BTG Regulatory News (BTG)

BTG plc: Interim Results

Strong first half performance, upgrading Pharmaceuticals sales guidance

London, UK, 13 November 2018: BTG plc (LSE: BTG), the global healthcare company, today announces its Interim Results for the six months ended 30 September 2018.

Louise Makin, CEO, commented: "I am pleased to report that in the first six months we have delivered 10%1 sales growth with good operating leverage in our Product business and 35%1 adjusted operating profit growth for the Group. The second half of the year has started well. We reiterate our full-year guidance for Interventional Oncology and Vascular sales and upgrade our Pharmaceuticals sales guidance following a good H1 performance and a very strong October for CroFab®.

During the period we have provided further clarity on Varithena®, PneumRx and Zytiga®, launched two new products, acquired Novate Medical and completed several strategic partnerships and pipeline milestones.

In Interventional Oncology, our TheraSphere® EPOCH trial is now fully enrolled. We have progressed several internal programmes and external collaborations designed to build an integrated offering in lung cancer diagnosis and treatment. In our Vascular portfolio, launch activities are underway for Sentry, our new IVC filter.

Our Pharmaceuticals business has delivered good growth in the first half. We expect CroFab® to maintain its market leadership following the introduction of a different antivenin. We are exploring indication expansion and other opportunities to enhance growth in this business.

Our growth strategy is delivering. We remain ambitious to use our strong financial resources to augment this positive organic momentum with further investments and acquisitions to deliver on our vision of being a world leader in Interventional Medicine, transforming patient care and creating significant long-term value for our stakeholders."

Financial highlights

1. Constant Exchange Rate ("CER") growth is computed by restating 2018/19 results using 2017/18 foreign exchange rates for the relevant period.

2. Certain financial measures in this press release, including adjusted operating profit, adjusted basic EPS and free cash flow are not prepared in accordance with IFRS. All adjusted financial measures are explained on page 24 and are reconciled to the most directly comparable measure prepared in accordance with IFRS on pages 25 to 27.

· Product sales increased 10% at CER to $340.2m, driven by Interventional Oncology and Interventional Vascular.

· Adjusted operating profit grew 35% at CER to $178.5m, demonstrating good operating cost leverage. IFRS operating profit was $97.6m.

· Adjusted basic EPS grew 32% to 35.9c and IFRS basic EPS grew 12% to 20.0c at actual exchange rates.

· Free cash flow of $37.2m was achieved after payment of $73.3m to settle the Wellstat dispute; excluding this payment free cash flow was 15% higher at $110.5m. IFRS cash flow from operating activities was $48.7m.

Operating highlights

Product Business - Interventional Medicine

Oncology

· TheraSphere® EPOCH study fully enrolled; top-line results expected by the end of 2019.

· Compact and user-friendly new ICEfx™ Cryoablation system launched globally.

· Completed investment in and agreed option to acquire Veran Medical Technologies, Inc, which provides electromagnetic navigation systems for lung nodule biopsy to aid early diagnosis and treatment of lung cancer.

· Research collaboration with Edinburgh University to combine characterisation and treatment of lung nodules in a single flexible catheter

Vascular

· Acquisition of Novate Medical Ltd and its Sentry device, the first bioconvertible inferior vena cava (IVC) filter for use in patients at high risk of recurrent pulmonary embolism (PE).

· EKOS® Control Unit 4.0 launched in Europe.

· Strategic partnership formed with PERT Consortium™ to advance the treatment of patients with PE.

· Positive impact on physician adoption of Varithena® following introduction of dedicated reimbursement codes.

PneumRx

· Continuing to review options for PneumRx following non-approvable decision by US Food & Drug Administration (FDA), including partnering or sale.

Product Business - Pharmaceuticals

· FDA approval of CroFab® shelf life extension and other product improvements; replacement policy implemented for expired product.

Licensing

· Johnson & Johnson is appealing a US District Court ruling in October 2018 invalidating the Zytiga® combination use patent.

· BTG945, a targeted drug in development for treating ovarian cancer, licensed to Carrick Therapeutics for an upfront payment and potential future milestones and royalties.

For further information contact:

About BTG

BTG is a global healthcare company focused on Interventional Medicine. Our innovative medical technology helps physicians treat their patients through minimally invasive procedures. We have a growing portfolio of products that advance the treatment of cancer and vascular conditions. BTG's Pharmaceuticals business provides products that help patients overexposed to certain medications or toxins. To learn more about BTG, please visit: btgplc.com.

OPERATING REVIEW

BTG has delivered a strong financial performance in the first half of the year, with double-digit product sales growth and a significant increase in operating profit. Momentum in the business is high, with a number of key milestones delivered in the period.

By focusing on the needs of its interventional physician customers, BTG has developed category leadership positions in Oncology and Vascular market segments. BTG provides its customers with differentiated products and multiple treatment modalities, and invests in innovation, clinical data and other activities to enable them to treat more patients.

Oncology

BTG has a leading portfolio of Interventional Oncology products comprising minimally invasive alternatives to radiation therapy, chemotherapy, and surgery.

TheraSphere® is an internal radiation therapy. Its use continues to expand globally and very strong growth was achieved in the period from continued market penetration and geographic expansion.

Enrolment into the EPOCH study completed in October. This 420 patient clinical trial is exploring the use of TheraSphere® as a second-line treatment for patients with metastatic colorectal cancer of the liver, which is a new and significant patient population not currently being treated with the product. Top-line data are expected by the end of 2019, as are data from the TheraSphere® STOP-HCC study in patients with primary liver cancer. Both studies are designed to support subsequent premarket approval (PMA) applications in the US.

