24 Apr 2017 11:43
Vectura Group plc
Report and Accounts for the nine-month period ended 31 December 2016 and Annual General Meeting 2017
Vectura Group plc (LSE: VEC) ("Vectura", "the Company") announces that today it has released the following documents:
· Report and Accounts for the nine-month period ended 31 December 2016
· Notice of Annual General Meeting ("AGM") 2017
· Form of Proxy for the AGM
In accordance with the Listing Rule 9.6.1R, these documents have been submitted to National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/nsm.
The AGM is scheduled to be held at 10.30 on Thursday 25 May 2017 at the offices of Clifford Chance LLP, 10 Upper Bank Street, London E14 5JJ.
In compliance with DTR 6.3.5, the following information is extracted from the Report and Accounts for the nine-month period ended 31 December 2016 and should be read in conjunction with the Company's Final Results announcement issued on 21 March 2017. The documents are available at www.vectura.com and together constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. Page and note references in the text refer to page numbers and notes contained in the Report and Accounts for the nine-month period ended 31 December 2016. This announcement is not a substitute for reading the Report and Accounts for the nine-month period ended 31 December 2016 in full.
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Enquiries
Vectura Group plc | +44 (0)1249 667700 |
Andrew Derodra - Chief Financial Officer Fleur Wood - Director Communications Elizabeth Knowles - Director Investor Relations and Analysis | |
John Murphy - Company Secretary
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Consilium Strategic Communications | +44 (0)20 3709 5700 |
Mary-Jane Elliot / Sue Stuart / Jessica Hodgson |
About Vectura
Vectura, a FTSE250 company listed on the London Stock Exchange (LSE: VEC), is an industry-leading device and formulation business for inhaled airways products offering a uniquely integrated inhaled drug delivery platform. With our extensive range of device and formulation technologies, integrated capabilities and collaborations, we are a leader in the development of inhalation products, increasing our ability to help patients suffering from respiratory diseases.
Vectura has seven inhaled, four non-inhaled and ten oral products marketed by partners with growing global royalty streams, and a portfolio of drugs in clinical development, a number of which have licence agreements with several global pharmaceutical and biotechnology companies including Hikma, Novartis, Sandoz, Mundipharma, Kyorin, Baxter, GSK, UCB, Ablynx, Grifols, Bayer, Chiesi, Almirall, Janssen, and Tianjin KingYork.
For further information, please visit Vectura's website at www.vectura.com
Unedited extract from Report and Accounts for the nine-month period ended 31 December 2016
Risk management and internal controls
Identifying and understanding key risks to the business
Risk management and internal control
The Board has overall responsibility for the Group's system of risk management and internal control. The Audit Committee reviews the effectiveness of the system at least annually, on behalf of the Board.
The Board operates, and attaches importance to, clear principles and procedures designed to achieve the accountability and controls appropriate to a science-based business operating internationally in a highly regulated business sector. The Board has established an organisational structure with clearly drawn lines of accountability and delegation of authority.
Executive management is responsible for the day-to-day management of risk including the design and implementation of the necessary systems of internal control. Such a system can only provide reasonable and not absolute assurance against material misstatement or loss, nor can it eliminate the risk of failure. In accordance with the Internal Control Guidance for Directors issued by the Financial Reporting Council, there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group.
Financial results and key operational and financial performance indicators are reported regularly throughout the year and variances from plans and budgets are investigated and reported. The Group has a system of high level financial control procedures which are supplemented by detailed procedures at each operating unit.
Assessment of risk post the Skyepharma merger
Following the Skyepharma merger, a full review of the business risks for the merged Group has taken place with support from external experts. The process involved the following:
· Interviews with Executive management and other principal risk stakeholders to identify risks, the approach to risk management processes and risk appetite.
· Rating of the risks identified by Executive management and other senior business leaders based on their likelihood and impact.
· A workshop with Executive management where the Group's key risks were agreed and the results from the risk rating exercise were reviewed and discussed and risk ratings adjusted where necessary.
· Review of the risk register for the merged Group by the Audit Committee.
Principal risks and uncertainties
Pharmaceutical development is inherently expensive and risky as the development cycle for new products is long and uncertain and the regulatory environment is complex and subject to change.
Executive management and the Audit Committee review the principal risks at least annually, after the annual Group budgeting and long-term planning process.
The Group has identified, actively monitors and is taking action to mitigate many different risks. This section does not include them all, but focuses on those risks that the Directors believe to be the most important and which could cause the Group's results to differ materially from expected and historical results and significantly impact the Group's strategy.
Not all of these risks are within the control of the Group and other factors besides those listed may affect the Group's performance. Some risks may be unknown at present. Others, currently regarded as not key, could develop into material risks in the future.
