A leader in inhaled
pharmaceuticals
Vectura Group plc Annual Report and Accounts 2012/13
Contents
Business review: Highlights 2012/13
Financial highlights
Financial statements
60 Consolidated statement of
comprehensive income
61 Balance sheet
62 Cash flow statement
63 Statement of changes in equity
64 Notes to the financial statements
90 Five-year summary
92 Shareholder information
Business review
01 Highlights 2012/13
02 Chairman and Chief Executive’s report
08 Financial review
10 Overview
12 Core purpose, values and strategy
14 Market potential
16 Products
20 Enabling technology platforms
24 Capabilities
26 Key performance indicators
27 Risk management
Directors and governance
29 Corporate governance statement
34 Board of Directors
36 Executive management
37 Corporate social responsibility statement
40 Report on remuneration
53 Directors’ report
56 Statement of Directors’ responsibilities
57 Independent auditor’s report to the
members of Vectura Group plc
Revenues
slightly ahead
of expectations
£30.5m
(2011/12: £33.0m)
EBITDA loss
improves to
£3.4m
(2011/12: £4.2m)
Loss before tax
decreased by 21% to
£10.4m
(2011/12: £13.2m)
Balance sheet
strength maintained
with cash and
cash equivalents of
£70.1m
(as at 31 March 2013)
Operational highlights
Significant regulatory and clinical progress
made throughout the year
Seebri® Breezhaler® (NVA237 (COPD); glycopyrronium bromide)
Product now launched in some European countries and Japan
Novartis’ Seebri® Breezhaler® approved in the EU for maintenance treatment of COPD by the
European Commission
Approval for once-daily Seebri® Inhalation Capsules as maintenance COPD treatment in Japan
EU and Japanese approvals triggered two milestone payments from Novartis of $10m (£6.2m)
and $2.5m (£1.5m) respectively
Seebri® Breezhaler® has been launched by Novartis in UK and Ireland, Germany and other
countries, and Seebri® Inhalation Capsules in Japan
US NDA filing for NVA237 expected in early 2014
QVA149 (COPD)
European and Japanese filings completed
QVA149 is being investigated by Novartis for the maintenance treatment of COPD in the Phase III
IGNITE clinical trial programme
IGNITE is one of the largest international clinical trial programmes in COPD comprising 10 studies in
total (ILLUMINATE, SHINE, BRIGHT, ENLIGHTEN, SPARK, BLAZE, ARISE, BEACON, RADIATE, LANTERN)
with more than 7,000 patients across 42 countries
Phase III data presented by Novartis at the European Respiratory Society (ERS) Annual Congress in
September 2012
Novartis filed QVA149 for marketing authorisation in Europe in October 2012, and a separate filing
in Japan in November 2012
The EU filing triggered a $5m (£3.1m) milestone payment to Vectura
US NDA filing expected at the end of 2014
VR315 (asthma/COPD), VR632 (asthma/COPD) and VR506 (asthma)
Development programmes continue to progress
First development milestone of $3m (£1.9m) earned from new US partner on VR315
Eligible to receive up to a further $32m upon achievement of future pre-determined
development milestones
VR506 development ongoing with two multi-centre, international clinical trials currently in
progress, one expected to report in Q4, 2013 and the second in Q1, 2014
CAutIONARy StAtEMENt
This Annual Report has been prepared for, and only for, the
members of the Company as a body and no other persons. The
report contains certain forward-looking statements with respect to
the operations, performance and financial condition of the Group
and the markets in which it operates. By their nature, these
statements involve uncertainty since future events and
circumstances can cause results and developments to differ
materially from those anticipated. The forward-looking statements
reflect knowledge and information available at the date of
preparation of this Annual Report and the Company undertakes no
obligation to update these forward-looking statements. Nothing in
this Annual Report should be construed as a profit forecast.
Post-period events
Chinese JV, Kinnovata,
formed to develop and
commercialise products in
fast growing Asian markets
US approval of GSK’s BREO™
ELLIPTA™ signals new
additional royalty stream
Images and content © 2013 Vectura Group plc
01
Vectura Group plc Annual Report and Accounts 2012/13
Business review: Highlights 2012/13
Business review: Chairman and Chief Executive’s report
We are pleased to report that Vectura
continues to be in a strong financial position
and is delivering on its strategy and its
objectives. We have made significant progress
on a number of fronts over the last year and the
Group is at an exciting and potentially
transformational period in its development.
During the year Vectura made significant
regulatory, clinical and commercial progress
from its product partnerships and the Group
delivered many of its development targets.
Vectura continues to maintain a strong and
robust financial position through its existing
royalty stream, prudent investment in R&D
and a culture of cost discipline.
Vectura reported a number of commercially
important successes this year, not least in the
form of the EU approval of Seebri ® Breezhaler ®
and the product’s subsequent launch by our
partner, Novartis, in the UK, Ireland, Germany
and other countries. Vectura was also delighted
that Novartis received approval for Seebri®
Inhalation Capsules and subsequently launched
the product in Japan, the world’s second largest
pharmaceutical market.
The significant clinical and regulatory advances
made by Novartis with the QVA149 programme
are also worthy of note. During 2012, Novartis
announced positive results from the QVA149
Phase III clinical trial programme, IGNITE,
which formed the basis for filing the marketing
authorisation application with the European
Medicines Agency (EMA), an event that
triggered a $5m (£3.1m) milestone payment to
Vectura. Novartis also filed this data in Japan.
With this progress, Vectura is entering a new
phase of corporate development and growth.
Over the near-term, Vectura expects our robust
financial position to be supplemented with
royalties from Seebri ® Breezhaler ®. Other
products, such as QVA149, will further
supplement the revenue stream as it progresses
through milestones and ultimately
reaches the market.
It has been a demanding yet exciting year and
we would like to thank all our employees for
their endeavours, which as ever formed the
bedrock of our success, and our shareholders
for their support. With a number of marketed
and partnered products providing validation
for our technology and development,
Vectura is poised to embark on
its next chapter of growth.
Blue-chip partners
including Novartis,
Sandoz, Baxter and
GSK have invested
in, and validated,
Vectura’s technology
and approach to drug
development.
Vectura Group plc and its subsidiaries (“Vectura” or the “Group”) is a product development company
that focuses on the development of pharmaceutical therapies for the treatment of airway-related
diseases. This growing market includes asthma and chronic obstructive pulmonary disease (COPD)
and is estimated to be worth in excess of $30 billion worldwide.
Vectura has seven products marketed by its partners and a portfolio of drugs in clinical development,
a number of which have been licensed to major pharmaceutical companies. Vectura has development
collaborations and licence agreements with several pharmaceutical companies, including Novartis,
Sandoz (the generics arm of Novartis), Baxter, GlaxoSmithKline (GSK) and Tianjin KingYork Group
Company Limited (KingYork).
Vectura seeks to develop certain programmes itself where this will optimise value. Vectura’s
formulation and inhalation technologies are available to other pharmaceutical companies on an
out-licensing basis where this complements Vectura’s business strategy. For further information,
please visit Vectura’s website at www.vectura.com.
Value realisation from
product progress
Seebri® Breezhaler® (NVA237;
glycopyrronium bromide)
Our value will stem from pipeline products
such as:
Seebri® Breezhaler® (NVA237;
glycopyrronium bromide), a long-acting
muscarinic antagonist (LAMA), approved by the
European Commission for use in Europe as a
once-daily, inhaled, maintenance bronchodilator
treatment to relieve symptoms in adult patients
with chronic obstructive pulmonary disease
(COPD). Seebri® Inhalation Capsules 50 mcg
have been approved in Japan as maintenance
COPD treatment.
QVA149, the investigational fixed-dose
combination of glycopyrronium bromide with
the once-daily, long-acting beta-agonist (LABA),
indacaterol maleate, developed and marketed
by Novartis as Onbrez® Breezhaler®.
VR315, VR632 and VR506, generic versions of
drugs for COPD and/or asthma.
During 2012 Novartis, the worldwide licensee
for NVA237, received approval of Seebri®
Breezhaler® in the European Union and Seebri ®
Inhalation Capsules in Japan and nine other
countries including Canada and Australia.
Subsequently, the product has been launched in
several countries.
Seebri® Breezhaler® is an innovative, once-daily
therapy that has been shown to reduce
breathlessness and exacerbations, improve lung
function and help improve overall quality of life,
when compared to placebo. Its approval in the
European Union is therefore an important
development and provides a new treatment
option for patients with COPD, the world’s
fourth biggest cause of death.
Japanese approval for once-daily Seebri®
Inhalation Capsules as maintenance COPD
treatment was received by Novartis in
September 2012. Seebri® Inhalation Capsules
provide doctors and patients with a once-daily
treatment option for COPD, a condition that is
increasing in prevalence in Japan.
In the US, Novartis is undertaking Phase III
studies of NVA237 and expects to file the
product early in 2014.
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Business review: Chairman and Chief Executive’s report
03
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Business review: Chairman and Chief Executive’s report
Business review: Chairman and Chief Executive’s report continued
Generic programmes
Development work continues on Vectura’s
generic programmes: VR315 (asthma/COPD),
VR632 (asthma/COPD) and VR506 (asthma). In
March 2012 Vectura announced receipt of a
€0.4m development milestone from Sandoz
relating to VR632, and in August 2012 Vectura
received its first development milestone of
$3m (£1.9m) from its US partner related to VR315,
indicating further development progress during
the period. Two multi-centre, international
clinical trials are underway on VR506, which
should complete in late 2013 and early 2014.
Technology development
It is essential that the Group’s product focus
is underpinned by its intellectual property.
Vectura commits significant efforts to ensure
that competitiveness in this area is maintained
through innovation. Vectura’s technologies
will therefore continue to drive value by
enabling, improving and adding value to the
products we develop.
QVA149, the investigational fixed-dose
combination of glycopyrronium bromide
and indacaterol maleate
This year also saw a number of important
milestones in the development of QVA149.
In April 2012, Novartis reported headline
Phase III data from the first four studies of the
IGNITE Phase III clinical trial programme. The
studies, ILLUMINATE, SHINE, BRIGHT and
ENLIGHTEN, all met their respective primary
endpoints. These results were supplemented
by additional positive Phase III data from SPARK,
reported by Novartis in August 2012. Three
presentations of clinical data from the IGNITE
programme were made at the ERS Annual
Congress in September 2012.
QVA149 was filed for marketing authorisation
with the EMA in October 2012, triggering a
$5m (£3.1m) milestone, and in November 2012
QVA149 was filed in Japan. US New Drug
Application (NDA) filing is expected at the
end of 2014.
The dual activities of LAMA/LABA combination
products offer the potential for rapid and potent
bronchodilation, providing an opportunity to
address a large and unmet medical need for
COPD sufferers. This growing, multi-billion dollar
market makes QVA149 a significant value
prospect for Vectura should the product reach
the market.
Novartis
QVA149
milestone
£3.1m
($5m)
VR315
milestone
£1.9m
($3m)
2012/13 was a landmark year
for Vectura, evidenced by the
significant progress made by
licensees of Vectura products
and technologies.
Outlook
We look forward to a number of significant
catalysts in this coming year from our
programmes. Looking ahead, we will be in a
position to build on royalty income from sales
of Seebri® Breezhaler® through additional
near-term development milestones from this
and other products in our pipeline.
These additional income streams provided by
our commercial and late-stage products will
further strengthen our robust financial position
and provide a platform from which to accelerate
the next phase of Vectura’s growth. As part
of this growth, we will continue to seek and
carefully evaluate suitable opportunities in
established and emerging markets.
We continue to believe that the low risk
development model we adhere to, together
with tight cost control and focused
development criteria will continue to result
in value enhancement.
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Business review: Chairman and Chief Executive’s report
05
Vectura Group plc Annual Report and Accounts 2012/13
Business review: Chairman and Chief Executive’s report
Business review: Chairman and Chief Executive’s report continued
Post-period developments
Kinnovata
Vectura announced on 13 May 2013 that it had
established Tianjin Kinnovata Pharmaceutical
Company Limited (“Kinnovata”) in China with
two partners: Tianjin KingYork Group Company
Limited (“KingYork”) and Zendex Bio Strategy
Inc. (“Zendex”). Completion of the Kinnovata
transaction is subject to final Government
clearances in China, which are expected
mid-to-late 2013.
Kinnovata will develop, manufacture and
commercialise respiratory products for the
rapidly growing domestic Chinese and other
regional markets in Asia. This new company will
initially exploit Vectura’s Clickhaler® and
Duohaler® dry powder inhaler (DPI) technology
platforms to address current unmet needs in the
growing Asian respiratory markets, notably the
asthma and COPD therapeutic areas.
Kinnovata will be an independent company with
its own development and manufacturing
operations located in Tianjin. Vectura is also
providing training and other expertise to
Kinnovata as the company prepares to
undertake its first Clickhaler® clinical studies in
Chinese patients. An application for the import
of Asmasal® Clickhaler® (salbutamol) has been
filed with the Chinese State Food and Drug
Administration (SFDA).
In addition, a separate R&D Cooperation
Agreement has been established between
Kinnovata and the Shanghai Institute of
Pharmaceutical Industry to undertake the
development of a number of DPI products
on behalf of Kinnovata.
GSK
On 10 May 2013 the United States Food and
Drug Administration (FDA) approved a NDA for
BREO™ ELLIPTA™ (fluticasone furoate/vilanterol
100/25 mcg) submitted by GSK. In August 2010,
GSK entered into a licence and an option to
license agreement for certain of Vectura’s dry
powder formulation patents. Vectura is entitled
to a low single digit royalty on net sales of
products using these patents capped at a
maximum amount of £13m per annum. BREO™
ELLIPTA™ will be the first product to be
launched by GSK that will use patents covered
by the agreement. GSK has stated that it expects
the product to be available in the United States
during the third quarter of 2013. BREO™
ELLIPTA™ was filed for approval in Europe and
Japan in 2012.
A second GSK combination product covered by
the agreement has also been filed for approval
in the United States, Europe and Japan.
Jack Cashman
Chairman
Chris Blackwell
Chief Executive
20 May 2013
Collaborative
Our collaborative approach to drug development is
seen both internally and in successful partnerships.
Partners include Novartis, Sandoz, KingYork,
Baxter and GSK.
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Vectura Group plc Annual Report and Accounts 2012/13
Business review: Chairman and Chief Executive’s report
07
Vectura Group plc Annual Report and Accounts 2012/13
Business review: Financial review
Summary
The Group ended the year with £70.1m of cash (2012: £75.5m). Revenues of £30.5m (2011/12:
£33.0m) were lower (8%) than in the previous year as a result of lower pharmaceutical development
service revenues and device sales this year, but were ahead of expectations. These reductions have
been partially offset by an increase in one-off milestone revenues recognised and received during
the year following European and Japanese approval of NVA237 and filing of QVA149 with the
European Medicines Agency (EMA).
The EBITDA loss has improved to £3.4m (2011/12: £4.2m), this improvement is mainly due to a
5% increase in gross margin and a 6% reduction in research and development expenditure to
£30.9m (2011/12: £32.8m) in the period.
Cash position
Revenues
Gross profit
2012/13
2013
2011/12
2013
2012/13
2013
2011/12
2013
2012/13
2013
2011/12
2013
£30.5m
£33.0m
£29.8m
£30.8m
EBItDA loss
2012/13
2013
£3.4m
2011/12
2013
£4.2m
£70.1m
£75.5m
Revenue
Revenue includes fee income from royalties,
product licensing, technology licensing,
development fees and device sales.
Overall, royalties were down on the previous year
at £13.0m (2011/12: £13.5m) primarily due to the
exceptional royalties received for Extraneal® last
year. ADVATE® royalties of £11.1m (2011/12: £10.6m)
are higher than last year due to an exceptional
amount of £0.6m relating to prior year sales.
Underlying ADVATE® sales have remained constant
at $1.9bn in 2012 (2011: $1.9bn). Vectura receives a
net royalty of under 1% at these high levels of
cumulative annual sales. Extraneal® royalties were
£0.8m (2011/12: £1.7m), this being an expected
decrease as last year included exceptional royalties
of £1.1m relating to sales in prior years. The majority
of the remaining royalties were generated from
Adept®, £0.6m (2011/12: £0.9m). In addition,
Vectura received its first royalties in the year from
Novartis for sales of Seebri® Breezhaler®.
Product licensing revenues in the period were
£12.8m (2011/12: £12.1m), which includes milestone
payments from Novartis of $10.0m (£6.2m) and
$2.5m (£1.5m) relating to the European and
Japanese approval for NVA237 respectively.
A further milestone of $5.0m (£3.1m), relating to
QVA149 from Novartis, was earned in October 2012,
relating to the filing of a marketing authorisation
with the EMA. Product licensing revenues also
include a $3.0m (£1.9m) development milestone
relating to VR315 US. Of this amount, $2.0m was
released from deferred income and a further
$1.0m was received in the year.
Technology licensing revenues of £3.7m (2011/12:
£2.3m) are higher than the previous year. £3.5m
of the total revenue stream relates to milestones
due under a non-exclusive licence agreement
signed with GSK in August 2010. Under the terms
of the agreement, Vectura received a £10m
upfront payment in 2010/11 and is due to receive
a further £10m by the time the products are
launched. £6.0m of this total had been received
by 31 March 2013.
Pharmaceutical development services (PDS)
revenues decreased to £0.6m (2011/12: £2.8m) as
work on some of our partnered programmes has
been successfully completed. Future PDS
revenues will depend on the extent and nature of
feasibility studies and new licensing deals as the
development of inhalation products is a very
specialist area, with partners frequently requiring
Vectura’s involvement in the continuing
development of a product. We do not expect any
significant change to these revenues in the next
financial year.
Device sales of £0.4m were lower than the prior
period (2011/12: £2.3m) as our trading partners
now hold stock at the required level.
Gross profit
The gross profit in the year to 31 March 2013
was £29.8m (2011/12: £30.8m). Gross profit
represents 98% of revenue (2011/12: 93%) and
this increase is due to the higher proportion of
royalty and licensing revenues received as a
proportion of total revenues.
Foreign exchange rates
The following foreign
exchange rates were used
during the year:
2012/13 2011/12
Average rates:
£/$
£/€
Period end rates:
£/$
£/€
1.58
1.23
1.52
1.18
1.60
1.16
1.60
1.20
Research and development
expenses
Total investment in research and development
was £30.9m, a 6% decrease on the previous
year (2011/12: £32.8m). Of the £30.9m, 28%
of this expenditure related to clinical trials
(2011/12: 24%).
Taxation
The tax credit for the year was £4.5m (2011/12:
£8.8m). Research and development tax credits
of £4.4m were received in cash during the year
(2011/12: £4.6m), of which £4.0m was included
in other receivables as at 31 March 2012,
resulting in current year tax income of £0.4m.
An estimated research and development tax
credit of £3.8m relating to the 2012/13 financial
year has been recorded and this is expected to
be received during 2013/14. As the Group’s
losses reduce, research and development tax
receipts will decline significantly. A release of
£0.3m from a deferred tax liability has also been
credited to the statement of comprehensive
income for the 2012/13 financial year due to the
utilisation of tax losses carried forward.
Intangible assets
Intangible assets of £17.1m (2012: £23.4m) have
been amortised by £6.3m (2012: £7.5m) during
the year. These intangible assets relate to the
Innovata acquisition and they will continue to be
amortised over their expected useful life. The
reduction in the amortisation charge is in line
with the reduction in royalty streams from
Extraneal® in certain territories, and all Extraneal®
royalty streams are expected to cease by Q1
2014. The £17.1m of intangible assets will be
amortised over the next three years.
Property, plant and equipment
Property, plant and equipment increased by
£3.0m (2012: increase of £3.1m) in the year as a
result of the Group’s investment in its inhaled
product manufacturing capabilities.
Deferred income
Deferred income relates to milestones received
in cash but not yet recognised as revenue.
£3.4m of deferred income was released during
the year, mainly relating to GSK and VR315 US
milestones. Of the £1.4m on the balance sheet
at 31 March 2013 (2012: £4.8m), £0.1m will be
recognised as revenue in 2013/14 and £1.3m,
relating to the VR315 RoW deal with Sandoz, will
be recognised as revenue in later periods.
Cash flow
Cash decreased by £5.4m in the period
(2011/12: increase of £1.1m). The net cash flows
from operating activities are negative at £2.8m
(2011/12: positive £2.1m). At 31 March 2013,
Vectura had cash and cash equivalents of
£70.1m (2012: £75.5m), which was equivalent to
21p per share in issue.
Anne Hyland
Chief Financial Officer
20 May 2013
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Vectura Group plc Annual Report and Accounts 2012/13
Business review: Financial review
09
Vectura Group plc Annual Report and Accounts 2012/13
Business review: Financial review
Business review: Overview
Vectura’s approach to product development is
driven by innovative and enabling formulation
and inhalation device technologies, coupled with
significant know-how. These capabilities
underpin the Group’s own assets, and also offer
partners the opportunity to collaborate in the
development of relevant and novel therapies.
Vectura’s proprietary enabling technologies are
also available for out-licensing.
Vectura Group plc and its subsidiaries (“Vectura”
or the “Group”) is a product development
company that focuses on the development of
pharmaceutical therapies for the treatment of
diseases that affect or can be treated with drugs
that act on the airways (Airways Diseases). This
segment of the pharmaceutical market includes
large indications such as asthma and chronic
obstructive pulmonary disease (COPD) and is
estimated to be worth in excess of $30 billion in
sales worldwide1,2. This segment of the market
also covers a wide range of other indications
including viral and fungal infections, allergies,
cough and fibrotic diseases of the lung.
Vectura’s development and formulation
expertise is evidenced by numerous
accomplishments including seven marketed
therapies. The Group’s in-house and partnered
pipeline assets span both branded treatments
and high-value generics. These programmes,
if successful, will compete in multi-billion
dollar markets.
A significant achievement from Vectura’s
branded drugs programme is the EU approval of
Seebri® Breezhaler® (glycopyrronium bromide)
and the product’s subsequent launch by
Vectura’s partner, Novartis. The drug has been
launched in the UK, Ireland and Germany and is
currently being rolled out across other
countries. Novartis also received approval for
Seebri® Inhalation Capsules (glycopyrronium
bromide) and subsequently launched the
product in Japan, the world’s second largest
pharmaceutical market.
1 Bank of America Merrill Lynch.
Pan European Pharmaceutical
Research. Competitive trends in
key therapy areas March 2013.
2 Citi Equity Research. Almirall S.A.
Respiratory Upside Transformational
29 November 2012.
Accomplished
Accomplishments are evidenced by approved products and an
advancing pipeline. Seven marketed and partnered products
validate our technology and development approach.
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Vectura Group plc Annual Report and Accounts 2012/13
Business review: Overview
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Vectura Group plc Annual Report and Accounts 2012/13
Business review: Core purpose, values and strategy
Our people
We have a talented team of people at Vectura committed to developing therapies that improve the
quality of patients’ lives. The Airways Disease market is a large and growing market and we are
confident we will succeed in creating value for Vectura’s shareholders.
Our main values
We have a strong foundation of core company values. Everything we do stems from our five key
values and these are reflected in the way we operate our business, both internally and externally:
We focus on Achievement
– we aim to deliver on the challenging goals we set ourselves
We encompass Enthusiasm
– we give our best and enjoy what we’re doing
We enjoy Participation
– success comes from our culture, which fosters creativity and teamwork
We strive for Innovation
– we think freely and creatively about our goals
We believe in Trust and Respect
– we value people and ideas on their merits
Our strategy
Vectura’s goal is to create value for its shareholders through the development of innovative products
for Airways Diseases with high unmet need. We aim to achieve this goal by accessing drug assets,
either generic or novel, with the potential to offer real benefit to patients through in-licensing assets
alone or in partnership and retaining a valuable share of the economics once commercialised. This
strategy will be executed within a culture of sound financial discipline.
Treating diseases of the airways
Vectura has partnered and contributed to the
development of seven marketed products to
date. We intend to build on the Group’s
partnering success by adding additional
assets to our development pipeline, including
commercialisation opportunities that offer
sound economics.
Vectura’s in-house technological and
formulation expertise underpins our clinical
portfolio of high-value, limited-competition
generic products for the treatment of
Airways Diseases. Two of these assets have
been licensed to other companies, and one
other clinical-stage generic asset is currently
un-partnered. The Company’s array of enabling
devices and formulation technologies supports
product development in both the branded drug
and high-value generic markets. This vastly
amplifies the commercial potential of Vectura’s
technologies and expands its geographic reach.
Vectura believes that emerging markets may
offer a commercial opportunity for it to
leverage its technology to facilitate access to
key drugs at affordable prices.
Vectura’s product development goals are
accompanied and enabled by a strong focus on
revenue- and cash-generation, and by a strong
intellectual property (IP) portfolio. To that end,
the Group’s strategy is to:
Out-license products to major
pharmaceutical companies in return for
milestones and royalties;
Develop or co-develop selected specialty
products to commercialisation in order to
obtain maximum return of value;
Collaborate with pharmaceutical partners in
both generic and branded markets for joint
or co-development of inhaled product
opportunities;
Continue to innovate Vectura’s technology
and build the Group’s IP portfolio; and
Acquire or in-license selected products,
technologies or businesses that complement
and enhance in-house assets.
