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Vectura Group plc Annual Report and Accounts 2015/16
POSITIVELY TRANSFORMING
THE LIVES OF AIRWAYS DISEASE PATIENTS
POSITIVELY TRANSFORMING
THE LIVES OF AIRWAYS DISEASE PATIENTS
Our vision is to establish an industry-leading inhalation device, formulation,
development and specialty commercial business transforming patients’
lives alongside delivering exceptional shareholder returns.
ATTRACTIVE
FINANCIAL OUTLOOK
UNIQUE PROPRIETARY
TECHNOLOGY
• Strong revenue growth(1)
• Sales and development milestones,
in-market royalties
• Advair® generic exposure opportunity
(1) Based on historical financial performance.
• Dry powder inhalers (DPIs) and smart
nebulisation technology platforms provide
basis for partnering opportunities
• Provides platform for future development
of own specialty commercial capability
+
Read more in the financial review on page 44
+
Read more about our technology on page 39
STRONG PARTNERSHIPS
AND PIPELINE
ROBUST
BALANCE SHEET
• Committed pipeline programmes combining
novel and known drug/device combinations
• Future potential milestone payments
of c.£90m contracted up to FY 2022
• Opportunities to further leverage
existing partnerships
• Cash flow positive business allowing for capital
allocation flexibility
• Balance sheet strength contributes to potential
acceleration of business strategy
+
Read more about our pipeline from page 30
+
Read more about our performance on page 99
FINANCIAL HIGHLIGHTS
Revenue growth (£m)
EBITDA(1) progression (£m)
£72.0m
+24%
72.0
58.0
36.5
£23.2m
+43%
23.2
16.2
13/14 14/15
15/16
13/14 14/15
15/16
5.2
Profit after taxation (£m)
Basic EPS (p)
£5.0m
+35%
5.0
3.7
1.2p
+33%
1.2
0.9
13/14
(2.3)
14/15
15/16
13/14
(0.7)
14/15
15/16
For more information visit:
www.vectura.com
(1) Earnings before investment income, finance gains/(costs), tax, depreciation, amortisation and share-based compensation
and adjusted for non-recurring expenditure items.
Strategic report
Governance
Financial statements
At a glance
Chairman’s statement
CEO’s statement
Financial highlights
1
2 Operational review
4
6
8
12 Our markets and opportunities
14 Our business model
16 Our strategy
18 Key performance indicators (KPIs)
20 Risk and risk management
30 Our products
39 Our technology platforms, devices and
development capability
44 Financial review
47 Corporate responsibility
51 Corporate Governance –
Introduction from the Chairman
52 Board of Directors
54 Executive leadership team
55 Corporate Governance report
61 Audit Committee report
65 Nomination Committee report
67 Remuneration Committee report
69 Remuneration report
89 Directors’ report
91 Statement of Directors’ responsibilities
Independent auditor’s report
93
97 Consolidated income statement
98 Consolidated statement of
comprehensive income
99 Balance sheet
100 Cash flow statement
101 Statement of changes in equity
102 Notes to the financial statements
124 Five-year summary
IBC Shareholder information
1
STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc OPERATIONAL REVIEW
Partnered marketed products and pipeline programmes
Novartis
Ultibro® Breezhaler® (indacaterol/glycopyrronium bromide, QVA149),
a first-in-class once-daily fixed dose dual bronchodilator, long-acting
beta2-adrenergic agonist (LABA)/long-acting muscarinic antagonist
(LAMA), achieved total net sales of $286m within our full financial
year(1). The product has been approved for use in over 80 countries
(including Japan and countries in the EU). In November, Novartis
announced positive first results from the Phase III FLAME study
showing superiority of Ultibro® Breezhaler® over Seretide®
in reducing exacerbations in patients with chronic obstructive
pulmonary disease (COPD) – the full study results have subsequently
been published in the New England Journal of Medicine(2) and these
data were also presented at the 2016 Annual Meeting of American
Thoracic Society (ATS) in May.
Seebri® Breezhaler® (glycopyrronium bromide, NVA237), a once-daily
fixed dose inhaled long-acting muscarinic antagonist (LAMA), achieved
total net sales of $148m within our full financial year(1). The product
is approved for use in over 90 countries (including Japan and
countries in the EU).
In October 2015, Novartis received US FDA approval for the new
dual combination bronchodilator Utibron™ Neohaler® (formerly
QVA149) and the stand-alone monotherapy Seebri™ Neohaler®
(formerly NVA237) for patients with COPD. This approval triggered
a $22.5m milestone payment from Novartis to Vectura. It is now
expected that the launch of these products in the US will take
place in the second half of 2016.
QVM149 (indacaterol/glycopyrronium bromide/mometasone furoate),
a new inhaled once-daily combination triple therapy for asthma
comprising a LABA/LAMA and corticosteroid (ICS). In June 2015
Novartis announced it had initiated the first Phase III trial of a new
inhaled dry powder triple therapy for patients with moderate to
severe uncontrolled asthma on standard ICS/LABA medication,
which triggered a milestone payment to Vectura of $3.75m.
The first regulatory filings of QVM149 are planned for 2018.
Vectura is eligible to receive development, filing and approval
milestones plus royalties on product sales in the event of a
successful product launch.
Wholly owned pipeline programmes
VR475 (FAVOLIR®), our drug/device combination using the AKITA® JET
smart nebuliser technology delivering nebulised budesonide for the
treatment of severe uncontrolled asthmatics. Recruitment in to the
Phase III study is underway and progressing well and the majority
of study sites have initiated and to date over 200 patients have entered
the study. Phase III study results are anticipated in mid-2018.
Ultibro®, Breezhaler® and Neohaler® are registered trade marks of Novartis AG. Utibron™
is a trade mark of Novartis AG.
(1) Q2–Q4 2015 and Q1 2016, as reported by Novartis.
(2) Wedzicha JA, Banerji D, Chapman KR, et al. Indacaterol/Glycopyrronium Versus Salmeterol/
Fluticasone for COPD Exacerbations. New England Journal of Medicine. 2016. Available at:
www.nejm.org/doi/full/10.1056/NEJMoa1516385.
VR647 (SCIPE), our second drug/device combination using the
AKITA® JET smart nebuliser technology as a maintenance treatment
for paediatric asthma. We had a successful pre-IND meeting with
the FDA in June 2015 and it agreed with our intent to rely on the
505(b)(2) pathway for the development programme with the aim
of filing a New Drug Application (NDA). IND filing is anticipated
in mid-2016. A CMC supply chain for sterile product is required
by the US market and this is being established. Once in place,
a Phase I study will be conducted to support initiation of Phase III
in mid-2018 with filing anticipated in mid-2020.
Partnered pipeline programmes
VR315 US (fluticasone propionate/salmeterol), our partnered
programme with Hikma for a generic version of Advair® Diskus®
for the treatment of asthma and COPD. Vectura received cash
milestones of $5m triggered by the successful achievement of
important development milestones. In January we confirmed
that our partner on this programme (and VR506) was Hikma
Pharmaceuticals PLC ("Hikma").
Post-period event related to VR315 US
In April 2016, the ANDA was accepted for filing by US FDA and Vectura
recognised a milestone payment of $10m. The FDA has provided
Hikma with a GDUFA goal date of 10 May 2017. Vectura will receive
an $11m payment on approval of the file plus royalties from all
sales of VR315 in the US upon successful launch of this product.
VR876 EU is being developed by an undisclosed partner as a nebulised
version of a currently marketed drug for the treatment of serious
lung disease. This product uses Vectura’s smart nebuliser FOX®
device. In October 2015 we achieved a development milestone
triggering a cash milestone payment of €5m (c.£3.6m) to Vectura.
Regulatory action is expected in 2016.
VR942 Global, our co-development with UCB of a biologic for
uncontrolled asthma with one of Vectura’s proprietary DPI devices,
continued to make progress. This is a novel dry powder product
concept utilising Vectura’s large molecule formulation expertise
combined with inhaled device technology. Following the successful
completion of a number of pre-clinical studies, enrolment commenced
into a Phase I clinical study in healthy volunteers and patients with
asthma. Phase I enabling pre-clinical studies are ongoing to enable
initiation of Phase II studies in 2017.
VR632 EU, a second inhaled generic combination therapy for asthma
and COPD delivered using one of Vectura’s proprietary DPI devices
and formulation technology and partnered with Sandoz. In October,
a cash milestone of €0.75m payable to Vectura was triggered by
the successful achievement of a development milestone.
VR465 Global, an inhaled, anti-RSV Nanobody (ALX-0171) in
development with Ablynx. In December Ablynx confirmed it had
completed enrolment of the first-in-infant Phase I/IIa safety study
and extended the study to include younger infants using Vectura’s
FOX® device.
Post-period event related to VR465 Global
In May 2016 Ablynx reported positive top line Phase I/IIa study results
for VR465 in infants hospitalised with RSV infection. The study met
its primary endpoint demonstrating safety and tolerability and
Ablynx confirmed these results strongly support advancing the
programme into a Phase II efficacy study in infants.
2
Vectura Group plc Annual Report and Accounts 2015/16 Post-period
On 24 May we announced our collaboration with Propeller Health
for the development of a connected LOMI DPI device demonstrating
Vectura's commitment to develop next generation inhalation devices
that can help patients manage their respiratory diseases better.
Corporate governance
There have been a number of changes to the Board over the year.
• Dr Per-Olof Andersson was appointed a Non-Executive Director
of the Board with effect from 1 April 2015.
Kinnovata update
Our joint venture, Kinnovata, established to create low cost DPI
products for the domestic Chinese market, has made good progress
during the year. We expect the final capitalisation of the joint venture
to be concluded within the next few weeks with the relevant assets
being contributed to the business by Vectura and its partners.
This will trigger the recognition of an exceptional non-cash gain
to Vectura as we recognise our share of Kinnovata’s net assets.
• At the end of June 2015 Dr Chris Blackwell stepped down as
Chief Executive and the appointment of James Ward-Lilley as
Chief Executive Officer was announced.
• Trevor Phillips, Chief Operating Officer, acted as Interim Chief
Executive Officer in the period between Chris’ departure and
James’ arrival.
•
James joined Vectura at the end of September 2015.
Reporting calendar
Subject to completion of the proposed merger with Skyepharma,
Vectura intends to change its financial year end from 31 March to
31 December. This is in line with the financial reporting of other
FTSE 250 companies, our partners and our peer group. Further
details on the financial calendar will be announced after the
proposed Skyepharma merger has closed.
Annual Report and Accounts 2015/16 Vectura Group plc
3
STRATEGIC REPORT AT A GLANCE
DEVICE, FORMULATION AND INHALED
PRODUCT DEVELOPMENT EXPERTISE
INHALED PRODUCT
DEVELOPMENT
DEVICE DESIGN AND
DEVELOPMENT
(Partnered and wholly owned)
(DPIs and smart nebulisers)
Supported by Clinical and Regulatory teams,
Quality and IP
Making Vectura the partner of choice in airways diseases
with a range of DPIs and smart nebuliser devices for
inhaled delivery of drugs to the lungs
FORMULATION
(Development services)
Pharmaceutical development services
(fee-for-service activities for partners)
DEVICE MANUFACTURING
AND COMMERCIALISATION
(DPIs and smart nebulisers)
Underpinning our product development focus
through stages of pre-clinical and clinical development
ensuring successful commercialisation in partner’s
or contract manufacturing facilities
Established in 1997
with headquarters in
Chippenham, Wiltshire, UK
8
Partnered marketed
products
On-site product and
formulation development
and manufacturing capability
16
pipeline products
4
Vectura Group plc Annual Report and Accounts 2015/16 Strong partnerships
Established development collaborations, joint ventures and licence agreements with several
pharmaceutical and biotechnology companies.
+
Read more on our markets on page 12
Diverse revenue streams
Rapidly growing revenue from recently launched inhaled respiratory products underpins the cash flow
to develop our pipeline and maintain investment in technology.
£58.0m
£6.4m
£26.4m
£72.0m
£8.4m
£24.4m
£39.2m
£0.6m
£12.4m
Device sales and
development services
£25.2m
Milestones
Royalties
£13.2m
2014/15
2015/16
£13.0m
+
Read more on our pipeline from page 30
Royalty breakdown
£39.2m
Novartis
GSK
Baxter
Other
5
STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc CHAIRMAN’S STATEMENT
SUSTAINED STRONG
BUSINESS PERFORMANCE
Sustained strong business
performance with opportunity
to accelerate strategy following
the proposed Skyepharma merger.
Bruno Angelici
Chairman
Summary
Delivered another set of strong results
Product and pipeline progress
New CEO appointed
Announced proposed merger with Skyepharma
Dear shareholder
I am pleased to introduce Vectura’s Annual Report for the 2015/16
financial year.
The Group has performed well against its key financial and
business targets. We have delivered a strong financial and operational
performance for the twelve months ended 31 March 2016. Of particular
note is the transition of the business to a position where the majority
of overall royalty revenues arise from recently launched inhaled
products. The Group has also made considerable progress across
its pipeline in particular the VR315 submission in the US and our
own VR475 Phase III study in Europe. Alongside these achievements
it has been a year of leadership transition with the appointment
of James Ward-Lilley as Vectura’s new Chief Executive Officer.
One of the most important developments for the year is the
proposed merger with Skyepharma. This proposed merger will
combine the complementary Vectura and Skyepharma businesses
to create an industry-leading airways related diseases company.
Our business and strategy
Following the arrival of James Ward-Lilley as Chief Executive Officer,
the Board has reviewed and confirmed the Company's strategic
focus and priorities. Vectura has already enjoyed considerable
success based on its great experience in inhaled airways device
and formulation development and the Board remains of the view
6
that this should continue to be its primary area of focus. This
conviction is reinforced by the substantial unmet medical need in
this area and the wave of new innovation in devices and medicines,
which together provide many opportunities for Vectura to add
value for partners and patients, directly and indirectly.
Our balanced business model is working well, as reflected in our
financial performance. Vectura continues to achieve milestone
payments for formulation work undertaken for partners, and we
are also seeing the value of the higher margin recurring royalties
derived from in-market products that rely on our device and
formulation capabilities. Ultimately our aim is to generate an
additional high margin revenue stream from our wholly owned
specialist portfolio of marketed assets. Vectura believes that our
hybrid business model maximises our capabilities to deliver strong
sustainable profitability and shareholder value growth whilst
managing risk appropriately.
Vectura has a number of key drivers underpinning the future prospects
of the business and in the past year we have seen significant
developments within the product and pipeline programmes (read
more of this in the Operating review on page 2. In the short term,
partner-branded products will be the most important drivers of
future revenues.
In the medium term, we anticipate a further important income
stream from products that leverage Vectura’s formulation and
device expertise. Using these capabilities, Vectura and its partners
are developing generic versions of GSK’s Advair® Diskus® and
Flovent® Diskus® as well as AstraZeneca’s Symbicort Turbohaler®.
In the longer-term, Vectura has a number of proprietary technology
platforms to generate future income streams: formulation, device
(DPI and smart nebuliser delivery systems) and, inhalation technologies
(FAVORITE™). The acquisition of Activaero in March 2014 added
several assets to Vectura’s clinical pipeline, two of which are being
developed in house VR475 (FAVOLIR®) for severe adult asthma and
VR647 (SCIPE) for paediatric asthma) and which ultimately we
anticipate to self-commercialise.
Vectura Group plc Annual Report and Accounts 2015/16 Operational performance and revenue growth
Good operational progress is being made on our proprietary and
partnered programmes. Important progress has been made with
VR315 US, our partnered programme with Hikma, for a generic
version of GSK’s Advair® Diskus®. Following submission and acceptance
(post-period) of the file, FDA action is now expected in May 2017.
Vectura is also making good progress with its smart nebulisation
programmes. Recruitment into the Phase III study of the lead wholly
owned asset, VR475 EU (FAVOLIR®), for the treatment of severe adult
asthma is progressing well and results are expected in mid-2018.
In addition, the most advanced smart nebuliser partnered programme,
VR876 (using FOX®), being developed as a nebulised version of a
currently marketed drug for the treatment of serious long disease,
achieved a further development milestone. Regulatory action is
expected in the coming months.
Vectura’s collaboration with Novartis continues to develop well.
The recently published FLAME trial data provide further clinical
evidence to support use of Ultibro® Breezhaler® and shows that
this product is superior to Seretide®, the current standard of care
in reducing exacerbations in the treatment of COPD patients. Seebri™
Neohaler® and Utibron™ Neohaler® were approved by the FDA in
October 2015 and it is expected that the launch of these products
in the US will take place in the second half of 2016. This franchise
is being strengthened further with the Phase III development of
QVM149, a new triple therapy for asthma, with first regulatory
filings anticipated in 2018.
You can read more about our therapeutic focus, development pipeline
and accelerated strategic execution in the CEO Q&A on pages 8 to 10
and in the strategic overview on pages 16 to 17.
Governance
As a board, we are committed to the principles of good corporate
governance and we have continued to comply with the provisions
of the UK Corporate Governance Code ("the Code") throughout the
year and to the date of this report. Through a robust internal
framework of systems and controls, we strive to maintain the
highest standards.
Our leadership
In June 2015, Vectura announced the appointment of James Ward-Lilley
as CEO of the Company. He succeeded Chris Blackwell, who stepped
down after twelve years in the role.
James has had an extensive career at AstraZeneca, spanning 28 years
across a variety of commercially focused roles. He progressed from
sales and marketing roles in the UK through country and regional
leadership positions and was latterly responsible for the development
of AstraZeneca’s “Respiratory, Inflammation and Autoimmunity”
strategy. This extensive experience is an important advantage to the
Company and I am confident that James and the Vectura team will
deliver the leadership, energy and drive to ensure the continued success
of the Company as we embark on the next stage of our journey to
become a leading company, focusing on airways-related disease.
I would like to reiterate my statement last year thanking Chris for
the dedication he has given the Group over many years and I wish
him well for the future. In the interim period between Chris’ departure
and James’ arrival at the end of September, Trevor Phillips, Chief
Operations Officer, acted as Interim Chief Executive Officer and,
on behalf of the Board, I would like to thank Trevor for his
leadership throughout this period.
As part of the proposed merger with Skyepharma we have announced
a number of changes to the Board. Following completion of the
proposed merger Andrew Oakley, Chief Financial Officer, will leave
Vectura. On behalf of the Board I would like to thank Andrew for his
support and contribution to the business since he joined the Company
and we wish him well for the future. Andrew Derodra will become
Chief Financial Officer of the Enlarged Group and we look forward
to welcoming him along with Frank Condella and Thomas Werner
to the Board following completion of the transaction. In addition to
these changes and as part of the merger agreement, Dr John Brown,
Non-Executive Director and Senior Independent Director, will stand
down from the Board within one month after completion of the
proposed merger. John has played an outstanding role as a member
of the Vectura Board for many years and has the sincere gratitude
of the Board and my own best wishes for the future.
Our people
The Board and I would like to pay tribute to Vectura’s employees and
partners who have shown commitment and worked hard to help deliver
so much this year. With the Company’s clear strategy commitment,
I believe it is an exciting time ahead and we can look forward to the
next stage of Vectura’s development with great optimism.
Shareholders
We are grateful for the continued commitment of our shareholders
as we progress the exciting development of the business. Our
focus remains on growing a strong, sustainable, innovative and
competitive business which generates strong shareholder value
through capital appreciation.
Outlook
Vectura is in a strong position for the future based on its clearly defined
strategy, the further progress the business has made in the last twelve
months, its strong development pipeline, product portfolio and new
leadership. The completion of the proposed merger with Skyepharma
will further enhance Vectura’s attractive prospects by allowing us to
accelerate the delivery of the Company’s strategic objectives and
deliver further value to our Enlarged Group of stakeholders.
Bruno Angelici
Chairman
25 May 2016
7
STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc CEO’S STATEMENT
with Chief Executive Officer James Ward-Lilley
My first six months as Vectura’s CEO.
CEO James Ward-Lilley answers the key questions about
Vectura’s business and performance and outlines his
vision for the future and why he joined Vectura.
James Ward-Lilley
Chief Executive Officer
Q
A
Having reviewed the Company’s
business and strategy, what were
your key findings and what changes
will you be making?
We have reaffirmed our commitment
to focus in the inhaled airways diseases
segment. As a company with limited size
and scale today, it is important to focus
and prioritise our investment capability
and build in-depth expertise. We have
the opportunity to help transform the
lives of airways disease patients through
our applied insight and excellence in
inhaled device and formulation. We will
continue to build on our industry-leading
device and formulation capabilities to
maximise the value from partnerships
and progressively develop our own
pipeline which will, in the future, be
commercialised with a team focused
on the specialist physician segment.
We have a great opportunity to build
on the strengths Vectura has developed
over several years and to lead the
industry through our ability to formulate
drugs, apply these formulations in
relevant devices and then industrialise
and scale them for regulatory approval
and commercialisation. This can be
developed further with both existing
drugs, including generics, and innovative
approaches and with a partnered and
owned portfolio approach.
Q
A
Does Vectura have the capabilities
to execute on these opportunities?
The business has a strong track record
of device and formulation development
that has been validated through regulatory
approvals and in-market revenues from
partners. Vectura has a number of
capabilities to maximise value from these
opportunities. These include its strong dry
powder formulation capability, which is
8
Vectura Group plc Annual Report and Accounts 2015/16 Q
A
being applied to small and large molecules,
as well as its device capabilities seen in
the approved and marketed DPI GyroHaler®
device and the AKITA® JET and FOX® smart
nebulisers. Alongside the technology
platforms, Vectura has a strong team
with deep insight in formulation science
and development, which is being
complemented with increased expertise
being developed in regulatory, medical
and clinical development.
The proposed merger with Skyepharma
will, bring together the two companies’
complementary inhaled formulation and
device expertise. This will provide a series
of enhanced platforms to accelerate growth
in the inhaled respiratory market.
Q
A
What do you see as the main opportunity
in the inhaled respiratory market?
This is a large market with significant
unmet medical need in both large and
niche diseases. There is an unprecedented
transformation underway within the inhaled
therapies market with the emergence of
new therapies, including novel products,
generics and combination approaches,
that present more opportunities to
partner, co-develop and ultimately
self-commercialise. Device choice and
formulation is increasingly important in
a market which is fragmenting in terms
of patient sub-groups and delivery systems,
including DPIs, pressurised metered dose
inhalers (pMDIs), nebulisers and injectables
(biologics). The emergence of new biologic
treatments reflects the increased
phenotyping of meaningful patient
segments and offers further potential
for inhaled opportunities. Vectura is
well placed to capture value from these
opportunities though our business
model see page 14 and our innovative
proprietary formulation capabilities.
What made you join Vectura after what
was clearly a long career at AstraZeneca?
I had a long, successful and enjoyable
career at AstraZeneca. I had come into
contact with Vectura through a number
of interactions whilst working as the
Head of the Commercial Franchise, leading
AstraZeneca's global commercial strategy
team for respiratory, inflammation
and autoimmune therapy area. I was
aware that Vectura had a compelling
combination of formulation expertise
and device capabilities with the dry
powder inhalers which had been
recently augmented with the acquisition
of the Activaero smart nebuliser platform.
What was also clear to me was that Vectura
seemed to be at an inflection point,
with the prospect of strong financial
performance and the opportunity to
develop its capabilities and pipeline built
on firm foundations. The business was
starting to see accelerating growth from
recurring revenue streams of recently
launched products and had become
profitable for the first time last year.
The Company had seen a significant
evolution in its broad pipeline of both
partnered and wholly owned assets, which
reflected a spread of risk and innovation
including small and large new molecular
entities (NME), known generic molecules
and complex combinations.
As someone who has worked in the
respiratory space for many years I am well
aware of the high unmet medical need
in this therapy area and the opportunities
that are developing fast as we better
understand the biology of the immune
system. There is, I believe, something of
a renaissance in this therapy area which,
after a period of limited innovation and
lack of new approved therapies, we
are now seeing many new drug and
therapeutic approaches being developed,
including monotherapies, combinations,
biologics and immunomodulators. This is
certainly at a level far higher than I have
seen at any time since I joined the industry.
Q
A
The level of innovation in this therapy area
is potentially very important for physicians
and patients in the future and is also a
fantastic opportunity for us. Vectura is
ideally placed to be a partner of choice to
help enable other companies to progress
their developments as well as to selectively
develop its own specialist assets/products.
The importance of effective and proven
device and formulation development,
providing a platform that can be leveraged
with large, mid-cap and small pharma,
and with biotech companies, is a great
position for Vectura to be in.
How do you feel now you have
been CEO for six months?
I am very pleased and proud to be
Vectura’s CEO. I believe it is a strong
business with great prospects and I am
excited about leading it. In my first few
months as CEO I have led a review of
Vectura’s business and strategy and
started to get to know the team and
meet with our key business partners
and shareholders. As announced in our
results we have delivered a strong set
of financial results and made important
pipeline progress. Vectura has solid
technology foundations which we will
aim to build on and I am looking forward
to the challenges and opportunities
ahead as we deliver on the execution of
the strategy. The proposed merger with
Skyepharma has been a major area of
focus and I believe this deal will give
Vectura the opportunity to build a
stronger scaled business and allow us to
accelerate our plans further (see page 11
for further details).
+
Read more about our governance
on pages 51 to 88
9
STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc
CEO’S STATEMENT continued
Q
A
What are the prospects for the
Group going forward?
The outlook for the coming year is
dominated with the exciting prospect
of the proposed merger for the Enlarged
Group. As we bring together the two
businesses we will focus on reviewing
the potential acceleration opportunities
for enhanced revenues based on further
device, product and partnering initiatives.
In addition we will complete a review of
the existing portfolios and align all these
elements with a review of the financial
outlook, capacity and synergies. This will
form the basis of the future guidance for
the Enlarged Group.
On a standalone basis this is a
transitional year.
We anticipate that total royalty income,
although driven by the growth of recently
launched inhaled products, will be impacted
by the loss of patent for ADVATE® which
took place at the end of January 2016
(c.£13m in FY 2015/16). With the VR315
FDA action date set at May 2017 we now
expect disclosed milestones for FY 2016/17
to be lower than those in FY 2014/15.
There have been a significant number of
leads that have converted into feasibility
studies across both our smart nebuliser
and DPI platforms which could potentially
have a positive impact on revenues and
the possibility of additional upside if
converted into deals. However the size,
value and timing of these potential
deals are uncertain.
Q
A
There is a robust balance sheet in place
with c.£100m in cash; do you expect to
pay a dividend or look at M&A?
Vectura has enjoyed, and continues to see,
strong revenue and EBITDA growth
resulting from the delivery of R&D
milestones, reflecting pipeline progress,
and significant in-market royalty revenue
growth from our partners. As a result,
Vectura has a strong balance sheet and
this is a good position for the business
to be in. As shareholders are aware, we
have included a £70m maximum partial
cash alternative element in the proposed
Skyepharma merger deal which will be
funded from the Company’s existing
cash resources, together with the funds
from a five-year £50m revolving
credit facility.
Beyond this, our focus is on growth
and our first call for investment is in
developing our business and progressing
our pipeline. We will also look to
accelerate our growth through further
selective business development and
M&A, particularly focusing on building
our specialist commercial presence.
Vectura has not paid dividends in the past.
The declaration and payment of any
dividends in the future and the amount
of any future dividends will depend on the
results of operations, financial conditions,
cash requirements, future prospects,
profits available for distribution and other
factors deemed by the Vectura Board to
be relevant at the time. At present, the
Vectura Board does not expect to pay any
dividend in the near-to-medium term,
although the Board will continue to assess
the position.
Q
A
What are your priorities for the
business for the coming year?
2016/17 promises to be a very exciting
year for the business. A first priority is,
subject to deal closure, the fast and
effective integration of Skyepharma.
We are committed to move fast on this
in order to minimise disruption and
uncertainty for employees and projects
and also to allow us to progress the
previously communicated pre-tax
synergies of approximately £10m
per annum which are expected to be
fully realised by the 2018 calendar year.
Beyond the integration activities and
financial performance delivery, priorities
are focused on progressing our own and
co-developed pipeline; progressing our
partnered assets, generics and novels;
further business development of
Q
A
Q
A
FOX®, AKITA® and DPI platforms;
device industrialisation; and the further
development of key capabilities in
the clinical, medical, regulatory and
commercial planning teams in particular.
What other things will be important
to you under your leadership?
Vectura has a clear strategy, strong
financial performance, broad pipeline
and strong technology platforms.
Vectura also has some very good,
experienced and hardworking teams.
As we move forward and grow the
business further it will be critical to
develop these capabilities and ensure
we harness the collective skills of our
teams across locations and add new
skills as we develop our own specialist
commercial capabilities. Vectura can
become known as a stimulating
and rewarding place to work with
a continued reputation for performance
and development.
+
Read more on our pipeline
products on pages 34 and 35
If you look forward five years,
what would you like to see?
My vision is quite simple. I see the
opportunity to accelerate our growth
and leverage our existing business
model to become an industry-leading
inhaled device, formulation, product
development and specialty commercial
business. This includes leading in device
and formulation innovation and partnering,
significantly expanding our clinical
development partnerships, including
generics, and developing our specialist
pipeline and in-market commercial activity
with the priority being in the US. As we
do this we will be aiming to maximise
shareholder returns, create an exciting
and meaningful place to work and develop
and, ultimately, help transform the lives of
patients with respiratory diseases through
our own and partnered programmes.
10
Vectura Group plc Annual Report and Accounts 2015/16
Merger announcement
This section should be read in conjunction with the Rule 2.7 announcement
and Prospectus, which can be accessed at www.vectura.com
What is the background to, and strategic rationale for, the Merger?
The Vectura Board and the Skyepharma Board both believe this is a compelling transaction that
will combine the complementary Vectura and Skyepharma businesses to create an industry-leading,
airways-related specialty business. Bringing together the two companies’ complementary inhaled
formulation, development, regulatory and device expertise (DPI, pMDI and smart nebulisers) provides
a series of enhanced platforms to accelerate growth in the inhaled respiratory market, along with
providing shareholders with a broader product and development portfolio.
The merger of Vectura and Skyepharma is a key milestone in the execution
of our strategy to become a leading specialty pharmaceutical company,
focusing on airways-related diseases. The addition of Skyepharma’s pMDI
technology will allow the Enlarged Group to access the inhaled product
market in its entirety and the Enlarged Group’s enhanced cash flow will
better position it to consider attractive strategic opportunities which may
emerge in the future. The highly qualified management team, under the
leadership of James Ward-Lilley, has the skills, experience and commitment
to deliver the Enlarged Group’s significant potential. The Vectura Board strongly
believes that the merger with Skyepharma will create a business with the
technology, capabilities and financial profile to maximise returns to shareholders.
Bruno Angelici
Chairman of Vectura
11
STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc OUR MARKETS AND OPPORTUNITIES
LARGE ADDRESSABLE MARKETS
IN FAST GROWING SEGMENTS
Global inhalation market
The main market for inhaled therapies is to treat
respiratory diseases, especially asthma and COPD.
Inhalation products are complex fixed dosage forms
that are challenging to develop within the global
regulatory environment. Volume growth is expected to
continue as demand in the developing world expands.
While volume growth is expected, overall sales growth
is expected to be modest in these two disease areas
due to a number of market factors.
In the asthma therapy market, generic erosion of two
market-leading products, GSK’s salmeterol/fluticasone
propionate (Advair/Seretide/Adoair) and AstraZeneca/
Astellas’ formoterol/budesonide (Symbicort), is
expected to constrain value growth. The decline
of sales of these market leaders is expected to be
counterbalanced by the entry of emerging innovator
products, mainly novel anticytokine agents for the
treatment of severe asthma.
In COPD, generic erosion of salmeterol/fluticasone and
formoterol/budesonide will also have put downward
pressure on overall sales prices. However, an increase
in the drug-treated population for COPD and the growth
of LABA/LAMA combination products are expected to
provide growth in sales revenues.
3m
deaths in 2012 were due to
COPD; the WHO predicts it will
become the third biggest
cause of death by 2030
Global inhaled respiratory market
revenue in 2015:
US$35bn
The WHO estimates that the number of
people currently suffering from COPD is:
64m
Our strategic response
Vectura is well placed to address these challenges through:
Proprietary formulation
Vectura has a number of proprietary formulation capabilities
(PowderHale®, PowderMaxTM and ParticleMaxTM) which enable
it to formulate for inhalation a wide variety of molecules including
small molecules and biologics. Furthermore, these technical
capabilities can be applied to both generic and new molecular
entities thereby enhancing the commercial prospects of
the Group.
Multiple device platforms
Vectura has a number of patent-protected technology platforms
with which to generate future income streams:
• devices (DPI and nebuliser delivery systems); and
•
inhalation technologies (FAVORITETM).
12
Vectura Group plc Annual Report and Accounts 2015/16 World population by 2050
expected to reach:
9.6bn
Macro economic and social trends
Population growth,
ageing populations
and lifestyle changes
Long-term economic growth
in emerging markets
Rapid scientific and
technological advances
Downward pressure on
healthcare costs
235m
people are estimated by the WHO
to be affected by asthma globally.
Asthma is the most common
chronic disease in children
Pricing pressure
Vectura’s business model exposes the Company to the anticipated
volume growth of increasing generic drug usage through leveraging
Vectura’s formulation and device expertise, Vectura and its partners
are developing generic versions of GSK’s Advair®/Flovent® as well
as AstraZeneca’s Symbicort®. The former programme is partnered
with Hikma (through its wholly owned subsidiary, West-Ward
Pharmaceuticals) and is undergoing regulatory review.
Hybrid business model
A key element of Vectura’s strategy is to grow its revenues from
products focused on the treatment of airways diseases, leveraging
the experience in research, development and commercialisation
through implementation of a hybrid business model:
(a) Partnering: to capture value from larger, commercially attractive
indications that require large sales forces and high marketing spend;
(b) Co-development with partners: to capture and retain greater
economics and source new innovative assets without
undertaking exploratory research;
(c) Self-commercialisation: for products that require a focused sales
force (i.e. specialty or hospital focus).
13
STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc OUR BUSINESS MODEL
LEVERAGING OUR EXPERTISE IN
AIRWAYS DEVICES AND FORMULATION
This hybrid business model allows revenue streams from multiple sources
and balances current and future capabilities and risk and returns.
STRATEGY ACCELERATION
Lower risk
Fee for development support
DEVELOPING DEVICES
AND FORMULATION
TECHNOLOGY
Technology access fee and development milestones
Sales milestones and in-market royalties
FEASIBILITY
A key element of Vectura’s strategy is to grow
its revenues from products focused on the
treatment of airways diseases, and to leverage
the experience in research, development
and commercialisation through the
implementation of a hybrid business model.
Vectura applies its expertise and proprietary formulation and device
technologies to the third-party asset(s) in a preliminary evaluation to
demonstrate the viability of the product concept and the value that
Vectura can add both to the product and to a development partnership.
These feasibility evaluations are always conducted as the lead into
licence or clinical supply agreements or full development collaboration/
co-development agreements. Typically these are not disclosed.
REVENUE PLATFORM
14
Vectura Group plc Annual Report and Accounts 2015/16 Sales milestones and in-market royalties
DEVELOPMENT, LICENSING AND
CLINICAL SUPPLY AGREEMENTS
COMMERCIALISATION
Developing devices and formulations for partners to enable their
drug assets to be delivered via inhalation. This provides Vectura
with development services revenue and milestones associated
with meeting development targets.
Currently we leverage our partners' commercial capability receiving
royalties from in-market sales of products and milestones based
on meeting certain sales targets in a given period. In the future,
self-commercialisation is an option for Vectura for products that
require a hospital-focused sales force.
CO-DEVELOPMENT
Co-development with partners to capture and retain greater
economics and source new innovative assets without undertaking
exploratory research. The potential revenue streams can vary
from low single-digit to mid-teen percentages on in-market sales
depending upon Vectura’s contribution to the development
programmes. Vectura’s participation can be through its expertise
and know-how, developing an appropriate formulation and device,
development expertise, cash resources or a combination thereof.
HIGHER % MARGIN
Higher margin and EBITDA
15
STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc OUR STRATEGY
DELIVERING OUR STRATEGY
Positively transforming the lives of airways disease patients
Targeting sustained profitability and shareholder value growth
INDUSTRY-LEADING
DEVICES AND
FORMULATIONS
MAXIMISING
PARTNERSHIP
VALUE
MAXIMISING
VALUE OF OWN
PIPELINE
A stimulating and rewarding place to work
Accelerating strategy implementation and value creation through M&A and business development
INDUSTRY-LEADING DEVICES AND FORMULATIONS
Priorities
Future outlook
•
•
Develop more innovative products that address the needs
of patients, physicians and payors;
Returns will arise from collaborations with other parties,
where we earn milestone payments and royalties from
product development and commercialisation;
•
Collaboration agreements with new and existing partners
through our DPI and smart inhalation technologies.
• Technologies underpin our product-to-pipeline focus;
•
•
•
•
Creation and protection of our underlying intellectual
property (IP) assets;
Continue to leverage investment in our technology and
device platforms, IP and general know-how;
Continue to provide low-risk revenue generation within
a structure that allows for the generation of future
royalty streams;
Maintain our technology leadership within inhaled medicine
through appropriate investment in people and processes
and robust defence of IP.
KPI
• Revenue growth + innovation performance measure.
16
Vectura Group plc Annual Report and Accounts 2015/16 MAXIMISING PARTNERSHIP VALUE
Priorities
Future outlook
•
•
•
Continue with existing partnering model to access those
markets, such as COPD and asthma, that require large
general sales forces;
Endeavour to maximise the economic return
to shareholders, which will involve sharing an increased
level of risk in certain indications;
•
•
Consider co-promotion or self-commercialisation of certain
assets to harness economic returns;
Commercialisation options will be restricted to therapeutic
indications which can be addressed by a small, cost-effective
and focused sales and marketing infrastructure;
• Continue to evaluate the commercial landscape to identify
Seek increased economics in the co-development portion
of our business model, which also has the important effect
of increasing the knowledge base of our employees.
assets and companies that have appropriate infrastructure,
as well as meet key financial criteria such as being revenue
enhancing and accretive on a cash-earnings basis.
KPI
• Revenue growth + innovation performance measure.
