23rd May 2007 07:02
Vectura Group PLC23 May 2007 VECTURA GROUP PLC - PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2007 - Chippenham, UK - 23 May, 2007: Vectura Group plc (LSE: VEC) ("Vectura"), thepulmonary product development company focused on respiratory and neurologicaldiseases, today announces its financial results for the year ended 31 March2007. Corporate Highlights • Acquisition of Innovata plc concluded in January 2007 andsuccessfully integrated • £45 million fundraising in July 2006 • Oral and dermal assets successfully spun-out to create PharmaKodexLimited in May 2006 Product Highlights • NVA237 and QVA149 for COPD o Positive results of NVA237 Phase IIb clinical trial announced in June2006 o Novartis indicated expectation to file NDA submissions for both NVA237and QVA149 in 2010 • VR315 for asthma o Major US generics collaboration announcement in December2006 • VR040 for Parkinson's disease o Successful completion of proof of concept study announcedin August 2006 • VR004 for erectile dysfunction o Successful completion of two Phase IIb studies in April2007 and June 2006 • Major device deal signed with Boehringer Ingelheim, with €15 millionupfront cash paid in May 2006 plus additional royalties and milestones Financial Highlights • Total revenues up by 67% to £14.1 million (2006: £8.4 million) • Gross profit up by 67% to £10.8 million (2006: £6.4 million) • Loss per share of 4.4p, a 27% improvement on the previous year (2006:6.0p) • Cash of £77.5 million at 31 March 2007 (£16.8 million at 31 March2006) Announced Today • Successful completion of Phase IIa study of VR776 for prematureejaculation Dr Chris Blackwell, Chief Executive of Vectura, commented: "This has been a successful twelve months in which we continued to demonstrateour ability to deliver major licensing deals with international pharmaceuticalcompanies, as well as announcing positive clinical results on a number of ourlead products. The acquisition of Innovata, completed at the beginning of thisyear, has proved to be an excellent strategic fit, with the two companiescombining to give Vectura a significant revenue stream from marketed products, adeep drug development pipeline, a wide range of partners and financial strength.The next twelve months will see further advances in our product development aswe continue to drive the value of our portfolio. We also look forward to ourforthcoming move from AIM to the Main Exchange in London, where we believe wewill see additional liquidity and a higher profile with investors." - Ends - Vectura's Chief Executive Chris Blackwell and Chief Financial Officer AnneHyland will discuss the Company's results at an analyst/investor presentationand conference call today at 9:30 a.m. GMT. The conference call may be accessed by dialling:International dial in: +44 (0) 1452 542 300UK Free Phone: 0800 953 1444Conference ID: 1256772 A replay facility will be available for 7 days following the call by dialling: International dial in: +44 (0) 1452 550 000UK Free Phone: 0800 953 1533Replay access number: 1256772 There will also be a live webcast which can be accessed by visiting the Investorsection of the Company's website, www.vectura.com. Following the webcast, anarchived version of the call will be available at the same address. Enquiries: Vectura Group plc Tel: + 44 (0) 1249 667700Chris Blackwell, Chief ExecutiveAnne Hyland, Chief Financial OfficerJulia Wilson, Director of Investor Relations & Corporate Communications Financial Dynamics Tel: + 44 (0) 207 831 3113David Yates / John Gilbert Notes for Editors: About Vectura Vectura is a pulmonary drug development company focused principally on thedevelopment of a range of inhaled therapies for the treatment of respiratory andneurological diseases. The Company targets opportunities where optimiseddelivery via the lungs can provide significant benefits, such as a rapid onsetof action, improved efficacy and improved tolerability compared with currenttherapies. Vectura has eight marketed products and a portfolio of drugs in clinical andpre-clinical development, some of which have been licensed to majorpharmaceutical companies. The Company also seeks to develop certain programmesfurther through development to optimise value at a later licensing stage.Vectura also offers its formulation and inhalation capabilities to otherpharmaceutical companies on a licensing basis where this complements Vectura'sbusiness strategy. Vectura has development collaborations with a broad range of pharmaceuticalcompanies including Boehringer Ingelheim, Novartis, GSK and Chiesi. Theacquisition of Innovata in January 2007 brought established alliances with anumber of additional companies, such as Baxter, Merck KGaA, UCB and Otsuka aswell providing revenue streams, complementary products and critical mass. For further information, please visit Vectura's website at www.vectura.com This press release contains "forward-looking statements," including statementsabout the discovery, development and commercialisation of products. Variousrisks may cause Vectura's actual results to differ materially from thoseexpressed or implied by the forward-looking statements, including adverseresults in clinical development programs; failure to obtain patent protectionfor discoveries; commercial limitations imposed by patents owned or controlledby third parties; dependence upon strategic alliance partners to develop andcommercialise products and services; difficulties or delays in obtainingregulatory approvals to market products and services resulting from developmentefforts; the requirement for substantial funding to conduct research anddevelopment and to expand commercialisation activities; and product initiativesby competitors. As a result of these factors, prospective investors arecautioned not to rely on any forward-looking statement. We disclaim anyintention or obligation to update or revise any forward-looking statements,whether as a result of new information, future events or otherwise. CHAIRMAN'S AND CHIEF EXECUTIVE'S REVIEW Overview This year has been a year of positive achievement in our evolving businessstrategy, culminating in the acquisition of Innovata plc. Our goal of becominga sustainable, self-funding principal player in the development of pulmonarypharmaceutical products has been further strengthened by this acquisition. Wealso benefit from continuing revenue streams on eight marketed products andmilestones on the Innovata licensing deals currently in place. The combinationof the two companies has resulted in a leading pulmonary development companywith the skills and resources to leverage a product pipeline of considerablepotential, as well as a broader range of formulation and device capabilities.We believe that our shareholders, our employees and our collaborative partnerswill benefit from the enhanced strength and reputation of the enlarged VecturaGroup. The integration of Innovata has been successfully completed and we have combinedthe accomplishments of both companies and created a foundation on which tobuild. The synergies from bringing together the complementary skill sets ofinhaled product development into one group are already visible and we have alsoadded to our expertise through the benefits of the Innovata clinical developmentand regulatory affairs departments; areas where we had previously relied solelyon external consultants. In addition to the acquisition, we have continued to make progress with solidadvances in the product pipeline, progress on technology out-licensing, and a67% increase in revenues to £14.1 million. The period started with our globallicensing agreement with Boehringer