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Business review: Core purpose, values and strategy
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Vectura Group plc Annual Report and Accounts 2012/13
Business review: Core purpose, values and strategy
Business review: Market potential
A carefully developed strategy for growth
To generate as much value as possible from global opportunities, we are focusing on both the
branded and generic markets. These are very large markets, with dry powder inhalation (DPI)
products currently generating sales in excess of $11 billion a year and growing. The Group’s
specialism and expertise in inhaled product development put us in a good position to manage the
inevitable regulatory challenges posed for both branded and generic drugs. There are relatively
few competitors working on complex, inhaled generic products, and new market opportunities
are emerging that provide huge potential for growth.
Focused
Our drug development efforts are focused
on airway-related diseases – a high unmet need
and growing multi-billion dollar market.
Asthma is a chronic inflammatory disease of the
bronchial tree – the airways leading to and from
the lungs. It is a reversible condition, resulting in
temporary narrowing of a sufferer’s airways,
often as a result of external stimuli including
specific triggers such as stress, pollen, exercise
or simply a viral respiratory infection. Asthma
symptoms, which are episodic, include
coughing, wheezing and chest tightness,
particularly at night and in the early morning.
Chronic obstructive pulmonary disease
(COPD) is a chronic, slowly progressive, and only
partly reversible airflow obstruction, primarily
associated with tobacco smoking, air pollution
and occupational exposure. COPD usually
involves two related diseases: chronic bronchitis
(irreversible inflammation of the mucous
membranes) and emphysema (destruction of
the lung tissue). Symptoms include shortness of
breath, coughing, phlegm and activity limitation.
Hundreds of millions of people every day suffer
from chronic Airways Diseases including asthma,
chronic obstructive pulmonary disease (COPD),
allergies and pulmonary arterial hypertension
(PAH). For example, there are approximately 330
million people globally living with COPD and it is
predicted to be the third leading cause of death
by 20303. Currently the disease is largely hidden,
with 50-75% of patients undiagnosed. Thirty
million patients in the US suffer from COPD; only
six million receive treatment. Pharmacological
treatments are currently unable to reverse the
underlying scarring of the lung and airways but
do relieve symptoms and decrease exacerbations
and hospitalisation.
According to the World Health Organisation (WHO),
around 235 million people currently suffer from
asthma worldwide. It would appear that the
strongest risk factors for developing asthma are
inhaled substances that cause an allergic reaction
or irritate the airways (such as pollution). There is
strong evidence that the prevalence of asthma
increases as populations adopt an urban lifestyle
and, with WHO forecasting that the world’s urban
population will increase from around 45%
currently to around 59%, it also forecasts that
there could be an additional 100 million asthma
sufferers by 2025. It is the most common chronic
disease in children. In short, this is a disease state
of already considerable, and growing, significance.
Asthma is a public health problem across high and
low income countries and, with mortality rates
higher in developing countries, is likely to see
increased spending in emerging economies.
Asthma and COPD make up the third-fastest
growing marketplace for therapeutic treatments,
with the total market estimated to be worth more
than $30 billion in 2012, according to analyst
reports. The increase in fixed-dose combination
products and ongoing advances in effective
therapies will result in this figure continuing to
grow. Vectura’s products for asthma and
COPD target over half of this ever-expanding
global market.
Seeking value
Vectura has developed therapies for conditions such
as Parkinson’s disease (VR040) and Cystic Fibrosis
(VR496), from which we seek to derive value
through licensing. No further financial investment
will be made by the Company in these assets.
Vectura Group plc Annual Report and Accounts 2012/13
Business review: Market potential
15
Vectura Group plc Annual Report and Accounts 2012/13
The respiratory system is
comprised of the upper and
lower airways, the lung tissue,
and the vasculature supplying
them. Through the exchange
of carbon dioxide and oxygen,
the respiratory system is
responsible for delivering
oxygen to all parts of the body
via the bloodstream.
3 The Lancet Vol 380,
15 December 2012.
14
Business review: Products
Product pipeline
Product
Indication
Pre-clinical
Phase I
Phase II Phase III
Filed
Region
Respiratory
NVA237
QVA149
QVA149
COPD
COPD
COPD
Generic/branded generics
uS
uS
Eu & Japan
VR315
VR632
VR506
Asthma/COPD
Partner: Eu & Rest of World – Sandoz, uS – undisclosed
Asthma/COPD
Partner: Eu – Sandoz, uS & Rest of World – Available for licensing
Asthma
Partner: Available for licensing
Global respiratory market
estimated to be worth a
total of $30bn
Estimated number of people
who suffer from respiratory
diseases worldwide
US
$6bn*
Rest of World
$24bn*
Asthma
235m*
COPD
330m*
*Analysts‘ report
*WHO figures 2012
that glycoporronium has been shown to reduce
breathlessness and exacerbations, improve lung
function and help improve overall quality of life
when compared to placebo.
Vectura, along with its co-development
partner, Sosei Group Corporation, developed
the drug to a Phase II proof-of-concept before
exclusively licensing it to Novartis in April 2005.
In September 2011, Novartis filed
glycopyrronium (NVA237) for marketing
authorisation with the EMA under the brand
name Seebri® Breezhaler®. The drug was
approved in September 2012 in the EU and in
Japan under the brand name Seebri® Inhalation
Capsules. The EU approval triggered a
$10 million (£6.2m) milestone to Vectura and
the Japanese approval a $2.5 million (£1.5m)
milestone, along with subsequent royalty
streams. The approval of this drug was a
landmark and value-enhancing event for
Vectura, providing further validation of
Vectura’s business model to date.
Following discussions between Novartis and
the FDA, the US filing for NVA237 is expected
in early 2014.
Partnered proprietary products
and technologies
In the asthma and COPD markets, Vectura has
been successful in partnering its branded assets
and our pipeline of respiratory generics. The
Group has also leveraged value from its intellectual
property portfolio and technologies through
licences with other pharmaceutical companies.
Although COPD cannot be cured, the disease can
be managed effectively through the use of
medication. Bronchodilators – medicines that
relax and open air passages in the lungs – are the
fundamental first-line maintenance treatment for
the symptomatic management of COPD.
Vectura, through its alliance with Novartis, is
helping to address unmet medical need through
the development of effective and innovative drugs
such as glycopyrronium (NVA237) and QVA149.
Seebri® Breezhaler® (glycopyrronium
bromide) and QVA149 for chronic obstructive
pulmonary disease (COPD)
Seebri® Breezhaler® is a dry powder formulation
for inhalation of glycopyrronium bromide, a
once-daily long-acting muscarinic antagonist
(LAMA) approved for the treatment of COPD.
The drug acts by preventing the action of an
endogenous chemical messenger, acetylcholine,
on muscarinic receptors in muscles surrounding
the airways. This provides benefit to patients by
causing dilation of the airways to improve airflow
in and out of the lungs. Clinical trials demonstrated
efficacy, safety and tolerability, lung function,
exercise endurance, exacerbations, shortness of
breath and quality of life.
In October 2012, Novartis filed a marketing
authorisation application with the EMA for QVA149
for the maintenance treatment of COPD. The first
five studies in the Phase III IGNITE clinical trial
programme for QVA149 formed the basis of the
filing. Following discussions between Novartis
and the FDA, the US filing for QVA149 is expected
by the end of 2014.
To date, Vectura has received $52.5m from
Novartis and, under the terms of the licence,
could receive up to an additional $135m upon
achievement of regulatory and commercialisation
targets for both the monotherapy and
combination product. Vectura has no cost
obligations for these products and royalties
will be received on product sales following
product launches.
QVA149
QVA149 is an investigational, inhaled, once-daily,
fixed-dose combination of indacaterol maleate
and glycopyrronium bromide, being developed
by Novartis. QVA149 was filed for marketing
authorisation with the EMA in October 2012,
triggering a $5m (£3.1m) milestone, and in
November 2012 QVA149 was filed in Japan.
US New Drug Application (NDA) filing is expected
at the end of 2014.
This investigational drug offers the dual activity of
a long acting beta-adrenergic agonist (LABA) and
a long-acting muscarinic antagonist (LAMA)
offering the potential for effective bronchodilation
with convenient once-daily dosing. LABAs work
by stimulating receptors in the smooth muscle of
the airways, increasing the diameter of the
airways that become constricted in COPD
patients. QVA149 has the potential to address a
large and unmet medical need for COPD
sufferers. There is currently no once-daily LAMA/
LABA fixed dose combination approved.
Novartis commenced the Phase III IGNITE clinical
trial programme with QVA149 in May 2010.
IGNITE is one of the largest international clinical
trial programmes in COPD comprising 10 studies
in total (ILLUMINATE, SHINE, BRIGHT, ENLIGHTEN,
SPARK, BLAZE, ARISE, BEACON, RADIATE,
LANTERN) and more than 7,000 patients across
42 countries. The first eight studies completed in
2012. The studies were designed to investigate
16
Vectura Group plc Annual Report and Accounts 2012/13
Business review: Products
17
Vectura Group plc Annual Report and Accounts 2012/13
Business review: Products
Business review: Products continued
Generic products
Inhaled respiratory drugs comprise a large global
market (over $6bn in the US alone in 2012), where
many of the patents covering the products expire
in the 2015-2020 timeframe. With an ever-
growing need for effective and affordable
medicines, these products have the potential to
generate significant value as substitutable
generics or branded generics. The extensive
formulation and device expertise required to
develop DPI products suggest this market may be
associated with high barriers to competition and
therefore may offer greater growth potential and
higher value. Vectura is ideally placed to take
advantage of this opportunity.
VR315 for asthma/COPD
VR315 is an inhaled combination therapy for
asthma and COPD, licensed to Sandoz AG for
development and commercialisation in Europe
and the rest of world (RoW). The deal is worth
up to €22.5m in milestones and development
funding, plus royalties on all products sold.
Vectura has received all development funding
with a further €7.5m in milestones to be received.
In August 2011, Vectura signed a licence
agreement for the development, manufacturing
and commercialisation of VR315 in the US with the
US division of a leading international
pharmaceutical company. In August 2012, Vectura
announced that it recorded its first development
milestone under this agreement of $3m (£1.9m) in
revenues for the period to 30 September 2012.
The $3m includes the realisation of $2m of
deferred revenue received in March 2012. Vectura
is eligible to receive up to a further $32m upon
achievement of future pre-determined
development milestones. These milestones,
together with the initial payment of $10m in
August 2011, total $45m. In addition, Vectura will
receive a royalty from all VR315 US sales.
VR632 for asthma/COPD
VR632 is Vectura’s second inhaled combination
therapy for asthma and COPD. The European
rights for VR632 were licensed to Sandoz in
December 2007 in a deal worth up to €15.5m in
milestones and development funding plus
royalties on all products sold. Vectura retains the
rights for the US and other territories.
VR506 for asthma
VR506 is an inhaled corticosteroid (ICS) for the
treatment of asthma, which entered clinical
development in early 2011. Products containing
ICS and their combinations with long-acting
beta agonists (LABA/ICS) are the mainstay of
prophylactic therapy for asthma with overall
US sales of over $6 billion last year. As one of the
recommended “preventer” drugs for adults and
children, they are often prescribed alongside
beta2-agonist bronchodilators. Two multi-centre,
international clinical trials are currently in
progress, with the first due to complete before
year end and the second in Q1 2014. These trials
will form the basis of our out-licensing efforts.
Marketed products
Vectura’s historic royalty
streams have been derived
from our marketed products,
with ADVATE® currently being
the main value driver. These
drugs have been developed
using aspects of Vectura’s
intellectual property (IP) and
are sold by partners.
Product
Indication
Partner
Market
Description
Asmabec®
Clickhaler®
Asmasal®
Clickhaler®
Asthma
Recipharm
Europe
Beclometasone, an inhaled corticosteroid
Asthma
Recipharm
Europe
Short-acting beta2-agonist for rapid asthma
symptom relief
ADVAtE®
Haemophilia A
Baxter
Worldwide
A formulation of Factor VIII
Adept®
Post surgical
adhesions
Baxter
Worldwide
A solution used to prevent surgical adhesions,
which are a common complication of surgery
in abdominal and gynaecological surgery
Extraneal®
Peritoneal
dialysis
Baxter
Worldwide
A solution used in the treatment of kidney
failure patients with peritoneal dialysis
Meptin®
Asthma
Otsuka
Japan
Short-acting beta2-agonist for the rapid relief
of mild, intermittent asthma symptoms
Seebri®
Breezhaler®
COPD
Novartis
Germany, UK,
Ireland & Japan*
Once-daily maintenance bronchodilator
treatment
* Seebri® Inhalation Capsules in Japan. Seebri® Breezhaler® (glycopyrronium bromide, NVA237) is a registered trademark of Novartis AG.
ADVAtE® for haemophilia A
Adept® for prevention of surgical adhesions
Adept® is a 4% icodextrin solution used during
surgery to reduce post-surgical adhesions, a
frequent and major complication after
gynaecological and other abdominal surgery,
where abnormal scarring causes the surfaces of
internal structures to stick together. Whilst not
necessarily dangerous in themselves, they can
lead to future complications, often years later or
if further abdominal surgery is required. It has
been used in Europe since 2000 and since 2006
in the US. In December 2005, we signed a
licence deal with Baxter for the manufacture
and distribution of Adept®.
In 2000, we granted worldwide rights to Baxter
to use our stabilisation patents in its serum-free
recombinant Factor VIII, ADVATE®. This is
indicated for the treatment of haemophilia A
and is marketed worldwide by Baxter, from
which Vectura earns royalties from sales.
Extraneal® for peritoneal dialysis
Extraneal® is a peritoneal dialysis solution
containing icodextrin, licensed to Baxter in 1996
and marketed by Baxter worldwide. Peritoneal
dialysis is a form of treatment for kidney failure
used to remove waste and excess water from
the blood, a function that is usually performed
by healthy kidneys. In peritoneal dialysis, rather
than using a dialysis machine, a special fluid is
fed through a catheter into the abdominal cavity
that surrounds the intestines and, after a few
hours, the toxic waste and excess water will
have become dissolved in the fluid which is then
drained from the body through the same
catheter. Vectura receives royalties on sales in
the US and certain other territories.
18
Vectura Group plc Annual Report and Accounts 2012/13
Business review: Products
19
Vectura Group plc Annual Report and Accounts 2012/13
Business review: Products
Business review: Enabling technology platforms
Two line heading style
Two line heading style
Enabling
Our formulation technologies and proprietary devices
enable delivery directly to the lungs and underpin
the Company’s development pipeline.
Vectura has a wide range of
important drug delivery
technology platforms that are
patent-protected, used to
support its own product
development. Vectura also
offers technologies for licence
to other pharmaceutical
companies, a strategy that has
already generated significant
revenue for the Company.
Vectura has a state-of-the-art Good Manufacturing
Practice (GMP) facility that has been designed
specifically to manufacture inhaled products to
support clinical trials through to regulatory filing.
Vectura will receive £20 million by the time the
compounds are launched, as well as earning
royalties on sales of these products, generating
up to £13m per year.
The development of drugs for inhalation is more
complex than for oral delivery or injectable
drugs and different approaches are required
depending on the characteristics of the drug
being delivered. Companies across the world
are keen to harness our expertise and technology
for their own inhalation programmes and we
expect that this will lead to future collaborations
and licensing deals.
Formulation technologies – including
PowderHale®
Vectura’s formulation technologies include
PowderHale®, a patented DPI formulation
technology designed to improve performance of
fine particle drug powders by allowing
aerosolised drug particles to achieve high lung
deposition with low-dose variability. This is
achieved by incorporating an additional
pharmacologically inactive excipient known as a
Force Control Agent (FCA). We also possess
expertise in micronisation, blending and spray
drying, all of which are used in the development
of our own and third-party products.
An example of the type of formulation technology
licensing deal possible is the non-exclusive
licensing agreement signed in August 2010 with
GSK, which enables them to use some of our dry
powder drug formulation patents for two
late-stage development compounds in their
airway product pipeline. Under the agreement,
Products delivered in Clickhaler ® for asthma
Five products have gained regulatory approvals
for the treatment of asthma that are delivered
using Clickhaler®, Vectura’s proprietary reservoir
DPI device.
Asmasal® and Asmabec® are marketed by
Recipharm in the UK, France and Ireland. Asmasal®
contains salbutamol, a short-acting beta2-agonist for
the rapid relief of asthma symptoms. Asmabec®
contains beclometasone, an inhaled steroid used as
standard preventative therapy for asthma. Meptin®
(procaterol) is a short-acting beta2-agonist for the
rapid relief of mild, intermittent asthma symptoms,
marketed by Otsuka Pharmaceutical in Japan.
Regulatory approvals have also been received for
Clickhaler® budesonide in Germany, the
Netherlands and New Zealand, with approvals for
Clickhaler® formoterol received in Denmark, the
Netherlands, South Africa and New Zealand.
Neither of these products is marketed at present;
we are actively exploring new territories for
marketing them as well as other Clickhaler®
products. Post period: on 13 May 2013 Vectura
announced that it had established a strategic
partnership (Kinnovata) for a new respiratory
business in China. Kinnovata will aim to
commercialise products in the fast-growing
Asian respiratory markets. The worldwide rights
to Clickhaler technology are being transferred
to Kinnovata.
20
Vectura Group plc Annual Report and Accounts 2012/13
Business review: Enabling technology platforms
21
Vectura Group plc Annual Report and Accounts 2012/13
Business review: Enabling technology platforms continued
GyroHaler® multi-dose inhaler
Clickhaler® single-dose inhaler
Duohaler® dry powder inhaler
Duohaler® device and combination products
for asthma/COPD
In addition to our multi-unit dose devices we
also the two reservoir DPIs Clickhaler® and
Duohaler®. Duohaler® provides advantages over
a number of other multi-dose DPIs. Two
separate drug reservoirs feed two individual
drug formulations into two separate metering
chambers, and the drugs are then delivered to
the user in the same inhalation. This process
obviates the need to co-formulate combination
drugs and provides a means of delivering
simultaneously a combination formulation from
one reservoir and an individual drug from the
second. The Asian rights to the Duohaler®
technology are being transferred to our joint
venture, Kinnovata.
Multi-unit dose DPI devices
Vectura’s cost-effective, multi-unit dose DPI
technologies, designed to deliver locally-acting
drugs to the lungs, include devices such as
GyroHaler® and OmniHaler®. Compact and
easy to use, our devices consist of just a few
moulded parts, which reduces manufacturing
costs. Each device delivers up to 60 doses and
is disposable after use. They have aerosolisation
characteristics that are competitive in the
marketplace and provide excellent drug
protection from moisture and light using sealed,
foil blisters. GyroHaler® can be used to deliver
some of our generic products and is scaled up
for commercial launch. Other devices are in
late-stage development.
Vectura continues to invest in its device platform
and has tailored the device technologies for the
US airway generics market and has received
recent validation from both partners and other
external parties. All our multi-unit dose DPI
technologies are available for licensing where
such a partnership would add value to the
business for products/territories not
already licensed.
GyroHaler® multi-dose inhaler
Innovative
Creating innovative solutions to development issues in
airway-related diseases whether through know-how and
expertise or in the development of new technologies.
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Vectura Group plc Annual Report and Accounts 2012/13
Business review: Enabling technology platforms
23
Vectura Group plc Annual Report and Accounts 2012/13
Business review: Capabilities
Pharmaceutical development
services
Vectura’s pharmaceutical development services
revenues are generated by providing specialist
product development services to other
pharmaceutical companies, primarily licensing
partners, to continue the development of
products or technologies licensed from Vectura
until complete transfer has been achieved.
Commercial and business
development
Vectura’s Commercial team, responsible for
business development and licensing, maintains
good relationships with international
pharmaceutical companies and undertakes
market analysis for all products under
development. In addition, the team provides
the market analysis and competitor information
that is required to identify valuable new product
opportunities. The major licensing deals Vectura
has concluded to date demonstrate the strength
of the Group’s commercial and business
development skills.
Development
Vectura’s Development team has demonstrated
its ability to develop products through stages of
pre-clinical and clinical development. The team
supports the development of Vectura’s own
products as well as some of those developed by
our partners. Key functions include liaison with
thought-leaders, clinical investigators and
experts in the design of clinical trials (and
associated pre-clinical development
programmes), and the selection and
management of specialist airway and other
clinical research organisations (CROs)
responsible for the conduct of clinical trials.
Regulatory affairs
Vectura has experience in global pharmaceutical
product registration and inhaled product
development. Vectura has regulatory support
for its own programmes and for those of its
partners, thus ensuring that it has the data
requirements to ensure timely approvals.
Vectura prepares and maintains Clinical Trial
Authorisations (CTAs) and prepares regulatory
responses to questions on a worldwide basis as
required. Submission of dossiers and liaison
with individual regulatory authorities is also
undertaken as appropriate.
Quality
Quality in a pharmaceutical development
environment ensures that the clinical supplies
produced and the data intended to support
regulatory submissions are generated in
compliance with Good Pharmaceutical
Manufacturing Practice (GMP), the principles of
Good Laboratory Practice (GLP) and Good Clinical
Practice (GCP), collectively referred to as GxP.
Vectura has a Manufacturer’s Authorisation for
Investigational Medicinal Products – MIA(IMP)33496
– at its Chippenham facility from the Medicines
and Healthcare products Regulatory Agency
(MHRA). An MIA(IMP) is a requirement of the EU
Clinical Trials Directive, now embodied in
national legislation, and allows for manufacture,
assembly, certification and release of clinical trial
supplies by the Group’s Qualified Person.
Vectura trademarks
Third-party trademarks
Adept® is a registered trademark of
Innovata Limited.
ADVAtE® and Extraneal® are registered
trademarks of Baxter International Inc.
Asmasal® and Asmabec® are registered
trademarks of Celltech Pharma Europe Limited.
Breezhaler®, Onbrez® and Seebri® are
registered trademarks of Novartis AG.
Clickhaler® and Duohaler® are registered
trademarks of Innovata Biomed Limited.
These trademarks are in the process of
being transferred to Tianjin Kinnovata
Pharmaceutical Company Limited.
GyroHaler®, PowderHale® and Vectura®
are registered trademarks of Vectura Limited.
Omnihaler® is a registered trademark of
Vectura Delivery Devices Limited.
Vectura is also certified under ISO 13485:2003 for
the design and manufacture of inhaler products.
In order to achieve the ISO 13485 certification,
Vectura’s device engineering and Quality
Management System were inspected by an
authorised quality standards organisation (Lloyds
Register Quality Assurance), which found the
quality system to be of sufficiently high standard
to allow Vectura to self-certify its inhaler devices
as being fit for market use in Europe.
Vectura’s extensive patent portfolio consists of
patent families relating to various
pharmaceutical technologies, including
inventions made by the Group’s researchers as
well as inventions the Group has acquired or
licensed from third parties. The Group actively
protects, maintains and defends this patent
estate. Vectura also maintains additional
intellectual property rights including
trademarks, design rights and know-how.
Value continues to be obtained from Vectura’s
intellectual property portfolio from licensing IP
rights for the development of inhalation and
non-pulmonary products.
Facilities
Vectura operates from two facilities in the UK.
There are approximately 64,000 square-feet of
laboratory, office, warehouse and manufacturing
facilities in Chippenham, Wiltshire. These facilities
are approved for GMP manufacturing of
Investigational Medicinal Products for clinical
trials. On the Cambridge Science Park, Vectura
occupies a 4,200 square-foot laboratory and
device engineering unit.
Manufacturing operations
The Manufacturing Operations team is
responsible for the late-stage manufacturing of
Vectura’s technologies and airway products, and
ensures that such products can be validated and
commercialised successfully in client or contract
manufacturing facilities. The team is responsible
for global clinical supply chain operations as
Vectura’s products are distributed worldwide.
Vectura’s strategy is to produce clinical trials
supplies up to pilot-plant scale. The Group then
uses contract manufacturing organisations for
larger-scale manufacturing for late-stage
development and commercial supply, as well as
for some smaller-scale manufacturing where it
is more economical to do so.
Intellectual property
Vectura’s portfolio of intellectual property is a
valuable asset that is fundamental to success,
and the Group aims to secure registered
protection for all aspects of its products,
processes and technology platforms.
24
Vectura Group plc Annual Report and Accounts 2012/13
Business review: Capabilities
25
Vectura Group plc Annual Report and Accounts 2012/13
Business review: Capabilities
Business review: Key performance indicators
Business review: Risk management
Progress with collaborative partners
and licensees for the development and
commercialisation of products
Vectura continued to progress the development and
commercialisation of programmes partnered in earlier years
including NVA237 ($12.5m of milestones received in relation to
European and Japanese approval) and QVA149 ($5m EU filing
milestone received).
Developing our product pipeline
Vectura continues to evaluate new products arising from
internal development activities as well as in-licensing and
co-development opportunities.
Maintaining and strengthening our
intellectual property portfolio
Vectura has continued to build its IP portfolio in line with its
commercial objectives. We have secured grants of important
US and European patents covering future and current
commercial products in these territories.