MAXIMISING VALUE OF OWN PIPELINE
Priorities
Future outlook
•
•
Build a profitable cash-generative business through a
specialist therapeutic focus and progress our development
portfolio within airways diseases;
Broaden and deepen our development pipeline covering
a wide range of indications within the category of
airways-related diseases.
•
•
•
We have set out our intended development pathway for
VR475 in Europe and clinical trial activities have started.
Our anticipated filing date for VR475 remains 2018;
We intend to continue to develop our pipeline within tight
parameters to maintain our record of capital discipline;
It is our intention to continue to prioritise our development
pipeline and to drive R&D investment to its earliest value
inflection point.
KPI
• Pipeline progression performance measure.
17
STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc KEY PERFORMANCE INDICATORS (KPIs)
MEASURING OUR PERFORMANCE
AGAINST STRATEGY
Vectura’s Board and management rigorously monitor the progress
of our business, maintaining strict financial discipline, to facilitate
achieving our key strategic objective of becoming a profitable,
self-sustaining and cash-generative business.
We measure performance against our strategy based upon a range
of financial and non-financial KPIs. The key financial indicators we
monitor are revenue growth, EBITDA progression and free cash flow.
These have been selected to demonstrate our progress towards
executing our key strategic objective, reflecting our history of
acquisitions and our investment plans. Vectura’s bonus scheme
uses similar metrics to assess financial performance against targets;
refer to pages 78 to 79 for more information.
Financial KPIs
Revenue growth
Revenue increased by 24% to £72m, mainly driven
by increased royalties from recently marketed products
and significant milestone achievements. Revenue
generated by royalties has increased significantly
over the last two years. Sustainable royalty revenues
provide stability and cash resources to fund future
growth and investment.
5%
7%
5%
2015/16
54%
29%
£72.0m
2014/15
43%
34%
£58.0m
12%
7%
4%
2013/14
45%
36%
£36.5m
12%
5%
2%
Royalties
Product licensing
Technology licensing
Development services
Device sales
EBITDA(1)
EBITDA is a non-statutory measure of Vectura’s underlying operating
performance. As shown on the face of the Consolidated income
statement, EBITDA is calculated by adjusting Vectura’s operational
result for non-cash and non-recurring items. A positive EBITDA
shows Vectura’s ability to generate returns on investment over time.
EBITDA has increased to £23.2m (2014/15: £16.2m) and this reflects
a £14.0m increase in revenue, offset by continued and measured
investment in research and development activities.
2015/16
2014/15
2013/14
£5.2m
£23.2m
£16.2m
Profit after taxation
Profit after taxation is a measure of Vectura’s ability to generate
potential returns for shareholders over time, net of investment
in our capabilities and strategy. Profit after taxation has increased
by 35% to £5.0m (2014/15: £3.7m) and this is reflective of a
sustained increase in revenues, offset by continued inward
investment and expenditure associated with M&A activities.
2015/16
2014/15
2013/14
£(2.3)m
£5.0m
£3.7m
(1) Earnings before investment income, finance gains/(costs), tax, depreciation, amortisation,
share-based compensation and adjusted for non-recurring expenditure items.
18
Vectura Group plc Annual Report and Accounts 2015/16 Non-financial KPIs
Innovation performance measure
Innovation is the foundation of our business and the Company continues
to invest in its people and its technologies. The Company’s strategy is
to generate income from licensing and commercialising its products
and technologies. This is reliant on a comprehensive portfolio of intellectual
property, in particular patents covering devices, formulations,
manufacturing processes and other aspects of its products and
technologies. The Company’s portfolio of intellectual property
is therefore a valuable asset fundamental to the success of the
Vectura Group.
• Number of patents filed/registered
Pipeline progression performance measures
Successful product development is key to creating long-term value.
Our development pipeline encompasses a broad range of assets
across various stages of development and includes partnered as
well as wholly owned assets.
• Number of project milestones completed
• Number of clinical studies completed to stated time
Total patent families
2015/16
2014/15
2013/14
93
107
100
Project milestones completed
2015/16
2014/15
2013/14
9
Clinical studies completed
2015/16
0
2014/15
2013/14
1
Business development and alliance performance measures
Our hybrid business model allows for appropriate deal structures
for business opportunities based on a rigorous assessment of the
associated risk, expenditure and time-to-value realisation. This allows
for an appropriate balance of risk and reward and is a key element
of our strategy and operational focus.
Number of successful feasibility outcomes
2015/16
2014/15
2013/14
5
3
• Number of successful feasibility outcomes
• Number of alliances established
Number of alliances established
1
2015/16
2014/15
2013/14
13
13
2
6
2
2
19
STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc RISK AND RISK MANAGEMENT
IDENTIFYING AND UNDERSTANDING
KEY RISKS TO THE BUSINESS
We operate within a complex regulatory environment, which is
subject to change, and the nature of pharmaceutical development
exposes us to a number of risks and uncertainties. Our ability to
meet our goals and objectives may be affected by a number of
these risks, which could impact our strategy, business model and
operating environment.
We have developed and implemented a risk management process
which is designed to ensure that significant risks are identified,
assessed, managed and reported to relevant stakeholders in a
concise and timely manner to inform and support decision making.
This section provides an overview of our risk management process,
the key risks currently faced by the business and the actions that
we have taken to mitigate them. Not all the risks identified as part
of our risk management processes are detailed in this section;
instead this report focuses on the risks that the Directors believe
are the most important and material to the business. As with all
businesses operating in such a dynamic environment, some risks
may not yet be known while other low level risks could become
material in the future.
6
Reporting
5
Executing and
monitoring
1
Strategy
4
Risk
mitigation
2
Risk
identification
3
Risk
assessment
Objectives of the Vectura risk management process:
•
•
to ensure that the risk appetite of the Board is embedded
throughout the organisation and fully understood by those
who are responsible for managing risk and making key
decisions across the business;
to identify and assess the likelihood and potential impact
of the risks that Vectura faces in the execution of its strategy
and the operation of its business model, and ensure that
appropriate mitigating actions and controls are in place
such that the residual risk is aligned to the risk appetite
of the Board;
•
to control systematic risks within the organisation by
maintaining and improving a system of internal controls to
manage risks in decision making, legal contract management,
quality and regulatory processes and the processing
of financial transactions; and
•
to ensure that identified risks are reported to relevant
stakeholders in a timely manner to facilitate effective
decision making.
20
Vectura Group plc Annual Report and Accounts 2015/16 Vectura’s Audit Committee reviews the effectiveness of the Group’s
risk management process on behalf of the Board. In reviewing the
effectiveness of the process, the Audit Committee recognises that
such a process is designed to understand and mitigate, rather than
eliminate, the risk of failure to achieve business objectives and
can only provide reasonable and not absolute assurance against
material misstatement or loss.
Setting the tone
Designing the system
Completing the review
The Board
Executive Leadership Team
Responsible for ensuring that the risk
management and internal control
systems are appropriately designed
and implemented
Responsible for ensuring that the risk
appetite of the Board is appropriately
understood by risk owners and key
decision makers
Responsible for reviewing the
business-wide and project risk registers
Responsible for conducting an annual
assessment of strategic risks for
discussion at Board level
Heads of departments
and projects
Responsible for updating department
and project risk registers and reporting
significant risks to the Executive
Leadership Team
Responsible for implementing
and monitoring any mitigating
actions and controls
Responsible for training and
educating department and project
team members about Vectura’s risk
management process
Accountable for ensuring that a
sound system of risk management
and internal control is in place
Responsible for conducting an annual
effectiveness review of the Group’s
risk management and internal control
systems. This review covers all
material controls, including financial,
operational and compliance controls.
The scope of this review extends to a
review of the Group’s principal risks
Following this review having been
carried out and reported to the Board,
the Board continues to believe that the
Group’s risk management and internal
control systems are appropriate and
operating effectively. No significant
failings or weaknesses were identified
in the most recent review by the
Audit Committee
Responsible for reporting to
shareholders about the Group’s
risk management
Review of process
and outputs
Review of high risk areas
Risk registers
+
Read more on our principal risks and uncertainties overleaf
21
STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc RISK AND RISK MANAGEMENT continued
Our principal risks and uncertainties
During the year, a robust assessment of the principal risks facing
Vectura has been carried out. These include the principal risks that
could threaten the execution of Vectura’s strategy, achievement
of objectives, future performance, business model, solvency and
liquidity, and are outlined below. Some of these risks are specific
to the Group and others are more generally applicable to the
pharmaceutical industry or specific markets within which Vectura
operates. The risks are considered within the timeframe of three
years, which is the same time period that has been used in the
Viability Statement. The Viability Statement takes into account the
principal risks. The underlying analysis that has been performed has
included stress testing of different scenarios of these principal risks.
Certain risks, notably risks 2, 4, 7, 9 and 10, are risks that have
been newly identified or escalated to be principal risks in the
past year and reflect the dynamic nature of the risk environment
in which Vectura operates, as well as the ability of our risk
management system to detect and respond to such changes.
A number of principal risks from 2015 have also been de-escalated
or are no longer relevant.
Increased risk
Decreased risk
No change
STRATEGIC RISKS
1. Product exposure to generic competition before anticipated patent expiration date could erode value
of on-market branded products or future value of development programmes
Risk
Mitigating activities
Generic drug manufacturers seeking marketing approval for products
protected by Vectura or partner patents could be successful
in attacking the validity or enforceability of Vectura or partner
patents. This would result in the product being exposed to generic
competition before the anticipated expiration date of the patent,
materially affecting Vectura’s revenues or the anticipated value
of programmes currently in development.
Other competitors routinely challenge Vectura patents, which
could impact on current and future revenue streams if successful.
Vectura owns a portfolio of patents and patent applications
and is the authorised licensee of other patents. Dedicated internal
resource, supplemented with external expertise where required,
continually reviews the intellectual property landscape relevant
to our products, development programmes and manufacturing
activities. Risks are communicated to the business and any
challenges to Vectura patents are rigorously defended. The IP
team ensures that changes in patent laws and regulations are
incorporated into processes for obtaining, maintaining and
enforcing global patent protection.
Processes are in place to ensure that patent applications are
filed in a timely manner and are prosecuted diligently. Robust
processes are in place to automate patent renewals. Internal
controls are in place to avoid disclosure of patentable material
prior to filing patent applications to protect know-how.
2. Third-party patents could limit the Group’s freedom to operate (FTO)
Risk
Mitigating activities
A third-party patent could be granted with broad claims that read
on to a Vectura technology, device or product, which could result
in Vectura or a partner potentially having to take licence, or even
being unable to commercialise a product, materially affecting
Vectura’s future revenues.
The Group is very diligent in carrying out freedom to operate
searches to identify potential third-party IP. In some cases this
responsibility is with Vectura partners, with appropriate strategies
and action plans agreed with Vectura partners where necessary.
Trend
2016
2015
Trend
2016
22
Vectura Group plc Annual Report and Accounts 2015/16 Increased risk
Decreased risk
No change
STRATEGIC RISKS CONTINUED
3. Corporate inexperience of late phase development could result in delays to programmes or missed
financial targets
Risk
Mitigating activities
The Group has not previously taken a product to market on its
own; however, it is now focusing on a number of late-stage wholly
owned development programmes which may ultimately provide
the Group with the opportunity to self-commercialise. Failure to
complete development activities to plan may impact the Group’s
ability to bring products to market on time, which may further
erode the potential value of such programmes and would hinder
the Group’s ability to deliver its stated strategy.
Individuals with the necessary skills and experience have been
recruited into the Group to lead and oversee the development of
the Group’s late-stage assets. The Group continues to work with a
network of experienced consultants and contractors who
provide additional support and expertise as required. The changing
resource requirements of the Group are fully considered as part
of the people strategy in place.
The Group has an established governance process to oversee
the conduct and delivery of all development programmes and
to ensure that any potential changes to the development plan or
budget are identified and discussed in a timely manner such that
mitigating activities or actions can be put in place as required.
4. Failure to successfully integrate post-merger may lead to increased costs, loss of key personnel,
delays in delivering strategic objectives and failure to deliver communicated cost synergies
Risk
Mitigating activities
Corporate inexperience in large M&A could result in the suboptimal
management of the proposed merger with Skyepharma PLC,
resulting in loss of key personnel, cost reduction synergies not
being delivered and failure to achieve desired return on capital.
Loss of key personnel could have a material impact on the
Group’s operations.
Structured post-merger integration plans have been established
to help ensure that the integration is executed successfully.
Vectura also has access to, and support from, external subject
matter experts. The internal team has grown and the team has
gained experience from the successful integration of Activaero.
A range of benefits, including long-term incentive plans,
are utilised to encourage retention of key personnel.
Trend
2016
2015
Trend
2016
5. Loss of, or reliance on, a strategically important partnership may materially impact the Group’s current
and future revenues and costs
Risk
Mitigating activities
Vectura currently has a number of strategically important
partnerships, collaborations and licensing arrangements for the
development, manufacture and commercialisation of certain
pipeline and commercial assets. Loss of any one of our strategically
important partnerships, collaborations or licensing arrangements
could have a material impact on Vectura’s future prospects.
Vectura has a number of products that are marketed by partners
and we are dependent upon those partners for obtaining regulatory
approval for, and the marketing and commercialisation of, those
products. The marketing and commercialisation strategy taken by
a partner could materially impact the level of royalties earned by Vectura.
Vectura is also reliant on suppliers for the development and
manufacture of certain devices. Any poor performance of the
third parties could delay or prevent devices from being successfully
developed and delivered to plan. This could result in key development
milestones being missed or associated payments being delayed and
could also affect partners’ confidence in Vectura’s ability to deliver.
Vectura has an agreed process for managing and entering
agreements and this includes appropriate oversight and approval
at Board level. All collaborations are performed under a suitable
legal agreement which is assessed by Vectura and its external
legal advisors.
Typically, for collaborations a joint steering committee (JSC) will
be established, which provides a mechanism by which Vectura
can ensure that any joint project team activity is managed
appropriately within our standard project management processes.
An alliance manager is identified for all licensing partnerships or
contract research organisation engagements.
Vectura has a broad list of disclosed and undisclosed partners,
thereby mitigating the loss of any one particular partnership due
to strategic and/or operational reasons beyond the control of Vectura.
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STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc RISK AND RISK MANAGEMENT continued
Our principal risks and uncertainties continued
Increased risk
Decreased risk
No change
OPERATIONAL RISKS
6. Operational disruption
Risk
Mitigating activities
Events such as fire or flood that lead to significant and prolonged
disruption to a research and development or manufacturing
operation upon which Vectura relies could result in loss of royalty
revenues and contractual liabilities, as well as delays to
development programmes.
Vectura identifies key suppliers in relation to its business
and, where possible, alternative sources of supply are sought
where this is economically feasible. Safety stock is also typically
held at levels commensurate with the identified risk.
Vectura’s asset management approach includes holding
duplicate parts and equipment for business-critical machinery.
We have established good working relationships with the
manufacturers of such equipment and we monitor our supplier
relationships to ensure effective and responsive service levels.
Risk contingency is built into product development plans, and
Group-wide business continuity plans have been established.
In addition, Vectura purchases comprehensive property damage
and business interruption insurance to provide cover in the event
of physical disruption.
7. Insufficient management bandwidth due to the proposed merger could lead to operational disruption
and missed operational and financial targets
Risk
Mitigating activities
The need to continue business-as-usual activities and drive
strategic growth at the same time as executing the merger
and delivering integration synergies could impose unprecedented
time pressure and capacity constraints on management bandwidth
and challenge its ability to effectively deliver on all responsibilities
and lead to failure to achieve corporate objectives.
As described above, structured post-merger integration plans
have been established to help ensure that the integration is
executed successfully. Vectura also has access to, and support
from, external subject matter experts. The internal team has
grown and the team has gained experience from the successful
integration of Activaero.
FINANCIAL RISKS
8. Exposure to foreign exchange risk could materially impact the Group’s reported results
Risk
Mitigating activities
A substantial proportion of the Group’s income from collaborative
agreements is received in US dollars and euros but expenditure
is predominantly incurred in pounds sterling. To the extent that
Vectura’s foreign currency assets and liabilities are not matched,
fluctuations in exchange rates between pounds sterling, the US
dollar and the euro may result in realised or unrealised exchange
gains and losses on translation of the underlying currency into our
presentational and functional currency of pounds sterling. Such
gains or losses may increase or decrease Vectura’s operating margin
and may adversely affect Vectura’s financial condition. In addition,
if the currencies in which the Group earns its revenues and/or holds
its cash balances weaken against the currencies in which it incurs
its expenses, this could adversely affect profitability and liquidity.
Increasing royalty revenues and the impending referendum on the
UK’s membership of the EU will further affect the magnitude of
this risk.
Where known foreign currency liabilities arise, foreign currency
revenue receipts are retained on deposit in the appropriate
currency in order to offset the exchange risk on these liabilities.
As at 31 March 2016, the Group had sufficient euro and US dollar
reserves to cover its immediate and short-term liabilities in
respect of these currencies.
Where a substantial net foreign currency liability exists, Vectura
will consider hedging against it to minimise foreign currency expense.
However, such hedging is based on estimates of liabilities and
future revenues and will not fully eliminate future foreign currency
exchange fluctuations.
24
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Vectura Group plc Annual Report and Accounts 2015/16 Increased risk
Decreased risk
No change
FINANCIAL RISKS CONTINUED
9. An unexpected tax liability could materially impact the Group’s reported results
Risk
Mitigating activities
Adverse interpretations or rulings on the tax effect of specific
transactions or changes in tax rulings which have been granted
could give rise to substantial costs in dealing with the appropriate
tax authorities and/or unfavourable tax treatments and tax liabilities
not currently envisaged or accrued, resulting in negative effects on
the financial condition or prospects of the Vectura Group.
Historically, the Group has been loss making and therefore this risk
is increasing in profile as the Group moves towards a
tax-paying position.
The Group uses external tax advisors in each of the jurisdictions
within which it operates to ensure continued compliance with
relevant legislation and to ensure that the impact of potential
future changes is fully understood and incorporated within
business plans.
BROADER RISKS SPECIFIC TO THE PHARMACEUTICAL INDUSTRY
10. Changes to regulations and operational restrictions due to Brexit
Risk
Mitigating activities
Due to the nature of this risk, no mitigating activities are in place
at the current time.
A referendum will be held in the UK on 23 June 2016 on whether
the UK will remain in the EU, and the Group faces a range of risks
associated with a vote to exit the EU. For example, as a significant
proportion of the regulatory regime applicable to the Vectura
Group is derived from EU directives and regulations, a vote in
favour of the UK exiting the EU could lead to material changes
in the regulatory framework applicable to the Vectura Group’s
operations. In addition, a UK exit from the EU could result in
restrictions on the movement of capital and the mobility of
personnel, for instance. Any of these risks could result in higher
operating costs and could have a material adverse effect on the
Vectura Group’s business operations and financial conditions.
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STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc RISK AND RISK MANAGEMENT continued
Our principal risks and uncertainties continued
Increased risk
Decreased risk
No change
BROADER RISKS SPECIFIC TO THE PHARMACEUTICAL INDUSTRY CONTINUED
11. Regulatory approvals
Risk
Mitigating activities
The international pharmaceutical industry is highly regulated
by governmental authorities in the UK, the US and Europe
and by regulatory agencies in other countries where Vectura
or a collaborator intends to test or market products they
may develop.
These regulatory requirements are a major factor in determining
whether a substance can be developed into a marketable product
and the amount of time and expense associated with such
development. There can be no assurance that Vectura’s, or a
collaborator’s, products will receive and maintain regulatory
approvals. Even if products are approved, they may still face
subsequent regulatory difficulties. Such difficulties may result
in financial loss and reputational damage.
We work closely with expert regulatory advisors and,
when appropriate, seek advice from regulatory authorities
on the design of key development plans for pre-clinical
and clinical programmes.
In respect of our collaborations and partnerships, we work
with a number of blue-chip pharmaceutical partners, such
as Novartis, Sandoz, Baxter and GSK, who have significant
regulatory expertise.
12. Unforeseen side effects
Risk
Mitigating activities
All drugs have a risk of adverse reactions and side effects
and therefore unforeseen side effects may result from the use
of Vectura’s, or a collaborator’s, products or product candidates.
This is an inherent risk which may be identified at any time,
even after a product has been approved and sold commercially.
Discovery of unforeseen side effects, other than those acceptable to
the regulators, may result in a substantial loss of royalty revenues,
other liabilities, a significant delay to a development programme or
withdrawal or suspension of regulatory approval.
Vectura and its collaborators conduct extensive pre-clinical and
clinical trials designed to test for and identify any adverse side
effects. In addition, there is a significant amount of safety data
available regarding existing marketed products to which our
generic products relate.
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Vectura Group plc Annual Report and Accounts 2015/16 Increased risk
Decreased risk
No change
BROADER RISKS SPECIFIC TO THE PHARMACEUTICAL INDUSTRY CONTINUED
13. Pricing and reimbursement
Risk
Mitigating activities
Where appropriate, products may be out-licenced to partners
who have the expertise to commercialise products and negotiate
pricing structures with third-party payors, especially in disease
indications that require large sales forces. Should Vectura
self-commercialise, this would be targeted commercialisation
for niche products with significant unmet need, which requires
a small sales force to target specialist physicians.
Our business model includes bringing highly innovative products
to address unmet needs and we are also involved in a number
of generics programmes which support government initiatives
to reduce costs. This adds balance to our business model in an
era of increasing cost containment.
Vectura or our collaborators may not be able to sell its products
profitably if reimbursement from third-party payors, including
government and private health insurers, is unavailable or limited.
A significant portion of Vectura’s future revenue is likely to depend
on payments by third-party payors, including government health
administration authorities and private health insurers. As such,
Vectura may be adversely affected by third-party reimbursement
and healthcare cost containment initiatives.
Vectura may not be able to sell its products profitably if
reimbursement from these sources is unavailable or limited.
Third-party payors are increasingly attempting to contain
healthcare costs through measures that are likely to impact
the products Vectura is developing, including:
• challenging the prices charged for healthcare products,
limiting both coverage and the amount of reimbursement
for new therapeutic products, and denying or limiting
coverage for new products that are approved by the
regulatory agencies; and
• refusing to provide coverage when an approved drug is used
in a way that has not received regulatory marketing approval.
In addition, in many European countries there has been an
increasing trend towards reference pricing, where the amount
of reimbursement is determined in light of reimbursement levels for
comparable drugs in other European countries. This is likely to
severely restrict the potential per unit price for many new drugs
unless such drugs can be significantly differentiated from existing
products. If products developed by Vectura or its partners are not
covered by government or other third-party reimbursement schemes,
are reimbursed at prices lower than those expected by Vectura, or
become subject to legislation controlling treatments or pricing,
Vectura and/or its partners may not be able to generate significant
revenue or attain profitability for any product candidates which are
approved for marketing.
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2015
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STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc RISK AND RISK MANAGEMENT continued
Our principal risks and uncertainties continued
Increased risk
Decreased risk
No change
BROADER RISKS SPECIFIC TO THE PHARMACEUTICAL INDUSTRY CONTINUED
14. Competition
Risk
Our business faces intense competition from a range of
pharmaceutical and biotechnology companies. Technological
changes could overtake the products being developed by Vectura
or by its collaborators.
Our competitors in the biotechnology and pharmaceutical
industries may have superior research and development capabilities,
products, manufacturing capability or sales and marketing
expertise. Many of our competitors have significantly greater
financial and human resources and may have more experience
in research, development and commercialisation. As a result,
our competitors may develop safer or more effective products,
implement more effective sales and marketing programmes
or be able to establish superior proprietary positions. In addition,
we anticipate that we will face increased competition in the
future as new companies enter Vectura’s markets and alternative
products and technologies become available.
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Mitigating activities
Vectura performs detailed reviews of the development process
and progress of projects through trials. For programmes managed
in house, Vectura has an established project management
framework. The potential commercial opportunities for each
project are assessed at the end of each stage of the project.
Projects are assessed using widely accepted valuation metrics
based upon discounted cash flows. These cash flows are discounted
using a hurdle rate that is in line with industry standards and the
expected return of each project is further risk adjusted by its
phase of development. Vectura has experienced development
and commercial teams who all contribute to this assessment.
This in-house review is supplemented by well regarded disease
area reports and, where appropriate, bespoke market research.
Under this framework, research and development programmes
will only be approved by the Board if it can be shown that the
expected benefits outweigh the expected costs. All programmes
are subject to a stage-gate approval process and, in the event
that it was no longer considered that future revenues would be
higher than future costs, the Board would consider terminating
or redefining the programme.
Where appropriate, the Group looks to mitigate the development
and commercial risk of its product pipeline by partnering drug
candidates at an appropriate stage. The partnering event crystallises
part of the programme’s value, with the goal of retaining an
attractive proportion of the commercial upside through future
milestones and an ongoing royalty interest from commercial sales.
Vectura’s current royalty-generating products are expected to
continue to provide royalties until patent expiry or until Vectura
is no longer entitled to receive royalties in accordance with a
licence agreement.
Vectura works closely with its advisors and obtains, where
necessary, opinions on the intellectual property landscape
relevant to the Group’s product development programmes
and manufacturing activities and processes. In addition,
Vectura works with a number of key licensing partners who
have significant expertise in the research, development and
commercialisation of pharmaceuticals. These licensing partners
have access to significant financial and human resources.
28
Vectura Group plc Annual Report and Accounts 2015/16 Increased risk
Decreased risk
No change
BROADER RISKS SPECIFIC TO THE PHARMACEUTICAL INDUSTRY CONTINUED
15. Product liability
Risk
Mitigating activities
In carrying out its activities Vectura will potentially face contractual and
statutory claims, or other types of claims from customers, suppliers
and/or investors. Vectura is exposed to potential product liability
risks that are inherent in the research, the pre-clinical and clinical
evaluation, pre-clinical study, clinical trials, manufacturing, marketing
and use of pharmaceutical products. Consumers, healthcare
producers or persons selling products based on Vectura’s and its
collaborators’ technology may be able to bring claims against
Vectura based on the use of such products in clinical trials and
the sale of products based on Vectura’s technology.
Vectura maintains an appropriate level of product liability
insurance and operates quality systems relating to the
manufacture of products. Vectura has a pharmacovigilance
system to monitor safety events arising with respect to products
sold. Vectura’s insurance portfolio also includes other third-party
liability insurances which would provide cover in the event of
certain other contractual or statutory claims.
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Viability statement
In accordance with provision C.2.2 of the 2014 UK Corporate Governance
Code (“the Code”), the Directors have assessed the prospects of the
Group over the three-year period ending 31 March 2019. Given the
nature of Vectura’s business and the competitive environment within
which it operates, the Directors consider that this assessment period
represents a period for which costs and revenues associated with the
Group’s current portfolio and pipeline can be reasonably projected.
The Group’s prospects are assessed primarily through its strategic
planning process, which is led by the Chief Executive Officer and
involves representatives from relevant business functions within
the Group. The Board conducts a robust assessment of the strategic
plan in light of the principal risks facing the Group and the potential
impact these risks could have on the Group’s business model, future
performance, solvency or liquidity over the assessment period.
Although the strategic plan reflects the Directors’ best estimate
of the future prospects of the Group, they have also tested the
potential impact of a number of scenarios over and above those
included in the plan; this includes modelling the impact of certain
key sensitivities, relating to both revenues and costs, on the
financial forecasts.
Based on the Group’s current position, principal risks and the analysis
outlined above, the Directors have concluded that there is a reasonable
expectation that the Group will be able to continue in operation
and meet its liabilities as they fall due over the three-year period
of their assessment.
Going concern
At the time of approving the financial statements, the Directors
have a reasonable expectation that the Group and the Company
will continue in operational existence for the foreseeable future.
Thus they continue to adopt the going concern basis of accounting
in preparing the 2015/16 Annual Report.
The basis of preparation is explained in note 1 to the
financial statements.
29
STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc OUR PRODUCTS
MARKETED PRODUCTS
AT A GLANCE
We have eight products marketed by partners. We receive
royalty income from the sales of these products.
30
Vectura Group plc Annual Report and Accounts 2015/16 PARTNERED
Ultibro® Breezhaler® (EU & RoW) – LABA-LAMA
(indacaterol/glycopyrronium bromide)
Primary indication:
COPD
Partner:
Description:
A novel, once-daily fixed dose, dual
bronchodilator approved in the EU as a
maintenance bronchodilator treatment
for adult patients with COPD.
History:
Glycopyrronium bromide was exclusively
licenced to Novartis in April 2005
by Vectura and our co-development
partner Sosei Group Corporation.
Progress:
Approved for use in over 80 countries
(including Japan and countries in the EU).
Seebri® Breezhaler® (EU & RoW) – LAMA
(glycopyrronium bromide)
Primary indication:
History:
COPD
Partner:
Description:
A novel, once-daily fixed dose, maintenance
bronchodilator treatment for adult
patients with COPD.
Glycopyrronium bromide was exclusively
licenced to Novartis in April 2005 by
Vectura and our co-development
partner Sosei Group Corporation.
Progress:
Approved for use in over 90 countries
(including Japan and countries in the EU).
AirFluSal® Forspiro® (EU & RoW) – ICS-LABA
(fluticasone propionate/salmeterol)
Primary indication:
History:
Asthma/COPD
Partner:
Description:
Innovative inhaler with inhaled combination
therapy for asthma and/or COPD.
Vectura initially developed the product and
created the design of the innovative inhaler
before licensing the asset to Sandoz in 2006.
Progress:
Approved in more than 40 countries and
launched in 24 countries (including South
Korea, Mexico and countries in the EU).
Photos of Seebri® Breezhaler® and Ultibro® Breezhaler® courtesy of Novartis AG. Ultibro®, Seebri®, Breezhaler®, AirFluSal®
and Forspiro® are registered trade marks of Novartis AG.
31
STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc OUR PRODUCTS continued
PARTNERED continued
ADVATE® (Global)(1) – Antihaemophilic Factor (Recombinant)
Primary indication:
Haemophilia A
Partner:
Description:
For the treatment of haemophilia A and marketed worldwide by Baxter, from which Vectura
earns royalties from sales.
History:
In 2000, Vectura granted worldwide rights to Baxter to use its stabilisation patents
in its serum-free recombinant Factor VIII, ADVATE®.
(1) Advate came off patent at the end of January 2016. Vectura does not expect to receive any material royalties from this
product during its financial year ending 31 March 2017, or thereafter.
Adept® (Global) – Icodextrin
Primary indication:
Prevention of
surgical adhesions
Partner:
Description:
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.
History:
In December 2005, Vectura signed a licence deal with Baxter for the manufacture
and distribution of Adept®.
32
Vectura Group plc Annual Report and Accounts 2015/16 LICENCED
In August 2010, GSK entered into a licence and an option-to-licence 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 of £13m per calendar year(1).
Anoro® Ellipta® (Global) – LAMA-LABA
(umeclidinium/vilanterol)
Primary indication:
COPD
Technology
licensee:
GSK
Description:
A multi-dose dry powder inhaler containing an anticholinergic, umeclidinium,
and a long-acting bronchodilator, vilanterol, formulated by GSK using proprietary
Vectura technology.
Relvar® Ellipta®/Breo® Ellipta® (Global) – ICS-LABA
(fluticasone furoate/vilanterol)
Primary indication:
Description:
Asthma, COPD
Technology
licensee:
GSK
A multi-dose dry powder inhaler containing a steroid, fluticasone furoate,
and a long-acting bronchodilator, vilanterol, formulated by GSK using proprietary
Vectura technology.
Incruse® Ellipta® (Global) – LAMA
(umeclidinium)
Primary indication:
Description:
A multi-dose dry powder inhaler containing an anticholinergic, umeclidinium,
formulated by GSK using proprietary Vectura technology.
COPD
Technology
licensee:
GSK
Anoro® Ellipta®, Relvar® Ellipta®/Breo® Ellipta® and Incruse® Ellipta® are registered trade marks of GSK, photos courtesy of GSK.
+
Read more about our product pipeline on page 34
(1) Refer to note on licence in Financial Review (Royalties).
33
STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc OUR PRODUCTS continued
PRODUCT PIPELINE
1
2
PRE-CLINICAL
PHASE I
PHASE II
VR475 (FAVOLIR®)
Severe Adult Asthma (US)
VR179 (Grifols)
Cystic Fibrosis (Global)
VR647 (SCIPE)
Paediatric Asthma (US)(1)
VR736 (Ventaleon)
Severe Influenza (Global)
VR465 (Ablynx)
RSV Infection (Global)
VR588
Severe Inflammatory
Airways Disease (Global)
VR942 (UCB)
Uncontrolled Asthma
(Co-development global)
VR096 (Janssen)
Anti-inflammatory
Asthma and COPD (Global)
I
™
E
T
R
O
V
A
F
I
P
D
(1) Bridging study to enable Phase III.
Branded
Generic
Biologic
Partnered
Wholly owned
34
Vectura Group plc Annual Report and Accounts 2015/16 3
PHASE III
GENERICS
PRE-LAUNCH
VR475 (FAVOLIR®)
Severe Uncontrolled
Adult Asthma (EU)
VR876
(partner undisclosed)
Serious Lung Disease (Europe)
QVM149 (Novartis)
Asthma (EU, RoW)
VR315 (Hikma)
Asthma/COPD (US)
VR506 (Hikma)
Asthma (US)
VR632 (Sandoz)
Asthma/COPD (EU)
Utibron™
Neohaler® (Novartis)
COPD (US)
Seebri™
Neohaler® (Novartis)
COPD (US)
Branded
Generic
Biologic
Partnered
Wholly owned
35
STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc OUR PRODUCTS continued
BRANDED AND GENERIC
INVESTIGATIONAL DRUGS
(PARTNERED AND WHOLLY OWNED)
PRE-CLINICAL
VR588 Severe Inflammatory Airways Diseases
(Global)
VR588 is a broad-based, potent and selective pan-JAK inhibitor that
demonstrates a pharmacokinetic profile suitable for development
as an inhaled treatment. Pre-clinical development activities have
progressed successfully and Phase I-enabling inhalation toxicology
studies have commenced.
This product pipeline asset has the following key elements:
• multiple indications are possible; and
•
investment and focus on activities that generate data to support
licensing will be minimised.
1
PHASE I
VR475 (FAVOLIR®) Severe Uncontrolled Adult Asthma
(US)
VR475 is an inhaled, add-on therapy for the treatment of adult patients
with severe, uncontrolled asthma with a history of exacerbations with
or without dependence on oral corticosteroids. VR475 is a drug/device
combination comprising “smart” delivery of nebulised budesonide,
delivered with Vectura’s smart nebuliser system, the AKITA® JET,
utilising Vectura’s FAVORITETM technology.
This product pipeline asset has the following key elements:
• developed to reduce exacerbations in severe uncontrolled
asthmatics (GINA steps 4 and 5) with a history of exacerbations
and/or dependence on oral corticosteroids;
• aim to show greater efficacy than conventionally nebulised
budesonide and to be more cost effective than mAbs;
• programme endorsed by CHMP scientific advice procedure; and
• development plan will be discussed with FDA post completion of
the EU clinical study.
VR647 (SCIPE) Paediatric Asthma
(US)
VR647 is a drug/device combination comprising “smart” delivery of
nebulised budesonide for maintenance treatment of asthma in children
for the US market, delivered with Vectura’s smart nebuliser system, the
AKITA® JET nebuliser, utilising Vectura’s FAVORITETM technology.
This product pipeline asset has the following key elements:
• opportunity to introduce an improved product to an established
US market;
• developed to increase precision and reduce dosing time in children;
• developed as a maintenance treatment for asthma for the paediatric
label only (age range twelve months to eight years) with the
objective to retain current label/indication for budesonide;
• FDA agreed 505(b)(2) pathway for development programme;
• anticipated IND filing in mid-2016; and
• Phase III study to start mid-2018 with filing anticipated in mid-2020.
VR465 (Ablynx) Respiratory Syncytial Virus Infection
(Global)
The Belgian biotech company Ablynx is developing the anti-RSV
Nanobody® ALX-0171 for the treatment of RSV infections in infants.
ALX-0171 is a Nanobody drug candidate, administered via inhalation, for
the treatment of RSV infection in infants. VR465 is being developed by
our partner Ablynx and utilises Vectura’s smart nebuliser technology device,
the FOX®, to deliver the Nanobody to patients. The FOX® device used in
this programme has been adapted for use with neonates and infants.
Ablynx confirmed in December 2015 that it has completed target
enrolment of the first in-infant Phase I/IIa safety study with its wholly
owned anti-RSV Nanobody®, ALX-0171.
Post the period end, on 2 May 2016, Ablynx reported positive top line
results which they believe supports advancement into a Phase II efficacy
study in infants.
Branded
Generic
Biologic
Partnered
Wholly owned
36
Vectura Group plc Annual Report and Accounts 2015/16 VR942 (UCB) Uncontrolled Asthma
(Co-development global)
In September 2013, Vectura and UCB announced a collaboration for the
development of an innovative inhaled biologic immunomodulatory product
in the area of severe inflammatory respiratory disease.
The partnership, leveraging Vectura’s DPI/formulation and clinical/regulatory
experience with UCB’s biologics and immunology expertise, will focus upon
the development of VR942 to completion of Phase II clinical proof of concept.
In June 2015, following the successful completion of a number of pre-clinical
studies, enrolment commenced into a Phase I clinical study in healthy
volunteers and patients with asthma.
The selection of final Phase II clinical study design is anticipated in H1 2016.
2
PHASE II
VR179 (Grifols) Cystic Fibrosis
(Global)
VR179 is a nebulised alpha-1 antitrypsin product, under investigation
for the treatment of cystic fibrosis. The programme is partnered with
the Spanish company Grifols.
VR736 (Ventaleon) Severe Influenza
(Global)
VR736 is an inhaled treatment, delivered by Vectura's smart nebuliser
system, the AKITA® JET, for hospitalised patients with severe influenza,
which is being developed by Ventaleon; Vectura has a minority stake
with an investment syndicate.
3
PHASE III
VR475 (FAVOLIR®) Severe Uncontrolled Adult Asthma
(EU)
VR475 is an inhaled, add-on therapy for the treatment of adult patients
with severe, uncontrolled asthma with a history of exacerbations with
or without dependence on oral corticosteroids. VR475 is a drug/device
combination comprising “smart” delivery of nebulised budesonide, delivered
with Vectura’s smart nebuliser system, the AKITA® JET, utilising Vectura’s
FAVORITETM technology.
