Final Results

Vectura Group plc - Preliminary Results

- Cash generative year - material pipeline progress with multiple catalysts ahead -

Chippenham, UK - 23 May 2011: Vectura Group plc (LSE: VEC) ("Vectura"), which develops inhaled pharmaceuticals, today announces its preliminary results for the year ended 31 March 2011.

Financial Highlights

·; Strong revenue growth of 7% to £42.9m (2009/10: £40.1m)

·; Gross profit increased by 10% to £40.2m (2009/10: £36.6m)

·; Cash generative over the year; cash increased by £10.3m to £74.4m at 31 March 2011 (31 March 2010: £64.1m)

·; Positive EBITDA* of £0.5m, a £2.1m improvement (2009/10: negative £1.6m)

·; Loss after tax reduced by 14% to £8.8m (2009/10: £10.2m)

·; Loss per share improved by 16% to 2.7p (2009/10: 3.2p)

Pipeline and Company Highlights

·; NVA237 (COPD)

o Phase III trial results announced in April 2011 showed that NVA237 significantly improved lung function while demonstrating a good safety profile in patients with moderate-to-severe COPD

o Further Phase III trial results expected to be released by Novartis in September 2011

o Novartis expects to launch NVA237 in 2012

·; QVA149 (COPD)

o $7.5m (£5.1m) milestone triggered by start of Phase III studies in May 2010

o Novartis expects to launch QVA149 in 2013

·; VR315 (asthma/COPD)

o Development progress

·; VR632 (asthma/COPD) 

o €0.6m (£0.5m) milestone received in October 2010, reflecting development progress

·; VR506 (asthma)

o Clinical programme commenced

·; GSK (asthma/COPD)

o Worldwide, non-exclusive licence to certain of Vectura's patents for two late-stage development compounds signed in August 2010

o £10m up-front payment received; a further £10m is expected over the period to launch

o Royalties on sales of up to £13m per year

·; VR040 (Parkinson's disease)

o Phase II study results, announced in November 2010, showed a clinically relevant and statistically significant benefit, confirming previous Phase II study findings

·; VR496 (cystic fibrosis)

o Phase II proof-of-concept study, announced in March 2011, demonstrated good safety and tolerability, with evidence of anti-inflammatory and mucolytic activity

·; R&D cost-saving

o Nottingham facility closed and all formulation development activities consolidated at our Chippenham facility during the financial year

o On track for anticipated annual cost-savings of approximately £6m from April 2011

Dr Chris Blackwell, Chief Executive of Vectura:

"Continuing the drive to increase revenues and reduce losses, Vectura has delivered another set of robust results, ending the financial year with cash of over £74m. Following the R&D restructuring undertaken in the year, we have focused our pipeline on key respiratory products and consolidated our formulation activities at our Chippenham facility, resulting in annual cost-savings of nearly £6m per annum. Over the course of the last 12 months, we and our partners have reported important clinical data, including the recent positive NVA237 Phase III data, underlining our confidence in our broad late-stage pipeline. With a reduced risk profile, strong balance sheet and multiple key catalysts expected in the short-term, Vectura continues to be innovative while moving closer to becoming a self-sustaining cash-generative company."

* Earnings before interest, tax, depreciation and amortisation

- Ends -

Chris Blackwell, Chief Executive and Anne Hyland, Chief Financial Officer, will host an analyst/investor briefing today at 09.30 a.m. BST at the offices of Financial Dynamics, Holborn Gate, 26 Southampton Buildings, London, WC2A 1PB.  For further details please contact Mo Noonan on +44(0)20 7269 7116.

Enquiries

Notes for editors

About Vectura

Vectura Group plc develops inhaled therapies principally for the treatment of respiratory diseases. Vectura's main products target diseases such as asthma and chronic obstructive pulmonary disease (COPD), a growing market that is currently estimated to be worth in excess of $25 billion.

Vectura has six products marketed by its partners and a portfolio of drugs in clinical and pre-clinical development, a number of which have been licensed to major pharmaceutical companies. Vectura has development collaborations and licence agreements with several pharmaceutical companies, including Novartis, Sandoz (the generics arm of Novartis), Baxter and GlaxoSmithKline (GSK).