Loss reduction and revenue generation
Loss after taxation over the last three years is as follows:
year ended
31 March 2013
31 March 2012
31 March 2011
Loss
£m
5.9
4.4
8.8
(Increase)/
decrease
£m
(1.5)
4.4
1.4
Revenues generated over the last three years are as follows:
year ended
31 March 2013
31 March 2012
31 March 2011
Revenue
£m
30.5
33.0
42.9
(Decrease)/
increase
%
(7.6)
(23.0)
7.0
Cash management
This involves the management of the funding received and the
cash resources available. The operational cash is defined by
reference to the cash flow statements as being the addition of the
net cash outflow from operating activities and the cash inflows
from investing and financing activities excluding cash inflow/
outflow on acquisitions. These key performance indicators (KPIs)
for the three years to 31 March 2013 are as follows:
Increase/
(decrease)
in cash
£m
(5.4)
1.1
10.3
Cash inflow/
(outflow) from
financing
activities
£m
0.6
2.5
0.2
year ended
31 March 2013
31 March 2012
31 March 2011
The Group’s business involves exposure to a number of
risks, many of which are inherent in pharmaceutical product
development. Risks particular to the Group include the following.
Industry risk
The nature of pharmaceutical development is such that drug
candidates may not be successful owing to an inability to
demonstrate in a timely manner the necessary safety and
efficacy in a clinical setting to the satisfaction of appropriate
regulatory bodies, such as the European Medicines Agency
(EMA) in Europe and the Food and Drug Administration (FDA) in
the US. The Group may be unable to attract, by itself or from
partners, the funding necessary to meet the high cost of
developing its products through to successful commercialisation.
The Group’s response to industry risk is detailed in the
responses to the specific risks identified below.
Clinical and regulatory risk
Drug substances may not be stable or economic to produce.
Unacceptable toxicities or insufficient efficacy in the chosen
indication may cause the medicine to fail or limit its applicability.
Lack of performance by third-party clinical research
organisations or an inability to recruit patients to clinical trials
may cause undue delays in clinical trial results. Clinical and
regulatory issues may arise or changes to the regulatory
environment may occur that lead to delays, further costs,
reduction in the commercial potential of a product in
development, or the cessation of programmes. Ethical,
regulatory or marketing approvals may be delayed or withheld
or, if awarded, may carry conditions unacceptable for further
development or commercial success. The Group’s
manufacturing facilities and those of its third-party
manufacturers are subject to regulatory requirements and
licensing and there can be no assurance that such facilities will
continue to comply with such regulatory requirements. Given
the cutting-edge nature of the technology, alternative
manufacturing facilities may not be available. The Group
manages its regulatory risk by working closely with its expert
regulatory advisers and, where appropriate, by seeking advice
from regulatory authorities on the design of key development
plans for its pre-clinical and clinical programmes.
Counterparty risk
The Group relies on third-party organisations to conduct its
clinical trials and to manufacture certain of its products. If the
relationship with or performance of any of these partners is
adversely affected, the Group’s operations may be adversely
impacted. As part of the Group’s routine vendor assessment,
detailed due diligence is performed on all third-party
organisations to establish that such organisations have the
required capability, expertise and financial stability to perform
the relevant services for the Group. Where possible, alternative
third-party suppliers are identified to take over the
performance of such services in the event difficulties are
experienced with the original vendor.
Competition and intellectual property risk
Certain companies are developing medicines that may restrict
the potential commercial success of the Group’s products or
render them obsolete. Third-party companies may have
intellectual property that restricts the Group’s or the Group’s
partners’ freedom to operate. Obtaining licences to intellectual
property may not be possible or may be costly and may reduce
net royalty income to the Group. The Group’s intellectual
property may become invalid or expire before its products are
successfully commercialised. The Group works closely with its
legal advisers and obtains where necessary opinions on the
intellectual property landscape relevant to the Group’s
product development programmes and manufacturing
activities and processes.
Economic risk
The successful development and commercialisation of
medicines carries a high level of risk and the returns may be
insufficient to cover the costs incurred. Restrictions on health
budgets worldwide or on the prices that may be charged for
new medicines through competitive or other pressures may
limit a medicine’s sales potential. The Group may not be able to
attract partners on favourable terms or recruit the appropriate
calibre of staff to develop or commercialise its products. Any
partners may fail to perform or commit the resources necessary
to commercialise the Group’s products successfully. The Group
performs detailed reviews of the development process and
progress of projects through trials.
26
Vectura Group plc Annual Report and Accounts 2012/13
Business review: Key performance indicators
27
Vectura Group plc Annual Report and Accounts 2012/13
Business review: Risk management
Business review: Risk management continued
Directors and governance: Corporate governance statement
Financial risk
Risk management
The Group’s activities expose it to a number of financial risks
including cash flow risk, credit risk, liquidity risk and price risk.
In accordance with policies approved by the Board of Directors,
the Group does not use financial derivatives to manage these
risks. In addition, the Group does not use financial instruments
for speculative purposes.
The Group’s extensive risk management process is detailed in
the corporate governance statement section of the business
review. The process seeks to identify material risks and to
determine how best to manage them. Specific risk managing
actions the Group has in place are set out against certain of the
risks identified in this section.
Cash flow risk
The Group’s activities expose it to the financial risks of changes
in foreign currency exchange rates. The majority of the Group’s
revenues are in euros or US dollars. Where known liabilities
arise in these currencies the revenues are retained on deposit in
the appropriate currency in order to offset the exchange risk on
these liabilities. As at 31 March 2013, the Group had sufficient
euro and US dollar reserves to cover its immediate and
short-term liabilities in respect of these currencies.
Credit risk
The Group’s credit risk is primarily attributed to its cash and
cash equivalents. This risk is limited because the counterparties
are banks with high credit ratings assigned by international
credit-rating agencies. Deposits are made in accordance with
the Group’s Treasury Policy approved by the Board, which
contains strict criteria on minimum credit ratings and maximum
deposit size. However, the recent global credit problems could
result in the failure of even high credit-rated banks where funds
are deposited.
Liquidity risk
In order to maintain liquidity to ensure that sufficient funds are
available for ongoing operations and future developments, the
Group closely monitors the cash available to the Group, which is
invested in a mixture of current and short-term deposit accounts.
Price risk
The Group is exposed to price risk in respect of its income and
expenditure. The Group manages its exposure to price risk
through commercial negotiations with customers and suppliers,
working closely with its legal advisers on negotiations that are
of significant importance to the Group.
The Board is committed to practising good corporate governance
as part of its aim to deliver shareholder value. In assessing the
appropriate standards of corporate governance the Board takes
into account the nature and size of the operation, which
comprised at 31 March 2013 seven Directors and over 200 staff
operating from two sites in the UK and one office in the US. The
Board recognises that it is accountable to shareholders for the
Group’s standard of governance and is reporting here on its
compliance with the code of best practice set out in the UK
Corporate Governance Code (“the Code”), a copy of which is
available on the Financial Reporting Council’s website at
www.frc.org.uk.
Statement of compliance with the UK
Corporate Governance Code
The Group has, in the Directors’ opinion, complied with the
provisions set out in Section 1 of the Code throughout the year
ended 31 March 2013.
The principles set out in the Code cover four areas: the Board,
Directors’ remuneration, accountability and audit and shareholder
relations. With the exception of Directors’ remuneration (which is
dealt with separately in the Report on remuneration), the
following sets out how the Board has applied such principles.
The Board
The Code requires every company to be headed by an effective
board, which is collectively responsible for its success. As part of its
leadership and control of the Group, the Board has an agreed list of
matters that are specifically reserved for its consideration. These
include business strategy, financing arrangements, material
acquisitions and divestments, approval of the annual budget, major
capital expenditure projects, risk management, treasury policies
and establishing and monitoring internal controls. At each meeting,
the Board reviews strategy and progress of the Group towards its
objectives, particularly in respect of research and development
projects, and monitors financial progress against budget.
Non-Executive Directors (NEDs) are encouraged to meet without
the presence of Executive Directors as appropriate. Discussions
took place on two occasions during the year and included
discussions on each Executive Director’s performance.
Division of responsibilities between
Chairman and Chief Executive
The Board has shown its commitment to dividing responsibilities for
running the Board and for running the Group’s business by
appointing Jack Cashman as Non-Executive Chairman; by naming
Dr John Brown as Senior Independent Director; by establishing an
executive Leadership Team (LT) under the leadership of Chief
Executive Dr Chris Blackwell; and by establishing a procedure
whereby the LT reports formally to the Board at each Board meeting.
Board balance and shareholdings
The Code requires a balance of Executive Directors and NEDs (and
in particular independent NEDs) such that no individual or small
group of individuals can dominate the Board’s decision-taking.
Four of the seven current Board members are NEDs. The NEDs
come from diverse business backgrounds and each has specific
expertise, materially enhancing the judgement and overall
performance of the Board.
Throughout the year ended 31 March 2013 and up to the date
of publication of this report, at least half of the Board, excluding
the Chairman, is comprised of NEDs determined by the Board to
be independent.
Vectura is committed to working towards achieving meaningful
shareholdings in the Group for Executive Directors in order to
align their interests to those of the shareholders. Share ownership
guidelines of the Company, as applicable to Executive Directors,
state that they are expected to maintain or build their holdings to
attain an interest in ordinary shares that is equal to their basic
salary. The Executive Directors acquired shares in both the years
ended 31 March 2013 and 2012.
Independence of NEDs
As explained in previous annual reports, in order to assist in
securing the recruitment and retention of high-calibre NEDs, in
the past the Group has, in addition to fees, remunerated NEDs in
the form of options to acquire shares in Vectura.
Whilst the Code discourages the granting of share options to
NEDs, it nevertheless acknowledges that such grants may be
appropriate in a particular company’s circumstances. The Board is
of the view that the historic granting of share options to NEDs
when Vectura Group plc was a private company was appropriate.
28
Vectura Group plc Annual Report and Accounts 2012/13
Business review: Risk management
29
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Corporate governance statement
Directors and governance: Corporate governance statement continued
It was essential for an emerging pharmaceutical company like
Vectura to secure the recruitment and retention of NEDs with the
appropriate experience and international perspective in the
context of the Group’s then stage of development. There are no
performance criteria attaching to these options and no share
options have been granted to NEDs since 2 July 2004, when the
Company was admitted to the Alternative Investment Market (AIM).
The holding of share options by NEDs could be, amongst other
things, relevant in determining whether a NED is independent.
After detailed consideration, the Board has determined that it
does not believe that the holding of share options by its NEDs
impacts on their independence in character and judgement.
Options granted to NEDs are now exercisable and thus similar to
holding the equivalent amount of shares. There is no intention to
award any further options to NEDs.
Other factors that may reflect on the independence of a NED
include any material business relationships with the Group;
however, there were no such relationships during the year, up to
the date of this report, or in the prior year.
Serving more than nine years could be relevant to the
determination of a NED’s independence. Notwithstanding the fact
that John Brown and Jack Cashman have been NEDs of the parent
company of the Group for 9 and 12 years respectively, the Board
has rigorously evaluated their performance and considers that
they are fully independent of the Group.
The Board has established a Remuneration Committee, a
Nomination Committee and an Audit Committee, whose make-up
complies with the requirements of the Code. The terms of
reference of each Committee can be downloaded from the
Group’s website. In accordance with the Smith Guidance on Board
Committees, no one other than the Committee Chairman and
committee members receives automatic invitations to the
meetings. The NEDs serve on the three board committees, as
described below. The Board has considered the composition of
the committees and concluded that the independence and
objectivity of the individual NEDs is not impaired by sitting on
these committees.
The Remuneration Committee
Committee has responsibility for making recommendations to the
Board on the Group’s policy on the performance evaluation and
remuneration of Directors and for determining, within agreed
terms of reference, specific remuneration packages for each of
the Directors and members of senior management, including
pension rights, any compensation payments and the
implementation of executive incentive schemes. The Committee
met formally five times during the financial year ended 31 March
2013 and the Board confirms full attendance by all members at
those meetings. No Director is involved in determining his or her
own remuneration.
The Nomination Committee
The Nomination Committee leads the process for Board
appointments and makes recommendations to the Board. The
Code recommends that a majority of members of the Nomination
Committee are independent NEDs. Dr Brown chairs the
Nomination Committee and its other members are Mr Cashman,
Dr Foden and Mr Warner, all of whom are considered to be
independent. The Nomination Committee meets at least once a
year, or more if necessary, and has responsibility for considering
the size, structure and composition of the Board, retirements and
appointments of additional and replacement Directors and
making appropriate recommendations to the Board. The
Committee met twice during the financial year ended 31 March
2013 and the Board confirms full attendance by all members at
those meetings.
The Audit Committee
The Code recommends that the Board should establish an Audit
Committee of at least three independent NEDs, and the Group
complies with these recommendations. Mr Warner is the NED with
relevant financial experience and who chairs the Audit Committee;
its other members are Dr Foden and Dr Brown. The Audit
Committee met twice during the year ended 31 March 2013. The
Board confirms full attendance by all members during the year.
The Audit Committee is responsible for making recommendations
to the Board on the appointment, reappointment and removal of
the external auditor and assesses annually the qualification,
expertise, resources, remuneration and independence of the
auditor, as well as the effectiveness of the audit process.
The Code requires that the Remuneration Committee consists of
at least two independent NEDs. Dr Foden chairs the Remuneration
Committee, its other members being Dr Brown, Mr Cashman and
Mr Warner, all of whom are considered to be independent. The
Any non-audit services that are to be provided by the external
auditor are reviewed and approved in advance in order to
safeguard auditor objectivity and independence. The Board
confirms that there have been no non-audit services that are
considered to have impaired the objectivity and independence of
the external auditor. Non-audit fees are disclosed in note 5 to the
financial statements within this Annual Report.
The Code requires that this Annual Report separately describes
the work of the Audit Committee and how it discharges its
responsibilities. The Audit Committee focuses particularly on
compliance with legal requirements, accounting standards and
the Code, and on ensuring that an effective system of internal
financial controls is maintained. The ultimate responsibility for
reviewing and approving the financial statements in the Interim
and Annual Reports remains with the Board. Written terms of
reference are modelled on the Code provisions and set out the
main roles and responsibilities of the Audit Committee. The Audit
Committee reports to the Board, identifying any need for action
or improvement on any of these terms of reference and making
recommendations as to the steps to be taken. The Board reviews
the effectiveness of the Audit Committee annually.
The Audit Committee meets with the external auditor at least twice
a year without management present and its Chairman keeps in
touch, as required, with the key people involved in the Group’s
governance, including the Board Chairman, the Chief Executive, the
Chief Financial Officer and the external audit lead partner.
Audit Committee members understand the role of the Audit
Committee, its terms of reference and their expected time
commitments, and have the necessary overview of the Group’s
business, financial dynamics and risk.
The Audit Committee reviews arrangements by which staff of the
Group may, in confidence, raise concerns about possible
improprieties in matters of financial reporting or other matters.
The Audit Committee’s objective is to ensure that arrangements
are in place for the proportionate and independent investigation
of such matters and for appropriate follow-up action.
The Audit Committee reviews the financial integrity of the Group’s
financial statements, including relevant corporate governance
statements prior to Board submission.
The Group has a formal whistle-blowing policy, which is available
to all staff via the Group’s intranet.
Timeliness and quality of Board information
The Board has sought to ensure that Directors are properly
briefed to help them make an effective contribution at the
meetings by establishing procedures for distributing Board
agendas and papers in a timely manner in advance of meetings.
The Board plans formal meetings on a bi-monthly basis, with
additional meetings either in person or by conference call when
circumstances and urgent business dictate. In the financial year
under review, seven regular meetings of the full Board were held.
In addition, the Executive Directors ensure regular informal
contact is maintained with Non-Executive Directors. The Board
makes full use of appropriate technology as a means of updating
and informing all its members.
Transparency of Board appointments
There are formal, rigorous and transparent procedures for the
appointment of new Directors to the Board. Shortlisted candidates
are interviewed by the Chairman of the Board and all members of
the Nomination Committee, and evaluations of all appropriate
candidates are circulated to all members of the Nomination
Committee for consideration and approval prior to candidate
recommendation to the Board.
Board performance evaluation
Directors are subject to election by shareholders at the first
opportunity after their appointment, and to re-election at intervals
of no more than three years thereafter. Non-Executive Directors
who have served more than nine years on the board are subject to
annual re-election by shareholders in line with the Code. The Board
has a process for evaluation of its own performance and that of its
committees and individual Directors, including the Chairman. These
evaluations are carried out formally once a year and informally on a
regular basis throughout the year. The formal evaluation is through
an appraisal process. In line with the practice of previous years, the
Assistant Company Secretary prepared and circulated a
questionnaire for all Board members to answer and comment upon
specific questions covering specific topics. These included the
responsibilities and the roles of individual directors and the Board
as a whole; the conduct of Board meetings and Committees of the
Board; the Board’s role in monitoring the performance of the Group
and corporate governance practices. A detailed anonymised
analysis of the replies to the questionnaire, together with
conclusions drawn from such analysis, was prepared by the
Assistant Company Secretary and considered by the Board.
30
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Corporate governance statement
31
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Corporate governance statement
Directors and governance: Corporate governance statement continued
The performances of Mr Cashman, Dr Brown, Mr Warner and
Dr Blackwell who are being proposed for re-election at the
Annual General Meeting (AGM), have been so evaluated and it
has been determined that they continue to perform effectively
and show full commitment to their roles on the Board.
All Directors have service agreements with indefinite terms, with
12 months’ notice for Executive Directors and three months’
notice for Non-Executive Directors.
Accountability and audit
The Board is required by the Code to present a balanced and
understandable assessment of the Group’s position and
prospects. In relation to this requirement reference is made to the
Statement of Directors’ responsibilities for preparing financial
statements. The independent auditor’s report includes a
statement by the auditor on its reporting responsibilities.
Measures to ensure the auditor’s independence include:
approving engagements with independent audit firms and
fees for audit, audit-related and non-audit services;
full consideration being given to alternative suppliers of
services, before the award of contract for non-audit services;
and
disclosing the extent and nature of non-audit services in the
notes to the financial statements.
Maintenance of a sound system of
internal control
The Board has overall responsibility for the Group’s system of
internal control and for reviewing its effectiveness. The Group’s
internal controls are regularly reviewed as part of the risk
management process. Such a system is designed to manage
rather than eliminate the risk of failure to achieve business
objectives and can provide only reasonable and not absolute
assurance against material misstatement or loss. The concept
of reasonable assurance recognises that the cost of a control
procedure should not exceed the expected benefits.
There have been no significant internal control failings or
weaknesses throughout the year ended 31 March 2013 and
up to the date of publication of this report.
The Group’s organisational structure has clearly established
responsibilities and lines of accountability. Employees are
required to follow clearly defined internal procedures and policies
appropriate to the business and their position within the business.
The Group endeavours to appoint employees with appropriate
skills, knowledge and experience for the roles they undertake.
The Board has shown its commitment to formal and transparent
arrangements for internal control by, amongst other things,
reviewing the Group’s arrangements for its employees to raise
concerns, in confidence, about possible wrongdoing (formalised
in the grievance procedure and the whistle-blowing policy
circulated to all employees). In addition, the Group operates
certain controls specifically relating to the production of
consolidated financial information, covering operational
procedures, validation and review.
Documented quality procedures are in place to ensure the
maintenance of regulatory compliance. These are subject to
periodic review to ensure current standards of quality compliance
are maintained. A quality group monitors compliance with Good
Laboratory Practice, Good Clinical Practice and Good
Manufacturing Practice through the implementation of a
compliance programme for in-house and contracted-out
activities. The Group has a formal Health and Safety Committee,
comprising appropriate members of management and other
employees, to be responsible for these issues. The Group has
formal procedures to ensure appropriate security of documents
and proprietary information. Lean techniques addressing
laboratory and office inefficiencies have also been adopted.
The Group regularly reviews its portfolio of insurance policies
with its insurance broker to ensure that the policies are
appropriate to the Group’s activities, size and exposures.
A comprehensive budgeting system allows managers to submit
detailed budgets, which are reviewed and amended by Executive
Directors prior to submission to the Board for approval. At the end
of each quarter a forecast is prepared in the same level of detail
as the budget. Actual results against budget and forecast,
highlighting variances, are prepared for managers and the Board.
Risk assessment review
Constructive use of the AGM
The Board seeks to use the AGM (together with other forums) to
communicate with investors and encourage their participation by
arranging business presentations and inviting shareholder
questions. The Chairs of the Remuneration, Nomination and Audit
Committees are present at the AGM to answer questions through
the Chairman of the Board.
Anne Hyland
Company Secretary
20 May 2013
An ongoing process for identifying, evaluating and managing the
significant risks that are detailed in the risk factors section of this
report is in place. The effectiveness of the Group’s internal control
system has been reviewed by the Board during the year. The
Audit Committee’s terms of reference include the review of the
Group’s internal financial control systems and it recommends to
the Board any improvements required. Each year, the Audit
Committee considers the need for an internal audit function and
has concluded that, given the size of the Group’s operations at
this time, it is not necessary. The Board also carries out reviews
of the non-financial control systems.
Shareholder relations
The Group reports formally to shareholders four times a year by
way of the Interim and Annual Reports and two interim
management statements, providing a quarterly communication
with shareholders. All periodic reports and accounts are made
available to shareholders on the Group’s website, or are mailed to
shareholders who have elected to receive hard copies. Separate
announcements of all material events are made as necessary by
press releases. The Group’s website (www.vectura.com)
provides an overview of the business including its strategy,
products and objectives. All Group announcements are published
on the website without delay together with webcasts of both the
Interim and Annual results presentations. The terms of reference
of each of the Board’s three Committees and certain corporate
governance documents are also published on the Group’s
website. These are the main mechanisms by which the Board
seeks to present a balanced and understandable assessment of
the Group’s position and prospects.
Regular communications are maintained with major institutional
shareholders and, in particular, presentations are made when
half-year and full-year financial results are announced. Dr Brown,
as Senior Independent Director, is contactable by shareholders
through a link on the Group’s website. In addition, all NEDs have
developed an understanding of the views of shareholders
through corporate broker briefings and review of issued analyst
notes. The Chairman seeks to meet with major shareholders on a
regular basis. Certain Non-Executive Directors meet with major
shareholders as required. Private shareholders are encouraged to
express their views and concerns either in person at the AGM
or by e-mail.
32
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Corporate governance statement
33
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Corporate governance statement
Directors and governance: Board of Directors
John Patrick (Jack)
Cashman
Non-Executive Chairman
Christopher Paul
Blackwell BSc PhD
Chief Executive and
Executive Director
Anne Philomena
Hyland BBS FCA FItI
Chief Financial Officer and
Company Secretary
Trevor Michael
Phillips BSc PhD MBA
Chief Operations Officer and
President of US Operations
John Robert
Brown CBE PhD MBA FRSE
Non-Executive Director and
Senior Independent Director
Susan Elizabeth
Foden MA DPhil
Non-Executive Director
Neil William
Warner BA FCA MCt
Non-Executive Director
Jack Cashman, aged 72, joined
the Board of Vectura as Non-
Executive Chairman in 2001 and is
a member of both the Nomination
and Remuneration Committees.
Jack brings significant experience
to the Board of Vectura, having
held a variety of senior executive-
level roles in business and having
been a Board member for several
companies in both North America
and Europe. He is currently a
Director of Telesat Holdings Inc.
(Canada). He is the former Chairman
and joint-Chief Executive Officer
of RP Scherer Corporation and
participated in its leveraged buyout
and privatisation and its subsequent
successful flotation on the New York
Stock Exchange. (RP Scherer was
later acquired by Cardinal Health
Inc.) His early career was spent in
the field of filtration and industrial
mineral products. During that time,
he took on successively more senior
roles in marketing, operations and
general management in the UK,
Europe, Canada and USA. With this
experience, he decided to pursue
an entrepreneurial career in the
industrial and healthcare sectors.
Dr Chris Blackwell, 51, was
appointed Chief Executive of
Vectura in February 2004. He
joined the Group in 2002 as
Chief Operations Officer and
Executive Director. He trained as
a scientist. Having achieved a first
class honours degree in Applied
Biology, Chris pursued a PhD at
the University of Bath, where in
1988 he completed his doctorate
investigating free radicals and
reperfusion-induced arrhythmias
in heart disease. Throughout both
degrees, Chris was sponsored by
ICI Pharmaceuticals (now Astra
Zeneca), and worked in the fields
of respiratory and cardiovascular
diseases. Prior to Vectura he was
Director of Drug Development
and an Executive Director at Scotia
Pharmaceuticals Ltd, which he
joined in 1998. He was previously
at Hoffmann-La Roche, where he
was UK Director, Global Project
Management, and before that,
at Glaxo in the department of
Clinical Pharmacology.
Anne Hyland, 52, was appointed
Chief Financial Officer, Company
Secretary and Executive Director
of Vectura in March 2002. Prior
to this she was a Director of
Corporate Finance at Celltech
Group plc. Other positions held
at Celltech included Group
Financial Controller and Finance
Director for the Celltech/
Medeva UK Division. She joined
Celltech following the merger
with Medeva plc, where she
was Finance Director for the UK
Division. Previously she was the
Medeva Group Financial Controller
where, through a period of rapid
growth, she was responsible for
managing treasury, tax, internal
and external reporting, and
acquisition and disposal activity.
