Siren Gold Limited
Annual Report 2013

Plain-text annual report

Annual Report and Accounts 2013 S y n a i r g e n 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 3 LABORATORY RESEARCH CLINICAL RES EA RC H DRUG THERAPY Synairgen plc, Mailpoint 810, Level F, South Block, Southampton General Hospital, Tremona Road, Southampton, SO16 6YD United Kingdom © Synairgen plc Stock symbol: LSE:SNG www.synairgen.com Contents Introduction Overview of Synairgen Highlights Business Review Strategic Report Scientific Review Governance Directors Synairgen’s Founders and Scientific Advisors Directors’ Report Corporate Governance Directors’ Remuneration Report Financials Statement of Directors’ Responsibilities Independent Auditor’s Report to the members of Synairgen plc Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Parent Company Balance Sheet Notes to the Parent Company Financial Statements Other Corporate Directory Glossary 1 2 3 7 11 13 14 15 17 21 22 23 23 24 25 26 37 38 41 41 Respiratory disease is an area of significant unmet clinical need: 1.1 million children under 5 years old are killed by pneumonia every year (18% of all deaths of children under 5) * Pneumonia is usually caused by viral and/or bacterial infections. 64 million people have Chronic Obstructive Pulmonary Disease (COPD) COPD is a collective term for chronic bronchitis and emphysema and more than 3 million people died of COPD in 2005 (representing 5% of all deaths in that year) * 235 million people currently suffer from asthma globally * * Source: World Health Organisation 1 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG Synairgen’s advanced cell models: a translational research platform Respiratory research has been hampered by the inability of animal models to truly replicate disease pathology and chronicity as well as the impact of environmental factors such as viruses, cigarette smoke and other inflammatory agents. To overcome such issues, Synairgen, in collaboration with the University of Southampton, has developed a number of advanced cell models using tissue and cells from human volunteers. Synairgen has accumulated a Biobank of clinical samples of blood, sputum, biopsies and bronchial epithelial cells obtained from a mix of well-characterised asthma or COPD volunteers and healthy control subjects. Using the cell-based models, Synairgen can analyse the complex interactions between disease and triggers of disease within lung tissue and use this knowledge to discover, develop and validate novel drug targets. Once targets have been validated in the laboratory, Synairgen’s clinical team has the proven experience and capability to design and run appropriate Phase I and II proof of concept clinical trials. Synairgen’s interferon beta programme (SNG001) Observations made in the cell-based models revealed that cells lining the airways of asthmatics were particularly susceptible to the common cold on account of a poor immune response mediated by a deficiency in interferon beta (‘IFN-β’). The fact that this deficiency could be remedied by the addition of IFN-β in the asthma and COPD models provided the basis for the clinical development programme which followed. This culminated in a Phase II proof of concept trial in asthma which read out during 2012. Exacerbations (acute deterioration of symptoms) represent the greatest unmet clinical need in asthma and COPD, and the common cold causes up to 80% of asthma exacerbations. Discussions are ongoing for the outlicensing of the programme. Future opportunities During the last few years, Synairgen has focused on its translational research platform to develop SNG001. This technology and Synairgen’s unique experience can add value to other respiratory development opportunities and a number of external opportunities have been identified for review and potential in-licensing. Synairgen is a respiratory drug discovery and development company Strategy Using its research platform (human tissue models of respiratory disease, employing Synairgen’s Biobank) and its clinical trial capabilities, Synairgen’s strategy is to identify novel drug targets, progress them through early stage clinical trials and out- license them to partners for progression to market. Highlights for the year ended 31 December 2013 l Ongoing licensing discussions for SNG001 l Further developments being identified for Synairgen’s advanced technology platform l Research and development expenditure for the year: £1.3 million (2012: £1.5 million) l Post-tax loss for the year: £2.0 million (2012: £2.3 million) l Cash, cash equivalents and bank deposits at 31 December 2013: £1.3 million (2012: £3.1 million) l Balance sheet strengthened post year-end with fundraising of £1.5 million (gross) completed in March 2014 www.synairgen.com LSE:SNG | www.synairgen.com | Synairgen plc annual report and accounts 2013 | 2 Strategic Report The directors present their Strategic Report for the year ended 31 December 2013. Principal activities Synairgen plc is the holding company for Synairgen Research Limited, a respiratory drug discovery and development company. Operating Review The Company has made significant progress during the year on its lead programme; the development of inhaled SNG001. This included further positive scientific data from the analysis of samples from the Phase II clinical trial; the formulation of clear options for the delivery and the development of the product; and substantial interaction with a number of potential licensing partners. SNG001 for asthma and COPD For asthma and COPD patients, Synairgen’s inhaled SNG001 is being developed as a broad spectrum anti-viral therapy to be taken at the onset of cold (or influenza) symptoms to boost the lungs’ anti-viral defences. The objective is to treat and/or attenuate a deterioration of asthma or COPD symptoms, by limiting the spread of viral infections to the lung and prevent life-threatening severe exacerbations that require intensive treatment. As a measure of how severe respiratory viruses can be for these patients, it has been reported that up to 80% of asthma exacerbations are linked to common cold infections. In a Phase II clinical trial, in the more severe patients, SNG001 has significantly reduced asthma symptoms, improved lung function and produced an encouraging reduction in the number of severe exacerbations. During the year we have conducted further analysis of samples of sputum (phlegm) from patients who were dosed with SNG001 in the Phase II trial. This work showed a significant reduction in markers of inflammation and a significant increase in measurable anti-viral activity in the lung during a cold infection. This is important because it clearly demonstrates that the effects observed in the clinical trial can be explained through the expected mechanism of action. During the same period we have also evaluated regulatory options, assessed the market potential and health economic factors, considered aerosol delivery device options and conducted device development work. In addition, we have considered different clinical trial options for both of the asthma and COPD indications and discussed these with contract research organisations. We have done this both in consultation with and independently of potential partners. Severe Viral Lung Infections The clinical and non-clinical data we have generated in the last few years provides a rationale for considering the use of inhaled SNG001 in patients hospitalised with a severe viral lung infection. We are discussing the potential for inhaled SNG001 in this area with various stakeholders including sections of the US government. Licensing Strategy We are pleased with the progress to date of licensing discussions. Whilst there can be no guarantee that an agreement will be completed, we anticipate that the terms of a final agreement will be in line with the Board’s expectations. Future Opportunities We use human tissue models of disease to conduct our research. It was the use of these models by the academic founders of Synairgen and their collaborators that led to the initial IFN-beta deficiency discovery in asthma and COPD that the Company has subsequently progressed into Phase II. During the last few years, we have extensively and almost exclusively used this translational research platform, including our Biobank of characterised human tissue, to support the development of SNG001: increasing the rationale; addressing questions about dose and different viruses; and supporting biomarker testing. This technology and Synairgen’s unique background/experience can add value to other development opportunities for asthma and COPD. To that end, we have identified a number of external discovery/ development programmes which will be reviewed in detail and considered for in-licensing in coming periods. Key performance indicators (‘KPIs’) The Board considers that the most important KPIs are non- financial and relate to the progress of the scientific programmes which are discussed in the preceding section of this report. The most important financial KPIs are the cash position and the operating loss of the Group. At 31 December 2013 cash and deposit balances amounted to £1.29 million (2012: £3.09 million) and were above budgeted levels. The operating loss of £2.28 million (2012: £2.49 million) was also favourable to the budgeted loss for the year. 3 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG Recreating the human lung in the laboratory Cross section of culture Epithelial cells (the cells that line airways of the lung) obtained from patients are grown in tissue culture plates Top down view of epithelial cells grown at an air-liquid interface, which develop cilia and secrete mucus in the same way as those in the human lung LSE:SNG | www.synairgen.com | Synairgen plc annual report and accounts 2013 | 4 Strategic Report (continued) Financial Review The Financial Review should be read in conjunction with the consolidated financial statements of the Company and Synairgen Research Limited (together the ‘Group’) and the notes thereto on pages 23 to 36. The consolidated financial statements are presented under International Financial Reporting Standards as adopted by the European Union. The financial statements of the Company continue to be prepared in accordance with UK Generally Accepted Accounting Practice and are set out on pages 37 to 40. Statement of Comprehensive Income The loss from operations for the year ended 31 December 2013 was £2.28 million (2012: £2.49 million). Research and development expenditure for the year amounted to £1.29 million (2012: £1.51 million). The proportionate reduction in research and development expenditure was due to the completion during 2012 of the asthma Phase II study (SG005). The most significant items of continuing research and development expenditure during the year have been the analysis of data from SG005 and the planning/evaluation of next stage of the interferon beta programme in asthma and COPD. Other administrative costs for the year amounted to £0.99 million and remained in line with the previous year (2012: £0.98 million). The research and development tax credit for the year was £0.22 million (2012: £0.21 million). The loss after tax for the year was £2.04 million (2012: £2.25 million) and the loss per share was 2.72p (2012: loss of 3.12p). Statement of Financial Position and cash flows At 31 December 2013, net assets amounted to £1.58 million (2012: £3.42 million), including net funds, as detailed below in Capital structure and funding, of £1.29 million (2012: £3.09 million). The principal elements of the £1.8 million decrease over the year ended 31 December 2013 (2012: £0.26 million decrease) in net funds were: • Cash used in operations of £2.04 million (2012: £2.75 million outflow); • Research and development tax credits received of £0.24 million (2012: £0.25 million); • Investment into intangible assets (patents and licences) £0.02 million (2012: £0.14 million); and • Share issue proceeds (net of costs) £nil (2012: £2.35 million). Capital structure and funding The Group is funded by equity capital, reflecting the early stage nature of its discovery and development programmes. The Group considers its capital to be its total equity, which at 31 December 2013 amounted to £1.58 million (2012: £3.42 million). The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns to equity holders of the Company and benefits to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group manages this objective through tight control of its cash resources and, upon reaching significant drug development programme milestones (to decrease investment risk), by raising additional equity from shareholders to meet its forecast future cash requirements. Net funds held by the Group at 31 December 2013 amounted to £1.29 million and comprised cash and cash equivalents, short-term deposits (with original maturities of greater than three months and less than one year) as shown below: 2013 £m Short-term deposits 0.46 Cash and cash equivalents 0.83 1.29 Net funds 31 Dec 30 June 2012 £m 1.43 1.66 3.09 2011 £m 2.45 0.90 3.35 2011 £m 3.40 1.49 4.89 2010 £m 3.68 1.33 5.01 2009 £m 1.98 5.96 7.94 The Group did not have any bank borrowings as at 31 December 2013 (2012: £nil). There have been five significant issues of shares with the following amounts (net of costs) raised: £0.62 million (August 2003); £8.98 million (from IPO on AIM in October 2004); £6.20 million (June 2009); £2.50 million (June 2011); and £2.35 million (July 2012). The other major sources of funding received by the Group from the formation of the business until 31 December 2013 have been: research and development tax credits of £2.46 million, bank interest of £1.62 million, and revenues from collaborative work of £0.60 million. Fundraising post year-end On 10 March 2014, the Company raised £1.5 million (gross) for working capital purposes by issuing 3,125,000 new ordinary shares at 48p each. Treasury policy and financial risk management Credit risk The Group follows a risk-averse policy of treasury management. Sterling deposits are held with one or more approved UK- based financial institutions and in the Institutional Cash Series plc Institutional Sterling Liquidity Fund managed by BlackRock Investment Management (UK) Limited. The Group’s primary treasury objective is to minimise exposure to potential capital losses whilst at the same time securing prevailing market rates. Interest rate risk The Group’s cash held in current bank accounts is subject to the risk of fluctuating base rates. An element of the Group’s financial assets is placed on fixed-term interest deposits. The interest rate profile of financial assets is illustrated in note 16 to the financial statements. Currency risk During the year under review, the Group was exposed to Euro and US dollar currency movement as a small element of its research and development expenditure is denominated in these currencies. The Group does not routinely hedge against this exposure. 