This product pipeline asset has the following key elements:
• developed to reduce exacerbations in severe uncontrolled asthmatics
(GINA steps 4 and 5) with a history of exacerbations and/or dependence
on oral corticosteroids;
• aims to show greater efficacy than conventionally nebulised
budesonide and to be more cost effective than mAbs;
• a programme endorsed by CHMP scientific advice procedure;
• Phase III results anticipated in mid-2018; and
• patient recruitment underway.
VR876 (partner undisclosed) Serious Lung Disease
(Europe)
This is being developed by an undisclosed partner as a nebulised
version of a currently marketed drug for the treatment of serious lung
disease. It uses Vectura’s smart nebuliser technology to improve the
patient acceptance of the product. Regulatory action is expected in
2016 and subsequent commercialisation if approved.
VR096 (Janssen) Anti-inflammatory Asthma/COPD
(EU, RoW)
QVM149 (Novartis) Asthma
(Global)
Global development and licence agreement with Janssen for the exclusive
development of novel anti-inflammatory therapies for the treatment of
asthma/COPD. Initial focus is on the development of a Phase II candidate
with the possibility to include additional clinical-stage candidates.
Leveraging Vectura’s expertise and proprietary dry powder inhaler
technologies for the development of inhaled therapeutics. Vectura will
apply its delivery technologies to develop Janssen’s pulmonary products
into late-stage clinical development and commercialisation.
The clinical development programmes is led by Janssen, with Vectura
responsible for pharmaceutical development and manufacturing to
support Phase II clinical trials and beyond.
QVM149 is a fixed dose, once-daily combination of the LABA indacaterol,
the LAMA glycopyrronium bromide and the ICS mometasone furoate.
First regulatory filings of QVM149 are planned for 2018.
Glycopyrronium bromide was licenced exclusively to Novartis in April 2005
by Vectura and its co-development partner Sosei.
Under the terms of the agreement with Novartis, Vectura is eligible
to receive development, filing and approval milestones.
Branded
Generic
Biologic
Partnered
Wholly owned
37
STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc OUR PRODUCTS continued
GENERICS
PRE-LAUNCH
VR315 (Hikma) Asthma and COPD
UtibronTM Neohaler® (Novartis) COPD
(US)
VR315 is the generic version of GSK’s Advair® Diskus®, which is indicated
for the treatment of asthma and the maintenance treatment of airflow
obstruction and reducing exacerbations in patients with chronic
obstructive pulmonary disease (COPD) and is delivered using Vectura’s
proprietary dry powder inhaler and formulation technology. In August
2011, Vectura signed a licence agreement for the development, manufacturing
and commercialisation of VR315 in the US with Roxane Laboratories,
Inc., a subsidiary of Boehringer Ingelheim Corporation.(1)
(US)
UtibronTM Neohaler® was approved in October 2015 as a twice-daily
dual combination of indacaterol and glycopyrrolate in the US for the
long-term maintenance treatment of airflow obstruction in patients
with COPD, including chronic bronchitis and/or emphysema. Novartis
has indicated this product should be available in the US in 2016. Once
launched, the product will bring a new royalty stream for Vectura.
• Vectura will receive an US$11m payment on approval of file; and
SeebriTM Neohaler® (Novartis) COPD
• Vectura will receive a royalty from sales of VR315 in the US.
(US)
Post period 8 April 2016, Hikma confirmed that the ANDA had been
accepted for filing by the FDA. The FDA has provided Hikma with a
GDUFA goal date of 10 May 2017.
VR506 (Hikma) Asthma
(US)
VR506 is an inhaled corticosteroid for the treatment of asthma, which
entered clinical development in 2011. In June 2014, Vectura signed
a partnership agreement in the US with Roxane Laboratories, Inc.,
a subsidiary of Boehringer Ingelheim Corporation and is the same
partner as the VR315 programme.
Under the terms of this partnership agreement, Vectura’s partner is
responsible for the commercialisation and manufacture of the product
together with clinical development. Vectura has received an initial
payment of US$4.0m and is eligible to receive up to US$8.0m upon
achievement of future pre-determined milestones. In addition, Vectura
will receive a royalty from all VR506 US sales.
VR632 (Sandoz) Asthma and COPD
(EU)
VR632 is a generic, inhaled combination therapy for asthma and
COPD delivered using Vectura’s proprietary dry powder inhaler and
formulation technology.
In December 2007, Vectura signed a licence agreement with Sandoz
for the development, manufacturing and commercialisation of VR632
in Europe. To date, Vectura has announced receipt of development
milestones under the agreement of €1.75m.
SeebriTM Neohaler® was approved in the US in October 2015 as a
twice-daily standalone monotherapy for the long-term maintenance
treatment of airflow obstruction in patients with COPD, including
chronic bronchitis and/or emphysema. Novartis has indicated this
product should be available in the US in 2016. Once launched, the
product will bring a new royalty stream for Vectura.
UtibronTM and SeebriTM are trademarks of Novartis AG. Neohaler®
is a registered trademark of Novartis AG.
(1) Hikma completed the acquisition of Roxane Laboratories, Inc. from Boehringer
Ingelheim Corporation in February 2016.
Branded
Generic
Biologic
Partnered
Wholly owned
38
Vectura Group plc Annual Report and Accounts 2015/16 OUR TECHNOLOGY PLATFORMS, DEVICES AND DEVELOPMENT CAPABILITY
PATENT-PROTECTED
TECHNOLOGY PLATFORMS
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
39
STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc
OUR TECHNOLOGY PLATFORMS, DEVICES AND DEVELOPMENT CAPABILITY continued
ENABLING THE DEVELOPMENT AND
DELIVERY OF VALUE-ADDING PRODUCTS
Vectura has a number of patent-protected technology platforms which generate revenue and will
continue to generate future income streams:
FORMULATION
(DRY POWDER)
(PowderHale®, PowderMax™ and ParticleMax™)
DEVICE
(DPI AND SMART NEBULISER
DELIVERY SYSTEMS)
INHALATION
TECHNOLOGIES
(FAVORITE™)
The development of inhalation products is complex and requires specialist processes and know-how. Companies across
the world are keen to harness our expertise and technology for their own inhalation programmes.
DRY POWDER FORMULATION TECHNOLOGIES
Vectura has a long history and successful track record in the development of novel formulations. Vectura’s formulation technologies
seek to achieve state-of-the-art inhaled delivery of dry powders for both small molecules and biologic drugs.
These novel formulation approaches, together with extensive know-how,
have been applied to a broad range of DPI products, including both
generic and branded/innovative products.
Vectura’s expertise enables us to achieve performance aligned with
product delivery. For a generic product this will mean developing a
formulation/device combination with performance to match the
reference branded product both in laboratory testing and in the clinic.
For a branded/innovative product the goal is to maximise performance as
befits the target airways disease and mechanism of action of the drug.
Vectura not only has extensive experience in the development of lactose
blend formulations for small molecule drugs but also in the
development of dry powder formulations of biologics.
Dry powder formulation technologies for small molecule DPIs
Vectura has a range of industry-leading formulation technologies
to facilitate the development of successful DPI products:
PowderHale®
is a family of processes that primarily uses Force Control Agents (FCA)
to improve the performance of inhaled formulations. PowderHale® enables:
• high lung penetration of aerosolised drug particles;
•
improved delivered dose uniformity; and
• enhanced product stability.
PowderMax™
creates high performance dry powder formulations by advancing
PowderHale® FCA technology to optimise its placement on the
formulation constituents.
40
Dry powder formulation technologies for inhaled biologics
ParticleMax™
spray drying particle engineering technology
was developed to deliver dry powder biologics
and can produce uniform mixtures of drugs
and excipients and can be used to co-formulate
multiple APIs in the same particle at a fixed ratio.
ParticleMax™offers:
• reproducible and robust process with good yields;
• “gentle” process for labile molecules;
• design and control of particle characteristics (density, surface
characteristics, etc.), e.g. using force control agents to improve
blister emptying and fine particle mass;
•
improved product stability (especially for biomolecules), via sugar
glass technology; and
• scalable process for commercial production.
A wide range of biologic and small molecules have been successfully
formulated including:
• antibodies;
•
immunomodulatory proteins; and,
• cytokines.
Pharmaceutical development and GMP manufacturing capability
Vectura is able to apply these technologies to product development
programmes through all stages of pharmaceutical and product
development, including pivotal clinical trials and technical transfer
to commercial production. Vectura has state-of-the-art development
and Good Manufacturing Practice (GMP) facilities in Chippenham, UK,
serving our requirements in both small molecule and biologic product
spaces. This enables us to produce supplies for late-phase clinical trials
using equipment that is entirely representative of that which would be
used at the final commercial manufacturing site. This product development
capability is supported by an extensive analytical capability generating
the high quality data that is essential to the decision making required
in product development.
Vectura Group plc Annual Report and Accounts 2015/16 DRY POWDER INHALERS (DPIs)
Vectura’s range of pre-metered foil blister DPIs has been developed to meet patients’ needs in inhalation therapy for asthma and COPD.
The devices are low cost and easy to use, yet they meet challenging technical and regulatory requirements. The core technology and IP used
in GyroHaler® has also been incorporated in a family of devices aimed at meeting future product development and partnering opportunities.
GyroHaler®
GyroHaler® is a cost-effective multi-unit dose dry powder inhaler designed to deliver locally acting drugs to the
lungs. The device has a Red Dot design award and is approved and marketed in Europe and other territories as
Sandoz’s AirFluSal® Forspiro® (Forspiro® is the name Sandoz gave to Vectura’s GyroHaler® device). GyroHaler® is
suitable for the delivery of a wide range of respiratory drugs and offers:
• foil blister strips of up to 60 pre-metered doses;
• excellent moisture protection; and,
• reproducible dose delivery in line with stringent regulatory expectations.
Lever-operated
The lever-operated DPI is based on the proven GyroHaler® platform and offers:
• user interface that is familiar to many DPI patients;
• foil blister strips of up to 60 pre-metered doses;
• accommodation of the used blister strip; and,
• key drug-delivery components from GyroHaler®, particularly key drug-contact components.
Open-inhale-close
The open-inhale-close DPI is a development programme that is aimed at developing the simplest possible
user interface in addition to incorporating technology and IP used in the GyroHaler® and lever-operated DPI.
The open-inhale-close DPI offers:
• simple single-step preparation of the dose; and,
• key drug-delivery components from GyroHaler®.
Unit Dose DPI
The Unit Dose DPI is a high performance, reusable device. It uses the same foil blister material and filling
technology as GyroHaler® for optimum dose consistency and protection, and is capable of delivering high
doses of drug with high lung delivery efficiency. Unit Dose DPI offers:
• good blister emptying and high emitted dose (ED);
• high fine particle fraction (FPF);
• ability to deliver large payloads of drug;
•
low flow rate dependency; and
• ability to deliver biologic drugs.
Delivery technologies underpinning our products:
• Vectura has experience of developing products from initial feasibility
• Pre-metered foil blister;
• DPIs are one of the primary platforms used to deliver drug
substances to the lungs for the treatment of airways diseases;
• The development of DPI products is challenging and relatively
few companies have a broad capability in this area;
• Vectura has developed, and continues to develop, a range
of industry-leading technologies to facilitate the development
of successful DPI products;
through to transfer to commercial production combining both
device and formulation technologies;
• Vectura has demonstrated capability to adapt and quickly
develop alternatives to meet both EU and US requirements;
• Device patent coverage is geographically broad and long-dated.
41
STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc OUR TECHNOLOGY PLATFORMS, DEVICES AND DEVELOPMENT CAPABILITY continued
SMART NEBULISER DELIVERY SYSTEMS
Achieving higher and less variable regional deposition by FAVORITE™
Vectura’s smart nebuliser delivery systems provide targeted
inhalation therapy for applications where precise and targeted
delivery of a drug to the lungs is needed. To achieve this the
nebuliser device creates a liquid aerosol and co-ordinates delivery
as the patient inhales using the FAVORITE™ principle for precise
delivery of drugs to the lungs. All of Vectura's smart nebulisation
devices are CE marked and 510(k) cleared.
Delivery technologies underpinning our products:
• Smart nebulised(1) platform and for specialty applications
(1) Smart nebuliser technology utilises FAVORITE™
(Flow And VOlume Regulated Inhalation TEchnology)
Key features
AKITA® JET
Breath actuation
Low inspiration flow rate
Controlled inhalation volume
Faster delivery by increased
deposition efficiency
Additional features
• Customisation of treatment parameters
by smart card (dose, targeting and exclusivity)
• Positive pressure (potentially better
targeting of obstructed airways)
• Option for generating the aerosolisation
jet/mesh
FOX®
Aerosol bolus technology
Potential increase of efficacy
Additional features
• High performance aerosol
generation technology
Potential reduction of drug required
• Ultra low drug residual
CE marks and 510(k) clearances
• High speed aerosolisation
• Potential of generating smaller
particle size
• Vibrating mesh technology
• Higher potential for reduction of
drug requirements
• High degree of control and adjustability
for formulations/compounds
• Key-lock features for exclusive
drug/device combination use
42
Vectura Group plc Annual Report and Accounts 2015/16 FAVORITE™: Flow And VOlume Regulated Inhalation TEchnology
Clear opportunity to leverage FAVORITE™ approach used in AKITA® JET and FOX® devices
A patient’s breathing pattern can alter the efficiency of drug
delivery to different parts of the lung. Control of the inspiratory
flow rate, the inspiratory volume of the aerosol and the timing
during the inspiration when the drug aerosol is delivered can
materially affect how much drug gets to central or peripheral
parts of the lungs. This is the basis of our proprietary, smart
nebulisation-based technology known as FAVORITE™.
This control is achieved through a modified nebuliser unit that
delivers the nebulised aerosol tailored to the individual patient’s
breathing capacity. The increased efficiency of delivery means the
drug is distributed more efficiently allowing targeted deposition
in the lungs. Other benefits for the patient may also be derived
from this approach, such as reduced treatment time.
FAVORITE™ improves effectiveness of delivery by reducing
the impact of variable breathing patterns on drug delivery.
1 Faster delivery
2 Improve lung deposition
3 Less drug, better economics
4 Potential to improve outcomes
5 Range of indications where currently used today:
Asthma/COPD/Bronchiectasis/Cystic Fibrosis
Just air
Aerosol
Just air
Central airway deposition
e.g. bronchodilator applications
Just air
Aerosol
Deep lung penetration
e.g. Alpha–1 antitrypsin and antibiotics
Tidal breathing(1)
(typical short and abrupt
inhalation pattern)
FAVORITE™ inhalation(1)
(slow and deep inhalation)
(1) Mayer et al. 2001: Deposition von therapeutischen Aerosolen in der Lungenperipherie. Aerosole in der inhalationstherapie, ed. G. Scheuch.
Vol. 5. 2001, Dustri-Verlag Dr Karl Feistle: München. 93–100.
43
STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc
FINANCIAL REVIEW
BUILDING A LEADING
RESPIRATORY COMPANY
Revenue growth of 24%, coupled
with a 17% increase in operating
expenditures as we continue to
invest in growth, translates to a
43% increase in EBITDA1 to £23.2m.
Andrew J Oakley
Chief Financial Officer
and Company Secretary
Revenue
EBITDA(1)
Basic EPS
Cash and cash equivalents
£72.0m
+24%
£23.2m
+43%
2014/15: £58.0m
2014/15: £16.2m
1.2p
+33%
2014/15: 0.9p
£99.8m
+11%
2015: £90.0m
Financial highlights
Underlying performance has continued to be strong and we are
pleased to report a 24% increase in revenues to £72.0m, driven by
significant organic growth in royalty streams derived from recently
launched products, augmented by a number of development
milestones in respect of partnered programmes. Growing and
sustainable royalty revenues have contributed positively to the
Group’s cash position, with current year net cash inflows from
operating activities of £32.9m (2015: £8.0m).
Revenue growth of 24%, coupled with a measured 17% increase in
operating expenditures as we continue to invest in growth, translated
to a 43% increase in EBITDA(1) to £23.2m. Overall research and
development expenditure for the financial year was at the lower
end of our initial guidance range as we maintained our disciplined
approach to capital investment, ensuring that research and
development investment is matched to growth in overall revenues.
Revenue
Vectura categorises revenues into five streams: royalties, product
licensing, technology licensing, development services and device
sales. In FY 2015/16, we have continued to see strong growth in
our royalty revenue stream which accounted for 54% of total
revenue (2014/15: 43%).
(1) Earnings before investment income, finance gains/(costs), tax, depreciation, amortisation,
and adjusted for non-recurring expenditure items.
44
Royalties
Royalty revenue of £39.2m has increased by 56% year on year;
this increase has been driven by a sustained increase in the overall
underlying sales of the recently launched products marketed by our
partners Novartis and GlaxoSmithKline (GSK).
Net sales of Ultibro® Breezhaler®, as reported by Novartis, have
grown by 83% to $286m for the twelve-month period ended
31 March 2016. In light of the strong growth in Ultibro® Breezhaler®
net sales, royalty revenue from Novartis for sales of Seebri® Breezhaler®
and Ultibro® Breezhaler® has increased to £10.9m during the year
(2014/15: £8.5m). During the year, Novartis announced US FDA
approval of Utibron™ Neohaler® and Seebri™ Neohaler® and,
once launched, these products will generate a new royalty stream
for Vectura.
We have also benefited from a marked increase in royalty revenue
from GSK for sales of Relvar®/Breo® Ellipta® and Anoro® Ellipta®,
and Incruse® Ellipta®. GSK reported net sales of £466.0m for these
three products, upon which Vectura earned a royalty of £13.0m
(2014/15: £3.8m). Under the terms of our agreement with GSK,
the maximum royalties payable to Vectura for sales of these
products is £13.0m in any one calendar year.
Vectura Group plc Annual Report and Accounts 2015/16 GSK and Vectura are parties to a patent licence and option-to-licence
agreement encompassing a number of Vectura patent families
relating to various formulation technologies relevant to GSK’s
Breo® Ellipta®/ Relvar® Ellipta®, Anoro® Ellipta® and Incruse® Ellipta®
products. A number of these patents expire in 2016, leading to the
potential for the licence agreement to expire in July 2016. Before
31 July 2016, GSK has the option to extend the term of the
agreement by licensing additional patent families.
Vectura possesses material evidence to suggest that certain of our
patents are applicable to these products and, our guidance assumes
the continuation of the option-to-licence agreement beyond July 2016.
Other royalty revenue is mainly derived from the two products
licenced to Baxter. During the year the patent for ADVATE® expired
and as such as we will only earn future royalties on sales of product
manufactured before 31 January 2016. Based on information received
from Baxter, we would expect to receive some royalty income from
sales of ADVATE® throughout the forthcoming financial year from
the remaining ADVATE® royalty bearing batches. Underlying sales
of ADVATE® during the year under review are broadly comparable
with the prior year on a constant currency basis and combined
with the impact of a favourable foreign exchange movement
royalty revenue earned from Baxter from sales of ADVATE® has
increased to £12.7m (2014/15: £11.8m). Adept® contributed
royalty revenues of £0.5m during the year (2014/15: £0.4m).
Product licensing
FY 2015/16 has been a year of excellent progress across our existing
partnerships, very much influenced by the receipt of the approval
milestones for SeebriTM Neohaler® and UtibronTM Neohaler®. These
two milestones, totalling $22.5m (£14.7m) comprise 70% of total
product licensing revenue. A further milestone of $3.75m (£2.5m)
was earned from Novartis upon the enrolment of the first patients
into a Phase III clinical trial for QVM149, a new inhaled triple therapy
for patients with moderate to severe asthma uncontrolled by
standard ICS/LABA medication.
In addition, we have seen significant progress in respect of our
VR315 US programme. During the year, additional milestone payments
totalling $5m (£3.4m) were recognised in respect of this programme
which is partnered with Hikma. Post year end, we announced a
further milestone of $10m earned upon FDA acceptance of an
ANDA filing by our partner. Vectura is eligible to receive a further
milestone payment $11m upon approval by the FDA and we will
receive a royalty on all sales of VR315 in the US.
In October 2015, we announced the receipt of a development
milestone associated with VR632 in the EU which is partnered
with Sandoz. Vectura will receive a royalty from all sales of VR632
in Europe in the event of successful launches.
Technology licensing
Technology licensing revenues of £3.4m (2014/15: £6.6m) primarily
relates to an important development milestone of €5.0m (£3.6m)
achieved in respect of our partnered programme for VR876 in Europe.
Vectura recognised net revenue of £2.9m in respect of this milestone.
Development services
Development services revenues of £4.7m were recognised during
the year (2014/15: £3.9m). This increase is the result of higher
demand for these specialist services from Vectura’s existing partners,
and in particular our collaboration on VR096 with Janssen Biotech.
Device sales
Device sales of £3.7m (2014/15: £2.5m) mainly relate to sales of
Vectura’s GyroHaler® device which support the continued rollout
and growth of AirFluSal® Forspiro® in a number of European and
Rest of the World territories.
Research and development expenses
Total investment in research and development (R&D) was £42.1m,
representing a 17% increase on the previous year (2014/15: £36.1m).
During the year, we continued to prioritise our investment in R&D
to ensure that our investment is measured, controlled, supportive of
our strategic objectives, and aligned to revenue growth. Accordingly,
we continued to progress two of our most advanced programmes,
VR475 EU and VR876, and total external expenditure on these
programmes was £4.7m during the year. We have continued to
develop VR942 in collaboration with our partner UCB and external
expenditure on this programme has increased compared to the
prior year.
R&D spend in FY 2015/16 was lower than our original guidance due to
our commitment to align increases in expenditure with revenue growth.
We will continue to undertake clinical activities in respect of VR475
in Europe, VR647 in the US and VR942 in collaboration with UCB.
We remain committed to managing our R&D within a predefined
range (£40–52m); however, assuming the proposed merger with
Skyepharma completes, we will conduct a full review of all ongoing
programmes to align our R&D investment with the strategic priorities
and the financial platform of the combined group.
Other administrative expenses
Other administrative expenses have increased from £4.5m to
£4.8m, mainly due to the increased scale of the Group as we
continue to expand.
Amortisation of intangible assets
The amortisation charge for the full year 2015/16 was £18.8m
compared to a charge of £20.9m in the prior year. The full year
charge related to the Activaero acquisition was £14.2m and the
remaining charge relates primarily to the amortisation of the ADVATE®
intangible asset associated with the Innovata acquisition. The
amortisation charge for the 2016/17 financial year will be substantially
higher if the proposed merger with Skyepharma is completed.
45
STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc FINANCIAL REVIEW continued
Share-based compensation
The share-based compensation charge for the year was £2.5m
compared to a £1.1m in the prior year. This increase is due to a one-off
share award that was made to James Ward-Lilley upon appointment
as Chief Executive Officer; further details of this award are provided in
the Remuneration report.
Non-recurring expenditure
Not included in the calculation of EBITDA is non-recurring expenditure
associated with the proposed merger of Skyepharma PLC. Total
non-recurring expenditure for the year was £5.6m and legal and
professional costs of approximately £6.0m will be recognised in the
2016/17 financial year, contingent upon completion of the merger.
This does not include any costs associated with integration or the
delivery of synergy benefits that are expected to arise as a result
of the transaction.
Loss before tax
Loss before tax of £1.9m has decreased by £4.3m during the year
(2014/15: £6.2m loss). This movement is driven by a sustained
increase in revenues, coupled with measured investment in R&D
and supplemented by a non-recurring investment income receipt of
£2.4m relating to the sale of Vectura’s shareholding in ProFibrix B.V.
Taxation
The total taxation credit of £6.9m (2014/15: £9.9m) comprises R&D
tax credits of £2.0m and non-cash taxation credits of £4.9m relating
to movement in deferred taxation liabilities and assets within the Group.
Profit after tax
Profit after tax of £5.0m has increased by £1.3m compared to the
prior year (2014/15: £3.7m profit). This movement is the result of
a significant reduction in loss before tax, offset by a reduction in
the R&D tax credit for the year.
Intangible assets
Intangible assets of £92.2m relate almost exclusively to the Activaero
acquisition (2014/15: £104.3m), being an asset carrying value of
€116m (2014/15: €135.5m) converted at the prevailing exchange
rate at the balance sheet date. The assets will continue to be amortised
over their remaining useful life. During the year, substantially all of
the assets acquired from the Innovata acquisition were fully amortised
following the expiry of the patents associated with the ADVATE®
product. The residual carrying value of the intangibles associated
with the Innovata acquisition is £0.4m relating the Adept® product
and this asset will be fully amortised during 2016/17.
the movement in the exchange rate between 31 March 2015 and
31 March 2016. In future periods, the movement in this reserve will
be dependent upon the £/€ exchange rate at the relevant balance
sheet dates.
Property, plant and equipment
Vectura has invested £1.4m in its inhaled product manufacturing
capabilities during the year (2015: £1.4m) and this capital investment
has supported the transition of manufacturing activities previously
performed at our Gemünden site to our other sites in Germany and
the UK.
Deferred income
Deferred income relates to milestone payments received but not
yet recognised as revenue. Of the £1.8m on the balance sheet,
£0.8m will be recognised as revenue during 2016/17 and £1.0m
which relates to the VR315 (AirFluSal® Forspiro®) RoW deal with
Sandoz will be recognised as revenue in later periods.
Foreign exchange rates
The following foreign exchange rates were used during the year:
Average rates
£/$
£/€
Period-end rates
£/$
£/€
2015/16
2014/15
1.51
1.37
1.44
1.27
1.61
1.27
1.48
1.37
Cash flow
Vectura continues to maintain a strong cash position with cash
and cash equivalents at 31 March 2016 of £99.8m (2015: £90.0m).
Vectura achieved a net cash inflow of £32.9m from operating activities
(2015: £8.0m), which is reflective of growing and sustainable cash
receipts from royalty revenue of our inhaled products and a
continued focus on cost control throughout the business.
During the year, Vectura made the final consideration payment of
€35m (£24.6m) to the former shareholders of Activaero. There are
no additional payments to be made in respect of this acquisition.
By order of the Board,
Translation reserve
The assets and liabilities, including goodwill, acquired from Activaero
are denominated in euros and, therefore, in accordance with accounting
standards, the Group has recognised a net foreign exchange gain
of £5.4m (2014/15: £11.4m loss) within reserves as a result of
Andrew J Oakley
Chief Financial Officer
46
Vectura Group plc Annual Report and Accounts 2015/16 CORPORATE RESPONSIBILITY
OUR VALUES PROMOTE AN
INCLUSIVE WORKING ENVIRONMENT
Our people strategy aims to create
a stimulating and rewarding place
to work, so that we can attract,
motivate and retain our highly
skilled and talented workforce.
Joanne Hombal
Director of Human Resources
Our values
Achievement
Enthusiasm
Participation
Innovation
Trust and respect
We remain committed to ensuring that our business activities
are conducted in a responsible manner for the benefit of our
stakeholders. In achieving this objective, we focus our activities in
four key areas which we believe are most relevant to our business:
our people, our local communities, our environmental footprint and
our governance. We believe that having empowered people, who
understand their responsibilities, who display sound judgement
and who act in an ethical way, is key to the ongoing success and
development of Vectura.
Our people
Our values
Our values clearly articulate our expectations and our aspirations.
We encourage and reinforce these values through our performance
management process and the “People’s Champion” award.
The “People’s Champion” is an annual award which allows our
employees to recognise and reward those individuals who have
acted as a behavioural role model, demonstrating our values
in a way that has inspired and engaged their colleagues.
We believe that our values promote an inclusive working environment
whereby individuals are rewarded for their individual and collective
contributions to the business.
Our employment practices
Vectura encourages diversity throughout all levels of the organisation.
We believe that individual success depends on ability, behaviour,
performance and evidenced potential and we remain committed to
offering career opportunities without discrimination. Our commitment
to equal opportunities, diversity and non-discrimination is enshrined
in our working practices and policies as set out in our Code of Conduct.
We operate on the basis of mutual respect and we do not tolerate
discrimination or harassment on any basis. Our Code of Conduct
covers all permanent and temporary employees, including Executive
and Non-Executive Directors, job applicants, agency staff, associates,
consultants and contractors.
We give full and fair consideration to every job application we receive.
Vectura has not set formal diversity quotas or targets and all
appointments, both internal and external, are ultimately made
on the basis of merit. Where possible, we support part-time and
flexible working, with around 17% of our employees benefiting
from some kind of flexible working practice.
James Ward-Lilley is the Board member responsible for overseeing
human resources and non-discrimination issues.
47
STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc CORPORATE RESPONSIBILITY continued
Overall gender breakdown as at 31 March 2016
Male
Female
141
161
156
2015
151
2016
Vectura’s Director gender split as at 31 March 2016
Male
Female
1
1
7
2015
7
2016
Vectura senior managers as at 31 March 2016
Male
Female
5
8
21
23
Our people continued
Our employee communications
We value the opinions and experience of our people.
In an industry based on innovation and research and development,
our employees are our biggest asset and it is therefore critical
that we forge strong connections through timely and meaningful
communication. Effective and engaging communication is at the
heart of our internal communication strategy.
We have established staff and managers’ forums. These forums
provide a mechanism by which all employees can raise issues that
matter to them for discussion, to enable employee feedback and to
facilitate the communication and dissemination of key information
throughout the organisation.
We hold quarterly business updates with all employees, hosted
by members of the Executive Leadership Team. We share strategy,
programme, people and business performance updates through
the use of a balanced score card, as well as publicly recognising
significant team or individual success, and facilitate two-way
dialogue through Q&A.
Our business leaders are subsequently equipped with briefing
packs to enable them to reinforce and personalise key messages
by following the quarterly employee updates with team cascade
sessions. This facilitates additional engagement and ensures that
all employees understand how the work they do contributes to
our overall progress.
We have launched our first internal communication survey in
order to examine the effectiveness of existing internal communication
channels and to identify opportunities for improvement. Our overall
results indicated that:
2015
2016
• the majority of respondents are satisfied with
internal communications;
• 72% feel adequately informed; and
49
• >90% of respondents report that our existing
channels are useful.
24
21
Further analysis of the feedback will be used to drive constructive
changes to include a new, interactive Company newsletter which
will be launched in the coming year.
We have also launched our annual employee engagement survey.
85% of employees responded, and we received feedback indicating
we are ahead of the comparator benchmarks (including the top
10% of participating companies) in the following areas:
• senior leaders clearly communicate our long-term goals
and strategy;
• high levels of co-operation between peers; and
• employees are prepared to put in extra effort to get the
job done.
We will use the feedback to determine key priority areas for
improvement going forward and will regularly communicate
our progress as we deliver our people strategy.
We monitor our employee turnover on a monthly basis to identify
any possible employee relations or motivational issues and to assist
in our recruitment and resource planning. We are pleased to report
that a significant percentage of our employees have five or more
years’ continual service.
Length of service
0–5 years
5–10 years
10–15 years
15–20 years
4
20–30 years
2
48
Vectura Group plc Annual Report and Accounts 2015/16 Developing and rewarding our people
Attracting and retaining skilled people with values aligned to our
company ethos is critical for our business and we aim to develop
and maintain a motivated and professional workforce. As such,
we recognise the importance of investing in our people, ensuring
that they are equipped to deliver in their current and future roles
within the business. In addition to investment in general training
and development, Vectura offers all employees the opportunity
to apply for scholarship funding. The Vocational Qualification
Award provides substantial financial assistance to those who
wish to pursue further self-development, largely in their own time.
Any course that would significantly enhance an employee’s skills
whilst benefiting Vectura is considered.
In order to provide opportunities for shared learning, we provide
interactive educational seminars every two months which are hosted
by internal subject matter experts and external speakers. We also
facilitate cross-company information sharing, teamwork and learning
via our annual “Vision” event. This event enables individuals and
teams to promote their work to their colleagues using innovative
and creative visual imagery, with an element of constructive
competitiveness engendered by a panel of judges who select
and reward the strongest entries.
Remuneration plays an important role in retaining and motivating
our people. We seek to provide well constructed and fair reward
systems designed to incentivise superior performance and align
the interests of our employees with those of our shareholders.
Our remuneration packages are designed to be both fair and
competitive and all remuneration packages include an element of
variable remuneration in the form of an annual bonus. The annual
bonus allows us to reward employees for achieving and exceeding
challenging corporate and individual objectives. In addition to our
remuneration packages, which include a pension entitlement,
permanent health insurance and life assurance and private medical
care, all employees are given the opportunity to participate in our
all-employee share plans. For more details of our all-employee
share plans, please refer to the Remuneration report.
Our local communities
We consider that one of the most significant impacts we can have
within our local communities is to continue to provide high quality
employment opportunities and to develop therapies to help patients
with airways-related diseases.
In addition, we support the STEM (Science, Technology, Engineering
and Mathematics) initiative, which is a major government programme
whereby our employees actively help local schoolchildren to gain
the understanding, capabilities and skills to flourish in a scientific
environment such as ours.
We are proud to have a highly creative and active Social Committee
which initiates a calendar of social and charitable events each year.
With a dedicated budget, this team is empowered to organise
engaging and rewarding activities to raise money for local charities,
as well as facilitating our support of nationwide charity campaigns
such as Comic Relief. Wherever possible, Company facilities are
made available for these events.
Our environmental footprint
Due to the nature of its activities, Vectura considers that it has a low
environmental impact. However, we remain committed to minimising
the impact of our activities on the environment and actively seek to
make energy savings in a way that is beneficial for the environment
and cost effective for the business. Andrew Oakley is the Board member
to whom responsibility for environmental issues has been delegated.
Vectura has a Green Action Team which meets regularly and has
responsibility to pursue initiatives for environmental sustainability
and carbon reduction.
Green Action Team
Our Green Action Team is responsible for raising environmental
awareness, driving good environmental behaviours and co-ordinating
environmental initiatives across the organisation. The team publishes
articles on environmental matters on our staff intranet and it manages
internal guidance for the use of heating and air conditioning. Each year,
the team organises an annual “Green Week” to promote ongoing
awareness of environmental matters amongst staff.
Our commitment to health and safety
Vectura considers health and safety to be a priority in its workplaces.
We have an established Health and Safety Committee that reviews
health and safety standards within the organisation. The Committee
continually monitors and reviews health and safety practices to
ensure that health and safety management procedures are robust
and in line with industry best practice. Annual updates are provided
to the Board for review and additional update reports are provided
as required. Trevor Phillips is the Board member to whom responsibility
for health and safety issues has been delegated.
Our environmental policies
Our Company environmental policy is modelled on ISO 14001
standards, and all staff are required to read and comply with
Vectura’s green working policy. Induction procedures for new
staff include sufficient information to ensure a high level
of compliance with our environmental standards.
Our environmental initiatives
Vectura has adopted and maintains a number of specific
environmental initiatives.
Specialist ongoing training is provided to those individuals who
are responsible for health and safety across the organisation.
General health and safety training is delivered to all staff via
in-house training sessions provided by our Health and Safety
Manager and by e-learning courses.
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 (2014/15: none).
Energy efficiency
• 52 solar panels are installed at our Chippenham site which
have generated over 38,000kWh of electricity since installation
in November 2012.
•
It is our policy that when an existing light unit requires
replacement it is replaced with an LED light. The LED lights
installed are up to four times more energy efficient than the
traditional light units that they replace. The majority of the
lighting at our Chippenham site is now LED.
49
STRATEGIC REPORTAnnual Report and Accounts 2015/16 Vectura Group plc CORPORATE RESPONSIBILITY continued
Our environmental footprint continued
Energy efficiency continued
• Passive infrared light sensors are installed in many general work
areas. This ensures that lighting is not left on in work areas that
are not currently in use.
Emissions data is reported using a financial control approach
to define our reporting boundary, which meets the requirements
of the Regulations in respect of those emissions for which we are
responsible. The information is presented for a twelve-month
period. Emissions have been measured for all sites.
• We continue our commitment to promoting “green IT”.
Where possible, we use virtual PCs that use c.20% of the
electricity of a standard desktop PC and we employ virtual servers.
The amounts shown below for total FY 2015/16 Scope 1 and Scope 2
emissions are those required to be reported under the Regulations.
Greenhouse gas emission by source(1)
2015/16
2014/15
2013/14
Waste management
Initiatives to effectively manage and reduce waste have been
implemented throughout the organisation:
Scope 1
Scope 2
• We recycle all paper and cardboard waste, aluminium cans,
plastics, printer toners/cartridges and redundant mobile
telephone handsets.
Total emissions (Scope 1 and 2)
Emissions reported (tonnes of CO2
per sq ft)(2)
431
1,426
1,857
215
1,506
1,721
142
1,272
1,414
0.03
0.02
0.02
• We operate a managed print solution to help control paper usage.
(1) GHG emissions reported in metric tonnes of carbon dioxide equivalents. Emissions factors
were sourced from the UK Defra database.
• We use registered waste disposal contractors and comply with
all relevant waste legislation.
The Carbon Disclosure Project
Vectura voluntarily reports its environmental performance under
the Carbon Disclosure Project (CDP). CDP plays an important 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 this year.
Greenhouse gas emissions
Vectura reports greenhouse gas emissions in accordance with
the Companies Act 2006 (Strategic Report and Directors’ Report)
Regulations 2013 (“the Regulations”).
Greenhouse gas assessment parameters
Baseline year
Intensity ratio(1)
FY13/14
GHG by gross building area(2)
(1) In order to express total annual emissions in relation to a quantifiable factor associated
with Vectura’s activities, gross building area has been used as an intensity ratio.
(2) Due to the nature of Vectura’s business, a large amount of energy is consumed in
maintaining air quality in the laboratories and therefore choosing gross building area
as an intensity ratio gives the fairest reflection of performance.
(2) Gas and electricity usage information has been obtained from purchase invoices and verified
by reference to meter readings. Vehicle fuel usage is based upon recorded mileage.
Our ethical and social policies
Vectura’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, Vectura seeks to conduct
its activities generally in accordance with good business ethics.
We have adopted a clear anti-bribery policy, which has been
communicated 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.
We do not believe that human rights issues present a significant
issue for Vectura, but we are committed to protecting the human
rights of our employees and the people who come into contact
with our business.