Anne joined Medeva from KPMG,
London, where she was an audit
manager and gained exposure
to corporate finance, advisory
and due diligence work. She has
a Business Studies degree from
Trinity College, Dublin, and is a
Fellow of the Institute of Chartered
Accountants, Ireland and a Fellow
of the Institute of Taxation,
Ireland and is also a member
of the Primary Markets Group
of the London Stock Exchange.
She is also a Trustee of Sustrans,
the charity that has created the
National Cycle Network.
Dr Trevor Phillips, 52, joined the
Board on 1 June 2012. Trevor,
was appointed Chief Operations
Officer in July 2011, having
joined Vectura in January 2010
as President of US Operations.
Prior to joining Vectura he gained
extensive international experience
in organisational leadership,
management and pharmaceutical
drug development in a number of
senior roles, including positions
as CEO and President of the US
publicly held company, Critical
Therapeutics Inc, following six
years as the Company’s Chief
Operating Officer. During his time
at Critical Therapeutics, Trevor was
involved in setting up commercial
partnerships, product in-licensing
and out-licensing, managing drug
development and NDA filings,
commercial product manufacturing,
and mergers and acquisitions.
Between 1986 and 2002 Trevor held
a number of management positions
at Sepracor, Scotia Pharmaceuticals,
Accenture, GlaxoWellcome Research
and Development and Simbec
Research Limited. Trevor trained as
a microbiologist at the University
of Reading, obtaining a PhD in
microbial biochemistry from the
University of Wales in 1986. He
was awarded an MBA from Henley
Management College in 1997.
Dr John Brown, 58, joined the
Board of Vectura as Non-Executive
Director and Senior Independent
Director in 2004 and chairs
the Nomination Committee as
well as being a member of the
Remuneration Committee. John
is Chairman of CXR Biosciences
Ltd, Mode Diagnostics Ltd, The
Cell Therapy Catapult and the
Roslin Foundation. He also chairs
the Life Science Advisory Board
for the Scottish Government. He
was previously Chairman of BTG
plc and Axis-Shield plc. Until late
2003, John was Chief Executive of
Acambis plc, a leading producer
of vaccines to treat and prevent
infectious disease. John is an
Honorary Professor of Edinburgh
University and is a Fellow of the
Royal Society of Edinburgh.
Dr Susan Foden, 60, joined the
Board of Vectura as a Non-Executive
Director in January 2007. She chairs
the Remuneration Committee
and is a member of the Audit and
Nomination Committees. She
holds a number of Non-Executive
Directorships with both public and
private companies in the biotech
and healthcare field, including
Source Bioscience plc, Cizzle
Biotechnology Ltd, BerGenBio AS
and Evgen Ltd. Prior to this Susan
held positions in venture capital
and UK biotech companies. From
2000 to 2003 she was an Investor
Director with the London-based
venture capital firm Merlin
Biosciences Limited, and was Chief
Executive Officer of the technology
transfer company Cancer Research
Campaign Technology Ltd
from 1987 to 2000. She studied
biochemistry at the University of
Oxford from where she obtained
an MA and a DPhil.
Neil Warner, 60, joined the Board
of Vectura as Non-Executive
Director in February 2011 and
is Chair of the Audit Committee.
Neil has significant financial
and managerial experience in
multi-national businesses and is a
Non-Executive Director of Dechra
Pharmaceuticals plc where he is
the Senior Independent Director.
He is also Non-Executive Chairman
of Enteq Upstream plc, a specialist
reach and recovery products
and technologies provider to the
upstream oil and gas services
market. He was Finance Director
at Chloride Group plc, a position
he held for 14 years until its
acquisition by Emerson Electric.
Prior to this, he spent six years at
Exel plc (formerly Ocean Group
plc and acquired by Deutsche
Post in December 2005) where he
held a number of senior posts in
financial planning, treasury and
control. He has also held senior
positions in Balfour Beatty plc
(formerly BICC Group plc), Alcoa
and PricewaterhouseCoopers.
Neil has an Economics degree
from the University of Leeds
and is a Fellow of the Institute of
Chartered Accountants.
34
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Board of Directors
35 Vectura Group plc Annual Report and Accounts 2012/13Directors and governance: Board of Directors
Directors and governance: Executive management
Directors and governance: Corporate social responsibility statement
Timothy Wright
BSc PhD MBA
Commercial Director
Stephen William
Eason BSc (Eng)
Director of Device Development
Karl David Keegan
BSc MPhil PhD MSc
Corporate Development Director
Dr Tim Wright, 52, joined Vectura
as Commercial Director in March
2005. Prior to joining Vectura he
gained a breadth of experience
in business development and
licensing in a number of senior
roles at BTG plc, latterly as Vice
President Business Development
and Licensing, Oncology, and as
Director of Business Development
at DevCo Pharmaceuticals, where
he was successful in building
a portfolio of neuroscience
development candidates.
Between 1986 and 1999 Tim
held a number of management
positions at GlaxoWellcome
Research and Development,
both in Clinical Pharmacology
and Medical Operations, and
in project management at
Simbec Research Limited. Tim
trained as a research scientist
at London University, obtaining
a PhD in neuroendocrinology in
1987. He was awarded an MBA
from London Business School’s
Executive Programme in 1994.
Stephen Eason, 55, joined Vectura
in 2002 as Director of Device
Development. He has overall
responsibility for the development
of Vectura’s inhaler technologies
and leads a team of device
engineers and designers based in
Cambridge. He is also responsible
for Vectura’s Intellectual Property
Group. Stephen joined Vectura
from Cambridge Consultants
Limited (CCL), where in 1999 he
had set up and led CCL’s Drug
Delivery Devices Group. The team
carried out significant product
developments in the areas of
inhalation, injection and infusion
products. Before specialising
in drug delivery, Stephen
managed a number of healthcare,
telecoms and consumer product
developments for clients in Europe
and the US. Prior to joining CCL,
Stephen worked in design and
development for Baxter Healthcare.
He studied Mechanical Engineering
at the Imperial College of Science
and Technology, London.
Dr Karl Keegan, 46, who joined
Vectura in September 2012, is an
Irish national who has worked in
the healthcare industry for over
20 years. Karl has a BSc in
Pharmacology from University
College Dublin, an MPhil and
PhD in Pharmacology from the
University of Cambridge and
a Masters degree in Finance
from the London Business
School. Following postdoctoral
research work at Baylor College
of Medicine, Houston, Texas, Karl
joined SmithKline Beecham as a
bench scientist and later moved
to a strategic commercial role
within the Neuroscience Strategic
Product Development team.
Upon leaving the pharmaceutical
industry, Karl became one of the
leading financial analysts covering
the biotechnology industry on
a global basis. His most recent
analyst role was at Canaccord
Adams, as Managing Director,
UK Head of Equity Research and
Global Head of Life Sciences
Research. Prior to joining Vectura
in 2012, he was CFO of Minster
Pharmaceuticals, a publicly listed
UK company and most recently
CFO of Pharming Group, a
company listed on Euronext.
The Directors recognise the importance of corporate social
responsibility and endeavour to take into account the interests
of the Group’s stakeholders, including its investors, employees,
customers, suppliers and business partners when operating
the business. The Group believes that having empowered and
responsible employees who display sound judgement and
awareness of the consequences of their decisions and actions,
and who act in an ethical and responsible way, is key to the
success of the business. The Group also endeavours to be
honest and fair in its relationships with customers and suppliers
and to be a good corporate citizen, respecting the laws of
countries in which it operates.
On 15 March 2013 the Company became a member of the
FTSE4Good index, a leading investment index for businesses that
meet globally recognised corporate social responsibility standards.
Our people
Employees
The key to our success is to develop core values within all of our
staff which lead to an environment where they believe that what
they are doing is making a difference. The core values with which
we operate are participation, achievement, trust and respect,
innovation and enthusiasm.
Dr Chris Blackwell is the Board member responsible for overseeing
responsibility for Human Resources and non-discrimination issues.
During the period under review the rate of staff turnover and
absence levels have been below sector norms.
The Group is committed to achieving equality of opportunity in all
its employment practices, policies and procedures. Employees are
valued highly and their rights and dignity are respected. The
Group does not tolerate any harassment or discrimination. The
Group is an equal opportunities employer and will continue to
ensure it offers career opportunities without discrimination. The
equal opportunities policy covers all permanent and temporary
employees including Non-Executive Directors, all job applicants,
agency staff, associates, consultants and contractors.
Disabled employees
Applications for employment by disabled persons are always
fully considered, bearing in mind the aptitudes of the applicant
concerned. With regard to existing employees and those who
may become disabled, Vectura’s policy is to examine ways and
means to provide continuing employment under its existing terms
and conditions and to provide training and career development,
including promotion, wherever appropriate.
Family-friendly employment policies and employee welfare
The maternity and paternity leave and pay policies conform to
statutory requirements. Flexible approaches to return to work
after maternity leave and part-time or non-standard hours and
work patterns are considered where viable.
Employee involvement
The Group recognises that in an industry based on innovation
and research and development, its employees are some of
its biggest assets and it seeks to communicate and, where
appropriate, consult with them on matters affecting them
as employees.
During the year, Vectura continued its policy of providing
employees with information about the Group through regular
presentations by Directors, management and the Group’s
intranet. In addition, regular meetings are held between
management and employees to allow for a free flow of
information and ideas. Staff forums are established to comply
with the requirements of Information and Consultation of
Employees Regulations 2004; the forums ensure implementation
of the EC Directive.
training and development
The Group provides training and development appropriate to
individual needs and offers remuneration packages (including
pensions, private medical, permanent health and life insurance)
and a working environment that are designed to be both fair
and competitive with larger companies within the industry.
Vectura is positive about developing all employees for current
and future roles. The Meakin Scholarship award is open to all
employees and is awarded to employees who wish to study a
“developmental course” in their own time. Any course that
would significantly enhance an employee’s skills whilst
benefiting Vectura is considered. Vectura has supported a
variety of programmes including Pharmaceutical Industrial
Advanced Training (PIAT) programme to MSc level, GCSE English
and A level Chemistry.
Employee share ownership
Participation in the Group’s share option schemes is extended to
all of the Group’s employees. More details are provided in the
Report on remuneration.
36
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Executive management
37
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Corporate social responsibility statement
Directors and governance: Corporate social responsibility statement
continued
Community investment
Vectura considers that its most important contribution to the
communities within which it operates is to provide high-quality
employment opportunities and to develop therapies to help
patients with diseases.
As the Group is currently loss making it is not considered
appropriate to make financial donations to charitable or
community activities. However, it is the ethos of the Group to
promote an environment of employee support and participation
in initiatives that provide in-kind benefits where we believe we
have a meaningful contribution to make. Where possible we aim
to facilitate and support employee fund-raising events, such as:
We support the STEM (Science, Technology, Engineering and
Mathematics) Initiative which is a major UK Government
initiative. Within this initiative our staff actively help local
schoolchildren, being tomorrow’s workforce, to gain the
capabilities and skills to flourish in a scientific environment
such as ours.
An annual award of additional holiday is allocated to a small
number of employees as a part of a staff initiative to volunteer
for unpaid community or charitable services.
Staff are encouraged to participate in nationwide charity
campaigns, examples of which include Macmillan Coffee
Mornings, Comic Relief and Movember. Where appropriate,
group facilities are made available to staff members
organising such events.
Quarterly visits to the Chippenham site (where approximately
90% of the employees are based) by the Blood Transfusion
Services are facilitated and employees are encouraged to take
the time to donate.
Health and safety
The Group considers health and safety to be a priority in its
workplaces. Vectura has a Health and Safety Committee to review
health and safety standards within the Group. Dr Trevor Phillips is
the board member to whom responsibility for health and safety
issues has been delegated.
The Group provides specialist ongoing training to individuals who
are responsible for health and safety, and general health and
safety training is delivered to all staff via e-learning courses.
The Group continuously monitors its health and safety practices
to ensure that safety management procedures are robust and in
line with industry best practice.
The Group has an excellent safety record and there have been
no major incidents or accidents reported to the Health and Safety
Committee during the year (2011/12: none).
Environment
We are committed to minimising the impact of our activities on
the environment and energy efficiency is the most important
means of climate protection currently available to the Group.
Due to the nature of its activities, Vectura considers that it has a
low environmental impact.
Vectura has adopted an environmental policy, which can be found
on our website. The policy sets out a commitment to reducing gas
and electricity consumption and greenhouse gas emissions per
employee from quantified levels. Quantifiable targets are
established and we monitor performance against these targets.
Vectura’s current target is to reduce energy consumption and
greenhouse gas emissions per employee by 3% per annum and
when allowance is made for the new premises which became
fully operational in the reporting year to facilitate future growth;
this has been achieved for electricity-based emissions of the
Group in 2012/13.
Vectura’s operational goals include an objective to reduce our
carbon footprint by controlling the use of key sources of energy
and materials on a per capita basis and the Group continues to
adopt the principles of environmental management systems to
ISO14001 standards. A Green Action Team meets regularly and
has responsibility to pursue objectives for environmental
sustainability and carbon reduction. Use is made of the Company
intranet to communicate widely to all staff on environmental
affairs and to receive their views and suggestions on green policy
for consideration and discussion within the Green Action Team.
Vectura is committed to undertaking an environmental impact
review of new product developments, site development and of
merger and acquisitions. During the year refurbishment work was
undertaken at our Chippenham site, which included installation of
solar panels, air source heat pumps and movement sensing lighting.
Through the use of a risk register the Group has identified
specific company-wide risks that include those in the key
activities of intellectual property, medical and regulatory
affairs, clinical development, pharmaceutical operations and
device development.
Conclusion
Corporate social responsibility matters are considered as part
of the risk assessments of the Group and are part of the
considerations when setting remuneration targets.
Vectura reports its environmental performance under the Carbon
Disclosure Project (CDP). CDP plays a vital role in communicating
information about greenhouse gas emissions and related
activities reported by the UK’s largest companies, enabling
investors and the public to take informed action against climate
change. There have been no contentious issues or other matters
having economic, legal, reputational or environmental
consequences that have arisen in the year under review.
Ms Hyland is the board member to whom responsibility for
environmental issues has been delegated. She is also a Trustee of
Sustrans, a leading UK charity enabling people to travel by foot,
bicycle or public transport for more of their journeys.
Waste management
Initiatives to effectively manage and reduce waste have been
implemented throughout the Group, including recycling of all
paper waste, aluminium cans, printer toners/cartridges and
redundant mobile telephone handsets. Induction procedures for
all newly recruited staff include sufficient information to ensure a
high level of compliance with our standards. We aim to comply
with all legislation in this area, including using registered waste
disposal contractors.
Ethical and social policies
The Group’s principal activities are undertaken within the
pharmaceutical industry, which is subject to a highly regulated
ethical framework with which the Group complies. In addition, the
Group seeks to conduct its activities generally in accordance with
good business ethics.
Vectura has adopted a clear anti-bribery policy and communicated
it to all employees so they can recognise and avoid the use of
bribery and report any suspicion for rigorous investigation. Political
donations are prohibited and advance approval from management
is required before management and staff may accept or solicit a gift
of any kind.
38
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Corporate social responsibility statement
39
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Corporate social responsibility statement
Directors and governance: Report on remuneration
Letter from the Chair of the Remuneration Committee
Directors and governance: Report on remuneration
Dear Shareholder
On behalf of the Board, I am pleased to present Vectura’s Report
on remuneration for the year ended 31 March 2013. This report
will be put forward for your consideration and approval at the
2013 Annual General Meeting (AGM).
The Government’s Business, Innovation and Skills Department
(BIS) has confirmed that there will be a number of changes
designed to clarify and improve the reporting of remuneration
by public limited companies. Whilst this guidance has not yet
been fully implemented, the Remuneration Committee
(the “Committee”) has decided to incorporate a number of the
proposed changes in this Report on remuneration. The Committee
believes that these changes will assist shareholders in
understanding how the Group’s remuneration strategy supports
overall corporate strategy and performance.
This has been a year of significant achievement for Vectura,
with the EU approval and launch of Seebri® Breezhaler® by our
partner Novartis and the filing of a marketing authorisation
with the European Medicines Agency (EMA) of QVA149. Novartis
also received approval for Seebri® Inhalation Capsules and
subsequently launched the product in Japan, the world’s second
largest pharmaceutical market. In response to these commercial
successes, the Committee has approved a bonus payment to the
Executive Directors as detailed in the full report. For this financial
year, and on an ongoing basis, the award of bonuses to the
Executive Directors is dependent on achievement of both
corporate goals and personal objectives.
Executive Directors did not receive salary increases during the
year ended 31 March 2013. During 2012/13 the Committee
approved increases on base salary for the Executive Directors
for the year ended 31 March 2014, taking into account average
salary increases for employees across the Group.
A new Long-Term Incentive Plan (LTIP) scheme was approved by
theshareholders at the 2012 AGM. The Committee believes that
this new scheme will continue to promote a culture of strong
corporate performance within the Group. In addition, during the
year, the Committee has implemented share ownership guidelines
for all Executive Directors and senior management. These are
designed to align the interests of senior management with those
of Vectura’s shareholders.
During the coming year, the Committee will ensure that Vectura’s
remuneration policies continue to be aligned with shareholders’
interests and that they provide the right framework to attract,
motivate and retain executives of the calibre required to meet
the Group’s objectives.
Dr S E Foden
Chair of the Remuneration Committee
Introduction
This report has been prepared in accordance with the Accounting
Regulations of the Companies Act 2006 (the “Act”) and complies
with the UK Corporate Governance Code. The report also meets
the relevant requirements of the Listing Rules of the Financial
Conduct Authority and describes how the Board has applied the
principles relating to Directors’ remuneration under the Directors’
Remuneration Report Regulations 2002. As required by the Act, a
resolution to approve this report will be proposed at the AGM of
the Group at which the financial statements will be approved. In
preparing this year’s report, the Committee has also paid regard
to the new reporting requirements announced by BIS that will
come into force with effect from the year ended 31 March 2014,
and has sought to adopt a number of the new requirements
where it is practical to do so whilst still remaining compliant
with the existing regulations. This year’s report consists of two
sections: an unaudited Remuneration policy section, which
describes the Group’s policy for the remuneration of Executive
and Non-Executive Directors (NEDs) for the coming year, and an
Implementation section, which provides details of the Directors’
emoluments, shareholdings, long-term incentive awards and
pensions for the year ended 31 March 2013. The elements of the
Implementation section which are subject to audit have been
clearly identified.
Remuneration policy section (unaudited)
The main principles of the Group’s remuneration policy, which
remain unchanged from the prior year, are set out below:
Element
Purpose and link to strategy
Policy
Basic
salary
To recruit and retain executives
of the highest calibre who are
capable of delivering the Group’s
strategic objectives
Annual
bonus
An annual bonus rewards the
achievement of stretching objectives
that support the Group’s corporate
goals and the delivery of the
business strategy
Vectura’s policy is to provide remuneration generally at levels that are broadly
aligned with the mid-points for equivalent roles in comparable companies in the
UK, adjusted to reflect company size and complexity
Base salaries are reviewed on an annual basis and are not linked to performance.
In determining base salaries, the Committee takes into consideration the relevant
skills, experience and performance of the individual and the Group as well as pay
and conditions throughout the Group
A bonus scheme is in place for all employees, which is designed to incentivise
individuals to achieve the Group’s goals. For this year and future years
performance targets for Executive Directors include the Group’s corporate goals
as well as challenging individual objectives
Bonuses are limited to a maximum of 100% of basic salary for each Executive
Director. Bonuses are awarded against achievement of agreed objectives and at
the discretion of the Remuneration Committee
The Remuneration Committee will take into account overall corporate
performance in determining the final bonus awarded
Pensions
The Group aims to provide market
competitive retirement benefits
The Group operates a money purchase scheme and all employees, including
Executive Directors, are invited to participate. The Group contributes up to 20% of
basic salary to the Group Personal Pension Plan in the name of Executive Directors
Benefits
Benefits in kind offered to Executive
Directors are provided on a market
competitive basis, to assist with the
retention and recruitment of staff
Table continues on following page
The Group extends personal medical cover and life assurance to all employees
Under certain circumstances the Group will offer relocation allowances
to employees
40
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Report on remuneration
41
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Report on remuneration
Directors and governance: Report on remuneration continued
Element
Purpose and link to strategy
Policy
Long-
Term
Incentive
Plan (LTIP)
The Remuneration Committee
believes that a key component of
the overall remuneration package is
the provision of equity awards to
senior executives through the LTIP,
which is designed to develop a
culture that encourages strong
corporate performance on an
absolute and relative basis
Share
ownership
guidelines
Share ownership guidelines for
Executive Directors and senior
employees are designed to align the
interests of senior management to
those of Vectura’s shareholders
Fees to
Non-
Executive
Directors
Set at a level that is sufficient to
attract and retain high-calibre
non-executives
Conditional awards for shares in Vectura Group plc can potentially be made at a
value equal to 100% of basic salary to Executive Directors. Awards of up to 200%
may be permitted under exceptional circumstances
Awards are subject to challenging performance measures based on relative Total
Shareholder Return (TSR) measured over a three year period and are subject to
an underpin based on the Committee’s assessment of the Group’s underlying
performance. The current LTIP scheme rules also include a provision for
claw-back of awards in the event of material misstatement of financial results or
environmental, social or corporate governance issues
The performance conditions for previous long-term incentive awards are
described in the Implementation section
In accordance with best practice, Executive Directors are required to retain at
least half of any share awards vesting as shares (after paying any tax due) until
they have a holding of Vectura Group plc shares equivalent to at least 100% of
their basic salary
Non-Executive Directors receive fees paid in cash, with additional fees received
for chairing committees of the Board
When reviewing fee levels, account is taken of market movements in Non-Executive
Director fees, Board committee responsibilities and ongoing time commitments
The Non-Executive Directors do not participate in any performance related
incentive schemes
How shareholders’ views are taken
into account
The Remuneration Committee considers shareholder feedback
received in relation to the Annual General Meeting each year
and guidance from shareholder representative bodies more
generally. Shareholders’ views are key inputs when shaping
remuneration policy.
During the year, the Committee engaged with its largest
shareholders regarding the introduction of the 2012 LTIP.
Components of the current
remuneration package
As outlined in the Remuneration policy, the principal components
of remuneration packages are basic salary, short and long-term
incentives and pension benefits. Further details in relation to how
this policy has been applied during the year, and key terms of the
various incentive and benefit programmes are provided in the
Implementation section.
The diagram below shows the components of the remuneration
package as a percentage of total remuneration. 45% of the
Executive Directors’ total remuneration is performance-related
(2011/12: 50%). The reduction in variable compensation year on
year is the result of a reduced share-based compensation charge
in the current year.
Balance between fixed and performance-based compensation
(variable compensation)
55%
C P Blackwell
A P Hyland
T M Phillips
Executive
Directors
45%
Fixed compensation
Variable compensation
Directors’ service contracts
It is the Group’s policy that Executive Directors should have
contracts with an indefinite term and which provide for a
maximum period of 12 months’ notice. This applies to the
contracts of Dr Blackwell and Ms Hyland, which were effective
from 25 June 2004 and also to Dr Phillips’ contract, which was
amended with effect from 1 June 2012. Executive Directors are
subject to re-election at an AGM at intervals of no more than
three years.
Awards made under the Group’s LTIP scheme that have not been
released at the date the Executive’s employment ceases lapse,
save in certain good leaver situations. Executives have no
entitlement to a bonus payment in the event that they cease
to be employed by the Group but may be considered for such
an award by the Committee in appropriate circumstances.
In addition, in the event of early termination the Committee
would seek to ensure that the principle of mitigation applies.
The Executive Directors did not receive any fees in respect of
external Non-Executive appointments.
Non-Executive Directors
All NEDs have specific terms of engagement which are terminable
on three months’ notice by either party, and their remuneration is
determined by the Board within the limits set by the Articles of
Association and based on a review of fees paid to NEDs of similar
companies. NEDs are not eligible to join the Group’s pension
scheme, nor do they receive any other benefits. All NEDs are
subject to re-election at an AGM at intervals of no more than
three years.
The dates of appointment of each of the NEDs serving at
31 March 2013 are summarised in the table below:
Implementation section (unaudited
information)
Remuneration Committee
The Committee consists entirely of NEDs and is constituted in
accordance with the recommendations of the UK Corporate
Governance Code (the “Code”). The Committee is formally
constituted with written terms of reference and its main
responsibilities are detailed below. Its members for the year
ended 31 March 2013 were Dr Foden (Chair), Dr Brown,
Mr Cashman and Mr Warner.
The Committee is responsible for:
setting a remuneration strategy that ensures that talented
executives are recruited, retained and motivated to
deliver results;
ensuring that the remuneration of the Executive Directors and
other senior executives reflects both their individual
performance and their contribution to the overall Group results;
determining the terms of employment and remuneration of the
Executive Directors and senior executives, including recruitment
and retention terms;
approving the design and targets for any annual incentive
schemes that include the Executive Directors and
senior executives;
agreeing the design and targets, where applicable, of all share
incentive plans requiring shareholder approval;
assessing the appropriateness and subsequent achievement of
the performance targets related to any share incentive plans;
recommending to the Board the fees paid to the Chairman.
The Chairman is excluded from this process; and
the selection and appointment of the external advisers to
the Committee to provide independent remuneration advice
where necessary.