Ingelheim, which was signed in April 2006,providing considerable validation for our device technologies and expertise. InDecember we concluded our US licensing deal for VR315, with the product nowpartnered in both the US and Europe. Strategy Vectura is targeting the treatment of respiratory and neurological diseases. The Company has a broad clinical portfolio that combines valuable mid and latestage programmes with high potential, earlier stage opportunities and has a widerange of device and formulation technologies addressing large and fast growingmarket sector. The respiratory development pipeline comprises inhaled formulations of bothbranded and generic products for the treatment of asthma, chronic obstructivepulmonary disease (COPD) and cystic fibrosis (CF). In the neurological area, Vectura is exploiting its pulmonary deliverytechnology for indications such as Parkinson's disease and migraine, and isexploring additional opportunities for future development. Vectura's goal is to be a cash generative business that creates value for itsstakeholders. To achieve this goal, Vectura is: • Developing pulmonary products using its proprietary device andformulation technologies, expertise and know-how, to advance programmes toclinical proof-of-concept, and o for selected products in respiratory and neurological illness, Vecturaplans to further develop/co-develop in-house to regulatory approval in order tocapture maximum value for the Company and its shareholders o for the products which address larger markets, Vectura willout-licence the products to major pharmaceutical companies that have appropriatefinancial resources and existing sales and marketing infrastructures, withVectura's return being milestones and royalties • Entering into a number of technology collaborations withpharmaceutical company partners to exploit both the generic and branded marketsfor the joint development of high value pulmonary product opportunities and • Continuing to build the pulmonary franchise through internalinnovation alongside the Company's strategy of exploring opportunities for theacquisition of products, technologies or businesses that support these goals. DEVELOPMENT PIPELINE Respiratory development products Vectura has a strong respiratory franchise with six products in clinicaldevelopment, as well as five marketed products from which it is generatingrevenues. Product Indication Description Status PartnerNVA237 COPD Long-acting muscarinic antagonist Phase II Novartis (LAMA)QVA149 COPD Combination of NVA237 and a Phase II Novartis long-acting beta agonist (LABA) (QAB149)VR315 Asthma/COPD Generic combination product In preparation for Undisclosed Phase IIIDuohaler(R) Asthma/COPD Generic combination product In preparation for Undisclosed Phase IIIDuohaler(R) Asthma/COPD Generic combination product In preparation for Undisclosed Phase IIIBI Various DPI for respiratory products Pre-clinical Boehringer IngelheimCollaborationVR496 CF/COPD Mucolytic/anti-inflammatory Pre-clinical -Budesonide Asthma Budenoside delivered in Phase III Japan, UndisclosedClickhaler(R) Clickhaler(R) NVA237 for COPD NVA237 is an inhaled, locally-acting treatment for mild, moderate and severeCOPD. It is being developed as a novel, proprietary DPI formulation of anexisting off-patent compound, glycopyrronium bromide. Vectura developed NVA237in collaboration with Sosei Co Ltd (Sosei), applying PowderHale(R), itsproprietary formulation technology, to improve delivery to the lungs. Vecturaand Sosei licenced NVA237 to Novartis International Pharmaceuticals Limited(Novartis) in April 2005. NVA237 is a once-daily, long-acting, rapid onset muscarinic antagonist (LAMA)that has recently concluded a Phase IIb trial. Novartis intends to launchNVA237 as a differentiated LAMA for treating COPD, with improved benefits forpatients compared with existing therapies. In June 2006, Vectura and Sosei announced the successful completion of a PhaseIIb trial to evaluate the efficacy, safety and dose response of NVA237 inpatients diagnosed with COPD over a four-week period. This study demonstratedthe bronchodilatory efficacy and durability of NVA237. COPD, the world's fourth largest cause of death, is a chronic obstruction of theairways which is caused primarily by smoking. It is estimated that COPD occursin over 6% of the US population and that at least one in eight smokers suffersfrom the condition. The current market for COPD drug therapy is estimated to beworth $5 billion a year and is predicted to grow to $11 billion by 2011. Novartis has a reputation as a world leader in the treatment of respiratorydiseases. With its commitment to NVA237, and the potentially beneficialcombination of NVA237 with its bronchodilator QAB149, it is an ideal licensingpartner for Vectura. Under the terms of the Novartis agreement, Vectura andSosei each received an initial payment of $15 million (£7.9 million) in April2005. Clinical, regulatory and commercialisation milestones will be payable uponthe achievement of pre-agreed targets, which could reach $172.5 million for eachcompany for both monotherapy and combination products. The initial payment andpotential milestones therefore could total up to $375 million. In addition, royalties on product sales will be paid for the monotherapy and thecombination product. Novartis has indicated that it expects to file an NDA submission for NVA237 in2010. QVA149 for COPD QVA149 comprises the combination of NVA237 with Novartis' long-acting(once-daily) beta-agonist (LABA), indacaterol (or QAB149) which is currently inPhase III development. QVA149 is one of the most advanced once daily LAMA/LABAcombinations in development and could be the first such combination to come tomarket for COPD. Indacaterol has been shown to have a similar rapid onset toNVA237 and to benefit lung function for a 24 hour period. The dual activity ofa muscarinic antagonist and an adrenergic agonist promises to be a potentbronchodilator and, with convenient once-daily dosing, would have the potentialto address a large unmet need for COPD patients. Novartis has indicated that it expects to file an NDA submission for QVA149 in2010. VR315 for asthma VR315 is an inhaled combination asthma therapy that is being developed as ageneric product using GyroHaler(R) as the delivery device. Vectura licensed theEuropean rights for VR315 to an undisclosed leading international pharmaceuticalcompany in March 2006. The US rights were licensed to an undisclosed leadinginternational pharmaceutical company in December 2006. Combination therapy for asthma is the biggest and fastest growing sector of theasthma market with annual sales currently exceeding $8 billion. Duohaler(R) Vectura has two exclusive agreements with a leading European pharmaceuticalcompany for the marketing and distribution in Europe and other specifiedcountries (excluding the US and Japan) of two Duohaler(R) products, each ofwhich combines established respiratory drugs. Boehringer Ingelheim Collaboration Most treatments for asthma and COPD are delivered by inhalation. Global marketsfor these treatments are valued in excess of $17 billion today and are forecastto grow to over $28 billion by 2010. Dry powder inhalers are increasingly thefirst choice for patients with these diseases and it is expected that DPIs willbe used to deliver the majority of the drugs sold in these markets by 2010.There is, therefore, a growing demand for dry powder inhalers, particularlythose that can deliver high performance and consistent doses. Vectura believesthat its device and formulation technologies are well placed to capture asignificant market share, as they can