5 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG Principal risks and uncertainties The Board considers that the principal risks and uncertainties facing the Group may be summarised as follows: • Reliance on the interferon beta programmes All of the Group’s resources are focused on the three interferon beta programmes. Whilst these are three separate indications (asthma, COPD and severe viral lung infections), there is a risk that failure in one indication may have a negative impact upon the others. • Failure to generate innovative discoveries There can be no guarantee that the Group will successfully develop new pharmaceutical products. • Loss of the Biobank The Group’s Biobank of well-characterised human tissue, which has been built up over several years, is a key element of its technology platform and is very important in relation to the development of future opportunities. The Group follows a defined policy to minimise the chances of loss of the Biobank, including storing it in a number of different locations at Southampton General Hospital and monitoring the storage temperature 24 hours a day. • Clinical development and regulatory risk The development of pharmaceutical drugs requires the necessary safety and efficacy to be demonstrated in clinical programmes in order to meet the requirements of the appropriate regulatory bodies. There can be no guarantee that the necessary safety or efficacy will be demonstrated or that the clinical trials will not be delayed or extended. There can be no guarantee that any of the Group’s therapies will be able to obtain or maintain the necessary regulatory approvals. The Group seeks to reduce this risk by closely monitoring the progress of recruitment on its clinical trials, drawing on the experience of its Founders, seeking advice from regulatory advisers, and holding consultations with the appropriate regulatory bodies. • Intellectual property risk The commercial success of the Group depends on its ability to obtain patent protection for its pharmaceutical discoveries in the US, Europe and other countries and to preserve the confidentiality of its know-how. There is no guarantee that patent applications will succeed or be broad enough to provide protection for the Group’s intellectual property rights and exclude competitors with similar pharmaceutical products. The success of the Group is also dependent on non-infringement of patents, or other intellectual property rights, held by third parties. Competitors and third parties may hold intellectual property rights which the Group may not be able to license upon favourable terms, potentially inhibiting the Group’s ability to develop and exploit its own business. Litigation may be necessary to protect the Group’s intellectual property which may result in substantial costs. The Group seeks to reduce this risk by seeking patent attorney advice that patent protection will be available prior to investing in a project, by seeking patent protection where appropriate and by minimising disclosure to third parties. • Commercial risk There can be no guarantee that the Group will succeed in securing and maintaining the necessary contractual relationships with licensing partners for its programmes under development. Even if the programmes are successfully out-licensed and pharmaceutical products are brought to market by a partner, there is no guarantee that such products will succeed in the marketplace. The Group seeks to reduce this risk by structuring its development programmes to meet the needs and requirements of its potential partners and by engaging with partners who have the appropriate experience, resource and interest to bring such pharmaceutical products to the global marketplace. • Competition risk The Group’s current and potential competitors include pharmaceutical and biotechnology companies and academic institutions, many of whom have significantly greater financial resources than the Group. There can be no assurance that competitors will not succeed in developing products that are more effective or economic than any developed by the Group, or which would render the Group’s products non-competitive or obsolete. • Funding risk The Group continues to consume cash resources. Until the Group generates positive net cash inflows from successful out- licensing transactions and commercialisation of its products, it remains dependent upon securing additional funding through the injection of capital from share issues. The Group may not be able to generate positive net cash flows in the future or attract such additional funding required at all, or on suitable terms. In such circumstances, the Group’s discovery and development programmes may be delayed or cancelled and the business operations curtailed. The Group seeks to reduce this risk through tight financial control, prioritising programmes which will generate the best returns and keeping shareholders informed on progress. • Dependence on Founders, senior management and key staff The Founders and certain members of staff are highly skilled scientists and clinicians. The Group has deliberately pursued a lean headcount policy to conserve financial resources. Failure to continue to attract and retain such individuals could adversely affect operational results. The Group seeks to reduce this risk by appropriate incentivisation of staff through participation in long term equity incentive schemes. By order of the Board John Ward Company Secretary 19 March 2014 LSE:SNG | www.synairgen.com | Synairgen plc annual report and accounts 2013 | 6 Scientific Review – Improving the likelihood of success in drug development Prof. Stephen Holgate Non-executive Director Dr Phillip Monk Chief Scientific Officer Only one in six drugs that enter clinical development will be registered for clinical use1. The drug development process usually comprises three clinical phases prior to an application for a marketing authorisation: • Phase I trials are conducted in a small number of patients (20 – 80) and are focussed on safety. • Phase II trials are conducted in a larger group (up to a few hundred) and are designed to test proof of principle or concept, looking for evidence that the agent has engaged the proposed therapeutic target producing a beneficial effect on a relevant disease outcome measure, as well as providing further evidence of safety. • Phase III trials are conducted in larger numbers of patients still (from a few hundred to several thousand) and are aimed at confirming efficacy with statistical significance in different patient populations using a range of outcome measures and to gain information on rarer side effects. Greatest attrition in the drug development process occurs in Phase II proof of concept studies, where drugs often fail due to lack of efficacy or safety concerns. By this stage, two to three years of clinical development and significant investment has been made in the development programme. Improving the predictability of preclinical studies for a positive clinical outcome, a key element of ‘Translational Medicine’, is crucial to reducing the risk of failure at Phase II and beyond, by ensuring that the right drug targets are selected prior to initiation of costly late-stage clinical development 7 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG and that they are evaluated in a patient population which is likely to respond to the specific treatment. Human tissue models are more likely to be predictive of clinical outcome Traditionally, many drug targets in respiratory disease have been selected on the basis of activity in animal models, which were considered to replicate some aspects of diseases such as asthma or COPD, but not the whole disease. There are a number of difficulties with this approach2. Whilst certain disease mechanisms can be modelled, it is difficult, if not impossible, to model the complexity of chronic diseases such as asthma and COPD, that develop over many years as a function of an individual’s genetic makeup and environmental factors operating over the life-course. Fundamental differences in biology between animals and humans can also be problematic. For example, salbutamol is an important drug used in the treatment of asthma (Ventolin® manufactured by GSK is probably the best known branded asthma product). Taken by inhaler, salbutamol acts quickly to relax airway smooth muscle and overcome the bronchospasm characteristic of asthma. Similarly, in the laboratory salbutamol relaxes the airways in a human lung tissue model in one to two minutes3. However, in a rat lung tissue model, salbutamol is not only much less potent but also opens airways much more slowly (longer than 15 minutes). As a fast onset of action is key to the efficacy of salbutamol in relieving acute bronchospasm in asthma, it would not have been selected on the basis of this rodent model. Using patient samples to select the right patient population for a drug target It is increasingly recognised that not all patients will gain the same benefit from a particular treatment for a variety of reasons, not least of which is the expression of different disease pathways (or endotypes) in different patients. This is the basis of personalised, P4 or stratified medicine4. Under such circumstances, enriching a clinical trial population for patients who are most likely to respond best to treatment rather than treating all-comers increases the chance of success, particularly early in the clinical development programme in trials with fewer patients5. For example, preclinical studies in animal models suggested that the airways pro-inflammatory and remodelling protein interleukin-13 (IL-13) may be an important target for the treatment of asthma. As a consequence a number of therapeutic antibodies targeting IL-13 are in clinical development. To determine whether IL-13 is an important mediator in less well controlled asthma, researchers measured levels of IL-13 in airway secretions collected from patients with severe asthma. They found that only around 40% of patients had detectable levels of IL-13, suggesting that not all patients with severe asthma would benefit from a treatment targeting IL-135, 6. Two Phase II clinical studies have been conducted in asthma with anti-IL-13 antibody therapeutics in which clinical responses were evaluated in a subset of the trial populations with detectable IL-13 in sputum samples or elevated levels of an IL-13 sensitive biomarker in blood7, 8. In both cases, clinical response to treatment was better than in the unselected and heterogeneous trial population. Another example in the respiratory field is development of mepolizumab, a therapeutic antibody targeting IL-5. IL-5 is a pro- inflammatory protein involved in the recruitment and activation of eosinophils, thought to be an important inflammatory cell type in asthma. Early trials with mepolizumab yielded disappointing results9. However, more recent trials, in which the study populations were enriched for patients with signs of eosinophilic inflammation, have shown mepolizumab to be an effective therapy in the right target population10. Synairgen’s translational research platform Synairgen’s founders, Professors Stephen Holgate, Ratko Djukanovic and Donna Davies, were among the first academic groups to develop human cell and tissue models in the respiratory disease area11. They played an instrumental role in establishing the translational research platform at Synairgen because they had access to diseased patients, the facilities to obtain biological samples from their airways and use these to develop disease related models in vitro at the University of Southampton’s School of Medicine. Taking advantage of this unique setting, over the last decade Synairgen has established and continues to add to a Biobank of blood, sputum, lung cells and tissue samples collected from clinically well-characterised subjects with asthma and COPD and controls. These samples, stored in accordance with the requirements of the Human Tissue Authority, have been used to create in vitro human disease models of allergen challenge, cigarette smoke exposure, oxidant damage and respiratory virus infection, factors which are associated with exacerbations of respiratory disease. It was observations made in cell models such as these which revealed that cells lining the airways of asthmatics (epithelial cells) were more susceptible to infection with common respiratory viruses such as those causing the common cold on account of References a deficient protective immune response mediated by interferon beta12. The fact that this deficiency could be repaired by addition of a small amount of exogenous interferon beta in the in vitro asthma and COPD models provided the basis for the development of inhaled interferon beta as a novel treatment for respiratory virus induced exacerbations of respiratory disease. It is noteworthy that such a deficiency in immune response would not have been identified in animal models of respiratory disease12, although once the defective pathway has been identified, pathway-specific models can be generated in mice to recapitulate events in the human disease13. Identifying new development opportunities Having validated its translational platform through the interferon beta programme, Synairgen now aims to use its unique models to screen potential in-licensing opportunities in the respiratory disease or respiratory viral areas where there remains substantial unmet clinical need in complex diseases. The Biobank and disease models have the potential to enable Synairgen to identify the most relevant novel drug targets and reposition existing drugs, aiming them at patient populations who are more likely to gain significant clinical benefit. Identification of the appropriate responder population based on well characterised biomarkers will greatly assist the drug development process in the clinic. Furthermore a more targeted intervention will direct precious healthcare expenditure to those patients more likely to benefit from therapy. Professor Stephen Holgate CBE Founder and Non-executive Director Dr Phillip Monk Chief Scientific Officer 19 March 2014 1. Hay M, Thomas DW, Craighead JL, Economides C, Rosenthal J. Clinical development success rates for investigational drugs: Nat Biotechnol. 2014 Jan; 32(1):40-51. 2. Holmes AM, Solari R, Holgate ST. Animal models of asthma: value, limitations and opportunities for alternative approaches. Drug Discov Today. 2011 Aug; 16(15-16): 659-70. 5. Holgate ST. Stratified approaches to the treatment of asthma. Br J Clin Pharmacol. 2013 Aug; 76(2): 277-91. 6. Saha SK, Berry MA, Parker D, Siddiqui S, Morgan A, May R, Monk P, Bradding P, Wardlaw AJ, Pavord ID, Brightling CE. Increased sputum and bronchial biopsy IL-13 expression in severe asthma. J Allergy Clin Immunol. 2008 Mar;121(3):685-91. 3. Brown SM, Koarai A, Sturton RG, Nicholson AG, Barnes PJ, Donnelly LE. A role for M(2) and M(3) muscarinic receptors in the contraction of rat and human small airways. Eur J Pharmacol. 2013 Feb 28;702(1-3): 109-15. 7. Piper E, Brightling C, Niven R, Oh C, Faggioni R, Poon K, She D, Kell C, May RD, Geba GP, Molfino NA. A phase II placebo- controlled study of tralokinumab in moderate-to-severe asthma. Eur Respir J. 2013 Feb;41(2):330-8. 4. Harvey A, Brand A, Holgate ST, Kristiansen LV, Lehrach H, Palotie A, Prainsack B. The future of technologies for personalised medicine. N Biotechnol. 2012 Sep 15; 29(6): 625-33. 8. Corren J, Lemanske RF, Hanania NA, Korenblat PE, Parsey MV, Arron JR, Harris JM, Scheerens H, Wu LC, Su Z, Mosesova S, Eisner MD, Bohen SP, Matthews JG. Lebrikizumab treatment in adults with asthma. N Engl J Med. 2011 Sep 22;365(12):1088-98. 