Final Results

22nd May 2008 07:00



Vectura Group plc - Preliminary Results for the year ended 31 March 2008

- Strong financial performance and good clinical progress -

Chippenham, UK - 22 May 2008: Vectura Group plc (LSE: VEC) ("Vectura"), the inhaled product development company, today announces its preliminary results for the year ended 31 March 2008.

Financial Highlights

Cash generative year with net cash inflow of £3.6 million* (2006/07: net cash burn £6.3 million*) following a full year contribution from the Innovata business, with strong revenues and cost savings in excess of expectations 

Total revenues increased by 80% to £25.2 million (2006/07: £14.1 million) 

Gross profit up by 94% to £20.8 million (2006/07: £10.8 million) 

Investment in research and development up by 75% to £29.7 million (2006/07: £17.0 million) 

Cash of £78.8 million at 31 March 2008 (31 March 2007: £77.5 million) 

Operational & Product Highlights

Significant progress across Vectura's key respiratory programmes

VR315 for asthma - achievement of milestone (partnered with major generic company) - €3 million received October 2007

Boehringer Ingelheim - achievement of milestone on collaboration to develop a new dry powder inhaler (DPI) - €10 million cash payment, and an additional €5 million equity investment received in December 2007

NVA237 and QVA149 for COPD (partnered with Novartis) - initiation of five new Phase II clinical studies 

VR632 for asthma - deal worth €15.5 million plus royalties to develop a second combination product for asthma with Vectura's collaboration partner for VR315, announced in December 2007

Successful outcomes from clinical studies

VR147 for migraine - completion of early proof of concept study

VR040 for Parkinson's disease - completion of second Phase II study

VR004 for erectile dysfunction - completion of second Phase IIb study

VR776 for premature ejaculation - completion of Phase IIa study

Completion of Phase I glucose clamp study 

Move from AIM to the Official List of the London Stock Exchange in July 2007

Dr Chris Blackwell, Chief Executive of Vectura, commented: 

"Vectura has made great progress over the past twelve months, a year in which we achieved major pipeline and business milestones, which together advance the Company towards our vision to build a leading speciality pharmaceutical company. We also achieved cash generation during the year, while at the same time increasing our investment in development activities by 75% to £29.7 million. Our strong cash position validates the exceptional fit of the profitable Innovata business with Vectura's product development strategy as we progress towards our goal of becoming cash generative on a sustainable basis. We look forward to the initiation of the key registration trials on our asthma and COPD programmes."

* cash flows are before financing and exclude the £19.9m cash acquired with the Innovata business and the £2.8m of acquisition expenses in 06/07

- Ends -

Chris Blackwell and Chief Financial Officer Anne Hyland will discuss the Company's results at an analyst/investor presentation and conference call today at 9:30 a.m. GMT. For further details please contact Claire Rowell at Financial Dynamics on +44(0)207 2697285.

Enquiries:

Vectura Group plc	+44 (0)1249 667700
Chris Blackwell, Chief Executive
Anne Hyland, Chief Financial Officer
Julia Wilson, Director of Investor Relations & Corporate Communications
Financial Dynamics	+44 (0)20 7831 3113
David Yates
Ben Atwell
Susan Quigley

Notes for Editors: 

About Vectura 

Vectura Group plc is a product development company focused on the development of a range of inhaled therapies principally for the treatment of respiratory diseases. Vectura develops products to treat respiratory diseases such as asthma, chronic obstructive pulmonary disease (COPD) and cystic fibrosis, a market which is forecast to double over the next ten years from $23 billion in 2007 to $46 billion by 2017. Vectura also develops products for non-respiratory diseases where optimised delivery via the lungs could provide significant benefits, such as a rapid onset of action, improved efficacy and improved tolerability compared with current therapies.

Vectura has eight products marketed by its partners and a portfolio of drugs in clinical and pre-clinical development, some of which have been licensed to major pharmaceutical companies. The Company seeks to develop certain programmes further through development to optimise value through licensing at a later stage. Vectura also offers its formulation and inhalation technologies to other pharmaceutical companies on a licensing basis where this complements Vectura's business strategy.

Vectura has development collaborations with several pharmaceutical companies including Boehringer Ingelheim, Chiesi, Novartis and Sandoz (the generics arm of Novartis). The acquisition of Innovata in January 2007 brought established alliances with a number of additional companies, such as Baxter, GlaxoSmithKline (GSK), Merck Generics (part of Mylan Inc), UCB and Otsuka, as well as providing revenue streams, complementary products and critical mass. 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 statement. 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.

CHAIRMAN'S AND CHIEF EXECUTIVE'S REVIEW 

OVERVIEW 

Vectura completed another successful year, enjoying good progress on the product pipeline, including the introduction of a new partnered asthma/COPD therapy (VR632), revenues of over £25 million, and net cash generation of £3.6 million before financing. This strong financial performance is attributable to the addition of the Innovata business, which contributed over £17 million (68%) of revenues and £8.6 million of earnings before interest, taxes, depreciation and amortisation (EBITDA). Our goal, to become a sustainable, self-funding principal player in the development of inhaled pharmaceutical products, has been strengthened by the acquisition and is validated by these results.

Important milestones during the year include the receipt of a further €15 million from Boehringer Ingelheim under our global licensing agreement, providing considerable validation of the progress we are making on our device technologies. Whilst Vectura's focus is as a company that develops products, the nature of the agreement with Boehringer Ingelheim provides us with another opportunity to deliver value from our inhaled therapy technologies.

We also received €3 million in October 2007 from our partner on our generic asthma/COPD product, which provides a strong indicator that the programme is moving forward positively. This was further endorsed in December 2007 when we announced a second collaboration with the same partner on a new generic asthma/COPD product, VR632. Under this agreement, Vectura will receive up to €15.5 million in milestones and development funding prior to the launch of VR632, and royalties on all product sales in the EU. Vectura is free to sell or to license this product in other territories.

In May 2008, Sandoz, the generics division of Novartis, disclosed that they are investing over $50 million in manufacturing facilities for GyroHaler® products for both the US and European generic respiratory markets.