provide critical benefits which are neededby both patients and regulatory authorities. In April 2006, Vectura agreed a worldwide collaboration, development and licenceagreement with Boehringer Ingelheim to develop a DPI as a tailored BoehringerIngelheim device. It will deliver a range of their proprietary respiratoryproducts, mainly for treating asthma and COPD. Under the non-exclusiveagreement, the Company will work with Boehringer Ingelheim on the continueddevelopment of the inhaler until around the end of the year. After this,Boehringer Ingelheim will be responsible for any further development,manufacturing and clinical trial use with their proprietary compounds, and thecommercialisation of these products. Vectura will receive milestones androyalties on sales of the products commercialised using the device. VR496 treatment for Cystic Fibrosis (CF) and COPD VR496 is being developed as an inhaled, locally-acting treatment for CF, withthe potential to be developed as a therapy for COPD. VR496 is formulated usingPowderHale(R) and is expected to be delivered with GyroHaler(R). The activecomponent of VR496 is an off-patent drug that has been approved worldwide as aparenteral treatment for other indications. A significant literature databasedescribes the multi-modal and complementary pharmacological properties of theactive molecule that is relevant to the treatment of CF and COPD, withmucolytic, anti- inflammatory, bronchodilatory and anti-infective activity beingparticularly relevant. Based on this, Vectura believes VR496 may satisfy the need for a safe andeffective and treatment for CF and COPD. The European Medicines Agency (EMEA) and US Food Drug Administration (FDA) havedesignated VR496 an orphan drug. The EMEA Scientific Advice procedure for orphandrugs will facilitate design of the first VR496 clinical study and developmentthereafter. Vectura anticipates receiving EMEA approval to begin at the turn ofthe year. Vectura has developed an inhalable dry powder formulation of VR496 usingPowderHale(R) and in-vitro studies have confirmed the mucolytic andanti-inflammatory properties of VR496. VR496 for CF is a product that Vectura plan to take through Phase III clinicaltrials unpartnered. VR496 also has potential use for COPD patients and wecurrently intend out-licensing the COPD indication following completion of ourPhase II programme. We expect there will be advantages of working with a partneron the COPD indication while we progress the CF indication independently. Clickhaler(R) with budesonide for Japan Vectura has an exclusive agreement with an undisclosed Japanese pharmaceuticalcompany for the marketing rights to the Clickhaler(R) for use with budesonide inJapan. Under the agreement, Vectura supplies devices on commercial terms andcould receive milestone payments based on its successful clinical and regulatorydevelopment and royalty payments on future sales. The Japanese pharmaceuticalcompany is undertaking the clinical development of the Clickhaler(R) withbudesonide for which Phase III trials have been undertaken. Neurological development products Vectura currently has two products in full development in its neurologyfranchise. Product Indication Description Status PartnerVR040 Parkinson's disease Inhaled apomorphine Phase IIVR147 Migraine Inhaled neurovascular agent Pre-clinical VR040 treatment for Parkinson's disease (PD) VR040 is an inhaled, systemically acting product for treating "off" episodesassociated with advanced PD that do not respond to oral treatment. The activeingredient in VR040, apomorphine hydrochloride, has previously been approved inEurope (APO-go(R)) and more recently in 2004 in the US (Apokyn(R)) for treating"off" episodes. Both products are available as solutions for subcutaneousinjection and, in Europe, for subcutaneous infusion. VR040 uses a Vecturaproprietary DPI formulation, which is delivered by oral inhalation usingVectura's Aspirair(R) device. EMEA has designated VR040 an orphan drug. Vectura will be using the EMEAScientific Advice procedure to progress the VR040 development programme. The clinical and pre-clinical studies conducted in support of VR004 (Vectura'sinhaled apomorphine product in development for erectile dysfunction) are highlyrelevant to the VR040 development programme as the two products have the sameactive ingredient administered in different dose ranges. In particular, thesuccessfully completed VR004 28 day inhalation toxicology study allowed theimmediate progression of VR040 into Phase II clinical evaluation. The successful results of the Phase IIa proof-of-concept clinical study forVR040 were reported in August 2006. This was a single centre, randomised, doubleblind, ascending dose, placebo-controlled, parallel group study evaluating VR040in 24 PD patients. Vectura is currently carrying out a second Phase II clinicalstudy to establish optimal doses. Vectura retains the opportunity to take VR040to registration and/or to licence-out development and commercialisation rightsfor VR040 in major territories. VR147 for migraine Vectura is considering a number of compounds with potential to treat migrainevia inhaled delivery. The first product will enter clinical development inmid-2007. The advantage of an inhaled route of delivery, particularly the rapidonset of action, is expected to provide key benefits to migraine patients. Other development products Vectura is developing products for sexual dysfunction and has an inhaled insulinproduct for diabetes. The Company anticipates that any future development withthese products will be undertaken in conjunction with partners. Product Indication Description Status PartnerVR004 Erectile Inhaled apomorphine Phase IIb completed dysfunctionVR776 Premature Inhaled product which acts via 5HT- and noradrenergic- Phase IIa ejaculation mediated pathways in the brainVR400 Female sexual Inhaled apomorphine This is the same dysfunction active ingredient as VR004. To be out-licensed with VR004Inhaled Diabetes Rapidly-acting inhaled insulin Phase Iinsulin VR004 for the treatment of erectile dysfunction (ED) VR004 is an inhaled, systemic product for treating mild, moderate and severe ED. As with VR040, the active ingredient is apomorphine hydrochloride, previouslyapproved in Europe for treating ED as a sublingual tablet by TAP. VR004 isformulated in a proprietary Vectura formulation and delivered using Vectura'sAspirair(R) device. VR004 has completed a Phase IIa clinical study that demonstrated efficacy and arapid onset of action in ED patients at doses that produced no serious adverseevents. Two further Phase IIb clinical trials were completed over the last 12months, assessing VR004 in a larger population in the "at home" setting. Thetrials have identified an effective dose range associated with an acceptableside-effect profile and Vectura is now seeking licensing partners for theproduct. VR776 for the treatment of premature ejaculation (PE) VR776 is a Vectura proprietary inhaled, systemic treatment for PE in which theactive ingredient is an off patent neuro-active drug approved worldwide fortreating other indications. VR776 is formulated using PowderHale(R) anddelivered with Aspirair(R). The utility of the active ingredient of VR776 for PE is described in publisheddata, but is generally taken as an oral tablet 3-6 hours before intercourse. Thedelivery of VR776 via the lungs will provide rapid delivery of VR776 into theblood stream with the expectation of a rapid onset of clinical effect, offeringsignificant clinical benefit. Currently, no product is licensed in the US or EUspecifically for the treatment of PE, although a number of products are