9. Flood-Page P, Swenson C, Faiferman I, Matthews J, Williams M, Brannick L, Robinson D, Wenzel S, Busse W, Hansel TT, Barnes NC; International Mepolizumab Study Group. A study to evaluate safety and efficacy of mepolizumab in patients with moderate persistent asthma. Am J Respir Crit Care Med. 2007 Dec 1;176(11):1062-71. 10. Pavord ID, Korn S, Howarth P, Bleecker ER, Buhl R, Keene ON, Ortega H, Chanez P. Mepolizumab for severe eosinophilic asthma (DREAM): a multicentre, double-blind, placebo-controlled trial. Lancet. 2012 Aug 18;380(9842):651-9. 11. Blume C, Davies DE. In vitro and ex vivo models of human asthma. Eur J Pharm Biopharm. 2013 Jun; 84(2): 394-400. 12. Wark PA, Johnston SL, Bucchieri F, Powell R, Puddicombe S, Laza-Stanca V, Holgate ST, Davies DE. Asthmatic bronchial epithelial cells have a deficient innate immune response to infection with rhinovirus. J Exp Med. 2005 Mar 21; 201(6): 937-47. 13. Zhang SY, Herman M, Ciancanelli MJ, Pérez de Diego R, Sancho-Shimizu V, Abel L, Casanova JL. TLR3 immunity to infection in mice and humans. Curr Opin Immunol. 2013 Feb; 25(1): 19-33. LSE:SNG | www.synairgen.com | Synairgen plc annual report and accounts 2013 | 8 Synairgen is licensed by the Human Tissue Authority to store and use its Biobank of human tissue for its research 1 2 1 Biobank samples are obtained from volunteer patients attending specialist clinical research facilities at Southampton General Hospital 2 Synairgen’s Biobank contains blood, sputum, lung cells and tissue samples collected from subjects with asthma and COPD and controls 9 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG 3a Biobank samples are used to create in vitro human respiratory cell and tissue models to discover, develop and validate novel drug targets 3b Image of cultured epithelial cells grown at an air-liquid interface showing cilia and mucus-secreting cells (refer to page 4) 3a 3b © Dr. Richard Kessel & Dr. Randy Kardon/Visuals Unlimited, Inc LSE:SNG | www.synairgen.com | Synairgen plc annual report and accounts 2013 | 10 Directors Simon Shaw Non-executive Chairman Simon Shaw joined Synairgen as executive Chairman on its inception in June 2003 and became non-executive Chairman in October of that year. He is Group Chief Financial Officer of Savills plc. He was Chief Financial Officer of Gyrus Group PLC from 2003 until its sale to Olympus Corporation in 2008, having previously been Chief Operating Officer of Profile Therapeutics plc between 1998 and 2003. Between 1991 and 1997 he was a corporate financier, latterly at Hambros Bank Limited. He is a chartered accountant. Richard Marsden Chief Executive Officer Richard Marsden joined Synairgen in a consulting role as General Manager in November 2003, was appointed to the Board as Managing Director in June 2004 and appointed Chief Executive Officer in September 2009. Between 1998 and 2003 he worked as Projects Manager and Cystic Fibrosis Business Development Manager at Profile Therapeutics plc, where he managed the cystic fibrosis business and played a major role in the development of its proprietary pharmaceutical unit, Profile Pharma Limited. Prior to this, he worked for Zimmer Limited, Genentech (UK) Limited and Roche Products Limited. Dr Phillip Monk Chief Scientific Officer John Ward Finance Director Phillip Monk joined Synairgen in October 2006 as Head of Bioscience Development and was appointed to the Board as Chief Scientific Officer in September 2009. Phillip was previously Director of the Respiratory and Inflammation Biology group at Cambridge Antibody Technology (‘CAT’) and led the scientific development of CAT-354, an anti-IL-13 antibody being developed for the treatment of severe asthma. Prior to joining CAT, he worked at Bayer AG within the respiratory disease therapeutic area, focusing on the development of novel therapies for asthma, COPD and cystic fibrosis. John Ward joined Synairgen in October 2004 as Finance Director. From December 1999 to July 2004 he was Chief Financial Officer and Company Secretary of Profile Therapeutics plc and was appointed to the Profile Therapeutics board in March 2003. From 1996 to 1999 he was Finance Director of Rapid Deployment Group Limited, the UK holding company for the healthcare operations of Ventiv Health, Inc. Prior to joining Rapid Deployment he was a Director of Corporate Finance at Price Waterhouse. He is a chartered accountant. 11 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG Iain Buchanan Non-executive Director Dr Bruce Campbell Non-executive Director Iain Buchanan was appointed as a non-executive director in June 2010 and is currently Chief Executive Officer of NOXXON Pharma AG based in Berlin. Previously he was Chief Executive Officer of Novexel SA (‘Novexel’), a specialty pharmaceutical company focused on novel anti-infectives, from its formation in 2004 until 2010, when it was sold to AstraZeneca. He has some 35 years’ commercial experience in the pharmaceutical and biotech industries. He joined Novexel from Vertex Pharmaceuticals (Europe) Limited, where he was Managing Director. Prior to Vertex, Iain was the Regional Licensing Director of Cilag A.G. International, a division of Johnson & Johnson based in Switzerland, where he managed Cilag's international licensee business from 1987 to 1994. Bruce Campbell joined Synairgen as a non-executive Director in April 2006. He has 40 years of drug development experience and has developed many drugs in a wide range of indications which are now on the market. He is currently a scientific advisor to IP Group plc and acts as a consultant to various companies including Proximagen Limited. Formerly he was Senior VP of International Development at Neurocrine Biosciences, Inc. ('Neurocrine'). Prior to joining Neurocrine he worked for 27 years at Servier (United Kingdom), latterly as Scientific Director. In addition, he has also been a director and European Chairman of the Drug Information Association and a member of the European ICH Safety Working Party. He is a visiting Professor in Pharmacology at King's College, London. Paul Clegg Non-executive Director Prof. Stephen Holgate CBE Non-executive Director Paul Clegg was appointed as a non-executive director in September 2009. He is Chief Executive Officer of Accsys Technologies PLC, Chairman of Tricoya Technologies Ltd and a non-executive director of Peel Hunt LLP. Paul was previously Managing Director and Chief Executive Officer of Cowen International Limited and director of Cowen Asset Management Limited until June 2008. Paul has over twenty years’ senior investment banking experience. Stephen Holgate is a co-founder of Synairgen and was appointed a non- executive director in June 2003. After qualifying in Medicine at Charing Cross Hospital Medical School, London he has pursued an academic career leading to his appointment in 1987 to his current position as Medical Research Council Clinical Professor of Immunopharmacology at the University of Southampton. His research interests have been largely focused on the cellular and molecular mechanisms of asthma that has involved use of both epidemiological and genetic approaches. He has published over 950 papers in peer-reviewed literature. He is currently Member of the Science Europe Medical Committee; Chairman of the European Respiratory Society Scientific Council; Board Chair of National Centre for the Replacement, Refinement and Reduction of Animals in Research (NC3Rs); Chairman of Defra’s Hazardous Substances Advisory Committee; Member of the Department of Health Committee on the Medical Effects of Air Pollution; and a scientific board member or advisor to a number of companies, including Amgen, Takeda, Merck, and Novartis. In 2010, he was appointed by the Higher Education Funding Council for England to be the Chair of the Research Excellence Framework (REF2014) Main Panel A covering Medicine, Health and Life Sciences. LSE:SNG | www.synairgen.com | Synairgen plc annual report and accounts 2013 | 12 Synairgen’s Founders and Scientific Advisors Synairgen’s Founders Prof. Ratko Djukanovic is Professor of Medicine at the University of Southampton and Director of the Southampton NIHR Respiratory Biomedical Research Unit Prof. Stephen Holgate CBE is MRC Clinical Professor of Immunopharmacology at the University of Southampton Prof. Donna Davies is Professor of Respiratory Cell and Molecular Biology at the University of Southampton 13 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG Directors’ Report The directors present their report and the audited financial statements for Synairgen plc (the ‘Company’) and its subsidiary (together the ‘Group’) for the year ended 31 December 2013. There are a number of items required to be included in the Directors’ Report, which are covered elsewhere in the annual report. The following are covered in the Strategic Report: • Principal activities • Review of the business and future developments • Key performance indicators • Principal risks and uncertainties • The use of financial instruments and financial risk management policies (also in note 16 to the financial statements) Details of directors’ remuneration and share options are given in the Directors’ Remuneration Report. Research and development During the year ended 31 December 2013, the Group has invested £1,292,000 (2012: £1,508,000) in research and development activities and a review of this expenditure is included in the Strategic Report. Dividends The directors do not propose the payment of a dividend. Substantial shareholdings As at 19 March 2014, the Company had been advised of the following shareholders with interests of 3% or more in its ordinary share capital: Name of shareholder Number of ordinary shares % of share capital Lansdowne Partners Limited IP Group plc F&C Asset Management plc IP Venture Fund Mr MR Underwood Southampton Asset Management Limited Polar Capital LLP 15,023,111 8,562,894 6,552,505 5,706,390 3,970,588 3,600,000 2,360,115 19.2% 10.9% 8.4% 7.3% 5.1% 4.6% 3.0% Directors The directors of the Company during the year ended 31 December 2013 were: Other Scientific Advisors Prof. Sebastian Johnston is Professor of Respiratory Medicine & Allergy at the National Heart and Lung Institute, Imperial College, London Prof. Wisia Wedzicha is Professor of Respiratory Medicine at UCL Medical School and her work is centered on the causes and mechanisms of COPD exacerbations Executive Directors: Richard Marsden Dr Phillip Monk John Ward Non-executive Directors: Simon Shaw Iain Buchanan Dr Bruce Campbell Paul Clegg Prof. Stephen Holgate CBE LSE:SNG | www.synairgen.com | Synairgen plc annual report and accounts 2013 | 14 Directors’ Report (continued) Corporate Governance Directors’ interests in ordinary shares The directors, who held office at 31 December 2013, had the following interests in the ordinary shares of the Company: 1 January and 31 December 2013 Number of shares Richard Marsden Dr Phillip Monk John Ward Simon Shaw (i) Iain Buchanan Dr Bruce Campbell Paul Clegg (ii) Prof. Stephen Holgate (iii) 110,972 28,592 243,912 1,408,879 112,741 294,259 204,244 858,360 (i) Simon Shaw’s shareholding includes 40,299 shares held in his pension plan. (ii) Paul Clegg’s shareholding includes 180,149 shares held in his pension plan. (iii) Prof. Stephen Holgate’s shareholding includes 1,923 shares owned by his wife, Elizabeth Holgate. Between 31 December 2013 and the date of this report there has been no change in the interests of directors in shares or share options as disclosed in this report. Directors’ and officers’ liability insurance Qualifying indemnity insurance cover has been arranged in respect of the personal liabilities which may be incurred by directors and officers of the Group during the course of their service with the Group. This insurance has been in place during the year and on the date of this report. Post balance sheet events On 10 March 2014, the Company raised £1,500,000 (gross) for working capital purposes by issuing 3,125,000 1p ordinary shares at a price of 48p per share. Political donations During the year ended 31 December 2013, the Group made no political donations (2012: £nil). Auditors All of the current directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Company's auditors for the purposes of their audit and to establish that the auditors are aware of that information. The directors are not aware of any relevant audit information of which the auditors are unaware. By order of the Board John Ward Company Secretary 19 March 2014 15 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG The Board is accountable to the Company’s shareholders for good corporate governance and it is the objective of the Board to attain a high standard of corporate governance. As an AIM-quoted company, full compliance with The UK Corporate Governance Code (the ‘Code’) is not a formal obligation. The Company has not sought to comply with the full provisions of the Code, however it has sought to adopt the provisions that are appropriate to its size and organisation and establish frameworks for the achievement of this objective. This statement sets out the corporate governance procedures that are in place. Board of Directors On 31 December 2013 the Board of directors (the ‘Board’) consisted of a non-executive Chairman (Simon Shaw), three executive directors (Richard Marsden, Dr Phillip Monk and John Ward), and four non-executive directors (Iain Buchanan, Dr Bruce Campbell, Paul Clegg and Prof. Stephen Holgate). Brief details about the directors are given on pages 11 and 12. The responsibilities of the non-executive Chairman and the Chief Executive Officer are clearly divided. The non-executive directors bring relevant experience from different backgrounds and receive a fixed fee for their services and reimbursement of reasonable expenses incurred in attending meetings. The Board retains full and effective control of the Group. This includes responsibility for determining the Group’s strategy and for approving budgets and business plans to fulfil this strategy. The full Board ordinarily meets bi-monthly. It also meets on any other occasions it considers necessary. During the year ended 31 December 2013, the Board met nine times, with each member attending as follows: Director Simon Shaw Richard Marsden Dr Phillip Monk John Ward Iain Buchanan Dr Bruce Campbell Paul Clegg Prof. Stephen Holgate Number of meetings held whilst a Board member Number of meetings attended 9 9 9 9 9 9 9 9 9 9 8 9 8 7 9 2 It is the duty of the Chairman to ensure that all directors are properly briefed on issues arising at Board meetings. Prior to each Board meeting, directors are sent an agenda and Board papers for each agenda item to be discussed. Additional information is provided when requested by the Board or individual directors. The Company Secretary is responsible to the Board for ensuring that Board procedures are followed and that the applicable rules and regulations are complied with. All directors have access to the advice and services of the Company Secretary, and independent professional advice, if required, at the Company’s expense. Removal of the Company Secretary would be a matter for the Board. As appropriate, the Board has delegated certain responsibilities to Board committees. Corporate