This Strategic report has been approved by the Board and is signed
by order of the Board:
James Ward-Lilley
Chief Executive Officer
25 May 2016
50
Vectura Group plc Annual Report and Accounts 2015/16
CORPORATE GOVERNANCE
INTRODUCTION
FROM THE CHAIRMAN
As a Board, we have a collective
responsibility to shareholders for the
sustainable long-term success of Vectura.
We believe that a strong and balanced
corporate governance framework is the
foundation of a successful organisation.
Bruno Angelici
Chairman
Dear shareholder
On behalf of the Board, I am pleased to present the Corporate
governance report for the year ended 31 March 2016.
As a Board, we have a collective responsibility to shareholders for
the sustainable long-term success of Vectura. We believe that a strong
and balanced corporate governance framework is the foundation
of a successful organisation. We adhere to the principles-based
approach set out in the UK Corporate Governance Code (“the Code”),
whilst recognising that our governance structure must be appropriately
tailored to suit the needs of our business.
Our corporate governance framework is built with a focus upon
effective leadership, clear communication, risk management and
a commitment to a culture of openness, honesty and integrity.
This framework is embedded within the culture of our organisation
through our core values and our underlying policies, procedures
and management processes.
Complying with the UK Corporate Governance Code
I am pleased to report that throughout the financial year, and
to the date of this report, Vectura has fully complied with the
principles and provisions set out in the Code. We will continue
to adhere to the Code and we will monitor developments and
implement improvements in our governance framework during
the year ahead.
Diversity and leadership
The Board recognises the importance of diversity, in its broadest sense,
at all levels within the organisation. When making appointments
to the Board, we have due regard for gender diversity; however,
all appointments are ultimately made on merit.
There have been significant changes to Board membership during
the year. Chris Blackwell stood down as Chief Executive with effect from
1 July 2015. The Board, with the support of independent external
advisors, appointed James Ward-Lilley as Chris’ successor. James
joins us having spent 28 years in various roles within AstraZeneca
and, most recently, was Vice president respiratory, inflammation
& autoimmunity, “Global Product and Portfolio Strategy” (GPPS)
and in this role James had responsibility for the development of
AstraZeneca’s “Respiratory, Inflammation and Autoimmunity” (RIA)
strategy, which included the acquisitions of Almirall’s respiratory
business and Pearl Therapeutics. Dr Per-Olof Andersson was
appointed to the Board as an independent Non-Executive Director
with effect from 1 April 2015.
Merger with Skyepharma PLC
Upon completion of the proposed merger with Skyepharma,
Andrew Oakley, Vectura’s CFO and Company Secretary, will leave
the Vectura Board, as will John Brown. Andrew will be replaced
on the Board by Andrew Derodra, Skyepharma’s CFO, who will
become CFO of Vectura. At the same time, Vectura will appoint
Frank Condella and Dr Thomas Werner, both currently Non-Executive
Directors of Skyepharma as Non-Executive Directors of Vectura.
One additional existing Vectura Board member will also leave the
Board, reducing the size of the Board to eight within 18 months
of completion of the merger.
Evaluating Board effectiveness
The annual Board performance evaluation was conducted internally
during the year and, following this process, it was concluded that
the individual members of the Board continue to be effective in
their roles and that they have the necessary skills and experience
to fulfil their duties. Details of the evaluation process and the
outcome can be found on page 58 of this report.
Communication with shareholders
The Board maintains its commitment to maintaining an open dialogue
with our shareholders. All of Vectura’s Directors will be in attendance
at our Annual General Meeting (AGM) on 7 September 2016 and will
be available to meet and address any questions from our investors.
Bruno Angelici
Chairman
25 May 2016
51
Annual Report and Accounts 2015/16 Vectura Group plcGOVERNANCE BOARD OF DIRECTORS
Bruno Angelici (MBA)
Non-Executive Chairman
James Ward-Lilley (BA, MBA)
Chief Executive Officer
Andrew Oakley (BEcon, MBA, ACA)
Trevor Phillips (BSc, PhD, MBA)
Chief Financial Officer and
Company Secretary
Chief Operations Officer
and President of US Operations
R
N
Tenure
Bruno Angelici, 68, was
appointed to the Vectura Board
on 1 December 2013 and became
Non-Executive Chairman in
February 2014.
Experience
Bruno is a French national
with an MBA (Kellogg School
of Management) and business
and law degrees from Reims.
Bruno’s career includes senior
management roles in pharmaceutical
and medical device companies.
Bruno retired from AstraZeneca
in 2010 as Executive Vice President
International after a 20-year career.
He was responsible for Europe,
Japan, Asia Pacific, Latin America,
the Middle East and Africa having
originally joined as president of
ICI Pharmaceuticals France. Prior to
this, he was at Baxter, a US-based
global supplier of medical devices.
He has extensive international
experience, including in the US, and
brings a deep understanding to
the Company of the medical device
and pharmaceutical industries.
External appointments
Bruno is a non-executive director
of Smiths Group plc, a technology
group, and Novo Nordisk A/S,
a global healthcare company
and world leader in diabetes
care. He is also a member of the
Global Advisory Board of Takeda
Pharmaceutical Company Ltd,
Japan, the largest pharmaceutical
company in Asia, and a member
of the supervisory board of
Wolters Kluwer NV, a global
information services and
publishing company.
Committee membership
Tenure
James Ward-Lilley, 51, was
appointed Chief Executive Officer
of Vectura in September 2015.
Experience
James is a BA Hons graduate, has
an MBA and holds an Institute of
Marketing Diploma.
Prior to joining Vectura, James
was vice president respiratory,
inflammation & autoimmunity,
Global Product and Portfolio Strategy
(GPPS) at AstraZeneca. In this role
James had responsibility for the
development of AstraZeneca’s
Respiratory, Inflammation and
Autoimmunity (RIA) strategy
which included the acquisitions
of Almirall’s respiratory business
and Pearl Therapeutics.
Prior to this, James led the
AstraZeneca investor relations
team from 2011 to 2012.
James had an extensive career at
AstraZeneca, spanning 28 years
across a variety of commercially
focused roles. James progressed
from sales and marketing roles
in the UK through to country
head of Belgium and Luxembourg,
a position he held between 2002
and 2005. He then led AstraZeneca’s
business in China to become the
number one pharmaceutical
company in the market in 2008.
James went on to become regional
vice president for Central Eastern
Europe and the Middle East, where
the business enjoyed a period of
strong growth, with sales doubling
to US$2bn during his tenure.
Tenure
Andrew Oakley, 53, was
appointed Chief Financial Officer
and Company Secretary of Vectura
in January 2015.
Experience
Andrew holds a Bachelor
of Economics Degree from
Macquarie University and an MBA
from London Business School
and has been a Member of the
Australian Institute of Chartered
Accountants since 1987.
Prior to Vectura, Andrew was the
chief financial officer at the Swiss
bio-pharmaceutical companies
Actelion Ltd and Novimmune SA.
Prior to joining Actelion, he served
in a senior finance capacity for
the global holding companies
of Accenture, having previously
held executive positions in major
multinational building material
companies, and has also spent
several years as an equity analyst
with banks in Australia, the UK and
the US.
Tenure
Dr Trevor Phillips, 55, joined
the Vectura Board in June 2012.
He was appointed Chief Operations
Officer in July 2011, having joined
the Company in January 2010 as
President of US Operations.
Experience
Trevor has a BSc in microbiology
from the University of Reading and
a PhD in microbial biochemistry
from the University of Wales.
He was awarded an MBA from
Henley Management College
in 1997.
Prior to Vectura, Trevor 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.
R Remuneration Committee
N Nomination Committee
A Audit Committee
Committee chairman
52
Vectura Group plc Annual Report and Accounts 2015/16
John Brown (CBE, PhD, MBA, FRSE)
Non-Executive Director
and Senior Independent Director
Susan Foden (MA, DPhil)
Non-Executive Director
Neil Warner (BA, FCA, MCT)
Non-Executive Director
Per-Olof Andersson (MD, PhD)
Non-Executive Director
R
N
A
R
N
A
R
N
A
R
Tenure
Dr John Brown, CBE, 61, joined
the Vectura Board in 2004.
Tenure
Dr Susan Foden, 63, joined the
Vectura Board in January 2007.
Tenure
Neil Warner, 63, joined the
Vectura Board in February 2011.
Tenure
Dr Per-Olof Andersson, 63, joined
the Vectura Board in April 2015.
Experience
John has a PhD in
Neuropharmacology from the
University of Edinburgh and an
MBA from Middlesex Business
School. 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 diseases. John is an
Honorary Professor of Edinburgh
University and is a Fellow of the
Royal Society of Edinburgh.
Experience
Susan has held various 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.
External appointments
John is chairman of Kyowa Kirin
International plc, Synpromics Ltd,
the Cell Therapy Catapult and the
Roslin Foundation. He also chairs
the Life Sciences Industry
Leadership Group for the
Scottish government.
External appointments
Susan holds a number of
non-executive directorships with
both public and private companies
in the biotech and healthcare field,
including BTG plc, BerGenBio AS,
the Cell Therapy Catapult and
Evgen Pharma plc.
Experience
Per-Olof was born in Sweden
and studied medicine at Lund
University. Per-Olof has an
international R&D track record
within the pharmaceuticals,
bio-pharmaceuticals and speciality
pharmaceutical industry and
considerable experience
in respiratory therapeutic
development. In 2011, Per-Olof
retired from Almirall where he
was executive director for R&D
and a member of the board of
directors. Prior to joining Almirall
in 2006, Per-Olof had a distinguished
international career at Pharmacia
and Pfizer over a period of nearly
20 years. Since 2011, Per-Olof has
been an independent consultant
advising biotech and pharmaceutical
companies and, in particular,
working with Almirall.
Experience
Neil has significant financial
and managerial experience in
multinational businesses. He was
finance director at Chloride Group plc,
a position he held for 14 years
until the company’s acquisition
by Emerson Electric. Prior to this,
he spent six years at Exel plc
(formerly Ocean Group plc and
acquired by DHL/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 and
was a non-executive director of
Dechra Pharmaceuticals plc, where
he was the senior independent
director and chair of the audit
committee. Neil has an economics
degree from the University of Leeds
and is a Fellow of the Institute of
Chartered Accountants.
External appointments
Neil is senior independent director
and audit committee chair of
Trifast plc, a global leader in design,
technology and manufacturing
of industrial fasteners for the
automotive and technology
sectors. Neil is also currently
the non-executive chairman of
Enteq Upstream plc, a specialist
reach and recovery products
and technologies provider to
the upstream oil and gas
services market.
Committee membership
R Remuneration Committee
N Nomination Committee
A Audit Committee
Committee chairman
53
Annual Report and Accounts 2015/16 Vectura Group plcGOVERNANCE
EXECUTIVE LEADERSHIP TEAM
Karl Keegan (BSc, MPhil, PhD, MSc)
Chief Corporate
Development Officer
Roger Heerman (BS, MBA)
Chief Commercial Officer
Joanne Hombal (BSc, PgDip, MCIPD)
Human Resources Director
Tenure
Joanne Hombal, 42, joined Vectura
in January 2015.
Experience
Joanne has a BSc in psychology
from the University of Birmingham,
a postgraduate diploma in human
resource management from the
University of Glamorgan and is a
Chartered Member of the Institute
of Personnel and Development.
Before joining Vectura, Joanne was
vice president HR at Invensys Rail,
with responsibility for setting and
leading the people strategy for
Northern Europe. She has also
held senior HR roles in the financial
services and ICT industries and
led a number of organisational
development and transformation
initiatives.
Tenure
Dr Karl Keegan, 49, joined
Vectura in September 2012.
Experience
Karl 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 Master’s 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 Dutch
biotech company listed on Euronext.
Tenure
Roger Heerman, 43, joined
Vectura in 2010 and was
appointed Chief Commercial
Officer in 2013.
Experience
Prior to joining Vectura, Roger gained
extensive US and international
commercialisation experience in
a number of senior roles, including
vice president sales and marketing
of the US publicly held company
Critical Therapeutics, Inc. and
as vice president, director of
client service at McK Healthcare.
At Critical Therapeutics, he was
responsible for the build-out of
the commercial infrastructure
and the launch of ZYFLO CR in
the US. At McK Healthcare,
Roger supported the launch and
repositioning efforts of numerous
US and global brands, including
UCB’s Neupro® for Parkinson’s
disease and IROKO’s Aggrastat®
for acute coronary syndrome.
Roger began his career in the
pharmaceutical industry as a sales
representative in the respiratory
division at GlaxoSmithKline.
He received his BS from Babson
College and his MBA from the
F.W. Olin School of Business
at Babson College.
54
Vectura Group plc Annual Report and Accounts 2015/16 CORPORATE GOVERNANCE REPORT
BOARD EFFECTIVENESS
AND COMPOSITION
Management and corporate structure
Shareholders
The Board
Chief Executive
Officer
Audit
Committee
Nomination
Committee
Remuneration
Committee
+
page 61
+
page 65
+
page 67
Executive
Leadership
Team
Statement of compliance with the UK Corporate Governance Code
The UK Corporate Governance Code (“the Code”) sets out the
standards of good practice in relation to corporate governance
to be applied by companies with a listing on the
London Stock Exchange. A copy of the Code can be found on
the Financial Reporting Council’s website (www.frc.org.uk).
The principles and provisions of the Code cover five areas: leadership
of the Company, effectiveness of the Board, accountability of the
Board, remuneration and relations with shareholders. The Board
confirms that Vectura has fully complied with the principles and
provisions set out in the Code throughout the year under review.
55
Annual Report and Accounts 2015/16 Vectura Group plcGOVERNANCE Key responsibilities
Whilst the Board delegates certain of its responsibilities to Board
Committees, there are certain matters that are considered to be
so important to the long-term success of Vectura that they are
reserved for Board decision and approval. Such matters include:
• approving business and strategic plans;
• approving budgets and monitoring performance against them;
• approving significant acquisitions, disposals and capital expenditure;
• approving Vectura’s Interim Report and Annual Report and Accounts;
• management of Vectura’s risk profile;
• Executive appointments and remuneration; and
• monitoring Vectura’s corporate governance arrangements.
CORPORATE GOVERNANCE REPORT continued
Leadership
The Board of Directors
The Board is collectively responsible for the leadership, direction
and sustainable long-term success of Vectura.
A well balanced Board is vital to ensure that there is appropriate
rigour and challenge in the decision-making process. Vectura’s
Board is comprised of Directors from various backgrounds who
have a breadth of professional and sector skills and experience.
During the year ended 31 March 2016, Vectura’s Board, headed by
the Chairman, was comprised of three Executive Directors and four
Non-Executive Directors who were determined by the Board to be
independent. The Executive Directors are responsible for Vectura’s
business operations, whereas the Non-Executive Directors are
responsible for bringing independent and objective judgement
to Board deliberations and decisions.
Chairman
Bruno Angelici
Board members (Executive)
Chris Blackwell (to 30 June 2015)
Board members (Non-Executive)
James Ward-Lilley
(from 24 September 2015)
Trevor Phillips
Andrew Oakley
John Brown
Susan Foden
Neil Warner
Per-Olof Andersson
Board and Committee meetings
The Board holds formal meetings on a bi-monthly basis, with further meetings being called when circumstances or urgent business dictates.
Additional meetings may be held via conference call.
The Board met ten times during the year. Details of Directors’ attendance at these meetings and meetings of the Board’s sub Committees
are set out below. In the event that a Director is unavailable to attend a Board meeting, or to attend by telephone link, he or she will
communicate their views on items to be raised at the meeting through the Chairman.
The
Board
Audit
Committee
Nomination
Committee
Remuneration
Committee
Meetings
attended/(held)
whilst the
Director was a
Board member
10/(10)
2/(3)
5/(5)
9/(10)
10/(10)
10/(10)
10/(10)
10/(10)
10/(10)
Meetings
attended/
(held)
n/a
n/a
n/a
n/a
n/a
3/(3)
3/(3)
3/(3)
3/(3)
Meetings
attended/
(held)
2/(2)
Meetings
attended/
(held)
6/(6)
n/a
n/a
n/a
n/a
2/(2)
2/(2)
n/a
2/(2)
n/a
n/a
n/a
n/a
6/(6)
6/(6)
4/(4)
6/(6)
Bruno Angelici (Chair)
Chris Blackwell
James Ward-Lilley
Trevor Phillips
Andrew Oakley
John Brown
Neil Warner
Per-Olof Andersson
Susan Foden
56
Vectura Group plc Annual Report and Accounts 2015/16 Board agenda
The Board’s main activities during the year are described below:
• review and approval of Vectura’s strategy;
• regular updates on business performance and market
conditions;
• review of project and pipeline progress;
• approval of the budget for FY 2015/16;
• review of progress against the approved budget for FY 2016/17;
•
internally facilitated review of Board effectiveness;
• approval of the corporate goals;
• appointment of James Ward-Lilley as Chief Executive Officer; and
• review and approval of proposal to merge with Skyepharma.
Information and support
To enable the Board to function effectively and to assist Directors
in discharging their responsibilities, full and timely access is given
to all relevant information. In the case of Board meetings, this
consists of a formal agenda and a comprehensive set of papers,
including regular business progress reports. An established
procedure is in place to ensure that such information is provided,
to Directors in a timely manner in advance of meetings.
Roles and responsibilities
Division of responsibilities between the Chairman
and the Chief Executive Officer
Clear roles and responsibilities are fundamental to the effective running
of the Board. Whilst maintaining a close working relationship, our
Chairman and Chief Executive Officer have clearly defined and
separate roles. These roles are set out in writing and have been
agreed by the Board.
The Chairman
Our independent Chairman, Bruno Angelici, is responsible for
the effective running of the Board and for ensuring its effectiveness
in all aspects of its role, in particular for creating the conditions
for overall Board and individual effectiveness by:
• providing a sounding board to the Chief Executive Officer;
• setting the agenda, style and tone of Board meetings;
• ensuring that the Board plays a full and constructive part
in the development of corporate strategy;
• ensuring the highest standards of leadership and governance
at Board level;
• ensuring that the performance of the Board, its Committees
and individual Directors are evaluated each year; and
• ensuring effective communications with shareholders.
The Chief Executive Officer
Our Chief Executive Officer, James Ward-Lilley, is responsible for all
aspects of the operation and management of Vectura and its business,
within the authorities delegated to him by the Board. In executing
this role, James is responsible for developing the Group’s long-term
strategic direction and strategy for consideration and approval
by the Board. He is also responsible for the Group’s operations,
strategy implementation and achievement of our operational
and financial targets.
James is supported in his role by other members of the Executive
Leadership Team (“the ELT”).
Executive Leadership Team
The Board has delegated responsibility for day-to-day management
of Vectura to the ELT. The ELT is comprised of the Chief Executive
Officer, the Chief Financial Officer, the Chief Operations Officer, the
Chief Corporate Development Officer, the Chief Commercial Officer
and the Director of Human Resources.
The ELT is responsible for developing the strategy approved by the
Board and, in particular, is responsible for ensuring that the Group’s
budget and forecasts are properly prepared, that targets are met
and that the business is managed and developed within the overall
Board-approved budget. Variations from the budget and changes
in strategy require approval of the Board.
The ELT normally has ten to twelve formal meetings during the
year, in addition to weekly update calls. Other senior operational
personnel also attend meetings of the ELT as appropriate.
Brief biographies of the ELT members are set out on pages 54.
Non-Executive Directors
The duties of the Non-Executive Directors include contributing to the
formulation of Vectura’s strategy, shaping proposals on succession
planning and constructively challenging the Executive Directors
where they consider it to be appropriate. Vectura’s Non-Executive
Directors are all experienced and influential individuals and their
skills and expertise facilitate the effective functioning of the Board,
ensuring that all relevant matters are fully debated and that no one
individual can dominate the Board’s decision-making process.
Our Non-Executive Directors are encouraged to meet the Chairman
without the presence of Executive Directors, as appropriate. Such
meetings between the Chairman and the Non-Executive Directors
took place during the year and included discussions relating to
each Executive Director’s performance.
Biographies of the Non-Executive Directors can be found on
pages 52 to 53.
Senior Independent Director
Throughout the fiscal year 2015/16 Dr John Brown has been and
continues in the role of Senior Independent Director and is available
to help shareholders with concerns that they cannot resolve through
our Chairman, Chief Executive Officer or Chief Financial Officer or
for which such a contact is inappropriate in the circumstances.
The Senior Independent Director is responsible for performing
an annual review of the performance of the Chairman and he is
available to act as an intermediary for Directors, if necessary.
It is Vectura’s intention that Dr John Brown will stand down from
the Board within one month after the completion of the merger.
57
Annual Report and Accounts 2015/16 Vectura Group plcGOVERNANCE CORPORATE GOVERNANCE REPORT continued
Effectiveness
Independence
The Board has determined that at least half of the Board, excluding
the Chairman, is comprised of independent Non-Executive Directors.
Key considerations are set out below:
Share options
The holding of share options by Non-Executive Directors could
be, amongst other things, relevant in determining whether a
Non-Executive Director is independent. As at 31 March 2016,
no Non-Executive Directors hold share options in Vectura.
There is no intention to award any further options to any
Non-Executive Director.
Material business relationships
Other factors that may reflect on the independence of a Non-Executive
Director include any material business relationships with the Group.
There were no such relationships during the year up until the date
of this report, or in the prior year.
Length of service
The Code indicates that serving more than nine years as a
Non-Executive Director could be relevant to the determination
of a Non-Executive Director’s independence. Notwithstanding
the fact that both John Brown and Sue Foden have been
Non-Executive Directors for in excess of nine years, the Board,
having evaluated their performance, considers that they continue
to be fully independent in character and judgement when
discharging their duties and responsibilities.
Performance evaluation
The Board has a process for evaluating its own performance and that
of its Committees and individual Directors, including the Chairman.
An annual formal evaluation takes place through an appraisal process
and informal evaluation discussions take place on a regular basis
throughout the year.
During the year, a questionnaire was circulated 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 Company’s consultant and considered by the Board.
Following this review, it was concluded that the Board and Committees
remained effective and that individual members of the Board have
the necessary skills and expertise to discharge their responsibilities.
It was noted that the Board has both formal and informal meetings,
and this balance provides the dynamics for an effective Board.
Election and re-election
All Directors have service agreements with indefinite terms, with
twelve months’ notice for Executive Directors, three months’ notice
for Non-Executive Directors and six months’ notice in the case of
the Chairman.
Directors are proposed for re-election annually. In accordance with
the Code, Non-Executive Directors who have served more than nine
years on the Board are subject to annual re-election by shareholders.
Andrew Oakley, Vectura’s CFO and Company Secretary, will leave
the Vectura Board upon completion of the proposed merger with
Skyepharma. Andrew will be replaced on the Board by Andrew Derodra,
Skyepharma’s CFO, who will become CFO of Vectura. At the same
time, Vectura will appoint Frank Condella and Dr Thomas Werner
as Non-Executives Directors of the Board.
It is Vectura’s intention that Dr John Brown will stand down from
the Board within one month after the completion of the merger
and there will be an appropriately managed process for the
departure of one additional existing Vectura Board member,
to reduce the size of the Board to eight within 18 months of
completion of the proposed merger.
The performance of all of the Executive and Non-Executive Directors,
who are being proposed for re-election, at the Annual General
Meeting (AGM), has been evaluated and it has been determined
that they continue to perform effectively and show full commitment
to their roles on the Board. In accordance with our Articles of
Association and assuming the merger with Skyepharma completes,
Frank Condella and Dr Thomas Werner, currently Non-Executive
Directors of Skyepharma PLC and Andrew Derodra, currently the
Chief Financial Officer and Executive Director of Skyepharma, will
also be proposed for election as Directors at the forthcoming AGM.
Board appointments and succession
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 by the individual
members of the Nomination Committee. Evaluations of appropriate
candidates are then circulated to all members of the Nomination
Committee for consideration, before a recommendation is made
to the Board.
The Board recognises the importance of diversity within all levels
of the Group and it recognises that the Group, its shareholders and
other stakeholders are best served by a Board which is diverse in
skills, experience and background, including gender. Accordingly,
diversity is considered when making appointments to the Board;
however, any appointments are ultimately made on merit against
agreed selection criteria.
The recruitment process for Executive and Non-Executive Directors
focuses on ensuring that the Board as a whole displays the balance
of skills necessary to deliver Vectura’s strategy.
58
Vectura Group plc Annual Report and Accounts 2015/16 Induction and development
It is vital that Directors have a full understanding of the Group
and its operations. Therefore, upon appointment each Director
undergoes a formal induction programme, which includes briefing
materials tailored to his or her particular Board responsibilities.
New Directors meet with Board members and executive management
as part of their induction process and tours of the Group’s main
facilities are scheduled to provide them with the opportunity to
meet with operational management.
All Directors have access to the advice and services of the Company
Secretary, who ensures that Directors take independent professional
advice, at Vectura’s expense, when it is judged necessary in order
for them to discharge their responsibilities.
Directors also receive regular updates on changes and developments
within the business as well as information regarding legislative and
regulatory changes. During the annual Board effectiveness review, all
Directors are encouraged to identify any further training requirements
which they feel would assist them in discharging their duties.
Accountability
The Board is committed to providing a fair, balanced and understandable
assessment of the Company’s position and prospects. For information
regarding the Directors’ responsibility to prepare financial statements,
please refer to the Statement of Directors’ responsibilities on page 91.
The Independent auditor’s report includes a statement on the
auditor’s reporting responsibilities.
The measures in place to ensure the auditor’s independence are set
out in the Audit Committee report on page 63.
The Board has overall responsibility for the Group’s system of internal
control and risk management and for reviewing its effectiveness.
In discharging that responsibility, the Board confirms that it has
established the procedures necessary to comply with the Code.
Employees are required to follow clearly defined internal procedures
and policies appropriate to the business and their position within the
business. These procedures are regularly reviewed by the Board.
Risk management
Vectura adopts a robust risk management process which is
reviewed on a regular basis. This process is outlined on pages 20
to 21 of this report. Such a process 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. The significant risks identified are documented
on pages 22 to 29 of this Annual Report.
Internal control
The Group’s internal controls are regularly reviewed as part of the
risk management process. The Audit Committee reviews the Group’s
internal financial control system on an annual basis and makes
recommendations to the Board regarding any improvements that
are required. The Board also carries out reviews of the non-financial
control systems.
The Group’s key systems of internal control include:
• Organisational structure: The Group’s organisational structure
has clearly established responsibilities and lines of accountability.
The Group endeavours to appoint employees with appropriate
skills, knowledge and experience for the roles they undertake.
• Documented policies and procedures:
• The Group has documented quality procedures 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.
• The Group has a formal policy in place regarding share
dealing in Vectura Group plc shares by employees and
their connected persons.
• The Group has a comprehensive financial planning and
accounting framework which includes a robust budgeting
and forecasting system. Detailed monthly management
accounts are prepared and reports are provided to the Board
showing actual results against budget and forecast results,
highlighting and explaining significant variances. Variance
reports are also provided to, and discussed with, the
budget manager.
• The Group has specific controls in place regarding the production
of consolidated financial information. This includes operational
procedures and validation and review of information.
• The Group has clear requirements for the approval and
control of expenditure. Material or strategic investment
decisions are subject to formal approval by the Board.
Day-to-day expenditure is controlled using predetermined
authorisation limits which are approved by the ELT in
accordance with tolerance limits agreed with the Board.
• Whistleblowing policy: the Group has a formalised
whistleblowing policy which is available to all staff via the
intranet. This policy provides a mechanism through which
staff of the Group may, in confidence, raise concerns about
possible improprieties in matters of financial reporting or
other matters.
There have been no significant internal control failings or weaknesses
throughout the year ended 31 March 2016 and up to the date of
publication of this report.
59
Annual Report and Accounts 2015/16 Vectura Group plcGOVERNANCE All periodic reports and accounts are made available to shareholders
on the website and paper copies are mailed to those shareholders
who have elected to receive them. Separate announcements of all
material events are made as necessary by press release. All such
announcements are published on the website without delay along
with webcasts of both the Interim and Annual Report 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.
Private shareholders are encouraged to express their views and
concerns either in person at the AGM or by e-mail using the links
provided on the Group’s website.
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
making business presentations and inviting shareholder questions.
The Chairs of the Audit, Nomination and Remuneration Committees
are present at the AGM to answer questions through the Chairman
of the Board.
Notice of the meeting is posted to shareholders not less than
20 working days prior to the date of the AGM. The information
sent to shareholders includes a summary of the business to be
covered at the AGM, where a separate resolution is prepared for
each substantive matter. Results of voting at the AGM are posted
on the Group’s website as soon as they are available.
CORPORATE GOVERNANCE REPORT continued
Remuneration
The Board has adopted remuneration policies that are considered
sufficient to attract, retain and motivate Executive Directors of the
highest calibre who are capable of delivering the Group’s strategic
objectives. Remuneration packages are structured in such a way
as to link rewards to corporate and individual performance.
For further details, please refer to the Remuneration report
set out on pages 67 to 88.
Relations with shareholders
Shareholder relations
The Board recognises the importance of regular dialogue with
shareholders and regular meetings between institutional shareholders
and Executive Directors are held throughout the year. The Chief
Executive Officer and the Chief Financial Officer give annual and
half-yearly presentations to institutional investors, analysts and
the media. Periodic site visits are held, as considered appropriate.
Vectura’s brokers collate anonymous feedback after investor
presentations. This feedback is then circulated to the Board for
its consideration. Through this programme of regular dialogue,
the Executive Directors and the Board are able to develop an
understanding of shareholder views and objectives and create
a mutual understanding of the Company’s strategy.
All meetings with shareholders are held in such a way as to protect
price sensitive information that has not already been made generally
available to the Company’s shareholders and similar guidelines
apply to communications between the Company and other parties,
such as financial analysts, brokers and the media.
In addition, all Non-Executive Directors 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 and Non-Executive
Directors meet with major shareholders as required.
Where material changes in respect of remuneration schemes or
governance structures are proposed, the Board seeks to consult
with its major shareholders before implementing such changes.
The Company views its website (www.vectura.com) as an important
investor relations tool, particularly for private investors. In line with
best practice, the website is regularly updated, ensuring that information
relating to the Group and its activities is easily accessible. The website
provides an overview of the business including its strategy, products
and objectives.
60
Vectura Group plc Annual Report and Accounts 2015/16 AUDIT COMMITTEE REPORT
Notwithstanding that this has been
a year of key management changes
and increased M&A activity, the
business has continued to display
strong financial performance and
has been well controlled.
Neil Warner
Chairman of the Audit Committee
Dear shareholder
On behalf of the Board, I am pleased to present Vectura’s
Audit Committee (“the Committee”) report for the year ended
31 March 2016.
This report provides insight into the Committee’s major activities
and its deliberations during the year under review. As a Committee,
we have remained focused on our key priorities which include
reviewing the Group’s financial reporting governance processes
to ensure that they remain relevant, robust and of a high standard.
The Committee meets at key times within the Group’s reporting cycle
and I meet with management on an ad-hoc basis. I am satisfied
that our activities have provided the Committee with a sound
understanding of the key matters impacting the Group during
FY 2015/16 and this understanding, supported by oversight
of the Group’s governance and controls processes, has enabled
the Committee to reach the conclusions set out in this report.
I hope you will find this report helpful in understanding the work
of the Committee.
Neil Warner
Chairman of the Audit Committee
25 May 2016
Role and responsibilities
The Committee operates under written terms of reference, which
are modelled on the Code and are available on the Company website,
www.vectura.com. The Committee advises the Board as to whether
the Annual Report and Accounts, taken as a whole, are fair, balanced
and understandable and provide the information necessary for
shareholders to assess the Group’s performance, business model
and strategy.
The Committee reviews the annual and half-year financial statements.
In reviewing these reports, the Committee considers whether the
accounting policies applied during the preparation of the information
are consistent year on year and whether the disclosures made are
appropriate, complete and in compliance with the relevant financial
reporting standards, corporate governance standards and regulatory
requirements. The Committee also considers the significant areas in
which judgement has been applied in the preparation of the financial
statements. In fulfilling this role, it supports the Board in discharging
its responsibilities in relation to the Group’s external financial
reporting and similar announcements.
The Committee manages the relationship with the external auditor
on behalf of the Board. During the year, the Committee reviews and
monitors the independence of the external auditor and considers
the effectiveness of the external audit process. In addition, the
Committee is responsible for developing and implementing the Group’s
policy on non-audit services. The Committee makes recommendations
to the Board regarding the appointment and, where appropriate,
reappointment of the external auditor and it approves the external
auditor’s terms of engagement. On an annual basis, the Committee
will consider the need for an internal audit function and will make
recommendations to the Board accordingly.
The Committee is responsible for reviewing the integrity and
effectiveness of the Group’s financial risk management and
internal control systems.
The Chairman of the Committee reports to the Board on all significant
matters reviewed by the Committee.
The Committee has access to the external auditor and, if considered
necessary, is authorised to obtain external professional advice
including, without limitation, legal and accounting advice to assist
in the performance of its duties. No such advice has been sought
during the year.
61
Annual Report and Accounts 2015/16 Vectura Group plcGOVERNANCE AUDIT COMMITTEE REPORT continued
Membership and meetings
In accordance with the Code, the Audit Committee comprises three
independent Non-Executive Directors: Neil Warner, Dr John Brown
and Dr Susan Foden. The Board is satisfied that all members of the
Committee have the breadth of knowledge and experience of the
Group’s business, financial dynamics and the risks facing the Group
to effectively fulfil the Committee’s responsibilities.
The Committee is chaired by Neil Warner, who is a Fellow of the
Institute of Chartered Accountants with significant recent and
relevant financial experience. Details of Neil Warner’s financial
experience are set out in his biography on page 53.
The Group Company Secretary acts as Secretary to the Committee
and the Executive Directors also attend Committee meetings at the
invitation of the Chairman. So as to facilitate open and unreserved
discussion, the Committee meets with the external auditor at least
twice a year without management being present. The Committee
Chairman keeps in touch, as required, with the key people involved
in the Group’s governance, including the Chairman of the Board,
the Chief Executive Officer, the Chief Financial Officer and the
external audit lead partner.
The composition of the Committee is reviewed annually to ensure
that it contains the appropriate balance of knowledge, skills and
experience to support the business.
Details of the number of meetings held by the Committee
and attendance thereat is detailed on page 56.
Member
N W Warner (Chair)
J R Brown
S E Foden
Date of appointment
1 February 2011
13 May 2004
18 January 2007
Financial reporting
As explained above, the Committee is responsible for monitoring
the integrity of the Group’s financial statements and reviewing
the significant judgements applied in the preparation of financial
information. During the year, the Committee reviewed the Interim
Report for the period ended 30 September 2015, and the preliminary
announcement and Annual Report and Accounts for the year ended
31 March 2016.
The significant issues considered and the conclusions reached
by the Committee are set out below.
Significant issues considered in relation to the financial statements
Revenue recognition
As disclosed on page 109 of this report, the Group has five revenue
streams, being royalty income, product licensing milestone income,
technology licensing milestone income, development services and
device sales.
During the year, the Committee reviewed the judgements exercised
by management in determining when to recognise key milestone
events, particularly those milestones that were achieved around a
period end. The Committee also discussed each significant milestone
achieved during the year with the external auditor. Following
discussions held and the review performed, the Committee is
satisfied that the treatment adopted by management is reasonable
and in compliance with IAS 18 and Vectura’s accounting policies.
This continued to be an area of increased focus during FY 2015/16,
as the Group now receives significant royalty streams from recently
launched products. Royalty revenue recognised by the Group is based
of upon information provided to Vectura by its partners and Vectura
does not have any direct visibility over the level of product sales
being made by its partners. The controls around completeness
of royalty revenue and underlying royalty revenue trends were
discussed with management and the auditor, and the Committee
are satisfied that royalty revenue recognised is appropriate and
in-line with IAS 18.
Goodwill impairment
During the year, particular attention was paid to the carrying value
of goodwill. Goodwill associated with the acquisitions of Innovata,
Vectura Delivery Devices (VDD) and Co-ordinated Drug Development
(since renamed Vectura Limited) totals £49.6m and, as such, it represents
one of the largest assets on the Group’s balance sheet. As in the
prior year, for the purposes of impairment testing, management
has determined that there is only one cash-generating unit (CGU)
relating to these assets.
The Group has a further goodwill balance of £7.8m (€9.9m) relating
to the acquisition of Activaero GmbH and this represents the Group’s
second CGU.
Both CGUs were tested for impairment independently.
The Committee reviewed the judgements and assumptions underlying
the models used to support the carrying value of goodwill in the
consolidated balance sheet. The primary judgement areas relate to
the achievability of long-term business plans and the discount rates
applied to the relevant cash flows. Management prepared a presentation
to the Board as a whole which outlined the key assumptions and
sensitivities included within the Group’s long-term forecasts.
The Audit Committee challenged these assumptions, scenarios
and sensitivities to assess whether management’s assumptions
in respect of Goodwill impairment testing were fair and balanced.
The carrying value of goodwill was also a key area of focus for
the external audit team and, accordingly, Deloitte LLP (“Deloitte”)
provided a detailed report to the Committee regarding management’s
assumptions and conclusions. This report also included the results
of sensitivity testing performed, which assessed whether a “reasonably
possible” change in a key assumption could result in an impairment
of the balances. The Committee noted that there were no disagreements
between the conclusions of management and the conclusions
made by the external auditor. Following a review of the evidence
provided, and discussions with both management and the audit
team, the Committee is satisfied that no impairment charge should
be recorded in FY 2015/16 and that the disclosures made in the
financial statements are appropriate.
62
Vectura Group plc Annual Report and Accounts 2015/16 Going concern and viability
Following updates to the UK Corporate Governance Code (“the Code”),
the Committee spent time ensuring that the additional requirements
introduced by the Code were met by the Group. In particular, the
Committee spent time considering the processes supporting the
Group’s longer-term solvency and viability which support the new
viability statement. The Committee determined that the processes
in place were sufficient and robust to enable the Directors to make
a viability assessment over a three-year period.
Risk management and internal control
The Board as a whole, including the Audit Committee members,
considers the nature and extent of Vectura’s financial risk management
framework and the risk profile that is acceptable to achieve the Group’s
strategic objectives. The Committee is responsible for reviewing the
adequacy and effectiveness of the Group’s risk management and
internal control systems. In order to discharge this responsibility,
the Committee receives reports from Vectura’s management team
and the external auditor as appropriate. The Committee has reviewed
the process for identification, assessment and reporting of the
Group’s principal risks set out on pages 22 to 29.