indevelopment. Vectura has completed pre-clinical toxicology studies, and a first-time-in-manstudy. A successful Phase IIa proof-of-concept study was announced in May 2007. Inhaled insulin Vectura is developing an inhaled insulin product in a joint venture (QDose) withMicroDose Technologies Inc. The Company will be seeking licensing partners forthis product when the current Phase I trial is complete. Other interests in non-pulmonary products Vectura has a broad-based patent licence with GSK that permits GSK to usecertain Vectura formulation and delivery patents for vaccines delivered onto,into and across the skin. The Company has also granted a licence to ProfibrixBV to use its patents for the development of Fibrocaps(R), a novel dry powdertissue sealant that stops acute and severe bleeding after trauma injury orelective surgery. MARKETED PRODUCTS Vectura has three marketed products licensed to Baxter as well as five marketedproducts in its key respiratory franchise. Product Indication Description Status PartnerADVATE(R) Haemophilia A Serum-free recombinant factor VIII Marketed - Baxter worldwideAdept(R) Prevention of 4% icodextrin solution Marketed - US and Baxter surgical Europe adhesionsExtraneal(R) Peritoneal Solution containing icodextrin Marketed - Baxter dialysis worldwideAsmasal(R) Asthma Salbutamol delivered in Clickhaler Marketed in UK UCB S.A. (R) France and IrelandAsmabec(R) Asthma Beclomethasone delivered in Marketed in UK UCB S.A. Clickhaler(R) France and IrelandBudenoside Asthma Budenoside delivered in Clickhaler Marketed in certain Merck RespiratoryClickhaler (R) European countries(R)Formoterol Asthma Formoterol delivered in Clickhaler Marketed in certain Merck RespiratoryClickhaler (R) European countries(R)Meptin Asthma Meptin delivered in Clickhaler(R) Marketed in Japan Otsuka Pharmaceutical CoClickhaler(R) ADVATE(R) In 2000, Baxter was granted exclusive and non-exclusive worldwide rights to useVectura's stabilisation patents and has utilised the technology in itsserum-free recombinant Factor VIII, ADVATE(R). ADVATE(R) is indicated for thetreatment of haemophilia A and is marketed by Baxter worldwide. Vectura receivesroyalties on sales of ADVATE(R). Sales have increased to over $850 million in2006, compared to 2005 sales of $600 million and projected sales for 2007 are inexcess of $1.1 billion. Adept(R) Adept(R) is a 4 per cent. icodextrin solution used during surgery to preventpost-surgical adhesions, a frequent complication following gynaecological andother abdominal surgery which is a major surgical problem. It has been used forthis purpose in Europe since 2000. Vectura signed a global licence deal withBaxter for the manufacturing and distribution of Adept(R) in December 2005. On 1 August 2006, Baxter announced that the FDA had approved Adept(R) adhesionreduction solution for intraperitoneal use as an adjunct to good surgicaltechnique for the reduction of post-surgical adhesions in patients undergoinggynaecological laparoscopic adhesiolysis. Adept(R) was launched by Baxter in theUS in October 2006. Extraneal(R) Extraneal(R) is a peritoneal dialysis solution containing icodextrin, licencedto Baxter in 1996 and which Baxter now markets worldwide. The product has beenlaunched in over 45 countries worldwide including, in 2003, the major markets ofthe US and Japan. From September 2006, Vectura no longer receives royalties onthe sales of Extraneal(R) in Europe but continues to receive royalties on salesin the US, Japan and the rest of the world. Asmasal(R) and Asmabec(R) The Clickhaler(R) is a multi-dose, single reservoir dry powder inhaler (DPI)using proven technology. Two Clickhaler(R) products for the treatment of asthma,Asmasal(R) containing salbutamol and Asmabec(R) containing beclomethasone, aremarketed by UCB S.A. in UK, France and Ireland. Budesonide Clickhaler(R) and Formoterol Clickhaler(R) Two further Clickhaler(R) products for the treatment of asthma the BudesonideClickhaler(R) and the Formoterol Clickhaler(R), are marketed by MerckRespiratory (the respiratory unit of Merck KGaA) in certain European countries. Meptin Clickhaler(R) A fifth product, Meptin Clickhaler(R), is marketed in Japan by OtsukaPharmaceutical Co Ltd (Otsuka) and is for the delivery of its asthma treatment,procaterol. Vectura receives royalties and/or product margin on these Clickhaler(R)productsand continues to explore licensing opportunities for Clickhaler(R) products inother countries. Vectura also supplies the Clickhaler devices to these liceseesand also earns a margin on these device sales. ENABLING TECHNOLOGIES Vectura has several important, patent-protected pulmonary technology platforms.In addition to using these technologies to support its own product developmentprogrammes, Vectura's strategy is to seek to out-license to other pharmaceuticalcompanies non-exclusive rights to the technologies for certain areas where theCompany believes that the resulting licence will not impact Vectura's productdevelopment opportunities. Such agreements can generate revenues from licenceeswhile allowing Vectura to retain its focus on developing its own inhaledpharmaceutical products. Dry Powder Inhaled (DPI) formulation technology - including PowderHale(R) The formulation of drugs for inhalation is more complex than for oral deliveryand different approaches may be required for locally-acting or systemicproducts. For example, with systemic delivery the dose needs to be formulatedand produced such that the particles are less than five microns in size. Theknow-how, expertise and patents available to Vectura enable the Company todevelop patent protected systemic and respiratory products. Vectura's formulation technologies include PowderHale(R), micronisation,blending, spray drying, polyol stabilisation and pulmonary controlled release.For example, PowderHale(R) is a patented technology, designed to allowaerosolised drug particles to achieve high lung penetration with low dosevariability. This is achieved by the addition of a pharmacologically inactiveexcipient, known as a Force Control Agent (FCA) to the active drug component. Typical DPI formulations have a limited penetration to the lungs. PowderHale(R)technology provides the capability to deliver a consistent fine particle dose ofdrug to the lung, close to the nominal delivered dose. This is achieved bymodifying the interactive forces holding together the active drug particles andcarrier particles. In this way, benefits can be achieved in deaggregation andaerosolisation, as well as in bulk powder handling and metering of theformulation. In addition, PowderHale(R) technology provides a higher degree ofintra-dose uniformity - an increasingly important consideration for regulatorsin approving inhaled pharmaceutical products in general. Aspirair(R) - 'Active' DPI device technology Aspirair(R) is Vectura's high performance, patent-protected inhaler technology,designed to allow delivery with high lung penetration and low variability,essential for drugs intended for systemic delivery. The device is convenientlysized, simple to use, and economical compared to other 'active' inhalers. Experiments to date indicate that Aspirair(R) is capable of delivering DPIformulations of both large and small molecules, even of active drugconcentrations up to 98 per cent. In laboratory tests, Aspirair(R) has beenshown to consistently deliver both fine and ultra-fine particles successfully intests designed to measure projected delivery to the deep lung regions. Aspirair(R) generates an aerosol plume, triggered by a patient's inhalation, which issignificantly slower than most spray type active inhalers currently