BTG Regulatory News (BTG)

BTG plc

18 June 2018

ANNUAL REPORT AND ACCOUNTS 2018

In accordance with the Listing Rule 9.6.1, copies of the following documents have been submitted to the UK Listing Authority and will shortly be available for inspection via the National Storage Mechanism at http://www.morningstar.co.uk/uk/NSM

· A copy of the Company's Annual Report and Accounts for 2018

· A Circular to shareholders incorporating the Notice of the 2018 Annual General Meeting

· Form of proxy for the 2018 Annual General Meeting

These documents have also been posted or otherwise made available to shareholders. The 2017/18 Annual Report and the Notice of Annual General Meeting 2018 have also been published on the Company's website at www.btgplc.com.

The Annual General Meeting will be held at 10.30 am on Wednesday, 18 July 2018 at the offices of Stephenson Harwood LLP, 1 Finsbury Circus, London EC2M 7SH

In accordance with DTR 6.3.5, extracted below from the Annual Report and Accounts is a management report in full unedited text which contains a responsibility statement, a statement in the directors' report in respect of the strategic report and details of related party transactions. References to page numbers and notes in the extract refer to those in the Annual Report and Accounts 2018. A condensed set of financial statements were appended to BTG plc's preliminary results announcement issued on 15 May 2018.

Name of contact and telephone number for queries:

Andy Burrows 020 7575 1741

Vice President, Corporate and Investor Relations

BTG plc

Stuart Hunt 020 7575 1582

Investor Relations Manager

BTG plc

  UNEDITED EXTRACT FROM ANNUAL REPORT AND ACCOUNTS 2018

 The directors include the following statements:

1. Statement of directors' responsibilities in respect of the annual report 2018 and the financial statements

The directors are responsible for preparing the Annual Report 2018 and the Group and parent Company financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare Group and parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent company financial statements on the same basis.

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of their profit or loss for that period. In preparing each of the Group and parent Company financial statements, the directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· state whether they have been prepared in accordance with IFRSs as adopted by the EU; and

· assess the Group and parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

· use the going concern basis of accounting unless they either intend to liquidate the Group or parent Company or to cease operations, or have no realistic alternative but to do so.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company's transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such Internal Control as they determine necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement of the directors in respect of the annual financial report

We confirm that to the best of our knowledge:

· the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and the undertakings included in the consolidation taken as a whole; and

· the strategic report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

2. STATEMENT IN THE DIRECTORS' REPORT IN RESPECT OF THE STRATEGIC REPORT

The Group is required by the Companies Act 2006 to set out a fair and balanced review of the business, including the performance and development of the Group during the year and at the year end, and a description of the principal risks it faces. This information is contained within the Strategic Report, which can be found on pages 6 to 36 and incorporated into this report by reference:

· The Chairman's statement on pages 4 and 5, the Chief Executive's review on 

pages 6 and 7 and the Market overview on page 8 provide details of the Group's 

principal activities and strategy, its performance during the year and its prospects 

for future development opportunities.

· Details of the principal risks facing the Group are set out on pages 64 to 67.

· Information relating to the environment, employees and stakeholders, health and safety, ethical considerations, charitable donations and policies regarding its employees is set out on pages 24 to 27.

This information is prepared solely to assist shareholders to assess the Group's overall strategy, the risks inherent in it and the potential for the strategy to succeed. The Directors' report should not be relied on by any other person or for any other purpose.

Forward-looking statements contained in this report have been made by the directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the uncertainties, including economic and business risk factors, inherent in them.

3. PRINCIPAL RISKS

i. Market Access: Securing adequate reimbursement for BTG's products

BTG may not be able to sell its products profitably if reimbursement by third-party payers, including government and private health insurers, is limited, uncompetitive or unavailable. The Group may be subject to price limits on reimbursement of products that are outside of its control, reducing sales volume or prices, negatively impacting Group revenues. This is particularly the case in the US where a significant proportion of the Group's revenues are derived, and in light of the ongoing US healthcare reforms, which may reduce the number of insured patients or require increased rebates or discounts to be provided. Third-party payers are increasingly attempting to contain healthcare costs through measures that are likely to impact the products that BTG is developing.

