the carrying value against the recoverable amount of the investment at 31 December 2015. The recoverable amount of £75.6 million was assessed based on the fair value less cost of disposal of the cash-generating unit (i.e. Shield Holdings, AG and its subsidiaries). The impairment loss is recognised in the parent Company financial statements and eliminated at the Group level. Shield Therapeutics plc Annual report and accounts 2015 37 15. Other receivables Receivables Prepayments 16. Cash and cash equivalents Cash at bank and in hand 17. Trade and other payables Trade payables Accruals 18. Interest-bearing loans and borrowings Non-current liabilities Convertible bonds Current liabilities Shares classified as debt Terms and debt repayment schedule Convertible bonds Shares classified as debt 2015 £000 96 1,509 1,605 2015 £000 725 2015 £000 1,213 2,289 3,502 2015 £000 — — Face value 2015 £000 — — Currency Euro Euro Carrying amount 2015 £000 — — Face value 2014 £000 500 9,300 2014 £000 51 28 79 2014 £000 477 2014 £000 419 275 694 2014 £000 197 8,258 Carrying amount 2014 £000 197 8,258 Preference shares At 31 December 2014, there were 22,703,716 preference shares in issue. Each share was convertible at the option of the preference shareholder into one ordinary share of the Company at either a qualified IPO event or merger or on the request of the preference shareholder. The preference shares could be redeemed for cash for the preferred amount on either a deemed liquidity event or by the 31st December 2016 if a deemed liquidity event had not occurred by that date. The preferred amount was made up of the liquidation preference amount (which was 1.5 times the amount of funding raised) plus the dividend amount. The preference shares carried a dividend of 10% per annum, compounded annually. The preference shares ranked ahead of the Ordinary Shares in the event of liquidation. The preference share financial liability was extinguished as part of the reorganisation transaction on 1 October 2015. See Note 30. Convertible loan The Group issued a convertible loan for the face value of EUR 2,000,000 in 4 equal tranches on: • 24 December 2014 • 16 February 2015 • 13 March 2015 • 15 April 2015 38 Shield Therapeutics plc Annual report and accounts 2015 Notes (forming part of the financial statements) continuedfor the year ended 31 DecemberFinancial statements18. Interest-bearing loans and borrowings continued Convertible loan continued The convertible loan accrued interest at a rate of 10% per annum and was not compounding. The outstanding loan amount plus accrued interest was payable on either a deemed liquidity event or at Maturity Date (24 December 2019). In addition, the Group had the ability to repay the convertible loan at any time. The convertible loan could be converted into newly issued A Shares at either a deemed liquidity event or on maturity, at the request of the convertible loan note holder. All €2 million convertible bonds were converted by the bond holder on 16 September 2015 for 1.4 million shares of Iron Therapeutics Holdings AG. 19. Other financial liabilities Troy option instrument Preference Share derivatives Convertible loan conversion option 31 December 31 December 2014 £000 2015 £000 (17,928) — — — (9,895) (194) The Troy option instrument is a derivative. As part of the Group reorganisation, on 1 October 2015 Shield Therapeutics plc issued this new option instrument to a shareholder in exchange for the cancellation of all the options held by that shareholder and the subscription rights attached to the preference shares held. The instrument has been treated as an embedded derivative and is carried at fair value through profit and loss. The fair value of the option instrument to subscribe for additional Ordinary Shares of Shield Therapeutics plc has been calculated using a Black Scholes Merton model for a European option. The Preference Share derivatives were classified as embedded derivatives. They were separated from the host Preference Share financial instrument. The fair value of the conversion option of the outstanding Preference Shares and the option to subscribe for additional Preference Shares was calculated using a Black Scholes Merton model for a European option. This embedded derivative was extinguished as part of the Group reorganisation transaction (see Note 30). The convertible loan conversion option was classified as an embedded derivative. It was separated from the host convertible loan financial instrument. The fair value of the conversion option on the outstanding convertible notes was calculated using Black Scholes Merton model for an American option. This embedded derivative was exercised in the year. The valuation requires management to make certain assumptions about the model inputs, including forecasted cash flows and volatility. In particular, based on the Company valuation, strikes have been determined and observable inputs like market interest rates and volatility index for similar listed companies has been used. The ranges of estimates within the calculation can be reasonably assessed and are used in the management’s estimate of fair value. 