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.
Whistleblowing
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 Group has a formal whistleblowing policy, which is available
to all staff via the Group’s intranet.
UK Bribery Act
The Group has continued to operate its anti-bribery policy, introduced
in 2010, in response to the UK Bribery Act 2010. This has included
the conduct of due diligence on new key business partners who
may act on behalf of the Group in higher risk areas of business.
External audit
The external auditor, Deloitte, is engaged to express an opinion
on the Group’s and the Company’s financial statements.
The Audit Committee is responsible for making recommendations
to the Board on the appointment, reappointment and removal
of the external auditor. When considering reappointment, the
Committee considers the independence of the audit firm and
the effectiveness of the overall external audit process.
Audit engagement partner rotation
Deloitte adheres to a rotation policy which is in accordance with the
ethical standards of the Audit Practices Board (“the APB”) and the
Group engagement partner is rotated every five years. David Hedditch,
the current engagement partner, was appointed during the 2012/13
financial year and therefore the next rotation is scheduled to take
place in time for the 2017/18 financial year audit.
Independence and non-audit work performed by the external auditor
The Committee is responsible for monitoring and reviewing the
independence and objectivity of the external auditor. On an annual
basis, the auditor confirms its policies for ensuring auditor independence
and provides the Committee with a confirmation that it continues to
be independent in respect of the forthcoming audit engagement.
Vectura’s policy on the provision of non-audit services is a key
mechanism which safeguards the independence of the external
auditor. The provision of non-audit services by the auditor is governed
by a “non-audit services policy”, which is reviewed by the Committee
on an annual basis. The policy sets out the circumstances in which
the external auditor may be permitted to undertake non-audit
services and the overriding purpose of the policy is to ensure that
the auditor does not provide a service that:
• creates a mutuality of interest;
• places the auditor in a position of auditing their own work;
• results in the auditor acting as a Vectura manager or employee; or
• places the auditor in a position to advocate for Vectura.
Vectura does not impose an automatic restriction on the provision
of non-audit services by the external auditor. The external auditor
is eligible for selection to provide non-audit services that are not,
and are not perceived to be, in conflict with auditor independence,
provided that the auditor has the skill, competence and integrity
to carry out the work in the best interest of the Group. Where
appropriate, services are tendered prior to awarding work to
the external auditor.
During the year, Deloitte undertook non-audit services and the
relevant fees are disclosed in note 5 to the financial statements.
These services were provided in compliance with the policy
outlined above and no actual conflicts of interest were found to
exist between the audit work and the non-audit work performed,
which related to the interim financial report and work undertaken
as reporting accountant to support the Prospectus in respect of the
proposed merger with Skyepharma PLC. The Committee considered
that it was appropriate for the auditor to undertake these services
given the nature of the work to be performed. During a planning
meeting held in February 2016, the external auditor confirmed
to the Audit Committee that it had met its statutory requirements
with regard to independence. This conclusion was reaffirmed
during the Audit Committee meeting held as part of year end
finalisation procedures.
Accordingly, the Audit Committee confirms that the Group continues
to receive an independent audit service. On this basis, the Committee
has recommended to the Board that Deloitte be reappointed as the
Group’s auditor for a further year. This recommendation has been
accepted by the Board.
63
Annual Report and Accounts 2015/16 Vectura Group plcGOVERNANCE AUDIT COMMITTEE REPORT continued
Statement of compliance
The Group confirms compliance with the terms of The Statutory
Audit Services for Large Companies Market Investigation
(Mandatory Use of Competitive Tender Processes and Audit
Committee Responsibilities Order 2014) throughout the year.
Effectiveness
The Committee places great importance on ensuring that there
are high standards of audit quality and effectiveness in the external
audit process. The effectiveness of the external audit process is
reviewed on an annual basis, and this includes consideration of the
qualification, expertise, resources, remuneration and independence
of the auditor. Where appropriate, actions are agreed in respect of
any issues identified and these are monitored for progress.
At the conclusion of the 2015/16 financial year audit, the Committee
performed a formal evaluation of the performance of the external
auditor. In performing this evaluation, the Committee worked
with the external auditor, Executive Directors and relevant senior
management. In addition to this, the Committee performs its own
ongoing evaluation of audit quality and effectiveness, taking into
account such matters as the quality of reporting to the Committee
by the external auditor, the level and quality of the interactions
between the Committee and the audit partner and the audit quality
inspection report issued by the FRC with regard to Deloitte.
Tendering
Deloitte has been Vectura’s auditor since 2007 following its full
listing on the London Stock Exchange. During that time, the audit
has not been formally tendered. Following the introduction of the
audit tendering provisions in the Code, the Committee annually
considers if the audit should be put out to tender. The Committee
has not recommended that the audit be put out to tender upon
conclusion of the 2015/16 audit, but the Committee will continue
to monitor this requirement. A mandatory tender is expected to
be required post the FY 2016/17 audit.
The new European Union Audit Directive and Regulation has been
finalised and its requirements have to be in place in the UK by
16 June 2016. Although the UK legislation has yet to be finalised,
we anticipate that it will set significant restrictions on the non-audit
services that our auditor will be able to supply to the Group from
1 April 2017.
The Committee believes it is in the best interest of the Group and
its stakeholders to ensure that the pool of major accountancy firms
who would be able to tender for the audit is as wide as possible.
Accordingly, the Committee will continue to monitor any future
services to be provided by appropriate accountancy services to
maintain an adequate level of independence to allow such firms
to tender as required.
There are no contractual restrictions in place that would restrict
the choice of the external auditor.
Committee effectiveness review
During the year, the Committee reviewed its own effectiveness as part
of the overall Board evaluation process. The Committee considered
that it acted transparently and, given the number of Committee and
Board meetings scheduled throughout the financial year, maintained
a thorough understanding of the Group and its business. The results
of the review were advised to the Board.
Neil Warner
Chairman of the Audit Committee
25 May 2016
64
Vectura Group plc Annual Report and Accounts 2015/16 NOMINATION COMMITTEE REPORT
The Committee focused on successful planning
and overall Board balance and composition,
the appointment of our new CEO and made
recommendations of the Board structure
following the proposed Skyepharma merger.
Bruno Angelici
Chairman of the
Nomination Committee
Dear shareholder
On behalf of the Board, I am pleased to present Vectura’s Nomination
Committee report for the year ended 31 March 2016. The role of
the Committee is to ensure that the Group maintains a Board which
is appropriately balanced and, as a unit, functions as efficiently and
effectively as possible.
During the year, the Committee has continued to focus on the issues
of succession planning and overall Board balance and composition.
The Committee considered and made recommendations to the
Board regarding the appointment of James Ward-Lilley as our new
Chief Executive Officer. The Committee also made recommendations,
which will come into force upon completion of the proposed merger
with Skyepharma, in regard to the appointment of Andrew Derodra,
currently Skyepharma’s CFO, to replace Andrew Oakley as
Chief Financial Officer.
At the same time, Vectura will appoint Frank Condella, Skyepharma’s
Chairman, as Vice-Chairman and Dr Thomas Werner, a non-executive
Skyepharma director, as a Non-Executive Director.
It is Vectura’s intention that Dr John Brown will stand down from
the Board within one month after the completion of the proposed
merger and there will be an appropriately managed process for
the departure of one additional existing Vectura Board member,
to reduce the size of the Board to eight within 18 months of
completion of the proposed merger.
Bruno Angelici
Chairman of the Nomination Committee
25 May 2016
Role and responsibilities
The Nomination Committee (“the Committee”) operates under written
terms of reference, which are modelled on the UK Corporate
Governance Code (“the Code”) and are available on the Company
website, www.vectura.com. The Committee reviews these terms
on an annual basis. No material changes were made to the
terms of reference during the year.
The Committee is responsible for reviewing the structure of the
Board and Board Committees and evaluating the balance of skills,
experience, independence and knowledge of the Board as a whole.
On the basis of this evaluation, the Committee makes recommendations
to the Board regarding Board appointments. Where the need for a
new Executive or Non-Executive Director is identified, the Committee
is responsible for preparing a description of the role and the capabilities
required for a particular appointment and for identifying and
nominating potential candidates to fill the vacancy.
The Committee also ensures that appropriate succession plans for
Non-Executive Directors, Executive Directors and the Group’s senior
management are kept under review with a view to ensuring the
long-term success of the Group.
Membership and meetings
The membership of the Committee, the number of Committee
meetings held and attendance thereat can be found on page 56
of the Governance section of this Annual Report.
The Committee comprises four independent Non-Executive Directors,
John Brown, Susan Foden, Neil Warner and Bruno Angelici, with
Bruno Angelici acting as Chairman.
The Executive Directors, other members of executive and external
advisors may also attend Committee meetings as required, at the
invitation of the Chairman.
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Annual Report and Accounts 2015/16 Vectura Group plcGOVERNANCE NOMINATION COMMITTEE REPORT continued
Membership and meetings continued
The Committee is authorised to obtain external professional advice
including, without limitation, legal and other professional advice to
assist in the performance of its duties. During the year, the Committee
has utilised the services of Russell Reynolds and Spencer Stuart,
as outlined below. Both firms are signatories to the Voluntary Code
of Conduct for Executive Recruitment Firms (as recommended
by the Davies Report). There were no other services provided
by these firms during the year.
The Committee met twice during the year ended 31 March 2016,
and all members were present at each meeting. Additionally, the
Committee held a number of informal meetings and discussions
during the year.
The key issues considered by the Committee during the year are
outlined below.
Appointment of Directors
There is a formal, rigorous and transparent procedure for the
appointment of new Directors to the Board under which the Committee
interviews suitable candidates who are proposed either by existing
Board members or by an external executive recruitment firm.
The Committee gives careful consideration to the appointment of
any proposed appointee, to ensure that the candidate has sufficient
time available to devote to the role as well as the required level
of skill and knowledge to ensure that the balance of skills,
experience and knowledge on the Board is maintained.
In 2015, Chris Blackwell resigned as Chief Executive Officer. The
Committee appointed an executive recruitment firm, Spencer Stuart,
to find a suitable replacement for Chris, giving due regard to the
experience and skills required for the role. Spencer Stuart has no
other connection to the Company.
Following this recruitment process, the Committee recommended
to the Board that James Ward-Lilley be appointed as Chris’ successor.
James has had an extensive career at AstraZeneca, spanning 28 years
across a variety of commercially focused roles, progressing from
sales and marketing roles in the UK through country and regional
leadership positions.
Immediately prior to joining Vectura James was vice president
respiratory, inflammation & autoimmunity, “Global Product and
Portfolio Strategy” (GPPS) and in this role James had responsibility
for the development of AstraZeneca’s “Respiratory, Inflammation
and Autoimmunity” (RIA) strategy which included the acquisitions
of Almirall’s respiratory business and Pearl Therapeutics.
The Committee also made recommendations to the Board regarding
changes to the Board assuming that the proposed merger with
Skyepharma completes. Following completion Andrew Oakley,
Vectura’s CFO and Company Secretary, will leave the Vectura Board,
as will Dr John Brown. Andrew will be replaced on the Board by
Andrew Derodra, Skyepharma’s CFO, who will become CFO of
Vectura. At the same time, Vectura will appoint Frank Condella
and Dr Thomas Werner, both currently Chairman and Non-Executive
Director, respectively, of Skyepharma as Vice Chairman and as a
Non-Executive Director, respectively. The Board was unanimous in
accepting the recommendation of the Committee. One additional
existing Vectura Board member will also leave the Board, reducing
the size of the Board to eight within 18 months of completion
of the proposed merger.
Diversity
The Board’s policy on diversity is set out on page 58.
The search for Board candidates is conducted, and appointments
made, on merit against objective selection criteria and having due
regard, amongst other things, to the benefits of diversity on the
Board, including the inclusion of women. Diversity is considered
by the Nomination Committee in considering Board composition
and in the process of making Board appointments.
Committee effectiveness review
During the year, the Committee reviewed its own effectiveness
as part of the overall Board evaluation process. The Committee
considered that it acted transparently and, given the number of
Committee and Board meetings scheduled throughout the financial
year, maintained a thorough understanding of the Group and its
business. The results of the review were advised to the Board.
Bruno Angelici
Chairman of the Nomination Committee
25 May 2016
66
Vectura Group plc Annual Report and Accounts 2015/16 REMUNERATION COMMITTEE REPORT
I am pleased to present our Remuneration
report which sets out the remuneration
arrangements for the Vectura Directors.
Dr Susan Foden
Chair of the
Remuneration Committee
Dear shareholder,
As you may recall, 2015/16 was a year of major changes to the
senior executive team at Vectura. Early in 2015, Chris Blackwell
announced his intention to stand down as Chief Executive after
twelve years of service and in September 2015, the Board appointed
James Ward-Lilley as his successor. In addition, Dr Per-Olof Andersson
joined the Board as a Non-Executive Director on 1 April 2015.
The Board recognises that a number of investors did not feel able
to support the vote on our Annual report on remuneration for
2014/15, on account of concerns over the timing of the second
part of a phased increase in Chris Blackwell’s salary during his final
year with the Company. This was deemed important in ensuring his
continued full commitment until we had completed the recruitment
process for his successor. At that time we could not predict how
long this process may take. However, as a result of that feedback,
we have communicated with our major shareholders together with
the Investment Association and ISS, to provide further details of the
Committee’s thinking at that time and to offer an opportunity to
discuss any remaining concerns. We have taken on board the
feedback received for future reference. Details of Chris Blackwell’s
termination arrangements are described in full on page 83 of the
Annual Report on remuneration.
We were pleased with the level of support for the new Remuneration
policy and Long-Term Incentive Plan (LTIP) presented to shareholders
in September 2015. The Remuneration policy was approved with
96.7% of the votes for the resolution and the new LTIP was
approved with a 95% level of support.
Since that time, the business has moved on and we are delighted
that James Ward-Lilley has joined the Company as Chief Executive
Officer. As part of the terms of his recruitment, the Company replaced
his existing bonus and his 2013 and 2014 entitlements under
AstraZeneca share plans. Awards under the share plans were
replaced with awards of equivalent value over Vectura shares.
In accordance with our policy, the terms of these buyout
arrangements were designed to replicate, to the extent possible,
the value of the awards forfeited, their degree of conditionality
and the form of payment whilst providing immediate alignment
with Vectura’s shareholders. Details of James’ ongoing remuneration
package and these buyout arrangements are provided later in
this report.
On joining, James, along with the other executive directors, received
an award under the new LTIP. This plan allows for award of performance
shares with a maximum face value at grant of 250% of salary.
We see this as providing a real incentive to the senior team to
drive long-term value for shareholders. To recap, the Plan’s key
features are as follows:
• Award of performance shares with an initial maximum face
value at grant of 250% of salary. Performance for both the three
and five-year base awards is measured against two relative Total
Shareholder Return (TSR) peer groups: the FTSE 250 Index excluding
financial services and real estate sector companies; and a bespoke
group of relevant European pharmaceutical companies.
• The base award represents 200% of salary, half of which
is subject to a three-year performance and vesting period
and half of which is subject to a five-year performance
and vesting period:
• For the three-year element, 15% vests at median, increasing
to 100% at upper quartile. Similarly, for the five-year element,
15% vests at median, increasing to 100% at the upper decile.
• The additional “kicker” element of the award represents 50%
of salary and this is subject to a five-year performance
vesting period:
• This element of the award may vest at five years for
performance at or above the upper decile.
• A one-year retention period is required on shares vesting under
the three-year element of the Plan. In addition, the level of the
share ownership guidelines was increased from 100% to 200%
of salary under this new policy to reflect the increase in
long-term incentive opportunity.
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Annual Report and Accounts 2015/16 Vectura Group plcGOVERNANCE REMUNERATION COMMITTEE REPORT continued
Given the significant changes made in FY 2015/16, the forthcoming
year is intended to be a year of relative stability with no changes to
the remuneration policy and only minor amendments in its operation,
in respect of increases to salary and Non-Executive Director fee
levels and to take account of the Company’s proposed change
of financial year end.
As reported in the financial review set out on pages 44 to 46, the
Group has enjoyed and continues to see strong revenue and EBITDA
growth during as a result of significant development milestone
achievements and sustainable and growing royalty revenues.
These financial and strategic successes have been delivered
alongside significant returns to shareholders over the medium
to long term. These successes are reflected in the variable pay
outcomes for 2015/16 as follows:
• The annual bonus payments to Executive Directors for the
financial year to 31 March 2016 were between 89% and 92% of
base salary, reflecting a year of significant performance against
agreed financial and strategic targets. Royalty revenues and
EBITDA have grown strongly as market sales from partnered
products continue to grow and the announcement of the
proposed merger with Skyepharma PLC represents a significant
step in delivery of the Group’s strategy.
• LTIP awards granted on 18 September 2012 were eligible to
vest during the year. Half of the award was subject to relative
TSR performance measured against the FTSE SmallCap Index
and half was subject to relative TSR performance against
selected constituents of the Euro Stoxx Pharmaceuticals and
Biotechnology Index over three years to 17 September 2015.
TSR growth over the period of 137% resulted in all of the
SmallCap element vesting. However, Vectura’s TSR was just
below the median of the Euro Stoxx peer group and so none of
that element of the award vested.
In March 2016, the Company announced a recommended all
share merger with Skyepharma PLC. Andrew Oakley will leave
Vectura at completion and will be replaced as Chief Financial Officer
by Skyepharma’s current Chief Financial Officer, Andrew Derodra.
A summary of Andrew Oakley’s termination arrangements is
provided in the Annual report on remuneration and full details
will be disclosed at the time that his employment ends. The package
which has been conditionally offered to Andrew Derodra is also
disclosed in this Report on Remuneration. In addition, contingent
upon completion of the merger, Frank Condella will join the Vectura
Board as Vice Chairman. Details of the fees payable to Frank Condella
are also disclosed in this Annual report on remuneration.
Following completion of the proposed merger, the Remuneration
Committee of the combined entity intends to review the remuneration
arrangements for Vectura’s senior executive team (including the
Executive Directors) in order to ensure that they remain appropriate
given the Company’s increased size and complexity. Details of the
outcome of this review will be disclosed to shareholders in next
year’s report.
Structure of this report
This letter and the Annual report on remuneration will be subject to
an advisory vote at the 2016 AGM. There is no vote on the Policy
report this year. An abridged version of the Policy report with key
elements of the Policy included in full is set out for reference on the
following pages, reflecting the new LTIP and Remuneration policy
approved by shareholders in 2015.
I hope that you remain supportive of our remuneration policy and
will approve the resolution on the Annual report on remuneration
at the AGM.
Yours sincerely
A detailed breakdown of the targets set and the payments awarded
under the annual bonus scheme and the LTIP is set out on pages 78
to 81.
Dr Susan Foden
Chair of the Remuneration Committee
25 May 2016
The salaries of the Executive Directors were reviewed early in 2016,
with agreed changes taking effect from 1 April. The salaries of
James Ward-Lilley and Trevor Phillips were each increased by
2.5% to £461,250 and £288,922 respectively. This was below
the average increase for the general workforce. Andrew Oakley’s
salary remains at £281,875.
68
Vectura Group plc Annual Report and Accounts 2015/16 REMUNERATION REPORT
The following section sets out the Remuneration policy approved by shareholders at the September 2015 AGM. No changes to the
Remuneration policy are proposed this year and thus there will be no shareholder vote on the policy at the 2016 AGM. An abridged version,
with the key elements of the Policy report, is presented below, being the policy table and policies on recruitment and termination,
reflecting the fact that the Policy has been approved with only minor changes to reflect the passage of time.
The Policy report in full can be found on the Company website (www.vectura.com); it has been prepared in accordance with the provisions of
the Companies Act 2006 (“the Act”) and the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations
2013 (“the Regulations”). It also meets the requirements of the UK Listing Authority’s Rules and the Disclosure and Transparency Rules.
Directors’ remuneration policy
Vectura’s remuneration policy is driven by the Company’s strategy and business model and has been designed to reflect the Committee’s
remuneration philosophy, as summarised below.
Philosophy
Element
How it is
influenced by the
remuneration
philosophy
Support value creation for shareholders over the longer term and create alignment with shareholders
Fixed remuneration
Variable remuneration
Base salary
Benefits
Pension
Annual bonus
LTIP
Share ownership guidelines
and holding periods
Broadly mid-market.
Set no higher than
mid-market and is the least
significant variable element.
Has stretching corporate
and personal targets that
support Vectura’s annual
goals and its overall strategy.
The most significant element of
the package.
Has stretching relative TSR
targets that are clearly aligned
with shareholder value.
Significant personal holdings
must be acquired and
maintained and vested
shares must be retained
for a period.
Two peer groups are used
to provide a balanced
assessment of the
performance of
the Company.
Performance is measured
over three and five years.
Whilst the Committee does not consult directly with employees
regarding its policy for Directors, in developing its policy the
Committee has regard to the policy for remuneration of employees
across the Group. It does so in a number of respects:
• All employees are rewarded with a remuneration package that
includes certain key benefits such as life assurance, permanent
health insurance, private medical insurance, access to the
pension scheme, participation in Vectura’s all-employee share
schemes and eligibility to receive a bonus. Internally a review is
underway designed to ensure that levels of remuneration for all
key employees are up to date and competitive within the sector.
• The bonus scheme for Directors and employees is designed to
reward performance, and all individuals work towards
challenging personal goals.
• When determining the annual salary increases and remuneration
packages for the Executive Directors, the Committee considers the
general base salary increase for the broader employee population.
The remuneration of senior executives below Board level is reviewed
by the Committee on an annual basis. The remuneration packages
of these executives are broadly consistent with the policy outlined
above, with the overall impact of the role and the individual being
considered as well as relevant market comparative data, save that
lower bonus percentages and lower LTIP opportunities are applicable.
The following table and accompanying notes set out the main principles
of reward for the Executive Directors of the Group as set out in the
current Remuneration policy. The Policy took effect immediately
after the general meeting on 24 September 2015.
69
Annual Report and Accounts 2015/16 Vectura Group plcGOVERNANCE REMUNERATION REPORT continued
Executive Directors
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
Base salary
To recruit and retain Executives of
the highest calibre who are capable
of delivering the Group’s strategic
objectives, reflecting the
individual’s experience and role
within the Group.
The Committee aims to set base
salary 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.
No formal metrics, although
increases will take account of
Group performance.
Base salary increases are awarded
at the discretion of the Committee;
however, salary increases will
normally be no greater than the
inflationary pay rises awarded to
the wider workforce.
Where a higher level of increase is
appropriate given the performance
and contribution of the incumbent,
or where there has been a change
in responsibilities, the Committee
retains the discretion to award
more significant base salary increases.
Salaries are normally reviewed
annually and changes are generally
effective from 1 April.
The annual salary review of Executive
Directors takes a number of factors
into consideration, including:
• business performance;
• salary increases awarded to the
overall employee population;
• skills and experience of the
individual over time;
• scope of the individual’s
responsibilities;
• changes in the size and
complexity of the Group;
• market competitiveness; and
•
the underlying rate of inflation.
The Company aims to offer
benefits that are in line with
market practice.
The value of each benefit is not
predetermined and is based upon
the cost to the Group.
Not performance related.
The main benefits currently provided
are life assurance, permanent
health insurance, and private
medical and dental insurance.
Under certain circumstances the
Group will offer relocation
allowances to employees.
The Group operates a money
purchase scheme and all
employees, including Executive
Directors, are invited to participate.
For Executives who are affected by
the HMRC lifetime or annual
allowances, the Company may
provide cash supplements
in respect of benefits above
the allowance.
Up to 20% of basic salary contribution
to the Group Personal Pension Plan
or equivalent cash allowance.
Not performance related.
Base salary is designed to provide
an appropriate level of fixed income
to avoid an over-reliance on variable
pay elements that could encourage
excessive risk taking.
Benefits
Benefits in kind offered to
Executive Directors are provided on
a market-competitive basis, to
assist with the retention and
recruitment of staff.
Pensions
The Group aims to provide
market-competitive retirement
benefits, to reward
sustained contribution.
70
Vectura Group plc Annual Report and Accounts 2015/16 Executive Directors
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
Annual performance bonus
An annual cash bonus rewards the
achievement of stretching objectives
that support the Group’s corporate
goals and delivery of the business
strategy together with goals in
relation to personal performance.
Objectives are agreed with the
Committee, and the Board as a whole,
at the start of each financial year.
Bonuses are limited to a maximum
of 100% of base salary for each
Executive Director.
Different performance measures
and weightings may be used each
year, as agreed with the
Committee, to take into account
changes in the business strategy.
Bonuses are paid at the discretion
of the Committee. The Committee
takes into account overall corporate
performance and individual
performance when determining
the final bonus amount to
be awarded.
Bonuses are normally paid in cash,
typically in June.
Under the rules of the scheme, the
Committee can claw back up to
100% of the bonus awarded in the
event of material misstatement of
the Company’s financial results, an
error in assessing the performance
conditions to which an award is
subject or for any other matter
which it deems relevant.
Long-Term Incentive Plan (LTIP) (awards made from September 2015 onwards)
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 which encourages strong
corporate performance on an
absolute and relative basis.
Annual awards of up to 250% of
salary may be granted.
For Executive Directors this will
normally comprise:
• a three-year element of up to
100% of salary;
• a five-year element of up to
100% of salary; and
• a five-year “kicker” of up to
50% of salary.
Annual award of nominal cost
options that vest according to
performance conditions measured
over at least three financial years.
Awards subject to three-year
performance conditions are subject
to an additional one-year post-vesting
holding requirement on the net tax
value of shares vesting.
Awards will be subject to
clawback where there has been
a misstatement of the Company’s
financial results, an error in
assessing the performance
conditions to which an award
is subject or for any other
matter which the Committee
deems relevant.
Corporate goals typically include
revenue generation, development
of pipeline progress, partnering
successes and control of cash
expenditure, although the
Committee has the discretion
to set other targets.
Goals set are specific, measurable
and are linked to the Group’s
longer-term strategy.
0% of the maximum is payable at
threshold performance.
Awards granted from 2015
onwards are based on relative total
shareholder return (TSR) against
two peer groups, with each
determining the vesting of 50% of
the awards.
Awards are subject to the following
vesting scales:
• a three-year element: 15%
vests at median, rising to 100%
vesting at upper quartile;
• a five-year element: 15% vests
at median, rising to 100%
vesting at upper decile; and
• a five-year “kicker”: 100% vests
for performance above the
upper decile.
The Committee retains the
discretion to vary the peer groups,
the weighting between them and/
or introduce new metrics for
awards in future years, providing
they are not materially less
challenging in the circumstances.
The Committee would normally
consult with its major shareholders
before making significant changes
to the performance conditions.
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Annual Report and Accounts 2015/16 Vectura Group plcGOVERNANCE REMUNERATION REPORT continued
Executive Directors
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
Long-Term Incentive Plan (LTIP) (awards made from September 2015 onwards) continued
Awards are subject to an underpin
based on the Committee’s
assessment of the Group’s
underlying performance against a
range of factors, including the
Company’s underlying financial
performance, absolute shareholder
returns and progress against
milestones over the performance
period. Any exercise of discretion
will be fully disclosed to
shareholders. The performance
conditions for previous long-term
incentive awards are described in
the Annual report on remuneration.
All-employee share schemes
All employees, including Executive
Directors, are encouraged to
become shareholders of Vectura
Group plc through participation in
our all-employee share schemes.
The Group currently offers
employees the opportunity to
participate in the Vectura Sharesave
(SAYE) scheme and the Vectura
Share Incentive Plan (SIP).
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.
Both of the schemes offered are
HMRC-approved schemes and
operate on standard terms.
Participation limits are set by the
relevant tax authorities from time
to time.
Not performance related and no
performance conditions apply.
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
reached the required level of holding.
Executive Directors are required to
build and retain a holding of
Vectura Group plc shares
equivalent to at least 200% of their
base salary.
Not performance related.
Chairman and Non-Executive Directors
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
When reviewing fee levels, account
is taken of market movements in
the fees of Non-Executive Directors,
Board Committee responsibilities
and ongoing time commitments.
Not performance related.
Fees
Set at a level that is sufficient to
attract and retain high-calibre
Non-Executives.
The Chairman and the Non-
Executive Directors receive fees
paid in cash, with additional fees
received for chairing committees
of the Board, for fulfilling the role
of Senior Independent Director or
for transatlantic travel.
Fees are paid monthly and
reviewed annually.
The Chairman and the Non-Executive
Directors do not participate in any
performance-related incentive
schemes, nor do they receive any
benefits, other than limited travel
and hospitality-related benefits, in
connection with their roles.
For the avoidance of doubt, any commitments entered into by the Company prior to the approval and implementation of the policy
outlined above may be honoured, even if they are not consistent with the policy prevailing at the time the commitment is fulfilled.
In operating its policy, the Committee has a number of discretions set out in the approved policy and the relevant sections of the various plan rules.
72
Vectura Group plc Annual Report and Accounts 2015/16 Remuneration scenarios for Executive Directors
The charts below show hypothetical values of the 2016/17
remuneration package for each Executive Director under three
assumed performance scenarios and these scenarios are based
upon the remuneration policy set out above. The information
presented below uses the level of salary, benefits and pension
entitlements for each of the Directors as at 1 April 2016 or at the
time of appointment. Andrew Oakley has not been included in
these calculations as, subject to completion of the proposed merger
with Skyepharma PLC, he will stand down as Chief Financial Officer.
Following completion, Andrew Derodra, currently the Chief Financial
Officer of Skyepharma PLC, will assume the role of Chief Financial
Officer within the Enlarged Group.
Base salaries for the current year are: James Ward-Lilley – £461,250,
Trevor Phillips – £288,922 and Andrew Derodra – £341,000. Benefits
of £32,000, £16,000 and £6,000 respectively, and a pension allowance
of 20% of salary have been assumed.
Below target remuneration receivable – this scenario assumes that
there is no annual bonus payment and no awards under the LTIP vest.
James Ward-Lilley
Minimum
100%
£585,500
On-target
61%
24% 15%
£954,500
Maximum
26%
21%
53%
£2,199,875
Trevor Phillips
Minimum
100%
£362,706
On-target
61%
24% 15%
£593,844
Maximum
26%
21%
53%
£1,373,933
On-target performance remuneration receivable – this scenario
assumes that the Directors receive a 50% of salary bonus payout and
that LTIP awards worth 30% of salary at grant would ultimately vest.
Andrew Derodra
Stretch remuneration receivable – this scenario assumes that the Directors
receive a maximum bonus payout of 100% of their salary and that
a maximum LTIP award of 250% of salary would ultimately vest.
The actual amounts earned by Executive Directors under these
three scenarios will depend on share price performance over the
vesting period. For the purpose of these illustrations, any share
price appreciation has been ignored. For simplicity, the value of
participating in the Company’s all-employee share schemes has
also been ignored.
Other remuneration policies
Termination and loss of office payments
The Group’s policy on remuneration for Executive Directors who
leave the Group is consistent with general market practice and is
set out below. The Committee will exercise its discretion when
determining amounts that should be paid to leavers, taking into
account the facts and circumstances of each case. When calculating
termination payments, the Committee will take into account a
variety of factors, including individual and Company performance,
the length of service of the Executive Director in question and,
where appropriate, the obligation for the Executive Director to
mitigate loss.
In the case of a “good leaver”, the following policy will normally apply:
• notice period of twelve months and pension and contractual
benefits, or payment in lieu of notice;
• statutory redundancy payments will be made, as appropriate;
• Executives have no entitlement to a bonus payment in the event
that they cease to be employed by the Group; however, they
may be considered for a pro-rated award by the Committee in
good leaver circumstances;
• the rules of the LTIP contain provisions setting out the treatment
of awards where a participant ceases to be employed by the
Vectura Group. Other than in good leaver circumstances, awards
will normally lapse. In the event of a participant’s death, retirement,
Minimum
100%
£415,000
On-target
61%
24% 15%
£688,000
Maximum
26%
21%
53%
£1,609,000
Fixed
Bonus
LTIP
ill health, injury, disability, redundancy, the sale of his employing
company or business out of the Vectura Group or for any other
reason, at the discretion of the Remuneration Committee,
awards will not be forfeited but will instead vest on the normal
vesting date. Vesting in these circumstances will be subject to
the satisfaction of the relevant performance conditions measured
at that time and time pro-rating. In exceptional circumstances,
the Remuneration Committee may allow the awards to vest on
cessation of the participant’s employment, subject to the
satisfaction of the performance conditions measured at that time
and time pro-rating. In either case, the Remuneration Committee
can decide to disapply time pro-rating, if it thinks it is
appropriate to do so in the particular circumstances;
• any other share-based entitlements granted to an Executive Director
under the Company’s share and share option plans will be
determined based upon the relevant plan rules; and
• the Committee may also provide for the leaver to be reimbursed
for a reasonable level of legal fees in connection with a
settlement agreement.
In circumstances in which a leaving Director may be entitled to
pursue a legal claim, the Company may negotiate settlement terms
if it considers this to be in the best interests of the Company and,
with the approval of the Committee on the remuneration elements
therein, enter into a settlement agreement.
73
Annual Report and Accounts 2015/16 Vectura Group plcGOVERNANCE REMUNERATION REPORT continued
Other remuneration policies continued
Executive 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 twelve months’ notice.
This applies to James Ward-Lilley whose contract took effect from
24 September 2015, to Trevor Phillips whose contract was
amended with effect from 16 July 2012, and to Andrew Oakley,
whose contract took effect from 1 January 2015. In accordance
with the UK Corporate Governance Code (“the Code”), as applicable
to a FTSE 250 company, all Executive Directors are subject annual
re-election at each AGM.
The Executive Directors may accept outside appointments, with
prior Board approval, provided that these opportunities do not negatively
impact on their ability to fulfil their duties to the Group. Whether
any related fees are retained by the individual or are remitted to
the Group will be considered on a case-by-case basis. None of
the Executive Directors currently holds any outside directorships.
Non-Executive Directors’ terms of engagement
All Non-Executive Directors have specific terms of engagement which
are terminable on not less than three months’ notice by either party
and not less than six months’ notice in the case of the Chairman.
The remuneration of Non-Executive Directors is determined by the
Board within the limits set by the Articles of Association and based
on a review of fees paid to Non-Executive Directors of similar companies.
In accordance with the Code, as applicable to a FTSE 250 company,
all Non-Executive Directors are subject to annual re-election at
each AGM.
The dates of appointment of each of the Non-Executive Directors
serving at 31 March 2016 are summarised in the table below.
J R Brown
S E Foden
N W Warner
B F J Angelici
P-O Andersson
Date of appointment
13 May 2004
18 January 2007
1 February 2011
1 December 2013
1 April 2015
A Board evaluation has been performed and the results of this
exercise confirmed that all Non-Executive Directors were independent,
including Dr John Brown and Dr Sue Foden who have service greater
than nine years. Their independence is considered valid due to
the major change in the operating activities of the Group and
the refreshment of Non-Executive and Executive members
of the Board during the terms of their appointment.
As announced on 8 April 2016, John Brown will step down from
the board of the enlarged Vectura Group within one month after
the completion of the merger. Upon completion of the merger,
Vectura will appoint Frank Condella, Skyepharma’s Chairman, as
Vice-Chairman of the enlarged Vectura Group, and Dr Thomas Werner,
a Non-Executive Skyepharma Director, will be appointed as a
Non-Executive Director of the enlarged Vectura Group Board.
Remuneration for new appointments
Where it is necessary to recruit or replace an Executive Director,
the Committee has determined that the new Executive Director
will receive a compensation package in accordance with the
provisions of the Policy.
In setting base salaries for new Executive Directors, the Committee
will consider the existing salary package of the new Director and
the individual’s level of experience. In setting the annual performance
bonus, the Committee may wish to set different performance
metrics (to those of other Executive Directors) in the first year of
appointment. Where it is appropriate to offer a below-median
salary on initial appointment, the Committee will have the discretion
to allow phased salary increases over a period of time for a newly
appointed Director, even though this may involve increases in
excess of inflation and the increases awarded to the wider workforce.
The Committee wishes to retain the ability to make buyout awards
to a new Executive Director to facilitate the recruitment process.
The amount of any such award would not exceed the expected
value being forfeited and, to the extent possible, would mirror the
form of payment, timing and degree of conditionality, etc. Where
awards are granted subject to performance conditions, these would
be relevant to Vectura Group plc. Any such award would only be made
in exceptional circumstances and shareholders would be informed
of any such payments at the time of appointment. Share-based
awards would be made using the existing share plans, where
possible, although the Committee may also use the flexibility
provided under the Listing Rules to make awards without prior
shareholder approval.
In respect of internal appointments, any commitments entered into
in respect of a prior role, including variable pay elements, may be
allowed to pay out according to its prior terms.
For external and internal appointments, the Committee may consider
it appropriate to pay reasonable relocation or incidental expenses,
including payment of reasonable legal expenses. Tax equalisation
may be considered if an Executive Director is adversely affected
by taxation due to their employment with the Company.
The terms of appointment for a Non-Executive Director would be in
accordance with the remuneration policy for Non-Executive Directors
as set out in the policy table.
74
Vectura Group plc Annual Report and Accounts 2015/16 Annual report on remuneration
Remuneration Committee (“the Committee”)
Governance
The Committee consists entirely of independent Non-Executive
Directors. The Committee is chaired by Susan Foden and, during
the year ended 31 March 2016, its members were Bruno Angelici,
Dr John Brown, Dr Per-Olof Andersson and Neil Warner.
In accordance with the requirements of the UK Corporate Governance
Code, the Board has confirmed that Bruno Angelici was independent
upon his appointment to the Board, and that he continues to be
independent. No conflicts of interest have arisen during the year
and none of the members of the Committee has any personal
financial interest in the matters discussed, other than as shareholders.
The fees of the Non-Executive Directors are determined by the
Board on the joint recommendation of the Chairman and the
Chief Executive Officer.
The Committee takes account of information from both internal
and independent sources, including New Bridge Street (NBS)
(Aon plc’s executive remuneration consultancy) who act as the
Committee’s principal, and only material, advisor. NBS advises on
all aspects of Vectura’s Remuneration policy and reviews Vectura’s
remuneration structures against corporate governance best practice.