Governance Audit Committee The Audit Committee currently comprises Simon Shaw (Chairman), Iain Buchanan and Dr Bruce Campbell. Whilst it is not normal in larger companies for the chairman of the Company to chair the Audit Committee, the Company considers it appropriate for Simon Shaw to be Chairman as he is considered to have the most significant, recent and relevant financial experience of the non- executive directors. The committee has primary responsibility for ensuring that the financial performance of the Group is properly measured and reported on and it reviews the interim financial information and annual financial statements before they are submitted to the Board. The committee reviews accounting policies and material accounting judgements. The committee also reviews, and reports on, reports from the Group’s auditors relating to the Group’s accounting controls. It makes recommendations to the Board on the appointment of auditors and the audit fee. The committee monitors the scope, results and cost-effectiveness of the audit. It has unrestricted access to the Group’s auditors. In certain circumstances it is permitted by the Board for the auditors to supply non-audit services (in the provision of tax advice, or on specific projects where they can add value). The committee has approved and monitored the application of this policy in order to safeguard auditor objectivity and independence. The overall fees paid to the auditors are not deemed to be of such significance to them as to impair their independence. The Group does not have an internal audit function, but the Board considers that this is appropriate, given the size of the Group. The committee keeps this matter under review annually. During the year ended 31 December 2013, the committee met four times with each member attending as follows: Director Simon Shaw Iain Buchanan Dr Bruce Campbell Number of meetings held whilst a Committee member Number of meetings attended 4 1 4 4 1 3 Remuneration and Nomination Committee The Remuneration and Nomination Committee currently comprises Paul Clegg (Chairman), Dr Bruce Campbell and Simon Shaw. The committee is responsible for making recommendations to the Board on remuneration policy for executive directors and the terms of their service contracts, with the aim of ensuring that their remuneration, including any share options and other awards, is based on their own performance and that of the Group generally. The committee administers the Long-Term Incentive Plan, the staff share option scheme and the Qualifying Non-Employee Option Scheme and approves grants under all three schemes. It also advises on the remuneration policy for the Group’s employees. The committee is responsible for all senior appointments that are made within the Group. During the year ended 31 December 2013, the committee met four times and all meetings were attended by Paul Clegg, Dr Bruce Campbell and Simon Shaw. Investor relations The directors seek to build a mutual understanding of objectives between the Company and its shareholders by meetings with major institutional investors and analysts after the Company’s preliminary announcement of its year-end results and its interim results. The Company also maintains investor relations pages on its website (www.synairgen.com) to increase the amount of information available to investors. There is an opportunity at the Annual General Meeting for individual shareholders to question the Chairman, the Chairmen of the Audit and Remuneration and Nomination committees, and the executive directors. Notice of the meeting is sent to shareholders at least 21 clear days before the meeting. Shareholders are given the opportunity to vote on each separate issue. The Company counts all proxy votes and will indicate the level of proxies lodged on each resolution, after it has been dealt with by a show of hands. Details of the resolutions and explanations thereto are included with the notice. Internal control The directors are responsible for establishing and maintaining the Group’s system of internal control and reviewing its effectiveness. The system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can only provide reasonable but not absolute assurance against material misstatement or loss. The main features of the internal control system are as follows: • a control environment exists through the close management of the business by the executive directors. The Group has a defined organisational structure with delineated approval limits. Controls are implemented and monitored by personnel with the necessary qualifications and experience; • a list of matters reserved for board approval; • monthly management reporting and analysis of variances; • financial risks for each major transaction are identified and evaluated by the Board; and • standard financial controls operate to ensure that the assets of the Group are safeguarded and that proper accounting records are maintained. By order of the Board John Ward Company Secretary 19 March 2014 LSE:SNG | www.synairgen.com | Synairgen plc annual report and accounts 2013 | 16 Directors’ Remuneration Report This report is non-mandatory for AIM-quoted companies and has been produced on a voluntary basis. It includes and complies with the disclosure obligations of the AIM Rules. Remuneration Committee The Company’s remuneration policy is the responsibility of the Remuneration and Nomination Committee (the ‘Committee’), which was established in October 2004. The terms of reference of the Committee are outlined in the Corporate Governance Statement on page 16. The members of the Committee are Paul Clegg (Chairman), Simon Shaw and Dr Bruce Campbell. The Committee, which is required to meet at least twice a year, met four times during the year ended 31 December 2013. The Chief Executive Officer and certain executives may be invited to attend meetings of the Committee to assist it with its deliberations, but no executive is present when his or her own remuneration is discussed. During the year, the Committee has been advised on director remuneration by its retained independent remuneration adviser, FIT Remuneration Consultants LLP. No other advice has been provided to the Group by this firm during the year. Remuneration policy (i) Executive remuneration The Committee has a duty to establish a remuneration policy which will enable it to attract and retain individuals of the highest calibre to run the Group. Its policy is to ensure that the executive remuneration packages of executive directors and the fee of the Chairman are appropriate given performance, scale of responsibility, experience, and consideration of the remuneration packages for similar executive positions in companies it considers to be comparable. Packages are structured to motivate executives to achieve the highest level of performance in line with the best interests of shareholders. A significant element of the total remuneration package, in the form of bonus and LTIP awards, is performance driven. Executive remuneration currently comprises a base salary, an annual performance-related bonus, a pension contribution to the executive director’s individual money purchase scheme (at 9% of base salary), family private health cover, permanent health and life assurance. Salaries and benefits were last reviewed in July 2012. As indicated in last year’s report, salaries and benefits will now be reviewed annually during the first quarter of the year with any increases taking effect from 1 January, taking into account Group and individual performance, external benchmark information and internal relativities. The Company operates a discretionary bonus scheme for executive directors for delivery of exceptional performance against personal and corporate objectives, with the maximum bonus payable remaining at 200% of base salary. No bonuses were payable to executive directors in respect of the year ended 31 December 2013 and there were no pay rises awarded to executive directors in 2013. The 2014 review will be disclosed in next year’s report. Executive directors are also rewarded for improvements in the performance of the Group sustained over a period of years in the form of Long-Term Incentive Plan share awards granted on a discretionary basis by the Committee. 17 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG Directors’ remuneration for the year ended 31 December 2013 is set out on pages 19 and 20 of this document. (ii) Chairman and non-executive Director remuneration The Chairman, Mr Buchanan and Mr Clegg receive a fixed fee of £25,000 per annum. Dr Campbell and Professor Holgate receive a fixed fee of £15,000 per annum. The fixed fee covers preparation for and attendance at meetings of the full Board and committees thereof. A fee of £5,000 per annum is also paid for chairing each of the audit and remuneration committees. The Chairman and the executive directors are responsible for setting the level of non-executive remuneration. These fees remain unchanged from 1 September 2009. The non-executive directors are also reimbursed for all reasonable expenses incurred in attending meetings. (iii) Equity-based incentive schemes The Committee strongly believes that equity-based incentive schemes increase the focus of employees in improving Group performance, whilst at the same time providing a strong incentive for retaining and attracting individuals of a high calibre. Long-Term Incentive Plan (‘LTIP’) The Synairgen Long-Term Incentive Plan, comprising conditional (performance-related) share awards (technically structured as nominal cost options pursuant to which participants must pay 1p per share on the exercise of their awards), was introduced in 2005 as the sole ongoing long-term incentive vehicle for executive Directors. Senior executives and other employees may be granted an award which will normally vest if demanding performance conditions are achieved over a three-year period and if the grantee remains an employee of the Group. Grants under the LTIP in any financial year are capped at a maximum of 100% of base salary. In March 2013, Richard Marsden, Dr Phillip Monk and John Ward were granted awards over shares worth 100% of base salary. Executive directors are expected to retain no fewer than 50% of shares acquired upon vesting of awards under the LTIP, net of taxes, until such time as, in combination with any other shares the executives may have acquired, they hold shares with a value equivalent to 100% of base salary. All awards will lapse at the end of the applicable performance period to the extent that the applicable performance criteria conditions have not been satisfied with no opportunity for retesting. In the event of a good leaver event or a change of control of the Company, the LTIP awards may vest early, but only to the extent that, in the opinion of the Committee, the performance conditions have been satisfied at that time. The awards will generally also be subject to a time pro- rated reduction to reflect the reduced period of time between the grant of the awards and the time of vesting although this reduction may not be applied in certain cases. Performance conditions for the 2010, 2011 and 2013 LTIP awards The performance conditions for all three awards were the same. The awards are subject to two conditions. Firstly, awards will only vest to the extent that the percentage increase in the total shareholder return (‘TSR’, being the return earned by a shareholder over the performance period in terms of change in the share price and assuming re-investment of any dividends in more shares at the prevailing price on the relevant ex-dividend date) of the Company over the three year performance period is equal or greater than the percentage increase in the techMARK mediscience™ index over the same period as follows: TSR growth over the performance period less percentage increase in the techMARK mediscience™ index over the same period Vesting percentage of total number of shares subject to award Less than 0% 0% 10% 20% Performance between the steps 0% 25% 50% 100% Pro-rata on a straight-line basis Secondly, no award will vest unless the average annual growth in the TSR of the Company over the performance period is equal to or greater than RPI plus 2% or, for more than 75% of an award to vest, annual average TSR must exceed RPI by at least 5% rather than 2%. Vesting of 2010 LTIP awards In September 2013, the awards granted in 2010 vested at 49.48%. The TSR growth over the three year performance period amounted to 90.46% and the percentage increase in the techMARK mediscience index over the same period was 80.67%, resulting in an outperformance by 9.79%, thus resulting in a vesting percentage of 49.48% for the first performance condition. For the second performance condition, the TSR increase of 90.46% was in excess of the 17.80% (inflation plus 6%), resulting in the maintained vesting of 49.48% from the first performance condition. Qualifying Non-Employee Option Scheme (‘QNEOS’) On 12 June 2009 shareholders in General Meeting approved the adoption of the QNEOS. This plan is a discretionary share scheme which enables the Committee to grant market value share options to consultants and non-executive directors who, in the opinion of the Committee, make, or, in the case of new appointments, will make, a significant contribution to the Group and where the Committee considers it to be in the interests of shareholders to make such grants. During the year under review no options were granted under the QNEOS. Vesting of 2010 QNEOS award In June 2013 the award made in June 2010 vested in full. The award of options was made to a non-executive director of the Company (Mr Buchanan) which was subject to a performance condition whereby if TSR during the three year period exceeded 30% then the award would vest in full. The actual TSR achieved was 66.17% and therefore the award vested in full. (iv) Service contracts and letters of appointment The executive directors have entered into service agreements which can be terminated on six months’ notice by either party. During the year, Richard Marsden continued to act as a non- executive director of Southampton Asset Management Limited but did not receive any fees with regards to this appointment. None of the other executive directors held non-executive directorships with other companies. The Chairman and non-executive directors have entered into letters of appointment for an initial fixed period of twelve months, which renew automatically for a further twelve month period on the anniversary of commencement. The appointment can be terminated on three months’ notice by either party. Directors’ interests in share options The interests of Directors in share options over ordinary shares during the year were as follows: Synairgen Long-Term Incentive Plan Date of grant At 1 January 2013 Granted during the year Lapsed At 31 December 2013 Exercise price Earliest exercise date Expiry date Richard Marsden 7 September 2009 8 September 2010 21 September 2011 11 March 2013 Dr Phillip Monk 7 September 2009 8 September 2010 21 September 2011 11 March 2013 John Ward 7 September 2009 8 September 2010 21 September 2011 11 March 2013 605,000 498,969 538,063 – 414,625 371,134 400,212 – 550,000 453,608 489,148 – – – – 245,732 – – – 182,776 – – – 223,393 – 252,080 – – – 187,497 – – – 229,163 – – 605,000 246,889 538,063 245,732 414,625 183,637 400,212 182,776 550,000 224,445 489,148 223,393 1p 1p 1p 1p 1p 1p 1p 1p 1p 1p 1p 1p 7 Sept 2012 8 Sept 2013 21 Sept 2014 11 Mar 2016 6 Sept 2019 7 Sept 2020 20 Sept 2021 10 Mar 2023 7 Sept 2012 8 Sept 2013 6 Sept 2019 7 Sept 2020 21 Sept 2014 20 Sept 2021 11 Mar 2016 10 Mar 2023 7 Sept 2012 8 Sept 2013 21 Sept 2014 11 Mar 2016 6 Sept 2019 7 Sept 2020 20 Sept 2021 10 Mar 2023 The options awarded in September 2011 and 2013 under the LTIP will only vest if the performance conditions outlined above are met. The exercise of the options awarded in September 2009 (which vested in 2012) and in September 2010 (which vested in 2013) is generally subject to the relevant option holder continuing to be an employee or director of a company in the same Group as the Company at the relevant time. LSE:SNG | www.synairgen.com | Synairgen plc annual report and accounts 2013 | 18 Directors’ Remuneration Report (continued) Other options granted on or before the IPO or under the Synairgen plc Staff Option Scheme Date of grant Richard Marsden 11 October 2004 11 October 2004 26 October 2004 26 October 2004 Dr Phillip Monk 2 October 2006 John Ward 26 October 2004 26 October 2004 At 1 January and 31 December 2013 Exercise price Earliest exercise date Expiry date 280,000 140,000 140,000 140,000 10p 10p 130p 130p 11 Oct 2004 30 June 2005 30 June 2006 30 June 2007 10 Oct 2014 10 Oct 2014 25 Oct 2014 25 Oct 2014 50,000 85.5p 2 Oct 2009 1 Oct 2016 140,000 140,000 130p 130p 30 June 2005 30 June 2006 25 Oct 2014 25 Oct 2014 The vesting and exercise of these other options is generally subject to the relevant option holder continuing to be an employee or director of a company in the same Group as the Company at the relevant time. There are no further performance criteria. Synairgen Qualifying Non-Employee Option Scheme Date of grant Iain Buchanan 28 June 2010 Paul Clegg 7 September 2009 At 1 January and 31 December 2013 Exercise price Earliest exercise date Expiry date 212,765 23.5p 28 Jun 2013 27 Jun 2020 250,000 20p 7 Sept 2012 6 Sept 2019 The exercise of the options awarded in September 2009 (which vested in 2012) and in June 2010 (which vested in 2013) is subject to the rules of the scheme. There were no other options granted to directors or which were exercised or lapsed during the year. The mid-market price of the Company’s shares at 31 December 2013 was 54.5p. During the year then ended, the mid-market price ranged from 33.75p to 55.5p. On 19 March 2014 the closing price was 55.5p. Audited information The following section (Directors’ remuneration) contains the disclosures required by Schedule 5 to the Large and Medium- sized Companies and Groups (Accounts and Reports) Regulations 2008, forms part of the financial statements for the year ended 31 December 2013 and has been audited by the Company’s auditor, BDO LLP. Directors’ remuneration The aggregate remuneration received by directors who served during the years ended 31 December 2013 and 2012 was as follows: £’000 Note Salary/fee Benefits Year ended 31 December 2013 Total (incl. pension) Pension Total (excl. pension) Year ended 31 December 2012 Total (incl. pension) Pension Total (excl. pension) Executive Directors Richard Marsden Dr Phillip Monk John Ward Non-executive Directors Simon Shaw Iain Buchanan Dr Bruce Campbell Paul Clegg Prof. Stephen Holgate Total (i) (ii) (iii) (iv) 130 97 118 30 25 15 30 15 460 2 – 2 – – – – – 4 132 97 120 30 25 15 30 15 12 9 11 – – – – – 144 106 131 30 25 15 30 15 464 32 496 174 106 159 30 25 15 30 15 554 12 31 11 – – – – – 54 186 137 170 30 25 15 30 15 608 (i) Richard Marsden was the highest paid director during the years ended 31 December 2013 and 2012 and he did not exercise any share options during either year. (iv) In addition to this fee for his services as a director, Prof. Holgate received consultancy fees amounting to £4,000 (2012: £11,000) as disclosed in note 19 to the financial statements. (ii) Dr Phillip Monk requested that £22,500 of his bonus entitlement for the year ended 31 December 2012 be paid in the form of an additional employer pension contribution. (iii) £15,000 was paid to IP2IPO Limited for the services of Dr Bruce Campbell. (v) The total amount paid to third parties amounted to £15,000 (2012: £15,000). 19 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG In addition to the amounts shown above, the share-based payment charge for the period was: Richard Marsden Dr Phillip Monk John Ward Iain Buchanan Paul Clegg 2013 £000 58 43 53 2 – 2012 £000 54 40 49 4 2 Total share-based payment in respect of key management personnel amounted to £154,000 for the year ended 31 December 2013 (2012: £143,000). By order of the Board Paul Clegg Chairman of the Remuneration and Nomination Committee 19 March 2014 LSE:SNG | www.synairgen.com | Synairgen plc annual report and accounts 2013 | 20 Statement of Directors’ responsibilities in respect of the Annual Report and the Financial Statements The directors are responsible for preparing the strategic report, the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial period. Under that law the directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. The directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Website publication The directors are responsible for ensuring the annual report and financial statements are made available on a website. Financial statements are published on the Group's website in accordance with AIM rules for companies and legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Group's website is the responsibility of the directors. The directors' responsibility also extends to the ongoing integrity of the financial statements contained therein. Going concern The directors have prepared and reviewed financial forecasts. After due consideration of these forecasts and current cash resources, the directors consider that the Company and the Group have adequate financial resources to continue in operational existence for the foreseeable future (being a period of at least twelve months from the date of this report), and for this reason the financial statements have been prepared on a going concern basis. By order of the Board John Ward Company Secretary 19 March 2014 21 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG Independent Auditor’s Report to the members of Synairgen plc We have audited the financial statements of Synairgen plc for the year ended 31 December 2013 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Financial Position, the Consolidated Statement of Cash Flows, the Parent Company Balance Sheet and the related notes. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and auditors As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the FRC’s website at www.frc.org.uk/ auditscopeukprivate. Opinion on financial statements In our opinion: • the financial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at 31 December 2013 and of the group’s loss for the year then ended; • the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; • the parent company’s financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Paul Anthony (senior statutory auditor) For and on behalf of BDO LLP, statutory auditor Southampton United Kingdom 19 March 2014 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127) LSE:SNG | www.synairgen.com | Synairgen plc annual report and accounts 2013 | 22 Consolidated Statement of Comprehensive Income for the year ended 31 December 2013 Research and development expenditure Other administrative expenses Total administrative expenses Loss from operations Finance income Loss before tax Tax Loss and total comprehensive income for the period attributable to equity holders of the parent Loss per ordinary share Basic and diluted loss per share (pence) Year ended 31 December 2013 £000 Year ended 31 December 2012 £000 Notes (1,292) (986) (2,278) (2,278) 11 (2,267) 224 (2,043) (1,508) (982) (2,490) (2,490) 27 (2,463) 213 (2,250) (2.72)p (3.12)p 4 6 7 8 Consolidated Statement of Changes in Equity for the year ended 31 December 2013 Note At 1 January 2012 Issuance of ordinary shares Transaction costs in respect of share issues Recognition of share-based payments Total comprehensive income for the year At 31 December 2012 Issuance of ordinary shares Recognition of share-based payments Total comprehensive income for the year At 31 December 2013 Share capital £000 18a 696 56 – – – 752 – – – Share premium £000 18b 17,128 2,445 (151) – – 19,422 – – – Merger reserve £000 18c Retained deficit £000 18d 483 – – – – 483 – – – (15,184) – – 193 (2,250) (17,241) – 206 (2,043) 752 19,422 483 (19,078) Total £000 3,123 2,501 (151) 193 (2,250) 3,416 – 206 (2,043) 1,579 23 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG Consolidated Statement of Financial Position as at 31 December 2013 Assets Non-current assets Intangible assets Property, plant and equipment Current assets Inventories Current tax receivable Trade and other receivables Other financial assets – bank deposits Cash and cash equivalents Total assets Liabilities Current liabilities Trade and other payables Total liabilities Total net assets Equity Capital and reserves attributable to equity holders of the parent Share capital Share premium Merger reserve Retained deficit Total equity Notes 31 December 2013 £000 31 December 2012 £000 9 10 11 12 13 14 15 17 17 18 18 297 15 312 199 190 43 458 834 1,724 2,036 (457) (457) 1,579 752 19,422 483 (19,078) 1,579 332 27 359 72 210 79 1,431 1,656 3,448 3,807 (391) (391) 3,416 752 19,422 483 (17,241) 3,416 The financial statements on pages 23 to 36 were approved and authorised for issue by the Board of directors on 19 March 2014 and signed on its behalf by: Richard Marsden Chief Executive Officer John Ward Finance Director LSE:SNG | www.synairgen.com | Synairgen plc annual report and accounts 2013 | 24 Consolidated Statement of Cash Flows for the year ended 31 December 2013 Year ended 31 December 2013 £000 Year ended 31 December 2012 £000 (2,267) (2,463) (11) 15 47 4 206 (2,006) (127) 32 66 (2,035) 244 (1,791) 15 (3) (16) 973 969 – – – (822) 1,656 834 (27) 30 46 5 193 (2,216) 13 30 (572) (2,745) 254 (2,491) 30 (9) (144) 1,024 901 2,501 (151) 2,350 760 896 1,656 Cash flows from operating activities Loss before tax Adjustments for: Finance income Depreciation Amortisation Loss on derecognised intangible asset Share-based payment charge Cash flows from operations before changes in working capital (Increase)/Decrease in inventories Decrease in trade and other receivables Increase/(Decrease) in trade and other payables Cash used in operations Tax credit received Net cash used in operating activities Cash flows from investing activities Interest received Purchase of property, plant and equipment Purchase of intangible assets Decrease in other financial assets Net cash generated from investing activities Cash flows from financing activities Proceeds from issuance of ordinary shares Transaction costs in respect of share issues Net cash generated from financing activities (Decrease)/Increase in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period 25 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG Notes to the Consolidated Financial Statements for the year ended 31 December 2013 1. Accounting policies Basis of preparation The Group financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively ‘IFRSs’) as adopted by the European Union (‘Adopted IFRSs’) and with those parts of the Companies Act 2006 applicable to companies preparing their financial statements under IFRSs. Changes in accounting policy The accounting policies adopted are consistent with those of the previous financial year. The following new standards have been adopted and are effective for the current year: IFRS 1 (revised) Repeat Application, Borrowing costs IFRS 7 (revised) Enhancing disclosures about offsetting of financial assets and financial liabilities IFRS 10 Consolidated Financial Statements IFRS 10 (revised) Transitional guidance IFRS 11 Joint Arrangements IFRS 11 (revised) Transitional guidance IFRS 12 Disclosure of Interests in Other Entities IFRS 12 (revised) Transitional guidance IFRS 13 Fair Value Measurement IAS 1 (revised) Revised the method how other comprehensive income is presented and comparative information IAS 19 (revised) Post Employment Benefits and Termination Benefits projects IAS 28 Investments in Associates IAS 32 (revised) Tax effect of equity distributions IAS 34 (revised) Interim reporting of segment assets The adoption of these pronouncements has not impacted the classification or measurement of the Group’s assets and liabilities, nor has it resulted in any additional disclosure. New standards and interpretations not applied IASB and IFRIC have issued the following relevant standards and interpretations with an effective date after the date of these financial statements: Standard or interpretation Title IFRS 2 IFRS 3 IFRS 3 IFRS 9 IFRS 9 Amendments for Annual Improvements to IFRSs 2010-2012 Cycle (definition of vesting condition) Amendments for Annual Improvements to IFRSs 2010-2012 Cycle (contingent consideration) Amendments for Annual Improvements to IFRSs 2011-2013 Cycle (scope exception for joint ventures) Deferral of mandatory effective date of IFRS 9 and amendments to transition disclosures 1 January 2015 Financial Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) issues, implementing additional disclosures (and consequential amendments) resulting from the introduction of the hedge accounting chapter in IFRS 9 Applies when IFRS 9 is applied IFRS 9 Classification and measurement of financial assets Effective date to be confirmed IFRS 10 Amendments for Investment Entities IFRS 12 Amendments for Investment Entities 1 January 2014 1 January 2014 IFRS 13 Amendments for Annual Improvements to IFRSs 2010-2012 Cycle (short-term receivables and payables) Basis conclusion only IFRS 13 Amendments for Annual Improvements to IFRSs 2011-2013 Cycle (scope of portfolio exception in paragraph 52) 1 July 2014 IAS 1 IAS 16 IAS 24 IAS 27 IAS 36 IAS 38 IFRS 14 IFRS 14 Regulatory Deferral Accounts issued Amendments for Annual Improvements 2009-2011 Cycle (comparative information) Amendments for Annual Improvements to IFRSs 2010-2012 Cycle (proportionate restatement of accumulated depreciation under the revaluation method) Amendments for Annual Improvements to IFRSs 2010-2012 Cycle (entities providing key management personnel services) 1 July 2014 Amendments for Investment Entities Amendments for Recoverable Amount Disclosures for Non-Financial Assets Amendments for Annual Improvements to IFRSs 2010-2012 Cycle (proportionate restatement of accumulated depreciation under the revaluation method) IAS 40 Amendments for Annual Improvements to IFRSs 2011-2013 Cycle (interrelationship between IFRS 3 and IAS 40) Effective from 1 July 2014 1 July 2014 1 July 2014 1 January 2016 1 July 2013 1 July 2014 1 January 2014 1 January 2014 1 July 2014 1 July 2014 LSE:SNG | www.synairgen.com | Synairgen plc annual report and accounts 2013 | 26 Notes to the Consolidated Financial Statements for the year ended 31 December 2013 (continued) 1. Accounting policies (continued) The Directors do not anticipate that the adoption of the remaining standards and interpretations will have a material impact on the Group’s financial statements in the period of initial application. The effective dates stated here are those given in the original IASB/IFRIC standards and interpretations. As the Group prepares its financial statements in accordance with IFRS as adopted by the European Union, the application of new standards and interpretations will be subject to their having been endorsed for use in the EU via the EU Endorsement mechanism. In the majority of cases this will result in an effective date consistent with that given in the original standard or interpretation but the need for endorsement restricts the Group’s discretion to early adopt standards. The Group financial statements are presented in Sterling. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company made up to the reporting date. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Business combinations that took place prior to 1 July 2006, the date of transition to IFRS, have not been restated as permitted by IFRS 1 “First-time Adoption of International Financial Reporting”. The consolidated financial statements have been prepared using the merger method of accounting. Research and development All ongoing research expenditure is currently expensed in the period in which it is incurred. Due to the regulatory and other uncertainties inherent in the development of the Group’s products, the criteria for development costs to be recognised as an asset, as set out in IAS 38 “Intangible Assets”, are not met until a product has been submitted for regulatory approval and it is probable that future economic benefit will flow to the Group. The Group currently has no such qualifying expenditure. Employee benefits All employee benefit costs, notably salaries, holiday pay, bonuses and contributions to Group stakeholder or personal defined contribution pension schemes are charged to the consolidated statement of comprehensive income on an accruals basis. Share-based payments Option awards and awards made under the Group’s Long-Term Incentive Plan (‘LTIP’) granted after 7 November 2002 which had not vested by 1 July 2006 are fair valued and charged to the consolidated statement of comprehensive income over the period from grant to vesting. The Group has fair-valued option and LTIP awards using appropriate share valuation models. Options granted to non-employees are measured at the fair value of the goods or services received, except where the fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instrument granted. At each reporting date, the Group revises its estimate of the number of options that are expected to become exercisable. The credit for any charge is taken to equity. Intangible assets Intangible assets are stated at cost less any accumulated amortisation and any accumulated impairment losses. Patent and licence costs are amortised over ten years on a straight-line basis and the amortisation cost is charged to research and development expenditure in the consolidated statement of comprehensive income. Property, plant and equipment Property, plant and equipment are stated at cost less any accumulated depreciation and any accumulated impairment losses. Depreciation is provided on a straight-line basis at rates calculated to write off the cost of property, plant and equipment, less their estimated residual value over their expected useful lives, which are as follows: Computer equipment: Laboratory and clinical equipment: The carrying values of property, plant and equipment are reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable. 3 years 5 years Inventories Inventories are stated at the lower of cost and net realisable value. Financial instruments Financial assets and financial liabilities are recognised on the Group’s consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument. 27 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG Notes to the Consolidated Financial Statements for the year ended 31 December 2013 (continued) 1. Accounting policies (continued) Financial assets The Group classifies its financial assets as loans and receivables. These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable; the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. The Group’s loans and receivables comprise trade and other receivables, other financial assets and cash and cash equivalents in the consolidated statement of financial position. Other financial assets comprise short-term deposits not meeting the IAS 7 definition of a cash equivalent. Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term bank deposits with a maturity period of three months or less from the date of initial deposit. Financial liabilities The Group classifies its financial liabilities as financial liabilities held at amortised cost. Trade payables and obligations under finance leases are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method. Leased assets Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an ‘operating lease’), the total rentals payable under the lease are charged to the consolidated statement of comprehensive income on a straight-line basis over the lease term. Taxation Income tax is recognised or provided at amounts expected to be recovered or to be paid using the tax rates and tax laws that have been enacted or substantively enacted at the reporting date. Research and development tax credits are included as an income tax credit under current assets. Deferred tax balances are recognised in respect of all temporary differences that have originated but not reversed by the reporting date except for differences arising on: • investments in subsidiaries where the Group is able to control the timing of the reversal of the difference and it is probable that the difference could not reverse in the foreseeable future; and • the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered). Recognition of deferred tax assets is restricted to those instances where it is probable that a taxable profit will be available against which the temporary difference can be utilised. Deferred tax balances are not discounted. Foreign currencies Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their "functional currency") are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the consolidated statement of comprehensive income. The functional currency of all entities in the Group is Sterling. 2. Critical accounting estimates and judgements Critical accounting estimates, assumptions and judgements are continually evaluated by management based on available information and experience. As the use of estimates is inherent in financial reporting, actual results could differ from these estimates. Share-based payment The critical accounting estimates, assumptions and judgements underpinning the valuation of the option and LTIP awards are disclosed in note 17. 3. Segmental analysis The Group operates in one area of activity, namely drug discovery and development. All assets of the Group are located within the United Kingdom and all losses were generated in that territory. LSE:SNG | www.synairgen.com | Synairgen plc annual report and accounts 2013 | 28 Notes to the Consolidated Financial Statements for the year ended 31 December 2013 (continued) 4. Loss from operations The loss from operations has been arrived at after charging: Depreciation of property, plant and equipment Amortisation of intangible assets Loss on derecognised intangible asset Research and development expenditure Operating lease rentals payable Land and buildings Other operating lease rentals The fees of the Group’s auditor, BDO LLP, for services provided are analysed below: Fees payable to the Company’s auditor for the audit of the Company’s financial statements Fees payable to the Company’s auditor for other services: The audit of the Company’s subsidiary, pursuant to legislation Audit-related assurance services Tax compliance services Tax advisory services Total fees 5. Employee benefit expense The average monthly number of employees (including executive directors) was: Research Administration Their aggregate remuneration comprised: Wages and salaries Social security costs Pension costs – defined contribution plans Total cash-settled remuneration Accrued holiday pay Share-based payment Total remuneration 2013 £000 15 47 4 1,292 81 93 2013 £000 10 10 5 6 7 38 2013 13 3 16 2013 £000 727 83 51 861 3 204 1,068 2012 £000 30 46 5 1,508 79 93 2012 £000 10 10 5 5 3 33 2012 15 3 18 2012 £000 874 104 72 1,050 (2) 182 1,230 For the purpose of presentation in the Consolidated Statement of Comprehensive Income, remuneration costs of £624,000 (2012: £705,000) are included in research and development expenditure and £444,000 (2012: £525,000) are included in other administrative expenses. Key management compensation The directors represent the key management personnel and details of their remuneration are given in the Directors’ Remuneration Report. In respect of directors’ remuneration, the disclosures required by Schedule 5 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 are included in the detailed disclosures in the audited section of the Remuneration Report on pages 19 and 20, which are ascribed as forming part of these financial statements. 29 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG Notes to the Consolidated Financial Statements for the year ended 31 December 2013 (continued) 6. Finance income For the years ended 31 December 2013 and 2012 Finance income represents bank interest receivable. 7. Taxation Current tax UK corporation tax credit on loss for the year Adjustment in respect of prior years Total income tax credit 2013 £000 (190) (34) (224) The tax assessed on the loss on ordinary activities for the year is different to the standard rate of corporation tax in the UK of 23.25% (2012: 24.5%). The differences are reconciled below: Loss on ordinary activities before tax Loss on ordinary activities before tax multiplied by the standard rate of corporation tax in the UK Effects of: Expenses not deductible for tax purposes Enhanced research & development relief Variable rates on tax losses surrendered for research & development tax credit Movement in unrecognised losses and temporary differences Overprovision in respect of previous years Total tax credit for the current year Deferred taxation 2013 £000 (2,267) (527) 48 (235) 212 312 (34) (224) 2012 £000 (210) (3) (213) 2012 £000 (2,463) (603) 48 (231) 238 338 (3) (213) Changes in tax rates and factors affecting the future tax charge Finance Act 2013 includes provision for the main rate of corporation tax to reduce from 23% to 21% on 1 April 2014, and to 20% on 1 April 2015. This will reduce the Company’s future tax charge accordingly. The rate changes were substantially enacted on 17 July 2013. Accordingly, deferred tax balances have been recognised at 20%, being the rate of corporation tax expected to be in force at the time these timing differences are expected to reverse. Recognised deferred taxation Accelerated capital allowances Other temporary differences Charge for the year 2013 £000 1 (1) – 2012 £000 4 (4) – Unrecognised deferred taxation At 31 December 2013 the Group has trading losses carried forward which are available for offset against future profits of the Group amounting to £10,676,000 (2012: £9,624,000) and non-trading losses of £1,084,000 (2012: £861,000). At 31 December 2013 the Group has an unrecognised deferred tax asset in respect of these losses of £2,352,000 (2012: £2,412,000). The full utilisation of these losses in the foreseeable future is uncertain and no deferred tax asset has therefore been recognised. In addition to the deferred tax asset on losses, the Group has a potential future tax deduction on share options of £2,774,000 (2012: £1,861,000) and a deferred tax asset of £555,000 (2012: £428,000) thereon. The additional tax deduction will crystallise at the point the options are exercised. As the utilisation of this additional deduction against taxable profits in the Group is uncertain, no deferred tax asset has been recognised in respect of the future tax deduction on share options. The movement on the unrecognised deferred tax asset comprises the following: Unrecognised deferred tax asset at the start of the year Movement in year Unrecognised deferred tax asset at the year-end 2013 £000 (2,840) (67) (2,907) 2012 £000 (2,265) (575) (2,840) LSE:SNG | www.synairgen.com | Synairgen plc annual report and accounts 2013 | 30 Notes to the Consolidated Financial Statements for the year ended 31 December 2013 (continued) 8. Loss per ordinary share Loss attributable to equity holders of the Company (£000) Weighted average number of ordinary shares in issue 2013 £000 (2,043) 2012 £000 (2,250) 75,186,742 72,036,917 The loss attributable to ordinary shareholders and weighted average number of ordinary shares for the purpose of calculating the diluted earnings per ordinary share are identical to those used for basic earnings per share. This is because the exercise of share options would have the effect of reducing the loss per ordinary share and is therefore not dilutive under the terms of IAS 33. At 31 December 2013, there were 7,393,272 options outstanding (2012: 7,511,635 options outstanding) as detailed in note 17. 9. Intangible assets Cost At 1 January 2012 Additions Derecognised assets At 31 December 2012 Additions Derecognised assets At 31 December 2013 Amortisation At 1 January 2012 Derecognised assets Charge for the year At 31 December 2012 Derecognised assets Charge for the year At 31 December 2013 Net book amount At 31 December 2013 At 31 December 2012 At 1 January 2012 Patent and licence costs £000 345 144 (5) 484 16 (23) 477 106 – 46 152 (19) 47 180 297 332 239 At 31 December 2013 £297,000 (2012: £332,000) of the net book amount relates to interferon beta and lambda patent and licence costs, which has a remaining average amortisation period of 6 years (2012: 7 years). 31 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG Notes to the Consolidated Financial Statements for the year ended 31 December 2013 (continued) 10. Property, plant and equipment Computer equipment £000 Laboratory and clinical equipment £000 Cost At 1 January 2012 Additions Derecognised assets At 31 December 2012 Additions At 31 December 2013 Depreciation At 1 January 2012 Derecognised assets Charge for the year At 31 December 2012 Charge for the year At 31 December 2013 Net book value At 31 December 2013 At 31 December 2012 At 1 January 2012 At 31 December 2013 the Group had no capital commitments (2012: nil). 11. Inventories Raw materials Raw materials comprise the Group’s stock of interferon beta and its Biobank. 