BTG's cryoablation products delivered continued strong growth in all territories during the last six months. Currently used predominantly in kidney tumours, progress to expand their use in other tumours has continued. This includes recent data from the SOLSTICE and MOTION studies in metastatic lung and bone tumours, which support overall growth and market expansion.

The product innovation pipeline has continued to deliver new and differentiated products. The ICEfx™ Cryoablation system launched during the period. This is more compact and provides an intuitive user interface to simplify the customer experience. Other ablation products under development include flexible cryoablation needles to enable procedures to be conducted down a bronchoscope and a new microwave heat ablation system that is expected to be launched by the end of 2019.

BTG continues to support physicians exploring new uses of its products through its Investigator Initiated Studies programme, of which there are now more than 40 focused on oncology. Other studies by BTG and major pharmaceutical companies are continuing to investigate the potential combination use of BTG's oncology devices with immuno-oncology drugs, with initial data expected from late 2019.

As part of a new focus on advancing the treatment of lung cancer, BTG has invested $20m in Veran Medical Technologies, Inc. and has an option to acquire the company, exercisable from January 2020. Veran is a fast-growing, revenue-generating company that makes electromagnetic navigation systems to aid the early diagnosis and treatment of lung cancer.

A research collaboration with Edinburgh University is investigating the potential to combine characterisation and treatment of lung nodules in a single flexible catheter. BTG is also in discussion with Auris Health, Inc. to further develop the flexible cryoablation catheter in combination with robotic bronchoscopy.

Through these internal development programmes and external collaborations, BTG has a potential opportunity to develop valuable end-to-end solutions for the detection, diagnosis and treatment of lung cancer.

Vascular

BTG's Vascular portfolio comprises the EKOS® blood clot treatment devices, arterial blockage crossing devices, the varicose vein treatment Varithena® and the recently launched Sentry inferior vena cava (IVC) filter.

Good growth in the use of EKOS® in the US continues in parallel with its increasing role as a treatment for pulmonary embolism (PE). Data from the positive OPTALYSE PE study were recently presented at the Society for Cardiovascular Angiography meeting and published in JACC: Cardiovascular Interventions. BTG has also formed a strategic partnership with the PERT Consortium to advance the science of PE treatment and establish new benchmarks for care of patients with PE.

Expansion continues in Europe, where the new Control Unit 4.0 is being launched. This control unit simplifies the treatment of bilateral PE, allowing physicians to monitor and manage two EKOS® devices at a time.

In September 2018 BTG acquired Novate Medical Ltd, which has developed the Sentry device. Recently granted 510k clearance by the US FDA, Sentry is the first bioconvertible IVC filter. It is used in patients who are at high risk of experiencing a recurrent PE and has been shown in recently published two-year clinical data to overcome complications associated with other IVC filters such as device migration, tilt, fracture, perforation or embolisation. US launch activities are underway.

The introduction of dedicated CPT codes for Varithena® in the US at the start of 2018 has automated and improved the reimbursement process and led to increasing adoption by vein clinicians. There has been continued good progress following its re-launch with the new codes. BTG now expects that Varithena® will become profitable in the 2019/20 financial year and that peak sales of this product are likely to be in the high tens of millions of dollars.

PneumRx

Following receipt of a non-approvable letter from the US FDA for the PneumRx® Coils emphysema technology, BTG continues to review options including sale or partnering. Costs have been reduced and are focused on supporting the ELEVATE study in Europe, where a decision on reimbursement is pending in Germany. No material revenues are expected from this product for the foreseeable future and its carrying value has been fully impaired.

BTG's Pharmaceuticals portfolio consists of CroFab®, the snake bite antivenin, DigiFab®, the digoxin overdose antidote and Voraxaze®, the treatment for high-dose methotrexate toxicity.

BTG has recently announced the extension of CroFab®'s shelf life from three to five years, a replacement policy for expired stock and other improvements to the product and label. A recent publication[1] highlighted the strong safety profile of CroFab®. This complements previously published data[2], which together demonstrate the very low real-world incidence (

DigiFab® and Voraxaze® have benefitted from strong ex-US demand. Voraxaze® has now exceeded original peak sales expectations and continues to grow as awareness increases of the benefits of identifying and treating high-dose methotrexate toxicity. BTG is exploring a potential new indication of the planned use of Voraxaze® alongside high-dose methotrexate and has recently been granted an Investigational New Drug application by the US FDA. BTG is pleased to be supporting AMAG Pharmaceuticals, Inc as it pursues the potential use of digoxin immune fab for the treatment of severe preeclampsia.

In October 2018 a District Court ruling found the US Zytiga® combination use patent to be invalid. Johnson & Johnson is appealing this decision and is seeking an injunction to prevent at-risk generic launch in the US pending the outcome of the appeal. Data exclusivity on Zytiga® continues in Europe through September 2022.

BTG licensed exclusive worldwide rights to Carrick Therapeutics to develop and commercialise BTG945, now CT900, an investigational targeted ovarian cancer drug, in return for an upfront payment and potential future milestones and royalties contingent upon development and commercial success.

SUMMARY AND OUTLOOK

BTG has delivered strong H1 results with 10% CER product sales growth and a 35% CER increase in adjusted operating profit. There has been a good start to H2, and there is good momentum across the business.

At the start of the current financial year BTG faced a number of near-term uncertainties in its business which have now largely been resolved. Good progress with Varithena® since its US re-launch with dedicated reimbursement codes means that this product is now expected to be profitable next year and to be a growth driver in the Vascular portfolio. The PneumRx® Coils did not gain PMA approval in the US and costs have been reduced while options for the technology are explored. The timing of generic competition for Zytiga® in the US is in line with BTG's guidance. Further improvements to CroFab® mean it is well-positioned to maintain its market leadership following the introduction of a different antivenin in the US.

