Allergy Thera. Regulatory News (AGY)

26 September 2016

Allergy Therapeutics plc

("Allergy Therapeutics" or the "Company")

Preliminary report for the year ended 30 June 2016

- Significant progress made towards becoming a global provider of allergy solutions -

Allergy Therapeutics plc, the fully integrated specialty pharmaceutical company specialising in allergy vaccines, announces preliminary results for the year ended 30 June 2016.

Highlights

· 19% increase in revenue at constant currency to £51.5m (2015: £43.2m)*

· 12% increase in revenue to £48.5m (2015: £43.2m)

· Increased market share in our main European markets to 12% (2015: 10%)

· Core business (excluding R&D) shows 11% increase in Operating Profit to £4.3m (2015: £3.8m)

· Ramp up on R&D investment with £16.2m (2015: £3.1m) spent, reflecting investment in PQ registration and pipeline

· Achieved primary endpoint for PQ Birch Phase II Study in Europe and selected dose to be used in Phase III, starting in 2017

· Inconclusive results of Phase II dosing study in the US for Pollinex Quattro Grass

· Successfully raised £11.5m (gross) to fund new product development and organic and inorganic growth opportunities

· Acarovac PlusTM one-year study showed statistically significant improvement for patients

· Acquisition of Virus Like Particle technology licence for the development of a potential new injectable vaccine immunotherapy treatment for allergy sufferers with peanut as lead project

· Strong cash balance of £23.4m at year end (2015: £21.2m)

Manuel Llobet, Chief Executive Officer, commented: "This year has seen many events in the allergy market. I would like to highlight Allergy Therapeutics' revenue growth, now accounting for 12% of the share in our competitive market, and progressing well towards our long-term strategic plans with developments across all areas of the business. Our excellent products and outstanding team have delivered success in product development and marketing and, despite the requirement for our additional range-finding study, we look forward to capitalising on opportunities to continue growing into new markets and delivering patient-friendly, market-leading treatments, to help patients across the allergy spectrum. We are a thriving, visionary company, led by a self-driven team, totally committed to transforming allergy treatments. We are passionate about what we do and we are convinced that the best is yet to come."

* Constant currency uses prior year weighted average exchange rates to translate current year foreign currency denominated revenue to give a year on year comparison excluding the effects of foreign exchange movements. See table in financial review for an analysis of revenue.

For further information, please contact:

Allergy Therapeutics

+44 (0) 1903 845 820

Manuel Llobet, Chief Executive Officer

Nick Wykeman, Finance Director

Panmure Gordon

+44 (0) 20 7886 2500

Freddy Crossley / Duncan Monteith, Corporate Finance

Tom Salvesen, Corporate Broking

Consilium Strategic Communications

+44 20 3709 5700

Mary-Jane Elliott / Ivar Milligan / Matthew Neal / Laura Thornton

allergytherapeutics@consilium-comms.com

Note to editors:

About Allergy Therapeutics

Allergy Therapeutics is an international specialty pharmaceutical company focussed on the treatment and diagnosis of allergic disorders including immunotherapy vaccines that cure disease. The Company sells proprietary products and third party products from its subsidiaries in nine major European countries and via distribution agreements in an additional ten countries.

Formed in 1999 out of Smith Kline Beecham, Allergy Therapeutics is headquartered in Worthing, UK with MHRA-approved manufacturing facilities. The Company employs c.420 employees and is listed on the London Stock Exchange (AIM:AGY). For more information, please see www.allergytherapeutics.com.

Chairman's Statement

This year has continued the Group's progress towards becoming a global provider of allergy solutions through organic growth and strengthening our product proposition in Europe, as well as further research and development for the US market.

The core European business has continued to grow strongly in a flat market, taking market share from our competitors in the markets where we compete, validating our strong combination of high quality, patient-friendly products and a knowledgeable and dedicated sales and marketing team.

In the area of research and development, the Group has had an overall positive, but mixed, year with a successful Phase II dose-ranging study for Pollinex Quattro Birch in Germany, opening the way for a Phase III trial for the product in Europe, which is expected to start in early 2017. The one-year follow-up study on Acarovac Plus concluded with patients reporting statistically significant improvements in satisfaction scores for effectiveness and convenience.

As announced in June, the Phase II Pollinex Quattro Grass dose range finding study in the US did not give conclusive evidence of an optimal dose regime. The study experimented with environmental exposure chambers which, unlike those commonly used in the US, were mobile, in order to optimise patient recruitment. The Company will perform another dose-finding study, but with the design amended to use the method that produced the successful Pollinex Quattro Birch dosing study in Europe, subject to regulatory approval. This has, put simply, caused a delay to our potential US market entry, yet Pollinex Quattro Grass could still become the first licensed seasonal subcutaneous immunotherapy (SCIT) allergy vaccine authorised for marketing in the US, and we have the funding in place to carry out the current, planned Phase III trial. The US market has the potential to be worth $2 billion p.a. (Piper Jaffray Update on the AR market, Sept. 2008. Datamonitor) for immunotherapy treatments, such as the grass vaccine, and we remain focussed on delivering a high-quality treatment option into the market.