J P Cashman
J R Brown
S E Foden
N W Warner
Date of appointment
27 March 2001
13 May 2004
18 January 2007
1 February 2011
The Committee members have no personal financial interests
other than as shareholders in matters to be decided, no potential
conflicts of interest arising from cross directorships and no
day-to-day involvement in running the business. No Director plays
a part in any discussion about his or her own remuneration.
A Board evaluation has been performed and the results of this
exercise confirmed that all NEDs were independent, including
Mr Cashman and Dr Brown, who have service greater than nine
years. Their independence is considered valid due to the major
change in the operating activities of the Group during the term
of their appointments.
The fees of the NEDs are determined by the Board on the joint
recommendation of the Chairman and the Chief Executive.
The Committee met formally five times during the year ended
31 March 2013.
A summary of the matters considered at each of those meetings
is set out in the following panel.
42
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Report on remuneration
43
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Report on remuneration
Directors and governance: Report on remuneration continued
Meeting
April 2012
Agenda items
Review of performance against corporate goals for 2011/12
Review of share-based incentive arrangements for all employees
Review of the salary levels for the Executive Directors and other members of the Leadership Team,
ensuring that these are aligned appropriately both internally and externally
Review of remuneration for Non-Executive Directors and the Chairman
Approval of overall pay levels for 2012/13 for the Group as a whole
July 2012
Review of proposal for 2012 Long-Term Incentive Plan (LTIP) scheme
September 2012
Review of Shareholding policy for Executive Directors
Review and approval of LTIP awards
Interim review of corporate goal performance for 2012/13
December 2012
Approval of a new staff bonus scheme for the year ended 31 March 2014 and future years
February 2013
Review of the current status of share option schemes
Approval of Shareholding policy for Executive Directors
Committee advisers
In determining the Group’s current policy, and in constructing the
remuneration arrangements of each Executive Director and senior
employee, the Board, advised by the Committee, aims to provide
remuneration packages that are competitive and designed to
attract, retain and motivate Executive Directors and senior
employees of the highest calibre.
To achieve this objective, the Committee takes account of
information from both internal and independent sources,
including New Bridge Street (a brand of Aon Hewitt Ltd,
part of Aon plc), and PricewaterhouseCoopers LLP.
PricewaterhouseCoopers LLP also advised on the structure
of the new bonus scheme, which will be introduced for the
31 March 2014 financial year.
Statement of shareholder voting
at 2012 AGM
At last year’s AGM held on 18 September 2012, approval
of the Report on remuneration and the approval of the
2012 LTIP received the following votes from shareholders:
To approve the remuneration report
% of votes cast
To approve the LTIP
For (including
discretionary
votes)
245,155,337
99.57
248,711,399
Total votes cast
(for and against
excluding
Against withheld votes)
246,215,013
100
248,880,911
1,059,676
0.43
169,512
Total votes cast
(including
Votes withheld* withheld votes)
252,479,346
6,264,333
3,598,435
252,479,346
% of votes cast
99.93
0.07
100
*A vote that is withheld does not constitute a vote in law and has not therefore been included in the totals above.
Basic salary
For the year ending 31 March 2014 the Committee recommended
that the salaries of Dr Blackwell, Ms Hyland and Dr Phillips should
be £337,000, £218,000 and £243,000 (using an average exchange
rate of £/$ 1.58) respectively. The Committee has reviewed the
level of fees paid to Non-Executive Directors and has
recommended that the fees of Mr Cashman, Dr Foden and
Mr Warner should be increased to reflect the increased demands
and time required in fulfilling their duties as the Chair of the
Board, Chair of the Remuneration Committee and Chair of the
Audit Committee respectively. It is recommended that the fees
of Mr Cashman should be increased by £20,000 per annum and
the fees of Dr Foden and Mr Warner should be increased by
£5,000 per annum.
Performance-related cash bonuses
All employees are eligible for an annual discretionary cash bonus,
whereby performance objectives are established at the beginning
of the financial year by reference to suitably challenging corporate
goals. Goals typically include revenue generation, development
pipeline progress, partnering successes and control of cash
expenditure, and are weighted towards goals with the highest
corporate significance. Performance-related payments may be
paid annually, dependent upon achievements measured against
corporate goals. In addition, for the first time this year a
significant percentage of the bonus potential was set against
personal objectives for the Executive Directors and senior
management. Bonus payments are not pensionable. The scheme
is offered to all staff below board level with bonus award
entitlements ranging between 10% and 50% of salary depending
on grade. Cash bonuses are limited to a maximum of 100% of
basic salary for each Executive Director. For the year ended
31 March 2013 the performance objectives against which bonus
payments were calculated were as follows:
Performance metric
Identify and execute strategic
growth opportunities
Secure current and future
product development value
Deliver financial performance
in line with internal targets
Personal objectives
Total bonus payment as a %
of salary
Weighting as %
of maximum
bonus potential
Level of bonus awarded
as % of metric
(% of full bonus)
48%
16%
16%
20%
48% (23%)
44% (7%)
100% (16%)
65%–75% (13%–15%)
59%–61%
Commentary (full disclosure has been
restricted due to commercial sensitivity)
Significant work completed to establish the
Kinnovata joint venture during the year
Significant milestones delivered for existing
licensing agreements
Patents filed in relation to new technologies
Financial results were ahead of internal
targets set
Challenging personal objectives were set
for all Executive Directors
44
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Report on remuneration
45
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Report on remuneration
Directors and governance: Report on remuneration continued
The Committee thus assessed that a bonus of between 59% and
61% (2011/12: 53%) of salary was appropriate when judged by
the achievement of the above metrics and that this was confirmed
when looking at a broader picture of the Group’s corporate
performance over the period.
Given the implementation of formal share ownership guidelines,
the Remuneration Committee has not required any of the bonus
payment for this year to be deferred into shares.
Long-Term Incentive Plan
There were no LTIP awards granted under the 2005 Long-Term
Incentive Plan in the 2012/13 financial year.
No shares were released from the award made on 21 May 2009
because the performance criteria were not met.
At the 2012 AGM, shareholders approved a new LTIP, the Vectura
Group plc 2012 Long-Term Incentive Plan (the “2012 LTIP scheme”).
The awards granted under the 2012 LTIP scheme on 18 September
2012 (as detailed in the Directors’ LTIP awards table on page 51),
and any subsequent awards, are subject to relative TSR measured
over a three-year period against two comparator groups
(each representing 50% of the total award), as set out in the
table below:
Below median
Median
Between median and upper quartile
TSR performance vs FTSE
SmallCap over three years
(% of award vesting)
0%
12.5%
Between 12.5% and 50% on a straight-line basis
TSR performance vs Euro Stoxx
Pharmaceuticals & Biotechnology Index
over three years
(% of award vesting)
0%
12.5%
Between 12.5% and 50% on a straight-line basis
Upper quartile or above
50%
50%
Consistent with current best practice, the Committee has
the power to claw-back all or part of the awards/payments
for one year following vesting in the event of a material
misstatement, error in the calculation of performance against
the performance conditions of the plan or any other matter
that it deems relevant to this provision.
Performance against the conditions will be measured by the
Committee’s independent advisors.
Vesting of awards is also subject to an “underpin” enabling
the Committee to decrease or increase the percentage of the
award that vests based on its assessment of the Group’s
underlying performance over the period against a range of
factors including the Group’s underlying financial performance,
absolute shareholder returns and progress against milestones.
Any exercise of this discretion by the Committee will be fully
disclosed to shareholders with an explanation of the Committee’s
reasoning in the Report on remuneration for the relevant year.
To the extent that the performance conditions are not met in full
at the end of the three-year performance period, awards lapse.
Performance graph
Value Realisation Plan
The following graph shows Vectura Group plc’s performance since
its initial listing in July 2004, measured by TSR, compared with the
performance of the current comparator group of companies in
the sector.
%
n
r
u
t
e
r
l
r
e
d
o
h
e
r
a
h
s
l
a
t
o
T
1.25
1.00
0.75
0.50
0.25
0
-0.25
-0.50
-0.75
Jul
04
Jul
05
Jul
06
Jul
07
Jul
08
Jul
09
Jul
10
Jul
11
Jul
12
Vectura Group plc
Comparator companies
The following graph shows Vectura Group plc’s performance since
1 April 2011, measured by TSR, compared with the performance
of the FTSE SmallCap, as described above. This index was chosen
as Vectura is one of the constituent companies and the Committee
feels that it is one of the most appropriate against which to
measure performance.
%
n
r
u
t
e
r
l
r
e
d
o
h
e
r
a
h
s
l
a
t
o
T
0.75
0.50
0.25
0
-0.25
Apr
11
Jul
11
Oct
11
Jan
12
Apr
12
Jul
12
Oct
12
Jan
13
Apr
13
Vectura Group plc
FTSE SmallCap index
On 31 October 2008, the shareholders approved the Vectura
Group plc Value Realisation Plan (VRP). The VRP operates over
a five-year period and expires on 31 October 2013 and will not
be renewed. The VRP runs in parallel to the LTIP and provides
participants with a share of a predetermined percentage of the
total consideration paid for the Group in the event of a change in
control. In this event, under the VRP members of the Leadership
Team of the Group will be granted a one-off entitlement in the
form of units, which convert into ordinary shares in Vectura
Group plc, the actual number of shares that convert being linked
to the offer price per share achieved. The VRP is triggered upon
achievement of a minimum bid price of £1.27 per share, with a
maximum number of shares available to participants if the bid
price reaches or exceeds £1.77 per share.
Share Incentive Plan
The Vectura Group plc Share Incentive Plan (SIP) is available to
all employees, including Executive Directors, for the purpose
of encouraging employees to become shareholders of the
Group and to retain their shares over the medium to long term.
It introduces share ownership to the employee in three ways: free
shares, partnership shares, and matching shares. Vectura Group
plc may award free shares annually, employees may contribute
up to £125 a month to buy partnership shares out of pre-tax
salary, and Vectura Group plc may match any partnership shares
purchased with the award of additional matching shares on a
one-for-one basis. The SIP is an HMRC approved scheme through
which benefits are provided in a tax efficient manner.
Sharesave Share Option Scheme
Vectura Group plc also operates a Sharesave (SAYE) Share Option
Scheme that is open to all employees and Executive Directors
alike. Under this Scheme all eligible participants may save up to
£250 a month out of net salary for a fixed term of three years,
at the end of which they have an option to subscribe for Vectura
shares at a discount of up to 20% of the market price set at the
launch of each three-year savings contract. Performance
conditions do not apply to the SAYE Share Option Scheme.
46
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Report on remuneration
47
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Report on remuneration
Directors and governance: Report on remuneration continued
Approved and Unapproved Share Option Plans and the
EMI Plan
Directors’ interests in shares and compliance with share
ownership guidelines
Executive Directors hold options under the Approved and
Unapproved Share Option Plans.
Historically, before it was listed, Vectura Group plc granted NEDs
share options as part of their remuneration package. At the early
stage of the Group’s development this was considered to be
essential to secure the recruitment and retention of high-calibre
NEDs with the appropriate experience. This policy of granting
share options to NEDs has not applied since the Group was
publicly listed in 2004, and no further share option awards will
be made to them. In respect of this matter, reference should
also be made to the Corporate governance statement. The
options held by the NEDs have vested and are exercisable at
any time. The Board does not believe that the retention of
these fully vested options in any way compromises the
independence of the NEDs concerned.
Historically, no performance conditions have been attached to
the options granted under the above schemes. The exercise
price is equal to the market value of Vectura Group plc’s shares
at the time the options are granted.
As a direct link between executive remuneration and the interests
of shareholders, the Committee has implemented Shareholding
guidelines for all Executive Directors and senior employees. The
guidelines require that Executive Directors build up and maintain
an interest in the ordinary shares of the company that is equal to
their annual salary. At 31 March 2013 C P Blackwell and A P Hyland
have exceeded the share ownership guidelines. These guidelines
will now apply to T M Phillips following his appointment to the
Board. The actual interests in the shares of the Company of the
Executive Directors at the balance sheet date are set out below.
The Directors who held office at 31 March 2013 and their interests
(in respect of which transactions are notifiable to the Company
under the Financial Conduct Authority’s Transparency Rules) in the
share capital of Vectura Group plc at 31 March 2013 and 31 March
2012 are shown in the table below:
C P Blackwell (1)
J R Brown (2)
J P Cashman
S E Foden
A P Hyland (1)
T M Phillips (3)
N W Warner
31 March 2013
Ordinary shares
of 0.025p each
636,267
242,681
946,647
11,000
633,423
13,574
20,800
31 March 2012
Ordinary shares
of 0.025p each
374,717
242,681
946,647
11,000
624,849
–
20,800
Actual percentage
of base salary at
31 March 2013*
176%
–
–
–
264%
5%
–
Actual percentage
of base salary at
31 March 2012*
62%
–
–
–
155%
–
–
(1) The holdings of C P Blackwell and A P Hyland include 51,677 ordinary shares of 0.025p each, which are held in the Vectura Group plc Employee Benefit Trust
(Share Incentive Plan).
(2) The holding of J R Brown includes 20,457 ordinary shares of 0.025p each, which are held through nominees.
(3) T M Phillips was appointed to the Board on 1 June 2012. The holding of T M Phillips includes 8,574 ordinary shares of 0.025p each, which are held in the
Vectura Group plc Employee Benefit Trust (Share Incentive Plan).
* Calculated using the closing share price on the year end date. The closing share price on 31 March 2013 was 90.75p (2012: 54.25p).
There was no change in the Directors’ interests between 31 March 2013 and 20 May 2013, the date of this report.
Implementation section (audited information)
Directors’ remuneration
The remuneration of the individual Directors who served during the year was as follows:
Basic salary
and fees
£000
Bonuses
£000
Benefits
£000
2013
emoluments
£000
Pension
entitlements
£000
2013 Total
2012 Total
remuneration remuneration
£000
£000
Executive Directors
C P Blackwell
A P Hyland
T M Phillips (1) (2)
Non-Executive Directors
J R Brown*
J Cashman
S E Foden*
A J M Richards
N W Warner*
328
218
189
45
80
40
–
40
940
193
129
115
–
–
–
–
–
437
2
1
11
–
–
–
–
–
14
523
348
315
45
80
40
–
40
1,391
66
44
37
–
–
–
–
–
147
589
392
352
45
80
40
–
40
1,538
570
379
–
45
80
40
10
40
1,164
(1) T M Phillips was appointed to the board on 1 June 2012.
(2) T M Phillips is paid in US $; the amount shown above is converted at the annual average exchange rate.
* Included within the NEDs’ fees are the fees for chairing committees. Dr Brown received £5,000 for chairing the Nomination Committee and £10,000
for his role as Senior Independent Director. Dr Foden received £10,000 for chairing the Remuneration Committee and Mr Warner received £10,000 for
chairing the Audit Committee.
Benefits represent payments for medical insurance. Amounts payable to T M Phillips relate to US medical insurance – T M Phillips also
makes employee contributions towards this plan.
Total remuneration is the sum of emoluments plus company pension contributions and the value of long-term incentive awards vesting
by reference to performance in the year 2013: nil (2012: nil).
In addition to the above, a nominal gain of £128,010 arose during the year following the exercise of share options by C P Blackwell.
48
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Report on remuneration
49
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Report on remuneration
Directors and governance: Report on remuneration continued
Options
Directors’ LTIP awards
Directors holding office at 31 March 2013 with options outstanding over ordinary shares of 0.025p were as follows:
Under the LTIP schemes, the grants made to Directors at 31 March 2013 were as follows:
Options held
at 1 April
2012
Options granted
(exercised or cancelled)
during year
Options held
at 31 March
2013
680,000
238,989
918,989
277,776
122,224
23,376
1,023,355
716,966
132,424
265,493
271,304
237,384
37,383
18,987
3,126,672
238,989
238,989
196,100
33,896
456,335
358,483
94,090
188,640
192,174
143,926
37,383
13,761
1,714,788
208,877
3,133
–
212,010
–
–
–
(277,776)
–
–
–
–
–
–
–
–
–
–
(277,776)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11,718
11,718
680,000
238,989
918,989
–
122,224
23,376
1,023,355
716,966
132,424
265,493
271,304
237,384
37,383
18,987
2,848,896
238,989
238,989
196,100
33,896
456,335
358,483
94,090
188,640
192,174
143,926
37,383
13,761
1,714,788
208,877
3,133
11,718
223,728
Plan
J Cashman
Unapproved
Unapproved
Total
C P Blackwell
EMI
Unapproved
Unapproved
Unapproved
Unapproved
Unapproved
Unapproved
Unapproved
Unapproved
Approved
SAYE Scheme
Total
J R Brown
Unapproved
Total
A P Hyland
Unapproved
Unapproved
Unapproved
Unapproved
Unapproved
Unapproved
Unapproved
Unapproved
Approved
SAYE Scheme
Total
T M Phillips
Unapproved
Unapproved
SAYE Scheme
Total
Exercise
price (p)
36.000
56.000
48.125
48.125
48.125
36.000
56.000
82.500
93.750
86.250
53.500
53.500
47.400
Date from
which first
exercisable
Expiry date
29/04/04
02/07/05
29/04/14
02/07/14 (1)
05/11/05
01/10/05
11/04/06
29/04/07
02/07/05
03/08/06
09/08/07
25/05/08
23/05/09
23/05/09
01/04/15
03/11/13 (2)
01/10/13
11/10/13
29/04/14
02/07/14 (1)
03/08/15 (1)
09/08/16 (1)
25/05/17 (1)
23/05/18 (1)
23/05/18 (1)
01/10/15
56.000
02/07/05
02/07/14 (1)
48.125
48.125
36.000
56.000
82.500
93.750
86.250
53.500
53.500
65.400
18/03/05
11/04/06
29/04/07
02/07/05
03/08/06
09/08/07
25/05/08
23/05/09
23/05/09
01/04/14
29/07/13
11/10/13
29/04/14
02/07/14 (1)
03/08/15 (1)
09/08/16 (1)
25/05/17 (1)
23/05/18 (1)
23/05/18 (1)
01/10/14
95.750
0.0250
76.800
09/08/14
09/08/14
01/04/16
09/08/21
09/08/21
01/10/16
All options were granted for nil consideration.
(1) Vesting in three equal annual instalments from date first exercisable.
(2) On 28 September 2012, C P Blackwell exercised 277,776 EMI options at a grant price of 48.125p per share. On the date of exercise, the market value of the
Company’s shares was 87p. The total cost for the exercise was £133,680 and the total nominal gain was £107,985.
Date of
award
12/09/05
22/11/06
25/05/07
23/05/08
21/05/09
08/06/10
08/06/10
18/09/12
12/09/05
22/11/06
25/05/07
23/05/08
21/05/09
08/06/10
08/06/10
18/09/12
08/06/10
08/06/10
18/09/12
Awarded/
(exercised
or cancelled)
during year
£
(30,000)
–
–
–
(928,467)
–
–
401,889
(556,578)
–
–
–
–
(618,978)
–
–
267,926
(351,052)
–
–
410,659
410,659
1 April
2012
£
272,741
215,011
219,005
594,392
928,467
878,684
878,684
–
3,986,984
166,290
152,299
146,003
396,261
618,978
574,632
574,632
–
2,629,095
242,664
242,664
–
485,328
31 March
2013
£
242,741
215,011
219,005
594,392
–
878,684
878,684
401,889
3,430,406
166,290
152,299
146,003
396,261
–
574,632
574,632
267,926
2,278,043
242,664
242,664
410,659
895,987
Share price on
date of grant
p
77.50
93.00
86.25
53.50
68.50
38.00
38.00
81.50
Date of release
of shares
12/09/08 (1) (8)
22/11/09 (2)
25/05/10 (3)
23/05/11 (4)
21/05/12 (5)
08/06/13 (6)
08/06/14 (6)
18/09/15 (7)
77.50
93.00
86.25
53.50
68.50
38.00
38.00
81.50
38.00
38.00
81.50
12/09/08 (1)
22/11/09 (2)
25/05/10 (3)
23/05/11 (4)
21/05/12 (5)
08/06/13 (6)
08/06/14 (6)
18/09/15 (7)
08/06/13 (6)
08/06/14 (6)
18/09/15 (7)
Director
C P Blackwell
Total
A P Hyland
Total
T M Phillips
Total
The number of shares released to the Directors at the end of the three-year performance period is dependent upon the performance TSR of the Group during
that period in comparison to that of a comparator group of companies as described in the LTIP section of this Report on remuneration.
(1) The award made on 12 September 2005 reached the end of its holding period on 12 September 2008. The TSR of the Group during this period compared with
that of the comparator group was in the upper quartile. Accordingly, 100% of the shares awarded were released. The nil-cost options relating to this award
lapse on 12 September 2015.
(2) The award made on 22 November 2006 reached the end of its holding period on 22 November 2009. The TSR of the Group during this period compared with
that of the comparator group equated to 83.32% of the shares awarded being released. The nil-cost options relating to this award lapse on 22 November 2016.
(3) The award made on 25 May 2007 reached the end of its holding period on 25 May 2010. The TSR of the Group during this period compared with that of
the comparator group equated to 62.964% of the shares awarded being released. The nil-cost options relating to this award lapse on 25 May 2017.
(4) The award made on 23 May 2008 reached the end of its holding period on 23 May 2011. The TSR of the Group during this period compared with that of the
comparator group was in the upper quartile. Accordingly, 100% of the shares awarded were released. The nil-cost options relating to this award lapse on
23 May 2018.
(5) No shares were released from the award made on 21 May 2009 as the average price of the Company’s shares over the three-month period before the date of
vesting was less than £1.00.
Directors’ LTIP awards footnotes (6), (7) and (8) continue on the following page.
50
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Report on remuneration
51
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Report on remuneration
Directors and governance: Report on remuneration continued
Directors and governance: Directors’ report
(6) The awards granted under the 2005 LTIP scheme on 8 June 2010 are subject to a relative TSR performance measured against the FTSE SmallCap Index. The first
50% of the award is subject to a three-year performance period. In addition, this part of the award will not vest if the average price of the Company’s shares
for the three-month period before the date of vesting is less than £1.00. The second 50% of the award is subject to a four-year performance period and will
not vest if the average price of the Company’s shares for the three-month period before the date of vesting is less than £1.27. None of the awards vest if the
Company’s TSR is below median, 30% vests for median performance with the percentage increasing proportionately so that maximum vesting occurs at upper
quartile. In addition, the Committee is required to ensure that the underlying financial performance of the Group is consistent with its TSR performance, by
considering the Group’s performance against a range of objective financial measures. These measures include revenue and cash generation. If the Committee
believes that the underlying corporate financial performance is not consistent with its TSR performance, then no awards will be released.
(7) The awards granted under the 2012 LTIP scheme on 18 September 2012 are subject to relative TSR performance measured against the FTSE SmallCap Index
and the Euro Stoxx Pharmaceuticals and Biotechnology Index over three years on equal weighting. None of the awards vest if the Group’s TSR is below the
median, 25% vests for median performance with the percentage increasing proportionately so that maximum vesting occurs at upper quartile. In addition,
the Committee is required to ensure that the underlying financial performance of the Group is consistent with its TSR performance, by considering the Group’s
performance against a range of objective financial measures, absolute shareholder returns and progress against milestones. If the Committee believes that
the underlying corporate financial performance is not consistent with its TSR performance, then awards can be decreased or increased.
(8) On 19 July 2012, C P Blackwell exercised 30,000 LTIP options. On the date of exercise, the market value of the Company’s shares was 66.75p. The nominal gain
in relation to this exercise was total nominal gain was £20,025.
On behalf of the Board
Dr S E Foden
Chair of the Remuneration Committee
20 May 2013
The Directors present their Annual Report on the affairs of the
Company and Group, together with the financial statements and
Auditor’s report for the year ended 31 March 2013.
Principal activity
The principal activity of the Group undertaken during the year
was the ongoing research and development and
commercialisation of novel therapeutic products and drug
delivery systems for human use.
Review of business
Key events during the past year are referred to in the Highlights
2012/13, Chairman and Chief Executive’s report, the Financial
review and the Business review. During the year, the Board has
considered the key risks and uncertainties of the business, which
are summarised on pages 27-28. The Board has reviewed the risk
management policies in place, as summarised in the Corporate
governance statement.
Results and dividends
The Group loss for the year, after taxation, amounted to £5.9m
(2011/12: £4.4m). The Directors do not recommend the payment
of a dividend (2011/12: £nil).
Balance sheet strength
The net assets position of the Group continues to be strong,
with cash and cash equivalents at the year end of £70.1m
(2012: £75.5m).
Directors
Membership of the Board (together with Directors’ biographies)
is shown in the section on Board of Directors. Details of
Directors’ remuneration and their interests in the share capital
of the Company are given in the Report on remuneration.
None of the Directors has any interest in any contract of
significance to the financial statements.
Employees
Details on the involvement of employees are disclosed in the
Corporate social responsibility statement.
Financial instruments
The policy and practice of the Group with regard to financial
instruments is disclosed in note 19 of the financial statements.
Payment of creditors
The Group’s policy is to agree payment terms with the suppliers
at the start of business relationships and to abide by them.
The typical terms are 30 days (2011/12: 30 days).
Political and charitable donations
Vectura encourages employee involvement in charitable causes,
but does not contribute itself because it is loss-making. There
were no political donations during the year (2011/12: £nil).