The Board remains ambitious and intends to continue to invest behind its high-growth Interventional Medicine business and highly cash-generative Pharmaceuticals business, with the aim of delivering significant value for all stakeholders.

The Group's overall outlook for the full year to 31 March 2019 is as follows:

1 The average USD/GBP rate for the year ended 31 March 2018 was $1.33

2 Adjusted SG&A and R&D and Adjusted effective tax rate are not prepared in accordance with IFRS. Further detail on the Group's adjusted financial measures is included on pages 24 to 27.

Change of reporting currency to USD

As previously announced, with effect from 1 April 2018 BTG changed its reporting currency to USD. This change is reflective of the majority of the Group's revenues and a significant proportion of its operating costs being denominated in USD.

FINANCIAL REVIEW

This review includes financial metrics on both an IFRS and adjusted basis. Information on the Group's adjusted financial information is set out on pages 24 to 27.

Revenue

Product Sales were $340.2m (H1 2017/18: $310.4m), up 10% at CER, driven by a 14% increase in Interventional Oncology and Interventional Vascular sales. Pharmaceuticals sales grew 7% at CER.

Total revenues were $495.7m (H1 2017/18: $442.2m), up 12% at CER.

*Interventional Vascular in both H1 2018/19 and H1 2017/18 includes Varithena®.

Product business

Interventional Medicine

Interventional Medicine revenues increased to $172.3m (H1 2017/18: $154.0m), up 12% at CER.

Interventional Oncology revenues were up 12% at CER to $110.9m (H1 2017/18: $99.3m) driven by very strong TheraSphere® sales and a continued increase in the number of cryoablation procedures.

Interventional Vascular revenues were $59.2m (H1 2017/18: $49.5m), up 20% at CER. Interventional Vascular now includes Varithena® revenues. Progress with Varithena® has been positive since dedicated reimbursement codes became effective in the US in January 2018. The EKOS® blood clot treatment device has delivered good growth in a US market where the growth of interventional clot treatments is currently in single digits.

Revenues of the PneumRx® Coil treatment for severe emphysema were $2.2m (H1 2017/18: $5.2m), down 58% at CER as patients were prioritised onto the ELEVATE trial.

Pharmaceuticals

Pharmaceuticals revenues were $167.9m (H1 2017/18: $156.4m), up 7% at CER.

CroFab®, the snakebite antivenin, delivered good growth. CroFab® sales were up 4% at CER against a high comparative period. The digoxin toxicity treatment DigiFab® delivered very good first half growth, up 14% at CER driven by the timing of expiries and single digit price increases. Revenues of Voraxaze®, used for treating high-dose methotrexate toxicity, were 29% higher at CER driven by strong volume growth, especially in the US, and the benefit of a single digit price increase.

Licensing

Licensing revenues were $155.5m (H1 2017/18: $131.8m), up 18% at CER. Royalties from Zytiga® (abiraterone acetate) were $137.5m (H1 2017/18: $92.2m), up 49% at CER. Zytiga® delivered a very strong performance driven by continued market growth, primarily from the expanded indication in metastatic high-risk castration-sensitive prostate cancer based on the LATITUDE clinical trial.

Revenue relating to the out-licence of BTG945 to Carrick Therapeutics Limited is included in "Other". Additional income may be realised in future periods contingent upon development and commercial success.

Gross profit

Adjusted gross profit was $348.8m (H1 2017/18: $307.1m), at an adjusted gross margin of 70%(H1 2017/18: 69%). The Product business delivered strong gross margins of 79% (H1 2017/18: 79%), and the Licensing business delivered gross margins of 52% (H1 2017/18: 46%).

On an IFRS basis, gross profit was $348.7m (H1 2017/18: $307.0m), at a gross margin of 70% (H1 2017/18: 69%).

SG&A

Adjusted SG&A was flat at CER, as targeted commercial investment in Interventional Medicine was offset by continued cost discipline. Adjusted SG&A was $122.1m (H1 2017/18: $120.7m), up 1% at actual exchange rates.

On an IFRS basis SG&A was $140.3m (H1 2017/18: $199.2m). In H1 2018/19 IFRS SG&A includes an intangible asset impairment charge of $20.5m relating to PneumRx and a net credit of $2.3m following final settlement of the Wellstat litigation. In H1 2017/18 IFRS SG&A included a charge of $71.3m in respect of the Wellstat litigation and intangible asset impairment charges of $7.2m relating to the Vistogard® intangible asset.

Research and development

Adjusted R&D expenditure was down by 4% at CER, as higher investment in ablation programs was more than offset by lower overheads and the timing of spend on other programmes. Adjusted R&D was $57.9m (H1 2017/18: $59.7m), down 3% at actual exchange rates.

On an IFRS basis R&D was $87.1m (H1 2017/18: $59.7m), including intangible asset impairment charges of $28.0m in relation to PneumRx.

Other operating income

Other operating income was $9.7m (H1 2017/18: $1.4m), reflecting foreign exchange gains.

Acquisition and reorganisation costs

Acquisition and reorganisation costs were $7.5m (H1 2017/18: $nil) comprising costs related to the acquisitions of Roxwood Medical and Novate Medical and reorganisation costs related to the restructuring of PneumRx.

Operating profit

Adjusted operating profit was up 35% at CER to $178.5m (H1 2017/18: $128.1m), from higher revenues and operating cost leverage. Adjusted operating profit was up 39% at actual exchange rates.

Adjusted operating margin increased by 7 percentage points to 36% (H1 2017/18: 29%).

On an IFRS basis, operating profit was $97.6m (H1 2017/18: $21.8m) and operating margin was 20% (H1 2017/18: 5%).