Our principal risk and uncertainties
1. Disruption to the launch of VR315 (US) |
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Disruption to the launch of VR315 (US), the generic version of GSK's Advair® Diskus®. The FDA has provided to our partner, Hikma Pharmaceuticals PLC (through its wholly-owned subsidiary, West-Ward Pharmaceuticals), a GDUFA goal date of 10 May 2017. Disruption will delay revenues for the Group, reducing profitability and funds available for investment. |
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Principal causes | Strategic impact | Mitigation | Trend |
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· FDA delay GDUFA goal date · Major or minor stipulations raised by the FDA · Partner supply chain or manufacturing issues | · Sustained organic growth | The Group is unable to take direct action to mitigate this risk. However, the Group is making plans to minimise the financial impact should this risk occur by identifying opportunities to reduce or delay cost. Project personnel for VR315 (US) continue to support Hikma and supply all information requested by the FDA during the review process. The business will also ensure that resource required to support the programme, post-FDA decision will be available. We have worked to ensure adequate transfer of the technology for manufacturing to our partner and have supported the validation of commercial scale manufacturing, which is solely in the hands of our partner. However, should issues arise, our experienced manufacturing team will be available to provide support in addressing any issues. | 2016 No change |
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2. Supply chain disruption |
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The Group manages the supply chain for flutiform® and devices. Major disruption to or failure of these supply chains, particularly for flutiform®, from either a quality or capacity perspective could result in lost revenues and business opportunities, stock shortages, liabilities and significant damage to profitability and prospects for the Group. |
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Principal causes | Strategic impact | Mitigation | Trend |
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· Supply chain disruption involving single point of failure for which Vectura has high dependency and limited resilience · Supplier loss of licence or regulatory action impacting Vectura · Issues resulting from the complex supply chain for flutiform® · Termination of the manufacturing agreement with Sanofi for flutiform®. The agreement continues to 2020 and is automatically renewed bi-annually unless terminated by either party with 24 months' notice. | · Sustained organic growth · Operational leverage | The Group works with its suppliers to ensure that production capacities exceed forecast demand so that it is possible to catch up on any shortfall in production or meet unexpected demand. The Group has made significant investments in capacity at the Sanofi site where flutiform® is manufactured and is investigating the feasibility of an alternative production site for flutiform®. Supply chain mapping is undertaken to identify potential points of failure and mitigating actions. Where economically feasible, additional sources of supply are established and contracts negotiated to include appropriate provisions for replacement of defective goods. Significant work has been undertaken to put in place systems that will provide early warning of issues. These include the appointment of appropriate, experienced senior personnel and building relationships through dedicated product managers to ensure transparency from suppliers. An alert system is also in place for flutiform®. Monthly meetings are held to discuss supplier forecasting and review the supply chain. We have also engaged with suppliers regarding quality initiatives. We maintain a system of quality assurance and suppliers have to meet quality audits and financial reporting requirements. The Group also has appropriate insurance, but it is not possible to insure against all risks and not all insurable risks can be fully insured on an economically feasible basis. | 2016 Increased risk |
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3. Failure to deliver the product pipeline | ||||||||||
Failure to deliver the Group's late stage product development pipeline (e.g. VR475 and VR647) and the clinical, research and development risk associated with novel products (e.g. VR942) could severely impact future profitability and prospects for the Group. | ||||||||||
Principal causes | Strategic impact | Mitigation | Trend | |||||||
· Manufacturing issuesassociated with a particular device or product · Competition · Uncompetitive pricing · Failure to maintaingood relationships with alliance partners · Incorrect study or trial design or execution · Loss of key resources | · Innovation · Sustained organic growth | The Group seeks to balance its investment in research and development between higher risk, high-value development products and lower risk, lower value opportunities. The guidelines of the relevant regulatory bodies are followed and trials conducted in accordance with prevailing practice and statutory/regulatory requirements. We work closely with expert regulatory advisors and, when appropriate, seek advice from regulatory authorities on the design of key development plans for pre-clinical and clinical programmes. Individuals with the necessary skills and experience have been recruited into the Group to lead and oversee the development of the Group's late-stage assets. The Group continues to work with a network of experienced consultants and contractors who provide additional support and expertise as required. The Group has an established governance process to oversee the conduct and delivery of all development programmes and to ensure that any potential changes to the development plan or budget are identified and discussed in a timely manner such that mitigating activities or actions can be put in place as required. | 2016 No change | |||||||
4. Failure to successfully self-commercialise wholly owned pipeline products | ||||||||||