Vectura seeks to develop certain programmes itself where this will optimise value. Vectura's formulation and inhalation technologies are available to other pharmaceutical companies on an out-licensing basis where this complements Vectura's business strategy.

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

Forward-looking statements

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

CHAIRMAN AND CHIEF EXECUTIVE'S REVIEW

OVERVIEW

Vectura specialises in developing inhaled therapies, principally for the treatment of respiratory diseases, bringing together key aspects of inhaled product development; technologies, clinical and regulatory operations and manufacturing for clinical trials. Our platform technology has yielded consistently robust data and we now have a broad late stage-pipeline addressing major market opportunities. The collaborations and licence agreements we have with major players, including the recent deal with GSK, in the $25 billion asthma/COPD market, demonstrates the value of our respiratory expertise. We now have programmes in late-stage development for novel once-daily branded medicines as well as the increasingly lucrative generic/branded generic respiratory market.

Our late stage pipeline of branded medicines is progressing well and we have announced some important clinical data. In April 2011, Novartis announced positive Phase III results, showing NVA237 (gylcopyronnium bromide) significantly improved lung function while demonstrating a good safety profile in patients with moderate-to-severe COPD, and re-affirmed they expect to launch the product in 2012. This will be a significant value-driving event for Vectura, as it will yield both milestones on approval and royalties on future sales.

Novartis is also developing NVA237 in a co-formulation with their own long-acting beta2-agonist (LABA) indacaterol, a combination known as QVA149. Indacaterol is now approved in more than 50 countries and available in more than 20 under the brand-name Onbrez® Breezhaler®, with US approval dependent on a Food and Drug Administration (FDA) decision expected by July 2011. Novartis commenced Phase III studies with QVA149 in May 2010, triggering a $7.5m milestone payment to Vectura. These studies are ongoing and Novartis expects the first product launches in 2013.

We continue to advance our respiratory generic/branded generic opportunities. VR315, our inhaled combination therapy for asthma and COPD, is progressing well in Europe. The US and Rest of World (RoW) markets offer significant opportunities for us and we are in active discussions with potential licensing partners for these territories. In October 2010, we received our penultimate development milestone payment for VR632, the second generic combination product we licensed to Sandoz for Europe. In early 2011, we began the clinical phase of the development of VR506, an inhaled corticosteroid (ICS) in development for the treatment of asthma.

We are very proud of our team at Vectura and our respiratory expertise and intellectual property received significant endorsement in August 2010 when GSK, one of the leading developers of innovative respiratory medicines, signed a licensing agreement with us. This worldwide, non-exclusive licence for some of our dry powder drug formulation patents relates to two of GSK's late-stage respiratory development products.

As well as our core respiratory pipeline, we have some exciting out-licensing opportunities, two of which have recently generated positive Phase II data.

In March 2011, data from a proof-of-concept study with VR496 demonstrated that our inhaled heparin treatment for cystic fibrosis (CF) was safe and well tolerated with evidence of anti-inflammatory and mucolytic activity. These qualities indicate VR496 could also play a part in the treatment of other diseases such as COPD.

In November 2010, we announced the successful completion of a Phase II study that demonstrated VR040, our Parkinson's disease (PD) product, improves the control of movement in patients with fluctuating PD. The data showed a clinically relevant and statistically significant improvement of the Unified Parkinson's Disease Rating Scale Part III (UPDRS III) compared with placebo (p=0.023). These results are consistent with previous Phase II study findings.

We have delivered another solid set of financial results, delivering an increase in revenues; a positive EBITDA of £0.5m and finishing the financial year with a strong cash position of £74.4m.

Outlook

The team is committed to building Vectura into a sustainably profitable company with strong growth prospects. Through careful financial management as well as a number of lucrative partnerships, we are keeping financial and development risk to a minimum whilst having significant opportunities in some very large markets. We anticipate several major catalysts in the near future. We expect Novartis to release further NVA237 Phase III data and file for regulatory approval in 2011, with launches expected in 2012. The QVA149 Phase III trials are ongoing and Novartis expects the first product launches in 2013. We also anticipate further progress on VR315 in Europe. Licensing activities will continue across all our areas including products, technologies and our broader intellectual property portfolio.