Financial expense/income

Adjusted net financial expense was $10.1m (H1 2017/18: net financial income of $7.6m), primarily related to losses of $9.9m on foreign exchange forward contracts (H1 2017/18: gains of $8.6m). These losses have offset the foreign exchange translation benefits recorded within other operating income.

IFRS net financial expense was $10.1m (H1 2017/18: net financial income of $37.9m). IFRS net financial income in H1 2017/18 included a credit of $35.3m relating a change in the fair value of PneumRx contingent consideration liabilities.

Taxation

The adjusted effective tax rate was 18% (H1 2017/18: 23%). The adjusted effective tax rate is below the standard rate of UK corporate tax due to the patent box deduction on royalty income and is lower than in the prior year due to the reduced US federal tax rate implemented as part of US tax reform which took effect from 1 January 2018.

The IFRS effective tax rate of 12% is lower than the adjusted effective tax rate reflecting the inclusion of deferred tax credits arising from impairment and amortisation of acquired intangible assets.

Earnings per share

Adjusted basic EPS was 35.9c (H1 2017/18: 27.3c), up 32% due to higher adjusted profit after tax, before non-controlling interests, of $139.0m (H1 2017/18: $105.4m). Adjusted profit after tax was higher in H1 2018/19 due to growth in adjusted operating profit and a lower effective tax rate, partly offset by foreign exchange forward contract losses in H1 2018/19 compared to gains in H1 2017/18.

IFRS basic EPS was 20.0c (H1 2017/18: 17.8c), due to higher IFRS profit after tax, before non-controlling interests, of $77.4m (H1 2017/18: $68.6m). Higher IFRS operating profit was offset by net financial expense of $10.1m, principally foreign exchange forward contract losses, compared to net financial income of $37.9m in the prior period.

Balance sheet

Non-current assets

Non-current assets decreased to $1,024.6m (31 March 2018: $1,059.1m).

Intangible assets decreased to $597.3m (31 March 2018: $650.6m) due to intangible assets impairment charges relating to PneumRx and recurring amortisation, offset by intangible assets acquired with Novate.

Other non-current assets increased to $25.2m (31 March 2018: $2.4m) primarily due to an investment in a convertible loan note and option to acquire Veran Medical Technologies, Inc.

Current assets

Current assets increased to $593.2m (31 March 2018: $572.5m).

Cash and cash equivalents were slightly lower at $285.2m (31 March 2018: $294.7m) as payments relating to the settlement of the Wellstat litigation, acquisition of Novate Medical Limited and investment in Veran Medical Technologies, Inc. more than offset continued strong cash generation.

Non-current liabilities

Non-current liabilities decreased to $80.2m (31 March 2018: $83.9m) principally due to reduction of deferred tax liabilities associated with intangible assets.

Current liabilities

Current liabilities decreased to $203.6m (31 March 2018: $266.7m), primarily from lower provisions of $4.0m (31 March 2018: $76.9m) following settlement of the Wellstat litigation.

Cash flow

Free cash flow was $37.2m (H1 2017/18: $96.0m), down 61% due to the non-recurring $73.3m payment to settle the Wellstat litigation. Excluding this one-time payment, free cash flow was $110.5m, up 15% as the business continued to be highly cash generative.

On an IFRS basis, cash flow from operating activities was down 52% to $48.7m (H1 2017/18: $100.6m).

As described above, closing cash and cash equivalents were $285.2m at 30 September 2018 (31 March 2018: $294.7m).

BTG has a £150m multi-currency RCF, with an option to increase the RCF by a further £150m. The RCF has a three-year term which expires in November 2020, with an option to extend the term of the RCF for up to an additional two years. The RCF currently remains undrawn.

All activities arose from continuing operations.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. Basis of preparation

Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. They do not contain all of the information which International Financial Reporting Standards ("IFRS") would require for a complete set of annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 March 2018.

These condensed unaudited consolidated interim financial statements were approved by the Board of Directors on 12 November 2018.

Comparative financial information

The comparative figures for the financial year ended 31 March 2018 do not constitute the Group's statutory accounts for that financial year. Statutory accounts for the year ended 31 March 2018, prepared in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRSs") and as issued by the International Accounting Standards Board (IASB), have been reported on by the Group's previous auditor and delivered to the Registrar of Companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

On 1 April 2018 BTG changed its reporting currency from pound sterling to the US dollar ("USD") and comparative financial information for all periods has been re-presented in USD in accordance with IAS 21 'The Effects of Changes in Foreign Exchange Rates'.

Accounting policies

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements for the year ended 31 March 2018, except for the implementation of IFRS 15 'Revenue from contracts with customers' and IFRS 9 'Financial instruments' from 1 April 2018. These new Standards have not had a material impact on the reported results of the Group.

IFRS 15 'Revenue from contracts with customers' has been adopted by applying the modified retrospective approach, which has resulted in a $0.4m decrease in equity at 1 April 2018. As the modified retrospective approach has been applied, prior year results have not been restated. IFRS 15 provides a single, principles-based approach to the recognition of revenue from all contracts with customers. It focuses on the identification of performance obligations in a contract and requires revenue to be recognised when or as those performance obligations are satisfied.

IFRS 9 'Financial Instruments' has been adopted retrospectively. However, as a result of certain permitted exceptions, prior year results have not been restated. An adjustment has been recorded to increase equity at 1 April 2018 by $2.3m, reflecting the application of a revised valuation basis for unlisted equity investments.

IFRS 16 'Leases' is required to be implemented by the Group from 1 April 2019. The new standard will replace IAS 17 'Leases' and will require lease liabilities and "right of use" assets to be recognised on the balance sheet for almost all leases. The adoption of IFRS 16 is expected to result in a material increase in both assets and liabilities on the balance sheet. The costs of operating leases currently included within operating expenses will be split between depreciation expense and finance expense. The Group is assessing the potential impact of the new standard.