available.This reduces the amount of drug that is unintentionally deposited in the mouthand throat and subsequently swallowed rather than inhaled into the lungs.Aspirair(R) has been used in patient studies in the clinic and at home by morethan 600 subjects. The Aspirair(R) technology, alone or in conjunction with appropriate formulationtechnologies, can be used to deliver systemic products efficiently andeffectively. Aspirair(R) can also be used to deliver proteins andmacromolecules. GyroHaler(R) - 'Passive' DPI device technology The GyroHaler(R) device is a novel, cost-effective, multi-unit dose DPI devicedesigned to deliver locally-acting drugs to the lung. It is compact and easy touse with a small number of moulded parts, facilitating short device developmenttimes and competitive manufacturing costs. The device contains up to 60 dosesand is disposable after use. It is designed to have competitive aerosolisationcharacteristics and to provide excellent drug protection from moisture and lightusing sealed foil blisters. Moulded prototype devices have been available for in-vitro development andevaluation since late 2004. The production design is now complete for the firstGyroHaler(R) design, and mould tools and semi-automated assembly equipment arebeing manufactured. Continuous form/fill/seal machinery for producing theblister strips is available in Vectura's Chippenham facility. The GyroHaler(R) technology has the potential to deliver respiratory products inan efficient and patient-friendly manner. Further variants of the GyroHaler(R)technology are also in development. Clickhaler(R) - multi-dose reservoir DPI Clickhaler(R) is a multi-dose "passive" reservoir DPI using proven technology.It is approved for use and marketed to treat asthma and COPD with a number ofdifferent drugs (salbutamol, beclometasone, formoterol, budesonide andprocaterol) in a number of European countries as well as Japan. Clickhaler(R) is inexpensive to produce and fill. Production is fullyautomated. Duohaler(R) - fixed combination therapy multi-dose reservoir DPI The Duohaler(R) is a fixed combination therapy, multi-dose DPI. It has twoseparate drug reservoirs which feed two separate drugs to two separate meteringchambers from which the drugs are delivered to the patient in the same breath,which circumvents potential co-formulation issues. Vectura has two exclusive agreements with a leading European pharmaceuticalcompany for the marketing and distribution in Europe and other specifiedcountries (excluding the US and Japan) and for the development of two Duohaler(R) products combining established respiratory drugs for combination therapy. S2 Unit Dose DPI The S2 Unit Dose device may be embodied as a re-useable or disposablesingle-dose DPI. It has an innovative dispersion mechanism enabling highlyefficient drug delivery deep into the lungs with minimal patient inspiratoryeffort, a feature of particular benefit to systemic drug delivery. It isdesigned to be easy to use and inexpensive to manufacture and may be suitablefor a wide range of conditions requiring a rapid onset of effect includingmigraine, nausea/vomiting and analgesia or which require a short duration oftherapy or occasional use. Pre-clinical experiments revealed that the S2 can generate high fine particlefractions suggesting high lung deposition would be achieved. Initial human testsusing scintigraphy (labelling drug particles with radioactive isotopes and thenimaging the lungs following inhalation) confirmed highly efficient drug deliveryto the deep lung. OUTLOOK Vectura has an innovative and broad clinical pipeline that combines valuable midand late stage pharmaceutical products and earlier stage opportunities with highcommercial potential. These are supported by a wide range of technologies andskills that allow the Company to address fast growing market sectors. Vecturaexpects to continue to invest in this broad product pipeline from a position offinancial strength and plans on taking selected proprietary products through toregistration, whilst maintaining a balanced risk/reward strategy of pursuingproduct and technology collaborations with large pharmaceutical partners whereappropriate. The key drivers over the coming year relate to the continued success of theCompany's development work on its respiratory programmes. The collaboration withBoehringer Ingelheim has advanced significantly, and Vectura will continue towork closely with them to complete the first milestone around the turn of theyear. In addition, Vectura expects to announce data from a number of clinicalprogrammes, including VR040 for Parkinson's disease and VR147 for migraine. TheCompany has some exciting opportunities for new licensing deals driven by therecent data from the successful Phase IIb programme for VR004 in erectiledysfunction and the data from the VR776 programme for premature ejaculation.Vectura also expects to see advancement in the royalties earned on its licensedproducts, particularly ADVATE(R). It is Vectura's intention to migrate from AIM to the Official List, which isbelieved will provide further liquidity and a higher profile with investors andthe Company anticipates that this will take place in July 2007. With the strong progress that Vectura achieved in 2006, the Company is makinggood progress on its long-term goal of becoming a sustainable, self-fundingprincipal player in the development of pulmonary pharmaceutical products,providing valuable returns for shareholders. FINANCIAL REVIEW Summary of results The results for the year ended 31 March 2007 show total revenue of £14.1 million(2006 - £8.4 million) a 67% increase on the previous year. The operating lossfor the year was £11.3 million (2006 - £8.5 million). The loss before tax was£8.7 million (2006 - £7.4 million) and the loss after tax £6.8 million (2006 -£6.5 million). Innovata acquisition Comparison of the results with the previous year is affected by the acquisitionof Innovata in January 2007. The income statement separately identifies theresults relating to the Innovata business for the two and a half months postacquisition and this financial review provides further information on thepotential financial impact of the acquisition for the 12 months to 31 March 2008and its actual results for the 12 months to 31 March 2007. It is Vectura'sintention to maintain Innovata as a cash generative business. In addition thecombination of the two businesses is expected to provide approximately £3million per annum in research and development and administration cost savingswhich would not have been possible had both companies remained independent. Revenue Revenue includes fee income from product licensing, technology licensing,development fees, royalties and Clickhaler device sales. In the 12 months to 31March 2007, total revenue increased compared to the prior year by 67% to £14.1million, and included a contribution of £3.0 million from Innovata in the periodpost acquisition. The underlying revenue for the existing Vectura Groupincreased by 31%, from £8.4 million to £11.0 million. Product and technology licensing revenues are non-recurring and are typicallytriggered by the signing of new licence agreements or by regulatory orcommercial events and as such tend to be irregular in timing and subject tovariation from one period to another. Total product licensing revenues in theperiod were £4.6 million, and included £4.0 million recognised from the upfrontNVA237 access fee of £7.9m, which was received in April 2005, and £0.6 millionof the VR315 access payment from an undisclosed licensee which is beingrecognised over a four-year period from 31 March 