Novartis, which is also our partner on our monotherapy and combination COPD therapies, NVA237 and QVA149, is making good progress with three completed and two ongoing Phase II studies and Vectura expects Novartis to apply for regulatory approval for both products in 2011.

Over the course of the year, we announced positive data from five clinical programmes, the most recent of which was completion of an early proof-of-concept study with our inhaled triptan, VR147. The data demonstrate that the drug is safe and well tolerated, providing a rapid achievement of plasma concentrations known to be effective in patients with migraine. This offers exciting opportunities, not just for VR147, but also in the applicability of our inhalation technologies to deliver other triptans. In addition, we successfully completed a second Phase II study with VR040, our product for treating "off" episodes associated with Parkinson's disease. The results demonstrate that it is well tolerated and successfully recovers patients from an induced "off" episode with a rapid onset of action that is also durable.

We continue to seek licensing partners for our sexual dysfunction programmes. During the year we generated positive Phase II data for both VR004 for erectile dysfunction and VR776 for premature ejaculation.

People 

Our employees are crucial to the success of the Company and we are committed to the development of a motivated and professional workforce. It is their skill and expertise that has enabled us to achieve our progress to date and we have a first-class team to help us as we move closer towards approval of some of our late-stage products. On behalf of the entire Board, we would like to thank our staff for their hard work and their continued support and commitment. 

Financial strength

In these challenging markets, it is important to have a well-financed company; we ended the year with £78.8 million in cash, £1.3 million more than when we started at the beginning of this financial year (£77.5 million). This was as a result of a number of factors, including revenues from our marketed products, the receipt of milestones from our partners, and careful management of our financial resources. We also generated cash savings in excess of our expectations from the integration of the Innovata business. Whilst we have not yet reached a sustainable cash-generative position, we are confident that we will achieve this goal in the future, aided by substantial milestones and royalties from our partners as our late-stage respiratory programmes are filed and come to market. 

Outlook

Vectura has a broad and innovative clinical pipeline that combines mid- and late-stage pharmaceutical products with earlier stage opportunities addressing fast-growing market sectors.

Our key efforts over the coming year will be focused on the principal respiratory programmes. It is an exciting time in the Company's trajectory as we look forward to the commencement of registration trials both with the COPD programmes partnered with Novartis and with our generic asthma/COPD programmes. The markets we target provide us with huge opportunities and are significant value drivers for Vectura. We have a healthy pipeline of products in development and we will continue to drive these forward in a focused manner, whilst maintaining a prudent eye on expenditure. It is with this in mind that we are exploring partnering one or more of our proprietary programmes, including our migraine therapy, VR147.

We are pleased to have finished the year with more cash in the bank than when we started. Although not a sustainable trend at this time, it validates our acquisition of Innovata, a company that provides us with steady revenues and gives us confidence that we can achieve our goal of becoming a cash-generative business, and provide valuable returns for our shareholders.

Dr Chris Blackwell

Mr Jack Cashman

PRODUCT PIPELINE 

Respiratory 

Vectura has a strong respiratory development portfolio, as well as marketed products from which revenues are generated:

Product	Indication	Description	Status	Partner
NVA237	COPD	Long-acting muscarinic antagonist	Phase II	Novartis
QVA149	COPD	Combination of NVA237 and a long-acting beta agonist (QAB149)	Phase II	Novartis
VR315	Asthma/COPD	Generic combination product	In preparation for registration studies	Undisclosed
VR632	Asthma/COPD	Generic combination product	In preparation for clinical development	Undisclosed
Duohaler® programmes	Asthma/COPD	Generic dual-drug products	In preparation for registration studies	Undisclosed
BI Collaboration	Various	DPI for respiratory products	Pre-clinical	Boehringer Ingelheim
VR496	CF/COPD	Mucolytic/anti-inflammatory	In preparation for Phase II	-
Budesonide Clickhaler®	Asthma	Budesonide delivered in Clickhaler®	Phase III	Japan, Undisclosed

NVA237 and QVA149 for chronic obstructive pulmonary disease (COPD) 

NVA237 is a dry powder inhaled formulation of glycopyrronium bromide, a long-acting muscarinic antagonist (LAMA) with a rapid onset of activity. NVA237 was licensed to Novartis International Pharmaceuticals Limited ("Novartis") in April 2005 by Vectura and its co-development partner Sosei Co Ltd ("Sosei").

Novartis intends to launch NVA237 as a once-daily monotherapy for COPD and in combination with Novartis's once-daily, long-acting beta agonist (LABA) indacaterol (or QAB149), which is currently in Phase III development. The combination of NVA237 and indacaterol is known as QVA149.

COPD, the world's fourth largest cause of death, is a chronic obstruction of the airways, which is caused primarily by smoking. It is estimated that COPD occurs in over 6% of the US population and that at least one in eight smokers suffers from the condition. The current market for COPD drug therapy is estimated to be worth US$6 billion a year and is predicted to grow to US$11 billion by 2011.

Under the terms of the licence agreement, Vectura and Sosei each received an initial payment of US$15 million (£7.9 million) in April 2005. Clinical, regulatory and commercialisation milestones payable upon the achievement of pre-agreed targets for both the monotherapy and the combination product could reach US$172.5 million for each company. The initial payment of US$15 million to each company and the potential milestones could total up to US$375 million. 

In addition, royalties on product sales will be paid for the monotherapy and the combination products.

QVA149 is one of the most advanced once-daily LAMA/LABA combinations in development and Vectura believes that it could be the first such combination to come to market for COPD. The dual activity of a muscarinic antagonist and a beta-adrenergic agonist promises to be a potent bronchodilator and, with convenient once-daily dosing, has the potential to address a large and unmet need for COPD sufferers. 

Novartis is currently undertaking Phase II studies on NVA237 and QVA149, and Vectura expects Novartis to apply for regulatory approvals in 2011.

VR315 for asthma/COPD 

Combination therapy for asthma is the biggest and fastest growing sector of the asthma market, with annual sales currently exceeding US$8 billion.