During the year the Group also raised £11.5m (£11.0 net of costs) with the placing of 41 million ordinary shares to invest in new product development, strengthen the balance sheet and support accretive acquisitions to accelerate growth.

The global allergy treatment market has seen some turmoil with recent events affecting the competitive market environment in Europe and the US, which are likely to lead to mid- to long-term benefits for Allergy Therapeutics in terms of potential market share in the US.

The referendum vote in the UK to leave the EU has, during the period, had a short term beneficial financial effect for the business in terms of the weak currency performance of the sterling against the euro but, as noted in the risks section, the mid and long term impact will depend on the final agreement between the UK and the rest of the EU on such matters as trade and pharmaceutical regulation.

In June, we welcomed Nick Wykeman to the Group as Finance Director following his prior roles at ICI PLC and Skyepharma PLC. As announced in March, Ian Postlethwaite, stepped down as Finance Director after 14 years of service at Allergy Therapeutics and I would like to take this opportunity to thank Ian for his significant contribution to the Group.

In conclusion, I would like to thank all Allergy Therapeutics employees for their commitment, dedication and hard work during the year and we look forward to continued progress in executing our clear strategy.

Peter Jensen

Chairman

23 September 2016

CHIEF EXECUTIVE OFFICER'S REVIEW

The current allergy immunotherapy market is estimated to be $2.1bn with the potential to reach $3bn (Piper Jaffray Update on the AR market, Sept. 2008. Datamonitor. Current $3bn potential includes all medical costs) with changes in the US market, and it is expected to grow at about 11% per annum until 2020 (Visiongain 2014). Allergy Therapeutics is one of the very few companies that is well positioned to lead this market and become a global player, with its strong position in its current main European markets of 12% and the opportunity of a share of the estimated potential US market of $2bn (Piper Jaffray). In the developed world the way of life has had a significant influence in the way our immune system responds to different challenges and impacts the occurrence of a wide variety of allergies. Nowadays, it is estimated that 20% to 30% (Jacobs, 2011) of the population suffer from allergic rhinitis, not to mention the significant increase in other areas such as food allergies. For patients with moderate to severe symptoms who cannot control these using symptomatic products, we provide high-quality, patient-friendly, aluminium-free treatment technologies for airborne allergies that make a difference to patients and their lives.

This year, we have made significant progress towards our long-term strategic plans. We are developing the Group in three key areas:

Developing our Group in Europe, our domestic market

This year we have had a record market share gain in our competitive markets, evolving from 10% last year to 12%. In a market that can be considered broadly flat, this means that we have outperformed the market by 20 points. The market share gains have come across all our key markets reaching a growth, year on year, of 19% in constant currency (12% after the impact of exchange rate fluctuations). In absolute terms, the main contributors to this growth have been the German, Austrian and UK markets as well as the Spanish market, where we have successfully completed the integration of Alerpharma, which we acquired in 2015.

This impressive penetration is due to two key factors which are: 1) excellent products, offering our patients convenient solutions through our unique concept of short and ultra-short course, aluminium-free treatments and 2) excellently trained, committed and motivated sales teams implementing the right, professional and ethical commercial strategies.

We want to accelerate market penetration by leveraging these two factors and so have been improving our commercial infrastructure. We aim to be market leaders in the SCIT allergy segment by 2020.

In May, we announced positive top-line results from the Group's European PQBirch 204 Phase II study, a multi-centre, double-blind, placebo-controlled study designed to explore the safety and response of different cumulative doses of Birch Modified Allergen Tyrosine adsorbed and MPL® (POLLINEX® Quattro Birch) for birch pollen-induced seasonal allergic rhinitis. The study randomised 371 patients into six cumulative dosing regimens plus a placebo, evaluating the change in total symptom score (TSS) following a conjunctival provocation test (CPT) with the aim of identifying a recommended dose for Phase III development.

The results summary of the PQBirch 204 Phase II study programme was as follows:

· The primary endpoint, to demonstrate a statistically significant (p

· The study demonstrated a statistically significant (p

· The dose-response closely followed and extended the findings of the previous dose-response study (PQBirch203), which studied doses from 600SU to 13600SU

· PQBirch continues to be well-tolerated and no safety concerns were reported in any treatment arm. There was no significant relationship between any adverse drug reaction exhibited and the respective dosage of allergoid

· Overall, adherence to the dosing regimens was approximately 94% with no relevant differences between treatment arms

The Group has reviewed the Phase II data and selected a dose which will be used in the Phase III PQ Birch field study which is expected to start in 2017 and will be performed in Europe.

In June, we announced findings from the exploratory US Phase II dose-ranging study (G204) for the US Grass MATA MPL clinical development programme. The results did not determine a recommended dose for the Phase III trial. A further dose range finding study will be implemented prior to proceeding into the planned pivotal Phase III study.