2006. Technology licensing revenues of £1.7 million were realised during the period.This was the access fee from Boehringer Ingelheim, which is being recognisedover two years. Pharmaceutical Development Services (PDS) revenues for Vectura of £4.7 millionshowed a 9% increase on the prior year (£4.4 million); £1.8 million of theserevenues was generated in the six months to 31 March 2007. The Innovata PDSrevenues were £1.1 million for the 2.5 months to 31 March 2007 and £6.3 millionfor the 12 months to 31 March 2007. These revenues represent principallycontractual development fees charged to licensing partners for work carried outduring the year. Total royalties for the period were £1.4 million and relate to products in theportfolio acquired from Innovata. The principal royalty income streams were fromADVATE(R) and Extraneal(R), with smaller contributions from Adept(R) andproducts delivered in Clickhaler(R). If the Innovata acquisition had closed on1 April 2006 and royalties had been received at this level for the 12 months to31 March 2007, total royalties for the year would be £6.9 million. Sales of theproducts that underlie these royalty streams are expected to grow during the 12months to 31 March 2008. Product sales revenue of £0.5 million was derived from the sale of Clickhaler(R)devices to licensees. Gross profit The gross profit in the period to 31 March 2007 was £10.8 million, a 67%improvement on the prior year (£6.4 million). Gross profit in the year to 31March 2007 represents 77% of revenue (2006 - 77%). Research and development expenses Total investment in research and development was £17 million, a 37% increase onthe prior year (£12.4 million). These costs include primarily clinical trialcosts, salary costs for scientists and scientific support staff, intellectualproperty costs, laboratory running costs and depreciation. We expect ourinvestment in this area to almost double in our year to 31 March 2008 as some ofour key products move to late stage development and we consolidate 12 months ofInnovata's investment in this area. The research and development expenses forthe 12 months to 31 March 2008 will include savings in the region of £1 millionarising as a result of the acquisition of Innovata, these savings arise from areduction in regulatory, clinical development and intellectual property costs asthe Group benefits from the in-house expertise in these areas acquired with theInnovata business. Administrative expenses Administrative expenses for the year to 31 March 2007 were £2.6 million, a £0.8million increase on the prior period. This expenditure is expected to increasein the year to 31 March 2008 as the business grows and will include the one-offcosts of our move to the main list. However combined administration expenseswill benefit significantly from the acquisition of the Innovata business withsavings of approximately £2 million being achieved. These savings arise fromthe consolidation to one Board of Directors and the elimination of the duplicatecosts of running two listed companies. Amortisation expenses We acquired £74.5 million of intangible assets with Innovata. These assets arebeing amortised over a period of up to 10 years. The amortisation charge in theearlier years will be higher than that in the later years. A charge in theregion of £9.6 million is expected for the year ended 31 March 2008. Thesecharges have no cash impact. In accordance with accounting practice, thecalculation of the fair value of the assets acquired with the Innovata businessis provisional and may be adjusted at any time up to the anniversary of theacquisition in January 2008. Other income Other income of £1.4 million relates to the profit realised on the disposal ofthe oral and dermal technologies to PharmaKodex Limited. We maintain a 20%shareholding in this company. The £0.2 million share of the losses ofPharmaKodex Limited represent the percentage of losses equated to the Vecturashareholding. There are no cash implications attached to this share of lossesor the profit realised. There are no obligations on Vectura to provide fundingfor this company. Vectura will continue to consolidate a share of the profitsor losses of this entity. Net interest receivable Net interest receivable relates primarily to the interest income from cashinvested in overnight and other short-term deposits. In the year ended 31 March2007, the Group had net interest receivable of £2.8 million (2006 - £1.0million) on net cash deposits, reflecting the increased level of cash followingthe Placing in July 2006 and the acquisition of Innovata in January 2007. Taxation R&D tax credits are recorded upon receipt. £1.4 million of R&D tax credits werereceived in the year (2006 - £1.0 million) for the Vectura business. The taxcredit of £0.4 million relating to the Innovata business includes a £0.6 millionrelease of a deferred tax liability which equates to 30% of the amortisationcharge in the period. The total deferred tax liability of £21.8 million at 31March 2007 equates to 30% of the total carrying value of the Innovata intangibleassets acquired at that date. This liability will be released through the IncomeStatement in line with the amortisation charge on these assets. The Innovata business is expected to be profitable; however, it is not expectedto pay corporation tax in the immediate future due to the availability of £88million of tax losses acquired with the business. A tax asset of £1.9 millionhas been recognised which relates to the estimated tax that would be payable onthe Innovata profits for the year ending 31 March 2008 had these losses not beenavailable. Loss after taxation and loss per share The loss for the year after taxation was £6.8 million (2005 - £6.5 million)giving a loss per Ordinary Share of 4.4p (2006 - 6.0p). Assets Non-current assets were £156.2 million, compared with £6.5 million at 31 March2006, reflecting the goodwill, intangible assets, deferred tax asset andproperty, plant and equipment acquired with Innovata. Current assets were £86.0million (2006 - £21.5 million), which reflected an increase in prepayments andaccrued income in relation to the royalty streams receivable and a £60.7mincrease in the cash balance resulting mainly from the Placing in July 2006 andthe acquisition of Innovata. Goodwill Innovata was acquired for a total consideration of £123.6 million, whichconsists of £2.8 million of cash costs and the issue of 143.8 million ordinaryshares at 84p each. Goodwill on the acquisition was £72.3 million. Liabilities Total liabilities of £63.8 million include £8.1m of trade and other payables,£3.6 million increase more than the previous year (2006 - £4.5 million),reflecting the increase in activities of the enlarged Group. Liabilities alsoinclude £21.8 million of deferred tax discussed above, £11.3 million of deferredincome annualised below £0.4 million of finance lease liabilities and afinancial liability of £18.4 million. Financial liability Current liabilities include £3.2 million of a total £18.4 million financialliability, which represents an Innovata liability to a third party in respect ofAdept(R) and Extraneal(R) royalty streams. This financial liability equates toestimated £19.6 million due to the third party based on the agreed minimum andmaximum payments per annum; it includes an allocated interest charge of £1.2million. £0.8 million of this allocated interest charge is expected to beexpensed in the year ending 31 March 2008. Deferred Income Deferred income relates to milestones received but not yet recognised asrevenue. Included in the £4.4 million deferred income expected to be recognisedin the year ending 31 March 