20. Fair value hierarchy The Group uses the following hierarchy for determining the disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and Level 3: techniques which use inputs which have a significant effect on the recorder fair value that are not based on observable market data. Other than the embedded derivatives included under ‘Other Financial Liabilities’, ‘Cash at bank and in hand, Restricted cash, Other receivables, Trade and other payables, Other liabilities and Interest-bearing loans and borrowings have fair values that approximates its carrying values. Shield Therapeutics plc Annual report and accounts 2015 39 20. Fair value hierarchy continued The table below summarises the fair values of embedded derivatives according to the fair value hierarchy: Group Asset/liabilities measured at fair value Convertible loan conversion option Preference Share Option Asset/liabilities measured at fair value Troy option instrument Company Asset/liabilities measured at fair value Troy option instrument 31 December 2014 £000 (194) (9,895) 31 December 2015 £000 (17,928) 31 December 2015 £000 (17,928) — — Level 1 £000 — Level 1 £000 — Level 1 £000 Level 2 £000 Level 3 £000 (194) (9,895) — — Level 2 £000 Level 3 £000 — (17,928) Level 2 £000 Level 3 £000 — (17,928) 21 . Significant unobservable inputs to valuations 31 December 2014 Valuation technique Significant unobservable inputs Range (Weighted average) Sensitivity of the input to fair value Convertible bonds Black Scholes Merton Model Volatility 6% Preference Shares Option Black Scholes Merton Model Volatility 41-42% Company value 10% increase/(decrease) in the volatility rate would result in increase (decrease) in fair value by approximately €40,000 10% increase/(decrease) in the volatility rate would result in increase (decrease) in fair value by approximately €5,030,000 31 December 2015 Valuation technique Significant unobservable inputs Range (Weighted average) Sensitivity of the input to fair value Troy option instrument Black Scholes Merton Model Volatility 18% Company value 10% increase/(decrease) in the volatility rate would result in no change in fair value (Parent company - €nil) 5% increase/decrease in the firm value would result in increase/(decrease) in fair value by approximately £40,000 (Parent company - £40,000) 40 Shield Therapeutics plc Annual report and accounts 2015 Notes (forming part of the financial statements) continuedfor the year ended 31 DecemberFinancial statements22. Risk management The Group is exposed to a variety of risk such as market risk, credit risk and liquidity risk. The Group’s principal financial instruments are: • loans and borrowings; and • other receivables, trade and other payables, and cash and short term deposits arising directly from operations. This Note provides further detail on financial risk management and includes quantitative information on the specific risks. Categories of financial instruments Convertible loans and preference shares in Note 18 are recognised at amortised cost using the effective interest method. Both instruments have conversion and other options which are treated as embedded derivatives and measured at fair value (see Notes 18–20). Fair values The carrying values of financial assets and liabilities reasonably approximate their fair values. Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprise three types of risk: interest rate risk, currency risk and other prices risk, such as equity price risk. The Group’s exposure is primarily to the financial risks of changes in foreign currency exchange. Sensitivity analysis The Group recognises that movements in certain risk variables (such as foreign exchange rates) might affect the value of its loans and also the amounts recorded in its equity and its profit and loss for the period. Therefore the Group assessed the following risks: Foreign currency risk The following tables consider the impact of several changes to the spot £/Euro exchange rates of +/– 5%. If these changes were to occur the tables below reflect the impact on profit before tax. Only the impact of changes in Euro denominated balances have been considered as these are the most significant non-GBP denomination used by the Group. Effect on loss before tax EUR Change in GBP vs. EUR rate +5.00% -5.00% Year ended Year ended 31 December 31 December 2014 £000 2015 £000 (896) 896 (927) 927 Liquidity