General mitigation strategy: Ensuring effective advocacy with payers based on accurate data and analysis to inform reimbursement decisions. Ensuring accurate and complete submissions. BTG is seeking to use its expanding expertise across the portfolio, both within and outside the US. R&D plans increasingly seek to create the data likely to be required to secure the desired level of reimbursement for the applicable products after commercial launch.

Change in 2017/18: A number of initiatives are being taken by the company to support reimbursement for all products. These initiatives include post market registration studies. Clinical studies are underway for EKOS®, TheraSphere® and the PneumRx® Coils. Market adoption of the PneumRx® Coils and securing adequate reimbursement has taken longer than anticipated. Varithena® CPT codes took effect in the US from January 2018. However, further time is required to understand the impact of the availability of these codes on future US revenues. Overall, this risk is deemed to be at the same level as last year.

ii. Obtaining/Maintaining product regulatory approvals

The pharmaceutical and device industries are highly regulated in relation to the development, approval, manufacturing and sale of products. The development of healthcare products has a high level of inherent risk and a high failure rate. An inability to meet existing or new regulations or regulatory guidance may result in delays or failures in bringing products to market, additional material costs of development or the imposition of restrictions on approval or the sale of a product or its manufacture or distribution, including the possible withdrawal of a product from the market.

Such events may adversely impact the Group's revenues and prospects.

General mitigation strategy: The Company has expert internal teams dedicated to ensuring compliance in each of these areas, defining regulatory strategies and supporting product approvals and maintaining existing product licences.

The process is supported by the governance systems defined above and monthly monitoring of performance against goals and of changes in the regulatory landscape.

Change in 2017/18: The PMA submission to seek US approval of the PneumRx® Coil, was made during the year and discussions with the US FDA are ongoing. That process has taken longer than anticipated and uncertainty remains regarding the likelihood and timing of approval.

TheraSphere® clinical trials continue and are on track to complete to plan.

The Company continues with a number of clinical trials and investigator-led studies to support and extend indications for existing products. In addition, a number of early stage partnership projects are being investigated, which will support future business growth.

The overall level of risk is deemed to be the same as last year.

iii. IP/Legal challenges

BTG may be subject to challenges relating to the validity of contracts or its patents or alleging infringement by BTG of intellectual property (IP) rights of others, which may result in cessation of BTG product sales, litigation and/or settlement costs and/or loss of earnings. BTG might elect to sue third parties for their infringement of BTG's IP to protect current or future product revenue streams. Litigation involves significant costs and uncertainties.

BTG may not be able to secure or maintain the necessary IP in relation to products sold, acquired or in development, limiting the potential to generate value from these products and investments. Patent expiries can adversely impact the Group's revenues due to a resultant increase in competition and price erosion.

Significant legal commitments are required to be made by the Group to third parties in pursuit of the Group's strategy and, reciprocally, delivery of the strategy is in some cases dependent on third parties meeting their legal and contractual obligations to the Group. Dependency on contractual relationships carries with it varying degrees of risk of future disputes and litigation which may result in loss of product rights or exposure to damages following an adverse court ruling. Examples include the Group's obligation to use reasonable commercial efforts to commercialise certain products or to meet future milestones under product acquisition agreements.

BTG's proprietary data and knowhow is also threatened by increased cyber attack threats.

General mitigation strategy: Maintenance of the IP and legal functions as core capabilities of the Group, supplemented by external expertise, which monitors third-party patent portfolios and patent applications and IP rights. Development and implementation of BTG patent filing, defence and enforcement strategies, pursuing litigation or settlement strategies where appropriate. Robust processes are in place to automate patent renewals; internal controls established to avoid disclosure of patentable material prior to filing patent applications and to protect valuable know-how.

Processes are in place to ensure the Group meets its obligations under material contracts and to monitor and manage the satisfaction of third-party obligations to the Group.

BTG has established a cyber risk function to protect itself against cyber threats.