In October 2018 the IASB issued 'Definition of a Business (Amendments to IFRS 3)'. Amongst other things the amendments clarify and narrow the definition of a business and introduces an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business. The amendments will be effective for business combinations made by the Group on or after 1 April 2020, with early adoption permitted. The Group is assessing the potential impact of the new standard.

Going concern and liquidity

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the next twelve months. Accordingly, they continue to adopt the going concern basis in preparing these Interim Financial Statements.

This conclusion has been reached having considered the effect of liquidity risk on the Group's ability to operate effectively. Currently, liquidity risk is not considered a significant business risk to the Group given its level of net cash and cash equivalents and cash flow projections. The Group does not currently require significant levels of debt financing to operate its business. The key liquidity risks faced by the Group are considered to be the failure of banks where funds are deposited and the failure of key licensees, distribution partners, wholesalers or insurers.

In addition to the liquidity risk considered above, the Directors have also considered the following factors when reaching the conclusion to continue to adopt the going concern basis:

· A significant proportion of the Group's sales are from products which are life-saving in nature, providing some protection against an uncertain economic outlook;

· The Group's principal licensee is a global industry leader in its respective field; and

· BTG has a £150m multi-currency RCF, with an option to increase the RCF by a further £150m. The RCF expires in November 2020, subject to a 24-month extension option. The RCF currently remains undrawn.

Seasonality of the business

Revenues from the Group's marketed products are dependent on both the timing of shipments of product to the Group's distributors and the underlying demand for the products. CroFab®, in particular, demonstrates seasonality since the main snakebite season in the US, when the product is in highest demand, runs from March to October.

2. Operating segments

Operating segments are reported based on the financial information provided to the Group's chief operating decision-making body, being the Leadership Team.

Financial information reviewed by the Leadership Team has transitioned from a three business approach (IM, Pharma and Licensing) to a two business approach (Product business and Licensing). As a result of these changes, the Group has re-assessed its operating segments in accordance with IFRS 8 and concluded that there are two operating segments, being a Product segment and a Licensing segment. Prior period segmental analysis has been restated accordingly.

In assessing performance and making resource allocation decisions, the Leadership Team reviews financial information for the Product and Licensing operating segments on an adjusted earnings basis. The Licensing operating segment includes only directly attributable revenue and cost of sales relating to out-licensed intellectual property rights. Unallocated/other includes certain items which reconcile from Product and Licensing business operating segments to the Group's IFRS income statement.

1 The Group does not allocate assets to operating segments, with the exception of goodwill (see note 6).

1 Comparative information has been restated to conform to the current period segmental analysis.

2 The Group does not allocate assets to operating segments, with the exception of goodwill (see note 6).

Revenue analysis

An analysis of revenue, based on the geographical location of customers and the source of revenue is provided below: 

Major customers

The Group's marketed products are sold both directly and through distribution agreements in the USA, Europe, Asia Pacific and other regions. No individual customer generated income in excess of 10% of Group revenue in either period.

Products that utilise the Group's Intellectual Property Rights are sold by licensees. Royalty income is derived from over 20 licences. One licence individually generated royalty income in excess of 10% of Group revenue of $137.5m (H1 17/18: one license individually generated $92.2m).

3. Financial income and expense

4. Tax

Tax for each six-month period has been provided on the basis of the anticipated tax charge for the full year. The current tax charge of $25.1m (H1 2017/18: $6.5m) principally relates to UK and US taxes. Last year's current tax charge was reduced by expected tax relief on a litigation provision.

The deferred tax credit of $14.3m (H1 17/18: $14.9m credit) reflects the release of deferred tax liabilities recognised on acquired intangible assets as these assets are amortised or impaired ($18.1m), recognition of deferred tax assets ($1.9m), use of recognised tax losses ($5.0m) and other timing differences ($0.7m).

5. Earnings per share

The calculation of basic and diluted earnings per share is determined as follows:

For the calculation of adjusted basic and diluted earnings per share see page 25 and 26.

6. Goodwill and other intangible assets

a) Goodwill

Goodwill at 30 September 2018 is $311.0m (31 March 2018: $313.1m; 30 September 2017: $289.8m). The movement in the current period principally relates to foreign exchange movements and goodwill arising on the acquisition of Novate Medical.

The carrying value of goodwill has been allocated to the Product segment $284.9m (31 March 2018: $284.9m; 30 September 2017: $262.8m), and Licensing segment $26.1m (31 March 2018: $28.2m; 30 September 2017: $27.0m).

b) Other intangible assets

The net book value of other intangible assets at 30 September 2018 is $597.3m (31 March 2018: $650.6m; 30 September 2017: $823.5m).

The decrease in the carrying value of intangible assets in the current period relates principally to the impairment of the remaining carrying value of the PneumRx intangible assets, foreign exchange retranslation of assets denominated in foreign currencies, and amortisation of finite-lived intangible assets. These decreases have been partially offset by the recognition of intangible assets acquired with Novate Medical Ltd.

On 9 August 2018 BTG received confirmation from the FDA that the Premarket Approval application for PneumRx Coils for the treatment of severe emphysema was not approvable. As a result the recoverable amount of the related PneumRx intangible assets was reassessed and impairment charges totaling $48.5m were recorded to write down these assets to their revised fair value ($nil). The impairment charge relates to Developed technology ($20.5m) and IPR&D intangible assets ($28.0m), and has been recorded within SG&A and R&D expenses respectively.

In the six months to 30 September 2017 an impairment charge of $7.2m was recorded within SG&A reflecting the full impairment of the Vistogard intangible asset.