Directors’ indemnities
The Company has granted an indemnity to its Directors against
liability in respect of proceedings brought by third parties, which
remains in force as at the date of approving the Directors’ report.
52
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Report on remuneration
53
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Directors’ report
Directors and governance: Directors’ report continued
Significant shareholdings
At 15 May 2013, the nearest practical date to the date of this
Report, the Company had a total of 3,394 ordinary shareholders
and 335,155,767 ordinary shares in issue.
The Directors had been notified of the following substantial
holdings in the Company’s share capital as at the close of
business on 15 May 2013:
Legal & General Investment Management Limited
Invesco Asset Management Limited
Aberforth Partners LLP
Franklin Resources, Inc.
BlackRock, Inc
J P Morgan Asset Management UK Limited
Aviva plc
AXA SA
Number of shares
’000
41,444
28,648
26,791
23,170
13,661
12,857
11,685
11,802
%
12.37
8.55
7.99
6.91
4.08
3.84
3.54
3.52
Share price
The mid-market share price as shown by the London Stock Exchange
Daily Official List on 31 March 2013 was 90.75p. The mid-market
share price ranged from 57.25p to 96.75p during the year to
31 March 2013. The average share price for the period was 79.92p.
Corporate social responsibility statement
The Group’s policies on the environment, health and safety, ethical
and social issues and its employees are described in the statement
on pages 37 to 39.
Going concern
The accounts have been prepared on the going concern basis.
Although the current economic conditions may place pressures
on customers and suppliers who may face liquidity issues,
the Group’s product diversity and customer and supplier base
substantially mitigate these risks. In addition, the Group operates
in the relatively defensive pharmaceutical industry, which we
expect to be less affected compared to other industries.
The Group made a loss of £5.9m for the financial year ended
31 March 2013 (2011/12: £4.4m) but had £70.1m of cash and
cash equivalents as at 31 March 2013 (2012: £75.5m). The Board
operates an investment policy under which the primary objective
is to invest in low-risk cash or cash equivalent investments to
safeguard the principal. The Group’s forecasts, taking into account
likely revenue streams, show that the Group has sufficient funds
to operate for the foreseeable future.
After reviewing the Group’s forecasts and assessing the uncertain
nature of some of the Group’s forecast revenues, the Directors
believe that the Group is adequately placed to manage its business
and financing risks successfully despite the current uncertain
economic outlook. Accordingly, they continue to adopt the going
concern basis in preparing the Annual Report and Accounts.
Annual General Meeting
The Annual General Meeting will be held at the offices of
Olswang, 90 High Holborn, London WC1V 6XX on 23 September
2013 at 12.00 noon. Details of the business to be transacted at the
forthcoming AGM will be given in a separate circular to shareholders.
Capital structure
Auditor
Details of the authorised and issued share capital, together with
details of the movements in the Company’s issued share capital
during the year are shown in note 20. The Company has one
class of ordinary shares, which carry no right to fixed income.
Each share carries the right to one vote at general meetings of
the Company. The redeemable preference shares carry no
interest, nor do they carry voting rights. The percentage of
the issued nominal value of the ordinary shares is 71% of the
total issued nominal value of all share capital.
There are no specific restrictions on the size of a holding nor on
the transfer of shares, which are both governed by the general
provisions of the Articles of Association and prevailing legislation.
The Directors are not aware of any agreements between holders
of the Company’s shares that may result in restrictions on the
transfer of securities or on voting rights.
Details of employee share schemes are set out in note 21.
Shares held by the Vectura Group plc Employee Benefit Trust
abstain from voting.
No person has any special rights of control over the Company’s
share capital and all issued shares are fully paid.
With regard to the appointment and replacement of Directors,
the Company is governed by its Articles of Association, the UK
Corporate Governance Code, the Companies Act 2006 and related
legislation. The Articles of Association themselves may be
amended by special resolution of the shareholders. The powers
of Directors are described in the Board’s Terms of Reference,
copies of which are available on request, and the Corporate
governance statement on pages 29 to 33.
Under its Articles of Association, the Company has authority to
issue 441.2m ordinary shares.
Deloitte LLP has expressed a willingness to continue in office as
auditor and a resolution to re-appoint them will be put to the
members at the forthcoming Annual General Meeting.
The Directors that were members of the Board at the time of
approving the Directors’ report are listed on pages 34 and 35.
Having made enquiries of fellow Directors and of the Company’s
auditor, each of these Directors confirms that:
to the best of each Director’s knowledge and belief, there is no
information relevant to the preparation of their report of which
the Company’s auditor is unaware; and
each Director has taken all the steps a director might
reasonably be expected to have taken to be aware of relevant
audit information and to establish that the Company’s auditor
is aware of that information.
This confirmation is given and should be interpreted in accordance
with the provisions of s418 of the Companies Act 2006.
By order of the Board
Anne Hyland
Company Secretary
20 May 2013
54
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Directors’ report
55
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Directors’ report
Directors and governance: Statement of Directors’ responsibilities
Directors and governance: Independent auditor’s report to the
members of Vectura Group plc
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Directors’ responsibility statement
We confirm that to the best of our knowledge:
the financial statements, prepared in accordance with
International Financial Reporting Standards as adopted by
the EU, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and
the undertakings included in the consolidation taken as
a whole; and
the management report, which is incorporated into the
Directors’ report, includes a fair review of the development
and performance of the business and the position of the
Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face.
Anne Hyland
Director
20 May 2013
The Directors are responsible for preparing the Annual
Report and the financial statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare such financial
statements for each financial year. Under that law the Directors are
required to prepare the group financial statements in accordance
with International Financial Reporting Standards (IFRSs) as adopted
by the European Union and Article 4 of the IAS Regulation and have
also chosen to prepare the parent company financial statements
under IFRSs as adopted by the European Union. Under company
law the Directors must not approve the accounts unless they are
satisfied that they give a true and fair view of the state of affairs of
the company and of the profit or loss of the company for that
period. In preparing these financial statements, International
Accounting Standard 1 requires that directors:
properly select and apply accounting policies;
present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and
understandable information;
provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events
and conditions on the entity’s financial position and financial
performance; and
make an assessment of the company’s ability to continue as a
going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and enable them to ensure
that the financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
We have audited the financial statements of Vectura Group plc for
the year ended 31 March 2013, which comprise the Consolidated
statement of comprehensive income, the Balance sheet, the Cash
flow statement, the Statement of changes in equity and the
related notes 1 to 27. The financial reporting framework that
has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the European Union and as regards the parent Company financial
statements, as applied in accordance with the provisions of the
Companies Act 2006.
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state
to the Company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and
the Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective responsibilities of Directors
and auditor
As explained more fully in the Statement of Directors’
responsibilities, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view. Our responsibility is to audit and express an
opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors.
Scope of the audit of the financial
statements
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies
are appropriate to the Group’s and the parent Company’s
circumstances and have been consistently applied and adequately
disclosed; the reasonableness of significant accounting estimates
made by the Directors; and the overall presentation of the
financial statements. In addition, we read all the financial and
non-financial information in the annual report to identify material
inconsistencies with the audited financial statements. If we
become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion:
the financial statements give a true and fair view of the state of
the Group’s and of the parent Company’s affairs as at 31 March
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 financial statements have been properly
prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provisions of the
Companies Act 2006; and
the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and,
as regards the Group financial statements, Article 4 of the
IAS Regulation.
56
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Statement of Directors’ responsibilities
57
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Independent auditor’s report to the members of Vecura Group plc
Directors and governance: Independent auditor’s report to the
members of Vectura Group plc continued
Financial statements
60 Consolidated statement of comprehensive income
61 Balance sheet
62 Cash flow statement
63 Statement of changes in equity
64 Notes to the financial statements
90 Five-year summary
92 Shareholder information
Separate opinion in relation to IFRSs as issued by the IASB
Under the Listing Rules we are required to review:
As explained in note 1 to the Group financial statements, the
Group in addition to complying with its legal obligation to apply
IFRSs as adopted by the European Union, has also applied IFRSs
as issued by the International Accounting Standards Board (IASB).
In our opinion the Group financial statements comply with IFRSs
as issued by the IASB.
Opinion on other matters prescribed by the Companies
Act 2006
In our opinion:
the Directors’ statement contained within the Directors’ report
in relation to going concern;
the part of the Corporate governance statement relating to the
Company’s compliance with the nine provisions of the UK
Corporate Governance Code specified for our review; and
certain elements of the report to shareholders by the Board
on Directors’ remuneration.
the part of the Report on remuneration to be audited has
been properly prepared in accordance with the Companies
Act 2006; and
the information given in the Directors’ report for the financial
year for which the financial statements are prepared is
consistent with the financial statements.
David Hedditch (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Bristol, United Kingdom
20 May 2013
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required 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’s financial statements and the part of the
Report on remuneration to be audited 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.
58
Vectura Group plc Annual Report and Accounts 2012/13
Directors and governance: Independent auditor’s report to the members of Vecura Group plc
59
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Consolidated statement of comprehensive income
for the year ended 31 March 2013
Financial statements: Balance sheet at 31 March 2013
xxx
Revenue
Cost of sales
Gross profit
Research and development expenses
Other administrative expenses
Amortisation
Share-based compensation
Total administrative expenses
Operating loss
Investment income
Finance gains
Loss before taxation
Taxation
Loss after taxation attributable to equity holders of the Company
and total comprehensive income
Loss per ordinary share: basic and diluted
All results are derived from continuing activities.
Note
2
5
4
4
7
8
2013
£m
30.5
(0.7)
29.8
(30.9)
(3.3)
(6.3)
(0.9)
(10.5)
(11.6)
0.5
0.7
(10.4)
4.5
2012
£m
33.0
(2.2)
30.8
(32.8)
(3.3)
(7.5)
(1.1)
(11.9)
(13.9)
0.7
–
(13.2)
8.8
(5.9)
(1.8p)
(4.4)
(1.3p)
Assets
Goodwill
Intangible assets
Property, plant and equipment
Investments in subsidiary undertakings
Other receivables
Non-current assets
Inventories
Trade and other receivables
Amounts due from subsidiary undertakings
Cash and cash equivalents
Current assets
Total assets
Liabilities
Trade and other payables
Deferred income
Current liabilities
Deferred income
Deferred tax liabilities
Non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Special reserve
Other reserve
Share-based compensation reserve
Retained (loss)/profit
Total equity
Group
2013
£m
Group
2012
£m
Company
2013
£m
Company
2012
£m
Note
9
10
11
12
13
14
15
16
19
17
18
18
7
20a
20b
20c
20d
20e
20f
49.6
17.1
9.0
–
0.4
76.1
0.8
9.2
–
70.1
80.1
156.2
(19.7)
(0.1)
(19.8)
(1.3)
–
(1.3)
(21.1)
135.1
0.1
2.8
8.2
124.9
12.9
(13.8)
135.1
49.6
23.4
6.0
–
0.4
79.4
0.7
9.7
–
75.5
85.9
165.3
(20.7)
(3.5)
(24.2)
(1.3)
(0.3)
(1.6)
(25.8)
139.5
0.1
2.2
8.2
124.9
12.0
(7.9)
139.5
2.0
–
–
125.6
–
127.6
–
–
72.9
–
72.9
200.5
–
–
–
–
–
–
–
200.5
0.1
2.8
8.2
123.7
12.9
52.8
200.5
2.0
–
–
125.6
–
127.6
–
0.1
71.2
–
71.3
198.9
–
–
–
–
–
–
–
198.9
0.1
2.2
8.2
123.7
12.0
52.7
198.9
The financial statements of Vectura Group plc, registered number 03418970, were approved and authorised for issue by the Board of
Directors on 20 May 2013 and were signed on its behalf by:
Dr C P Blackwell
Director
A P Hyland
Director
60
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Consolidated statement of comprehensive income
61
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Balance sheet
Financial statements: Cash flow statement
for the year ended 31 March 2013
Financial statements: Statement of changes in equity
for the year ended 31 March 2013
xxx
Operating loss
Depreciation and amortisation
Share-based compensation
Increase in inventories
Decrease in receivables
(Decrease)/increase in payables
Decrease in deferred income
Exchange movements
Net cash outflow from operations
Research and development tax credits received
Net cash (outflow)/inflow from operating activities
Cash flows from investing activities
Interest received
Purchase of property, plant and equipment
Receipts from sale of property, plant and equipment
Net cash outflow from investing activities
Net cash outflow before financing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Net cash inflow from financing activities
(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Group
2013
£m
(11.6)
7.3
0.9
(0.1)
–
(1.0)
(3.4)
0.7
(7.2)
4.4
(2.8)
0.6
(4.0)
0.2
(3.2)
(6.0)
0.6
0.6
(5.4)
75.5
70.1
Group
2012
£m
(13.9)
8.6
1.1
(0.5)
0.9
2.0
(0.7)
–
(2.5)
4.6
2.1
0.7
(4.2)
–
(3.5)
(1.4)
2.5
2.5
1.1
74.4
75.5
Company
2013
£m
–
–
–
–
–
–
–
–
–
–
–
Company
2012
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Group
At 1 April 2011
Loss for the year
Conversion of share premium
into retained (loss)/profit
Share-based compensation
Exercise of share options
At 31 March 2012
Loss for the year
Share-based compensation
Exercise of share options
At 31 March 2013
Company
At 1 April 2011
Conversion of share premium
into retained (loss)/profit
Share-based compensation
Exercise of share options
At 31 March 2012
Profit for the year
Share-based compensation
Exercise of share options
At 31 March 2013
Share
capital
£m
0.1
–
Share
premium
£m
78.3
–
Special
reserve
£m
8.2
–
Share-based
Other compensation
reserve
£m
10.9
–
reserve
£m
124.9
–
Retained
loss
£m
(82.1)
(4.4)
–
–
–
0.1
–
–
–
0.1
(78.6)
–
2.5
2.2
–
–
0.6
2.8
–
–
–
8.2
–
–
–
8.2
–
–
–
124.9
–
–
–
124.9
–
1.1
–
12.0
–
0.9
–
12.9
78.6
–
–
(7.9)
(5.9)
–
–
(13.8)
Share
capital
£m
0.1
Share
premium
£m
78.3
Special
reserve
£m
8.2
Share-based
Other compensation
reserve
£m
10.9
reserve
£m
123.7
Retained
(loss)/profit
£m
(25.9)
–
–
–
0.1
–
–
–
0.1
(78.6)
–
2.5
2.2
–
–
0.6
2.8
–
–
–
8.2
–
–
–
8.2
–
–
–
123.7
–
–
–
123.7
–
1.1
–
12.0
–
0.9
–
12.9
78.6
–
–
52.7
0.1
–
–
52.8
Total
equity
£m
140.3
(4.4)
–
1.1
2.5
139.5
(5.9)
0.9
0.6
135.1
Total
equity
£m
195.3
–
1.1
2.5
198.9
0.1
0.9
0.6
200.5
62
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Cash flow statement
63
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Statement of changes in equity
Financial statements: Notes to the financial statements
xxx
1 Accounting policies
General information
Vectura Group plc is a public limited company incorporated in
the United Kingdom under the Companies Act 2006. The address
of the registered office and principal place of business is given
on page 92. The Company’s ordinary shares are traded on the
London Stock Exchange (LSE) under the ticker VEC.
Basis of preparation
The financial statements have been prepared in accordance with
the Companies Act 2006 and IFRSs and related interpretations
as adopted by the European Union and, therefore, the Group
financial statements comply with Article 4 of the EU International
Accounting Standard (IAS) Regulation. The Group and Company
financial statements are also consistent with International
Financial Reporting Standards (IFRSs) as issued by the
International Accounting Standards Board (IASB).
The separate financial statements of the Company are presented
as required by the Companies Act 2006 and have been prepared
in accordance with IFRSs as adopted by the European Union. The
Company is taking advantage of the exemption in section 408 of
the Companies Act 2006 not to present its individual statement
of comprehensive income and the related notes that form a
part of these approved financial statements. The parent Company
profit for the year ended 31 March 2013 is £0.1m (2011/12: £nil).
The financial statements have been prepared on the historical
cost basis, revised for use of fair values where required by
applicable IFRS. The presentational and functional currency
of Vectura Group plc is sterling since that is the currency of the
primary economic environment in which the Group operates.
Therefore, the consolidated financial statements are presented
in sterling and all values are rounded to the nearest one hundred
thousand (£0.1m), except where otherwise indicated. The
principal accounting policies adopted are set out below.
Going concern
The accounts have been prepared on the going concern basis.
Although the current economic conditions may place pressures
on customers and suppliers which may face liquidity issues,
the Group’s product diversity and customer and supplier base
substantially mitigate these risks. In addition, the Group operates
in the relatively defensive pharmaceutical industry which we
expect to be less affected compared to other industries.
The Group made a loss of £5.9m for the financial year ended
31 March 2013 (2011/12: £4.4m) but had £70.1m of cash and
cash equivalents as at 31 March 2013 (2012: £75.5m). The Board
operates an investment policy under which the primary objective
is to invest in low-risk cash or cash equivalent investments
to safeguard the principal. The Group’s forecasts, taking into
account likely revenue streams, show that the Group has sufficient
funds to operate for the foreseeable future.
After reviewing the Group’s forecasts and assessing the uncertain
nature of some of the Group’s forecast revenues, the Directors
believe that the Group is adequately placed to manage its business
and financing risks successfully despite the current uncertain
economic outlook. Accordingly, they continue to adopt the going
concern basis in preparing the annual report and accounts.
Basis of consolidation
The consolidated annual financial statements comprise the
financial statements of Vectura Group plc and its subsidiaries
as at 31 March each year.
Subsidiaries are consolidated from the date on which control is
transferred to the Group and cease to be consolidated from the date
on which control is transferred out of the Group. Control comprises
the power to govern the financial and operational policies of the
investee so as to obtain benefit from its activities and is achieved
through direct or indirect ownership of voting rights, or by way
of contractual agreement. The financial statements of subsidiaries
are prepared for the same reporting year as the parent Company,
using consistent accounting policies. Adjustments are made to bring
into line any dissimilar accounting policies that may exist.
All inter-company balances and transactions, including unrealised
profits arising from intra-group transactions, have been
eliminated in full.
Where there is a loss of control of a subsidiary, the consolidated
financial statements include the results for the part of the
reporting year during which the Group had control.
Critical accounting judgements and key sources of
estimation uncertainty
In preparing the financial statements, management is required
to make estimates and assumptions, in accordance with IFRS, that
affect the amounts of assets, liabilities, revenues and expenses
reported in the financial statements. The estimates and associated
assumptions are based on historical experience and other factors
that are considered to be relevant. Actual amounts and results
could differ from those estimates.
The critical accounting judgements and key sources of estimation
uncertainty that have a significant risk of causing material
adjustment to the carrying amounts of assets and liabilities
within the next financial year are the measurement and review
for impairment of definite and indefinite-life intangible assets
(goodwill), the review for impairment of investments, the
measurement of provisions, the estimation of share-based
payment costs, revenue recognition and the treatment of
research and development expenditure in line with the relevant
accounting policy.
The Group determines on an annual basis whether goodwill is
impaired and this requires the estimation of the value in use of
the cash-generating units to which goodwill is allocated. The
measurement of intangible assets other than goodwill on a
business combination involves estimation of future cash flows
and the selection of a suitable discount rate.
The measurement of provisions involves estimation of future
cash flows and the associated level of liabilities expected to arise
as a result of these cash flows.
The estimation of share-based payment costs requires the
selection of an appropriate valuation model, consideration as
to the inputs necessary for the valuation model chosen and the
estimation of the number of awards that will ultimately vest,
inputs for which arise from judgements relating to the probability
of meeting non-market conditions and the continuing
participation of employees.
The treatment of research and development expenditure requires
an assessment of the expenditure in order to determine whether
or not it is appropriate to capitalise onto the balance sheet in
accordance with IAS 38.
The recognition of milestone revenue income requires an
assessment of the Group’s future obligations under a given
contract, which determines the period over which the revenue
is recognised.
Revenue recognition
Revenue represents the amount receivable for goods and services
provided and royalties earned, net of trade discounts, VAT and
other sales-related taxes. Revenue is recognised as follows:
Technology and product licensing
Technology and product licensing income represents amounts
earned for licences provided under licensing agreements,
including up-front payments, milestone payments and technology
access fees. Revenues are recognised where they are non-
refundable, the Group’s obligations related to the revenues
have been discharged and their collection is reasonably assured.
Refundable licensing revenue is treated as deferred until such
time that it is no longer refundable. In general, up-front payments
are deferred and amortised on a systematic basis in line with the
period of development. Milestone payments relating to scientific
or technical achievements are recognised as income when the
milestone is accomplished.
Royalty income
Royalty income is recognised on an accruals basis and represents
income earned as a percentage of product sales in accordance
with the substance of the relevant agreement net of amounts
payable to other licensees.
Pharmaceutical Development Services
Pharmaceutical Development Services revenues principally
comprise contract product development and contract clinical
trial manufacturing fees invoiced to third parties. Revenues are
recognised upon the completion of agreed tasks or numbers
of person days and in the period to which they relate.
Device sales
Device sales are recognised when goods are delivered to customers.
Interest income
Interest income is recognised on a time-proportion basis using
the effective interest method.
Business combinations
The acquisition of subsidiaries is accounted for using the
acquisition method. The cost of the acquisition is measured
at the aggregate of the fair values, at the date of exchange,
of assets given, liabilities incurred or assumed, and equity
instruments issued by the Group in exchange for control of the
acquiree. Acquisition related costs are recognised in the statement
of comprehensive income as they are incurred. In accordance
with IFRS 3 – Business Combinations, the Group has a twelve-
month period in which to finalise the fair values allocated to
assets and liabilities determined provisionally on acquisition.
64
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
65
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
Financial statements: Notes to the financial statements continued
xxx
Following initial recognition, the historic cost model is applied,
with intangible assets being carried at cost less accumulated
amortisation and accumulated impairment losses. Intangible
assets with a finite life have no residual value and are amortised
on a straight-line basis over their expected useful lives with
charges included in administrative expenses as follows:
Patents, trademarks and licence agreements – between
3 and 10 years
The carrying value of intangible assets is reviewed for
impairment whenever events or changes in circumstances
indicate the carrying value may not be recoverable.
Property, plant and equipment
Property, plant and equipment is stated at cost, net of
depreciation and provision for impairment. Depreciation is
provided on all property, plant and equipment at rates
calculated to write off the cost of each asset, less its estimated
residual value, on a straight-line basis over its expected useful
life, as follows:
Buildings – 20 years
Laboratory equipment – 3–7 years
Office and IT equipment – 3 years
Freehold land is not depreciated.
The carrying values of property, plant and equipment are
reviewed for impairment when events or circumstances indicate
the carrying values may not be recoverable. Useful life and
residual value are reviewed annually.
1 Accounting policies continued
Goodwill
Goodwill recognised under UK Generally Accepted Accounting
Principles (GAAP) prior to 1 April 2004 is stated at net book value
at that date. Goodwill arising on the acquisition of subsidiary or
associate undertakings and businesses subsequent to 1 April
2004, representing any excess of the fair value of the
consideration given over the fair value of the identifiable assets,
liabilities and contingent liabilities acquired, is capitalised. After
initial recognition, goodwill is stated at cost less any accumulated
impairment losses, with the carrying value being reviewed for
impairment at least annually and whenever events or changes in
circumstances indicate that the carrying value may be impaired.
For the purpose of impairment testing, goodwill is allocated to the
related cash-generating units monitored by management. Where
the recoverable amount of the cash-generating unit is less than
its carrying amount, including goodwill, an impairment loss is
recognised in the statement of comprehensive income. An
impairment loss recognised for goodwill is not reversed in a
subsequent period. On disposal of a subsidiary, associate or
jointly controlled entity, the attributable amount of goodwill is
included in the determination of the profit or loss on disposal.
Intangible assets
Intangible assets acquired separately from a business combination
are carried initially at cost. An intangible asset acquired as part of a
business combination is recognised outside goodwill if the asset is
separable or arises from contractual or other legal rights and its fair
value can be measured reliably. Development expenditure on
internally developed intangible assets is taken to the statement of
comprehensive income in the year in which it is incurred, except
where expenditure relating to clearly defined and identifiable
development projects meets the following criteria, in which case
development expenditure will be recognised as an intangible asset:
the project’s technical feasibility and commercial viability can
be demonstrated;
the availability of adequate technical and financial resources
and an intention to complete the project have been confirmed;
the correlation between development costs and future
revenues has been established; and
the economic benefit is expected to flow to the entity.
Impairment of assets
Investments in associates and joint ventures
The Group assesses at each reporting date whether there is an
indication that an asset may be impaired. If any such indication
exists, or when annual impairment testing for an asset is required,
the Group makes an estimate of the asset’s recoverable amount.
An asset’s recoverable amount is the higher of an asset’s or
cash-generating unit’s fair value less costs to sell and its value in
use and is determined for an individual asset, unless the asset
does not generate cash inflows that are largely independent of
those from other assets or groups of assets. Where the carrying
amount of an asset exceeds its recoverable amount, the asset
is considered impaired and is written down to its recoverable
amount. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of
money and the risks specific to the asset. Impairment losses
on continuing operations are recognised in the statement of
comprehensive income in those categories consistent with the
function of the impaired asset.