Change in 2017/18: 

As reported in previous years, Zytiga® is facing generic challenges in the US which are expected to enter the market in late 2018. The effects of generic entry have been analysed and are included within BTG financial forecasts. At a hearing before the US

Patent and Trademark office held during the year, the patent protecting the market for Zytiga® was held to be invalid, subject to ongoing appeal.

In last year's annual report, we recorded that BTG were in litigation with Wellstat over the commercialisation of Vistogard®. The initial judgement found in favour

of Wellstat and BTG were ordered to pay significant damages (exceeding US$56 million plus interest). BTG have appealed this decision and we await the appeal decision. In the meantime, we have made financial provisions for these damages and initial interest

within our actual 2017/18 results and our financial forecasts.

As a result of the court decision the Vistogard® asset has been returned to Wellstat and will not contribute further revenue to the Group.

The risk is assessed to have increased during the year.

iv. Competition

BTG's products may face competition from products that have superior attributes, including better efficacy or side effect profiles, cost less to produce or be offered at a lower price than BTG's products.

There are currently no competitive products to CroFab®, DigiFab®, or Voraxaze® but Instituto Bioclon may launch a competitor product to CroFab® around October 2018.

TheraSphere® competes with a product from Sirtex Medical Limited (subject to an acquisition proposed by Varian Medical Systems Inc.) and LC Bead© and DC Bead® compete with products from Boston Scientific Corporation, Terumo and Merit Medical. Varithena® competes with other treatment modalities including heat ablation, vein stripping and physician-compounded sclerosing foam.

A number of new immuno-oncology biological products are entering the market by various companies and may provide significant new competition to BTG's Interventional Oncology products.

EKOS competes with other interventional clot treatment products from US companies like Boston Scientific.

There is a competitor to PneumRx® in the form of the Pulmonx, Inc. valve. In Licensing, Zytiga® competes with a number of other treatments for prostate cancer including Xtandi® (enzalutamide) and is at risk of generic competition.

General mitigation strategy: BTG focuses on select opportunities addressing specialist segments where there are relatively high barriers to entry, for example, relating to the development and manufacturing processes, or the need to generate significant supportive clinical data to gain approval and commercial acceptance. We seek adequate reimbursement to differentiate our products by demonstrating, in clinical trials, safety and efficacy benefits, cost effectiveness or greater patient acceptance.

Change in 2017/18: Interventional Oncology products continue to encounter strong

competition in all countries. In particular, Sirtex, which produce a product that competes against TheraSphere®, and may apply for a US PMA in 2018. If successful, this may have a negative effect on TheraSphere® revenues.

As previously announced, Bioclon are expected to launch their product, which will compete with CroFab® in October 2018.

Overall, the risk is assessed as comparable with last year.

v. Healthcare law compliance

Extensive laws and regulations relate to how BTG markets its products and interacts with its customers and payers. Failure to meet applicable requirements may result in criminal or civil proceedings against the Group, exclusion of sale of products in certain territories and material financial penalties or other sanctions against the Group (or their commercial partners, or their respective employees or directors).

Defending actual or alleged violations may require significant management time and financial commitment, even if not proven.

The Group is required to take significant measures to protect personal data, and failure

to do so could result in significant penalties.

General mitigation strategy: A comprehensive compliance programme is in place as referred to above. Ongoing monitoring and auditing is undertaken to seek to ensure any material failures are identified where possible and remediated. The programme is continually reviewed and improved to reflect ongoing learnings and changes to the external environment.

The BTG compliance programme is a Company standard, which is introduced to all acquisitions. The programme has been fully implemented by the latest additions to the BTG Group.

Change in 2017/18: Compliance within this area continues to be an essential focus.

A privacy function has also been established by the Group this year to ensure compliance with a number of developing regulations across the globe, most notably General Data Protection Regulation (GDPR) in Europe.

A data security team was also established to further develop and implement a programme of enhanced protections against cyber attacks.

Risk in this area is deemed to be equivalent to last year.

vi. Supply chain/continuity of supply

There are inherent risks to the BTG supply chain, as the Company's products are typically high value, low volume manufacture. Diversifying the supply chain of such products (for example by establishing dual sources of supply) is not always cost effective. BTG therefore relies on the following single sources of supply:

A single site in Wales for supply of manufactured antibodies and a single site in Farnham, UK, for the manufacture of the Beads and Varithena®. Consequently, there is the possibility of disruption to, or loss of supplies resulting from, technical issues, contamination or regulatory actions. BTG polyclonal antibody products rely on serum produced from our sheep flocks in Australia, which could be subject to disease outbreaks or fire.