12. Trade and other receivables Amounts receivable within one year: Other tax and social security Prepayments and accrued income 13. Other financial assets – bank deposits Amounts receivable within one year: Sterling fixed rate deposits of greater than three months’ maturity at inception 83 9 (50) 42 2 44 74 (50) 6 30 6 36 8 12 9 173 – (41) 132 1 133 134 (41) 24 117 9 126 7 15 39 2013 £000 199 2013 £000 6 37 43 2013 £000 458 Total £000 256 9 (91) 174 3 177 208 (91) 30 147 15 162 15 27 48 2012 £000 72 2012 £000 22 57 79 2012 £000 1,431 LSE:SNG | www.synairgen.com | Synairgen plc annual report and accounts 2013 | 32 Notes to the Consolidated Financial Statements for the year ended 31 December 2013 (continued) 14. Cash and cash equivalents Cash available on demand 15. Trade and other payables Trade payables Social security and other taxes Accrued expenses and deferred income 16. Financial instruments 2013 £000 834 2013 £000 20 25 412 457 An explanation of the Group’s objectives, policies and strategies for financial instruments and analysis of the capital structure and capital funding of the Group can be found on page 5 in the Financial Review. Financial assets Loans and receivables Trade and other receivables Other financial assets (less than one year) Cash and cash equivalents (less than one year) Total Financial liabilities Other financial liabilities Notes (i) Book value £000 6 458 834 2013 Fair value £000 6 458 834 1,298 1,298 Book value £000 29 1,431 1,656 3,116 2012 £000 1,656 2012 £000 97 30 264 391 2012 Fair value £000 29 1,431 1,656 3,116 Trade and other payables (less than one year) (ii) 417 417 361 361 (i) Trade and other receivables shown above excludes prepayments, which are not a contractual obligation to receive cash, amounting to £37,000 (2012: £50,000). (ii) Trade and other payables shown above excludes amounts due in respect of social security and other taxes and deferred income, which are not a contractual obligation to pay cash, amounting to £40,000 (2012: £30,000). The objective of holding financial instruments is to have access to finance for the Group’s operations and to manage related risks. The main risks arising from holding these instruments are interest rate risk, liquidity risk, and credit risk. 33 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG Notes to the Consolidated Financial Statements for the year ended 31 December 2013 (continued) 16. Financial instruments (continued) Interest rate risk Interest rate risk profile of financial assets, excluding short-term debtors: Euro Sterling Total 2013 Floating-rate financial assets £000 2012 Floating-rate financial assets £000 – 1,292 1,292 83 3,004 3,087 Floating-rate financial assets comprise cash on deposit and cash at bank. There is no difference between the carrying amount and the fair value of the financial assets. Short-term deposits are placed with banks for periods of up to twelve months and are categorised as floating-rate financial assets. Contracts in place at 31 December 2013 had a weighted average period to maturity of 31 days and a weighted average annualised rate of interest of 0.52% (2012: 48 days, 1.09%). Sensitivity analysis It is estimated that a decrease of quarter of one percentage point in interest rates would have increased the Group’s loss before taxation by approximately £5,000 (2012: £8,000). Liquidity risk The Group’s policy is to maintain adequate cash resources to meet liabilities as they fall due. All Group payable balances as at 31 December 2013 and 31 December 2012 fall due for payment within one year. Cash balances are placed on deposit for varying periods with reputable banking institutions to ensure there is limited risk of capital loss. The Group does not maintain an overdraft facility. Credit risk The Group’s credit risk is attributable to its banking deposits. The Group places its deposits with reputable financial institutions to minimise credit risk. 17. Share capital and premium At 1 January 2012 Issuance of ordinary shares Costs of issuance of shares At 31 December 2012 Issuance of ordinary shares At 31 December 2013 Note Number of shares 69,560,064 (i), (ii) 5,624,272 – 75,184,336 (iii) 11,555 75,195,891 Ordinary shares of 1p each £000 696 56 – 752 – 752 Share premium £000 17,128 2,445 (151) 19,422 – Total £000 17,824 2,501 (151) 20,174 – 19,422 20,174 (i) 5,555,556 ordinary shares of 1p were issued on 23 July 2012 at a premium of 44p per share to finance the Company’s ongoing interferon beta programme and to provide working capital for the Company. Funds raised net of expenses amounted to £2,349,000. (ii) 68,716 ordinary shares of 1p were issued on 28 September 2012 at par following the exercise of share options under the Company’s long term incentive plan (LTIP). (iii) 11,555 ordinary shares of 1p were issued on 17 October 2013 at par following the exercise of share options under the Company’s long term incentive plan (LTIP). The total authorised number of ordinary shares is 125 million shares (2012: 125 million shares) with a par value of 1p per share (2012: 1p per share). All issued shares are fully paid. LSE:SNG | www.synairgen.com | Synairgen plc annual report and accounts 2013 | 34 Notes to the Consolidated Financial Statements for the year ended 31 December 2013 (continued) 17. Share capital and premium (continued) Options At 31 December 2013 there were options outstanding over 7,393,272 un-issued ordinary shares, equivalent to 9.8% of the issued share capital, as follows: Date of grant Number of shares Exercise price Earliest exercise date Latest exercise date Approved EMI scheme 26 October 2004 26 October 2004 26 October 2004 12 May 2005 2 October 2006 29 October 2007 Unapproved schemes 11 October 2004 11 October 2004 26 October 2004 26 October 2004 26 October 2004 7 September 2009 (LTIP) 7 September 2009 (QNEOS) 16 October 2009 (QNEOS) 28 June 2010 (QNEOS) 8 September 2010 (LTIP) 21 September 2011 (LTIP) 11 March 2013 (LTIP) 64,515 64,515 42,000 14,000 109,023 17,792 280,000 140,000 75,485 215,485 140,000 1,855,431 250,000 250,000 212,765 877,797 1,896,384 888,080 7,393,272 130p 130p 130p 136.5p 85.5p 61.5p 10p 10p 130p 130p 130p 1p 20p 20p 23.5p 1p 1p 1p 30 June 2005 30 June 2006 26 October 2007 12 May 2008 2 October 2009 29 October 2010 11 October 2004 30 June 2005 30 June 2005 30 June 2006 30 June 2007 25 October 2014 25 October 2014 25 October 2014 11 May 2015 1 October 2016 28 October 2017 10 October 2014 10 October 2014 25 October 2014 25 October 2014 25 October 2014 7 September 2012 6 September 2019 7 September 2012 6 September 2019 16 October 2012 15 October 2019 28 June 2013 27 June 2020 8 September 2013 7 September 2020 21 September 2014 20 September 2021 11 March 2016 10 March 2023 The Group has no legal or constructive obligation to repurchase or settle the options in cash. The movement in the number of share options is set out below: Outstanding at start of year Granted during the year Exercised during the year Lapsed during the year Number of outstanding options at year-end Number 7,511,635 906,343 (11,555) (1,013,151) 7,393,272 2013 Weighted average exercise price 15.6p 1.0p 1.0p 2.6p 15.6p 2012 Weighted average exercise price 15.2p n/a 1.0p 9.6p 15.6p Number 7,911,787 – (68,716) (331,436) 7,511,635 At 31 December 2013, 4,608,808 share options were capable of being exercised, with exercise prices ranging from 1p to 136.5p (2012: 3,540,438, with exercise prices ranging from 1p to 136.5p). The options outstanding at 31 December 2013 had a weighted average remaining contractual life of 6.0 years (2012: 6.7 years). Vesting conditions are disclosed in the Directors’ Remuneration Report. 35 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG Notes to the Consolidated Financial Statements for the year ended 31 December 2013 (continued) 17. Share capital and premium (continued) The Group uses a number of share-based incentive schemes as detailed above. The fair value per award granted and the assumptions used in the calculations for the 6,553,272 options which had not vested at 30 June 2006 (being the date after which IFRS 2 has been applied) are as follows: Date of grant Type of award Number of shares Exercise price (p) Share price at date of grant (p) Fair value per option (p) Award life (years) Risk free rate Expected volatility rate Performance conditions 26 Oct 2004 Unapproved 140,000 26 Oct 2004 12 May 2005 2 Oct 2006 29 Oct 2007 7 Sept 2009 7 Sept 2009 16 Oct 2009 28 Jun 2010 8 Sept 2010 21 Sept 2011 11 Mar 2013 EMI EMI EMI EMI 42,000 14,000 109,023 17,792 LTIP 1,855,431 QNEOS QNEOS QNEOS LTIP LTIP LTIP 250,000 250,000 212,765 877,797 1,896,384 888,080 6,553,272 130p 130p 136.5p 85.5p 61.5p 1p 20p 20p 23.5p 1p 1p 1p 155p 155p 135.5p 85.5p 61.5p 18.5p 18.5p 20p 23.5p 24.25p 22.5p 53p 57.7p 57.7p 36.9p 24.4p 17.8p 7.1p 4.0p 6.3p 5.6p 12.1p 13.4p 30.9p 5 5 5 5 5 3 5 5 5 3 3 3 4.59% 4.59% 4.35% 4.75% 4.95% 2.09% 2.67% 2.65% 2.09% 0.92% 0.79% 0.36% 20% 20% 20% 20% 20% 30% 30% None None None None None Market Market 30% Non-market 30% 40% 56% 44% Market Market Market Market In accordance with IFRS 2, the Company has applied IFRS 2 to all share-based payments granted after 7 November 2002 which had not vested by 1 July 2006. The following comments apply to those options which have been fair valued in accordance with IFRS 2. (i) Stochastic valuation methodology was used for the LTIP awards and the QNEOS awards with market performance conditions and Black-Scholes methodology for the other awards. (ii) Expected dividend yield is nil, consistent with the directors’ view that the Group’s model is to generate value through capital growth rather than payment of dividends. (iii) The risk free rate is equal to the prevailing UK Gilts rate at grant date that most closely matches the expected term of the grant. (iv) The fair value charge is spread evenly over the expected vesting period. (v) The charge for the year ended 31 December 2013 for share-based payment amounted to £206,000 (2012: £193,000). 18. Capital and reserves 18a Share capital Share capital represents the nominal value of shares issued. 18b Share premium Share premium represents amounts subscribed for share capital in excess of nominal value less the related costs of share issues. 18c Merger reserve The merger reserve represents the reserve arising on the acquisition of Synairgen Research Limited on 11 October 2004 via a share for share exchange accounted for as a Group reconstruction using merger accounting under UK GAAP. 18d Retained deficit The retained deficit represents cumulative net gains and losses recognised in the consolidated statement of comprehensive income, adjusted for cumulative recognised share-based payments. 19. Related party transactions and balances During the year ended 31 December 2013, the Group incurred consultancy fees with Prof. Stephen Holgate, a director of the Company, amounting to £4,000 (2012: £11,000) in addition to his director’s remuneration disclosed on page 19. At the reporting date, the amount unpaid in respect of these charges was £15,000 (2012: £11,000). During the year ended 31 December 2013, the Group incurred no consultancy fees with Ms Emma Toman, partner of Richard Marsden, a director of the Company (2012: £1,000). At the reporting date, there was no amount unpaid in respect of these charges (2012: £nil). Details of key management personnel and their compensation are given in note 5 and on pages 19 and 20 of the Directors’ Remuneration Report. 20. Post balance sheet events On 10 March 2014, the Company raised £1,500,000 (gross) for working capital purposes by issuing 3,125,000 1p ordinary shares at a price of 48p per share. LSE:SNG | www.synairgen.com | Synairgen plc annual report and accounts 2013 | 36 Parent Company Balance Sheet as at 31 December 2013 Company number: 5233429 Fixed assets Investments Current assets Debtors Investments: short-term deposits Cash at bank and in hand Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Capital and reserves Called up share capital Share premium account Profit and loss account Shareholders’ funds Notes 31 December 2013 £000 31 December 2012 £000 5 6 7 8 8 9 9 19,557 17,761 4 458 789 1,251 (29) 1,222 20,779 752 19,422 605 20,779 9 1,431 1,632 3,072 (36) 3,036 20,797 752 19,422 623 20,797 The financial statements on pages 37 to 40 were approved and authorised for issue by the Board of directors on 19 March 2014 and signed on its behalf by: Richard Marsden Chief Executive Officer John Ward Finance Director 37 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG Notes to the Parent Company Financial Statements for the year ended 31 December 2013 1. Basis of preparation Synairgen plc’s Parent Company balance sheet has been prepared under the historical cost convention and in accordance with UK Generally Accepted Accounting Practice (‘UK GAAP’). As permitted by FRS 1 “Cash Flow Statements”, no cash flow statement for the Company has been included on the grounds that the Group includes the Company in its own published consolidated financial statements. The Company has taken advantage of the exemption in FRS 8 “Related Party Disclosures” not to disclose related party transactions with wholly-owned subsidiaries. 2. Accounting policies The following accounting policies have been applied consistently in dealing with items which are considered material to the Company’s financial statements. Investment in subsidiary undertakings Investments in subsidiary undertakings where the Company has control are stated at cost less any provision for impairment. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. Short-term deposits Short-term deposits comprise deposits with UK banks for periods of up to twelve months. Short-term deposits are measured initially at cost and subsequently at cost or recoverable amount if lower. Interest is accrued evenly on an accruals basis. Share-based payments In accordance with FRS 20, when the Company grants options over equity instruments directly to the employees of a subsidiary undertaking, the effect of the share-based payment is capitalised as part of the investment in the subsidiary as a capital contribution, with a corresponding increase in equity. Taxation The charge for taxation is based on the loss for the period and takes into account taxation deferred. Current tax is measured at amounts expected to be paid using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax balances are recognised in respect of all timing differences that have originated but not reversed by the balance sheet date, except that the recognition of deferred tax assets is limited to the extent that the Company anticipates making sufficient taxable profits in the future to absorb the reversal of the underlying timing differences. Deferred tax balances are not discounted. 3. Loss attributable to members of the Parent Company As permitted by Section 408 of the Companies Act 2006, the Company’s profit and loss account has not been included in these financial statements. The loss dealt with in the financial statements of the Parent Company for the year ended 31 December 2013 was £224,000 (2012: loss of £225,000). 