NBS is a founder member of the Remuneration Consultants Group
and complies with its Code of Conduct, which sets out guidelines to
ensure that its advice is independent and free of undue influence.
The Committee reviews the performance and independence of its
advisors on an annual basis. During the year, Vectura incurred fees
of £187,630 from New Bridge Street. The Committee also engaged
the services of PricewaterhouseCoopers LLP (PwC) to undertake
total shareholder return (TSR) calculations in respect of the 2012
LTIP award which vested in 2015. PwC was paid £18,000 in respect
of this engagement.
The Group’s Human Resource Director provides updates to the
Committee, as required, to ensure that the Committee is fully
informed about pay and performance issues throughout the Group.
The Committee takes these factors into account when determining
the remuneration of the Executive Directors and senior executives.
No Executive Director or employee is allowed to participate in
any discussion directly relating to their own personal conditions
of service or remuneration.
Role
The Committee’s principal function is to support Vectura’s strategy
by ensuring that those individuals responsible for delivering the
strategy are appropriately incentivised through the operation of
Vectura’s remuneration policy. In determining the Group’s current
policy, and in constructing the remuneration arrangements for
Executive Directors and senior employees, 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.
• determining the terms of employment and remuneration of the
Executive Directors and Senior Executives, including recruitment
and retention terms;
• approving the design and performance targets of any annual
incentive schemes that include the Executive Directors and
senior executives;
• agreeing the design and performance targets, where applicable,
of all share incentive plans requiring shareholder approval;
• rigorously assessing the appropriateness and subsequent
achievement of the performance targets related to any share
incentive plans;
• recommending to the Board the fees to be paid to the Chairman.
The Chairman is excluded from this process; and
• the selection and appointment of the external advisors to the
Committee to provide independent remuneration advice
where necessary.
The Committee is formally constituted and operates on written
terms of reference, which are modelled on the Code and are
available on Vectura’s website, www.vectura.com.
Meetings and key decisions during FY 2015/16
The Committee met formally six times during the year ended
31 March 2016.
The key decisions made by the Committee during the year are
summarised below:
• approval of overall pay levels for FY 2015/16 for the Group
as a whole;
• approval of base salary increases for Executive Directors and other
members of the Executive Leadership Team, ensuring that,
where appropriate, these are aligned both internally and externally;
• review of achievement against corporate goals and approval
of the percentage of the bonus pool to be paid out across the
Group, and a review of achievement against personal goals
for Executive Directors;
• approval of a temporary increase in the Chief Operating Officer’s
salary during his period as Interim Chief Executive Officer;
• approval of the buyout arrangements and remuneration
package for the new Chief Executive Officer;
• approval of the payment of a relocation allowance for a
two-year period to the Chief Financial Officer;
• review of the performance conditions for awards under the 2012
Long-Term Incentive Plan (LTIP), resulting in the approval of 50%
vesting of the awards granted in 2012;
• approval of a new LTIP, grant of the first awards under the 2015
LTIP and confirmation of the peer group for the first awards;
The Committee is responsible for:
• review and approval of overall pay levels FY 2016/17 for the
• setting a remuneration policy that is designed to promote the
long-term success of the Company;
• 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;
Group as a whole;
• approval of the remuneration package for the incoming
Chief Financial Officer post completion of the proposed merger; and,
• approval of the remuneration elements in the arrangements
for the outgoing Chief Financial Officer post completion of the
proposed merger.
75
Annual Report and Accounts 2015/16 Vectura Group plcGOVERNANCE REMUNERATION REPORT continued
Audited information
Directors’ remuneration – year ended 31 March 2016
The total remuneration of the individual Directors who served during the year is shown below. 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 to
31 March 2016, being £726,000 (2015: £1,460,000).
Basic
salary(a)
£000
Benefits(b)
£000
Bonus(c)
£000
LTIP(d)
£000
Pension
entitlements(e)
£000
Other(f)
£000
SIP/SAYE
awards(g)
£000
Total
remuneration
£000
Executive Directors
C P Blackwell(1)
J Ward-Lilley(2)
T M Phillips(3)
A J Oakley(4)
Non-Executive Directors
B F J Angelici
J R Brown
S E Foden
N W Warner
P-O Andersson(5)
107
234
307
282
130
52
52
52
44
1,260
2
17
16
24
—
—
—
—
—
59
—
215
282
251
—
—
—
—
—
359
—
367
—
—
—
—
—
—
21
47
61
56
—
—
—
—
—
621
665
—
—
—
—
—
—
10
748
726
185
1,296
—
—
15
3
—
—
—
—
—
18
1,110
1,178
1,048
616
130
52
52
52
54
4,292
(1) C P Blackwell stepped down as Chief Executive Officer on 30 June 2015.
(2) J Ward-Lilley was appointed as Chief Executive Officer on 24 September 2015. On appointment he received a cash payment of £164,784 which represented his anticipated bonus payment of £226,114,
pro-rated for the proportion of bonus year that he year served at AstraZeneca. This payment was a compensation for his pro-rata bonus entitlement at his existing employer. In addition, he received
an award over 571,988 nil cost options shares as one part of his buyout arrangements. Half of this tranche of options vested immediately with a value of £500,203, subject to a twelve-month holding
requirement, with the remainder vesting twelve months after appointment subject to the achievement of personal performance conditions. The award of options is subject clawback in certain
circumstances. The value of the bonus buy out bonus award and the value of the shares that vested immediately have been included within “Other” in the above table.
(3) T M Phillips’ salary was temporarily increased from £281,875 to £381,875 for the period from 1 July 2015 to 24 September 2015 whilst he fulfilled the role of Interim Chief Executive Officer.
In addition, T M Phillips receives benefits of £15,000 (US$22,588 at an average annual exchange rate) relating to US medical and dental insurance. T M Phillips also makes employee
contributions towards this plan.
(4) A J Oakley was provided with a temporary relocation allowance of £2,500 per month starting from 1 November 2015 in order to assist with the cost of temporary accommodation and travel
connected with his relocation from Switzerland to Chippenham. In addition, he receives benefits of £11,362 relating to worldwide medical and dental insurance.
(5) P-O Andersson was appointed to the Board as a Non-Executive Director on 1 April 2015. P-O Andersson receives a £2,000 allowance for each Board meeting that requires transatlantic travel
and these amounts are shown as “Other” in the table above.
Directors’ remuneration – year ended 31 March 2015
The total remuneration of the individual Directors who served during the prior year is shown below. 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 to 31 March 2015, being £1,460,000 (2014: £117,000).
Executive Directors
C P Blackwell
T M Phillips(6)
A J Oakley(7)
P S Oliver(8)
Non-Executive Directors
B F J Angelici
J R Brown
S E Foden
N W Warner
Basic
salary(a)
£000
400
275
69
165
120
52
52
52
1,185
Benefits(b)
£000
Bonus(c)
£000
Pension
LTIP(d)
entitlements(e)
Other(f)
SIP/SAYE
awards(g)
Total
remuneration
£000
2
16
—
2
—
—
—
—
20
320
231
58
108
—
—
—
—
1,144
316
—
—
—
—
—
—
80
55
14
33
—
—
—
—
—
—
—
278
—
—
—
—
717
1,460
182
278
5
5
4
5
—
—
—
—
19
1,951
898
145
591
120
52
52
52
3,861
(6) T M Phillips receives benefits of £15,000 (US$24,541 at an average annual exchange rate) relating to US medical and dental insurance. T M Phillips also makes employee contributions
towards this plan.
(7) A J Oakley was appointed to the Board on 1 January 2015.
(8) P S Oliver stepped down as Chief Financial Officer and Company Secretary with effect from 1 January 2015.
76
Vectura Group plc Annual Report and Accounts 2015/16 Notes to the remuneration tables
(a) This is the amount earned in respect of the financial year.
(b) This is the taxable value of benefits paid in respect of the financial year. These benefits typically relate to death, disability and medical
insurance. As disclosed in footnotes (3) and (6) above, T M Phillips also receives benefits in relation to US medical and dental insurance
and, as disclosed in footnote (4), A J Oakley receives worldwide medical and dental insurance and was provided with a relocation allowance.
(c) This is the total bonus earned under the annual bonus scheme in respect of the financial year.
(d) The amount shown relates to the market value of LTIP awards that vested during the year. Refer to page 80 for details of LTIP awards
which have vested during the year.
(e) UK tax legislation imposes penalty taxes on annual pension contributions where prescribed maximum amounts are exceeded.
The Committee has previously determined that impacted Executive Directors would receive pension benefits limited by the prescribed
maximum amounts and an additional taxable supplementary cash payment equal to the cost to the Company of the pension benefit
foregone. The amount of the allowance awarded to any Executive Director so impacted has been set by the Committee so that there
is no additional cost to the Company resulting from this arrangement.
(f) Other payments in 2015/16 relate to payments made under agreements with C P Blackwell and with J Ward-Lilley; these amounts are
explained on page 83 of this report. Other payments in 2014/15 relate to payments made under an agreement with P S Oliver; these
amounts were described in the Annual report on remuneration last year.
(g) This relates to matching and free share SIP awards granted during the year and SAYE awards which have vested during the year.
The benefit of the SIP awards is calculated as the number of shares awarded multiplied by the share price on the date of the award.
The benefit of the SAYE award is calculated as the number of options awarded multiplied by the discount to the market share price
on the date the option was awarded.
Additional requirements in respect of the single total figure table of remuneration (audited information)
Performance-related pay earned in the year
Annual performance bonus
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. The scheme is offered to all staff below Board level and maximum
bonus opportunities range from 10% to 75% of salary, depending on grade. Bonus payments are not pensionable.
The Committee has consistently set stretching corporate goals, including goals around revenue generation, development pipeline
progress, partnering successes and control of cash expenditure, which are weighted towards goals with the highest corporate significance.
In addition, a significant percentage of the bonus potential is set against challenging personal objectives which are linked to the overall
business strategy. Bonuses are limited to a maximum of 100% of basic salary for each Executive Director.
For the year ended 31 March 2016 the performance objectives against which bonus payments were calculated are set out in the table
overleaf. Full disclosure of some objectives has been restricted due to commercial sensitivity; however, full disclosure will be provided
as and when the objectives cease to be commercially sensitive.
77
Annual Report and Accounts 2015/16 Vectura Group plcGOVERNANCE REMUNERATION REPORT continued
Additional requirements in respect of the single total figure table (audited information) continued
Performance-related pay earned in the year continued
Annual performance bonus continued
The Committee assessed that a bonus of 89%–92% (2014/15: 80%–84%) of salary was appropriate for the Executive Directors when
judged by the achievement of the metrics set out in the tables below.
Performance measure
Weighting
Stretch
EBITDA progression
Revenue growth
10%
10%
£18.0m
£83.0m
Achievement
£23.2m
£72.0m
Level of bonus
awarded as a %
of metric (% of
full bonus)
100% (10%)
90% (9%)
Commentary
Slight underperformance to stretch
target driven by a delay on VR315
US milestone announcement
Cash balance (excluding
working capital and
non-recurring expenses)
10%
£93.0m
£93.8m
100% (10%)
At target
Corporate strategy targets
10%
Qualitative
assessment
100% (10%)
Long-term strategy reviewed
and agreed with the Board
Activaero operations
5%
Close the Gemünden manufacturing site by 31
March 2016
100% (5%)
Ensure site at Chippenham and contract
manufacturing organisation are operating
effectively to cover the manufacturing duties
Ensure the management of the sites in
Germany is fit for purpose and delivers
integration without hindering progress of
any programmes
Gemünden site closed
smoothly and manufacturing
activities transitioned to
UK sites and to contract
manufacturing organisations
FAVOLIR® and SCIPE targets
15%
VR475 EU (FAVOLIR®), in Europe,
clinical study progress
87% (13%)
Good progress with strong patient
recruitment reached
New deals and strategic
partnerships
15%
Strategic plan agreed for SCIPE project
in the US
FDA and Key opinion leader (KOL)
interactions completed and strategic
plan agreed
67% (10%)
Add value through partnerships
demonstrated by either:
• a positive net present value (NPV)
adding value to the business
• a positive perception of our technology/
business resulting from the deal announcement
Good progress in planned
deal flow with several
opportunities identified
Skyepharma planned
merger announced
Management succession
plan targets
5%
Progress leadership and succession planning
100% (5%)
Assess strategic capabilities and agree
development plan
Structured review completed
and significant progress made
Capability development plan in
long-term strategy review
Total
80%
72%
78
Vectura Group plc Annual Report and Accounts 2015/16 The personal objectives set in respect of the 2015/16 bonus plan are set out below:
Personal objectives
Key aspects of performance against individual objectives
Performance
Payout (as % of salary)
J Ward-Lilley
Strategy development
Assessed of core strategy and critical capabilities of
the organisation, current portfolio, new opportunities,
assets and markets completed and presented to
the Board.
Achieved
20%
Leadership team
assessment
Assessed and made recommendations for Executive
Leadership Team (ELT) to execute strategy.
Effective progression
of acquisitions, merger
and partnering
Operational delivery
A J Oakley
Strategy development
Evaluated M&A and core targets and progressed
Skyepharma opportunity.
Delivered targets for 2015/16, progressing the
VR315 US and FAVOLIR® programmes and the
transfer of Activaero operations.
Contributed to business strategy development,
including relevant business shape and business
development financing and transactions.
Contributed to, prepared for, and facilitated of,
the proposed merger with Skyepharma PLC
Development of the Group’s
financial processes
Enhanced the effectiveness of finance processes,
management information and reporting.
Development of the
Company Secretariat
Development of the
Group’s financial
organisation
Enhanced Company Secretarial materials and improved
the Board processes through advanced planning
and preparation.
Ensured effective team development, including
an appropriate structure for the finance function.
T M Phillips
Strategy development
Interim Chief Executive
Officer role
Operational delivery
Contributed to the generation and execution of the
Company strategy.
Enabled business growth through support of the
establishment of new business development leads
and contribution to proposed Skyepharma merger.
Delivered projects to time and budget targets
throughout FY 2015/16.
Business operations team
development
Developed of management team to ensure business
operations are effectively managed and led.
The resulting annual bonus awards were as follows:
Achieved
Achieved
Achieved
Achieved
17%
Achieved
Partially
achieved
Partially
achieved
Achieved
20%
Achieved
Achieved
Achieved
J Ward-Lilley
A Oakley
T M Phillips
Maximum
opportunity
% salary
100
100
100
Actual % of
salary
Total
awarded
92 £215,000
89 £251,000
92 £282,000(1)
(1) Based upon salary earned in the year, which was inclusive of a £100,000 uplift in salary during the three-month period Trevor Phillips was acting as Interim Chief Executive Officer.
Consistent with our policy, bonuses are paid entirely in cash.
79
Annual Report and Accounts 2015/16 Vectura Group plcGOVERNANCE REMUNERATION REPORT continued
Additional requirements in respect of the single total figure table (audited information) continued
LTIP scheme
Scheme interests vested during the year
On 12 September 2012, an award of LTIP options was made to the Executive Directors who were in office at this time.
Vesting of these awards was calculated in the year by PwC as follows:
Measure
Performance target
Actual performance
TSR against FTSE
SmallCap Index
The vesting outcome for each comparator group is calculated as follows: Vectura’s TSR exceeded that of the Upper
Quartile of the FTSE SmallCap Index over
Level of comparative performance during
the performance period
the measurement period. Consequently,
100% of this element of the awards were
eligible to vest.
Percentage of LTIP award released
Below median
—
TSR against Euro Stoxx
comparator group
At or above median
Upper quartile
(1) Linear vesting between points.
The value of LTIP options which have vested during the year is as follows:
Director
C P Blackwell
T M Phillips
Total
100(1)
25(1) Vectura’s TSR was 20% below the median
of the peer group over the measurement
period. Consequently, none of this element
of the awards was eligible to vest.
Number
of options
awarded
Share price at
vesting
p
Percentage of
award
vested
Exercise
price
p
Value of LTIP
awards vesting
£
401,889
410,659
812,548
178.6
178.6
50%
50%
0.025
0.025
358,836
366,666
725,502
In accordance with the rules of Vectura’s LTIP scheme, the Committee determined that Chris Blackwell should be treated as a good leaver.
His outstanding awards under the plan are subject to pro-rating based on the period to the end of his notice period on 30 June 2016.
Scheme interests awarded during the year (audited)
Long-Term Incentive Plan (LTIP)
At a general meeting of the Company held on 24 September 2015, the 2015 LTIP scheme, as described in the remuneration policy on
pages 71 to 72, was approved by shareholders.
Following shareholder approval, the following awards of nominal cost options were granted to the Executive Directors under the new
2015 LTIP scheme:
Director
J Ward-Lilley
T M Phillips
A J Oakley
Total
Number
of options
awarded
630,252
394,782
394,782
1,419,816
Value of
award
250%
250%
250%
Share price used
to determine
level of award
p
Face value
£
Exercise price
p
% that vests at
threshold
Vesting date(1)
178.5 1,125,000
178.5
178.5
704,686
704,686
2,534,372
0.025
0.025
0.025
15 See below
15 See below
15 See below
(1) 40% of the award vests on 24 September 2018 and the remaining 60% of the award (40% for the standard five-year award and 20% for the “kicker”) vests on 24 September 2020.
Details of the relevant performance conditions are set out on page 81.
80
Vectura Group plc Annual Report and Accounts 2015/16
Long-Term Incentive Plan (LTIP) (audited)
Award levels were calculated based on the closing share price of 178.5p on the trading day immediately preceding the date of grant.
The face value of each award shown overleaf is based upon this share price.
The awards granted under the 2015 LTIP scheme on 24 September 2015 are subject to relative TSR, measured over three tranches
over three or five years, against two comparator groups (each representing 50% of the total award), as set out in the table below:
Proportion of total
award (two
equal parts)
Performance
period
Comparator group
Performance required for vesting
Tranche 1
20% 3 years
FTSE 250 companies (excluding real estate
and financial services)
Median (15%) to upper quartile (100%)
20% 3 years
Selected European
pharmaceutical companies
Tranche 2
20% 5 years
FTSE 250 companies (excluding real estate
and financial services)
Median (15%) to upper decile (100%)
20% 5 years
Selected European
pharmaceutical companies
Tranche 3
10% 5 years
FTSE 250 companies (excluding real estate
and financial services)
Upper decile (100%)
10%
Selected European
pharmaceutical companies
The Committee reviewed the constituents of the European pharmaceutical peer group at the time of grant and determined that two
companies in the proposed group, BB Biotech and Tubize, were not appropriate comparators as they are investment companies rather than
businesses actively involved in the sector. It therefore decided that these companies should be replaced by Circassia and Consort Medical,
who are competitors and relevant to Vectura’s own business, in the final comparator group used for the 2015 award. The full European
pharmaceutical comparator group used for these awards is AB Science, Ablynx, Actelion, ALK-Abelló, Almirall, Basilea, Bavarian Nordic,
Biotest, Boiron, BTG, Celyad, CHR Hansen, Circassia, Consort Medical, Cosmo, Dechra, Evotec, Faes Farma, Galapagos, Genfit, Genmab,
Genus, Grifols, Guerbet, Hikma, Innate Pharma, Ipsen, KRKA, Lonza, Lundbeck, Meda, Medivir, Merck KGaA, Morphosys, Novozymes, Orion,
Pharma Mar, Qiagen, Recordati, Richter Gedeon, ROVI, Shire, Siegfried, SOBI, Sopharma, Stada-Arzneimittel, Stallergenes, ThromboGenics,
Transgene, UCB, Valneva, Vétoquinol, Virbac, Zealand Pharma.
Performance against the conditions will be measured by the Committee’s independent advisors.
Irrespective of the extent to which the relative TSR conditions have been met, the Committee may decrease the percentage vesting based
on a range of factors, including the Group’s 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
Remuneration report for the relevant year.
To the extent that the performance conditions are not met in full at the end of the three-year or five-year performance periods, awards lapse.
The Committee has the power to claw back and or apply a malus mechanism in respect of 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 which it deems relevant to this provision.
Free share awards
An award of free shares was made to all employees on 14 July 2015, under Vectura’s Share Incentive Plan (SIP). The awards are subject to
a three-year holding period and no performance conditions are attached. The awards made to Directors who held office on 14 July 2015
are shown in the table below:
Director
T M Phillips
A J Oakley
Total
Closing share
price on
date of grant
p
178.2
178.2
Number of
shares
awarded
2,020
505
2,525
Face
value
£
3,600
900
4,500
% that vests
at threshold
Vesting
date
— 14/07/2018
— 14/07/2018
81
Annual Report and Accounts 2015/16 Vectura Group plcGOVERNANCE REMUNERATION REPORT continued
Additional requirements in respect of the single total figure table (audited information) continued
Scheme interests awarded during the year (audited) continued
Matching share awards
On 6 July 2015, the Directors listed below purchased shares through the SIP. For every one share purchased, Vectura awarded a free
matching share pursuant to the scheme rules. The value of the matching shares is shown below. The awards are subject to a three-year
holding period and no performance conditions are attached.
Director
T M Phillips
A J Oakley
Total
Closing share
price on
date of grant
p
180
180
Number of
shares
awarded
1,000
1,000
2,000
Face
value
£
1,800
1,800
3,600
% that vests
at threshold
Vesting
date
— 06/07/2018
— 06/07/2018
Sharesave
Vectura Group plc also operates a Sharesave (SAYE) Share Option Scheme for employees and Executive Directors. Under this scheme all
eligible employees and Executive Directors are invited to subscribe for options, which may be granted at a discount of up to 20% of market
value and which vest after three years. The SAYE is an HMRC-approved all-employee plan to which performance conditions do not apply.
On 28 February 2016, the following Sharesave options vested:
Director
T M Phillips
Total
Number
of options
awarded
Share price at
vesting
p
Percentage of
award
vested
11,718
162.6
100
Exercise
price
p
77.0
11,718
Value of SAYE
award vesting
£
10,054
10,054
Approved and Unapproved Share Option Plans
Executive Directors hold options under the Approved and Unapproved Share Option Plans as detailed above. 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.
Total pension entitlements
As stated in the notes to the single figure remuneration table, UK tax legislation imposes penalty taxes on annual pension contributions
where prescribed maximum amounts are exceeded. Impacted Executive Directors receive an additional taxable supplementary cash
payment in lieu of pension contributions in excess of any limits.
Executive Directors
C P Blackwell
J Ward-Lilley
A J Oakley
T M Phillips
Paid into
pension
fund
£000
80
—
56
61
197
Received
in cash
£000
Total
pension
£000
27
47
—
—
74
107
47
56
61
271
Buyout of James Ward-Lilley’s entitlements at his previous employer
As previously explained to shareholders, on 24 September 2015, James Ward-Lilley received an award of shares to compensate him for the
loss of a number of long-term incentive awards received from his previous employer AstraZeneca. In accordance with the Group’s approved
remuneration policy, when structuring these awards the Committee sought to ensure that the expected value of the replacement awards
was no greater than the expected value being forfeited and to replicate, to the extent possible, the form of payment, timing and degree of
conditionality of the awards foregone. In addition, the Committee understood the importance of recruiting James without delay alongside
ensuring alignment with Vectura’s shareholders and the existing members of the ELT.
82
Vectura Group plc Annual Report and Accounts 2015/16
The awards made were as follows:
An award of nil cost options over 571,988 ordinary shares granted on 24 September 2015 as compensation for a one-off award linked to
the achievement of certain therapeutic milestones at AstraZeneca. As a significant proportion of these milestones had been achieved by
the time of his departure, half of this award vested immediately subject to a twelve-month holding requirement post vesting and clawback.
The remainder of the award vests on 24 September 2016 subject to continued employment (other than departure as a good leaver), the
achievement of commercially sensitive strategic targets measured in the first twelve months of employment and clawback if the 2015
milestone trigger/performance condition in the AstraZeneca arrangements were not achieved;
An award of nil-cost options over 285,994 ordinary shares which will vest on 7 June 2016. This was granted as compensation for an award
granted in 2013 under the AstraZeneca LTIP which was due to vest in June 2016. Vesting of this award is subject to the TSR performance
criteria of Vectura’s 2013 LTIP award; and
An award of nil-cost options over 273,635 ordinary shares which will, subject to performance, vest on 1 July 2017. This award was granted
as compensation for an award granted in 2014 under the AstraZeneca LTIP which was due to vest in March 2017. Vesting of this award is
subject to the TSR performance criteria of Vectura’s 2014 LTIP award.
James Ward-Lilley also forfeited an AstraZeneca award granted in 2015 which was due to vest in 2018; this was not bought out, as on
appointment he received an award under Vectura’s 2015 LTIP at the same time as other Vectura Executive Directors. He also received a
cash payment of £164,784 in respect of his anticipated bonus payment of £226,114. This award was pro-rated to reflect the proportion
of the AstraZeneca bonus year worked.
These awards were made under the terms of a share award agreement in connection with James’ recruitment as Chief Executive Officer
of Vectura. They were made to facilitate recruitment and to compensate for loss of certain benefits and share awards from James’ previous
employment, which were forfeited as a result of his employment by Vectura. The Remuneration Committee believes that these awards
fairly reflect the awards James forfeited on leaving his previous employment in terms of value and timing of vesting. These one-off awards
of nil-cost options were granted under the exemption to the requirement for prior shareholder approval to which Listing Rule 9.4.2(2) applies.
No consideration was paid for the grant of these awards and no consideration is due on the vesting of these awards. The awards made
are in accordance with Vectura’s approved remuneration policy and are subject to clawback in certain circumstances. The awards will be
satisfied with the transfer of existing shares.
The share price on the date of grant of these awards was 174.9p. The targets that apply to the award that is due to vest on 24 September 2016,
are commercially sensitive and will be disclosed in next year’s report.
A summary of the share awards is provided in the table below:
Awards granted under LR 9.4.2(2)
Buyout of 50% of AstraZeneca milestone award
Buyout of 50% of AstraZeneca milestone award
Buyout of 2013 AstraZeneca LTIP award
Buyout of 2014 AstraZeneca LTIP Award
Number
of options
awarded
285,994
285,994
285,994
273,635
Share price
on date
of award
p
Face
value
£
Exercise
price
p
% that vests
at threshold
174.9
174.9
174.9
174.9
500,203
500,203
500,203
478,588
nil
nil
nil
nil
n/a
—
25%
25%
Vesting
date
24/09/2015
24/09/2016
07/06/2016
01/07/2017
Total
1,131,617
1,979,197
Payments made for loss of office and payments to past Directors (audited information)
As described in last year’s Annual Remuneration report, Chris Blackwell continued in his role as Chief Executive until 30 June 2015. In April 2015,
Vectura entered into an agreement with Chris Blackwell pursuant to which he received a payment in lieu of salary for his twelve-month notice
period and a payment of £96,000 as full settlement of his legal rights against the Company. Vectura continues to provide Chris with contractual
benefits and pension contributions for the duration of his notice period. He did not receive a bonus for the period worked in FY 2015/16.
In light of Chris Blackwell’s strong performance and contribution to the growth of the business over his twelve years as Chief Executive, and in
accordance with the Company’s approved remuneration policy and the rules of Vectura’s LTIP scheme, Chris was treated as a good leaver.
His outstanding awards under the plan will be subject to pro-rating for time, based on the period elapsed from the date of grant to the end of
his notice period on 30 June 2016. These awards will vest at the normal date, subject to achievement of the relevant performance conditions.
The Committee believes these arrangements are appropriate in light of Chris’ performance in his role to the time of his departure and his
tenure as Chief Executive.
83
Annual Report and Accounts 2015/16 Vectura Group plcGOVERNANCE REMUNERATION REPORT continued
Additional requirements in respect of the single total figure table (audited information) continued
Statement of Directors’ shareholding and share interests (audited information)
As a direct link between Executive remuneration and the interests of shareholders, the Committee has implemented shareholding
guidelines for Executive Directors and key senior employees. The guidelines require that Executive Directors build up and maintain an
interest in the ordinary shares of the Company that is 200% of their annual base salary. In assessing compliance with this requirement, the
value of the shareholding shown below is assessed using the share price on 31 March 2016, being 162.6p. The value as a percentage of
salary has been calculated using the base salary as at 31 March 2016, as shown in the single figure remuneration table.
Shares owned
Unvested
Vested(9)
Unvested
Vested
LTIP awards subject to performance conditions*
Share option awards not subject to performance conditions
Unapproved
scheme
Approved
scheme
Sharesave
Unapproved
scheme
Approved
scheme
Sharesave
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11,718
15,734
—
—
—
—
—
—
—
906,605
37,383
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
31 March 2016
ordinary shares
of 0.025p each
1,325,143
221,765
—
2,505
12,903
322,570
11,000
—
30,477
Value of
owned
shares as
a % of
salary
503
128
—
—
—
—
—
—
—
2013
award(7)
2014
award(7)
2015
award(8)
458,110
611,246
300,751
206,766
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
394,782
630,252
394,782
—
—
—
—
—
Awards
granted
under
LR 9.4.2(2)
Awards
granted
under LR 9.4.2(2)
and LTIP schemes
— 2,551,722
—
845,623
205,330
285,994
—
—
—
—
—
—
—
—
—
—
—
—
Executive Directors
C P Blackwell(1)
T M Phillips(2)
J Ward-Lilley(3)
A J Oakley(4)
Non-Executive Directors
B F J Angelici
J R Brown(5)
S E Foden
P-O Andersson(6)
N W Warner
(1) The shareholding shown for C P Blackwell is his shareholding as at the date he ceased to be a Director of Vectura Group plc, 30 June 2015. The percentage of his salary held in shares is
calculated using the share price as at 31 March 2016 and his annual salary at the point of his departure, £428,000. Options shown are Chris’ option holdings on 30 June 2015, before the
application of pro-rating and performance conditions.
(2) The holding of T M Phillips includes 25,198 ordinary shares of 0.025p each, which are held in the Vectura Group plc Employee Benefit Trust (SIP).
(3) J Ward-Lilley joined the Board on 24 September 2015. On joining he received an award under Listing Rule 9.4.2(2) as compensation for various forfeited LTIP awards at AstraZeneca. Details
of the terms of these awards are provided on page 83.
(4) The holding of A J Oakley includes 2,505 ordinary shares of 0.025p each, which are held in the Vectura Group plc Employee Benefit Trust (SIP).
(5) The holding of J R Brown includes 20,457 ordinary shares of 0.025p each, which are held through nominees.
(6) P-O Andersson joined the Board on 1 April 2015.
(7) The 2013 and 2014 awards are subject to the same performance conditions measured over three years from the date of grant of each award. Vesting of 50% of the awards is dependent
on relative TSR performance against the FTSE Small Cap and 50% against the following peer group selected from the constituents of the Euro Stoxx Index: Ablynx, Active Biotech, ALK-Abelló,
BB Biotech, BTG, Faes Farma, Galapagos, Genmab, Hikma, Ipsen, Medivir, Pharma Mar, Recordati, Stada-Arzneimittel AG, Swedish Orphan Biovitrum, ThromboGenics NV, Tubize, Virbac.
No vesting occurs if Vectura’s TSR is below median, 25% of each element vests at median, rising to full vesting at upper quartile. At the time of setting the peer group for the new 2015 LTIP
award, the Committee identified that Algeta had delisted early in the performance period for the 2013 and 2014 awards and, in accordance with the rules, determined that Algeta should
be replaced by Thrombogenics in the Euro Stoxx peer group. Thrombogenics was selected as it was the next closest member of the Euro Stoxx Index in terms of market capitalisation
at the time the peer group was decided upon. Prior to making this substitution the Committee satisfied itself that this change would not increase the level of vesting based on performance
up to the date of amendment.
(8) Awards consist of a three-year tranche, a five-year tranche and a five-year “kicker’. Vesting conditions and peer group are set out on page 81.
(9) Trevor Phillip’s vested LTIP awards relate to outstanding awards granted between 2005 and 2010. James Ward-Lilley’s vested LTIP award relates to half of the award granted under Listing
Rule 9.4.2(2) as compensation for his one-off milestone based AstraZeneca award as described on page 83.
* Details of the performance conditions applicable to the unvested LTIP awards are set out on page 81.
84
Vectura Group plc Annual Report and Accounts 2015/16 Until this level of shareholding has been attained, 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 equivalent to at least 200% of their base salary.
The Directors who have held office during the year ended 31 March 2016 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 2016
are shown in the table below.
There was no change in the Directors’ interests between 31 March 2016 and 25 May 2016, the date of this report.
31 March 2016
ordinary shares
of 0.025p each
1,325,143
221,765
—
2,505
12,903
322,570
11,000
—
30,477
Value of
owned
shares as
a % of
salary
503
128
—
—
—
—
—
—
—
Awards
granted
Awards
granted
— 2,551,722
845,623
205,330
285,994
—
—
—
—
—
—
—
—
—
—
—
—
—
458,110
611,246
300,751
206,766
—
394,782
630,252
394,782
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Executive Directors
C P Blackwell(1)
T M Phillips(2)
J Ward-Lilley(3)
A J Oakley(4)
Non-Executive Directors
B F J Angelici
J R Brown(5)
S E Foden
P-O Andersson(6)
N W Warner
Shares owned
Unvested
Vested(9)
Unvested
Vested
LTIP awards subject to performance conditions*
Share option awards not subject to performance conditions
2013
award(7)
2014
award(7)
2015
award(8)
under
under LR 9.4.2(2)
LR 9.4.2(2)
and LTIP schemes
Unapproved
scheme
Approved
scheme
Sharesave
Unapproved
scheme
Approved
scheme
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
15,734
—
—
—
—
—
906,605
37,383
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Sharesave
—
11,718
—
—
—
—
—
—
—
Unaudited information
Performance graph and table
The following graph shows Vectura Group plc’s cumulative total shareholder return (TSR) over the last seven financial years relative to
the FTSE 250 Index. This Index was chosen as Vectura is one of the constituent companies and the Committee feels that it is the most
appropriate against which to measure performance.
TSR is defined as the return on investment obtained from holding a company’s shares over a period. It includes dividends paid, the change
in the capital value of the shares and any other payments made to or by shareholders within the period.
Total shareholder return
Source: Thomson Reuters
)
£
(
e
u
a
V
l
350
300
250
200
150
100
50
0
31 March 2009
31 March 2010
31 March 2011
31 March 2012
31 March 2013
31 March 2014
31 March 2015
31 March 2016
This graph shows the value, by 31 March 2016, of £100 invested in Vectura Group plc on 31 March 2009, compared with the value of £100 invested in the
FTSE 250 Index. The other points plotted are the values at intervening financial year ends.
Vectura Group plc
FTSE 250
85
Annual Report and Accounts 2015/16 Vectura Group plcGOVERNANCE
REMUNERATION REPORT continued
Unaudited information continued
Aligning pay with performance
Chief Executive Officer remuneration compared with annual growth in TSR:
2009/10
£000
2010/11
£000
2011/12
£000
2012/13
£000
2013/14
£000
711
47
669
62
971
53
594
59
748
100
2014/15
£000
1,951
80
83.3
62.9
100
—
—
100
Chris
Blackwell
James
Ward-Lilley
2015/16
£000
1,110
—
50
2015/16
£000
1,178
92
100
Chief Executive Officer total remuneration
Actual bonus as a % of the maximum
Actual share award vesting as a %
of the maximum(1) (2)
(1) No LTIP awards vested during FY 2012/13 or FY 2013/14.
(2) Upon appointment, James Ward-Lilley received nil-cost options, certain of which vested immediately. Refer to page 83 for further details.
Percentage change in remuneration of the Chief Executive Officer
Set out below is the change over the prior period in base salary, benefits, pension and annual performance bonus of the Chief Executive
Officer and the Group’s employees:
Chris Blackwell
Salary
Benefits
Bonus
2015/16
£000
428
2
—
Chief Executive Officer
All employees
Percentage change (FY 2014/15 v FY 2015/16)
Percentage change (FY 2014/15 v FY 2015/16)
7
—
(100)
3.7
—
5
Relative importance of Executive Director remuneration
Total revenue, research and development expenditure and loss before tax have been selected as comparators for the employee
costs as these three financial measures are strong indicators of the activity within the Group and of its performance.
Total employee remuneration
Revenue
Research and development expenditure
(Loss)/profit before tax
Distributions to shareholders
FY 2014/15
£m
FY 2015/16
£m
Change
£m
18.3
58.0
22.9
72.0
(36.1)
(42.1)
(6.2)
—
(1.9)
—
4.6
14.0
(6.0)
4.3
—
Statement of shareholder voting at 2015 AGM and GM
At last year’s AGM and GM, held on 24 September 2015, votes cast by proxy and at the meeting in respect of the Directors’ remuneration
were as follows:
For (including
discretionary
votes)
Total votes cast
(excluding votes
withheld)
Against
Votes
withheld(1)
Total votes
cast (including
votes withheld)
To approve the Remuneration report
196,352,212
114,686,619
311,038,831
11,682,386
322,721,217
% of votes cast
63.13
36.87
To approve the Directors’ Remuneration policy
313,344,761
10,569,776
323,914,537
15,513
323,930,050
% of votes cast
To approve the 2015 LTIP
% of votes cast
96.74
3.26
307,865,652
16,053,141
323,918,793
11,257
323,930,050
95.04
4.96
(1) A vote that is withheld does not constitute a vote in law and has not therefore been included in the totals above.
As noted in the Committee Chairman’s letter to shareholders, a number of investors did not feel able to support the vote on our Annual report
on remuneration because they were concerned at the timing of the second part of a phased increase in Chris Blackwell’s salary during his
final year at the Company. As a result of this feedback from our investors we have consulted with our major shareholders, together with
the Investment Association and ISS, to provide further details of the Committee’s thinking and to offer the chance to discuss any remaining
concerns, and we have taken on board the feedback received for future reference.
In the forthcoming year, the Committee will continue to engage with major shareholders and their representative bodies regarding the
development and implementation of Vectura’s remuneration policy.
86
Vectura Group plc Annual Report and Accounts 2015/16 Statement of implementation of remuneration policy in the following financial year
Base salaries
J Ward-Lilley
A J Oakley
T M Phillips
A Derodra
Salary from 1 April
2016 or date of
appointment
£461,250
£281,875
£288,921
£341,000
Increase
2.5%
—
2.5%
—
The Committee determined that a 2.5% increase was appropriate for the roles of Chief Executive Officer and Chief Operations Officer.