We believe Vectura has the financial resources, the product portfolio and the technological know-how to become a leading inhaled product company that will deliver significant value and benefit both to our shareholders and to patients.

Partnered proprietary products and technologies

In the asthma and COPD market, we offer licensing opportunities for our products and also offer technologies to other pharmaceutical companies, where our expertise enables a more effective delivery of products.

NVA237 and QVA149 for chronic obstructive pulmonary disease (COPD)

NVA237 is a dry powder formulation for inhalation of glycopyrronium bromide, a long-acting muscarinic antagonist (LAMA) with a rapid onset of activity.

NVA237 was licensed to Novartis in April 2005 by Vectura and our co-development partner, Sosei Group Corporation (Sosei). Novartis intends to launch NVA237 as a once-daily monotherapy for COPD in 2012 and as a combination (QVA149) with its once-daily LABA, indacaterol (Onbrez® Breezhaler®) in some territories in 2013.

In April 2011, Novartis announced positive Phase III data showing NVA237 significantly improved lung function while demonstrating a good safety profile in patients with moderate-to-severe COPD. The data from this pivotal GLOW1 study show once-daily NVA237 met its primary endpoint, demonstrating superior bronchodilation (trough FEV1) relative to placebo (p

We believe that QVA149 could be the first once-daily LABA/LAMA combination therapy on the market for COPD. The dual activity of a beta-adrenergic agonist (beta2-agonist) and a muscarinic antagonist could result in a potent bronchodilator with convenient once-daily dosing. This could address a large and unmet need for COPD sufferers where patient compliance is a key consideration.

Novartis received European regulatory approval for indacaterol in November 2009 and it is now approved in more than 50 countries and available in more than 20 under the brand-name Onbrez® Breezhaler®, with US approval dependent on an FDA decision expected in July 2011.

Novartis commenced Phase III studies with QVA149 in May 2010, triggering a $7.5m milestone payment to Vectura. These studies are ongoing and Novartis expects the first product launches in 2013.

To date, Vectura has received $30m from Novartis and, under the terms of the licence, could receive up to an additional $157.5m for achievement of regulatory and commercialisation targets for both the monotherapy and combination product. In addition, royalties will be received on product sales in the event of successful product launches.

Formulation technologies licensed to GlaxoSmithKline (GSK) for asthma/COPD

In August 2010, we signed a worldwide, non-exclusive licence agreement with GSK that enables them to use some of our dry powder drug formulation patents for two late-stage development compounds in their respiratory product pipeline.

Under the agreement, Vectura received an up-front payment of £10m in August 2010, with a further £10m to be received up to the time the compounds are launched. We will also earn royalties on sales of these products, generating up to £13m per year. We believe this agreement underlines the value of our technology platform and we continue to seek other deals.

Generic/branded generic products

Branded, combination dry powder inhaler (DPI) therapy makes up the biggest sector of the respiratory market, with annual sales of over $10bn. With an ever-growing need for effective and affordable medicines, these products have excellent potential to generate value as generics or branded generics. With extensive formulation and device expertise, both of which are needed to create DPI products, we are ideally placed to take advantage of this opportunity.

VR315 for asthma/COPD

VR315 is an inhaled combination therapy for asthma and COPD, delivered with Vectura's GyroHaler® DPI device in Europe, where it is licensed to Sandoz AG for development and commercialisation. The deal is worth up to €22.5m in milestones and development funding, plus royalties on all products sold. Vectura has received all development funding with €7.5m in milestones to be received.

In December 2006, we signed a cost/profit-sharing agreement with Sandoz for the development of VR315 in the US. In March 2010, we received full development and commercialisation rights back from Sandoz. This revised agreement provided a $9.5m payment from Sandoz in May 2010, which follows a $6m milestone in August 2009 and $2m in 2006. As a result, we now own rights to VR315 for the US market as well as the RoW market and we are currently discussing licensing options with potential partners.