VR315 is an inhaled combination therapy for asthma and COPD that is being developed as a generic product using the GyroHaler® DPI delivery device. Vectura licensed the European rights for VR315 to a leading international pharmaceutical company in March 2006. The US rights were licensed to the same partner in December 2006. In October 2007, Vectura received €3 million in cash from its partner in relation to milestones achieved during the six months to 30 September 2007.

 

Vectura should receive a further €10 million in milestones from its EU collaboration and up to US$30 million from its US collaboration prior to the launch of VR315 in these regions. Revenues will also be earned on all product sales in the EU and from a profit share in the US and Vectura will also earn a margin on the commercial manufacture and supply of GyroHaler®. Vectura retains rights for other territories.

VR632 for asthma/COPD 

On 18 December 2007, Vectura announced that its collaboration partner for VR315 had exercised an option to license VR632, a second combination therapy for asthma and COPD. VR632 will be developed as a generic combination product using GyroHaler®. 

Vectura will receive up to €15.5 million in milestones and development funding prior to the launch of VR632, and will earn royalties on all product sales, as well a margin on the commercial manufacture and supply of GyroHaler®.

Duohaler® for asthma/COPD

Vectura has two exclusive agreements with a leading global pharmaceutical company for the marketing and distribution in Europe and other specified countries (excluding the US and Japan) of two Duohaler® products, each of which delivers two separately formulated respiratory drugs using a single inspiratory breath. 

Boehringer Ingelheim collaboration on respiratory medicines

Most treatments for asthma and COPD are delivered by inhalation. Global markets for these treatments are valued in excess of US$23 billion today and are forecast to grow to US$46 billion by 2017. Dry powder inhalers are increasingly the first choice for patients with these conditions and it is expected that DPIs will be used to deliver the majority of the drugs sold in these markets by 2011. There is, therefore, a growing demand for dry powder inhalers, particularly those that can deliver high performance and consistent dosing. Vectura believes that its device and formulation technologies are well placed to capture a significant market share.

In April 2006, Vectura agreed a non-exclusive, worldwide collaboration, development and licence agreement with Boehringer Ingelheim to develop a DPI as a tailored Boehringer Ingelheim device to deliver a range of their proprietary respiratory products, primarily for treating asthma and COPD. In November 2007, Vectura announced that it had achieved a pre-agreed milestone under the collaboration, receiving a cash payment of €10 million and a €5 million equity investment. Boehringer Ingelheim will be responsible for further development, manufacturing and clinical trial use of the DPI with their proprietary compounds, and the commercialisation of these products. Vectura will receive development milestones and royalties on sales of each product that uses the device. Our collaboration with Boehringer Ingelheim has added significantly to our intellectual property portfolio and provided Vectura with an excellent DPI platform to deliver further value from its inhaled therapy technologies through other collaborations.

VR496 for cystic fibrosis (CF) and COPD 

VR496 is being developed as an inhaled, locally acting treatment for CF, and has the potential to be developed as a therapy for COPD. The active component of VR496 is a drug that has been approved worldwide as an injected or infused treatment for other indications. A significant literature database describes the multi-modal and complementary pharmacological properties of the active molecule that is relevant to the treatment of CF and COPD, with mucolytic, anti- inflammatory, bronchodilatory and anti-infective activity being particularly relevant. The European Medicines Evaluation Agency (EMEA) and US Food and Drug Administration (FDA) have designated VR496 an orphan drug. 

Vectura expected that this product would enter Phase II studies in early 2008; however, due to a delay from our raw materials supplier, we are now anticipating that the study will start in the third quarter of 2008.

Vectura intends taking VR496 through both Phase II and Phase III clinical trials unpartnered. For COPD, we intend to offer VR496 for out-licensing following completion of a Phase II programme.

Budesonide Clickhaler® for asthma in Japan 

Vectura has an exclusive agreement with an undisclosed Japanese pharmaceutical company for the marketing rights to the Clickhaler® for use with budesonide in Japan. Under the agreement, Vectura supplies devices on commercial terms and will receive milestone payments based on its successful clinical and regulatory development and royalty payments on future sales. The Japanese pharmaceutical company is responsible for the clinical and regulatory activities regarding the product, for which Phase III trials have been undertaken.

Neurology 

Vectura has two products in full development in its neurology franchise.

Product	Indication	Description	Status	Partner
VR040	Parkinson's disease	Inhaled apomorphine	Phase II	Available for licensing
VR147	Migraine	Inhaled triptan	Phase I	Available for licensing

VR040 for Parkinson's disease (PD) 

VR040 is an inhaled, systemically acting product for treating "off" episodes associated with advanced PD, The active ingredient in VR040, apomorphine hydrochloride, has previously been approved as an injectable formulation in Europe, and more recently in the US, for treating "off" episodes. VR040 is Vectura's formulation of apomorphine, delivered by inhalation using our proprietary DPI technology. 

The EMEA has designated VR040 an orphan drug. Vectura is using the EMEA Scientific Advice procedure to progress the development of VR040. 

The successful results of a Phase IIa proof-of-concept clinical study for VR040 were reported in August 2006. In October 2007, Vectura announced successful completion of a second Phase II clinical study for VR040 in patients with PD. The study demonstrated that VR040 is safe, well-tolerated, and successfully recovers patients from an induced "off" episode with a rapid onset of action; this effect is also durable. Vectura believes that through delivery of apomorphine by inhalation, patients may experience benefits beyond those offered by currently available formulations of apomorphine.

Vectura will commence a VR040 Phase IIb "at-home" study in the fourth quarter of 2008.

VR147 for migraine 

VR147 is an orally inhaled DPI formulation of a triptan that offers the potential to provide a rapid onset of action, and so provide early symptomatic relief for migraine sufferers. In April 2008, Vectura announced the successful completion of an early proof-of-concept study. The data demonstrated that VR147 is safe and well-tolerated. Plasma concentrations are proportionate with the dose given. Maximum arterial and venous plasma concentrations were observed 4 minutes and 8 minutes after dosing, respectively, compared with an average of 12 minutes when the triptan is administered subcutaneously.

Vectura is exploring out-licensing opportunities for VR147.

