16th Nov 2005 07:02
Vectura Group PLC16 November 2005 Vectura Group plc Interim Results for Six Months Ended 30 September 2005 Chippenham, UK, 16 November 2005 - Vectura Group plc (LSE: VEC), the drugdevelopment company, today announces its results for the six months ended 30September 2005, reporting under International Financial Reporting Standards(IFRS). Highlights Year to Date VR776 for premature ejaculation (PE) • Commencement of VR776 first clinical trial in man NVA237 (formerly AD 237) for Chronic Obstructive Pulmonary Disease (COPD) • $375m global licensing agreement with Novartis for NVA237 • Commencement of NVA237 Phase IIb clinical trial VR004 for erectile dysfunction (ED) • Continuation of VR004 Phase IIb clinical trial programme VR496 for cystic fibrosis (CF) • Receipt of EU Orphan Medicinal Product designation and US Orphan Drug designation. Progression of licensing discussions • Progression of discussions on the Company's respiratory technologies, particularly the dry powder inhaler (DPI) GyroHaler(R) and the formulation technology PowderHale(R) providing potential for high-value upside Financial Highlights • Total revenues increased by 35% to £3.6m (2004/05 £2.6m) • Gross profit increased by 48% to £2.7m (2004/05 £1.8m) • Loss before tax reduced to £2.4m (2004/05 £4.1m) • 62% reduction in loss per share to 1.4p (2004/05 3.7p) • Net cash inflow from operating activities of £4.3m (2004/05 cash outflow £2.6m) • Cash and cash equivalents of £23.1m at 30 September 2005 (£18.4m at 31 March 2005) Commenting on these results, Dr. Chris Blackwell, Chief Executive of Vectura,said: "The first half of the year has seen Vectura progress well with a numberof significant achievements, in particular our $375m licensing deal withNovartis, which provides strong validation for our product development strategy.Today's announcement of the start of clinical trials with VR776, our productfor premature ejaculation, marks another important milestone for Vectura andprovides a further regulatory endorsement for the investigational use of ourAspirair inhaler in the clinic. "With the advancement of our product pipeline, continued interest in ourtechnologies from licensing partners and our improved cash position, we are wellplaced to generate further value for our shareholders." - Ends - A presentation for analysts is taking place today 16 November 2005 at 9:30 a.m.UK time (10:30 European time) at Financial Dynamics, Holborn Gate, 26Southampton Buildings, London WC2A. Please contact Claire Rowell at FinancialDynamics on +44 (0)20 7269 7285 for details. Slides for the presentation willalso be made available through our website at www.vectura.com from 14.00 today. Enquiries: Vectura Group plcChris Blackwell, Chief Executive On 16/11/05 +44 (0) 207 831 3113Anne Hyland, Chief Financial Officer thereafter +44 (0) 1249 667 700 Financial DynamicsDavid Yates/Sarah MacLeod/John Gilbert +44 (0) 207 831 3113 Notes to Editors: Vectura's principal focus is the development of a range of inhaled drugs for thetreatment of both lung diseases and other conditions where optimised deliveryvia the lungs can provide significant benefits, such as a rapid onset of action,improved efficacy and improved tolerability compared with current therapies. Vectura's strategy is to combine its proprietary, innovative, pulmonaryformulation and device technologies (PowderHale(R), Aspirair(R) and GyroHaler(R)) with existing, off-patent drugs either for use in new indications or toprovide inhalation as an improved route of administration. The Company seeks tolicense its lead products to pharmaceutical companies with established sales andmarketing infrastructures for the later stages of development and forcommercialisation, typically prior to Phase III clinical development. In addition to its own pharmaceutical products, Vectura operates a wellestablished Pharmaceutical Development Services business that undertakescontract development work for other pharmaceutical companies. Vectura has alsolicensed some of its technologies in certain fields to other pharmaceuticalcompanies. These activities generate positive cash flows that are available forinvestment in Vectura's own development projects. These activities alsodemonstrate Vectura's acknowledged expertise in applying pulmonary technologiesto the creation of innovative pharmaceutical products. The Company hasdevelopment collaborations with a number of companies, including Novartis, GSK,SkyePharma and Chiesi. This press release contains "forward-looking statements," including statementsabout the discovery, development and commercialisation of products. Variousrisks may cause Vectura's actual results to differ materially from thoseexpressed or implied by the forward-looking statements, including adverseresults in clinical development programs; failure to obtain patent protectionfor discoveries; commercial limitations imposed by patents owned or controlledby third parties; dependence upon strategic alliance partners to develop andcommercialise products and services; difficulties or delays in obtainingregulatory approvals to market products and services resulting from developmentefforts; the requirement for substantial funding to conduct research anddevelopment and to expand commercialisation activities; and product initiativesby competitors. As a result of these factors, prospective investors arecautioned not to rely on any forward-looking statement. We disclaim anyintention or obligation to update or revise any forward-looking statements,whether as a result of new information, future events or otherwise. CHAIRMAN'S AND CHIEF EXECUTIVE'S REVIEW Overview Vectura continues to make significant progress with solid advances in theproduct pipeline, progress on technology out-licensing discussions, and a 35%increase in revenues to £3.6m. The period started with a global licensingagreement with Novartis, which was signed on 12 April 2005, providingconsiderable validation