7. Defined benefit pension fund

The Group has recognised a net defined benefit asset of $30.7m on the Group's balance sheet in accordance with IAS19 - Employee benefits in relation to the BTG Pension Fund (31 March 2018: asset of $30.8m; 30 September 2017: asset of $24.9m).

The $0.1m decrease since 31 March 2018 reflects an underlying increase in the net defined benefit asset due to the deficit repair payments and an increase in the discount rate used to value the pension obligations, which was more than offset by the adverse effect of foreign exchange fluctuations.

In November 2016, the Group finalised the triennial actuarial valuation of the BTG Pension Fund as at 31 March 2016. The valuation reflected a deficit of $6m and the Group committed to deficit repair payments of $6.8m in aggregate over the period to 31 October 2018. In the period to 30 September 2018, deficit repair payments of $1.8m (H1 17/18: $1.9m) have been made. The final deficit repair payment was made in October 2018.

On 26 October 2018, the UK High Court handed down a judgment involving the Lloyds Banking Group plc's defined benefit pension schemes. The High Court ruled that these schemes should be amended to equalise pension benefits for men and women in relation to guaranteed minimum pension benefits. BTG is currently assessing the extent to which this judgment crystallises additional liabilities for the BTG Pension Fund and does not currently expect any impact to be material.

8. Business Combinations

Novate Medical Limited ("Novate") acquisition

On 7 September 2018, BTG acquired all the outstanding equity in Novate for up-front cash of $19.6m and contingent consideration payable of up to $130m, if certain commercial and sales-related milestones are achieved.

Novate is an Irish medical device company focused on the prevention of pulmonary embolism in patients at high risk of thromboembolic events. Novate has developed Sentry, the first bioconvertible inferior vena cava ("IVC") filter, which has recently been granted 510(k) regulatory clearance in the US. BTG will sell the device through its existing US Vascular sales force and will launch the product during H2 2018/19.

The preliminary fair value of consideration payable to Novate equity holders totaled $11.7m, comprising up-front cash consideration of $1.7m and the fair value of contingent consideration of $10.0m. The remaining up-front cash consideration has been used to settle debt of $17.9m and other obligations assumed on acquisition.

Novate's results of operations have been consolidated from 7 September 2018, and the preliminary fair values of acquired assets and liabilities have been determined as of that date. The final determination of these fair values will be completed as soon as possible but no later than one year from the acquisition date.

Intangible assets of $28.2m relate to the developed IVC technology. An estimated useful economic life of 13 years has been assigned to this developed technology, and associated amortisation expense will be recorded on a straight line basis. Goodwill arising of $3.8m, which is not deductible for tax purposes, has been assigned to the Product segment. Goodwill represents the value of Novate's assembled workforce, together with the recognition for accounting purposes of a net deferred tax liability principally relating to the recognised developed technology.

During the period ended 30 September 2018, Novate contributed an operating loss (including intangible asset amortisation of $0.2m) of $0.4m in the period since acquisition. If the acquisition had taken place on 1 April 2018, the Group's profit before tax would have been $85.5m.

9. Financial instruments and fair value measurements

Recurring fair value measurements

Financial instruments are classified into Level 1, Level 2 and Level 3 financial instruments. The different levels are defined as follows:

Level 1 - quoted prices in active markets for identical assets and liabilities

Level 2 - observable inputs other than quoted prices in active markets for identical assets and liabilities

Level 3 - unobservable inputs

The Group's Level 1 and Level 2 financial instruments comprise cash and deposits, foreign exchange forward contracts, and various items such as trade receivables and payables which arise directly from operations.

The carrying amounts of the Group's Level 1 and Level 2 financial instruments are deemed to be a reasonable approximation of their fair values. There have been no transfers between the levels of financial instruments in the period.

The Group's Level 3 financial instruments predominantly represent:

· Contingent consideration liabilities in respect of prior business combinations, payable contingent upon the achievement of development or commercial milestones;

· Convertible loan notes receivable and purchased call options arising from the strategic investment in Veran Medical Technologies, Inc.

The movement in the Level 3 financial liabilities is shown below:

In the period to 30 September 2018, BTG recognised a contingent consideration liability of $10.0m as a result of the acquisition of Novate Medical (see note 8).

In the period to 30 September 2017, BTG recognised a net fair value credit of $30.3m, comprising a fair value credit of $35.3m reflecting a full release of the PneumRx US regulatory approval milestone and a fair value charge of $5.0m related to regulatory milestones arising from the Galil acquisition.

The movement in the Level 3 financial assets is shown below:

On 12 September 2018 BTG paid $20.0m cash in exchange for a convertible loan note and a call option over 100% of the outstanding equity of Veran Medical Technologies, Inc., a US medical device company focused on innovative technologies for the early diagnosis of cancers, including the 510(k) approved SPiN and SPiN IR systems.

10. Related parties

Giles Kerr resigned as non-executive director of BTG plc effective 18 July 2018. Whilst a director at BTG during the period to 18 July 2018, Giles was also Director of Finance for Oxford University and a director of Oxford University Innovation Limited, a wholly owned subsidiary of Oxford University. Wholly owned subsidiaries of BTG plc entered into revenue sharing agreements with these organisations prior to Giles Kerr joining the BTG Board. The BTG Group has licensed the intellectual property covered by these agreements to third party companies that are developing and/or selling the licensed products. Under these license agreements, BTG is entitled to receive milestone payments and/or royalty on sales of the products made by the third party licensees. Payments by BTG to Oxford University and Oxford University Innovation Limited under the relevant license agreements were $8,000 during the period to 18 July 2018 (H1 17/18: $13,000) and there were no amounts outstanding and payable at 30 September 2018 (30 September 2017: $nil). Following the resignation of Giles Kerr as non-executive director of BTG plc effective 18 July 2018, there are no longer any related party transactions requiring disclosure.