This increase is below the overall increase of 3.5% across the wider workforce. Andrew Oakley’s salary has not been increased.
Non-Executive Directors’ fees
Non-Executive and Chairman fees have been reviewed in light of the merger with Skyepharma and, subject to completion of the merger,
it is intended that the following changes will be effective from 1 July 2016:
Chairman
Vice Chairman
Committee Chairs/SID(1)
Other NEDs
Fee
Increase
£150,000
15.4%
£75,000
£58,000
£50,000
n/a
10.6%
13.6%
(1) In the event that an individual holds a Committee Chairmanship and holds the position of Senior Independent Director they will receive an additional fee of £2,000 bringing the total
maximum fee level to £60,000.
Contingent upon the completion of the merger, Frank Condella, who is currently the chairman of Skyepharma, will join the Vectura Board
as Vice Chairman. Frank Condella will receive fees of £75,000 in respect of this role. Dr Thomas Werner will join the Vectura Board as a
Non-Executive Director.
In addition, where a Non-Executive Director is required undertake transatlantic travel to attend a Board meeting an allowance of £2,000
is provided.
Bonus
The performance targets set for the performance bonus for future years will be disclosed in Vectura’s 2016/17 Report and Accounts in
accordance with the policy set out on pages 69 to 74 of this report.
Performance measures for continuing Executive Directors will include targets relating to creating strategic growth opportunities, securing
existing pipeline value and achieving financial growth.
Proposed change of reporting date
Upon completion of the proposed merger with Skyepharma PLC, it is intended that the Enlarged Group will operate to a December
year-end and therefore annual bonus elements, will be effective and measured over the nine-month period ended 31 December 2016
and bonuses will be payable in March 2017.
Executive Director bonuses will be calculated on actual base salary earned during the nine-month period ended 31 December 2016.
LTIP
As in 2015, LTIP awards will be structured as follows:
• a three-year element representing 40% of the total award that vests after three years subject to performance measured over
three financial years, with an additional one-year holding period applying to post-tax vested shares from the date of vesting;
• a five-year element representing 40% of the total award that vests after five years subject to service and performance measured
over five financial years;
• an additional ‘kicker’ of up to 20% of the total award may vest for performance at or above the upper decile after five years;
• the performance conditions (applying to both the three and five-year awards) will be as follows:
• 50% relative TSR vs FTSE 250 Index excluding financial services and real estate sector companies; and
• 50% relative TSR vs bespoke group of European pharmaceutical companies; and
• recovery and withholding conditions also apply.
Details of the relevant peer group for assessing performance are set out on page 81.
87
Annual Report and Accounts 2015/16 Vectura Group plcGOVERNANCE REMUNERATION REPORT continued
Unaudited information continued
Termination arrangements for Andrew Oakley
Andrew Oakley will step down from the role of Chief Financial Officer upon completion of the proposed merger with Skyepharma PLC.
He will receive normal pay and benefits up to this date, and his 2015/16 bonus will be paid as normal in June. He will receive a payment
in lieu of notice comprising his salary for his twelve-month notice period and a sum representing the value of his pension contributions
and benefits.
As a good leaver he will also be entitled to be paid a pro-rata bonus payment for the period worked in the financial year 2016/17. This will
be based on personal objectives linked to the completion and closing of the 2015/16 results, establishing targets and budgets for 2016/17
and the completion of the merger. This bonus will be paid at the same time as the first tranche of his termination payments.
He will also be treated as a good leaver under the LTIP. In light of the considerable delay in granting him his first LTIP award in late
September 2015, which was due to the transition between Chief Executive Officers and the timing of the introduction of the new LTIP,
his value and committed contribution to the development of strategy, and his importance to the completion of the proposed merger with
Skyepharma, the Committee has determined that this award will be pro-rated based on the period between his joining the company on
1 January 2015 and his departure. The award will vest at the normal time subject to achievement of the performance conditions.
The company will contribute toward legal fees and provide an amount to assist with his outplacement costs.
Full details will be disclosed at the time of Andrew’s departure.
Remuneration for Andrew Derodra
Andrew Derodra will take on the role of Chief Financial Officer upon completion of the proposed merger with Skyepharma PLC. He will
receive a base salary of £341,000 per annum and he will participate in the Company’s private medical, dental, health insurance and life
assurance schemes in place from time to time. He will also receive coverage under the Group’s Directors and Officers insurance policy.
The Company will provide pension contributions of 20% of salary and he will be eligible for holiday entitlement of 30 days plus bank holidays.
His bonus opportunity will be up to 100% of base salary (pro-rata in the first year of appointment) and he will be eligible for awards under
the 2015 LTIP plan, with his first award granted as soon as is practicable post joining and on similar terms to the 2016 awards granted to
other Executive Directors. Participation in the bonus scheme and the 2015 LTIP will be subject to the rules of the schemes and the Company’s
remuneration policy in place from time to time.
On behalf of the Board
Dr Susan Foden
Chair of the Remuneration Committee
25 May 2016
88
Vectura Group plc Annual Report and Accounts 2015/16 DIRECTORS’ REPORT
The following matters are reported by the Directors in accordance
with the Companies Act 2006 (“the Act”) in force at the date of this
Annual Report and consolidated financial statements.
Principal activity
The principal activity of the Group undertaken during the year was
research, development and commercialisation of novel therapeutic
products and drug delivery systems for human use.
Review of business
The consolidated income statement for the year ended 31 March 2016
is set out on page 97. Key events during the past year are described
in the Strategic report; highlights of FY 15/16 are shown on pages 1 to 3
and are referred to in more detail in the Chairman’s statement, the
Chief Executive’s statement and the Financial review.
The Articles 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 report on pages 55 to 60.
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.
Other than the indemnity provisions described above, none of the
Directors had a material interest in any contract of significance to
which the Company or any of its subsidiary undertakings was a
party during the year ended 31 March 2016 and up to the date
of the publication of this report.
The Company is required to report annually the Group’s greenhouse
gas emissions; Director and employee gender, social, community
and human rights disclosures. Details of the Group’s policies in
relation to these matters are set out within the Corporate responsibility
section of the Strategic report on pages 47 to 50.
Shares
Share capital
At 13 May 2016, the nearest practical date to the date of this
report, the Company had a total of 3,240 ordinary shareholders
and 410,618,150 ordinary shares in issue.
The Group’s risk management process and the Board’s assessment
of the key risks and uncertainties facing the business, including the
Viability statement, are set out on pages 20 to 29. During the year,
the Board has reviewed the risk management policies in place, as
summarised in the Corporate governance statement on pages 55
to 60. Key performance indicators are set out on pages 18 and 19.
The above-referenced disclosures, together with the Chairman’s
introduction, the Corporate governance statement, the Audit
Committee report, the Nomination Committee report and the
Remuneration Committee report, are incorporated into this
report by reference and should be read as part of this report.
Group’s result and dividend
The consolidated profit after tax for the year was £5.0m
(2014/15: £3.7m). The Directors do not recommend the
payment of a dividend (2014/15: £nil).
Financial instruments
The policy and practice of the Group with regard to financial
instruments is disclosed in note 22 to the financial statements.
Directors
The Directors listed on pages 52 to 53 served throughout the year,
with the exception of James Ward-Lilley.
James Ward-Lilley was appointed as Chief Executive Officer on
24 September 2015. Chris Blackwell served as a Director from
1 April 2015 to 30 June 2015.
Brief biographical details of each Director are set out on pages 52
and 53.
Details of Directors’ remuneration and their interests in the share
capital of the Company are given in the Remuneration report.
None of the Directors has any interest in any contract of
significance to the financial statements.
With regard to the appointment and replacement of Directors, the
Company is governed by its Articles of Association (“the Articles”),
the Code, the Act and related legislation.
Rights and obligations
The rights and obligations attaching to the ordinary shares are set
out in the Company’s Articles. The Articles may only be amended
by special resolution of the members of the Company. A copy of
the Articles is available upon request.
Share price
The mid-market share price as shown by the London Stock
Exchange Daily Official List on 31 March 2016 was 162.60p.
The mid-market share price ranged from 143.25p to 200.10p
during the year to 31 March 2016. The average share price
for the period was 169.74p.
Capital structure
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 23.
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 Company’s ordinary shares are listed
on the London Stock Exchange. The redeemable preference shares
carry no interest, nor do they carry voting rights. The percentage
of issued nominal value of the ordinary shares is 75.1% 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 and prevailing legislation. The Directors are not aware
of any restrictions on the transfer of ordinary shares other than
certain restrictions imposed by laws and regulations, e.g. insider
trading and pursuant to the Listing Rules of the Financial Conduct
Authority whereby prior clearance is required from the Company
in order for certain employees to deal in the Company’s securities.
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 23.
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.
89
Annual Report and Accounts 2015/16 Vectura Group plcGOVERNANCE DIRECTORS’ REPORT continued
Substantial shareholdings
On 13 May 2016, the Directors were notified of the following substantial holdings in the Company’s share capital:
Number of shares
‘000
66,019
27,257
25,980
24,640
22,137
17,763
16,183
14,001
13,857
%
16.1
6.6
6.3
6.0
5.4
4.3
3.9
3.4
3.4
Annual General Meeting
The Annual General Meeting (AGM) will be held at the offices
of Covington & Burling LLP, 265 Strand, London WC2R 1BH on
7 September 2016 at 12.00 p.m. Details of the business to be
transacted at the forthcoming AGM will be given in a separate
circular to shareholders.
Auditor
Deloitte LLP has expressed a willingness to continue in office
as auditor and a resolution to reappoint them will be put to
the members at the forthcoming AGM.
The Directors that were members of the Board at the time
of approving the Directors’ report are listed on pages 52 and 53.
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 section 418 of the Companies Act 2006.
By order of the Board
Andrew J Oakley
Company Secretary
25 May 2016
Invesco Asset Management Limited
Legal & General Investment Management Limited
OppenheimerFunds Inc.
Baillie Gifford & Co
AXA Investment Managers UK Limited
Neptune Investment Management Limited
Aviva Investors Global Services Limited
Templeton Investment Council LLC
Aberforth Partners LLP
Disabled employees
Applications for employment by disabled persons are always
fully considered, bearing in mind the aptitudes of the applicant
concerned. In the event of members of staff becoming disabled,
every effort is made to ensure that their employment with the
Group continues and that appropriate training is provided. It is
the policy of the Group that the training, career development
and promotion of disabled employees should, as far as is possible,
be identical to that of other employees.
Employee consultation
The Group places considerable value as the involvement of its
employees and has continued to keep them informed on matters
affecting them as employees. Refer to pages 48 and 49 for details
of our employee communications.
Political and charitable donations
Vectura encourages employee involvement in charitable causes,
but does not contribute itself because it continues to make an
operating loss. There were no political donations during the year
(2014/15: £nil).
Going concern
The accounts have been prepared on the going concern basis.
Although certain 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 profit after tax of £5.0m for the financial year
ended 31 March 2016 (2014/15: £3.7m) and had £99.8m of cash
and cash equivalents as at 31 March 2016 (2015: £90.0m). 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. Accordingly, they continue to adopt the
going concern basis in preparing the Annual Report and Accounts.
Further information regarding the Directors assessment of going-concern
and viability are set out in the Strategic report on page 29.
90
Vectura Group plc Annual Report and Accounts 2015/16 STATEMENT OF DIRECTORS’ RESPONSIBILITIES
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 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:
• present fairly the financial position, financial performance
and cash flows of an entity;
• make judgements and estimates that are reasonable
and prudent;
• properly select and apply accounting policies and then apply
them consistently;
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 IFRSs
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;
• the Strategic 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 which they face; and
• the Annual Report and financial statements, taken as whole, are
fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company’s position and
performance, business model and strategy.
Andrew J Oakley
Director
25 May 2016
• state whether the Group financial statements have been
prepared in accordance with IFRSs as adopted by the
European Union;
• 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
and Article 4 of the IAS Regulation. 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.
91
Annual Report and Accounts 2015/16 Vectura Group plcGOVERNANCE FINANCIAL STATEMENTS
Independent auditor’s report
93
97 Consolidated income statement
98 Consolidated statement of comprehensive income
99 Balance sheet
100 Cash flow statement
101 Statement of changes in equity
102 Notes to the financial statements
124 Five-year summary
IBC Shareholder information
92
Vectura Group plc Annual Report and Accounts 2015/16
Independent auditor’s report
to the members of Vectura Group plc
Opinion on the financial statements of Vectura Group plc
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 2016
and of the Group’s profit for the year then ended;
•
•
•
the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (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.
The financial statements comprise the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, the Balance
Sheet, the Cash Flow Statement, the Statement of Changes in Equity and the related notes 1 to 31. The financial reporting framework that
has been applied in their preparation is applicable law and 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.
Separate opinion in relation to IFRSs as issued by the IASB
As explained in note 1 to the Group financial statements, in addition to complying with its legal obligation to apply IFRSs as adopted
by the European Union, the Group 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.
Going concern and the Directors’ assessment of the principal risks that would threaten the solvency or liquidity of the Group
As required by the Listing Rules we have reviewed the Directors’ statement regarding the appropriateness of the going concern basis of
accounting contained within page 90 and the Directors’ statement on the longer-term viability of the Group contained within the strategic
report on page 29.
We have nothing material to add or draw attention to in relation to:
• the Directors’ confirmation on page 22 that they have carried out a robust assessment of the principal risks facing the Group, including
those that would threaten its business model, future performance, solvency or liquidity;
• the disclosures on pages 22–29 that describe those risks and explain how they are being managed or mitigated;
• the Directors’ statement in note 1 to the financial statements about whether they considered it appropriate to adopt the going concern
basis of accounting in preparing them and their identification of any material uncertainties to the Group’s ability to continue to do so
over a period of at least twelve months from the date of approval of the financial statements;
• the Directors’ explanation on page 90 as to how they have assessed the prospects of the Group, over what period they have done so
and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the
Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any
related disclosures drawing attention to any necessary qualifications or assumptions.
We agreed with the Directors’ adoption of the going concern basis of accounting and we did not identify any such material uncertainties.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to
continue as a going concern.
Independence
We are required to comply with the Financial Reporting Council’s Ethical Standards for Auditors and we confirm that we are independent
of the Group and we have fulfilled our other ethical responsibilities in accordance with those standards. We also confirm we have not
provided any of the prohibited non-audit services referred to in those standards.
93
Annual Report and Accounts 2015/16 Vectura Group plcFINANCIAL STATEMENTS Independent auditor’s report continued
to the members of Vectura Group plc
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below, which are unchanged from the prior year, are those that had the greatest
effect on our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team:
Risk
Goodwill and intangible asset impairment
The carrying value of goodwill (31 March 2016: £57.4 million; 31 March 2015: £56.8 million)
and intangible assets (31 March 2016: £92.2 million; 31 March 2015: £104.3 million)
relies on assumptions and judgements made by management concerning the estimated
future cash flows from a combination of early and late stage research & development
programmes, future royalty receipts and regulatory milestones; associated discount
rates; and clinical commercial risk and market growth rates. Management have
performed an impairment review under IAS 36.
See note 1 and 9 to the financial statements where the key assumptions used
in their impairment model have been disclosed.
Revenue recognition
The Group’s two principal revenue streams are licence milestones and royalty income:
• Recognition of revenue on product and technology licence milestones (31 March 2016:
£24.4 million; 31 March 2015: £26.4 million) can be subjective and management
exercises judgement in determining whether the Group has fulfilled all of its
performance obligations, such as a regulatory approval or transfer of intellectual
property, under that contract and therefore the relevant period over which
to recognise revenue. This is a material judgement that impacts the financial
statements; and
• Royalty income (31 March 2016: £39.2 million; 31 March 2015: £25.2 million) is
recognised over the course of the year based on information provided to Vectura
by its partners, upon which it relies. As Vectura does not have direct visibility over
the level of product sales being made (upon which royalties are earned) there is a
material risk surrounding the completeness of this revenue stream.
See notes 1 and 2 to the financial statements where the key assumptions in relation
to revenue recognition have been disclosed.
How the scope of our audit
responded to the risk
We assessed and challenged management’s
assumptions used in their impairment model
for goodwill and intangible assets, including:
• The cash flow projections by discussing
with senior operational management and
considering the consistency of the forecasts
with clinical and licensing partner data and
contractual agreements;
• Discount rates by engaging our valuation
specialists to independently recalculate
the Group’s WACC and then performing
an assessment of the risk adjustments
applied by management; and
• Sensitivity analysis of management’s
forecasts including assessing the impact
of applying further sensitivities.
We reviewed the key contracts for the Group
and management’s calculations for each milestone
to assess consistency with the Group’s accounting
policies and compliance with IAS 18 ‘Revenue’.
We challenged management’s assumptions
through discussions with the development team
and review of supporting documentation such as
licence agreements and regulatory announcements
to assess whether the period of recognition for
each milestone was appropriate.
Our audit work focused on the completeness
of royalty income and involved: determining
completeness of royalty statements; reviewing
press releases and third party publications about
the related royalty streams; evaluating the design
& implementation of controls employed by
management to challenge sales amounts reported
and used to calculate royalties by their partners;
and analysing royalties received year-on-year
and investigating unusual variances.
Last year our report included one other risk which is not included in our report this year being acquisition accounting as there have
been no significant acquisitions during the year.
The description of risks above should be read in conjunction with the significant issues considered by the Audit Committee discussed
on page 62.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
94
Vectura Group plc Annual Report and Accounts 2015/16 Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions
of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work
and in evaluating the results of our work.
We determined materiality for the Group to be £2 million (2015: £2 million), which is approximately 1% of equity (2015: 1%), 5% of research
and development costs and 3% of revenue. Due to the company achieving profits in the prior year we have considered several different
bases to determine materiality in the current year. We have further included a consideration of research and development cost and
revenue as these measures represent key aspects of the business which are becoming stable. Loss before tax fluctuates year on year as
the Group progresses its R&D programmes; the chosen measures also reflect the Group’s focus on cash generation and cash management.
We agreed with the Audit Committee that we would report to the Committee all misstatements identified in excess of £100,000 (2015: £40,000),
as well as misstatements below that threshold that, in our view, warranted reporting on qualitative grounds. In the current year we have
re-evaluated our consideration of what is clearly inconsequential in our reporting to the Audit Committee. We also report to the Audit
Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls,
and assessing the risks of material misstatement at the Group level.
Based on that assessment, we focused our Group audit scope on the UK businesses which are managed from Chippenham, UK. These
were subject to a full scope audit by the Group audit team using component materialities which were lower than Group materiality. Component
materialities range from £1 million to £1.9 million. The UK businesses account for 100% (2015: 100%) of the components with net assets,
95% (2015: 95%) of the Group’s revenue and 100% of the components with a profit before tax (2015: 100% of Group’s loss before tax).
In addition, audit procedures were performed by the Group audit team in respect of the German business using a component materiality
which is lower than Group materiality. Including goodwill and intangible assets this business accounts for 99% of the components with net
liabilities (2015: 99%), 5% (2015: 5%) of the Group’s revenues and 96% of the components with a loss before tax (2015: 96% of Group’s
loss before tax).
At the parent entity level we also tested the consolidation process and performed analytical procedures to confirm our conclusion that
there were no significant risks of material misstatement of the aggregated financial information of the remaining components not subject
to audit or audit of specified account balances.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
• the part of the Directors’ Remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and
• the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are
prepared is consistent with the financial statements.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received
from branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of Directors’ remuneration have not
been made or the part of the Directors’ Remuneration report to be audited is not in agreement with the accounting records and returns. We
have nothing to report arising from these matters.
Corporate Governance Statement
Under the Listing Rules we are also required to review the part of the Corporate Governance Statement relating to the company’s
compliance with certain provisions of the UK Corporate Governance Code. We have nothing to report arising from our review.
95
Annual Report and Accounts 2015/16 Vectura Group plcFINANCIAL STATEMENTS Independent auditor’s report continued
to the members of Vectura Group plc
Matters on which we are required to report by exception continued
Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the annual
report is:
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course
of performing our audit; or
• otherwise misleading.
In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the
audit and the Directors’ statement that they consider the annual report is fair, balanced and understandable and whether the annual
report appropriately discloses those matters that we communicated to the audit committee which we consider should have been
disclosed. We confirm that we have not identified any such inconsistencies or misleading statements.
Respective responsibilities of Directors and auditor
As explained more fully in the Directors’ Responsibilities Statement, 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). We also comply with International
Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure that our quality control procedures are
effective, understood and applied. Our quality controls and systems include our dedicated professional standards review team and
independent partner reviews.
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.
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 and to identify any information that is apparently materially incorrect based on, or
materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the implications for our report.
David Hedditch (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Bristol, United Kingdom
25 May 2016
96
Vectura Group plc Annual Report and Accounts 2015/16 Consolidated income statement
for the year ended 31 March 2016
Revenue
Cost of sales
Gross profit
Research and development expenses
Other administrative expenses
Non-recurring transaction costs
Amortisation of intangible assets
Share-based compensation
Total administrative expenses
Operating loss
Presented as:
EBITDA(1)
Non-recurring transaction costs
Amortisation of intangible assets
Depreciation of assets
Share-based compensation
Operating loss
Investment income
Finance gains/(costs)
Share of result of joint venture
Loss before taxation
Taxation
Profit after taxation attributable to equity holders of the Company
Earnings per ordinary share: basic
Earnings per ordinary share: diluted
Adjusted earnings (EBITDA) (1) per ordinary share: basic
Adjusted earnings (EBITDA) (1) per ordinary share: diluted
Note
2
31
10
24
5
31
10
11
24
4
4
14
7
8
8
8
8
2016
£m
72.0
(3.3)
68.7
2015
£m
58.0
(2.4)
55.6
(42.1)
(36.1)
(4.8)
(5.6)
(18.8)
(2.5)
(31.7)
(5.1)
23.2
(5.6)
(18.8)
(1.4)
(2.5)
(5.1)
2.7
1.1
(0.6)
(1.9)
6.9
5.0
1.2p
1.2p
5.7p
5.6p
(4.5)
—
(20.9)
(1.1)
(26.5)
(7.0)
16.2
—
(20.9)
(1.2)
(1.1)
(7.0)
0.5
1.7
(1.4)
(6.2)
9.9
3.7
0.9p
0.9p
4.0p
3.9p
(1) Earnings before investment income, finance gains/(costs), tax, depreciation, amortisation, share-based compensation and adjusted for non-recurring items.
All results are derived from continuing activities.
97
Annual Report and Accounts 2015/16 Vectura Group plcFINANCIAL STATEMENTS Consolidated statement of comprehensive income
for the year ended 31 March 2016
Profit after taxation attributable to equity holders of the Company
Other comprehensive income/(loss):
Items that may be subsequently reclassified through the income statement
Foreign currency translation gains/(losses) from foreign operations
Other comprehensive income/(expense)
Total comprehensive income/(loss) attributable to equity holders of the Company
Note
23f
2016
£m
5.0
5.4
5.4
10.4
2015
£m
3.7
(11.4)
(11.4)
(7.7)
98
Vectura Group plc Annual Report and Accounts 2015/16 Balance sheet
at 31 March 2016
Assets
Goodwill
Intangible assets
Property, plant and equipment
Investments in subsidiary undertakings
Investment in joint venture
Other receivables
Non-current assets
Inventories
Trade and other receivables
Amounts due from subsidiary undertakings
Cash and cash equivalents
Non-current assets held for sale
Current assets
Total assets
Liabilities
Trade and other payables
Deferred income
Deferred consideration
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
Translation reserve
Retained (loss)/profit
Total equity
Note
9
10
11
13
14
15
16
17
18
22
12
19
20
30
20
21
23a
23b
23c
23d
23e
23f
Group
Company
2016
£m
57.4
92.2
11.6
—
1.2
0.4
2015
£m
56.8
104.3
11.5
—
1.7
0.4
2016
£m
2.0
—
—
2015
£m
2.0
—
—
234.3
234.3
—
—
—
—
162.8
174.7
236.3
236.3
0.7
22.2
—
99.8
0.9
27.9
—
90.0
122.7
118.8
0.3
123.0
285.8
(26.4)
(0.8)
—
(27.2)
(1.0)
(20.4)
(21.4)
(48.6)
—
118.8
293.5
(20.6)
(0.2)
(25.6)
(46.4)
(1.5)
(23.7)
(25.2)
(71.6)
237.2
221.9
0.1
101.6
8.2
124.9
17.4
(7.6)
(7.4)
0.1
99.2
8.2
124.9
14.9
(13.0)
(12.4)
—
—
47.2
20.0
67.2
—
67.2
—
—
89.2
—
89.2
—
89.2
303.5
325.5
(3.4)
—
—
(3.4)
—
—
—
—
—
(25.6)
(25.6)
—
—
—
(3.4)
300.1
(25.6)
299.9
0.1
101.6
8.2
0.1
99.2
8.2
123.7
123.7
17.4
—
49.1
14.9
—
53.8
237.2
221.9
300.1
299.9
The financial statements of Vectura Group plc, registered number 03418970, were approved and authorised for issue by the Board
of Directors on 25 May 2016 and were signed on its behalf by:
J Ward-Lilley
Director
A J Oakley
Director
99
Annual Report and Accounts 2015/16 Vectura Group plcFINANCIAL STATEMENTS Cash flow statement
for the year ended 31 March 2016
Operating loss
Depreciation and amortisation
Share-based compensation
Non-recurring transaction costs paid
Decrease in inventories
Decrease/(increase) in trade and other receivables
Decrease/(increase) in inter-company receivables
Increase in payables
Increase/(decrease) in deferred income
Exchange movements
Net cash inflow from operations
Research and development tax credits received
Net cash inflow from operating activities
Cash flows from investing activities
Interest received
Purchase of property, plant and equipment
Disposal of investments
Acquisition of Activaero GmbH (1)
Non-recurring transaction costs paid
Net cash outflow from investing activities
Net cash inflow before financing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Net cash inflow from financing activities
Increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Group
Company
2016
£m
(5.1)
20.2
2.5
2.1
0.2
7.0
—
4.0
0.1
1.6
32.6
0.3
32.9
0.3
(1.5)
2.4
(24.6)
(2.1)
(25.5)
7.4
2.4
2.4
9.8
90.0
99.8
2015
£m
(7.0)
22.1
1.1
—
0.1
(14.2)
—
0.6
(0.1)
1.8
4.4
3.6
8.0
0.4
(1.4)
—
(0.5)
—
(1.5)
6.5
1.8
1.8
8.3
81.7
90.0
2016
£m
(5.6)
—
—
—
—
—
2015
£m
(1.0)
—
—
—
—
—
43.4
(2.5)
3.4
—
1.0
42.2
—
42.2
—
—
—
(24.6)
—
(24.6)
17.6
2.4
2.4
20.0
—
20.0
—
—
3.5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1) The final element of the consideration for the acquisition of Activaero GmbH, being the non-contingent deferred consideration was paid in August 2015. No further payments are due to be
made in respect of this acquisition.
100
Vectura Group plc Annual Report and Accounts 2015/16 Statement of changes in equity
for the year ended 31 March 2016
Group
At 1 April 2014
Profit for the year
Other comprehensive loss
Total comprehensive loss
Share-based compensation
Exercise of share options
At 31 March 2015
Profit for the year
Other comprehensive income
Total comprehensive income
Share-based compensation
Exercise of share options
Share
capital
£m
0.1
Share
premium
£m
97.4
Special
reserve
£m
8.2
Other
reserve
£m
124.9
Share-based
compensation
£m
Translation
reserve
£m
Retained
loss
£m
Total
equity
£m
13.8
—
—
—
1.1
—
(1.6)
—
(11.4)
(11.4)
—
—
(16.1)
226.7
3.7
—
3.7
—
—
3.7
(11.4)
(7.7)
1.1
1.8
—
—
—
—
—
—
—
—
—
—
8.2
124.9
14.9
(13.0)
(12.4)
221.9
—
—
—
—
—
—
—
—
—
—
—
—
—
2.5
—
—
5.4
5.4
—
—
5.0
—
5.0
—
—
5.0
5.4
10.4
2.5
2.4
—
—
—
—
—
0.1
—
—
—
—
—
—
—
—
—
1.8
99.2
—
—
—
—
2.4
At 31 March 2016
0.1
101.6
8.2
124.9
17.4
(7.6)
(7.4)
237.2
Share-based
compensation
£m
Translation
reserve
£m
Company
At 1 April 2014
Profit for the year and total
comprehensive income
Share-based compensation
Exercise of share options
At 31 March 2015
Loss for the year and total
comprehensive expense
Share-based compensation
Exercise of share options
At 31 March 2016
Share
capital
£m
0.1
Share
premium
£m
97.4
—
—
—
0.1
—
—
—
0.1
—
—
1.8
99.2
—
—
2.4
101.6
Special
reserve
£m
8.2
—
—
—
8.2
—
—
—
8.2
Other
reserve
£m
123.7
—
—
—
13.8
—
1.1
—
123.7
14.9
—
—
—
—
2.5
—
123.7
17.4
—
—
—
—
—
—
—
—
—
Retained
profit
£m
50.6
3.2
—
—
Total
equity
£m
293.8
3.2
1.1
1.8
53.8
299.9
(4.7)
—
—
(4.7)
2.5
2.4
49.1
300.1
101
Annual Report and Accounts 2015/16 Vectura Group plcFINANCIAL STATEMENTS Notes to the financial statements
for the year ended 31 March 2016
1. Significant accounting policies
General information
Vectura Group plc is a public limited company incorporated in the United Kingdom under the Companies Act. The address of the registered
office and principal place of business is given on the final page of this Annual Report. The nature of the Group’s operations and its principal
activities are set out in the Strategic report on pages 6 to 50.
The Company’s ordinary shares are traded on the London Stock Exchange (LSE) under the ticker VEC.
These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which
the Group operates. Foreign operations are included in accordance with the policies set out below.
Adoption of new and revised Standards
The following amendments to International Financial Reporting Standards (“IFRSs”) and a new interpretation issued by the International
Accounting Standards Board (“IASB”) have been applied by the Group in the current year. Their adoption has not had any significant impact
on the amounts reported in these financial statements.
Annual improvements to IFRSs 2010 – 2012 Cycle and 2011–2013 Cycle
The Group has adopted the amendments to IFRSs included in the Annual Improvements to IFRSs 2010–12 Cycle and 2011–13 Cycle for the
first time in the current year. The adoption of the amendments has had no impact on the disclosures or amounts recognised in the Group’s
consolidated financial statements.
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 European Union (“EU”):
•
IFRS 9 Financial Instruments
•
IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
•
IFRS 10, IFRS 12 and IAS 28 (amendments) Investment Entities: Applying the Consolidation Exception
•
IFRS 11 (amendments) Accounting for Acquisitions of Interests in Joint Operations
•
IFRS 14 Regulatory Deferral Accounts
•
IFRS 16 Leases
•
IFRS 15 Revenue from Contracts with Customers
•
IAS 1 (amendments) Disclosure Initiative
•
IAS 12 (amendments) Recognition of Deferred Tax Assets for Unrealised Losses
•
IAS 16 and IAS 38 (amendments) Clarification of Acceptable Methods of Depreciation and Amortisation
•
IAS 27 (amendments) Equity Method in Separate Financial Statements
• Annual IFRS Improvements Process 2012–2014 cycle (Sep 14): Amendments to: IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations, IFRS 7 Financial Instruments: Disclosures, IAS 19 Employee Benefits and IAS 34 Interim Financial Reporting
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 9 simplifies financial instrument classifications and hedge accounting rules as well as introducing impairment requirements for loans.
•
•
IFRS 15 is effective for annual periods beginning on or after 1 January 2018 and replaces all existing revenue requirements in IFRS.
The core principle is that revenue will be recognised at an amount reflecting the consideration to which the company expects to be entitled
in exchange for transferring goods or services to a customer. It may have an impact on revenue recognition and related disclosures.
IFRS 16 is effective for annual periods beginning on or after 1 January 2019 and it removes the current distinction between an operating
and finance lease, introducing consistent requirements for all leases similar to the current finance lease accounting. The lease value for
leased premises as well as other smaller trade related operating leases will be brought onto the balance sheet at the fair value of the
future minimum lease payments.
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.
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 IFRSs as issued by the 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 loss for the year ended 31 March 2016 is £4.7m (2014/15: £3.2m profit).
102
Vectura Group plc Annual Report and Accounts 2015/16 1. Significant accounting policies continued
Basis of preparation continued
The financial statements have been prepared on the historical cost basis, revised for use of fair values where required by applicable IFRSs.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating
the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if a market participant would
take those characteristics into account when pricing the asset or liability at the measurement date. Fair value measurements and/or disclosures
in these consolidated financial statements are determined on such basis, except for share-based payment transactions that are within the
scope of IFRS 2, leasing transactions that are within the scope of IAS 17, and measurements that have some similarities to fair value but
are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36.
The principal accounting policies adopted are set out below.
Going concern
The accounts have been prepared on the going concern basis. Although certain 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 profit after tax of £5.0m for the financial year ended 31 March 2016 (2014/15: £3.7m) and had £99.8m of cash and
cash equivalents as at 31 March 2016 (2015: £90.0m). 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. 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 entities controlled by the Company
(its subsidiaries) as at 31 March each year. Control is achieved when the Company:
• has power over the investee;
•
is exposed, or has rights, to variable returns from its involvement with the investee; and
• has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more
of the three elements of control listed above.
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. 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.
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.
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:
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.
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 the above criteria have been met. Milestone payments relating to scientific or technical achievements are recognised
as income when the milestone is accomplished.
Development services
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.
103
Annual Report and Accounts 2015/16 Vectura Group plcFINANCIAL STATEMENTS 1. Significant accounting policies continued
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 consolidated income statement 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.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree,
and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of
the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable
assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interest in the
acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit
or loss as a bargain purchase gain.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the
Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during
the measurement period, or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances
that existed as of the date of acquisition that, if known, would have affected the amounts recognised as of that date.
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 Consolidated Income Statement. 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 fair value. 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 Consolidated Income Statement 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: in accordance with IAS 38:
• 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.
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 three and ten 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.
104
Vectura Group plc Annual Report and Accounts 2015/16Notes to the financial statements continuedfor the year ended 31 March 2016 1. Significant accounting policies continued
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 – twenty years
Leasehold improvements to buildings – three to seven years
Laboratory equipment – three to seven years
Office and IT equipment – three 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.
Assets are classified as “under the course of construction” until such a time as the asset is capable of being used in the manner intended.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise
from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant or equipment
is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.
Non-current assets held for sale
Non-current assets (or disposal groups) are classified as held for sale if the carrying amount will be recovered principally through sale rather
than through continuing use. This condition is regarded as met only when the sale is highly probable, the assets (or disposal groups) are
available for immediate sale in its present condition and management is committed to the sale which should be expected to qualify for
recognition as a completed sale within one year from the date of the classification.
Immediately prior to being classified as held for sale the carrying amount of assets and liabilities are measured in accordance with the
applicable standard. After classification as held for sale it is measured at the lower of the carrying amount and fair value less costs to sell.
An impairment loss is recognised in profit or loss for any initial and subsequent write-down of the asset and disposal group to fair value
less costs to sell. A gain for any subsequent increase in fair value less costs to sell is recognised in profit or loss to the extent that it is not
in excess of the cumulative impairment loss previously recognised.
Non-current assets or disposal groups that are classified as held for sale are not depreciated.
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any
indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated
to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets,
the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent
basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated
to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
An intangible asset with an indefinite useful life is tested for impairment at least annually and whenever there is an indication that the asset
may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. 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 for the time value of money
and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset
(or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the Consolidated Income
Statement, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss
is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the
impairment loss is treated as a revaluation increase.
Investments in subsidiaries
Investments in subsidiaries are eliminated upon consolidation. In the Company accounts investments are carried at historic cost, less provision
for impairment.
105
Annual Report and Accounts 2015/16 Vectura Group plcFINANCIAL STATEMENTS 1. Significant accounting policies continued
Investments in associates and joint ventures
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
Consolidated Income Statement 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.
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.
Financial instruments
Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual
provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition
or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are
added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs
directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately
in profit or loss.
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.
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.
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.
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
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.
Leasing
Operating leases and the annual rentals are charged to the Consolidated Income Statement on a straight-line basis over the period of the
lease in accordance with the terms of the lease agreements.
106
Vectura Group plc Annual Report and Accounts 2015/16Notes to the financial statements continuedfor the year ended 31 March 2016 1. Significant accounting policies continued
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.
For the purposes of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated
at the exchange rate prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the
period. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity.
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.
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 Consolidated Income Statement.
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 Consolidated Income Statement 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.
107
Annual Report and Accounts 2015/16 Vectura Group plcFINANCIAL STATEMENTS 1. Significant accounting policies continued
Share-based payments
The Group operates a number of executive and employee share option schemes, including a Long-Term Incentive Plan (LTIP), 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 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.
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 estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the
revision affects both current and future periods.
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 determination of the fair value of acquired intangible
assets, the measurement and review for impairment of definite and indefinite-life intangible assets (goodwill), revenue recognition and the
treatment of research and development expenditure in line with the relevant accounting policy.
Estimation uncertainty – Intangible assets
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. In determining the fair value of acquired intangibles, the Group uses market-observable data to the
extent that is available. To the extent that such inputs are not available, the Group works closely with external valuation experts to establish
the appropriate valuation techniques and inputs to the model.
Estimation uncertainty – Impairment of goodwill
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 value-in-use calculation requires the entity to estimate the future cash flows
expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value.
Critical accounting judgements – Revenue recognition
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.
Critical accounting judgements – Research and development costs
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.
108
Vectura Group plc Annual Report and Accounts 2015/16Notes to the financial statements continuedfor the year ended 31 March 2016 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 research, development and commercialisation of novel therapeutic products and drug delivery systems for human use.
Revenue by category
Royalties
Product licensing
Technology licensing
Development services
Device sales
Investment income:
Total investment income (note 4)
Total revenue per IAS 18
Revenue by customer location
United Kingdom
Rest of Europe
United States of America
2016
£m
39.2
21.0
3.4
4.7
3.7
2015
£m
25.2
19.8
6.6
3.9
2.5
72.0
58.0
2.7
74.7
2016
£m
13.2
37.4
21.4
72.0
0.5
58.5
2015
£m
6.0
29.0
23.0
58.0
Information about major customers
Revenue earned from the Group’s major customers was as follows: Customer A – £33.6m (2014/15: £26.4m), Customer B – £13.4m
(2014/15: £12.4m) and Customer C – £13.0m (2014/15: £5.8m).