An assessment is made at each reporting date as to whether there
is any indication that previously recognised impairment losses
may no longer exist or may have decreased. If such indication
exists, the recoverable amount is estimated. A previously
recognised impairment loss is reversed only if there has been a
change in the estimates used to determine the asset’s recoverable
amount since the last impairment loss was recognised. If that is
the case, the carrying amount of the asset is increased to its
recoverable amount. That increased amount cannot exceed the
carrying amount that would have been determined, net of
depreciation, had no impairment loss been recognised for the
asset in prior years. Such reversal is recognised in profit or loss
unless the asset is carried at the re-valued amount, in which case
the reversal is treated as a revaluation increase. After such a
reversal the depreciation charge is adjusted in future periods to
allocate the asset’s revised carrying amount, less any residual
value, on a systematic basis over its remaining useful life.
Investments in subsidiaries
Investments in subsidiaries are eliminated upon consolidation.
In the Company accounts investments are carried at historic cost,
less provision for impairment.
The Group’s interests in its associates, being those entities over
which it has significant influence and which are neither
subsidiaries nor joint ventures, are accounted for using the equity
method of accounting. The Group’s interests in its joint ventures
are also accounted for using the equity method of accounting.
Under the equity method, the investment is carried in the balance
sheet at cost plus post-acquisition changes in the Group’s share
of net assets of the entity, less distributions received and less
any impairment in value of individual investments. The Group’s
statement of comprehensive income reflects the Group’s share
of any income and expense recognised by the associate or joint
venture outside profit and loss. The Group does not recognise
losses in excess of the value of its investments.
Financial assets
Financial assets are recognised when the Group becomes party to
the contracts that give rise to them and are classified as financial
assets at fair value through profit or loss, loans and receivables,
held-to-maturity investments, or as available-for-sale financial
assets, as appropriate. The Group determines the classification
of its financial assets at initial recognition and re-evaluates this
designation at each financial year end. When financial assets are
recognised, initially they are measured at fair value, being the
transaction price plus, in the case of financial assets not at fair
value through profit or loss, directly attributable transaction costs.
Inventories
Inventories comprise goods held for resale and are stated at the
lower of cost and net realisable value. Costs include the direct
costs and, where applicable, an attributable proportion of
distribution overheads incurred in bringing inventories to their
current location and condition. Cost is determined on a first-in,
first-out basis. Net realisable value is based on estimated selling
price, less any further costs expected to be incurred to completion
and disposal.
Trade and other receivables
Trade receivables are recognised and carried at the lower of their
original invoiced value and recoverable amount. Provision is made
when there is objective evidence that the Group will not be able
to recover balances in full. Balances are written off when the
probability of recovery is assessed as being remote.
66
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
67
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
Financial statements: Notes to the financial statements continued
xxx
1 Accounting policies continued
Financial liabilities
Cash and cash equivalents
Cash and short-term deposits in the balance sheet comprise
cash at bank and in hand and short-term deposits with an original
maturity of three months or less. For the purposes of the cash
flow statement, cash and cash equivalents consist of cash
and cash equivalents as defined above, net of outstanding
bank overdrafts.
Leasing
Operating leases and the annual rentals are charged to the
statement of comprehensive income on a straight-line basis
over the period of the lease in accordance with the terms of the
lease agreements.
Foreign currencies
Transactions in foreign currencies are recorded at the rate of
exchange at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the balance sheet
date are reported at the rates of exchange prevailing at that
date. Any gain or loss arising from a change in exchange rate
subsequent to the date of the transaction is included as an
exchange gain or loss in the statement of comprehensive income.
Non-monetary items that are measured in terms of historical
cost in a foreign currency are translated using the exchange rate
as at the dates of the initial transactions. Non-monetary items
measured at fair value in a foreign currency are translated
using the exchange rates at the date when the fair value
was determined.
Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at fair value,
less directly attributable transaction costs. After initial recognition,
interest-bearing loans and borrowings are subsequently
measured at amortised cost using the effective interest method.
Gains and losses arising on the repurchase, settlement or
cancellation of liabilities are recognised respectively as finance
income or finance costs. The effective interest rate is the rate
that exactly discounts estimated future cash payments (including
all fees on points paid or received that form an integral part of
the effective interest rate, transaction costs and other premiums
or discounts) through the expected life of the financial liability or,
where appropriate, a shorter period.
Financial liabilities are initially measured at fair value and, if
material, are subsequently measured at amortised cost using
the effective interest method. The effective interest method is
a method of calculating the amortised cost of a financial liability
and of allocating interest expense over the relevant period. The
effective interest rate is the rate that exactly discounts estimated
future cash payments throughout the expected life of the
financial liability.
Provisions
Provisions are recognised when the Group has a present obligation
(legal or constructive) as a result of a past event, it is probable that
the Group will be required to settle that obligation and a reliable
estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of
the consideration required to settle the present obligation at the
balance sheet date, taking into account the risks and uncertainties
surrounding the obligation. Where a provision is measured using
cash flows estimated to settle the present obligation, its carrying
amount is the value of those cash flows.
When some or all of the economic benefits required to settle a
provision are expected to be recovered from a third party,
a receivable is recognised as an asset if it is virtually certain that
reimbursement will be received and the amount of the receivable
can be measured reliably.
Restructuring
A restructuring provision is recognised when the Group has
developed a detailed formal plan for the restructuring and has
raised a valid expectation in those affected that it will carry out
the restructuring by starting to implement the plan or announcing
its main features to those affected by it. The measurement of
a restructuring provision includes only the direct expenditures
arising from the restructuring, which are those amounts that are
both necessarily entailed by the restructuring and not associated
with the ongoing activities of the entity.
Taxation
Current tax assets and liabilities are measured as the amounts
expected to be recovered from or paid to the taxation authorities,
based on tax rates and laws that are enacted or substantively
enacted by the balance sheet date.
Deferred tax is recognised on all temporary differences arising
between the tax bases of assets and liabilities and their carrying
amounts in the financial statements, with the following exceptions:
where the temporary difference arises from the initial
recognition of goodwill, or from an asset or liability in a
transaction that is not a business combination that at the
time of the transaction affects neither accounting nor taxable
profit or loss;
in respect of taxable temporary differences associated with
investments in subsidiaries, associates and joint ventures,
where the timing of the reversal of the temporary differences
can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future; and
deferred tax assets are recognised only to the extent that it is
probable that taxable profit will be available against which the
deductible temporary differences, carried forward tax credits
or tax losses can be utilised.
Deferred tax assets and liabilities are measured on an
undiscounted basis at the tax rates that are expected to apply
when the related asset is realised or liability is settled, based
on tax rates and laws enacted or substantively enacted at the
balance sheet date.
Deferred tax is charged or credited directly to equity if it relates to
items that are credited or charged to equity. Otherwise, deferred
tax is recognised in the statement of comprehensive income.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current
liabilities and when they relate to income taxes levied by the same
taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
Research and development tax credits are recognised on an
accruals basis.
Post-retirement benefits
The Group contributes a set proportion of employees’ gross
salary to defined contribution personal pension plans. The
amount charged to the statement of comprehensive income in
respect of pension costs is the contribution payable in the year.
Differences between contributions payable in the year and
contributions actually paid are shown either as prepayments
or as payables in the balance sheet.
Borrowing costs
Borrowing costs directly attributed to the acquisition, construction
or production of qualifying assets, which are assets that
necessarily take a substantial period of time to prepare for their
intended use or sale, are added to the cost of those assets, until
such time as the assets are substantially ready for their intended
use or sale.
Investment income earned on the temporary investment of specific
borrowings pending their expenditure on qualifying assets is
deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in profit or loss in the
period in which they are incurred.
Share-based payments
The Group operates a number of executive and employee share
option schemes, including a Long-Term Incentive Plan (LTIP) and a
Value Realisation Plan (VRP), under which shares may be granted
to staff members. The level of grant to members of staff under
the LTIP is dependent upon the total shareholder return of
Vectura (a market condition) compared to a peer group of UK
pharmaceutical and biotechnology companies. In accordance with
IFRS 2, for all grants of share options and awards, the cost of
equity-settled transactions is measured by reference to their fair
value at the date at which they are granted. The Black–Scholes
model is used to determine fair value for options and the Monte
Carlo binomial model for LTIP and VRP awards.
The cost of equity-settled share transactions is recognised,
together with a corresponding increase in equity, over the period
until the award vests. No expense is recognised for awards that
do not ultimately vest, except for awards where vesting is
conditional upon a market condition, which are treated as vesting
irrespective of whether or not the market condition is satisfied,
provided that all other performance conditions are satisfied.
At each reporting date, the cumulative expense recognised for
equity-based transactions reflects the extent to which the vesting
period has expired and the number of awards that, in the opinion
of the Directors at that date, will ultimately vest. The Group has
taken advantage of the exemptions afforded by IFRS 1 in respect
of equity-settled awards and has applied IFRS 2 only to equity-
settled awards granted after 7 November 2002 and not vested
at 1 January 2005.
68
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
69
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
Financial statements: Notes to the financial statements continued
xxx
1 Accounting policies continued
New accounting Standards and Interpretations
The following new and revised Standards and Interpretations
have been adopted in the current year. Their adoption has not
had any significant impact on the amounts reported in these
financial statements, but with the exception of the amendment
to IFRS 1, may impact the accounting for future transactions and
arrangements.
Amendment to IFRS 1
Severe Hyperinflation and Removal of Fixed Dates for
First-time Adopters
The amendments replace the fixed dates in the derecognition
exception and the exemption related to the initial fair value
measurement of financial instruments; and add a deemed cost
exemption that an entity can apply at the date of transition
IFRSs after being subject to severe hyperinflation.
Amendments to IFRS 7
Disclosures – Transfers of Financial Assets
The amendments introduce new disclosure requirements
about certain transfers of financial assets.
Amendments to IAS 12
Deferred Tax: Recovery of Underlying Assets
The amendment provides an exception to the general
measurement principle in respect of investment property
measured using the fair value model in accordance with
IAS 40 Investment Property.
At the date of authorisation of these financial statements, the
following Standards and Interpretations which have not been
applied in these financial statements were in issue but not yet
effective (and in some cases had not yet been adopted by the EU):
IFRS 1 (amended) Government Loans
IFRS 7 (amended) Disclosures – Offsetting Financial Assets
and Financial Liabilities
IFRS 9 Financial Instruments
IFRS 10 Consolidated Financial Statements; Investment Entities
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in Other Entities;
Investment Entities
IFRS 13 Fair Value Measurement
IAS 1 (amended) Presentation of Items of Other
Comprehensive Income
IAS 19 (revised) Employee Benefits
IAS 27 (revised) Separate Financial Statements;
Investment Entities
IAS 28 (revised) Investments in Associates and Joint Ventures
IAS 32 (amended) Offsetting Financial Assets and
Financial Liabilities
IFRIC 20 Stripping Costs in the Production Phase of a
Surface Mine
The Directors do not expect that the adoption of the standards
listed above will have a material impact on the financial
statements of the Group in future periods, except as follows:
IFRS 7 (amended) will increase the disclosure requirements
where netting arrangements are in place for financial assets
and liabilities;
IFRS 9 will impact both the measurement and disclosure of
financial instruments;
IFRS 12 will impact the disclosure of interests Vectura Group plc
has in other entities; and
IFRS 13 will impact the measurement of fair value for certain
assets and liabilities as well as the associated disclosures.
Beyond the information above, it is not practicable to provide
a reasonable estimate of the effect of these standards until a
detailed review has been completed.
2 Revenue
Revenue represents amounts invoiced to third parties, derived from the provision of licences and services that fall within the Group’s
sole principal activity, the development of pharmaceutical products.
Revenue by category
Royalties
Product licensing
Technology licensing
Pharmaceutical development services
Device sales
Investment income:
Interest income (note 4)
Total income
Revenue by customer location
United Kingdom
Rest of Europe
United States of America
Rest of World
Information about major customers
2013
£m
13.0
12.8
3.7
0.6
0.4
30.5
0.5
31.0
2013
£m
3.9
11.4
15.2
–
30.5
2012
£m
13.5
12.1
2.3
2.8
2.3
33.0
0.7
33.7
2012
£m
2.5
9.4
21.0
0.1
33.0
Revenue earned from the Group’s major customers was as follows: Customer A – £12.7m (2011/12: £13.4m), Customer B – £12.7m
(2011/12: £10.6m) and Customer C – £3.5m (2011/12: £2.0m).
3 Segmental information
The Group is engaged in a single business activity of pharmaceuticals and the Group does not have multiple operating segments.
The Group’s pharmaceutical business consists of the research, development and commercialisation of pharmaceutical products. The
Leadership Team is the Group’s chief operating decision-making body, as defined by IFRS 8, and all significant operating decisions are
taken by the Leadership Team. In assessing performance, the Leadership Team reviews financial information on an integrated basis
for the Group as a whole, substantially in the form of, and on the same basis as, the Group’s IFRS financial statements. Resources are
allocated between activities and products on a Group-wide basis on merit.
All revenue and losses before taxation originate in the United Kingdom.
70
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
71
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
Financial statements: Notes to the financial statements continued
xxx
4 Investment income and finance gains
Investment income:
Interest receivable on bank deposits and similar income
Finance income:
Foreign exchange gains
5 Operating loss
Operating loss is the result for the Group before interest and taxation, and is stated after charging/(crediting):
Amortisation of intangible assets
Depreciation of property plant and equipment
Share-based compensation
Cost of inventories recognised as expense
Net foreign exchange gains
Profit on disposal of investments
Staff costs (note 6)
Operating lease rentals:
– land and buildings
– plant and machinery
The analysis of auditor’s remuneration is as follows:
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor and their associates for other services to the Group:
– The audit of the Company’s subsidiaries
Total audit fees
Audit related assurance services
Taxation compliance services
Other taxation advisory services
Other services
Total non-audit fees
Total fees
2013
£m
0.5
0.7
2013
£m
6.3
1.0
0.9
0.2
(0.7)
(0.1)
12.2
0.5
–
2013
£000
20
63
83
20
4
2
23
49
132
2012
£m
0.7
–
2012
£m
7.5
1.1
1.1
1.1
–
–
12.0
0.5
0.1
2012
£000
20
63
83
15
7
16
10
48
131
6 Directors and employees
Directors’ remuneration
The aggregate remuneration comprised:
Fees
Salaries and benefits
Bonuses
Pension contributions
2013
£m
0.2
0.8
0.4
1.4
0.1
1.5
2012
£m
0.2
0.5
0.3
1.0
0.1
1.1
Three Directors (2011/12: two) receive company contributions to defined contribution personal pension plans. One Director
exercised share options in the year, increasing his shareholding in the Company by 252,976 Ordinary shares as a result of the exercise.
The remuneration of the Executive Directors is decided by the Remuneration Committee. Full details of Directors’ remuneration
and options are contained in the Report on remuneration contained within this Annual Report.
Employees
The average monthly number of employees (including Executive Directors) employed by the Group during the year was as follows:
Research and development
Business development and administration
The aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs
2013
No.
201
15
216
2013
£m
10.4
1.2
0.6
12.2
2012
No.
194
15
209
2012
£m
10.2
1.2
0.6
12.0
In addition to the wages and salaries analysis above are the effects of the charge for share-based compensation under IFRS 2 during
the year of £0.9m (2011/12: £1.1m).
The Company had no employees during the years ended 31 March 2013 and 31 March 2012.
72
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
73
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
Financial statements: Notes to the financial statements continued
xxx
7 Taxation
The major components of the income tax credit for the years ended 31 March 2013 and 31 March 2012 were as follows:
Foreign withholding tax charge on royalties
Research and development tax credits:
– current year
– receipt in respect of prior year
Reduction in deferred tax liability
Total
2013
£m
–
3.8
0.4
0.3
4.5
2012
£m
(0.1)
4.0
2.1
2.8
8.8
Factors that may affect future tax charges are:
Cumulative tax losses of approximately £79.7m (2012: £89m), subject to agreement by HMRC, are available within the Group to carry
forward against future taxable profits. There is a deferred tax asset of £19.6m (2012: £21.9m), including these tax losses, calculated at
the standard rate of tax of 23% (2012: 24%), as follows:
On cumulative tax losses – unrecognised
On cumulative tax losses – recognised
On unclaimed capital allowances – unrecognised
On unexercised share options – unrecognised
2013
£m
14.4
4.4
–
0.8
19.6
2012
£m
15.8
5.6
0.3
0.2
21.9
Research and development tax credits are accrued based on the estimated receipt from Her Majesty’s Revenue and Customs (HMRC).
The credit for the year can be reconciled to the loss per the statement of comprehensive income as follows:
Deferred tax asset
Loss on ordinary activities before tax
Loss on ordinary activities multiplied by standard rate of UK of 24% (2011/12: 26%) Corporation Tax
Effects of:
Expenses not deductible for tax purposes
Unrecognised tax losses carried forward
Reduction in deferred tax liability
Foreign withholding taxes
Research and development tax credits
– current year
– receipt in respect of prior year
Total tax credit for the year
2013
£m
(10.4)
(2.5)
0.2
2.3
(0.3)
–
(3.8)
(0.4)
(4.5)
2012
£m
(13.2)
(3.4)
0.2
3.2
(2.8)
0.1
(4.0)
(2.1)
(8.8)
In March 2012 the UK Government announced the main rate of UK corporation tax would reduce from 24% with effect from 1 April 2012
and reduce to 23% with effect from 1 April 2013.
In March 2013 the UK Government announced the main rate of UK corporation tax would reduce to 21% with effect from 1 April 2014
and reduce to 20% with effect from 1 April 2015. These changes have not yet been substantively enacted.
The effect of these tax rate reductions on the deferred tax balance will be accounted for in the period in which the tax rate reductions
are substantively enacted.
A deferred tax asset of £4.4m relating to losses has been recognised as at 31 March 2013 (2012: £5.6m). To the extent permitted by
IAS 12 – Income Taxes, this deferred tax asset has been offset against the deferred tax liability arising on the intangible assets.
The losses and deferred tax assets have no formal expiry date.
Deferred tax liability
A deferred tax liability of £4.4m exists at 31 March 2013 (2012: £5.9m). £3.9m of this relates to 23% of the intangible asset value at that
date (2012: 24%). The remaining deferred tax liability relates to capital allowances claimed in excess of depreciation. The deferred tax
liability of £4.4m is offset by a deferred tax asset as described above.
8 Loss per ordinary share
The calculation of loss per share is based on the following losses and number of shares:
Loss for the year (£m)
Weighted average number of ordinary shares (No. m)
Loss per ordinary share
2013
(5.9)
332.9
(1.8p)
2012
(4.4)
329.3
(1.3p)
The loss per share is based on the weighted average number of shares in issue during the period. IAS 33 – Earnings per Share, requires
presentation of diluted earnings per share when a company could be called upon to issue shares that would decrease net profit or
increase net loss per share. No adjustment has been made to the basic loss per share, as the exercise of share options would have the
effect of reducing the loss per ordinary share, and is therefore not dilutive.
74
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
75
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
Financial statements: Notes to the financial statements continued
xxx
9 Goodwill
Group
Cost:
At 1 April
At 31 March
Net book value:
At 1 April
At 31 March
2013
£m
49.6
49.6
49.6
49.6
2012
£m
49.6
49.6
49.6
49.6
Goodwill is allocated to cash-generating units (CGUs), which are tested for impairment on an annual basis, or more frequently if there
are indications that goodwill might be impaired. The recoverable amounts of the cash-generating units are assessed using a value-in-
use model. An impairment provision is recognised only if the goodwill carrying value exceeds this value-in-use.
The key assumptions for the value-in-use calculations are those regarding the discount rates, growth rates and expected changes to
contribution during the period. The model has been based on the most recent pre-tax cash flow forecasts prepared by management,
which consist of detailed probability weighted product-by-product analyses. These forecasts are based on development timings and
specific projections for sales volumes over a ten-year period, being the period in which the expected useful economic life of each asset
has been substantially completed. No terminal values have been included in the cash flow forecasts. No general growth rates are
assumed. The discount rates used in the forecasts range from 8% to 13%.
10 Intangible assets
Group
Cost:
At 1 April 2011, 31 March 2012 and 31 March 2013
Amortisation:
At 1 April 2011
Charge for the year
At 31 March 2012
Charge for the year
At 31 March 2013
Net book value:
At 31 March 2012
At 31 March 2013
Patents and
trademarks
£m
Licences
£m
3.5
(3.5)
–
(3.5)
–
(3.5)
–
–
74.6
(43.7)
(7.5)
(51.2)
(6.3)
(57.5)
23.4
17.1
Total
£m
78.1
(47.2)
(7.5)
(54.7)
(6.3)
(61.0)
23.4
17.1
Intangible assets are being amortised on a straight-line basis over the expected life of each separate asset. The expected life of these
intangible assets is between three and ten years.
The Company had no intangible assets at 31 March 2013 and 31 March 2012.
The carrying value of goodwill is made up of balances arising on acquisition of the following companies:
11 Property, plant and equipment
Group
Co-ordinated Drug Development Limited (since re-named Vectura Limited)
Vectura Delivery Devices Limited
Innovata Limited
Company
Carrying amount:
At 31 March 2012 and 31 March 2013
2013
£m
1.5
0.5
47.6
49.6
2012
£m
1.5
0.5
47.6
49.6
£m
2.0
For the purposes of goodwill impairment testing, the Group recognises two distinct cash generating units, being the Vectura CGU,
which includes Vectura Limited and Vectura Delivery Devices Limited, and the Innovata CGU, being the group of companies acquired
in January 2007. These CGUs are part of the Group’s only operating segment.
The Group has conducted a sensitivity analysis on the impairment test of each CGU’s carrying value. In each case the valuations
indicate sufficient headroom such that a reasonably possible change in a key assumption is unlikely to result in an impairment of the
related goodwill.
The goodwill in the Company arose on the acquisition of the Centre for Drug Formulation Studies, an unincorporated entity, in 1999.
Amortisation of £684,000 was applied prior to 1 April 2004. Goodwill in the Company is tested for impairment using the same discount
rates and on the same basis as for the Group.
Group
Cost:
At 1 April 2011
Additions
Disposals
At 31 March 2012
Additions
Disposals
At 31 March 2013
Depreciation:
At 1 April 2011
Charge for the year
Disposals
At 31 March 2012
Charge for the year
Disposals
At 31 March 2013
Net book value:
At 31 March 2012
At 31 March 2013
Assets in the course
of construction
£m
Freehold land
and buildings
£m
Laboratory
equipment
£m
Office and IT
equipment
£m
–
2.5
–
2.5
2.3
–
4.8
–
–
–
–
–
–
–
2.5
4.8
–
0.8
–
0.8
0.1
–
0.9
–
–
–
–
–
–
–
0.8
0.9
10.9
0.9
(0.3)
11.5
1.6
(0.1)
13.0
(8.2)
(1.0)
0.3
(8.9)
(1.0)
0.1
(9.8)
2.6
3.2
0.6
–
(0.1)
0.5
–
–
0.5
(0.4)
(0.1)
0.1
(0.4)
–
–
(0.4)
0.1
0.1
The Company had no property, plant and equipment at 31 March 2013 and 31 March 2012.
Total
£m
11.5
4.2
(0.4)
15.3
4.0
(0.1)
19.2
(8.6)
(1.1)
0.4
(9.3)
(1.0)
0.1
(10.2)
6.0
9.0
76
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
77
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
Financial statements: Notes to the financial statements continued
xxx
12 Investments in subsidiary undertakings
14 Inventories
Company
Cost:
At 1 April 2011, 31 March 2012 and 31 March 2013
Amounts written off:
At 1 April 2011, 31 March 2012 and 31 March 2013
Net book value:
At 31 March 2012
At 31 March 2013
Details of the Company’s significant subsidiary undertakings are as follows:
Name of undertaking
Vectura Group Investments Limited
Vectura Limited (1)
Vectura Delivery Devices Limited (1)
Vectura Inc.
Innovata Limited (1)
Innovata Biomed Limited (2)
Innovata Hong Kong Limited (3)
Country of incorporation
England
England
England
USA
England
Scotland
Hong Kong
Holding
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
(1) A subsidiary of Vectura Group Investments Limited.
(2) A subsidiary of Innovata Limited.
(3) A subsidiary of Innovata Biomed Limited.
Shares in subsidiary undertakings
£m
125.7
(0.1)
125.6
125.6
Proportion held
100%
100%
100%
100%
100%
100%
Nature of business
Pharmaceuticals
Pharmaceuticals
Pharmaceuticals
Pharmaceuticals
Pharmaceuticals
Pharmaceuticals
Finished goods
15 Trade and other receivables
Trade receivables
Other receivables (1)
Prepayments and accrued income
VAT recoverable
Group
2013
£m
0.8
Group
2013
£m
0.1
4.0
4.2
0.9
9.2
Group
2012
£m
0.7
Company
2013
£m
–
Company
2012
£m
–
Group
2012
£m
0.8
4.4
3.5
1.0
9.7
Company
2013
£m
–
–
–
–
–
Company
2012
£m
–
0.1
–
–
0.1
(1) Includes research and development tax credits of £3.8m (2012: £4.0m).
The average credit period taken by customers is 30 days (2012: 30 days). The Directors consider that the carrying value of trade
and other receivables approximates to their fair value.