Failure to successfully launch and commercialise Vectura's wholly owned pipeline products that it may choose not to partner (in relevant territories). | ||||||||||
Principal causes | Strategic impact | Mitigation | Trend | |||||||
· No track record of commercialisation hence requirement to employ additional staff and develop and recruit additional commercial expertise into the organisation · Strong competitor offerings | · Acceleration · Sustained organic growth | We have recruited skilled and experienced staff with US and international commercialisation experience. We also closely monitor competitor offerings and patents in the relevant territories. It is our policy to undertake extensive research as part of the commercial strategy development. Our due diligence work is thorough and follows good practice guidelines. We make use of experts to ensure that our commercial plans are validated providing the greatest chance of success. | 2016 No change | |||||||
| 5. Partner failure | |||||||||
| The Group is dependent on partners for obtaining regulatory approval and marketing of products. Once partners have obtained approval and launched the products, the Group may be entitled to revenue based on a proportion of net sales or share of revenue of these products. Failure by a strategic partner to deliver on its obligations could result in a low or negative return on investment. | |||||||||
| Principal causes | Strategic impact | Mitigation | Trend | ||||||
| · Change in partner strategy or a partner is distracted from Vectura's business interests · Partner trading issues/insolvency · Failure by a partner to market the product successfully · Partner failure to obtain appropriate pricing and reimbursement | · Sustained organic growth | Vectura has a broad range of disclosed and undisclosed partners. The Skyepharma merger has broadened this range further. All collaborations are performed under a suitable legal agreement which is assessed by Vectura and its legal advisors. Typically, for collaborations, a joint steering committee ("JSC") will be established involving both Vectura and partner personnel. This provides Vectura with a mechanism to ensure that any joint project activity is managed appropriately. The Group also has a Commercial and Business Development department which maintains regular dialogue with existing and potential new partners. | 2016 Decreased risk | ||||||
| 6. Changes in the regulatory, operating or pricing environment | |||||||||
| Changes to the highly regulated landscape for the pharmaceutical industry, operational restrictions and downward pricing pressure could impact whether a substance can be developed into a viable marketable product and the amount of time and expenses associated with such development. Even if products are approved, they may still face subsequent difficulties resulting in financial loss and reputational damage. | |||||||||
| Principal causes | Strategic impact | Mitigation | Trend | ||||||
| · The vote by the UK to exit the EU ("Brexit") - potential regulatory changes for clinical trials, restrictions on the movement of capital and mobility of personnel · Competitor pricing strategies · Regulatory action on pricing | · Sustained organic growth · Innovation | Regulatory changes tend to be slow due to lengthy consultations and discussions between regulators and the pharmaceutical industry. We work closely with expert regulatory advisors and, when appropriate, seek advice from regulatory authorities on the design of key development plans for pre-clinical and clinical programmes. In respect of our partnerships, we work with a number of blue-chip pharmaceutical partners which have significant regulatory expertise. Our business model includes a mix of highly innovative projects to address unmet patient needs as well as generic programmes which support government initiatives to reduce cost. Other than exchange rate volatility, further significant consequences of Brexit are yet to be seen. However, the following is being kept under review by the Group: (i) the situation for employees from EU countries in the UK; (ii) intellectual property matters currently proceeding with unitary patent; (iii) potential import/export duties/levies as one element of decision making as to where to carry on/place infrastructure/business; and (iv) potential change in tax rates. Regulatory changes or any other matter arising from or relating to Brexit are likely to take a significant amount of time before any changes take effect. The Group will work internally and with external advisors to ensure that specific mitigating activities are put in place as they are identified. | 2016 Increased risk | ||||||
| 7. Failure to protect intellectual property | |||||||||
| Patent infringement by competitor pharmaceutical or biotechnology organisation or failure to obtain patents for Vectura or partner development. | |||||||||
| Principal causes | Strategic impact | Mitigation | Trend | ||||||
| · Competitor successful in challenging Vectura or partner patent · Critical information missing from filed patent | · Sustained organic growth · Innovation
| Dedicated internal resource, supplemented with external expertise, files for and prosecutes patents and other forms of intellectual property and, in conjunction with our partners where relevant, take steps to enforce these rights. Third-party rights that may be of interest to and/or have adverse effects on the Group's activities are also monitored so that action can be initiated where appropriate. | 2016 No change | ||||||
| 8. Loss of talent/key personnel | |||||||||
| The Group relies upon a number of key qualified management, scientific, technical, marketing and support personnel. Competition for such personnel is intense and there can be no assurance that the Group will be able to continue to attract and retain such personnel. The loss of talent or key personnel could adversely affect the Group's business. | |||||||||
| Principal causes | Strategic impact | Mitigation | Trend | ||||||
| · Inadequate succession planning/talent management · Organisational disruption post the Skyepharma merger · Failure to attract the correct calibre of candidates · Lack of cultural integration post the Skyepharma merger