2008 is £1.7 million relating to BoehringerIngelheim; £1 million relating to VR315; £0.8 million relating to Clickhaler,£0.2m relating to NVA237 with the majority of the balance relating to Innovata'svaccine delivery deal. The £6.9 million to be recognised as revenue in latteryears includes £2 million for VR315, £2.6 million for Clickhaler and £2.4million for Duohaler(R). Shareholders' equity Shareholders' equity at 31 March 2007 was £182.3 million (2006 - £16.6 million),a net increase of £165.7 million. This increase comprised the shares issued inthe year for both the fundraising and the acquisition of Innovata, and a sharebased payments charge, less the recognised loss for the year. Capital expenditure Capital expenditure in the period was £2.4 million (2006 - £1.3 million),incurred principally on laboratory equipment and a blister filling machine forthe VR315 programme. Capital expenditure is expected to be slightly in excessof this in the year ended 31 March 2008. Operating cash flow Net cash outflow from operating activities in the period was £6.5 millioncompared to £1.6 million in the prior year. A net cash contribution of £18.2million was received from the Innovata business in the period. At 31 March2007, Vectura had cash and short-term deposits of £77.5 million (2006 - £16.8million). Financing activities The main financing activities that occurred during the year were as follows: • the issue of 4.9 million ordinary shares to Boehringer Ingelheim in May2006 at a price of £1.40 per share generating £6.9m • the issue of 52.9 million shares in July 2008 at a price of £0.85 pershare generating £45 million before expenses of £2.1 million HeadcountHeadcount at 31 March 2007 was 236 (31 March 2006 - 126) Consolidated Income Statementfor the year ended 31 March 2007 2007 2007 2007 2006 Total Total Continuing acquisition continuing Notes £000 £000 £000 £000 Revenue 3 11,046 3,005 14,051 8,411Cost of sales (2,352) (943) (3,295) (1,965) ______ ______ ______ ______Gross profit 8,694 2,062 10,756 6,446 Research and development expenses (15,427) (1,567) (16,994) (12,397) Administrative expenses (2,376) (239) (2,615) (1,783) Amortisation - (1,995) (1,995) - Share-based compensation (1,633) - (1,633) (741) ______ ______ ______ ______Total administrative expenses (4,009) (2,234) (6,243) (2,524)Share of loss of associate (208) - (208) -Other income 1,423 - 1,423 - ______ ______ ______ ______Operating loss (9,527) (1,739) (11,266) (8,475)Finance revenue 2,633 183 2,816 1,042Finance costs (3) (239) (242) (6) ______ ______ ______ ______Loss before taxation (6,897) (1,795) (8,692) (7,439)Taxation 1,437 428 1,865 984 ______ ______ ______ ______Loss after taxation attributable toequity holders of the Company (5,460) (1,367) (6,827) (6,455) ______ ______ ______ ______ Loss per ordinary share basic and diluted 5 (4.4p) (6.0p) ______ ______ Consolidated Balance Sheetat 31 March 2007 2007 2006 Notes £000 £000AssetsGoodwill 12 74,279 2,012Intangible assets 72,505 -Property, plant and equipment 5,635 4,071Investments in associates and joint ventures 1,228 -Trade investment 250 -Deferred tax asset 1,871 -Other receivables 428 428 ______ ______Non-current assets 156,196 6,511 ______ ______Inventories 202 -Trade and other receivables 6 8,230 4,689Short-term investments 500 -Cash at bank and in hand 77,029 16,828 ______ ______Current assets 85,961 21,517 ______ ______Total assets 242,157 28,028 ______ ______LiabilitiesDeferred income 8 (6,888) (2,258)Financial liabilities (15,163) -Deferred tax (21,752) - ______ ______Non-current liabilities (43,803) (2,258) ______ ______Trade and other payables 7 (8,060) (4,475)Obligations under finance leases (410) (14)Deferred income 8 (4,400) (4,666)Financial liabilities (3,216) - ______ ______Current liabilities (16,086) (9,155) ______ ______Total liabilities (59,889) (11,413) ______ ______Net assets 182,268 16,615 ______ ______EquityShare capital 9 113 62Share premium 72,889 22,869Shares to be issued - 918Special reserve 8,245 8,245Merger reserve 124,905 3,211Share-based compensation reserve 3,036 1,403Retained loss (26,920) (20,093) ______ ______Total equity 182,268 16,615 ______ ______ Consolidated Cash Flow Statementfor the year ended 31 March 2007 2007 2006 Notes £000 £000 Net cash flows from operating activities 11 (6,510) (1,560) ______ ______Cash flows from investment activitiesCash acquired as part of Innovata 19,882 -Costs in association with acquisition of Innovata (2,830) -Interest received 2,816 1,042Investment in associate (160) -Purchase of property, plant and equipment (2,438) (1,295)Receipts from sale of property, plant and equipment 22 - ______ ______Net cash flows from investment activities 17,292 (253) ______ ______Cash flows from financing activitiesProceeds from issue of ordinary shares 52,143 347Share issue costs (2,072) -Payment of finance lease liabilities (139) (84)Repayment of loans - (4)Interest paid on loans (3) (1)Interest paid on finance leases (10) (5) ______ ______Net cash flows from financing activities 49,919 253Increase/(decrease) in cash and cash equivalents 60,701 (1,560)Cash and cash equivalents at beginning of period 16,828 18,388 ______ ______Cash and cash equivalents at end of period 77,529 16,828 ______ ______ Notes to the Financial Information 1. Basis of preparation The financial information included in this statement does not constitutestatutory accounts as defined in Section 240 of the Companies Act 1985. Thefinancial information has been extracted without material adjustment from theconsolidated financial statements of Vectura Group plc for the year ended 31March 2007, which have been audited. The auditors have made a report underSection 235 of the Companies Act 1985 in respect of the statutory consolidatedaccounts for the year ended 31 March 2007 and 31 March 2006. Their reports wereunqualified within the meaning of Section 262(1) of the Companies Act 1985 anddid not contain a statement under Section 237 (2) or (3) of that Act. Whilst the information included in this preliminary announcement has beencomputed in accordance with International Financial Reporting Standards (IFRS),this announcement does not itself contain sufficient information to comply withIFRSs. Statutory accounts for the financial year ended 31 March 2006 have beendelivered to the registrar of Companies pursuant to Section 242 of the Act,whereas those for 2006/07 will be delivered following the Annual GeneralMeeting. The Group's Annual Report and Accounts will be sent to shareholders in June 2007and will be available on our website www.vectura.com. 2. Accounting policies The financial information has been prepared in accordance with IFRS. Thesefinancial statements have been prepared in accordance with those IFRS standardsand IFRIC interpretations issued and effective and early adopted at the time ofpreparing these statements (May 2007). The policies have been consistentlyapplied to all periods presented. Full details of the Group's accountingpolicies can be found in the 2006 Annual Report, which is available on ourwebsite www.vectura.com. 3. Revenue Revenue represents amounts invoiced to third parties, derived from the provisionof licences and services which fall within the Group's sole ordinary activity,the development of pharmaceutical products. Group revenue by category: 2007 2006 £000 £000 Product licensing 4,592 3,803Technology licensing 1,713 238Pharmaceutical development services 5,838 4,370Royalties 1,443 -Product sales 465 - ______ ______ 14,051 8,411 ______ ______ Acquired revenue by category: 2007 2006 £000 £000 Product licensing 30 -Technology licensing - -Pharmaceutical development services 1,076 -Royalties 1,434 -Product sales 465 - ______ ______ 3,005 - ______ ______ 4. Staff numbers and costs Employees The average monthly number of employees (including Executive Directors) employedby the Group during the year was as follows: 2007 2006 No. No. Research and development 153 112Business development and administration 10 8 ______ ______ 163 120 ______ ______ The aggregate remuneration comprised: 2007 2006 £000 £000 Wages and salaries 7,018 4,878Social security costs 860 627Other pension costs 407 303 ______ ______ 8,285 5,808 ______ ______ In addition to the wages and salaries analysis above are the effects of thecharge for share-based compensation under IFRS 2 during the year of £1,633,000(2006 - £741,000). 