82%
Pharmaceuticals
16 Amounts due from and owed to subsidiary undertakings
In addition, the Group has a number of subsidiaries that are dormant or whose residual activities are not material to the Group.
13 Other receivables
Group
Other receivables represent an investment bond of £0.4m (2012: £0.4m) in respect of a rental deposit paid under the terms of a lease
agreement for the Company’s premises at Chippenham. The deposit is for a fixed period of one year and is renewed annually. Under the
terms of the lease agreement the deposit must be maintained until the Group has made three years of consecutive profits. The interest
rate is 1% below the Royal Bank of Scotland base rate and was 0% for the year ended 31 March 2013. Interest is recognised using the
effective interest method.
Amounts falling due within one year:
Due from subsidiary undertakings
17 Trade and other payables
Amounts falling due within one year:
Trade payables
Other payables
Accruals
Group
2013
£m
–
_
Group
2013
£m
3.8
0.3
15.6
19.7
Group
2012
£m
Company
2013
£m
Company
2012
£m
–
_
72.9
72.9
71.2
71.2
Group
2012
£m
Company
2013
£m
Company
2012
£m
2.5
1.1
17.1
20.7
–
–
–
–
–
–
–
–
Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken by
the Group for trade purchases is 31 days (2012: 32 days).
78
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
79
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
Financial statements: Notes to the financial statements continued
xxx
18 Deferred income
Deferred income relates to amounts received under product licensing agreements. Vectura continues to provide services to these
licensing partners over a period of time. Milestone payments under these licensing agreements are therefore spread over future
periods, and income is deferred as follows:
Amounts due within one year
Amounts due in more than one year
19 Financial instruments
Categories of financial instruments
Unless stated otherwise, all disclosures relate to the Group.
Group
2013
£m
0.1
1.3
1.4
Group
2012
£m
3.5
1.3
4.8
Company
2013
£m
–
–
–
Company
2012
£m
–
–
–
Under IFRS 7, and for the purposes of risk management, the following classes of financial assets and their carrying values have
been identified:
Cash and cash equivalents
Loans and receivables
2013
£m
70.1
8.8
78.9
2012
£m
75.5
9.1
84.6
All financial assets fall due within the first quarter of the year, with the exception of the investment bond which is included within loans
and receivables in the table above, the repayment of which is determined by the Group’s results (see note 13).
There were no provisions against impaired assets at 31 March 2013 (2012: £nil). There are no amounts past due but not impaired (2012: £nil).
Cash and cash equivalents comprise current accounts held by the Group with immediate access and short-term bank deposits with a
maturity value of three months or less.
Under IFRS 7, and for the purposes of risk management, the following classes of financial liabilities and their carrying values (at
amortised cost) have been identified:
Other
All financial liabilities fall due within one year.
2013
£m
(19.7)
2012
£m
(20.7)
Fair value of financial assets and liabilities
The Directors consider there to be no material difference between the book value and the fair value of the Group’s financial assets
and liabilities at the balance sheet date.
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the
return to stakeholders. The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity
holders of Vectura Group plc, comprising issued share capital (note 20a), reserves and retained earnings as disclosed in the statement
of changes in equity.
Externally imposed capital requirement
The Group is not subject to externally imposed capital requirements.
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement
and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity
instrument are disclosed in note 1 to the financial statements.
Financial risk management
The Group’s objective in using financial instruments is to maximise the returns on funds held on deposit, to minimise exchange rate
risk where appropriate, and to generate additional cash resources through the issue of shares when appropriate. Balance sheets at
31 March 2013 and 31 March 2012 are not necessarily representative of the positions throughout the year, as cash and short-term
investments fluctuate considerably depending on when share issues have occurred.
It is, and has been throughout the year, the Group’s policy that no speculative trading in financial instruments is undertaken.
The Group is funded principally with equity and invests its funds in short-term bank deposits. The Group has access to the majority
of these deposits at a maximum of 24 hours’ notice. The Group’s policy throughout the period has been to minimise the risk by placing
funds in low-risk cash deposits, but also to maximise the return on funds placed on deposit.
Interest on overnight cash deposits is calculated on the basis of a floating rate set at between 5 and 10 basis points below seven-day
sterling London Inter-Bank Offer Rate (LIBOR).
Foreign currency risk management
The Group’s principal functional currency is sterling. However, the Group undertakes certain transactions denominated in foreign
currencies. The Group’s policy is to offset its currency exposure by matching foreign currency revenues with expenditure in the same
foreign currency. Where there are no imminent foreign exchange transactions, the balances are exchanged for sterling at spot rate.
All assets and liabilities are denominated in sterling other than those shown below:
Cash and cash equivalents:
Euro
US dollar
Group
2013
£m
2.6
8.2
10.8
Group
2012
£m
Company
2013
£m
Company
2012
£m
1.1
5.1
6.2
–
–
–
–
–
–
80
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
81
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
Financial statements: Notes to the financial statements continued
xxx
19 Financial instruments continued
Foreign currency sensitivity analysis
The following table details the Group’s sensitivity to a 10% increase and decrease in sterling against the euro and US dollar; 10%
represents management’s assessment of a reasonably possible change in foreign exchange rates. The sensitivity analysis includes
only outstanding foreign currency denominated items and adjusts their translation at the period end for a 10% change in foreign
currency rates. A positive number below indicates an increase in profit and other equity where sterling weakens against the
relevant currency. For a 10% strengthening of sterling against the euro and the US dollar there would be an equal and opposite
impact on the loss and other equity and the balances below would be negative (2012: negative).
Euro currency impact – gain
US dollar currency impact – gain
2013
£m
0.3
0.8
2012
£m
0.1
0.5
The Company did not hold any balances denominated in foreign currencies at year end and therefore is not exposed to any risk
from fluctuations in foreign currencies.
The Group and Company have a legal right of offset between all foreign currency bank accounts and all sterling bank accounts.
Interest rate risk management
The Group has no external borrowings and is not exposed to interest rate risk through borrowings. Cash and cash equivalents earned
£0.5m of finance income during the year (2011/12: £0.7m). If interest rates had been 0.5% higher/lower and all other variables were
constant, the Group’s profit for the year ended 31 March 2013 would increase/decrease by £0.4m (2011/12: £0.4m).
All the Group’s monetary assets and liabilities are held at floating rates.
Liquidity risk management
The Group manages liquidity risk by maintaining adequate reserves and by continuously monitoring forecast and actual cash flows
and matching the maturity profiles of financial assets and liabilities.
Credit risk management
The Group’s credit risk is primarily attributed to its cash and cash equivalents. The Board operates an investment policy, under which
the primary objective is to invest in a diverse portfolio of low risk cash or cash equivalent investments to safeguard the principal.
The Group’s credit risk on trade and other receivables is low as the amounts are owed by large, multinational, pharmaceutical
companies. For the same reason, the Directors assess the quality of these assets as high.
Market risk management
The Group’s exposure to market risk primarily comprises interest rate exposure. Group funds are invested in cash deposits with the
objective of maintaining a balance between accessibility of funds and competitive rates of return.
20 Equity
(a) Share capital
Authorised:
Ordinary shares of 0.025p each
Redeemable preference shares of £1 each
Allotted, called up and fully paid:
Ordinary shares of 0.025p each:
At 1 April
Issued to Share Investment Plan
Issued on exercise of share options
Issued on exercise of Sharesave options
Issued on exercise of LTIP options
At 31 March
Redeemable preference shares of £1 each:
At 1 April and 31 March
2013
£m
0.1
–
0.1
–
–
–
–
0.1
–
No. ’000
441,200
34
331,686
1,000
1,062
226
482
334,456
34
2012
£m
0.1
–
0.1
–
–
–
–
0.1
–
No. ’000
441,200
34
326,659
–
3,475
1,466
86
331,686
34
The rights attaching to the redeemable preference shares are summarised as follows: (a) the shares do not confer any right to dividend
or other distributions; (b) on a return of capital on liquidation or otherwise, the assets of the Company available for distribution among
the members are to be applied first in repaying to the holders of the redeemable preference shares the amounts paid up or credited
as paid up in respect of such shares; (c) holders of redeemable preference shares have the right to receive notice of and attend general
meetings, but have no right to vote thereat; (d) the price per share at which redeemable preference shares are transferred may not
exceed the amount paid or credited as being paid up; and (e) the Company may specify by notice in writing the date upon which it
intends to redeem all (but not some only) of the shares. The price per share payable by the Company to the holders of the redeemable
preference shares on their redemption shall be the amount paid up or credited as paid up on each such share.
Between 1 April 2012 and 31 March 2013 the Company issued 1,000,000 ordinary shares to the Vectura Group plc Employee Benefit
Trust (in the year ended 31 March 2012: none).
Between 1 April 2012 and 31 March 2013 the Company issued 1,061,980 (in the year ended 31 March 2012: 3,475,463) ordinary shares
of 0.025p each on the exercise of employee share options at a weighted average exercise price of 48.52p per share (2012: 57.04p).
Between 1 April 2012 and 31 March 2013 the Company issued 225,634 (in the year ended 31 March 2012: 1,465,608) ordinary shares
of 0.025p each on the exercise of Sharesave options at a weighted average exercise price of 48.18p (2012: 36.14p) per share.
Between 1 April 2012 and 31 March 2013 the Company issued 482,121 (in the year ended 31 March 2012: 86,209) ordinary shares of
0.025p each on the exercise of LTIP nil-cost options.
82
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
83
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
Financial statements: Notes to the financial statements continued
xxx
20 Equity continued
(b) Share premium
The share premium account consists of the proceeds from the issue of shares in excess of their par value (which is included in the share
capital account) less amounts transferred to distributable reserves through capital conversion.
(c) Special reserve
The special reserve was created on 19 May 2004 as part of the process prior to the Company’s Initial Public Offering on 2 July 2004,
to enable re-registration as a public company. It is a non-distributable reserve.
(d) Other reserve
The other reserve was created on the acquisition by the Company of Co-ordinated Drug Development Limited (since renamed Vectura
Limited) in August 1999, of Vectura Delivery Devices Limited in February 2002 and of Innovata plc in January 2007. It is a non-
distributable reserve.
(e) Share-based compensation reserve
The share-based compensation reserve represents the credit arising on the charge for share options calculated in accordance with IFRS 2.
(f) Retained (loss)/profit
A shareholder resolution was approved at the Company’s AGM, held on 22 July 2011, to reduce the Company’s share premium account
by £78.6m, being the value of the share premium account as at 14 June 2011. A subsequent application to reduce the Company’s share
premium account was approved by the High Court of Justice on 25 January 2012. As part of this share premium reduction, the retained
loss value of £25.9m in the Company balance sheet as at 14 June 2011 was cancelled and this created a retained profit in the Company
balance sheet.
21 Equity-settled share option schemes and Long-Term Incentive Plan
The Company’s Directors, officers and employees hold options under the Vectura Unapproved Share Option Plan (“Unapproved Plan”),
under Enterprise Management Incentive arrangements (“EMI Plan”) and under the Vectura Approved Share Option Plan (“Approved Plan”).
Options are granted to acquire shares at the opening market price ruling on the date of grant. In general, options vest after three years
and are exercisable during a period ending ten years after the date of grant.
On 18 January 2007, upon the acquisition of Innovata plc and in accordance with a scheme of arrangement, options over Innovata
shares issued and outstanding at that date under the ML Laboratories plc 1989 Executive Option Scheme and the ML Laboratories plc
1999 Executive Option Scheme were exchanged for options over Vectura shares in accordance with the rules of the relevant Innovata
Option Scheme. The exchange was on the basis that the option holders received new options representing 0.2858 Vectura shares for
every one Innovata share.
The Company operates a Sharesave Scheme. All employees and Executive Directors are invited to subscribe for options to acquire shares
in the Company, which may be granted at a discount of up to 20% of the market value on the offer date. The options granted vest after
three years and are exercisable during a period of six months following the vesting date.
The Company also operates a Long-Term Incentive Plan (LTIP) under which Executive Directors and certain senior managers are
granted conditional rights in the form of nil-cost options to receive a maximum number of shares at the beginning of a three-year
period, a proportion of which they will be entitled to receive at the end of that period, depending on the extent to which the challenging
performance conditions set by the Remuneration Committee at the time the allocation was made are satisfied. The nil-cost option
entitlement is exercisable from the beginning of the fourth year to the end of the tenth year following the date of grant. Further
information on the performance conditions of the LTIP are detailed in the Report on remuneration. At 31 March 2013, Executive
Directors and eligible senior managers hold rights to ordinary shares awarded under the LTIP, as follows:
Date of vesting
12 September 2008
22 November 2009
2 March 2010
25 May 2010
23 May 2011
21 May 2012
7 June 2013 (1)
7 June 2014 (1)
18 September 2015 (1)
Ordinary shares vesting
554,615
501,242
104,758
446,636
1,388,100
271,575
2,511,192
2,511,192
1,710,423
(1) Maximum number of shares, subject to performance conditions.
On 31 October 2008, the shareholders approved a Value Realisation Plan (VRP). The VRP runs in parallel to the LTIP and provides
participants with a share of a pre-determined percentage of the total consideration paid for the Company in the event of a change in
control within five years of the date of approval of the Plan. In this event, under the VRP members of the Executive Committee of the
Company will be granted a one-off entitlement in the form of units, which convert into ordinary shares in the Company, the actual
number of shares that convert being linked to the offer price per share achieved. The VRP is triggered upon achievement of a minimum
bid price of £1.27 per share, with a maximum number of shares available to participants if the bid price reaches £1.77 per share,
or greater.
Fair value calculations
The Group has taken advantage of the exemption in IFRS 1 and has applied IFRS 2 only to options granted after 7 November 2002
and not vested at 1 January 2005. At 31 March 2013 there were 318,324 options outstanding that were granted before this date
(2012: 2,255,995).
With the exception of the LTIP awards and the potential awards under the VRP, the fair value of the options was determined using
the Black-Scholes pricing model. The fair value of the LTIP and VRP awards have been estimated using the Monte Carlo model,
using the same basis for the assumptions for volatility, option life, expected dividend yield and risk-free rate of return as used for the
Black-Scholes model. For the purposes of calculating the fair value of the LTIP, it was considered equally probable that the Company’s
performance would be such that it would perform in each of the quartiles established under the LTIP scheme, as described in the Report
on remuneration.
84
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
85
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
Financial statements: Notes to the financial statements continued
xxx
21 Equity-settled share option schemes and Long-Term Incentive Plan continued
Year of grant
The assumptions input into the Black-Scholes model were as follows:
Weighted average share price of grants during the year
Weighted average exercise price of grants during the year
Expected volatility (1)
Expected life (2)
Expected dividends
Risk-free interest rate (3)
The assumptions input into the Monte Carlo model were as follows:
Weighted average share price of grants during the year
Weighted average exercise price of grants during the year
Expected volatility (1)
Expected life (2)
Expected dividends
Risk-free interest rate (3)
2013
2012
72.03p
80.41p
45%–49%
3–5 years
Nil
0.3%–0.5%
69.22p
60.61p
46%–49%
3–5 years
Nil
0.5%–1.0%
81.50p
0.025p
49%
3 years
Nil
0.4%
–
–
–
–
–
–
(1) Expected volatility has been calculated by reference to the Company’s historic share price since the IPO in July 2004, considered alongside the volatility
of similar companies. The expectation of the cancellation of options has been considered in determining the fair value expense charged in the statement of
comprehensive income.
(2) The expected life used in the models is based on management’s best estimate of behavioural consideration based on historic exercise patterns.
(3) The risk-free interest rate is the UK Gilt Rate at the date of grant, commensurate with the expected term.
The charge is spread over the expected vesting period, utilising the fair value calculated by using the two models described above,
and after adjusting for the likelihood of cancellation of options when employees leave.
The share-based compensation charge for the year ended 31 March 2013, including the LTIP, was £918,000 (2012: £1,040,000).
The aggregate of the estimated fair value of options granted under share option schemes and Share Incentive Plan during the year
ended 31 March 2013 was £336,000 (2012: £426,000) and under the SAYE Scheme £53,000 (2012: £232,000). The estimated fair value
of LTIP awards during the year ended 31 March 2013 was £790,000 (there were no awards under the LTIP during the year ended
31 March 2012).
Options outstanding
At 1 April 2011
Options granted
Options exercised
Options cancelled
At 31 March 2012
Options granted
Options exercised
Options cancelled
At 31 March 2013
Range of exercise prices
Weighted average remaining
contractual life (years)
Share Option Schemes
Number of
options
18,254,400
414,375
(3,474,463)
(1,458,839)
13,735,473
153,833
(1,061,980)
(137,887)
12,689,439
SAYE Scheme
Number of
options
2,366,593
1,101,966
(1,465,608)
(346,433)
1,656,518
170,367
(225,634)
(41,583)
1,559,668
WAEP*
44.83
47.40
36.14
62.75
50.43
76.80
51.32
58.32
53.50
47.4p–76.8p
WAEP*
62.37
95.75
57.04
100.48
79.91
66.75
48.52
80.81
60.64
0.025p–104p
LTIP
Number of
options
11,820,841
–
(86,209)
(829,122)
10,905,510
1,710,423
(482,121)
(2,134,079)
9,999,733
WAEP*
0.025
–
0.025
0.025
0.025
–
0.025
0.025
0.025
0.025p
2.43 (2012: 3.42)
2.30 (2012: 2.82)
6.37 (2012: 7.02)
Options vested
At 31 March 2012
At 31 March 2013
Weighted average remaining
contractual life (years)
* Weighted average exercise price (p)
22 Analysis of net funds
Group
Cash and cash equivalents
12,950,364
11,915,629
59.87
60.64
2.08 (2012: 3.11)
–
–
–
–
–
–
3,477,472
3,266,926
0.025
0.025
3.81 (2012: 5.24)
1 April
2012
£m
75.5
Cash flow
£m
(5.4)
31 March
2013
£m
70.1
The Company had no net funds at 31 March 2013 and 31 March 2012.
23 Retirement benefits plans
The Group operates a number of defined contribution personal pension plans for all qualifying employees. The assets of the schemes
are held separately from those of the Group and are independently administered. The total cost charged in the statement of
comprehensive income is detailed in note 6.
86
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
87
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
Financial statements: Notes to the financial statements continued
xxx
24 Operating lease arrangements
At the balance sheet date, the Group has aggregate outstanding commitments for future minimum lease payments under non-
cancellable operating leases, which fall due as follows:
Group
Expiry date:
Within one year
In the second to fifth years inclusive
After five years
Land and
buildings
2013
£m
Land and
buildings
2012
£m
Other
2013
£m
Other
2012
£m
0.5
1.1
–
1.6
0.5
1.5
0.1
2.1
–
–
–
–
–
–
–
–
On 26 July 2002, the Group entered into a 25-year lease agreement in respect of the lease of premises at One Prospect West,
Chippenham, Wiltshire. The Group has the right to break the lease in July 2017.
26 Related party transactions
Group
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. Except as
disclosed below, no Group company entered into a transaction with a related party that is not a member of the Group.
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Group, is set out below:
Short-term employee benefits
Post-employment benefits
Share-based payments
Company
2013
£m
1.5
0.1
0.3
1.9
2012
£m
1.2
0.1
0.4
1.7
On 29 September 2011, the Group entered into an agreement in respect of the lease of premises at Five Prospect West, Chippenham,
Wiltshire. The Group has the right to break the lease in September 2015.
Details of the Company related party transactions with parties outside of the Group are noted above. In addition, the following details
of trading within the Group are disclosed in accordance with IAS 24.
On 13 June 2005, the Group entered into an agreement in respect of premises at Cambridge Science Park, Milton Road, Cambridge
and on 27 October 2006, the Group entered into a lease agreement on an adjacent property at Cambridge Science Park; both these
leases expire on 24 December 2014.
The Company had no other operating lease arrangements at 31 March 2013 and 31 March 2012.
25 Capital and other commitments
At 31 March 2013 the Group had capital commitments contracted, but not provided for, of £1.7m (2012: £4.1m).
The Company had no capital and other commitments at 31 March 2013 and 31 March 2012.
Related party
Subsidiaries:
2012
2013
Recharge
from
related
parties
£m
Recharge
to
related
parties
£m
Amounts
owed by
related
parties
£m
Amounts
owed to
related
parties
£m
–
–
1.1
0.9
71.2
72.9
–
–
Amounts outstanding are unsecured. No provisions have been made for doubtful debts owed by related parties.
27 Post balance sheet event
Vectura announced on 13 May 2013 that it had established Tianjin Kinnovata Pharmaceutical Company Limited (“Kinnovata”) in China
with two partners: Tianjin KingYork Group Company Limited (“KingYork”) and Zendex Bio Strategy Inc. (“Zendex”).
Completion of the Kinnovata transaction is subject to final Government clearances in China, which are expected mid-to-late 2013.
Vectura expects to record an exceptional non-cash gain of approximately £13.5m in relation to the acquisition of the 35% shareholding
in Kinnovata. This gain will be recognised in the 2013/14 financial year. Kinnovata will be accounted for as an associate, with Vectura
recording 35% of the profits or losses of Kinnovata on its statement of comprehensive income as a non-cash item. Kinnovata is expected
to be loss-making for at least 24 months following establishment.
88
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
89
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Notes to the financial statements
Financial statements: Five-year summary year ended 31 March
xxx
Unaudited
Year ended 31 March
Consolidated statement of comprehensive income
Revenue
Gross profit
Gross profit margin
Research and development expenses
Other administrative expenses
EBITDA
Depreciation
Amortisation
Share-based compensation
Share of loss of associate
Operating loss
Investment income
Finance (costs)/income
Pre-tax loss
Taxation
Loss after taxation
Loss per ordinary share
Cash flow statement
Net cash (outflow)/inflow from operations
Net taxes received
Interest received
Net capital expenditure
Net cash inflow/(outflow) before financing
Balance sheet
Cash and cash equivalents
Shareholders’ equity
Net current assets
2009
£m
31.2
27.3
88%
(30.7)
(3.2)
(6.6)
(1.6)
(10.2)
(1.9)
(0.6)
(20.9)
3.6
(2.3)
(19.6)
2.9
(16.7)
(5.2p)
(3.6)
2.9
3.6
(1.6)
1.3
74.0
154.9
56.0
2010
£m
40.1
36.6
91%
(34.8)
(3.4)
(1.6)
(1.6)
(10.6)
(1.5)
–
(15.3)
0.6
0.9
(13.8)
3.6
(10.2)
(3.2p)
(4.3)
0.5
0.6
(1.0)
(4.2)
64.1
147.1
56.2
2011
£m
42.9
40.2
94%
(36.4)
(3.3)
0.5
(1.3)
(10.7)
(1.8)
–
(13.3)
0.8
(0.8)
(13.3)
4.5
(8.8)
(2.7p)
2.7
8.1
0.7
(1.4)
10.1
74.4
140.3
59.6
2012
£m
33.0
30.8
93%
(31.7)
(3.3)
(4.2)
(1.1)
(7.5)
(1.1)
–
(13.9)
0.7
–
(13.2)
8.8
(4.4)
(1.3p)
(2.5)
4.6
0.7
(4.2)
(1.4)
75.5
139.5
61.7
2013
£m
30.5
29.8
98%
(29.9)
(3.3)
(3.4)
(1.0)
(6.3)
(0.9)
–
(11.6)
0.5
0.7
(10.4)
4.5
(5.9)
(1.8p)
(7.2)
4.4
0.6
(3.8)
(6.0)
70.1
135.1
60.3
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90
Vectura Group plc Annual Report and Accounts 2012/13
Financial statements: Five-year summary
91
Vectura Group plc Annual Report and Accounts 2012/13
Shareholder information
Directors
John (Jack) P Cashman
(Non-Executive Chairman)
Dr Christopher P Blackwell
(Chief Executive)
Anne P Hyland
(Chief Financial Officer)
Dr Trevor M Phillips
(Chief Operations Officer
& President of US Operations)
Dr John R Brown
(Non-Executive)
Dr Susan E Foden
(Non-Executive)
Neil W Warner
(Non-Executive)
Secretary
Anne P Hyland
Corporate broker
Peel Hunt LLP
Moor House
120 London Wall
London
EC2Y 5ET, UK
Corporate broker
J.P. Morgan Cazenove
25 Bank Street
Canary Wharf
London
E14 5JP, UK
Registrars
Computershare Investor Services plc
PO Box 82
The Pavilions
Bridgwater Road
Bristol
BS99 7NH, UK
Public relations
FTI Consulting
26 Southampton Buildings
London
WC2A 1PB, UK
Auditor
Deloitte LLP
3 Rivergate
Temple Quay
Bristol
BS1 6GD, UK
Bankers
Barclays Bank plc
28 Chesterton Road
Cambridge
CB4 3AZ, UK
Legal advisers
Olswang
90 High Holborn
London
WC1V 6XX, UK
Vectura Group plc
One Prospect West
Chippenham
Wiltshire
SN14 6FH, UK
92
Vectura Group plc Annual Report and Accounts 2012/13
Shareholder information
Vectura Group plc
One Prospect West
Chippenham
Wiltshire SN14 6FH
United Kingdom
T +44 (0)1249 667700
F +44 (0)1249 667701
E investorqueries@vectura.com
www.vectura.com
Registered in England and Wales
Number: 03418970