VR632 for asthma/COPD

VR632 is our second inhaled combination therapy for asthma and COPD, which also uses our GyroHaler® technology. Vectura licensed the European rights for VR632 to Sandoz in December 2007 in a deal worth up to €15.5m in milestones and development funding plus royalties on all products sold. We retain the rights for the US and other territories. In October 2010, we received the penultimate development milestone payment of €0.6m from Sandoz for progress made with VR632.

VR506 for asthma

VR506 is an inhaled corticosteroid (ICS) for the treatment of asthma that entered clinical development in early 2011. Steroids are the mainstay of prophylactic therapy for asthma. As the recommended "preventer" drugs for adults and children, they are often prescribed alongside beta2-agonist bronchodilators.

Duohaler® combination products for asthma/COPD  

The Duohaler® dry powder inhaler provides advantages over a number of other multi-dose DPIs. Two separate drug reservoirs feed two individual drug formulations into two separate metering chambers, and the drugs are then delivered to the user in the same inhalation. This process obviates the need to co-formulate combination drugs and provides a means of delivering simultaneously a combination formulation from one reservoir and an individual drug from the second. This technology is available for licensing.

LICENSING OPPORTUNITIES

In addition to the large asthma/COPD market, we also have a portfolio of specialty products addressing smaller indications. Our current strategy is to take these products to Phase II clinical development and then look for licensing partners.

VR496 for cystic fibrosis (CF)

VR496 is a multi-modal treatment for respiratory symptoms associated with airway disorders such as cystic fibrosis. The active component is heparin, a drug that has been approved worldwide as an injected or infused treatment for other indications.

In March 2011, we announced data from a proof-of-concept study that showed VR496 was safe and well-tolerated, with evidence of anti-inflammatory and mucolytic activity.

The European Medicines Agency (EMA) and US FDA have designated VR496 an orphan drug. The multi-modal profile differentiates VR496 from current treatment options. VR496 therefore has the potential to address unmet treatment requirements in CF and other inflammatory airway disorders. We are in discussions with potential licensing partners for the use of VR496 for CF and for other indications in the larger markets such as COPD.

VR040 for Parkinson's disease (PD)

VR040 is an inhaled, systematically acting, rapid-onset treatment for "off" episodes associated with Parkinson's disease. The active ingredient is apomorphine hydrochloride, which is marketed for this indication as a solution for injection in Europe and the US. VR040 is our formulation of apomorphine, delivered by inhalation using our proprietary technology.

The EMA has designated VR040 an orphan drug and we are using the EMA scientific advice procedure to drive product development. Results from a Phase II study announced in November 2010 showed that VR040 produced a clinically relevant and statistically significant improvement of a patient's ability to control movement. In addition, VR040 reduced the time patients were in an "off" state by over two hours, also considered by the investigators to be clinically relevant. These results are consistent with previous Phase II study findings.

We are currently talking to companies interested in licensing VR040.

VR461 for fungal-related lung disease

VR461 is an inhaled anti-fungal that is in a pre-clinical stage of development for the treatment of lung diseases in patients with fungal sensitisation.

VR909 for the prevention of chronic rejection following lung transplant

VR909 is an inhaled, adjunctive, chronic immunosuppression therapy in pre-clinical development as a treatment to delay the onset of chronic rejection and increase survival.

MARKETED PRODUCTS

Six products are currently being marketed by partners and generating revenue for Vectura, ADVATE® being the main value driver.

ADVATE® for haemophilia A

In 2000, we granted worldwide rights to Baxter to use our stabilisation patents in its serum-free recombinant Factor VIII, ADVATE®. This is indicated for the treatment of haemophilia A and is marketed worldwide by Baxter and from which Vectura earns royalties from sales.

Extraneal® for peritoneal dialysis

Extraneal® is a peritoneal dialysis solution containing icodextrin, licensed to Baxter in 1996 and marketed by Baxter worldwide. Vectura receives royalties on sales in the US and certain other territories.

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 after gynaecological and other abdominal surgery. It has been used in Europe since 2000 and since 2006 in the US. In December 2005, we signed a licence deal with Baxter for the manufacture and distribution of Adept®.