Other development products 

Product	Indication	Description	Status	Partner
VR004	Erectile dysfunction	Inhaled apomorphine	Phase IIb completed	Available for licensing
VR776	Premature ejaculation	Inhaled product that acts via 5HT- and noradrenergic-mediated pathways in the brain	Phase IIa	Available for licensing

VR004 for erectile dysfunction (ED) 

VR004 is inhaled, ultra-low dose, apomorphine that has the potential to provide rapid benefit to patients with mild, moderate and severe ED. Apomorphine has been approved previously in Europe for ED as a sublingual tablet. VR004 is formulated in a proprietary Vectura formulation, delivered using Vectura's Aspirair® device. 

Vectura has demonstrated efficacy, with a rapid onset of action in ED patients in a Phase IIa clinical study. In subsequent Phase IIb clinical trials, completed in June 2006 and April 2007, Vectura demonstrated in a safe, effective and well-tolerated dose range and is now seeking licensing partners for the product. 

VR776 for premature ejaculation (PE) 

VR776 is a proprietary, inhaled, systemic treatment for PE in which the active ingredient is an off-patent neuro-active drug approved worldwide for the treatment of other indications. VR776 is formulated using PowderHale® and is delivered with Aspirair®. 

Vectura has completed pre-clinical toxicology studies and a clinical Phase I study. A successful Phase IIa proof-of-concept study was announced in May 2007. Vectura is seeking licensing partners for the product. 

MARKETED PRODUCTS

Vectura receives royalties from the sale of products by its partners, three of which are licensed to Baxter.

Product	Indication	Description	Status	Partner
ADVATE®	Haemophilia A	Serum-free recombinant factor VIII	Marketed - worldwide	Baxter
Adept®	Prevention of surgical adhesions	4% icodextrin solution	Marketed - US and Europe	Baxter
Extraneal®	Peritoneal dialysis	Solution containing icodextrin	Marketed - worldwide	Baxter
Asmasal®	Asthma	Salbutamol delivered in Clickhaler®	Marketed - UK, France and Ireland	UCB SA
Asmabec®	Asthma	Beclometasone delivered in Clickhaler®	Marketed - UK, France and Ireland	UCB SA
Budesonide Clickhaler®	Asthma	Budesonide delivered in Clickhaler®	Marketed - some European countries	Mylan Inc
Formoterol Clickhaler®	Asthma	Formoterol delivered in Clickhaler®	Marketed - some European countries	Mylan Inc
Meptin Clickhaler®	Asthma	Procaterol delivered in Clickhaler®	Marketed - Japan	Otsuka Pharmaceutical Co

ADVATE® for Haemophilia A

In 2000 Baxter was granted worldwide rights to use Vectura's stabilisation patents and has utilised the technology in its serum-free recombinant Factor VIII, ADVATE®. ADVATE® is indicated for the treatment of haemophilia A and is marketed worldwide by Baxter. Vectura receives royalties on sales of ADVATE®. Sales have increased to over US$1.2 billion in 2007, compared to US$850 million in 2006.

There is strong demand for ADVATE®, and Baxter continues to differentiate the product with various dosage forms making it easier for patients to administer higher doses from fewer vials and to reduce the total infusion time. Sales growth is expected from increased compliance, establishing prophylaxis as the standard of care and continuing to support global penetration of the therapy. Baxter projects sales for 2008 in the region of US$1.4 billion.

Adept® for prevention of surgical adhesions

Adept® is a 4% icodextrin solution used during surgery to reduce post-surgical adhesions, a frequent and major complication following gynaecological and other abdominal surgery. It has been used for this purpose in Europe since 2000. Vectura signed a global licence deal with Baxter in December 2005 for the manufacturing and distribution of Adept®.

On 1 August 2006, Baxter announced that the FDA had approved Adept® adhesion reduction solution for intraperitoneal use as an adjunct to good surgical technique for the reduction of post-surgical adhesions in patients undergoing gynaecological laparoscopic adhesiolysis. Baxter launched Adept® in the US in October 2006.

Extraneal® for peritoneal dialysis

Extraneal® is a peritoneal dialysis solution containing icodextrin, licensed to Baxter in 1996 and marketed by Baxter worldwide. The product has been launched in over 45 countries including, in 2003, the major US and Japanese markets. From September 2006, Vectura no longer receives royalties on the sales of Extraneal® in Europe but continues to receive royalties on sales in the US, Japan and the rest of the world.

Asmasal® and Asmabec® for asthma

Asmasal® and Asmabec® are Clickhaler® based products. Asmasal® contains salbutamol, a short-acting beta-2 agonist for the quick relief of asthma symptoms. Asmabec® contains beclometasone, an inhaled steroid used as standard preventative therapy for asthma. Asmasal® and Asmabec® are marketed by UCB SA in the UK, France and Ireland.

Budesonide Clickhaler® and Formoterol Clickhaler® for asthma

These are Clickhaler® based products containing budesonide and formoterol respectively. Budesonide is a steroid used as standard preventative therapy for asthma. Formoterol is a long-acting beta-2 agonist with a fast onset of action and longer duration than salbutamol, benefiting sufferers with more severe symptoms. Both products are marketed by Merck Generics (part of Mylan Inc) in some European countries and South Africa (formoterol only). Further European approvals are being progressed.

Meptin Clickhaler® for asthma

Otsuka in Japan has licensed the Clickhaler® technology from Vectura. The device is used to deliver its short-acting beta-2 agonist Meptin® (procaterol) for the quick relief of mild, intermittent asthma symptoms.

Vectura continues to explore licensing opportunities for Clickhaler® products in other countries. Vectura receives royalties on the majority of Clickhaler® products and also supplies the Clickhaler® devices to licensees and earns a margin on these device sales.

FINANCIAL REVIEW

Summary of results

The results for the year ended 31 March 2008 show total revenue of £25.2 million (2006/07 - £14.1 million), an 80% increase on the previous year. The operating loss for the year was £25.1 million (2006/07 - £11.2 million). The loss before tax was £21.4 million (2006/07 - £8.5 million) and the loss after tax £19.2 million (2006/07 - £7.1 million).