Based on the successful dose response data identified in the Phase II G203 study for the same US Grass MATA MPL programme, the G204 trial was designed to explore higher dose regimens using the novel technology of the mEEC (mobile environmental exposure chamber) and optimise the recommended dose before starting the pivotal Phase III trial (G306) to be performed in the US.

In contrast to the G203 study, the dose range finding data with the mEEC did not allow the Group to recommend an optimised dose regime to take into Phase III studies for the US. Consequently, and subject to regulatory approval, we will undertake a further dose-ranging study, reconfiguring the study design by employing the same successful and less expensive European dose-finding trial design with a fixed conjunctival provocation test (CPT) which provided robust results for the optimisation of the Group's marketed subcutaneous birch pollen product, Pollinex® Quattro Birch (PQBirch). As previously disclosed, it is anticipated that the cost of this additional study can readily be met from the Company's available funds. The next dose range finding study is planned to start in 2017. Allergy Therapeutics will await the outcome of discussions with the FDA, scheduled later in 2016, before progressing into a new Phase II trial.

As an R&D company, we understand that inconclusive results are, occasionally, part of the process which allow us to better understand our products; what works well and not so well and, therefore, make the right decisions before entering into a final Phase III trial.

Advancing our new product pipeline to boost our addressable market.

In November 2015, we successfully completed an oversubscribed equity issue to reinforce our pipeline and provide the Company with more flexibility to pursue commercial opportunities, whether organic or acquisitive. As a result of this fundraising, we have put in place several important projects:

Acarovac Quattro. The Company is developing a state-of-the-art product in the perennial segment of the market utilising our highly successful Pollinex Quattro technological platform for house dust mite, the most important allergen in this segment. The Directors believe this product will be best-in-class, using the short course concept based on Allergoid + MCT + the adjuvant MPL. In a market testing initiative, we launched Acarovac Plus™ in Spain two years ago as a named patient product based on Allergoid + MCT but without the adjuvant. The product is developing well and we recently announced the publication of a one-year follow-up study of patients using Acarovac Plus™ in the peer review journal Immunotherapy. Patients reported statistically significant improvements in satisfaction scores after one year in relation to overall effectiveness and convenience of the treatment.

Polyvac Peanut. Food allergy is a significant and strategically important new area for the Group with peanut allergy treatments alone being an $8 billion p.a. (The Journal of Allergy and Clinical Immunology 2016. 1% of US population. EACCI Food Allergy and Anaphylaxis Guidelines Group 2016 0.2% of Western European Population. Management estimate of annual treatment of USD2,000) addressable market globally. The Group has been working on proof of concept studies using the acquired Virus Like Particles (VLP) technology licence in the development of Polyvac Peanut, a new injectable vaccine immunotherapy treatment for allergy sufferers. The proof of concept work is progressing well.

Growth Acceleration. The Group is keen to increase significantly its market share to a level where it can invest significant amounts on R&D over the long term while continuing to improve its margins. The current portfolio is predominantly subcutaneous and the Group aims to be the leader in this segment of the market by 2020, reaching a market share of about 20%. The return on the investment in sales and marketing can be seen in the very strong growth and gain in market share.

The Company's science department has been focused on supporting our clinical programs and also developing technologies that make a difference. Examples of this are the Allergomics project, MCT, Adjuvant Systems, seven published papers and 20 posters to improve understanding of immunotherapy.

The supply operations team has done a fantastic job providing unparalleled level of care, with more than 99% of our orders completed on time and supporting the Group with outstanding customer service from beginning to end. This is a clear indication of the team's priorities which are putting patients first and total commitment with the highest quality standards.

Outlook

The Group's management team expects revenue for 2017 to show continued growth rates subject to a stable euro/sterling exchange rate, with the investment in sales driving increased market share. The cost of goods is likely to increase roughly in line with revenue. Overheads are likely to increase significantly, reflecting the investment in organic growth. Research and development costs for the year are expected to be substantially less in aggregate than 2016, with only the much smaller tolerability and dosing trial for the US market, subject to regulatory approval, and with Europe experiencing a similar level of investment.

The allergy immunotherapy sector continues to undergo significant change and within this context our established and innovative product base continues to gain traction. We have taken a significant step forward in our strategy to become a global leading player in the SCIT market, which would have been impossible without the effort, dedication and commitment of our whole team. We look forward to the future with confidence in continued growth given our strong and expanded European presence, future product development pipeline and geographic expansion opportunities.