Products delivered in Clickhaler® for asthma

Five products have gained regulatory approvals for the treatment of asthma that are delivered using Clickhaler®, our proprietary reservoir DPI device.

Asmasal® and Asmabec® are marketed by Recipharm in the UK, France and Ireland. Asmasal® contains salbutamol, a short-acting beta2-agonist for the rapid relief of asthma symptoms. Asmabec® contains beclometasone, an inhaled steroid used as standard preventative therapy for asthma. Meptin® (procaterol) is a short-acting beta2-agonist for the rapid relief of mild, intermittent asthma symptoms, marketed by Otsuka Pharmaceutical in Japan.

Regulatory approvals have also been received for Clickhaler® budesonide in Germany, the Netherlands and New Zealand, with approvals for Clickhaler® formoterol received in Denmark, the Netherlands, South Africa and New Zealand. Neither of these products is marketed at present; we are actively exploring new territories for marketing them as well as other Clickhaler® products. One of the countries we are considering is China, where an estimated 5% of the population suffers from asthma or COPD.

ENABLING TECHNOLOGY PLATFORMS

We have a wide range of important drug delivery technology platforms which are patent-protected. As well as using these technologies to support our own product development, we license them to other pharmaceutical companies where this makes commercial sense, a strategy that has already generated significant revenue for Vectura.

Vectura has a state-of-the-art Good Manufacturing Practice (GMP) facility that has been designed specifically to manufacture inhaled products to support clinical trials.

The development of drugs for inhalation is more complex than for oral delivery and different approaches are required depending on the characteristics of the drug being delivered. Companies across the world are keen to harness our expertise and technology for their own inhalation programmes and we expect that this will lead to future collaborations and licensing deals.

Multi-unit dose DPI devices

Our cost-effective, multi-unit dose DPI technologies, designed to deliver locally acting drugs to the lungs, include devices such as GyroHaler® and OmniHaler®. Compact and easy to use, our devices consist of just a few moulded parts, which reduces manufacturing costs. Each device delivers up to 60 doses and is disposable after use. They have aerosolisation characteristics that are likely to be competitive in the marketplace and provide excellent drug protection from moisture and light using sealed, foil blisters. GyroHaler® is used to deliver some of our generic products and is scaled up for commercial launch. Other devices are in late-stage development.

Formulation technologies - including PowderHale®

Our formulation technologies include PowderHale®, micronisation, blending and spray drying. PowderHale® is a patented DPI formulation technology designed to allow aerosolised drug particles to achieve high lung deposition with low-dose variability. This is achieved by incorporating an additional pharmacologically inactive excipient known as a Force Control Agent (FCA). Our formulation technologies and expertise are used in the development of our own and third-party products.

FINANCIAL REVIEW

Summary

The Group ended the year with £74.4m of cash. Revenues of £42.9m (2009/10: £40.1m) were 7% higher than the previous year and the operating loss of £13.3m (2009/10: £15.3m), which includes £2.5m for non-recurring restructuring costs, has reduced by 13%. Loss after tax fell by 14% to £8.8m (2009/10: £10.2m).

Revenue

Revenue includes fee income from royalties, product licensing, technology licensing, development fees and device sales.

Royalties were in line with the previous year at £13.6m. ADVATE® royalties increased by 4% in the period to £10.2m (2009/10: £9.8m) and contributed 75% of the royalties generated in the year. ADVATE® sales are continuing to grow, approaching $1.8bn in 2010, compared with sales of $1.7bn in 2009. Vectura receives a net royalty of under 1% at these high levels of cumulative annual sales. Extraneal® royalties were £2.4m, a 17% decrease from the previous year (2009/10: £2.9m). Extraneal® royalties are expected to continue to decline. The majority of the remaining royalties were generated from Adept® (£0.8m; 2009/10: £0.8m).

Product licensing revenues in the period were £10.6m (2009/10: £8.8m), which includes the final £2.6m of the £4.5m ($7.5m) NVA237 milestone received from Novartis in 2009. Product licensing revenues also include £4.8m of the £6.2m ($9.5m) milestone received from Sandoz for VR315 US with the final £1.4m to be recognised in 2011/12. £2.7m of the £5.1m ($7.5m) milestone received from Novartis for QVA149 was also recognised in the period with a final £2.4m to be recognised in 2011/12. A £0.5m (€0.6m) VR632 milestone was received in October 2010 and this was recognised in the second half of the year.