Innovata acquisition

Comparison of the results with the previous year is affected by the acquisition of Innovata in January 2007. Note 3 attached, identifies separately the results relating to the Innovata business for the 12 months to 31 March 2008. The combination of the two businesses has provided approximately £5 million per annum in research and development and administration cost savings, which 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 31 March 2008, total revenue increased compared to the prior year by 80% to £25.2 million, and included a contribution of £17.2 million from Innovata. 

Product and technology licensing revenues are non-recurring and are typically triggered by the signing of new licence agreements or by regulatory or commercial events and, as such, tend to be irregular in timing and subject to variation from one period to another. Total product licensing revenues in the period were £2.8 million, and included the final £0.2 million recognised from the upfront NVA237/QVA149 access fee of £7.9m, which was received in April 2005, £1.9 million of the VR315 £3.8 million access payments received in 2006 and £0.7 million relating to Innovata programmes.  

Technology licensing revenues of £2.9 million were realised during the period. This related to a €5 million access fee from Boehringer Ingelheim, which was received in April 2006 and a €10 million milestone payment generated in November 2007, both of which are being recognised over two years as we continue to work with Boehringer Ingelheim during this period.

Pharmaceutical Development Services (PDS) revenues of £9.0 million (2006/07 £5.8 million) represent principally contractual development fees charged to licensing partners for work carried out during the year. These revenues were exceptionally high for the year ended 31 March 2008 due to the scale of the contract development work during the year, which mainly related to work undertaken for our generic partners.

Total royalties for the period were £9.1 million and relate to products acquired from Innovata. The principal royalty income streams are from ADVATE® and Extraneal®, with smaller contributions from Adept® and products delivered in Clickhaler®. Royalties earned on these products in the 12 months to 31 March 2007 were £7.8 million, of which £1.4 million was included in the Vectura results for the 12 months to 31 March 2007. The royalties earned on ADVATE® in the year to 31 March 2008 were £5.8 million, or 64% of the total royalties generated, with Adept® and Extraneal® contributing £3.1 million (34%).

Device sales revenue of £1.5 million was derived mainly from the sale of Clickhaler® devices to licensees. 

Research and development expenses

Total investment in research and development was £29.7 million, a 75% increase on the prior year (£17.0 million). The development investment was lower than originally planned for the year ended 31 March 2008 due to small delays to the start of two clinical studies. Research and development costs include primarily clinical trial costs, salary costs for scientists and scientific support staff, intellectual property costs, laboratory running costs and depreciation. We expect our investment in this area to continue to increase as some of our key products move to late-stage development, with 2008/09 investment targeted at an approximate 15% increase on the current year. The research and development expenses for the 12 months to 31 March 2008 have included savings in the region of £1 million arising as a result of the acquisition of Innovata; these savings arising from a reduction in regulatory, clinical development and intellectual property costs as the Group now benefits from the in-house expertise in these areas that were acquired with the Innovata business.

Other administrative expenses

Other administrative expenses for the year to 31 March 2008 were £3.1 million, a £0.4 million increase on the prior period. This is the area where the synergies of combining the Innovata and Vectura businesses have resulted in savings of approximately £4 million per annum being achieved. These savings arise from the consolidation and the elimination of duplicate costs of running two listed companies.

Amortisation expenses

We acquired £74.6 million of intangible assets with Innovata. These assets are being amortised over a period of up to 10 years. The charge for the 12 months to 31 March 2008 was £10.2 million and it is expected that the charge will remain in this region for the year ending 31 March 2009. These charges have no cash impact. In accordance with accounting practice, the calculation of the fair value of the assets acquired with the Innovata business was revised during the period to January 2008 and the year ended 31 March 2007 was restated following this revision, the restatement resulted in a small £0.1 million increase in the value of the intangible assets as at the date of acquisition. Details of the adjustments are shown in Note 3 attached.

Taxation

R&D tax credits are recorded upon receipt. £2.3 million of R&D tax credits were received in the year (2006/07 - £1.4 million) and £0.1m (2006/07 - £nil) of withholding taxes were paid bringing the net cash received to £2.2 million. 

Restatement of fair value balance sheet on Innovata acquisition

Innovata was acquired for a total consideration of £123.6 million, which consisted of £2.8 million of cash costs and the issue of 143.8 million ordinary shares at 84p each. Note 3 summarises the revision to the fair value calculations in accordance with applicable accounting standards. The major change relates to the recognition of an additional £20.4 million deferred tax asset relating to the tax losses acquired with the business. In addition, there has been a £4.3 million reduction in a financial liability acquired with the business and a £0.1 million increase in the value of the acquired intangible assets. As a result of these adjustments the goodwill acquired with the business is now recorded at £47.6 million. In accordance with International Financial Reporting Standard 3 "Business Combinations", these adjustments have been reflected in the balance sheet as at 31 March 2007.

Restatement of income statement for the year ended 31 March 2007

The impact of the above adjustments on the income statement for the 12 months to 31 March 2007 has been to increase the loss after taxation by £0.3 million. There are three adjustments contributing to this change, a £0.1 million reduction in the amortisation charge, a £0.1m reduction in the imputed interest charge on the financial liability and a £0.5 million increase in the tax charge for that year due to the recognition of the deferred tax asset off-setting the deferred tax liability release.

Financial liability

Current liabilities include £0.9 million of a total £8.8 million financial liability, which represents an Innovata liability to a third party in respect of the Adept® and Extraneal® royalty streams. The total liability equates to an estimated £9.5 million of which £0.7m will be expensed as interest and is thus not included as part of the liability in the balance sheet as at 31 March 2008.

Deferred income

Deferred income relates to milestones received but not yet recognised as revenue. Included in the £5.5 million deferred income expected to be recognised in the year ending 31 March 2009 is £3.7 million relating to Boehringer Ingelheim, £1.0 million relating to VR315 and £0.8 million relating to Clickhaler®. The £8.2 million to be recognised as revenue in later years includes £2.4 million relating to Boehringer Ingelheim, £0.9 million for VR315, £2.6 million for Clickhaler® and £2.3 million for Duohaler®. 