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 Executive 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 Executive Leadership Team. In assessing performance, the Executive 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 and Germany. Revenues from external customers in the United Kingdom
were £68.0m (2014/15: £54.3m) and non-current assets originating in the United Kingdom were £170.3m (2015: £174.4m).
4. Investment income and finance gains/(costs)
Investment income:
Income from sale of investments(1)
Interest receivable on bank deposits and similar income
Total investment income
Finance gains/(costs):
Foreign exchange gains
Finance costs(2)
Total finance gains/(costs)
2016
£m
2.4
0.3
2.7
1.6
(0.5)
1.1
2015
£m
0.1
0.4
0.5
1.8
(0.1)
1.7
(1) As announced on 1 May 2015, the Medicines Company received US FDA approval for RAPLIXATM and the RaplixaSpray device. This triggered a payment to Vectura as part of the deferred
consideration arrangements related to the acquisition of ProFibrix BV by the Medicines Company in 2013.
(2) Finance costs include arrangement fees relating to a Revolving Credit Facility (RCF) entered into during March 2016, and at the reporting date this facility remains undrawn.
109
Annual Report and Accounts 2015/16 Vectura Group plcFINANCIAL STATEMENTS 5. Operating loss
Operating loss is the result for the Group before investment income, finance gains/(costs) and taxation, and is stated after charging:
Amortisation of intangible assets
Depreciation of property, plant and equipment
Share-based compensation
Cost of inventories recognised as expense
Staff costs (note 6)
Non-recurring acquisition costs
Operating lease rentals:
– land and buildings
Auditor’s remuneration
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 its 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
2016
£m
18.8
1.4
2.5
—
22.9
5.6
2015
£m
20.9
1.2
1.1
0.3
18.3
—
0.5
0.5
2016
£000
30
65
95
18
4
—
560
582
677
2015
£000
20
72
92
17
4
—
—
21
113
Details of the Group’s policy on the use of the auditor for non-audit services, the reasons why the auditor was used rather than another
supplier and how the auditor’s independence and objectivity was safeguarded are set out in the Audit Committee report on page 63.
In the current year, other services fees relate to work performed as the Reporting Accountant to support the proposed merger with
Skyepharma PLC. No services were provided pursuant to contingent fee arrangements.
6. 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
2016
Number
2015
Number
255
15
270
2016
£m
18.9
3.1
0.9
22.9
228
15
243
2015
£m
15.4
2.2
0.7
18.3
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 £2.5m (2014/15: £1.1m).
The ultimate parent Company, Vectura Group plc, had no employees during the years ended 31 March 2016 and 31 March 2015.
110
Vectura Group plc Annual Report and Accounts 2015/16Notes to the financial statements continuedfor the year ended 31 March 2016 7. Taxation
The major components of the income tax credit for the years ended 31 March 2016 and 31 March 2015 were as follows:
2016
£m
2015
£m
Research and development tax credits:
– current year
– in respect of prior years
Decrease in net deferred tax liability
Total
2.0
—
4.9
6.9
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 consolidated income statement as follows:
Loss before tax
Loss before tax multiplied by standard rate of UK corporation tax of 20% (2014/15: 21%)
Effects of:
Permanent differences – patent box benefit
Expenses not deductible for tax purposes
Unrecognised tax losses carried forward
Decrease in net deferred tax liability
Research and development tax credits:
– current year
– in respect of prior years
Total tax credit for the year
2016
£m
(1.9)
(0.4)
(1.0)
0.4
1.0
(4.9)
(2.0)
—
(6.9)
2.5
0.6
6.8
9.9
2015
£m
(6.2)
(1.3)
—
0.2
1.1
(6.8)
(2.5)
(0.6)
(9.9)
In March 2015 the UK government announced the main rate of UK corporation tax would remain at 20% for the period to 1 April 2017
and that a further reduction to 18% from 1 April 2020 would apply. This announcement has been substantively enacted and therefore UK
deferred tax assets and liabilities are recognised at a rate of 18% (2015: 20%). In March 2016, the UK government announced that the main
rate of UK corporation tax would be further reduced to 17% with effect from 2020.
Factors that may affect future tax charges are set out in note 21.
8. Earnings per ordinary share
The calculation of earnings per share is based on the following data:
Profit after tax for the year (£m)
EBITDA(1) for the year (£m)
Weighted average number of ordinary shares – basic earnings per share (m)
Effect of dilutive potential ordinary shares (share options) (m)
Weighted average number of ordinary shares – diluted earnings per share (m)
Earnings per ordinary share
Basic
Diluted
EBITDA(1) per ordinary share
Basic
Diluted
(1) Earnings before investment income, finance gains/(costs), tax, depreciation, amortisation, share-based compensation, and adjusted for non-recurring items.
_2_VEC_ar16_Back_[KW].indd 111
2016
5.0
23.2
405.8
9.6
415.4
1.2p
1.2p
5.7p
5.6p
2015
3.7
16.2
401.6
10.0
411.6
0.9p
0.9p
4.0p
3.9p
111
01/06/2016 10:58:19
Annual Report and Accounts 2015/16 Vectura Group plcFINANCIAL STATEMENTS 9. Goodwill
Group
Cost:
At 1 April
Effect of movements in foreign exchange
At 31 March
Net book value:
At 1 April
At 31 March
The carrying value of goodwill is made up of balances arising on acquisition of the following companies:
Group
Co-ordinated Drug Development Limited (since renamed Vectura Limited)
Vectura Delivery Devices Limited
Innovata Limited
Activaero GmbH(1)
2016
£m
56.8
0.6
57.4
56.8
57.4
2016
£m
1.5
0.5
47.6
7.8
57.4
2015
£m
57.8
(1.0)
56.8
57.8
56.8
2015
£m
1.5
0.5
47.6
7.2
56.8
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 CGUs 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 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 the likely period in which cash flows could be expected, being a period up to fifteen years for impairment review purposes.
No terminal values have been included in the cash flow forecasts. No general growth rates are assumed. The pre-tax discount rates used
in the forecasts range from between 12.3% and 14.4%. Following the acquisition of Activaero GmbH in March 2014, and for the purpose
of impairment testing of goodwill, the Group is split into two CGUs, being the Vectura CGU and the Activaero CGU.
Goodwill has been allocated to the following CGUs:
Vectura CGU
Activaero CGU(1)
2016
£m
49.6
7.8
57.4
2015
£m
49.6
7.2
56.8
(1) The underlying currency of the goodwill associated with the Activaero GmbH CGU is the Euro. The goodwill balance of €9.9m is translated into sterling at the prevailing exchange rate on the
balance sheet date. Any foreign exchange gain or loss is taken to the translation reserve, as shown in the consolidated statement of comprehensive income. The movement of £0.6m shown
in the table above relates solely to movements in the £/€ exchange rate between 31 March 2015 and 31 March 2016.
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.
Company
Carrying amount:
At 31 March 2015 and 31 March 2016
£m
2.0
The goodwill in the Company arose on the acquisition of the Centre for Drug Formulation Studies, an unincorporated entity, in 1999.
Amortisation of £0.7m 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.
112
Vectura Group plc Annual Report and Accounts 2015/16Notes to the financial statements continuedfor the year ended 31 March 2016 10. Intangible assets
Group
Cost:
At 1 April 2014
Effect of movements in foreign exchange
At 31 March 2015
Effect of movements in foreign exchange
At 31 March 2016
Amortisation:
At 1 April 2014
Effect of movements in foreign exchange
Charge for the year
At 31 March 2015
Charge for the year
Effect of movements in foreign exchange
At 31 March 2016
Net book value:
At 31 March 2015
At 31 March 2016
Patents and
trademarks
£m
Licences
£m
Total
£m
117.4
(13.1)
104.3
8.1
112.4
(4.0)
(13.5)
0.9
(16.6)
(12.6)
(2.1)
(31.3)
87.7
81.1
89.4
(1.7)
87.7
1.1
88.8
(63.9)
(7.4)
0.2
(71.1)
(6.2)
(0.4)
206.8
(14.8)
192.0
9.2
201.2
(67.9)
(20.9)
1.1
(87.7)
(18.8)
(2.5)
(77.7)
(109.0)
16.6
11.1
104.3
92.2
Intangible assets are being amortised on a straight-line basis over a period of between eight and ten years. The ultimate parent Company,
Vectura Group plc, had no intangible assets at 31 March 2016 or at 31 March 2015.
11. Property, plant and equipment
Group
Cost:
At 1 April 2014
Additions
Disposals
At 31 March 2015
Additions
Transfer to assets held for sale
Disposals
At 31 March 2016
Depreciation:
At 1 April 2014
Charge for the year
Disposals
At 31 March 2015
Charge for the year
Disposals
At 31 March 2016
Net book value:
At 31 March 2015
At 31 March 2016
Assets in
the course of
construction
£m
Freehold land
and buildings
£m
Lab
equipment
£m
Office and IT
equipment
£m
6.4
—
—
6.4
—
—
—
6.4
—
—
—
—
—
—
—
6.4
6.4
1.2
—
—
1.2
0.2
(0.3)
—
1.1
—
—
—
—
—
—
—
1.2
1.1
14.8
1.4
(0.9)
15.3
1.6
—
(0.4)
16.5
(10.9)
(1.1)
0.6
(11.4)
(1.4)
0.4
(12.4)
3.9
4.1
Total
£m
22.9
1.4
(0.9)
23.4
1.8
(0.3)
(0.4)
24.5
(11.3)
(1.2)
0.6
(11.9)
(1.4)
0.4
0.5
—
—
0.5
—
—
—
0.5
(0.4)
(0.1)
—
(0.5)
—
—
(0.5)
(12.9)
—
—
11.5
11.6
The ultimate parent Company, Vectura Group plc, had no property, plant and equipment at 31 March 2016 or at 31 March 2015.
113
Annual Report and Accounts 2015/16 Vectura Group plcFINANCIAL STATEMENTS 12. Non-current assets held for sale
As at 31 March 2016, the Group was in the process of arranging the sale of its building in Gemünden, Germany. Accordingly, this asset is
shown as a non-current asset held for sale at the balance sheet date. The carrying value of the asset was £0.3m. Following the year end,
this asset was sold for proceeds of €370,000.
13. Investments in subsidiary undertakings
Shares in
subsidiary
undertakings
£m
233.9
0.5
234.4
234.4
(0.1)
234.3
234.3
Country of incorporation
Holding
Proportion held
Nature of Business
England Ordinary
USA Ordinary
Germany Ordinary
England Ordinary
England Ordinary
England Ordinary
England Ordinary
Scotland Ordinary
England Ordinary
Hong Kong Ordinary
England Ordinary
England Ordinary
England Ordinary
England Ordinary
USA Ordinary
England Ordinary
England Ordinary
England Ordinary
England Ordinary
England Ordinary
England Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
82.4%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Holding company
Pharmaceuticals
Pharmaceuticals
Pharmaceuticals
Pharmaceuticals
Pharmaceuticals
Pharmaceuticals
Pharmaceuticals
Pharmaceuticals
Holding company
Pharmaceuticals
Pharmaceuticals
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Company
Cost:
At 1 April 2014
Additions (note 30)
At 31 March 2015
At 31 March 2016
Amounts written off:
At 1 April 2014, 31 March 2015 and 31 March 2016
Net book value:
At 31 March 2015
At 31 March 2016
Details of the Company’s subsidiary undertakings are as follows:
Name of undertaking
Vectura Group Investments Limited
Vectura Inc.
Vectura GmbH
Innovata Limited(1)
Vectura Delivery Devices Limited(1)
Vectura Limited(1)
Quadrant Technologies Limited(2)
Innovata Biomed Limited(2)
Quadrant Drug Delivery Limited(3)
Innovata HK Limited(4)
Quadrant Healthcare Limited(5)
QDose Limited(6)
Quadrant Healthcare (UK) Limited(6)
Quadrant Bioresources Limited(7)
Quadrant (USA), Inc.(7)
Quadrant Trustee Limited(7)
Andaris Group Limited(7)
Quadrant Holdings Cambridge Limited(8)
Andaris (DDS) Limited(9)
Microshot Limited(9)
Protosome Limited(9)
(1) A subsidiary of Vectura Group Investments Limited.
(2) A subsidiary of Innovata Limited.
(3) A subsidiary of Quadrant Technologies Limited.
(4) A subsidiary of Innovata Biomed Limited.
(5) A subsidiary of Quadrant Drug Delivery Limited.
(6) A subsidiary of Quadrant Healthcare Limited.
(7) A subsidiary of Quadrant Healthcare (UK) Limited.
(8) A subsidiary of Andaris Group Limited.
(9) A subsidiary of Quadrant Holdings Cambridge Limited.
114
Vectura Group plc Annual Report and Accounts 2015/16Notes to the financial statements continuedfor the year ended 31 March 2016 14. Investments in joint venture
The investment balance shown below relates to the Group’s investment in Ventaleon GmbH, whose principal activity is the research
and development of pharmaceuticals. Ventaleon is incorporated in Germany and its principal place of business is also Germany.
The Group holds a 42.1% share in the Company (2014/15: 48%).
Group
Cost:
At 1 April 2014
Share of result of joint venture
Effect of movements in foreign exchange
At 31 March 2015
Share of result of joint venture
Effect of movements in foreign exchange
At 31 March 2016
Net book value:
At 31 March 2015
At 31 March 2016
£m
3.4
(1.4)
(0.3)
1.7
(0.6)
0.1
1.2
1.7
1.2
15. Other receivables
Group
Other receivables represent an investment bond of £0.4m (2015: £0.4m) in respect of a rental deposit paid under the terms of a lease
agreement for the Group’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 2016. Interest is recognised using the
effective interest method.
16. Inventories
Raw materials
Finished goods
17. Trade and other receivables
Trade receivables
Other receivables(1)
Prepayments and accrued income
VAT recoverable
Group
Company
2016
£m
0.1
0.6
0.7
2015
£m
—
0.9
0.9
2016
£m
—
—
—
2015
£m
—
—
—
Group
Company
2016
£m
1.6
6.2
13.6
0.8
22.2
2015
£m
16.2
2.9
8.3
0.5
27.9
2016
£m
2015
£m
—
—
—
—
—
—
—
—
—
—
(1) Includes research and development tax credits of £4.5m (2015: £2.8m).
The Directors consider that the carrying value of trade and other receivables approximates to their fair value.
18. Amounts due from subsidiary undertakings
Amounts falling due within one year:
Due from subsidiary undertakings
Group
Company
2016
£m
—
—
2015
£m
—
—
2016
£m
47.2
47.2
2015
£m
89.2
89.2
115
Annual Report and Accounts 2015/16 Vectura Group plcFINANCIAL STATEMENTS 19. Trade and other payables
Amounts falling due within one year:
Trade payables
Other payables
Accruals
Group
Company
2016
£m
6.4
1.4
18.6
26.4
2015
£m
3.5
1.0
16.1
20.6
2016
£m
2015
£m
—
—
3.4
3.4
—
—
—
—
The Directors consider that the carrying value of trade and other payables approximates to their fair value.
20. 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
Group
Company
2016
£m
0.8
1.0
1.8
2015
£m
0.2
1.5
1.7
2016
£m
—
—
—
2015
£m
—
—
—
21. Deferred tax liability
Group
A net deferred tax liability of £20.4m (2015: £23.7m) has been recognised on the Group balance sheet, being a deferred tax liability of £26.1m
(2015: £29.0m), offset by a deferred tax asset of £5.7m (2015: £5.3m).
A total deferred tax liability of £26.1m exists as at 31 March 2016. This balance is broken down as follows:
£m
As at 1 April 2015
Credited to the Consolidated income statement
Effect of movements in foreign exchange
As at 31 March 2016
Arising on
acquisition of
Activaero
Arising on
acquisition of
Innovata
Other
temporary
differences
(26.8)
4.0
(2.0)
(24.8)
(1.0)
0.9
—
(0.1)
Total
(29.0)
4.9
(2.0)
(1.2)
—
—
(1.2)
(26.1)
This liability is offset by a deferred tax asset in respect of German and UK cumulative tax losses. UK cumulative tax losses of approximately
£56.6m (2015: £54.0m losses), subject to agreement with HMRC are available within the Group to carry forward against future taxable profits.
The total potential deferred tax asset in respect of UK tax losses, calculated at the rate of 18% (2015: 20%) is £10.2m (2015: £10.7m), and
of this total an asset of £1.6m (2015: £2.2m) has been recognised.
The total recognised deferred tax asset of £5.7m is broken down as follows:
£m
As at 1 April 2015
Credited/(debited) to the Consolidated income statement
Effect of movements in foreign exchange
As at 31 March 2016
Recognised
on German
cumulative
tax losses
Recognised
on UK
cumulative
tax losses
3.1
0.6
0.4
4.1
2.2
(0.6)
—
1.6
Total
5.3
—
0.4
5.7
116
Vectura Group plc Annual Report and Accounts 2015/16Notes to the financial statements continuedfor the year ended 31 March 2016 21. Deferred tax liability continued
Group continued
The Group has the following unrecognised potential deferred tax assets as at 31 March 2016 and 31 March 2015:
On UK cumulative tax losses
On unclaimed capital allowances
On unexercised share options
22. Financial instruments
Categories of financial instruments
Unless stated otherwise, all disclosures relate to the Group.
2016
£m
8.6
0.1
0.9
9.6
2015
£m
8.5
0.2
1.0
9.7
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
2016
£m
99.8
22.6
2015
£m
90.0
28.3
122.4
118.3
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 15).
In accordance with the arrangements for the £70m maximum partial cash alternative offered as consideration for the Skyepharma PLC merger,
£20m of the Group’s cash balance is currently held in an interest bearing Escrow account. Prior to the payment of the partial cash alternative,
Vectura can only withdraw funds from this account with the agreement of J.P. Morgan Cazenove and N M Rothschild & Sons Limited who
are acting as joint sponsor for the merger.
There were no provisions against impaired assets at 31 March 2016 (31 March 2015: £nil). There are no amounts past due but not
impaired (2015: £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.
2016
£m
2015
£m
(26.4)
(20.6)
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 all entities in the Group will be able to continue as a going concern whilst 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 23), reserves and retained earnings as disclosed in the statement of changes
in equity.
On 16 March 2016, the Group entered into a loan agreement with HSBC Bank plc in relation to a £50.0m RCF. Under the terms of this
arrangement, Vectura and HSBC have the option to extend the facility to £75.0m. The funds are available to Vectura for the purposes of,
amongst other things, financing the merger with Skyepharma PLC. As at 31 March 2016, and to the date that these financial statements
were issued, no funds were drawn against the facility.
Externally imposed capital requirement
Certain companies within the Group are now subject to capital maintenance obligations under the RCF agreement and these are reviewed
for compliance on a regular basis. The Directors consider that all requirements and covenants have been complied with during the period
covered by the financial statements and to the date the financial statements were authorised for issue.
117
Annual Report and Accounts 2015/16 Vectura Group plcFINANCIAL STATEMENTS 22. Financial instruments continued
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 2016
and 31 March 2015 are not necessarily representative of the positions throughout the year, as cash and short-term investments fluctuate
considerably throughout the year depending on the timing of working capital receipts.
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 through 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 Offered Rate (LIBOR).
Foreign currency risk management
The Group’s principal functional currency is sterling. However, the Group has a German subsidiary whose functional currency is the euro
and the Group as a whole 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 financial assets and liabilities are denominated in sterling other than those shown below:
Net financial assets:
Euro
US dollar
Group
Company
2016
£m
0.7
11.8
12.5
2015
£m
1.9
22.9
24.8
2016
£m
2015
£m
—
—
—
—
—
—
Foreign currency sensitivity analysis
The following table details the Group’s sensitivity to a 15% increase and decrease (2014/15: 10%) in sterling against the euro and US dollar;
15% 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 15% (2014/15: 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 and a negative number indicates a decrease in profit and other equity where sterling strengthens against the relevant currency.
Group
Euro currency impact – gain
US dollar currency impact – gain
Euro currency impact – loss
US dollar currency impact – loss
2016
£m
0.1
2.1
(0.1)
(1.5)
2015
£m
0.2
2.5
(0.2)
(2.1)
Company
The sensitivity analysis includes only outstanding foreign currency denominated items, being the euro deferred consideration liability in
the prior year. As explained above, the sensitivity analysis is conducted assuming a 10% increase and decrease in sterling against the euro.
A positive number below indicates an increase in profit and other equity where sterling strengthens against the euro and a negative
number indicates a decrease in profit and other equity where sterling weakens against the relevant currency.
Euro currency impact – gain
Euro currency impact – loss
2016
£m
—
—
2015
£m
2.3
(2.8)
The Group and Company have a legal right of offset between its foreign currency bank accounts and certain of its sterling bank accounts.
118
Vectura Group plc Annual Report and Accounts 2015/16Notes to the financial statements continuedfor the year ended 31 March 2016 22. Financial instruments continued
Interest rate risk management
As explained overleaf, the Group has an RCF with HSBC Bank plc. As at 31 March 2016 and as at the date of these financial statements, the
facility has not been utilised and as such the Group has no external borrowings. Therefore it is not currently exposed to interest rate risk
through borrowings.
Cash and cash equivalents earned £0.3m of finance income during the year (2014/15: £0.4m). If interest rates had been 0.5% higher/lower,
being management’s assessment of a reasonably possible change in interest rates, and all other variables were constant, the Group’s
operating loss for the year ended 31 March 2016 would decrease/increase by £0.5m (2014/15: £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 continually 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.
23. Equity
(a) Share capital
Allotted, called up and fully paid:
Ordinary shares of 0.025p each:
At 1 April
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
2016
2015
£m
No. ‘000
£m
No. ‘000
0.1
403,458
0.1
399,654
—
—
—
2,962
934
3,176
—
—
—
3,062
181
561
0.1
410,530
0.1
403,458
—
34
—
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 there at; (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 2015 and 31 March 2016 the Company issued 2,961,903 (2014/15: 3,062,229) ordinary shares of 0.025p each on the exercise
of employee share options at a weighted average exercise price of 64.72p per share (2014/15: 56.38p).
Between 1 April 2015 and 31 March 2016 the Company issued 934,128 (2014/15: 180,691) ordinary shares of 0.025p each on the exercise
of Sharesave options at a weighted average exercise price of 47.4p (2014/15: 64.25p) per share.
Between 1 April 2015 and 31 March 2016 the Company issued 3,175,633 (2014/15: 561,253) ordinary shares of 0.025p each on the exercise
of LTIP nominal-cost options.
(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. Certain costs relating to share issues have
also been charged to the share premium account.
119
Annual Report and Accounts 2015/16 Vectura Group plcFINANCIAL STATEMENTS 23. Equity continued
(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, also matching and free shares
awarded under the Vectura Group plc Share Incentive Plan, calculated in accordance with IFRS 2.
(f) Translation reserve
Exchange differences relating to the translation of the net assets of the Group’s foreign operations, which relate to subsidiaries only,
from their functional currency into the parent’s functional currency, being sterling, are recognised directly in the translation reserve.
24. 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”) 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 from 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 of 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 is detailed in the Remuneration report. At 31 March 2016, Executive Directors and eligible senior managers hold rights to ordinary
shares awarded under the LTIP, as follows:
Date of vesting
22 November 2009
2 March 2010
25 May 2010
23 May 2011
7 June 2014
18 September 2015
7 June 2016(1)
1 July 2017(1)
24 September 2018(1)
24 September 2020(1)
Ordinary
shares
vesting
42,554
104,758
81,628
357,447
729,737
500,516
1,963,022
883,435
1,361,983
1,249,526
(1) Maximum number of shares, subject to performance conditions.
In addition to the above arrangements, the Company made a one-off award of share options to James Ward-Lilley upon his appointment
as Chief Executive Officer. This was an award under the provisions of LR 9.4.2(2) and the details are set out in the Remuneration report.
There are no plans to make any further awards under this scheme.
Fair value calculations
With the exception of the LTIP awards, the fair value of the options was determined using the Black-Scholes pricing model. The fair value
of the LTIP awards has 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 Remuneration report.
120
Vectura Group plc Annual Report and Accounts 2015/16Notes to the financial statements continuedfor the year ended 31 March 2016 24. Equity-settled share option schemes and Long-Term Incentive Plan continued
Fair value calculations 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)
2016
2015
158.6p
132.2p
136.3p
114.4p
32%–42%
39%–41%
3 years
3 years
Nil
Nil
0.6%–1.4% 0.6%–1.4%
178.5p
0.025p
28%–31%
3–5 years
Nil
0.6%–1.5%
135.3p
0.025p
40%
3 years
Nil
1.5%
(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 Consolidated Income Statement.
(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 overleaf,
and after adjusting for the likelihood of cancellation of options when employees leave.
The share-based compensation charge for the year ended 31 March 2016, including the LTIP, was £2,470,000 (2014/15: £1,060,000).
The aggregate of the estimated fair value of options granted under the SAYE share option scheme and Share Incentive Plan during the year
ended 31 March 2016 was £265,000 (2014/15: £373,000). The estimated fair value of LTIP awards during the year ended 31 March 2016
was £2,377,000 (2014/15: £768,000) and the estimated fair value of the executive award made during the year ended 31 March 2016 was
£1,693,000 (2014/15: £nil).
Share option schemes
SAYE Scheme
LTIP
Executive award
WAEP (p) (1)
Number of
options
WAEP (p) (1)
Number of
options
WAEP (p) (1)
Number of
options
WAEP (p) (1)
Options outstanding
At 1 April 2014
Options granted
Number of
options
7,521,655
61.67
1,466,323
59.41
8,343,020
—
—
621,775
114.4
1,076,791
Options exercised
(3,062,229)
Options cancelled
(55,597)
56.38
62.63
(180,691)
(75,693)
64.25
85.12
(561,253)
(147,527)
At 31 March 2015
4,403,829
65.34
1,831,714
77.16
8,711,031
0.025
0.025
0.025
0.025
0.025
—
—
—
—
—
Options granted
—
—
464,783
132.32
2,611,509
0.025
1,131,617
Options exercised
(2,961,903)
Options cancelled
(79,451)
64.72
88.55
(934,128)
(33,019)
47.40
(3,175,633)
48.50
(872,301)
0.025
0.025
—
—
At 31 March 2016
1,362,475
65.34
1,329,350
118.0
7,274,606
0.025
1,131,617
Range of exercise prices
38.0p–104.0p
47.4p–130.4p
0.025p
Weighted average
remaining contractual
life (years)
Options vested
2.52 (2015: 1.77)
2.57 (2015: 1.71)
4.83 (2015: 5.65)
2.50 (2015: nil)
At 31 March 2015
4,276,365
At 31 March 2016
1,362,475
65.30p
65.30p
Weighted average
remaining contractual
life (years)
(1) Weighted average exercise price (p).
2.52 (2015: 1.60)
—
—
—
— 4,212,451
— 1,816,640
0.025p
0.025p
—
285,994
—
Nil
—
3.98 (2015: 1.53)
nil (2015: —)
121
—
—
—
—
—
Nil
—
—
Nil
Nil
Annual Report and Accounts 2015/16 Vectura Group plcFINANCIAL STATEMENTS
25. Analysis of net funds
Group
Cash and cash equivalents
1 April
2015
£m
90.0
Cash flow
£m
31 March
2016
£m
9.8
99.8
The Company had net funds of £20m held in Escrow at 31 March 2016 (2015: nil).
26. Retirement benefit 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 to the Consolidated Income Statement
is detailed in note 6.
27. 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
Land and buildings
Other
2016
£m
0.7
1.1
1.8
2015
£m
0.5
0.5
1.0
2016
£m
—
—
—
2015
£m
0.1
—
0.1
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.
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 July 2017.
On 13 November 2014, the Group extended two leases for adjacent premises at Cambridge Science Park, Milton Road, Cambridge for a further
three years commencing 25 December 2014 and expiring on 24 December 2017. The Group and the landlord had the option to cancel the
leases on 31 December 2015 or at any time thereafter on giving six months’ prior written notice. The Group took the opportunity to break
the lease at this date and have subsequently entered into a leasing arrangement for a new property on the Cambridge Science Park. The lease
is a ten year lease and the Group has the right to break the lease in December 2020.
On 18 March 2014, the Group acquired, as part of the Activaero GmbH acquisition, an agreement in respect of premises at Gauting, Germany.
The Group has the right to break the lease with a maximum of nine months’ notice.
The Company had no operating lease arrangements at 31 March 2016 and 31 March 2015.
28. Capital and other commitments
At 31 March 2016 the Group had capital commitments contracted, but not provided for, of £0.2m (2015: nil). The Company had no capital
and other commitments at 31 March 2016 and 31 March 2015.
122
Vectura Group plc Annual Report and Accounts 2015/16Notes to the financial statements continuedfor the year ended 31 March 2016 29. 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 compensation
2016
£m
5.0
0.2
1.4
6.6
2015
£m
3.8
0.2
0.3
4.3
Two Directors are members of money purchase pension schemes (2015: three).
Please refer to the Remuneration report on page 76 for the single figure of remuneration for each Director.
Company
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.
Related party
Subsidiaries:
2015
2016
Recharge
from
related
parties
£m
Recharge
to
related
parties
£m
Amounts
owed by
related
parties
£m
Amounts
owed to
related
parties
£m
—
—
1.1
2.5
89.2
47.2
—
—
Amounts outstanding are unsecured. No provisions have been made for doubtful debts owed by related parties.
30. Business combinations
On 18 March 2014, the Group acquired 100% of the issued share capital and obtained control of Activaero GmbH (“Activaero”), a company
focused on the development of products for the treatment of respiratory diseases.
The final element of the consideration for the acquisition, being the non-contingent deferred consideration of €35m, was paid in August 2015.
The payment was translated into sterling at the prevailing £/€ exchange rate on the payment date and is shown as a cash outflow of £24.6m
during the year ended 31 March 2016. No further payments are due to be made in respect of this acquisition.
In the prior year, an additional payment of €0.6m was made in respect of working capital items that were acquired during the transaction.
This increased the Company’s investment in the prior year. There have been no movements during the current year.
31. Post balance sheet events
Non-current assets held for sale
On 1 April 2016, the Group’s building in Gemünden, Germany, was sold for gross proceeds of €370,000. The trade and activities previously
conducted at this site are now undertaken at other Vectura sites.
Merger with Skyepharma PLC
On 16 May 2016, the Competition and Markets Authority (“the CMA”) confirmed that the proposed recommended all-share merger of
Vectura Group plc and Skyepharma PLC (the “merger”) does not qualify for investigation under the Enterprise Act 2002. This confirmation
satisfied the CMA clearance condition to the implementation of the proposed merger (including the Scheme) as set out in the announcement
of the proposed merger released on 16 March 2016 and in Part 3 (Conditions to and Further Terms of the Merger) of the Scheme Document
sent to Skyepharma’s shareholders on 8 April 2016. As announced on 20 May 2016, it is now anticipated that the Scheme will become
effective on 10 June 2016.
Upon completion of the merger, it is proposed that the enlarged Vectura Group will change its accounting reference date to the 31 December.
This change would bring the Group’s accounting reference date in line with its partners and peer group. The transaction will be accounted
for in accordance with IFRS 3 in Vectura’s consolidated balance sheet for the year ended 31 December.
Included within these financial statements are non-recurring costs of £5.6m relating to legal and professional fees for activities undertaken
in support of the merger during the year ended 31 March 2016. Further legal and professional fees will be incurred during FY 2016/17
contingent upon completion of the transaction.
123
Annual Report and Accounts 2015/16 Vectura Group plcFINANCIAL STATEMENTS 2012
£m
33.0
30.8
93%
2013
£m
30.5
29.8
98%
2014
£m
36.5
35.5
97%
2015
£m
58.0
55.6
96%
2016
£m
72.0
68.7
95%
(31.7)
(29.9)
(26.9)
(34.9)
(40.7)
(3.3)
(4.2)
(1.1)
(7.5)
—
(1.1)
(3.3)
(3.4)
(1.0)
(6.3)
—
(0.9)
(13.9)
(11.6)
0.7
—
—
0.5
0.7
—
(13.2)
(10.4)
8.8
(4.4)
4.5
(5.9)
(3.4)
5.2
(1.1)
(6.9)
(2.5)
(0.9)
(6.2)
1.6
(0.2)
—
(4.8)
2.5
(2.3)
(4.5)
16.2
(1.2)
(4.8)
23.2
(1.4)
(20.9)
(18.8)
—
(1.1)
(7.0)
0.5
1.7
(1.4)
(6.2)
9.9
3.7
(5.6)
(2.5)
(5.1)
2.7
1.1
(0.6)
(1.9)
6.9
5.0
(1.3p)
(1.8p)
(0.7p)
0.9p
1.2p
(13.9)
(11.6)
(6.2)
8.6
1.1
—
2.4
(0.7)
—
—
4.6
2.1
(4.2)
(2.1)
7.3
0.9
—
(1.1)
(3.4)
0.7
—
4.4
(2.8)
(3.8)
(6.6)
8.0
0.9
—
(8.3)
0.4
(0.2)
—
4.7
(0.7)
(2.3)
(3.0)
(7.0)
22.1
1.1
—
(13.5)
(0.1)
1.8
—
3.6
8.0
(1.4)
6.6
(5.1)
20.2
2.5
2.1
11.2
0.1
1.6
—
0.3
32.9
(1.5)
31.4
75.5
139.5
61.7
70.1
135.1
60.3
81.7
226.7
79.4
90.0
221.9
72.4
99.8
237.2
95.8
Five-year summary
year ended 31 March
Unaudited
Year ended 31 March
Consolidated income statement
Revenue
Gross profit
Gross profit margin
Research and development expenses
Other administrative expenses
EBITDA
Depreciation of assets
Amortisation of intangible assets
Non-recurring transaction costs
Share-based compensation
Operating loss
Investment income
Finance gains/(costs)
Share of result of joint venture
Loss before taxation
Taxation
Profit/(loss) after taxation
Earnings/(loss) per ordinary share
Cash flow statement
Operating loss
Depreciation and amortisation
Share-based compensation
Non-recurring transaction costs paid
(Increase)/decrease in working capital
(Decrease)/increase in deferred income
Exchange movements
Taxation paid
Research and development tax credits received
Net cash inflow/(outflow) from operations
Net capital expenditure
Free cash flow inflow/(outflow)
Balance sheet
Cash and cash equivalents
Shareholders’ equity
Net current assets
124
Vectura Group plc Annual Report and Accounts 2015/16 SHAREHOLDER INFORMATION
Directors
Bruno F J Angelici
(Non-Executive Chairman)
James Ward-Lilley
(Chief Executive Officer)
Andrew J Oakley
(Chief Financial Officer)
Dr Trevor M Phillips
(Chief Operations Officer and President
of US Operations)
Dr John R Brown
(Non-Executive and Senior Independent
Director)
Dr Susan E Foden
(Non-Executive)
Neil W Warner
(Non-Executive)
Dr Per-Olof Andersson
(Non-Executive)
Company Secretary
Andrew J Oakley
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
Citigate Dewe Rogerson
3 London Wall Buildings
London Wall
London
EC2M 5SY, UK
Auditor
Deloitte LLP
3 Rivergate
Temple Quay
Bristol
BS1 6GD, UK
Bankers
Barclays Bank plc
28 Chesterton Road
Cambridge
CB4 3AZ, UK
Legal advisors
Olswang LLP
90 High Holborn
London
WC1V 6XX, UK
Legal advisors
Covington & Burling LLP
265 Strand
London
WC2R 1BH, UK
Vectura Group plc
One Prospect West
Chippenham
Wiltshire
SN14 6FH, UK
Vectura trade marks
Adept® is a registered trade mark of Innovata Limited
AKITA® and FAVOLIR® are registered trade marks of Vectura GmbH
Clickhaler® and Duohaler® are registered trade marks of Innovata Biomed Limited
or Tianjin Kinnovata Pharmaceutical Company Limited
Fox® is a trade mark of Vectura GmbH
GyroHaler® and Omnihaler® are registered trade marks of Vectura Delivery Devices Limited
PowderHale® and Vectura® are registered trade marks of Vectura Limited
Third-party trade marks
ADVATE® and Extraneal® are registered trade marks of Baxter International Inc.
Anoro® Ellipta®, Incruse® Ellipta® and Relvar® Ellipta®/Breo® Ellipta® are registered trade marks of GSK
AirFluSal®, Forspiro®, Seebri®, Ultibro®, Neohaler®, Breezhaler® and Onbrez® are registered trade marks of Novartis AG
Utibron™is a trade mark of Novartis AG
Bluetooth® is a trade mark of Bluetooth SIG
Forward-looking statement
This Annual Report and Accounts contains forward-looking statements, including statements about the
discovery, development and commercialisation of products. Various risks may cause Vectura’s actual
results to differ materially from those expressed or implied by the forward-looking statements, including:
adverse results in clinical development programmes; failure to obtain patent protection for inventions;
commercial limitations imposed by patents owned or controlled by third parties; dependence upon strategic
alliance partners to develop and commercialise produces and services; difficulties or delays in obtaining
regulatory approvals to market products and services resulting from development efforts; the requirement
for substantial funding to conduct research and development and to expand commercialisation activities;
and product initiatives by competitors. As a result of these factors, prospective investors are cautioned
not to rely on any forward-looking statements. We disclaim any intention or obligation to update or revise
any forward-looking statements, whether as a result of new information, future events or otherwise.
Design Portfolio is committed to planting
trees for every corporate communications
project, in association with Trees for Cities.
Vectura Group plc
One Prospect West
Chippenham
Wiltshire SN14 6FH
United Kingdom
T +44 (0)1249 667700
F +44 (0)1249 667701
www.vectura.com
Registered in England and Wales
Number: 03418970
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The Group’s commitment to environmental issues is reflected in this Annual Report, which has
been printed on FSC® certified uncoated Edixion offset. It was printed in the UK using environmental
Waterless printing technology, and vegetable-based inks were used throughout.
Both the manufacturing mill and the printer are registered to the Environmental Management
System ISO14001 and are FSC® chain-of-custody certified.