risk Cash flow is regularly monitored and the relevant subsidiaries are aware of their working capital commitments. The Group reviews its long term funding requirements in parallel with its long term strategy, with an objective of aligning both in a timely manner. The table below summarises the maturity profile of the Group’s undiscounted financial liabilities at 31 December 2014 and 2015. Liquidity risk – 31 December 2015 Financial liabilities Trade and other payables Liquidity risk – 31 December 2015 Financial liabilities Interest-bearing loans and borrowings Trade and other payables On demand £000 Less than one year £000 Between two and five years £000 More than five years £000 Total £000 — 1,213 — — 1,213 On demand £000 Less than one year £000 — — — — 419 419 Between two and five years £000 19,875 — 19,875 More than five years £000 — — — Total £000 19,875 419 20,294 Shield Therapeutics plc Annual report and accounts 2015 41 22. Risk management continued Sensitivity analysis continued Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument leading to a financial loss. The Group is exposed to credit risk from its financing activities primarily in relation to its deposits with banks and financial institutions. Financial instruments and cash deposits Credit risk from balances with banks and financial institutions is managed by depositing with reputable financial institutions, from which management believes loss to be remote. The Group’s maximum exposure to credit risk for the components of the statement of financial position is the carrying amounts cash at bank and in hand. 23. Called up share capital Allotted, called up and fully paid 51 million Ordinary Shares at CHF0.01 each 69 million Ordinary Shares at £0.01 each 31 December 31 December 2014 £000 2015 £000 — 690 365 — The 51 million Ordinary Shares in 2014 represents the number of Ordinary Shares issued by Shield Holdings, AG. The 69 million Ordinary Shares in 2015 represents the number of Ordinary Shares issued by Shield Therapeutics plc. The Group went through a reorganisation in the period, resulting in a different legal parent. Please see Note 30 for details of the Group reorganisation transaction. 24. Group structure and acquisition details The Group’s equity interest was as follows: During the year ended 31 December 2015: Group company Shield Holdings, AG Iron Therapeutics Holdings AG Iron Therapeutics (Switzerland) AG* Shield TX (UK) Ltd.*, ** Iron Therapeutics (US) Corp.* Ownership 100% 100% 100% 100% 100% * Shield Therapeutics plc holds an indirect ownership through Iron Therapeutics Holdings, AG. ** Iron Therapeutics (UK) Limited company name was changed to Shield TX (UK) Limited on 17 March 2016. During the year ended 31 December 2014: Group company Iron Therapeutics Holdings AG Iron Therapeutics (Switzerland) AG* Shield TX (UK) Ltd.*, ** Iron Therapeutics (US) Corp.* Ownership 83.53% 83.53% 83.53% 83.53% Country of incorporation Switzerland Switzerland Switzerland United Kingdom United States of America Country of incorporation Switzerland Switzerland United Kingdom United States of America * Shield Therapeutics plc holds an indirect ownership through Iron Therapeutics Holdings, AG. ** Iron Therapeutics (UK) Limited company name was changed to Shield TX (UK) Limited on 17 March 2016. At 31 December 2014 Shield Therapeutics plc held investments in four entities which were classified as subsidiaries. Iron Therapeutics Holdings AG had a minority shareholder who owned less than 20% of the Group. The other subsidiary entities were then held 100% by ITH. Therefore Shield Therapeutics plc had control over ITH and the rest of the entities in the Group. At 31 December Shield Therapeutics plc owned 100% of all entities in the Group. 42 Shield Therapeutics plc Annual report and accounts 2015 Notes (forming part of the financial statements) continuedfor the year ended 31 DecemberFinancial statements24. Group structure and acquisition details continued Non-Controlling Interests The following table summarises the information relating to Iron Therapeutics Holdings AG which was a subsidiary of the Group with a material Non-Controlling Interest, before intra-group eliminations. NCI percentage Non-current assets Current assets Non-current liabilities Current liabilities Net assets (100%) Carrying amount of NCI Revenue Loss OCI Total comprehensive income Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net increase in cash and cash equivalents 31 December 31 December 2014 £000 2015 £000 — — — — — — — — (6,670) — (1,411) (2,563) (123) 2,288 (398) 16.47% 501 1,585 (7,514) (137) (5,565) 1,746 — (3,393) 256 (3,137) (1,818) (87) 2,165 260 25. Share-based payments The Group grants rights to the parent entity’s equity instruments to certain