4. Directors’ remuneration The only employees of the Company are the executive directors and all their costs are borne by its subsidiary undertaking. In respect of directors’ remuneration, the disclosures required by Schedule 5 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 are included in the detailed disclosures in the audited section of the Directors’ Remuneration Report on pages 19 and 20, which are ascribed as forming part of these financial statements. LSE:SNG | www.synairgen.com | Synairgen plc annual report and accounts 2013 | 38 Notes to the Parent Company Financial Statements for the year ended 31 December 2013 (continued) 5. Investments At 1 January 2013 Additions At 31 December 2013 Investment in subsidiary undertaking £000 140 – 140 Loan to subsidiary undertaking £000 16,706 1,590 18,296 Capital contribution £000 915 206 1,121 Total £000 17,761 1,796 19,557 At 31 December 2013, the Company has an investment in the following subsidiary undertaking: Name of company Synairgen Research Limited Country of incorporation England Proportion of voting rights and ordinary share capital held Nature of business 100% Drug discovery and development 6. Debtors Other tax and social security Prepayments and accrued income All amounts fall due for payment within one year. 7. Creditors: amounts falling due within one year Trade creditors Accruals and deferred income 8. Share capital and share premium At 1 January 2012 Issuance of ordinary shares Costs of issuance of shares At 31 December 2012 Issuance of ordinary shares At 31 December 2013 Note (i) (ii) (iii) Number of shares 69,560,064 5,624,272 – 75,184,336 11,555 75,195,891 Ordinary shares of 1p each £000 696 56 – 752 – 752 2013 £000 2 2 4 2013 £000 5 24 29 Share premium £000 17,128 2,445 (151) 19,422 – 19,422 2012 £000 2 7 9 2012 £000 5 31 36 Total £000 17,824 2,501 (151) 20,174 – 20,174 (i) 5,555,556 ordinary shares of 1p were issued on 23 July 2012 at a premium of 44p per share to finance the Company’s ongoing interferon beta programme and to provide working capital for the Company. Funds raised net of expenses amounted to £2,349,000. (ii) 68,716 ordinary shares of 1p were issued on 28 September 2012 at par following the exercise of share options under the Company’s long term incentive plan (LTIP). (iii) 11,555 ordinary shares of 1p were issued on 17 October 2013 at par following the exercise of share options under the Company’s long term incentive plan (LTIP). Details of the Company’s share option schemes and LTIP can be found in note 17 to the Group accounts on pages 35 and 36. 39 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG Notes to the Parent Company Financial Statements for the year ended 31 December 2013 (continued) 9. Reconciliation of movements in reserves and shareholders’ funds At 1 January 2012 Issuance of ordinary shares Transaction costs in respect of share issues Loss for the year Share-based payment credit At 31 December 2012 Loss for the year Share-based payment credit At 31 December 2013 10. Post balance sheet events Share capital £000 696 56 – – – 752 – – 752 Share premium account £000 Profit and loss account £000 Shareholders’ funds £000 17,128 2,445 (151) – – 19,422 – – 19,422 655 – – (225) 193 623 (224) 206 605 18,479 2,501 (151) (225) 193 20,797 (224) 206 20,779 On 10 March 2014, the Company raised £1,500,000 (gross) for working capital purposes by issuing 3,125,000 1p ordinary shares at a price of 48p per share. LSE:SNG | www.synairgen.com | Synairgen plc annual report and accounts 2013 | 40 Corporate Directory Company number 5233429 Directors Executive: Richard Marsden, Dr Phillip Monk, John Ward Non-executive: Simon Shaw (Chairman), Iain Buchanan, Dr Bruce Campbell, Paul Clegg, Prof. Stephen Holgate Secretary John Ward Head office and Registered office Mailpoint 810, Level F, South Block, Southampton General Hospital, Tremona Road, Southampton SO16 6YD Telephone and fax: +44 (0) 2380 512 800 Website www.synairgen.com E-mail info@synairgen.com Advisers Independent auditor BDO LLP Arcadia House, Maritime Walk, Ocean Village, Southampton SO14 3TL Bankers HSBC Bank plc 165 High Street, Southampton SO14 2NZ Financial public relations Newgate Threadneedle 33 King William Street, London EC4R 9AS Nominated adviser and broker FinnCap Limited 60 New Broad Street, London EC2M 1JJ Registrars Capita Registrars Northern House, Woodsome Park, Fenay Bridge, Huddersfield HD8 0GA Solicitors Fasken Martineau LLP 17 Hanover Square, London W1S 1HU Glossary Acute An acute disease is a disease with a rapid onset and/or a short course Adenovirus A virus that can cause respiratory disease (eg. the common cold), conjunctivitis and gastroenteritis Airways (or bronchial tubes) The tubes that carry air in and out of the lungs Allergen A type of antigen that produces an abnormally vigorous immune response Antibiotic A drug that inhibits bacterial growth or kills bacteria Anti-viral Any substance that can either destroy viruses or suppress their growth Apoptosis A naturally occurring form of programmed cell death Assay A laboratory test to determine parameters such as the strength of a solution, the proportion of a compound in a mixture, the potency of a drug or the purity of a preparation Asthma A disorder in which the airways become episodically narrowed, leading to wheeze, shortness of breath, cough and chest tightness Biobank A collection of samples from clinically-characterised volunteers comprising blood, induced sputum, bronchial biopsies and epithelial cells. These samples are used to develop the complex in vitro human disease models Biomarker A biomarker is a biochemical feature or facet that can be used to measure the progress of disease or the effects of treatment Bioterrorism Terrorism involving the intentional release or dissemination of biological agents British Thoracic Society (BTS) Step classification system A stepwise treatment regime (from steps 1 to 5, with 5 being the most severe) for treating asthma in Britain aiming to achieve optimum control without excessive medication Broad spectrum antibiotic An antibiotic that acts against a wide range of disease-causing bacteria Bronchodilators Medicines which relax the muscles around the airways, helping the airways to open up, so making it easier to breathe. There are several types of bronchodilators, of which short-acting beta-agonist drugs are the most commonly used Bronchospasm A sudden contraction of airway smooth muscle resulting in a narrowing of the airways Chronic bronchitis An inflammation of the airways accompanied by coughing and production of phlegm. The symptoms are present for at least three months in each of two consecutive years. See COPD Chronic disease A persistent or long-lasting condition Clinical Trial Authorisation or CTA An authorisation from the MHRA to conduct a clinical trial Compliance The level of adherence to a recommended course of treatment or prescribed regimen 41 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG COPD Chronic obstructive pulmonary disease covers two conditions: chronic bronchitis and emphysema. COPD usually results from long-term exposure to irritants to the lungs, of which the most prevalent is tobacco smoke. Unlike asthma, where airflow obstruction varies, in COPD airflow obstruction is usually irreversible Coronavirus A virus that can cause respiratory disease such as the common cold or SARS (depending on the type of coronavirus) and gastroenteritis DNA Nucleic acid that carries genetic information in the cell Emphysema A destructive process involving the air spaces (alveoli) of the lungs, which leads to over- inflation of the lung and, when sufficiently advanced, causes breathlessness and lack of oxygenation of blood. See COPD Eosinophil A type of white blood cell that has a role in allergy and asthma Epithelium In the lung, the epithelium is a thin layer of cells which lines the airway tubes in order to protect and regulate the tissue underneath Exacerbation A rapid deterioration of a chronic disease that makes the symptoms worse Gene A hereditary unit consisting of a sequence of DNA that determines a particular characteristic of a living organism IFN-β Interferon beta is a natural protein found in the body which helps to regulate the immune system and fight off viruses. IFN-β is currently marketed by a number of companies as an injectable therapy for the treatment of multiple sclerosis IL-5 A protein that can activate eosinophils IL-13 A protein involved in allergic inflammation Influenza-like illness Set of symptoms presenting similar to those for influenza of which influenza may or may not be the cause Influenza A contagious viral infection of the respiratory tract, leading to fever, headaches, sore throat, congestion of the nose and body aches In vitro Carried out in the laboratory, e.g. in a test tube or culture plate In vitro model (complex) A research model which contains more than one cell type and allows the study of interactions between different cell types and ‘test’ agents relevant to the disease or a therapy Long acting beta agonist An asthma drug that acts to relax (open) the airways for 12 or more hours Lower airway The airway tubes in the lung running from the throat down, ending in the air spaces (alveoli) where gas exchange occurs Macrophages Phagocytic (i.e. cells that can engulf other cells and cell components) white blood cells involved in cellular clearance and inflammation MHRA The Medicines and Healthcare products Regulatory Agency; a UK government body tasked with ensuring that medicines and medical devices work and are safe Morbidity Incidence or prevalence of a disease Mucus A gelatinous substance normally produced by the airway cells to protect and hydrate the airway surface from harmful agents Multiple sclerosis (MS) A disease affecting nerves in the brain and spinal cord, causing problems with muscle movement, balance and vision Neuraminidase inhibitor A class of drug used to treat influenza by interfering with virus release from the infected cell by blocking neuraminidase (a protein found on the virus cell surface), of which Tamiflu® and Relenza® are examples Pandemic influenza An influenza pandemic occurs when a new influenza virus appears against which the human population has no immunity, resulting in epidemics worldwide with enormous numbers of deaths and illness (definition on world health organization website) Parainfluenza A virus that can cause the common cold. Parainfluenza is also responsible for 75% of croup cases in children Patent Cooperation Treaty or PCT A system by which a patent application can be filed in many different countries at once. A single international application is filed initially at a receiving office. After a search and publication, the application may be converted to a series of national applications in different countries Pathway A signalling pathway is a group of molecules that work together in a cell to control one or more cell functions Peak expiratory flow A lung function test that measures a person's ability to breathe out air Personalised/P4/stratified medicine The customisation of healthcare to the individual patient Phase I Clinical Trial A study conducted in volunteers to determine the biological effects of a drug, especially safety and tolerability Phase II Clinical Trial A study in patients with the aim of making a preliminary determination of the efficacy of a drug to provide proof of concept and/or to study drug dose ranges Phase IIa Clinical Trial Used to describe a Phase II clinical trial evaluating efficacy, adverse effects and safety risks Phase IIb Clinical Trial Used to describe a subsequent Phase II clinical trial that also evaluates dosage tolerance and optimal dosage frequency in a larger number of patients than enrolled in a Phase IIa trial LSE:SNG | www.synairgen.com | Synairgen plc annual report and accounts 2013 | 42 Translational medicine The process of converting a scientific discovery into something that aims to improve the health of individuals and the community Type I IFNs A classification of interferon that includes IFN-β Virion A virus particle which has the ability to infect cells, consisting of an outer protein shell called a capsid and an inner core of nucleic acid Virus A virus is a non-living small particle that infects cells in biological organisms. Viruses can reproduce only by invading and controlling other cells as they lack the cellular machinery for self-reproduction Wheeze A whistling sound made by a person who has airflow obstruction when breathing Phase III Clinical Trial A full scale clinical trial to determine drug efficacy and safety prior to seeking marketing approval RNA Nucleic acid that is involved in protein synthesis and transmission of genetic information Phlegm See Sputum Placebo An inactive substance or preparation used as a control/ comparator (in a clinical trial for example) to determine the effectiveness of a medicinal drug Primary endpoint The most important measure (endpoint) assessed in a clinical trial Prognostic biomarker A biomarker that can predict the future course of a disease or response to a therapy Prophylaxis A measure taken for the prevention of a disease or condition Protein Large molecules made of smaller biological units known as ‘amino acids’. Proteins are responsible for the majority of the function and much of the structure of living things, including humans Pulmonary Relating to, functioning like, or associated with the lungs Rhinovirus Rhinoviruses are the most common viral infective agents in humans. The most well known disease caused by rhinoviruses is the common cold RSV Respiratory syncytial virus (RSV) can cause both mild respiratory illness (e.g. the common cold) and serious respiratory tract infections (such as bronchiolitis and pneumonia). More severe infections can occur in the very young, the very old and those with weakened immune systems Safety study See Phase I Clinical Trial Seasonal Influenza Seasonal flu is a yearly outbreak of flu infection, caused by a flu virus. The seasonal flu is somewhat different every year, as flu viruses are always changing Secondary/exploratory endpoint The second most important (or additional) measure (or endpoint) assessed in a clinical trial Severe asthma Asthma which requires treatment with high dose inhaled corticosteroids plus a second controller (and/or systemic corticosteroids) to prevent it from becoming ‘uncontrolled’ or which remains ‘uncontrolled’ despite this therapy SG004 A double-blinded, placebo- controlled, single and multiple dose-escalating Phase I study to assess the safety and tolerability of inhaled IFN-β in controlled asthmatic male and female subjects SG005 A randomised, double-blinded, placebo-controlled Phase II study, comparing the efficacy and safety of inhaled IFN-β to placebo administered to asthmatic subjects after the onset of a respiratory viral infection for the prevention or attenuation of asthma symptoms caused by respiratory viruses Sputum The thick mucus which is coughed up by a person. Sputum contains cells and soluble substances secreted into the airways (bronchi), some of which can mediate disease if present in amounts different to normal. Sputum is also commonly called phlegm Steroids A group of chemicals that is produced naturally in the body by the adrenal gland. In asthma, steroids are given by inhalation or by mouth to reduce the inflammation of the airways Systemic absorption The fraction of drug that reaches the systemic circulation Upper airway The tubes in the nose and neck which conduct air into the lung Toll-like receptor agonists Novel anti-viral drugs that activate Toll-like receptors (TLRs). TLRs regulate the immune system in response to pathogens 43 | Synairgen plc annual report and accounts 2013 | www.synairgen.com | LSE:SNG S y n a i r g e n 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 3 i m o c . n g s e d c d b w w w . d e t i m L i y n a p m o C n g s e D i l t n i r p e u B e h T y b d e c u d o r p d n a d e n g s e D i Synairgen plc, Mailpoint 810, Level F, South Block, Southampton General Hospital, Tremona Road, Southampton, SO16 6YD United Kingdom © Synairgen plc 

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