Capital expenditure

Capital expenditure in the period was £0.7 million (2006/07 - £2.4 million). During the year one of our two blister filling machines was sold to our VR315/VR632 partner for £1.4 million in order to assist with the scale up of their manufacturing operations. Capital expenditure is expected to be in excess of £2 million in the year ending 31 March 2009 and will include an expansion of our GMP facilities in Chippenham.

Financing activities

We successfully moved from AIM to the Official List of the London Stock Exchange in July 2007. No additional fund raising took place as part of this move. The main financing activities that occurred during the year were the issue of 3.6 million ordinary shares to Boehringer Ingelheim in December 2007 at a price of £0.96 per share generating £3.5 million, and the repayment of a £5.2 million financial liability.

Consolidated income statement

for the year ended 31 March 2008

			Restated (1)
		2008	2007
		Total	Total
	Notes	£000	£000
Revenue	4	25,225	14,051
Cost of sales		(4,399) ______	(3,295) ______
Gross profit		20,826	10,756
Research and development expenses		(29,659)	(16,994)
Other administrative expenses		(3,052)	(2,615)
Amortisation		(10,177)	(1,952)
Share-based compensation		(2,702) ______	(1,633) ______
Total administrative expenses		(15,931)	(6,200)
Share of loss of associate		(314)	(208)
Other income		- ______	1,423 ______
Operating loss		(25,078)	(11,223)
Investment income		4,482	2,816
Finance costs		(773) ______	(134) ______
Loss before taxation		(21,369)	(8,541)
Taxation		2,163 ______	1,396 ______
Loss after taxation attributable to equity holders of the Company		(19,206) ______	(7,145) ______
Loss per ordinary share basic and diluted	6	(6.1p) ______	(4.6p) ______

(1) Restated to reflect the final allocation of the cost of the acquisition of Innovata (see note 3).

All results are derived from continuing activities.

Consolidated balance sheet

at 31 March 2008

			Restated (1)
		2008	2007
	Notes	£000	£000
Assets
Goodwill		49,562	49,562
Intangible assets		62,437	72,614
Property, plant and equipment		3,389	5,635
Investments in associates and joint ventures		914	1,228
Trade investment		250	250
Other receivables		428 ______	428 ______
Non-current assets		116,980 ______	129,717 ______
Inventories		190	202
Trade and other receivables	7	5,986	8,230
Short-term investments		-	500
Cash and cash equivalents		78,804 ______	77,029 ______
Current assets		84,980 ______	85,961 ______
Total assets		201,960 ______	215,678 ______
Liabilities
Trade and other payables	8	(9,970)	(8,060)
Obligations under finance leases		-	(410)
Deferred income	9	(5,499)	(4,400)
Financial liabilities	10	(860) ______	(2,708) ______
Current liabilities		(16,329) ______	(15,578) ______
Deferred income	9	(8,194)	(6,888)
Financial liabilities	10	(7,897) ______	(11,262) ______
Non-current liabilities		(16,091) ______	(18,150) ______
Total liabilities		(32,420) ______	(33,728) ______
Net assets		169,540 ______	181,950 ______
Equity
Share capital	11	114	113
Share premium		76,982	72,889
Special reserve		8,245	8,245
Other reserve		124,905	124,905
Share-based compensation reserve		5,738	3,036
Retained loss		(46,444) ______	(27,238) ______
Total equity		169,540 ______	181,950 ______

(1) Restated to reflect the final allocation of the cost of the acquisition of Innovata (see note 3).

Consolidated cash flow statement

for the year ended 31 March 2008

		Restated (1)
	2008	2007
	£000	£000
Operating loss	(25,078)	(11,223)
Depreciation and amortisation	11,809	3,217
Share based compensation	2,702	1,633
Decrease in inventories	12	24
Decrease in receivables	2,244	4,469
Increase/(decrease) in payables	1,910	(2,555)
Increase/(decrease) in deferred income	2,405	(2,236)
Other non-cash movements	314 ______	(1,235) ______
Net cash outflow from operations	(3,682)	(7,906)
Taxation paid	(164)	-
Research and development tax credits	2,327 ______	1,396 ______
Net cash outflow from operating activities	(1,519) ______	(6,510) ______
Cash flows from investing activities
Cash acquired as part of Innovata	-	19,882
Costs in association with acquisition of Innovata	-	(2,830)
Interest received	4,482	2,816
Investment in associate	-	(160)
Purchase of property, plant and equipment	(745)	(2,438)
Receipts from sale of property, plant and equipment	1,359 ______	22 ______
Net cash inflow from investing activities	5,096 ______	17,292 ______
Net cash inflow before financing activities	3,577	10,782
Cash flows from financing activities
Proceeds from issue of ordinary shares	4,094	52,143
Share issue costs	-	(2,072)
Payment of financial liabilities	(5,213)	-
Payment of finance lease liabilities	(410)	(139)
Interest paid on finance leases	(14)	(10)
Interest paid on loans and financial liabilities	(759) ______	(3) ______
Net cash (outflow)/inflow from financing activities	(2,302) ______	49,919 ______
Increase in cash and cash equivalents	1,275	60,701
Cash and cash equivalents at beginning of period	77,529 ______	16,828 ______
Cash and cash equivalents at end of period	78,804 ______	77,529 ______

(1) Restated to reflect the final allocation of the cost of the acquisition of Innovata (see note 3).

Consolidated statement of changes in equity

for the year ended 31 March 200

	Share	Share	Shares to	Special
	capital	premium	be issued	reserve
	£000	£000	£000	£000
At 1 April 2006	62	22,869	918	8,245
Loss for the year	- ______	- ______	- ______	- ______
Total recognised income and expense for the year	-	-	-	-
Share-based compensation	-	-	-	-
Exercise of share options	-	203	-	-
Shares issued	51	51,889	(918)	-
Share issue costs	- ______	(2,072) ______	- ______	- ______
At 31 March 2007 (restated(1))	113	72,889	-	8,245
Loss for the year	- ______	- ______	- ______	- ______
Total recognised income and expense for the year	-	-	-	-
Share-based compensation	-	-	-	-
Exercise of share options	-	613	-	-
Shares issued	1 ______	3,480 ______	- ______	- ______
31 March 2008	114 ______	76,982 ______	- ______	8,245 ______

(1) Restated to reflect the final allocation of the cost of the acquisition of Innovata (see note 3).

