AGM trading update

Vectura Group plc

AGM trading update

Raises expectations for 2016 revenues and announces significant merger progress

This announcement includes inside information

Chippenham, UK - 7 September 2016: Vectura Group plc (LSE: VEC) ("Vectura", "the Group"), an industry-leading inhaled airways disease focused business, provides an update ahead of its Annual General Meeting ("AGM") being held today at 12.00 noon at the offices of Covington & Burling LLP, 265 Strand, London WC2R 1BH at which the Chairman, Bruno Angelici, will make the following statement to shareholders.

Trading update

The Group is pleased to report that its trading performance to the end of August 2016 has been strong and consequently the Board has raised its revenue expectations for the nine month period ended 31 December 2016.

Inhaled therapies:

Combined recurring royalty and product supply revenues from marketed inhaled products including flutiform®, Ultibro®, Seebri® and the GSK Ellipta® products (Breo®/Relvar® Ellipta®, Anoro® Ellipta® and Incruse® Ellipta® ) are ahead of previous expectations for 2016.

flutiform® continues to benefit from growing demand and, as reported on 30 August 2016, in-market net sales1 for the six month period to 30 June 2016 were 42 per cent ahead of the same period in 2015 at €92.4 million (H1 2015: €65.1 million). The product is now launched in 31 countries, approved in a further nine and has application for marketing authorisations under review in 15 other countries.

On 19 July 2016 Novartis AG ("Novartis") reported total net sales for Ultibro® Breezhaler® of US$100 million in the second quarter 2016, an increase of 52 per cent compared to the second quarter of 2015 (Q2 2015: US$66 million). Novartis also reported total net sales for Seebri® Breezhaler® of US$39 million, an increase of 3 per cent compared to the second quarter of 2015 (Q2 2015: US$38 million).

Novartis has confirmed it will update the market on its plans for Utibron™ Neohaler® and Seebri® Neohaler® in the US in Q3 2016. Continued sales growth and strongly supportive data, including further details from the FLAME results published at the 2016 European Respiratory Society International Congress this week, demonstrate increasingly positive momentum. We continue to expect these products will be launched in the US in the second half of 2016.

On 27 July 2016, GSK reported total second quarter 2016 sales of the Ellipta® products of £220 million, up from £68 million in Q2 2015. On the same date, Vectura announced that GSK had decided not to extend the term of its agreement beyond 31 July 2016 by licensing additional patent families under the terms of the 2010 option-to-licence patent agreement between the parties. The Group also confirmed at that time that, whilst this decision by GSK would not materially affect its revenue for the period to 31 December 2016, the impact could be up to £13 million per annum from 2017 and Vectura had therefore initiated legal proceedings in the US against GSK.

Vectura continues to receive royalties from the legacy Skyepharma licence with GSK for the Ellipta® products. Based on market expectations for the products, the Board continues to expect these royalties to reach their £9 million annual cap in 2017.

Oral and Non-inhaled:

Total revenues from oral and non-inhaled products are ahead of previous expectations with Solaraze® in the US continuing to benefit from temporary exceptional market factors. Higher than anticipated production of ADVATE® inventory by Baxter prior to the Vectura patent expiry in January 2016 has also resulted in increased royalty receipts for the product, which is likely to continue as this stock will supply the market into Q4 2016.

On 4 August 2016, Pacira Pharmaceuticals, Inc. ("Pacira") announced net sales of EXPAREL® of US$65.8 million in Q2 2016, an increase of 15 per cent compared with the second quarter of 2015. In addition to the 3 per cent of net sales (on a cash received basis) of EXPAREL®, the Group reported that a sales milestone receipt of US$8 million was triggered following confirmation by Pacira that worldwide annual net sales of EXPAREL® (on a cash received basis) to 30 June 2016 were above US$250 million. The Group is also eligible to receive a sales milestone payment of US$32 million when worldwide annual net sales of the product reach US$500 million (on a cash received basis). In addition, whilst currently the product is only launched in the US, the Group is also entitled to a milestone payment of US$4 million if EXPAREL® is launched in a major European market.

Portfolio progression

Over the year we have continued to make good progress with our existing programmes. Key highlights include the FDA acceptance of the ANDA for generic Advair®, VR315, partnered with Hikma, progression of the Phase III study on VR475 (FAVOLIR®), the Group's leading wholly owned programme in severe asthma, progression of the VR465 programme for respiratory syncytial virus (RSV) in infants partnered with Ablynx moving towards a Phase II study and the successful completion of the Phase I study for the VR942 programme, an exciting and innovative programme for an inhaled biologic, being co-developed with UCB.