11. Provisions

Wellstat Litigation

On 15 June 2018 BTG made a cash payment of $73.3m in final settlement of the previously announced litigation with Wellstat Therapeutics Corporation, for which a provision of $75.6m was established in the year to 31 March 2018 concerning the commercialisation of Vistogard®. An amount of $2.3m, relating to amounts previously provided in excess of the final settlement, was released to the income statement in the period to 30 September 2018.

PneumRx

Following the US Food & Drug Administration's decision in August 2018 not to approve the Premarket Approval application for the PneumRx Coils, BTG continues to review options for PneumRx, which include partnering with or sale to a third party.

In the current period, restructuring charges in relation to the PneumRx business totaling $6.5m have been incurred. The restructuring charges principally comprise employee severance and onerous lease costs. The restructuring is expected to be substantially complete by 31 March 2019.

The movement of the PneumRx restructuring provision is shown below:

12. Principal risks and uncertainties

BTG's performance and prospects may be affected by risks and uncertainties relating to our business and operating environment. Our internal controls include a risk management process to identify key risks and, where possible, manage the risks through systems and processes and by implementing specific mitigation strategies. These include but are not limited to: market access, obtaining/maintaining product regulatory approvals, IP/legal challenges, competition, healthcare law compliance, merger and acquisition activity and supply chain/continuity of supply.

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

The directors confirm that this set of interim condensed financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

· An indication of important events that have occurred during the period and their impact on the condensed statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

· Related party transactions that have taken place in the first six months of the current fiscal year and that have materially affected the financial position or performance of the entity during the period; and any changes in related party transactions described in the last annual report that could do so.

The directors of BTG plc were listed in the BTG plc Annual Report for the year ended 31 March 2018. With the exception of the resignation of Giles Kerr effective 18 July 2018, there have been no other changes to the Directors in the period. 

The Board

The Board of Directors that served during the six-month period to 30 September 2018 and their respective responsibilities can be found on the company website, www.btgplc.com.

By order of the Board

Dr Louise Makin Chief Executive Officer

Duncan Kennedy Chief Financial Officer

12 November 2018

Independent Review Report to BTG plc

We have been engaged by the company to review the condensed set of financial statements in the half year financial report for the six months ended 30 September 2018 which comprises the income statement, the balance sheet, the statement of changes in equity, the cash flow statement and related notes 1 to 12. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review 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, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

1 New Street Square

London

EC4A 3BZ

12 November 2018

Shareholder information

Financial calendar

Announcement of annual results for year ending 31 March 2019 May 2019

Link share dealing services

A quick and easy share dealing service is available from Link Asset Services, to either buy or sell more shares. An online and telephone dealing facility is available providing shareholders with an easy-to-access and simple-to-use service. For further information on this service, or to buy and sell shares, please contact: www.linksharedeal.com (online dealing) or +44 (0) 371 664 0445 (telephone dealing) - calls are charged at the standard geographic rate and will vary by provider, lines are open 8am - 4.30pm Monday - Friday. Full terms, conditions and risks apply and are available on request or by visiting www.linksharedeal.com.

This is not a recommendation to buy or sell shares. The price of shares can go down as well as up, and you are not guaranteed to get back the amount that you originally invested.

Shareholder change of address

The Company offers the facility, in conjunction with Link Asset Services, our Registrars, to conduct a number of routine matters via the web including the ability to notify any change of address. If you are a shareholder and are either unable or would prefer not to use this facility, please do not send the notification to the Company's registered office. Please write direct to Link Asset Services, at their address shown below, where the register is held.

Relating to beneficial owners of shares with 'information rights'

Please note that beneficial owners of shares who have been nominated by the registered holder of those shares to receive information rights under section 146 of the Companies Act 2006 are required to direct all communications to the registered holder of their shares rather than to the Company's registrar, Link Asset Services, or to the Company directly.

Addresses for correspondence

Cautionary statement regarding forward-looking statements

This document contains certain projections and other forward-looking statements with respect to the financial condition, results of operations, businesses and prospects of BTG plc ("BTG"). These statements are based on current expectations and involve risk and uncertainty because they relate to events and depend upon circumstances that may or may not occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. Any of the assumptions underlying these forward-looking statements could prove inaccurate or incorrect and therefore any results contemplated in the forward-looking statements may not actually be achieved. Investors or other recipients are cautioned not to place undue reliance on any forward-looking statements contained herein. BTG undertakes no obligation to update or revise (publicly or otherwise) any forward-looking statement, whether as a result of new information, future events or other circumstances.

© 2018 BTG International Ltd. All rights reserved. "Imagine where we can go.",BTG and the BTG roundel logo are trademarks and/or registered trademarks of BTG International Ltd. Bead Block, DC Bead, DC BeadM1, DC Bead LUMI, LC Bead, LC BeadM1, LC Bead LUMI, LUMI, Simplicit90Y, IO Loop and IO Ablation are trademarks and/or registered trademarks of Biocompatibles UK Ltd. EKOS is a trademark and/or registered trademark of EKOS Corporation. GALIL, ICEROD, iTHAW, ICESPHERE, ICESEED, IceEDGE, VISUAL-ICE, ICEORCE, ICEPEARL, ICEFX are trademarks and/or registered trademarks of Galil Medical Ltd. PneumRx is a trademark and/or registered trademark of PneumRx, Inc. TheraSphere is a trademark and/or registered trademark of Theragenics Corporation used under license by Biocompatibles UK Ltd. Varithena is a trademark and/or registered trademark of Provensis Ltd. CroFab and DigiFab are trademarks and/or registered trademarks of BTG International, Inc. Voraxaze is a trademark and/or registered trademark of Protherics Medicines Development Ltd. SnakeBite911 and the SnakeBite911 logo are trademarks and/or registered trademarks of Protherics UK Ltd. MicroCross, CenterCross and MultiCross are trademarks and/or registered trademarks of Roxwood Medical, Inc. BTG Sentry is a trademark and/or registered trademark of Novate Medical Limited. Lemtrada is a trademark and/or registered trademark of Genzyme Corporation. Zytiga is a trademark and/or registered trademark of Johnson & Johnson. Biocompatibles UK Ltd, EKOS Corporation, Galil Medical Ltd, Novate Medical Limited, PneumRx, Inc., Protherics Medicines Development Ltd, Protherics UK Ltd, Provensis Ltd and Roxwood Medical Inc are all BTG International group companies.