(Continued from table above)

		Share- based
	Other	compensation	Retained	Total
	reserve	reserve	loss	equity
	£000	£000	£000	£000
At 1 April 2006	3,211	1,403	(20,093)	16,615
Loss for the year	- ______	- ______	(7,145) ______	(7,145) ______
Total recognised income and expense for the year	-	-	(7,145)	(7,145)
Share-based compensation	-	1,633	-	1,633
Exercise of share options	-	-	-	203
Shares issued	121,694	-	-	172,716
Share issue costs	- ______	- ______	- ______	(2,072) ______
At 31 March 2007 (restated(1))	124,905	3,036	(27,238)	181,950
Loss for the year	- ______	- ______	(19,206) ______	(19,206) ______
Total recognised income and expense for the year	-	-	(19,206)	(19,206)
Share-based compensation	-	2,702	-	2,702
Exercise of share options	-	-	-	613
Shares issued	- ______	- ______	- ______	3,481 ______
31 March 2008	124,905 ______	5,738 ______	(46,444) ______	169,540 ______

(1) Restated to reflect the final allocation of the cost of the acquisition of Innovata (see note 3).

Notes to the financial information

1. Basis of preparation 

The financial information included in this statement does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The financial information has been extracted without material adjustment from the consolidated financial statements of Vectura Group plc for the year ended 31 March 2008, which have been audited. The auditors, Deloitte & Touche LLP and Ernst & Young LLP respectively, have made a report under Section 235 of the Companies Act 1985 in respect of the statutory consolidated accounts for the year ended 31 March 2008 and 31 March 2007. Their respective reports were unqualified within the meaning of Section 262(1) of the Companies Act 1985 and did not contain a statement under Section 237 (2) or (3) of that Act.

Whilst the information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRSs.

Statutory accounts for the financial year ended 31 March 2007 have been delivered to the Registrar of Companies pursuant to Section 242 of the Act, whereas those for the year ended 31 March 2008 will be delivered following the Annual General Meeting.

The Group's Annual Report and Accounts will be sent to shareholders in June 2008 and will be available on our website www.vectura.com. 

2.  Accounting policies

The financial information has been prepared in accordance with IFRS. These financial statements have been prepared in accordance with those IFRS standards and IFRIC interpretations issued and effective and early adopted at the time of preparing these statements (May 2008). The policies have been consistently applied to all periods presented. Full details of the Group's accounting policies can be found in the 2006/07 Annual Report, which is available on our website www.vectura.com. 

3.  Innovata acquisition

On 18 January 2007, Vectura Group plc ("Vectura") acquired Innovata plc ("Innovata") and its subsidiaries for a consideration of £123.6m, including acquisition costs of £2.8m. This was satisfied by the issue of 143.8 million new Ordinary shares in Vectura whereby Innovata's share capital was acquired by Vectura and Innovata shareholders were allotted new shares in Vectura.

An analysis of the EBITDA (earnings before interest, tax, depreciation and amortisation) for the operations for the period is shown below:

	2008	2008	2008
	Group	Vectura	Innovata
		excld. IOV	excld. VEC
	£000	£000	£000
Revenues	25,225	8,069	17,156
Cost of sales	(4,399)	(1,568) ______	(2,831) ______
Gross profit	20,826	6,501	14,325
Research and development costs	(28,027)	(22,769)	(5,258)
Administrative costs	(3,052) ______	(2,540) ______	(512) ______
EBITDA	(10,253)	(18,808)	8,555
Share of loss of associate	(314)
Depreciation	(1,632)
Amortisation	(10,177)
Share-based compensation	(2,702)
Net interest income	3,709 ______
Loss before taxation	(21,369)
Taxation	2,163 ______
Loss after taxation	(19,206) ______

In accordance with IFRS 3 - Business Combinations, the fair values assigned to the identifiable assets, liabilities and contingent liabilities acquired with the Innovata business on 18 January 2007 were determined provisionally on that date and these provisional estimates have been revised in the period to 17 January 2008.

The following table shows the original fair values of the net assets acquired from Innovata and the adjustments made to the original fair values:

	17/1/2007		17/1/2007
	Provisional	Revisions	Final
	£000	£000	£000
Intangible assets	74,500	66	74,566
Property, plant and equipment	700	-	700
Investments	250	-	250
Inventories	228	-	228
Debtors	8,009	-	8,009
Deferred tax asset (1)	2,000	20,370	22,370
Cash	19,882	-	19,882
Creditors	(9,912)	-	(9,912)
Deferred income	(3,274)	-	(3,274)
Financial liability	(18,657)	4,301	(14,356)
Deferred tax liability (1)	(22,350) ______	(20) ______	(22,370) ______
Net assets acquired	51,376	24,717	76,093
Goodwill	72,267 ______	(24,717) ______	47,550 ______
Acquisition value	123,643	-	123,643

(1) In accordance with IAS 12 - Income Taxes, the deferred tax asset and deferred tax liability have been offset. 

4.  Revenue

Revenue represents amounts invoiced to third parties, derived from the provision of licences and services which fall within the Group's sole ordinary activity, the development of pharmaceutical products. 

 

Group revenue by category:

	2008	2007
	£000	£000
Product licensing	2,813	4,592
Technology licensing	2,920	1,713
Pharmaceutical development services	8,959	5,838
Royalties	9,062	1,443
Device sales	1,471 ______	465 ______
	25,225 ______	14,051 ______

	2008	2007
Revenue by customer location:	£000	£000
United Kingdom	7,869	3,246
Rest of Europe	8,372	9,371
United States of America	8,931	1,397
Rest of world	53 ______	37 ______
	25,225 ______	14,051 ______

5. Staff numbers and costs

Employees

The average monthly number of employees (including Executive Directors) employed by the Group during the year was as follows:

	2008	2007
	No.	No.
Research and development	231	153
Business development and administration	12	10
	- ______	- ______
	243 ______	163 ______
The aggregate remuneration comprised:
	2008	2007
	£000	£000
Wages and salaries	11,567	7,018
Social security costs	1,315	860
Other pension costs	647 ______	407 ______
	13,529 ______	8,285 ______

In addition to the wages and salaries analysis above are the effects of the charge for share-based compensation under IFRS 2 during the year of £2,702,000 (2007 - £1,633,000).