employees and non-employees, which are accounted for as equity-settled in the consolidated financial statements. Group EMI Share Option Plan The Group operates a share option scheme for certain employees of Iron Therapeutics (UK) Ltd. The scheme, which is an Enterprise Management Incentives (EMI) Scheme, is intended to attract retain and incentivise participants to higher standards of performance and encourage greatest dedication and loyalty by enabling the Group to give recognition to past contributions and services, as well as motivating participants to contribute to the long terms prosperity of the Group. The total expense recognised for share-based payments, in relation to the Shield Holdings AG EMI Share Option Plan, in the Company’s financial statements during the year was £843,083. Shield Therapeutics plc Annual report and accounts 2015 43 25. Share-based payments continued Group EMI Share Option Plan continued The terms and conditions of grants are as follows: Grant date Method of settlement accounting Number of instruments November 2011 Equity 2,110,172 February 2012 Equity 275,000 May 2013 Equity 1,250,000 May 2013 October 2013 Equity Equity 40,000 25,000 October 2013 Equity 25,000 February 2014 Equity 25,000 August 2014 March 2015 July 2015 Equity Equity Equity 75,000 377,010 1,298,000 September 2015 Equity 144,779 Vesting conditions Contractual life of options 1/3 on grant date. 1/3 on 1st anniversary of employment 1/3 on 2nd anniversary of employment. Subject to achievement of non-market based performance conditions, 1/3 on 31 December 2015, 1/3 on 31 December 2016 and 1/3 on 31 December 2017. Subject to achievement of non-market based performance conditions, 1/3 on 31 December 2015, 1/3 on 31 December 2016 and 1/3 on 31 December 2017. All vest immediately. 1/3 on 30 April 2014, 1/3 on 31 October 2014 and 1/3 on 31 October 2015. 1/3 on 30 April 2014, 1/3 on 30 April 2015 and 1/3 on 31 April 2016. 1/3 on 1 September 2014, 1/3 on 1 September 2015 and 1/3 on 1 September 2016. 1/3 on 1 January 2015, 2/3 on 31 December 2015 1/3 on 31 December 2015, 1/3 on 31 December 2016, 1/3 on 31 December 2017 1/3 on 31 December 2017, 1/3 on 31 December 2018, 1/3 on 31 December 2019 1/3 on 31 December 2017, 1/3 on 31 December 2018, 1/3 on 31 December 2019 November 2021 February 2022 May 2023 May 2023 October 2023 October 2023 February 2024 August 2024 March 2025 April 2023 April 2023 The number and weighed average exercise price of share options are as follows: Year ended Year ended 31 December 31 December 2014 Number of options 2015 Number of options Outstanding at the beginning of the year Granted during the year Forfeited during the year Exercised during the year Outstanding at the end of the year Exercisable at the end of the year 1,570,000 1,475,000 100,000 1,860,342 (5,000) (83,333) — (3,347,009) — 1,570,000 — 205,000 The options outstanding at year end have an exercise price of £0.00 per share and weighted average contractual life of 9.34 years. 44 Shield Therapeutics plc Annual report and accounts 2015 Notes (forming part of the financial statements) continuedfor the year ended 31 DecemberFinancial statements25. Share-based payments continued Group EMI Share Option Plan continued The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The fair value of the services received is measured using a Black-Scholes valuation model measurement inputs and assumptions are as follows: Weighted average share price Exercise price Expected volatility Expected option life Expected dividends Risk-free interest rate (based on UK government bonds) Fair value at measurement date September 2015 £0.40 £0.00 70.00% Nil Nil 3.50% £0.40 July 2015 £0.40 £0.00 70.00% Nil Nil 3.50% £0.40 March 2015 £0.40 £0.00 70.00% Nil Nil 3.50% £0.40 August 2014 £0.40 £0.00 70.00% Nil Nil 3.50% £0.40 February 2014 £0.40 £0.00 70.00% Nil Nil 3.50% £0.40 October 2013 £0.40 £0.00 70.00% Nil Nil 3.50% £0.40 May 2013 February 2012 November 2011 £0.40 £0.00 70.00% Nil Nil 3.50% £0.40 £0.40 £0.00 70.00% Nil Nil 3.50% £0.40 £0.40 £0.00 70.00% Nil Nil 3.50% £0.40 The expected volatility is based on the historical volatility of quoted companies in a similar market environment. There are no market conditions associated with the share options grants. All unexercised share options have corresponding shares that are held in trust by a third party. Shield Group Other Share-based Payments Shield Group has other equity-settled share-based payment agreements for services received by non-employees which are summarised as follows: Grant date January 2011 May 2011* May 2011 November 2011 January 2012* May 2013 September 2013 January 2014 February 2015 Method of settlement accounting Equity Equity Equity Equity Equity Equity Equity Equity Equity Number