Manuel Llobet

CEO

23 September 2016

Financial Review

Overview

The results for the twelve months to 30 June 2016 demonstrate continuing profitability of the core business before R&D expense, with an operating profit excluding R&D of £4.3 million (2015: £3.8 million). Including R&D expense of £16.2 million (2015: £3.1 million), the Group reported an operating loss of £12.0 million (2015: profit £0.7 million). The operating loss includes a non-cash charge of £2.0 million in relation to the fair valuation of forward exchange contracts and a non-cash credit of £2.4 million for the revaluation at the balance sheet date of US dollar cash deposits. The increased investment in clinical studies was due to the commencement of trials related to the US programme and the European Birch Dosing Study. The Alerpharma group acquired in June 2015 added revenue of £1.7 million (2015: £0.2 million) and a loss after tax of £0.6 million (2015: £nil). The Alerpharma loss included charges relating to the restructuring of the Spanish operations. The net loss after tax for the period was £13.1m (2015: profit of £0.1m)

Revenue

Despite a weaker weighted average euro exchange rate against sterling during the year compared to the prior year, revenue increased by 12% to £48.5 million (2015: £43.2 million). The weighted average euro exchange rate in the year was €1.36=£1 compared to €1.27 in the previous year; the weaker euro negatively impacted revenue by £3.0 million. Although the vaccine markets in Europe did not grow significantly, revenue at constant currency* was 19% higher at £51.5 million (2015: £43.2 million) as shown in the table below:

The Group has continued to grow its revenue in markets outside Germany in order to diversify the reliance on any one market. Revenue from Germany was 59% (2015: 63%) of total reported revenue. The key flagship product Pollinex Quattro, which accounts for 45% of total sales, grew strongly in the year at a double digit constant currency growth rate. In addition to the sale of allergy vaccines, the Group has continued to look to increase its revenue from other products, including synbiotics. Total sales from other products contributed £3.6 million for the year ended 30 June 2016 (2015: £3.2 million).

Revenue in Germany grew well in the year with revenue at constant currency increasing to £30.5 million (2015: £27.1 million); an increase of 13%.

All the main European markets exhibited double digit sales growth at constant currency with Spain (excluding Alerpharma) showing 35%; The Netherlands 22%; Austria 25%, Italy 17% and Germany 13%.

Gross Profit

With the increased sales, cost of sales rose to £14.1 million (2015: £12.2 million). The gross margin was 71% (2015: 72%), leading to a gross profit of £34.4 million (2015: £31.1 million). At constant currency, the gross margin would have risen to 73%.

Operating Expenses

Total overheads are £16.1 million higher against the prior year at £46.5 million (2015: £30.4 million) due to R&D expenditure which increased by £13.1m to £16.2 million (2015: £3.1 million) mainly in relation to the US Grass and European PQBirch dose studies undertaken during the year.

Sales, marketing and distribution costs which were mainly continental European, increased by £3.1 million to £20.2 million (2015: £17.1 million) as the Group invested in improving its marketing and sales infrastructure. Administration expenses fell slightly to £10.1 million (2015: £10.2 million), The major driver behind this decrease was foreign exchange; the Company booking a non-cash gain of £2.4m on its US dollar cash deposits due to the weakening pound. (2015: £1.1 million loss). There was also a loss on the re-valuation of euro assets of £2 million (2015: £0.4 million gain). The remainder of the increase was due to increased support costs on the Company's IT systems to comply with new German banking requirements, acquisition fees relating to the Alerpharma purchase and staff employment costs. Following the year end, $10.6m of the cash balance was converted to sterling to reduce income statement volatility.

Tax

The current year tax charge is predominately made up of provisions for tax in the Italian and German subsidiaries. The tax charge in the prior year relates mainly to the reversal of brought forward deferred tax assets.

Balance Sheet

Property, plant and equipment increased by £0.9 million to £9.7 million as a result of exchange rate fluctuations and investment in new manufacturing plant. Goodwill increased to £3.3 million due solely to the stronger euro exchange rate at the balance sheet date (2015: £3.0 million), whilst other intangible assets have risen by £0.1 million, with an increase due to foreign exchange changes mostly offsetting the amortisation charge for the year.

Total current assets, excluding cash, have increased by £1.6 million to £14.2 million (2015: £12.6 million). The fair value of derivative financial instruments changed from an asset of £0.8 million in 2015 to a liability of £1.2m in 2016 as the euro strengthened following the EU referendum vote shortly before the year end. Inventory increased by £1.0 million as the Group prepares for increased sales of its products in the coming year. Trade debtors have increased (mainly in Germany and Italy) reflecting the increased sales in those regions. Cash and cash at hand increased to £23.4m from £21.2m in 2015.

Retirement benefit obligations, which relate solely to the German pension scheme, increased to £10.2 million (2015: £6.8 million). The increase in the liability was mainly driven by a fall in the discount rate and the euro/sterling exchange rate.

Net cash used in operations amounted to £11.8 million (2015: £3.1 million cash generated) due primarily to the significant investment in the year in the R&D programme.

Financing

In November 2015, 41,005,500 new ordinary shares of 0.1 pence each ("Ordinary Shares") were placed with institutional and other investors raising proceeds of £11.5 million before expenses (£11.0 million net) to be used to fund various projects and opportunities.

The Group's debt on its balance sheet relates to Spain and consists of the loans acquired as a result of the Alerpharma acquisition (£1.7 million) and a new loan facility (£1.7 million) arranged to fund development of products in the Spanish market. The overdraft facility was unused at 30 June 2016 but has been renewed for a further 12 months to cover seasonal funding requirements.