5. Loss per ordinary share The calculation of loss per share is based on the following losses and number ofshares: 2007 2006 Loss for the year (£000) (6,827) (6,455)Weighted average number of ordinary shares (No. '000) 155,205 108,298Loss per ordinary share (4.4p) (6.0p) ______ ______ The loss per share is based on the weighted average number of shares in issueduring the period. IAS 33, "Earnings per Share", requires presentation ofdiluted earnings per share when a company could be called upon to issue sharesthat would decrease net profit or increase net loss per share. No adjustment hasbeen made to the basic loss per share, as the exercise of share options andwarrants would have the effect of reducing the loss per ordinary share, and istherefore not dilutive. 6. Trade and other receivables 2007 2006 £'000 £'000 Trade receivable 2,099 4,156Other receivables 14 36Prepayments and accrued income 5,538 278VAT recoverable 579 219 ______ ______ 8,230 4,689 ______ ______ 7. Trade and other payables 2007 2008 £'000 £'000 Trade payables 1,063 698Other taxes and social security costs 144 144Other payables 438 -Accruals 6,143 3,633 ______ ______ 8,060 4,475 ______ ______ 8. Deferred income Deferred income relates to amounts received under product licensing agreements.Vectura Group plc continues to provide services to these licensing partners overa period of time. Milestone payments under these licensing agreements aretherefore spread, and deferred income is as follows: 2007 2006 £'000 £'000 Amounts due within 1 year 4,400 4,666Amounts due in more than 1 year 6,888 2,258 ______ ______At 31 March 11,288 6,924 ______ ______ 9. Share capital 31 March 2007 31 March 2006 £000 No.'000 £000 No.'000Authorised:Ordinary shares of 0.025p each 110 441,200 45 181,200Redeemable preference shares of £1 each 34 34 34 34 ______ ______ ______ ______Allotted, called up and fully paid:Ordinary shares of 0.025p each -At 1 April 28 110,330 27 107,899Issued to investors 15 57,881 - -Issued on acquisition of Innovata 36 143,825 - -Issue to Share Investment Plan - 300 - -Issued in satisfaction of deferred consideration - 1,350 - -Issued on exercise of share options - 832 1 2,105 ______ ______ ______ ______At 31 March 79 314,518 28 110,330 ______ ______ ______ ______Redeemable preference shares of £1 each -At 1 April and 31 March 34 34 34 34 ______ ______ ______ ______ 10. Share options and Long-Term Incentive Plan A summary of the outstanding options is shown below. Vectura schemes Unapproved EMI Sharesave Plan Plan Scheme Total Options outstanding at 1 April 2006 7,274,120 4,032,436 701,660 12,008,216Options granted 1,045,462 - 439,003 1,484,465Options exercised (161,111) (668,444) - (829,555)Options forfeited (42,900) - (19,397) (62,297) ______ ______ ______ ______ Options outstanding at 31 March 2007 8,115,571 3,363,992 1,121,266 12,600,829 ______ ______ ______ ______ Options vested at 31 March 2007 2,792,634 3,244,976 - 6,037,610 ______ ______ ______ Acquired Innovata schemes 1998 1999 Scheme Scheme Total Options outstanding at 18 January 2007 334,332 9,162,459 9,496,791Options exercised - (2,772) (2,772) ______ ______ ______Options outstanding at 31 March 2007 334,332 9,159,687 9,494,019 ______ ______ ______ Options vested at 31 March 2007 334,332 4,015,286 4,349,668 ______ ______ ______ Long-Term Incentive Plan ("LTIP") In addition to the options at 31 March 2007, Executive Directors and eligiblesenior managers hold rights which may result in the issue of 1,032,611 ordinaryshares on 12 September 2008, 668,814 ordinary shares on 22 November 2009 and329,670 ordinary shares on 1 March 2010 under the LTIP. 11.Reconciliation of net cash flows from operating activities Year Year ended ended 31 March 31 March 2007 2006 £000 £000 Operating loss (11,266) (8,475)Depreciation of property plant and equipment 1,265 816Amortisation of intangible assets 1,995 -Profit on sale of assets (20) -Profit on disposal of investments (1,215) -Decrease in inventories 24 -Decrease/(increase) in receivables 4,469 (3,839)(Decrease)/increase in payables (2,555) 1,289(Decrease)/increase in deferred income (2,236) 6,924Share-based compensation 1,633 741 ______ ______Net cash outflow from operations (7,906) (2,544)Tax 1,396 984 ______ ______Net cash outflow from operating activities (6,510) (1,560) ______ ______ 12. Acquisition Innovata earned revenues of £23.1 million in the year to 31 March 2007, andachieved an operating profit of £4.7 million before exceptional cash costs of£4.1 million relating to the acquisition by Vectura. Retained loss for the 12month period was £5.5 million, after further non-cash exceptional charges of£6.1 million relating to the increase in financial liabilities. The purchase of Innovata has been accounted for using acquisition accounting,after taking into account the fair value of the shares issued by Vectura Groupplc based on the market value at the close of business on 17 January 2007 of 84pence per share. On this basis, the net assets acquired and the goodwill arisingin respect of the acquisition of Innovata were as follows: Fair value of net assets of Innovata: Book Fair value value £000 £000 Goodwill 38,873 -Intangible assets 11,816 74,500Property, plant and equipment 3,758 700Investments 250 250Inventories 228 228Debtors 8,009 8,009Deferred tax asset - 2,000Cash 19,882 19,882Creditors (9,912) (9,912)Deferred income (1,700) (3,274)Financial liabilities (12,428) (18,657)Deferred tax liability (3,545) (22,350) ______ ______ 55,231 ______ Net assets acquired 51,376Goodwill 72,267 ______ 123,643 ______ Consideration discharged by:Fair value of shares issued 120,813Costs associated with the acquisition 2,830 ______Total consideration 123,643 ______ The adjustments made to book values in arriving at the fair value of the netassets of Innovata comprise adjustments arising from the application of theaccounting policies of Vectura Group plc where they differ from those of theInnovata Group, and adjustments arising from a provisional assessment of thefair values of the assets and liabilities of the Innovata Group. These include: • The identification of separately identifiable intangible assetsacquired, consisting of licence agreements and supply agreements held byInnovata. The recognition of a deferred tax liability in relation to theseintangible assets has also been included. • Accounting policy adjustments to deferred income. • Fair value adjustments to write down the value of research anddevelopment fixed assets held, to recognise a deferred tax asset and torecognise a provision relating to the third party liability on royalty streamsfor Adept(R) and Extraneal(R). • Goodwill comprises the value held in assets that are not separatelyidentifiable and include new products from the patent portfolio and the know-howand skill base contained within the motivated workforce. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
VEC.L