| · Sustained organic growth · Innovation
| Vectura seeks to develop employees for current and future roles and our career development and talent management programmes remain a key area of focus for the Executive Leadership Team. We continue to invest in ongoing training and development. Succession plans for key roles have been developed to ensure a talent pool is identified, developed and ready for implementation. These plans include the identification of 'emergency successors' in the case of unanticipated and immediate absence. A newly defined, market-benchmarked reward strategy is being developed to ensure Vectura offers a competitive package which incentivises, motivates and retains our talented employees. This package covers both short and long-term incentives. We have also defined a new job framework underpinned by career maps to help employees to understand the career development opportunities available to them. Salaries of all employees are reviewed annually to ensure we remain market competitive. The Remuneration Committee undertakes regular reviews of the remuneration packages of the most senior personnel and the Remuneration Policy is likewise reviewed for appropriateness in the context of emerging and evolving practice concerning Executive remuneration. The organisation has undertaken a comprehensive organisational design review post the merger to ensure the structure is fit for purpose and roles are clear and unambiguous. A newly defined culture has been created with substantial input from all employees, so that everyone feels connected and compelled to support its realisation. This culture is articulated through our purpose, values, mindset and behaviours and will be embedded in all people processes and practices to ensure alignment. Our multiple locations provide both flexibility for potential employees and an ability to target talent pools, and we will always seek to support flexible working in order to attract and retain the required skills and capabilities. | 2016 Decreased risk | ||||||
Related-party transactions
Merger related
As described in note 1 "Basis of preparation" and note 13 "Business combinations", on 10 June 2016, the Skyepharma merger was completed. Under the court-sanctioned scheme of arrangement where Skyepharma Board members and Skyepharma key management personnel held shares in Skyepharma, these were exchanged for Vectura shares and/or the partial cash alternative (if elected). Certain Skyepharma Board members and key management personnel have continued in similar roles in the merged Group.
The share exchange and/or partial cash payments are not considered related-party transactions as defined by the Disclosure Transparency Rule 4.8.2 and because all shareholders were treated equally by the court-sanctioned scheme. Full details of the share exchange and partial cash payment are provided in the Prospectus and Scheme Document dated 8 April 2016 and the Supplementary Prospectus dated 27 May 2016 available on the corporate website www.vectura.com/investors/all-share-merger.
Andrew Oakley stepped down from the role of Chief Financial Officer upon completion of the merger. Under the terms of his service agreement, Mr Oakley was subject to a twelve-month notice period. He received a payment in lieu of notice which was paid in two instalments. A sum of £141,882 in lieu of six months' notice was paid shortly after his departure. A further payment of £141,882 was made six months later as he had not breached any of the terms of his settlement agreement with the Company or commenced employment or engagement elsewhere. These provided a total remuneration which was equivalent to his twelve-month notice entitlement. He was provided with private medical, private dental and life assurance for twelve months from the date of termination. He also received a payment of £96,376 by way of compensation and settlement for his other benefits and any potential claims he may have against the Company and the Company agreed to provide up to £30,000 towards outplacement fees.
Following the merger, Vectura share capital with a fair value of £8.5m was issued to former members of Skyepharma's Executive and senior management teams to settle the Skyepharma LTIP. This was required by the court-sanctioned scheme of arrangement in order to acquire the fully-diluted Skyepharma share capital. The fair values of the shares to settle the scheme have been included within the £475.5m acquisition price for Skyepharma. Refer to note 13 "Business combinations".
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Group, is set out below.
| 31 December 2016 £m | 31 March 2016 £m |
Short-term employee benefits | 2.0 | 2.1 |
Post-employment benefits | 0.2 | 0.2 |
Share-based payments | 0.4 | 0.7 |
Other | 0.9 | 1.3 |
| 3.5 | 4.3 |
One Director is a member of a money purchase pension scheme (2015/16: two). Please refer to the Remuneration Report for the single figure of remuneration for each Director.
Directors' responsibilities statement
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial period. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), including FRS 101 "Reduced Disclosure Framework" the Financial Reporting Standard applicable in the UK. Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing the parent company financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and accounting estimates that are reasonable and prudent; and
· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
In preparing the Group financial statements, International Accounting Standard 1 requires that Directors:
· properly select and apply accounting policies;
· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
· provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and
· make an assessment of the company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
· the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
· the strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
· the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 20 March 2017 and is signed on its behalf by:
James Ward-Lilley Andrew Derodra
Director Director