The Directors believe that the Group will have adequate facilities for the foreseeable future and accordingly they continue to adopt the going concern basis in preparing the full year results.

Other matters

On 23 February 2015, the Company received notification that The Federal Office for Economics and Export ("BAFA") had made a decision to reverse their preliminary exemption to the increased manufacturers rebate in Germany for the period July to December 2012. The Company was granted a preliminary exemption to the increased rebate for this period by BAFA in 2013. The Company recognised revenue of €1.4 million (£1.1 million at that time) against this exemption in the year ended 30 June 2013. All other preliminary exemptions (granted for periods up to 30 June 2012) have previously been ratified as final by BAFA. After taking legal advice, the Company has lodged an appeal against this decision and is confident that the exemption will be re-instated. Therefore, as at 30 June 2016, no provision has been recognised for the repayment of the rebate refund of €1.4 million (£1.2 million). This position will be kept under review.

Nicolas Wykeman

Finance Director

23 September 2016

These financial statements were approved by the Board of Directors and authorised for issue on 23 September 2016 and signed on its behalf by

Manuel Llobet Nicolas Wykeman

Chief Executive Officer Finance Director

Registered number: 05141592

ALLERGY THERAPEUTICS PLC

Consolidated Statement of Changes in Equity

ALLERGY THERAPEUTICS PLC

NOTES TO THE FINANCIAL STATEMENTS

1. BASIS OF PREPARATION

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006.

Whist the financial information included in this announcement has been prepared in accordance with EU adopted IFRS, this announcement itself does not contain sufficient information to comply with EU adopted IFRS. Statutory accounts for the year ended 30 June 2015 have been delivered to the Registrar of Companies and those for the year to 30 June 2016 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts. Their reports were unqualified and did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under section 498(2) or (2) Companies Act 2006 or equivalent preceding legislation.

Allergy Therapeutics is a specialty pharmaceutical company focused on allergy vaccination.

The Group's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) in issue as adopted by the European Union ('EU') and with those parts of the Companies Act 2006 that are relevant to the Group preparing its accounts in accordance with EU adopted IFRS.

Allergy Therapeutics plc is the Group's parent company. The Company is a limited liability company incorporated and domiciled in England. The address of Allergy Therapeutics plc's registered office and its principal place of business is Dominion Way, Worthing, West Sussex and its shares are listed on the Alternative Investment Market (AIM).

The comparative figures for the 12 months ended 30 June 2015 in the cash flow statement have been restated to properly reflect the treatment of the foreign exchange differences on the Group's US dollar cash deposits. Whilst the net cash generated by operations has increased by £1.1m to £3.6m, there is no overall change in the total net movement on cash and cash equivalents for the year (£19.2m). The effects of exchange rates on cash and cash equivalents has decreased by £1.1m to £1.4m.

The consolidated financial statements for the year ended 30 June 2016 (including comparatives) have been prepared under the historical cost convention except for land and buildings and derivative financial instruments which have been measured at fair value. They were approved and authorised for issue by the Board of Directors on 23 September 2016.

New standards adopted

There are no IFRS or IAS interpretations that are effective for the first time in this financial period that have had a material impact on the Group.

Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group in the 30 June 2016 financial statements

At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective. Not all of these have yet been adopted by the EU. The Group has not adopted any of these pronouncements early. The new standards, amendments and interpretations that are expected to be relevant to the Group's financial statements are as follows:

IFRS 9 Financial Instruments (effective 1 January 2018)

This IFRS replaces IAS 39 and addresses the usefulness for users of financial statements by simplifying the classification and measurement requirements for financial instruments. Management are currently assessing the detailed impact on the Group's financial statements.

IFRS 15 Revenue from Contracts with Customers (issued in May 2014 and effective 1 January 2018)

IFRS 15 supersedes current revenue recognition guidance including IAS 18, Revenue, and specifies how and when entities recognise revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles based five-step model to be applied to all contracts with customers.

IFRS 16 Leases (effective 1 January 2019)

IFRS 16 removes the current distinction between an operating and finance lease, introducing consistent requirements for all leases similar to the current finance lease accounting.

Management anticipate that the above pronouncements will be adopted in the Group's financial statements in line with the effective dates stated above. Management are currently assessing their detailed impact on the Group's financial statements.

Other new standards and interpretations have been issued but are not expected to have a material impact on the Group's financial statements.

Going concern

Operating loss in the period was £12.0 million (2015: profit £0.7 million); net cash outflow from operations was £11.5 million (2015: inflow £3.6 million). The primary cause of the operating loss and cash outflow is the increased R&D expenditure which has been funded from the 2015 share placing which raised £20.0 million for the US R&D programme. Excluding R&D the Group would have reported an operating profit of £4.3 million (2015: £3.8 million). The Directors do not consider the current operating loss to be a cause for concern.