BTG manufactures its EKOS® products at a single site in Seattle, Washington, USA and the PneumRx® Coil at a single site in Santa Clara, California, USA, with the consequent possibilities from disruption to or loss of supply.

Galil Medical consumable items are manufactured at a site in Israel, with the control units manufactured at a site located in Arden Hills, Minnesota, USA.

For other products, namely Voraxaze® and TheraSphere®, we continue to rely on third-party contractors for the supply of many key materials and services. These processes inherently carry risks of failure and loss of product, and these are risks over which the Company has a lower degree of control.

General mitigation strategy: BTG has extensive quality, risk and business continuity management systems to ensure resilience of the supply chain. These management systems are applied equally to both the internal and external elements of our supply chain.

Each area of our supply chain is thoroughly assessed and stocks of raw materials, in process materials and finished products are maintained as a result of that risk assessment. Risk assessments are reviewed annually or when business predictions change. Adherence to the agreed stock levels are reviewed monthly through regular business review meetings.

The final mitigation is business interruption insurance, which is maintained at a level for each business to cover at least two years loss of business as a result of catastrophic loss of supply.

Change in 2017/18: BTG sites and supply chain partners underwent 24 inspections by external bodies such as the FDA, MHRA and BSI, within the 2017 financial year.

No major or critical findings were received and corrective actions for all observations were completed or are on track to the timetables agreed with the authorities.

A focus for this year has been to identify and take necessary actions to ensure continued supply to all patients through the Brexit process. Supply chain managers are therefore ensuring increased stocks of raw materials and final products will be built up prior to

March 2019. The assumption of BTG is to prepare for a hard Brexit with no transition period. The risks posed by Brexit are not deemed to be material to the Group, save for the risks related to ensuring continuity of the CE marks for the Group's device products to permit them to continue to be sold in EU. In any event, the Company is committed to continuing supplying customers and patients, no matter what challenges Brexit poses.

Overall, the supply chain risk is considered to remain unchanged in comparison with last year.

vii. Merger and acquisition activity

To maintain BTG growth strategy, the Company will need to continue to acquire new companies and/or associated products and assets.

Competition for attractive assets remains relatively high, as do asset valuations. Failure

to find or successfully acquire the right opportunities (consistent with the strategy) at acceptable prices may constrain the future growth of the Group. Ineffective integration of

acquisitions or failure to progress their product strategies or realise predicted post-acquisition synergy benefits may reduce the forecast return on investment of the acquisition or generate risks that fall outside the Group's risk appetite.

The Company's strategic objectives may therefore be adversely impacted depending

on the availability and price of suitable targets and the Group's ability to effectively and

promptly progress the development and/or commercialisation of acquired assets.

General mitigation strategy: A robust market and opportunity assessment process is undertaken by the Business Development team. All potential acquisition targets undergo extensive due diligence by a multidisciplinary team which includes all key business functions.

Development of an acquisition risk register with foreseen control and mitigation strategies is submitted to the Board as part of the process of assessing acquisition proposals.

Cross functional post-acquisition integration plans are implemented.

Change in 2017/18: The Company completed the acquisition of Roxwood within the year in the Interventional Vascular area and continues to evaluate numerous potential targets on an ongoing basis.

4. RELATED PARTY TRANSACTIONS

The Company has a related-party relationship with its subsidiary undertakings and its directors.

In relation to the related party relationship identified on page 53 concerning Giles Kerr, payments made by BTG to Oxford University and Oxford University Innovation Ltd under the relevant licence agreements were £18,000 for the year ended 31 March 2018 (£19,000 during the year ended 31 March 2017). There are no amounts still outstanding and payable by BTG under these agreements as at 31 March 2018 (2017: nil).

Key management personnel are considered to be the directors and their remuneration is disclosed within the Remuneration Report on pages 69 to 94.

-ends-