of instruments 75,656 189,237 10,000 25,000 36,960 600,000 175,788 17,000 52,596 Vesting conditions Contractual life of options All vests immediately All vests immediately All vests immediately All vests immediately All vests immediately 1/2 vests in 1 May 2013, 1/4 vests in 1 May 2014, 1/4 vests in 1 May 2015 All vests immediately All vests immediately All vests immediately January 2021 May 2021 May 2021 November 2021 January 2022 May 2023 September 2023 January 2024 February 2025 * Pertains to equity-settled share-based payments to suppliers and contractors which have a fair value of £79,600. The total expense recognised for share-based payments, in relation to the Shield Holdings AG Other share-based payments in the Company’s financial statements during the year was £40,000. The number and weighed average exercise process of share options are as follows: Outstanding at the beginning of the year Granted during the year Exercised during the year Forfeited during the year Outstanding at the end of the year Exercisable at the end of the year 2015 Number of options 2014 Number of options 516,901 82,040 (598,941) — — — 562,642 27,000 — (72,741) 516,901 516,901 The fair value of services received for May 2011 and January 2012 share option issuances have been measured at the fair value of services received. The fair value of services received for all other share option issuances are measured by reference to the fair value of share options granted as the fair value of services could not be determined. The expense in relation to these share options is not material. Shield Therapeutics plc Annual report and accounts 2015 45 25. Share-based payments continued Shield Group Other Share-based Payments continued February 2015 January 2014 September 2013 May 2013 November 2011 May 2011 January 2011 Weighted average share price Exercise price Expected volatility Expected option life Expected dividends Risk-free interest rate (based on UK government bonds) £0.40 £0.00 70.00% 2.5 years Nil 3.50% £0.40 £0.00 70.00% 2.5 years Nil 3.50% £0.40 £0.00 70.00% 2.5 years Nil 3.50% £0.40 £0.00 70.00% 2.5 years Nil 3.50% £0.40 £0.00 70.00% 4.5 years Nil 3.50% £0.40 £0.00 70.00% 2.5 years Nil 3.50% £0.40 £0.00 70.00% 4.5 years Nil 3.50% Fair value at measurement date £0.40 £0.40 £0.40 £0.41 £0.40 £0.41 £0.40 The expected volatility is based on the historical volatility of quoted companies in a similar market environment. There are no market conditions associated with the share options grants. All unexercised share options have corresponding shares that are held in trust by a third party. 26. Related party transactions The Group trades with Phosphate Therapeutics Limited, a company related by virtue of its linked key management personnel. During the following periods the Group’s trading with Phosphate Therapeutics constituted: Management services provided Amounts due from related parties 2015 £000 221 — 2014 £000 244 45 Income from related parties relates to management services provided. These services were made at arm’s length and on normal commercial trading terms. The amounts outstanding are unsecured and are settled in cash with a 30-day credit period. Key management compensation information is as follows: Wages and salaries Share-based payments Other employee benefits 27. Capital commitments The Group and parent company had no material capital commitments at the end of any of the financial periods. 2015 £000 898 841 8 1,747 2014 £000 866 145 9 1,020 46 Shield Therapeutics plc Annual report and accounts 2015 Notes (forming part of the financial statements) continuedfor the year ended 31 DecemberFinancial statements28. Capital management policy The primary objective of the Group’s capital management is to ensure that it has the capital required to operate and grow the business at a reasonable cost of capital without incurring undue financial risks. The Board periodically reviews its capital structure to ensure it meets changing business needs. The Group defines its capital as its share capital, share premium account, and retained earnings. In addition, the Directors consider the management of debt to be an important element in controlling the capital structure of the Group. The Group may carry significant levels of long term debt to fund operations and working capital requirements. There have been changes to the capital requirements each year as the Group is a pre-revenue development company which has required regular suitable levels of capital injections to fund development. As mentioned above the Board periodically monitor the capital structure of the Group. The table below details the net capital structure at the relevant balance sheet dates. Cash and cash equivalents Loans and borrowings Total net debt 2015 £000 725 — 725 2014 £000 477 (8,455) (7,978) 29. Subsequent events Shield Therapeutics plc applied for admission to AIM on 26 February 2016 with a placing price of £1.50 per share for the additional 21.7 million new shares to be issued pursuant to the placing. Immediately succeeding the listing, Shield Therapeutics plc acquired intellectual property assets from the shareholders of Phosphate Therapeutics Limited for a consideration of 19,887,791 shares with a value of £27,047,396. 