The Group has prepared detailed budgets, including cash flow projections, for the period to 30 September 2017. These projections include assumptions on the trading performance of the operating business and the continued availability of the existing overdraft facilities. After making appropriate enquiries, which included a review of the annual budget, by considering the cash flow requirements for the foreseeable future and the effects of sales and other sensitivities on the Group's funding plans, the Directors continue to believe that the Group will have adequate resources to continue in operational existence for the foreseeable future and accordingly have applied the going concern principle in drawing up the financial statements. In reaching this view, the Directors have considered and prioritised the actions that could be taken to offset the impact of any shortfall in operating performance.

2. ACCOUNTING POLICIES (extract)

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented unless otherwise stated.

Consolidation

The Group's financial statements consolidate those of the parent company and all of its subsidiaries drawn up to 30 June 2016. The parent controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated on the date control ceases.

Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated except for unrealised losses if they show evidence of impairment.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring accounting policies used into line with those used in the Group.

The Group applies the acquisition method in accounting for business combinations. The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred.

The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognised in the acquiree's financial statements prior to the acquisition. Assets acquired and liabilities assumed are measured at their acquisition-date fair values.

Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of a) fair value of consideration transferred, b) the recognised amount of any non-controlling interest in the acquiree and c) acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (i.e. gain on a bargain purchase) is recognised in profit or loss immediately.

Goodwill

Goodwill arising from business combinations is the difference between the fair value of the consideration paid and the fair value of the assets and liabilities and contingent liabilities acquired. It is initially recognised as an intangible asset at cost and is subject to impairment testing on an annual basis or more frequently if circumstances indicate that the asset may have been impaired. Details of impairment testing are described in the accounting policies.

Intangible assets acquired as part of a business combination

Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an asset and be identifiable. The cost of such intangible assets is their fair value at the acquisition date.

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses. Intangible assets are amortised over their useful economic life as follows

Externally acquired intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.

Intangible assets are amortised over their useful economic life as below and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for intangible assets is reviewed at least at each financial year end.

Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets is recognised in the consolidated income statement in the expense category consistent with the function of the intangible asset in either administration costs or marketing and distribution costs.

Internally generated intangible assets

An internally generated intangible asset arising from development (or the development phase) of an internal project is recognised if, and only if, all of the following have been demonstrated:

· the technical feasibility of completing the intangible asset so that it will be available for use or sale

· the intention to complete the intangible asset and use or sell it

· the ability to use or sell the intangible asset

· how the intangible asset will generate probable future economic benefits

· the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset

· the ability to measure reliably the expenditure attributable to the intangible asset during its development

The amount initially recognised for internally generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be recognised, research and development expenditure is charged to the consolidated income statement in the period in which it is incurred.

Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses. Amortisation shall begin when the asset is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.

Amortisation of all intangible assets is calculated on a straight line basis over the useful economic life using the following annual rates:

These periods were selected to reflect the assets' useful economic lives to the Group.

The cost of amortising intangible assets is included within administration expenses in the consolidated income statement.

Revenue recognition

Revenue is measured by reference to the fair value of consideration received or receivable by the Group for goods supplied and services provided, net of statutory rebates paid in Germany and excluding value added tax. Revenue is recognised upon the performance of services or transfer of risk to the customer.

Sale of goods

Revenue from the sale of goods is recognised when all the following conditions have been satisfied:

· the Group has transferred to the buyer the significant risks and rewards of ownership of the goods, which is generally when the customer has physically received the goods.

· the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold which is again when the customer has physically received the goods.

· the amount of revenue can be measured reliably.

· it is probable that the economic benefits associated with the transaction will flow to the Group, and

· the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Where the Group provides services to new distributors, which mainly include marketing and customer information, in exchange for an up-front lump sum fee, revenue is recognised in line with these services being delivered. Services are fair valued and pro-rated to agree to the total fee receivable. Where there is an on-going responsibility to provide services, the balance relating to those services is recognised in future periods as the service is performed.

Part of the Group's overseas sales are made through distributors and agents.

Arrangements for sales through distributors

For all distributor arrangements, the distributor is invoiced at the time of delivery and title to the product passes upon full and final settlement of the invoice to which the delivery relates. The distributor has full discretion over the setting of the final selling price to the end customer and is responsible for all customer returns of product.

It is considered that the significant risks and rewards of ownership of the product are transferred to the distributor at the point of delivery and therefore revenue is recognised at this point in accordance with IAS 18.

Where the Group sells to distributors at initially low margin and there is further consideration receivable by the group, this deferred consideration forms part of the fair valuation of consideration receivable by the Group for goods supplied. In these instances, the deferred consideration is accrued at a discounted value at the point of delivery.

Arrangements for sales through agents

For all agreements with agents, the agent places orders with the Group and goods are then shipped to them. The Group however, holds title to these products until they are sold on to a third party. The selling price to the end user is set by the relevant Government body and the agent receives a fixed percentage of this selling price. The agent notifies the Group monthly on stock levels and this is reconciled to a statement which generates an invoice for payment by the agent. The Group is responsible for any customer returns of product.