Appendices - reconciliation of IFRS to adjusted financial information

Information on adjusted financial information

The financial review includes financial information prepared in accordance with International Financial Reporting Standards and the Group's accounting policies, as well as financial information presented on an adjusted basis.

Financial information on an adjusted basis excludes certain cash and non-cash items which management believe are not reflective of the underlying financial performance of the business and is consistent with how management reviews the business for the purpose of making operating decisions.

Metrics presented on an adjusted basis include Constant Exchange Rate (CER) growth, Adjusted Gross Profit, Adjusted SG&A, Adjusted R&D, Adjusted Operating Profit, Adjusted Net Financial Income / Expense, Adjusted Effective Tax Rate, Adjusted Basic EPS and Free Cash Flow. A reconciliation between IFRS and adjusted financial information is included on pages 25 to 27.

These metrics are further discussed below:

· CER growth: CER growth is calculated by restating 2018/19 performance using 2017/18 exchange rates for the relevant period. CER growth allows management to focus on underlying performance without the impact of foreign exchange, which it cannot control.

· Adjusted Operating Profit: Adjusted Operating Profit reflects the IFRS operating profit of the Group excluding the impact of certain adjustments, which have been separately outlined below. Adjusted Operating Profit allows management to assess operational performance without the impact of certain items which are not reflective of underlying financial performance.

· Adjusted Basic EPS: Adjusted Basic EPS reflects Basic EPS excluding the after tax impact of certain adjustments, which have been outlined below. Adjusted Basic EPS allows management to assess EPS without the impact of certain items which are not reflective of underlying financial performance.

· Free Cash Flow: Reflects the cash generated from operating activities after recurring capital expenditure, being a measure of cash flow available for discretionary investing or financing activities. The reconciliation of Free Cash Flow to Net Cash Flows from operating activities is shown on page 27.

Adjusted Gross Profit, Adjusted SG&A, Adjusted R&D, Adjusted Finance Income / Expense and Adjusted Effective Tax Rate are stated after excluding the effect of those items outlined below.

Management apply a consistent policy in determining its adjusted financial measures. In determining this policy, outlined below, management assess the nature and materiality of individual or groups of items, and have deemed it appropriate to adjust for those items including their tax effect, which (i) occur outside the normal course of business and (ii) relate to corporate acquisitions. These adjustments allow better comparability with historic performance and identify year-on-year trends in the underlying performance of the business.

Items excluded from adjusted financial measures in 2017/18, 2018/19 and from our outlook for 2018/19 are:

(a) Acquisition related adjustments

· The release of the fair value uplift of acquired inventory or PP&E

· Amortisation of acquired intangible assets and impairment charges relating to acquired or in-licensed intangible assets or goodwill.

· Fair value adjustments relating to contingent consideration liabilities

· Fair value adjustments relating to financial assets and call options for strategic investments

· Transaction costs incurred in relation to corporate acquisitions

(b) Other adjustments

· Net costs relating to the settlement of litigation, disputes and government investigations

· Reorganisation costs, including redundancy programs, property costs, and asset impairments arising from significant restructuring activities

· The impact of US tax reform on current and deferred tax in 2017/18

Reconciliation between IFRS and Adjusted financial information - Consolidated Income Statement

For the period ended 30 September 2018

1. The release of the fair value uplift relating to PP&E acquired with Galil Medical in June 2016 of $0.1m.

2. Amortisation charges relating to intangible assets acquired through corporate acquisitions of $25.9m. Intangible asset impairment charges of $49.7m, of which $48.5m relates to PneumRx intangible assets.

3. Acquisition costs of $1.0m are directly attributable costs related to the acquisitions of Roxwood Medical in October 2017 and Novate Medical in September 2018. Reorganisation costs of $6.5m relate to the restructuring of PneumRx.

4. The $2.3m credit within Litigation and other reflects amounts provided in excess of cash ultimately paid to settle the previously announced litigation with Wellstat Therapeutics Corporation concerning the commercialisation of Vistogard®.

For the period ended 30 September 2017

1. The release of the fair value uplift relating to PP&E acquired with Galil Medical in June 2016 of $0.1m.

2. Amortisation charges relating to intangible assets acquired through corporate acquisitions of $27.7m and impairment charges relating the Vistogard® intangible asset of $7.2m.

3. Fair value adjustments to contingent consideration liabilities comprise a credit of $35.3m relating to the PneumRx acquisition and a charge of $5.0m relating to the Galil Medical acquisition.

4. Litigation costs reflect a provision of $71.3m, based on the Final Order issued by the Court of Chancery of Delaware ruling against BTG in respect of the litigation with Wellstat Therapeutics Corporation concerning the commercialisation of Vistogard®.

Reconciliation between IFRS and Adjusted financial information - Free Cash Flow

For the period ended 30 September 2018

For the period ended 30 September 2017