Technology licensing revenues of £12.9m (2009/10: £9.4m) include a £10m upfront payment from GSK under a non-exclusive agreement to license certain of Vectura's dry powder formulation patents.

Pharmaceutical development services (PDS) revenues decreased by £3.4m to £4.2m (2009/10: £7.6m). We expect these revenues to continue to decline in the next financial year as we complete our work on some partnered programmes. Future PDS revenues will depend on the extent and nature of feasibility studies and new licensing deals as the development of inhalation products is a very specialist area, with partners frequently requiring Vectura's involvement in the continuing development of a product.

The significant increase in device sales to £1.6m (2009/10: £0.7m) was mainly due to sales of the GyroHaler® device.

Gross profit

The gross profit in the year to 31 March 2011 was £40.2m, a £3.6m improvement on the prior year (£36.6m). Gross profit represents 94% of revenue (2009/10: 91%) with the improvement arising from the increased proportion of milestones earned during the year.

Research and development expenses

Total investment in research and development was £37.7m, a 4% increase on the previous year (2009/10: £36.4m). This expenditure includes £2.5m that relates to the costs of restructuring our development operations, encompassing closure of the Nottingham facility and a reduction in the number of R&D employees. It is estimated that the restructuring will result in a £6m annual reduction in our infrastructure costs.

Taxation

The tax credit for the year was £4.5m (2010: £3.6m) which includes a research and development tax credit of £2.5m relating to the year ended 31 March 2011. The £2.5m research and development tax credit is included in other receivables in the balance sheet at 31 March 2011. Research and development tax credits of £8.2m were received during the year (2009/10: £0.7m) of which £7.1m was included in other receivables as at 31 March 2010 and £1.1m was an under provision for the year ended 31 March 2010. This exceptionally high receipt relates to two years of reclaim (years ended 31 March 2009 and 31 March 2010). As the Group's losses reduce, research and development tax receipts will decline significantly.

A full reconciliation of the tax credit for the year is shown in Note 6.

Intangible assets

Intangible assets of £30.9m (2010: £41.6m) have been amortised by £10.7m during the year. Intangible assets will continue to be amortised over their expected useful life.

Deferred income

Deferred income relates to milestones received in cash but not yet recognised as revenue. The £5.5m on the balance sheet at 31 March 2011 (31 March 2010: £2.7m) will be recognised as revenue in 2011/12. This includes £2.4m for QVA149, £1.4m for VR315 and £1.7m for technology licensing deals.

Foreign exchange rates

The following foreign exchange rates were used during the year:

Cash flow

Cash increased by £10.3m in the period. This increase is due mainly to the £21.3m milestones received (Sandoz, £6.2m; Novartis, £5.1m; GSK, £10m), together with a net £8.1m tax receipt. At 31 March 2011, Vectura had cash and cash equivalents of £74.4m (31 March 2010: £64.1m), which is equivalent to 23p per share in issue.

Consolidated statement of comprehensive income

for the year ended 31 March 2011

All results are derived from continuing activities.

Consolidated balance sheet

at 31 March 2011

Consolidated cash flow statement

for the year ended 31 March 2011

Consolidated statement of changes in equity

for the year ended 31 March 2011

Notes to the financial statements

1. Basis of preparation

The financial information included in this statement does not constitute statutory accounts as defined in sections 434 to 436 of the Companies Act 2006. The financial information has been extracted without material adjustment from the consolidated financial statements of Vectura Group plc for the year ended 31 March 2011, which have been audited. The auditors have made reports in respect of the statutory consolidated accounts for the years ended 31 March 2011 and 31 March 2010. Their reports were (i) unqualified, (ii) did not include reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under sections 237(2) or 237(3) of the Companies Act 1985 and sections 498(2) or 498(3) of the Companies Act 2006.

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 IFRS.