30. Group reorganisation Shield Therapeutics plc was incorporated on 3 September 2015 as part of the Group reorganisation activities. Following the Group reorganisation activities, Shield Holdings AG acquired the remaining non-controlling interests held by minority shareholders in Iron Therapeutics Holdings, AG through the issuance of its own share capital. Subsequent to the acquisition of the non-controlling interest, Shield Therapeutics plc acquired whole ownership interest in Shield Holdings, AG in consideration of Shield Therapeutics plc’s Ordinary Shares. Following these reorganisation activities, the shareholders of Shield Holdings, AG, holds direct ownership in Shield Therapeutics plc. Shares of Shield Therapeutics plc issued in relation to this Group re-organisation activities amounted to 69.0 million shares with a par value of £0.01 per share. The fair value of Shield Holdings, AG on the date of acquisition amounted to £136.0 million. The total merger reserve recognised in the parent company financial statements amounted to £117.3 million. The merger reserve recognised in the consolidated financial statements amounted to £28.4 million after consolidation adjustments. Shield Therapeutics plc Annual report and accounts 2015 47 Definitions and Glossary The following words and expressions shall have the following meanings in this document unless the context otherwise requires: 505b(2) CHMP an NDA which is based on existing public data which was not generated by the applicant Committee for Medicinal Products for Human Use, a committee of the European Medicines Agency Chronic kidney disease (CKD) kidney damage for greater than 3 months, as defined by structural or functional abnormalities of the kidney CMC Drug product (DP) Drug substance (DS) Chemistry Manufacturing and Controls a finished form of therapeutic agent the central active ingredient in a pharmaceutical (formerly known as API) ECCO EMA FDA Ferritin G-BA GfK European Crohn’s and Colitis Organisation the European Medicine Agency U.S. Food and Drug Administration ubiquitous intracellular protein that stores iron and releases it in a controlled fashion Gemeinsamer Bundesausschuss, the German national Health Technology Assessment regulatory body responsible for reimbursement GfK UK limited of 25 Canada Square, Canary Wharf, London, E14 5LQ, who have been appointed as market report providers to the Company Good clinical practice (GCP) an international ethical and scientific standard for the design, conduct and record of research involving humans Good manufacturing practice (GMP) good manufacturing practice in conformity with the relevant regulatory guidelines for the manufacturing of pharmaceuticals IND Investigational New Drug Inflammatory bowel disease (IBD) a disease that involves chronic inflammation of all or part of the digestive tract Intravenous (IV) Inventages Iron deficiency (ID) a solution administered directly into the venous circulation via a syringe or intravenous catheter Inventages Wealth Management Inc., as General Partner of W. Health L.P. a condition resulting from too little iron in the body Iron deficiency anaemia (IDA) a condition where a lack of iron in the body leads to a reduction MA MAA MRC NDA marketing authorisation marketing authorisation application the Medical Research Counsel in the UK New Drug Application, by which a company proposes that the FDA approves a new pharmaceutical for sale and marketing in the US Pharmacokinetics (PK) the branch of pharmacology concerned with the movement of the drugs within the body 48 Shield Therapeutics plc Annual report and accounts 2015 Financial statementsDesign Portfolio is committed to planting trees for every corporate communications project, in association with Trees for Cities. S h i e l d T h e r a p e u t i c s p l c A n n u a l r e p o r t a n d a c c o u n t s 2 0 1 5 Gateshead Northern Design Centre Baltic Business Quarter Gateshead Quays NE8 3DF t +44 (0)191 511 8500 e info@shieldtx.com London Bentinck House 3–8 Bolsover Street London W1W 6AB t +44 (0)20 7186 8500 e info@shieldtx.com i S h e l d T h e r a p e u t i c s p l c A n n u a l r e p o r t a n d a c c o u n t s 2 0 1 5 Shield Therapeutics plc Annual report and accounts 2015 

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