It is considered that the significant risks and rewards of ownership of the product are not transferred from the Group until the agent has sold the product to a third party and therefore revenue on these sales is recognised only at this point by the Group in accordance with IAS 18.16.

Statutory Rebates

In Germany, pharmaceutical companies are required to pay a manufacturer's rebate to the government as a contribution to the cost of medicines paid for by the State and private health funds. This is similar to a sales tax and the rebate is therefore treated as a deduction from revenue in accordance with IAS18.8.

Rebates have been in the region of 6% (inclusive of VAT). However, in 2010 the German government increased the rate to 16%. In certain circumstances, companies could apply for an exemption from the rebate increase, for limited periods at a time. If the application for the exemption is successful, a preliminary exemption is normally granted to be converted to a final exemption at a later date when audited financial statements are available.

Allergy Therapeutics plc has been successful in obtaining preliminary exemptions up to 30 June 2012, which have been subsequently confirmed as final.

Revenue is recognised initially net of the full rebate, as at that stage it is not considered probable that any refund of the rebate will be received. When the preliminary exemption is granted, it is considered probable, based on our past experience, that the rebate refund will be received. Therefore, as it is probable that the economic benefits will flow to Allergy Therapeutics Plc, in accordance with IAS 18.14(d), revenue is adjusted at that time.

As of April 2014, the Rebate has been set at 7%.

Inventories

Inventory is carried at the lower of cost or net realisable value. The costs of raw materials, consumables, work in progress and finished goods are measured by means of weighted average cost using standard costing techniques. The cost of finished goods and work in progress comprises direct production costs such as raw materials, consumables, utilities and labour, and production overheads such as employee costs, depreciation, maintenance and indirect factory costs. Standard costs are reviewed regularly in order to ensure relevant measures of utilisation, production lead time and appropriate levels of manufacturing expense are reflected in the standards.

Net realisable value is calculated based on the selling price in the normal course of business less any costs to sell.

Research & Development Investment Credits

Investment credits are directly related to the Group's qualifying research and development expenditure and have a monetary value that is independent of the Group's tax liability. Such investment credits are dealt with in other income in the consolidated income statement.

Use of accounting estimates and judgements

Many of the amounts included in the financial statements involve the use of judgement and/or estimation. These judgements and estimates are based on management's best knowledge of the relevant facts and circumstances, having regard to prior experience, but actual results may differ from the amounts included in the financial statements. Information about such judgements and estimation is contained in the accounting policies and/or the Notes to the financial statements and the key areas are summarised below:

Judgements in applying accounting policies

a) Capitalisation of development costs requires analysis of the technical feasibility and commercial viability of the project concerned. Capitalisation of the costs will be made only where there is evidence that an economic benefit will accrue to the Group. To date no development costs have been capitalised and all costs have been expensed in the income statement as research and development costs. Costs expensed in the year amounted to £16.2 million (2015: £3.1 million).

b) Where the Group sells to distributors at initially low margin and there is further consideration receivable by the group, this deferred consideration forms part of the fair valuation of consideration receivable by the Group for goods supplied. In these instances, the deferred consideration is accrued at a discounted value at the point of delivery.

The Directors considered the following points in applying this accounting treatment:

Although a significant portion of the sales price is received upon a further sale to an end customer, substantially all the risks and rewards of ownership are passed to the distributor when the goods are shipped, and the distributor is acting as principal (not merely as agent) when arranging to resell the goods. The Directors have reached this conclusion because;

i. The group does not have any continued managerial involvement in the distributor's onward sale of goods;

ii. The distributor does not have the right to return any goods.

More information on the reasoning behind the treatment of sales to distributors can be found in the 'Sale of goods' accounting policy description.

c) Land and buildings are carried at valuation and are re-valued with sufficient regularity so that the carrying amount and the fair value are not materially different. The Italian freehold property was revalued in June 2016 by independent valuers. The Italian freehold property was revalued to fair value at the reporting date based on this valuation. The freehold property in Spain was revalued in June 2015. The Directors do not consider an impairment provision to be required in respect of the freehold property in Spain.

d) The Group had been awarded a provisional exemption to the increased statutory rebate charge in Germany for the period July to December 2012 by BAFA. Revenue of £1.1 million (equivalent of €1.4 million) was recognised in the year ended 30 June 2013 in relation to this exemption and the refund from the German authorities was subsequently collected. In February 2015, the provisional exemption was withdrawn by BAFA. The Group has lodged an appeal and, following legal advice, believe that the exemption will be re-instated. While the Group is confident that the exemption will be confirmed, there is a possibility that this will not happen. If the exemption is not confirmed, then the Group will ultimately have to repay €1.4 million (£1.2 million) with a corresponding impact on net income and net assets.