6.  Loss per ordinary share

The calculation of loss per share is based on the following losses and number of shares:

		Restated (1)
	2008	2007
Loss for the year (£000)	(19,206)	(7,145)
Weighted average number of ordinary shares (No. '000)	315,793	155,205
Loss per ordinary share	(6.1p) ______	(4.6p) ______

The loss per share is based on the weighted average number of shares in issue during the period. IAS 33 - Earnings per Share, requires presentation of diluted earnings per share when a company could be called upon to issue shares that would decrease net profit or increase net loss per share. No adjustment has been made to the basic loss per share, as the exercise of share options and warrants would have the effect of reducing the loss per ordinary share, and is therefore not dilutive.

(1) Restated to reflect the final allocation of the cost of the acquisition of Innovata (see note 3).

7.  Trade and other receivables

	2008	2007
	£000	£000
Trade receivables	2,920	2,099
Other receivables	18	14
Prepayments and accrued income	2,798	5,538
VAT recoverable	250 ______	579 ______
	5,986 ______	8,230 ______

8. Trade and other payables

	2008	2007
	£000	£000
Trade payables	1,854	1,063
Other taxes and social security costs	380	416
Other payables	404	438
Accruals	7,332 ______	6,143 ______
	9,970 ______	8,060 ______

9.  Deferred income

Deferred income relates to amounts received under product licensing agreements. Vectura Group plc continues to provide services to these licensing partners over a period of time. Milestone payments under these licensing agreements are therefore spread, and deferred income is as follows: 

	2008	2007
	£000	£000
Amounts due within one year	5,499	4,400
Amounts due in more than one year	8,194 ______	6,888 ______
	13,693 ______	11,288 ______

Approximately £5.7 million of the total deferred income of £13.7 million outstanding at 31 March 2008 is potentially repayable under certain circumstances.

10. Financial liabilities

	£000
At 1 April 2007 (Restated (1))	13,970
Utilised	(5,213) ______
At 31 March 2008	8,757 ______
	2008
	£000
Provisions due within one year	860
Provisions due in more than one year	7,897 ______
	8,757 ______

A revenue management agreement was entered into on 28 June 2001 between Innovata and Paul Capital Royalty Acquisition Fund L.P. ("PRF" or "Paul Capital"), which was subsequently amended and restated ("the PRF Agreement"), pursuant to which Paul Capital provided funding totalling £22.5 million in return for which Paul Capital would receive a share of the revenues earned by Innovata from the commercialisation of Extraneal® and Adept®. Since these arrangements were entered into, the interests of Paul Capital have been assigned to Royalty Securitization Trust I (RST).

A deed of waiver and amendment ("the RST Deed") was entered into between Innovata and RST on 17 January 2007, the date of the acquisition of Innovata by Vectura. Payments by Vectura to RST under the agreement will be subject to guaranteed minimum and maximum annual payments as follows:

Fiscal Year (1 October to 30 September)	Minimum payment	Maximum payment
2006-2007	US$5,000,000	US$11,000,000
2007-2008	US$8,000,000	US$12,000,000
2008-2009	US$9,000,000	US$13,000,000
2009-2010	US$10,000,000	US$14,000,000

The provision as at 31 March 2008 of £8.8 million is based on the total future discounted minimum payments due excluding an imputed interest charge of £0.7 million.

RST holds a Put Option which may become exercisable in the future under certain circumstances (for example, on a change of control of Vectura). Dependent upon when the Put Option is exercised, there will be a fixed price at which Innovata would have the obligation to re-purchase RST's interests in the royalty streams from Extraneal® and Adept®. These fixed prices (subject to certain adjustments to reflect payments made and royalty sharing entitlements earned during the relevant year) would be as follows:

Exercise date	Put option price
Between 1 October 2007 and 30 September 2008	US $40,000,000
Between 1 October 2008 and 30 September 2010	US $25,000,000

Innovata has a Call Option under which it has the right to buy out the interests of RST on the same fixed payment basis as that described above. Vectura has agreed to guarantee the performance by Innovata of its obligations under the RST Deed.

(1) Restated to reflect the final allocation of the cost of the acquisition of Innovata (see note 3).

11. Share capital

	2008		2007
	£000	No.'000	£000	No.'000
Authorised:
Ordinary shares of 0.025p each	110	441,200	110	441,200
Redeemable preference shares of £1 each	34 ______	34 ______	34 ______	34 ______
Allotted, called up and fully paid:
Ordinary shares of 0.025p each -
At 1 April	79	314,518	28	110,330
Issued to investors	1	3,628	15	57,881
Issue to Share Investment Plan	-	123	-	300
Issued on exercise of share options	-	1,242	-	832
Issued on acquisition of Innovata	-	-	36	143,825
Issued in satisfaction of deferred consideration	- ______	- ______	- ______	1,350 ______
At 31 March	80 ______	319,511 ______	79 ______	314,518 ______
Redeemable preference shares of £1 each -
At 1 April and 31 March	34 ______	34 ______	34 ______	34 ______

In accordance with the terms of a licensing agreement dated 16 April 2006 signed with Boehringer Ingelheim International GmbH ("Boehringer"), Boehringer agreed to subscribe for ordinary shares in the Company for a consideration of €5,000,000 upon the achievement of certain milestones. Accordingly, on 12 December 2007 Boehringer subscribed for 3,628,145 ordinary shares of 0.025p each at a price of £0.9595 per share. The subscription price per share was equal to the average of the middle-market quotation for an ordinary share in the capital of the Company as reported by the London Stock Exchange for the 30 dealing days ending three business days prior to the effective date of the Deed of Subscription signed with Boehringer on 13 November 2007, plus a premium of 35%.

ENDFR ABMLTMMATBFP

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Related Shares:

VEC.L