Statutory accounts for the financial year ended 31 March 2010 have been delivered to the Registrar of Companies, whereas those for the year ended 31 March 2011 will be delivered following the Annual General Meeting.

The Group's Annual Report and Accounts will be sent to shareholders in June 2011 and will be available on our website www.vectura.com.

Risks and uncertainties

The key business risks facing Vectura on a stand-alone basis remain consistent with those set out in the Annual Report and Accounts for the year ended 31 March 2010. The recent global credit problems and turmoil in the financial markets bring additional uncertainties to Vectura, as to all other businesses. There are a number of potential risks and uncertainties that could have a material impact on the Group's performance over the forthcoming financial year and could cause actual results to differ materially from expected and historical results. Particular risks include industry risk, clinical and regulatory risk, counterparty risk, competition and intellectual property risk, economic risk and financial risk (cash flow, credit and exchange rates). The global credit problems could result in the failure of banks where funds are deposited, the failure of customers or the failure of insurers. The fluctuating US dollar in currency markets has and could continue to impact results. The majority of royalties received are denominated in US dollars. The Board has policies in place to mitigate these risks and uncertainties.

Going Concern

Although the current economic conditions may place pressures on customers and suppliers which may face liquidity issues, the Group's product diversity and customer and supplier base substantially mitigate these risks. In addition, the Group operates in the relatively defensive pharmaceutical industry which we expect to be less affected compared to other industries.

The Group has £74.4m of cash and cash equivalents as at 31 March 2011. The Board operates an investment policy under which the primary objective is to invest in low-risk cash or cash equivalent investments to safeguard the principal. The Group's forecasts, taking into account likely revenue streams, show that the Group has sufficient funds to operate for the foreseeable future, being at least twelve months from May 2011.

After reviewing the Group's forecasts, the Directors believe that the Group is adequately placed to manage its business and financing risks successfully despite the current uncertain economic outlook. Accordingly they continue to adopt the going-concern basis in preparing the annual report and accounts.

2. Accounting policies

The financial information has been prepared in accordance with the accounting policies as set out in the previous financial statements. The policies have been consistently applied to all periods presented. Full details of the Group's accounting policies can be found in the 2009/10 Annual Report, which is available on our website www.vectura.com.

3. Revenue

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

4. Research and development expenses

Included in research and development expenses is a £2.5m restructuring charge relating to the restructuring of development operations, with the closure of the Nottingham facility and a reduction in the number of R&D employees. This action was taken in order to reduce the ongoing cost base. £1.3m was incurred on closing the facility and relocating certain of the activities and £1.2m relates to redundancy costs. There has been no impairment of the intangible assets or goodwill following this restructuring.

5. Investment income and finance (losses)/gains

6. Taxation

7. Loss per ordinary share

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

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 would have the effect of reducing the loss per ordinary share, and is therefore not dilutive.

8. Trade and other receivables

(1) Includes research and development tax credits of £2.5m (2010: £7.1m)

9. Trade and other payables

10. Deferred income

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

11. Share capital

Between 1 April 2010 and 31 March 2011 the Company issued 1,500,000 (2010: 1,003,783) ordinary shares of 0.025p each to the Vectura Group plc Employee Benefit Trust in satisfaction of the issue of matching and free shares due to employees in accordance with the rules of the Vectura Group plc Share Incentive Plan (SIP).

Between 1 April 2010 and 31 March 2011 the Company issued 789,175 (2010: 1,915,735) ordinary shares of 0.025p each on the exercise of employee share options (including SAYE options) at a weighted average exercise price of 31.5 pence per share (2010: 47.2 pence).

Between 1 April 2010 and 31 March 2011 the Company issued 421,153 (2010: nil) ordinary shares of 0.025p each on the exercise of LTIP nil-cost options.

12. Related party transactions

Remuneration of key management personnel

There are no other related party transactions.

Directors' responsibility statement

The Directors' responsibility statement below has been prepared in connection with the Company's full Annual Report for the year ended 31 March 2011. Certain parts thereof are not included within this announcement.

We confirm to the best of our knowledge:

·; the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

·; the management report, which is incorporated into the Chairman and Chief Executive's review, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the Board,

Anne Hyland

Director

22 May 2011