Sources of estimation uncertainty

a) Depreciation rates are based on estimates of the useful lives and residual values of the assets involved. There is inherent uncertainty in the useful lives of assets, which means that they are constantly reviewed by management.

b) Estimates of future profitability are required for the decision whether or not to carry forward a deferred tax asset.

c) Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating unit to which the goodwill has been allocated. This value in use calculation requires an estimation of the future cash flows expected to arise from the cash generating unit and a suitable discount rate in order to calculate the present value.

d) Inventory standard costs are reviewed regularly in order to ensure relevant measures of utilisation, production lead time and appropriate levels of manufacturing expense are reflected in the standards.

e) In relation to the accrued additional revenue due from distributors referred to in the Judgements section (point (b) above); there is some uncertainty that the additional revenue will crystallise as it is dependent on a further sale by the distributor. The Directors consider that the additional consideration can be measured reliably because it is based on a fixed list price, and our past experience indicates that the distributor will sell the vaccines.

The Directors have assessed that the accrued consideration of £0.1 million is recoverable and will crystallise in future periods and has been carried forward in prepayments and accrued income (2015: £0.1m).

f) The Group operates equity-settled share based compensation plans for remuneration of its employees comprising Long Term Incentive Plan (LTIP) schemes. Employee services received in exchange for the grant of any share based compensation are measured at their fair values and expensed over the vesting period. The fair value of this compensation is dependent on whether the provisional share awards will ultimately vest, which in turn is dependent on future events which are uncertain. The Directors use their judgment and experience of previous awards to estimate the probability that the awards will vest, which impacts the fair valuation of the compensation.

3. REVENUE

An analysis of revenue by category is set out in the table below:

Rendering of services relates to the supply of services to a new distributor to assist them in setting up operations in their territory.

4. SEGMENTAL REPORTING

The Group's operating segments are reported based on the financial information provided to the Executive Directors, who are defined as the Chief Operating Decision-Maker (CODM), to enable them to allocate resources and make strategic decisions.

The CODM reviews information based on geographical market sectors and assesses performance at an EBITDA (operating profit before interest, tax, depreciation and amortisation) and operating profit level. Management have identified that the reportable segments are Central Europe (which includes the following operating segments; Germany, Austria, Switzerland and The Netherlands), Southern Europe (Italy and Spain), the UK and Rest of World.

For all material regions that have been aggregated, management consider that they share similar economic characteristics. They are also similar in respect of the products sold; types of customer; distribution channels; and regulatory environments.

Revenue by segment

Revenues from external customers in all segments are derived principally from the sale of a range of pharmaceutical products designed for the immunological treatment of the allergic condition.

Rest of World revenues include sales through distributors and agents in several markets including Czech and Slovak Republics, Canada and South Korea. These include rendering of services revenues (Note 3). Inter-segment revenues represent sales of product from the UK to the operating subsidiaries. The price is set on an arms-length basis which is eliminated on consolidation.

The CODM also reviews revenue by segment on a budgeted constant currency basis, to provide relevant year on year comparisons.

The following revenue table is based on a budget currency rate of € 1.40: £1.00 which was the rate used in the 2016 budget.

The Group has no customers which individually account for 10% or more of the Group's revenue.

Depreciation and amortisation by segment

EBITDA by segment

Total assets by segment

Included within Central Europe are non-current assets to the value of £2,523,000 (2015: £2,343,000) relating to Goodwill and within Southern Europe assets to the value of £2,942,000 (2015: £2,521,000) relating to freehold land and buildings. There were no material additions (excluding foreign exchange differences) to non-current assets in any country except the UK where non-current asset additions totalled £1,433,000.

Total liabilities by segment

5. FINANCE EXPENSE

6. FINANCE INCOME

Other finance income relates to the unwinding of the discount on accrued revenue.

7. EARNINGS PER SHARE

The diluted loss per share does not differ from the basic loss per share as the exercise of share options would have the effect of reducing the loss per share and is therefore not dilutive under the terms of IAS 33.

8. INVENTORIES

The value of inventories measured at fair value less cost to sell was £425,000 (2015: £334,000).

The movement in the value of inventories measured at fair value less cost to sell during the year gave rise to a charge of £91,000 which was expensed to the consolidated income statement.

9. BORROWINGS

There is an overdraft facility provided by The Royal Bank of Scotland Plc which has a variable limit during the year up to a maximum of £7 million. Interest on the overdraft is at the bank's base rate plus a fixed margin of 2.50%. The facility is secured in favour of The Royal Bank of Scotland Plc by means of debentures granted by the Company and its principal subsidiaries and share pledge agreements relating to Bencard Allergie GmbH, Allergy Therapeutics Italia SRL and Allergy Therapeutics Iberica SL. The overdraft facility is due for renewal in May 2017. The overdraft was unused at 30 June 2016 (2015: Nil).

As part of the acquisition of Alerpharma SA, the group acquired loans totalling €2,386,000 (£1,684,000). The loans are secured by way of a charge on land and buildings owned by Alerpharma Group SA.

During the year, Allergy Therapeutics Iberica SL took out a new loan with Santander for €2m at a fixed rate of 2.5% for a term of 7 years with a 2-year capital repayment delay. A warranty with regard to this new loan was provided by Allergy Therapeutics plc.

10. ISSUED SHARE CAPITAL