Development pipeline review

Following the completion of the merger, a review of the combined development pipeline as well as an assessment of an initial wave of new programme opportunities has been completed, based on a number of key criteria, including:

· Maximising leverage of the Group's broader formulation and device capabilities

· Balancing investment in new additional programmes whilst delivering growth in profitability and cash generation

· Potential to leverage a hybrid business model covering both partnered and selective specialist development

· Overall portfolio risk and near and long term value creation

As a result of this review, the Board has made the following decisions:

· To progress the initial formulation work and preclinical development of a number of new mass-market pressurised metered dose (pMDI) and dry powder (DPI) generic development opportunities with significant value potential. Subject to partnering discussions, we expect these to lead to between three and up to five new generic inhalation assets largely funded by partners. Progression of these new opportunities is as a result of combining the technology platform capabilities and prioritisation of capacity of the enlarged group

· To progress VR588, a novel broad-based, potent and selective pan-JAK (Janus Kinase) inhibitor as an inhaled therapy, with potential application in multiple indications, into Phase I/IIa planning with a view to future partnering

· To balance portfolio risk and create headroom to proceed with these new initiatives, the Group will put the development of SKP-2075, a Phase I ready theophylline-ICS combination, on hold pending the completion of the formal staff consultation process underway as part of the merger integration (see below)

Ceasing expenditure on SKP-2075 would provide funding for these other programmes and the Board's expectation for R&D investment overall remains unchanged for both 2016 and 2017.

The Group has an extensive and balanced development pipeline with the potential to create significant future value based on leverage of proven (DPI), (pMDI) and smart nebuliser platforms. Further details of the Group's portfolio will be provided at our Interim results in November 2016.

Progress with merger and integration

The Executive Leadership Team has been established with strong representation from both Vectura and Skyepharma businesses. A new organisation structure for the Enlarged Group has been defined and all 61 roles underpinning the £8 million of annual headcount synergy savings have been identified and validated and a formal staff consultation process is underway. The Group anticipates the majority of the new organisation will be implemented in the next few months. Plans are also well developed, and implementation commenced, for the delivery of the £2 million of annual non-headcount cost synergies. As a result, the Board remains confident of delivering the committed cost saving of £10 million per annum from 2018.

Organisation

As reported in July, the lease of the Group's manufacturing facility and oral product business in Saint-Quentin-Fallavier, Lyon, France (together "the Facility") to Aenova France SAS ("Aenova") expired on 30 June 2016 and the Facility transferred back to Vectura. A number of initiatives are underway to maximise value following this return to the Group's control, including leveraging its proven capabilities in multilayer tableting, oral technology innovation and high quality manufacturing capacity.

James Ward-Lilley, CEO, commented:

"The new Vectura is in a strong position to create significant sustained shareholder value following the completion of the merger with Skyepharma in June. We continue to see strong growth from our partnered marketed respiratory products and the outlook for 2016 revenue is ahead of previous expectations. At the same time, integration of the two businesses is progressing well and the completion of the review of the existing development pipeline and assessment of new programme opportunities positions us to accelerate our strategy execution.

"We look ahead to reporting our interim results in November where we will update the market on the portfolio review, as well as reporting further progress with the integration and realisation of merger synergies."

[1] In-market sales are internal calculations using IMS Health (IMS) data based on sales to pharmacies and excluding certain minor countries not covered by IMS. In-market sales are not the same as sales to wholesalers on which royalties are payable to the Group.

- Ends -

Enquiries

.

About Vectura

Vectura, a FTSE250 company listed on the London Stock Exchange (LSE: VEC), is an industry-leading inhaled airways disease focused business with proprietary formulation and devices across DPI, pMDI and smart nebulisation platforms. With our extensive range of technologies, capabilities and collaborations, we believe we can become a leader in the development of inhalation products, increasing our ability to help patients suffering from respiratory diseases. In June 2016 Vectura completed a merger with Skyepharma PLC.

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, Chiesi, Almirall, Janssen, and Tianjin KingYork.

For further information, please visit Vectura's website at www.vectura.com.

Forward-looking statements

This press release contains forward-looking statements, including statements about the discovery, development and commercialisation of products. Various risks may cause Vectura's actual results to differ materially from those expressed or implied by the forward-looking statements, including: adverse results in clinical development programmes; failure to obtain patent protection for inventions; commercial limitations imposed by patents owned or controlled by third parties; dependence upon strategic alliance partners to develop and commercialise products and services; difficulties or delays in obtaining regulatory approvals to market products and services resulting from development efforts; the requirement for substantial funding to conduct research and development and to expand commercialisation activities; and product initiatives by competitors. As a result of these factors, prospective investors are cautioned not to rely on any forward-looking statements. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.