for Vectura's strategy of applying innovative inhalationtechnologies (in this case PowderHale(R)) to established, off-patent products,creating valuable new products for development and subsequent out-licensing. The Novartis agreement also provides an additional product opportunity throughthe development of a combination of Vectura's NVA237 (formerly AD237) andNovartis' QAB149 for the treatment of chronic obstructive pulmonary disease(COPD) that, together with the introduction of VR040 for Parkinson's Disease,adds strength and depth to the portfolio. Recent advances in the approval process for Pfizer's Exubera(R), a new inhaledinsulin treatment for diabetes, provide a positive regulatory endorsement forthe use of inhalation to deliver drugs to the blood stream. It is widelyexpected that Exubera(R) will receive approval from the US Food and DrugAdministration and Vectura believes this decision will generate furtheropportunities for inhaled product development, which the Company is well placedto exploit. NVA237 (formerly AD 237) for COPD commences Phase IIb We announced in October 2005 that NVA237, a novel inhaled once-daily treatmentfor COPD, had entered a Phase IIb multiple dose-ranging clinical trial. NVA237is being developed and commercialised by Novartis both as a monotherapy and incombination with their once-daily bronchodilator (QAB149). The Phase IIb study is a randomised, double-blind, multi-centre,placebo-controlled trial designed to evaluate the efficacy, safety and doseresponse of NVA237 in patients diagnosed with COPD over a four week period.Pharmaceutical Development Services revenues for the six months ended 30September 2005 include income from Novartis for our continued development workon NVA237. COPD, the world's fourth largest cause of death, is a chronic obstruction of theairways which is caused primarily by smoking. It is estimated that the diseaseis prevalent in 4% of the populations of the USA, Europe and Japan and that atleast 15% of smokers will go on to develop the disease. Symptoms includechronic bronchitis and emphysema, which slowly progress and eventually lead to alargely irreversible loss of lung function. The current market for COPD drugtherapy is estimated to be worth $4 billion per annum and is predicted to growto $10 billion by 2010. Novartis' commitment to NVA237, and the beneficial combination of NVA237 withQAB149, make Novartis (a world leader in the treatment of respiratory diseases)an ideal licensing partner for Vectura. Under the terms of the Novartisagreement, Vectura and Arakis Limited, our development partner, each received aninitial payment of $15 million (£7.9 million) in April 2005. Clinical,regulatory and commercialisation milestones will be payable upon the achievementof pre-agreed targets, which could total up to $172.5 million for each companyfor both monotherapy and combination products. The initial payment and potentialmilestones therefore total up to $375 million. In addition, royalties on product sales will be paid for the monotherapy and thecombination product. If a third combination product is developed by Novartisusing NVA237, further milestones and royalties may be payable on that product.This is therefore one of the most significant European biotech licensing dealsthat the sector has seen for a single product, and provides a major endorsementof the Vectura business strategy. VR004 for erectile dysfunction (ED) continues Phase IIb VR004 is a proprietary dry powder formulation of apomorphine hydrochloride,delivered using our Aspirair(R) delivery device. The aim with VR004 is toprovide an effective and well-tolerated rapidly acting treatment option forpatients who suffer from ED. The Phase IIb programme consists of two studies, both of which are home-based,randomised, double-blind, placebo-controlled, studies in patients with mild,moderate and severe ED, and which aim to identify the optimal doses of inhaledVR004 for Phase III trials. The primary end-point for these studies is erectileperformance, assessed as the number of successful attempts at intercourse over a12-week treatment period. The first Phase IIb study commenced in March 2005 andis expected to conclude in mid-2006. The second Phase IIb study will commencein early 2006 and is expected to complete in late 2006. The market for ED is currently estimated to be worth $2.5 billion per annum andis expected to be $4.4 billion per annum in 2010. Through market research withdoctors, patients and opinion leaders, we believe that there is a clear unmetneed for products with a faster onset of action than current oral and buccalproducts. Studies to date for VR004 have shown that VR004 is likely to offerdistinct advantages in this area. VR776 for premature ejaculation (PE) commences Phase I We are pleased to report today that dosing in man has commenced with our productfor premature ejaculation, VR776. The study is a double-blind,placebo-controlled study to investigate the safety, tolerability andpharmacokinetics of inhaled VR776. This is a major milestone for this importantproduct, which is due to enter a Phase IIa study in approximately 40 patients in2006. There is still no approved therapy for PE, which is estimated to affectanywhere between 27 and 34 percent of men across all age ranges, and thus mayrepresent a bigger market opportunity than ED. The active component of VR776 is approved as an oral tablet for the treatment ofa different indication, but has been used with some success "off label" in thetreatment of PE. The onset of action using a tablet is likely to be slow, so arapidly-acting inhaled product will, we believe, find an important niche in thetreatment of PE. VR776 is formulated with our dry powder technology, PowderHale(R), and deliveredwith our Aspirair(R) inhaler. VR040 for Parkinson's Disease (PD) to commence Phase IIa Our product pipeline has been further strengthened during the last six months bythe introduction of a new product, VR040 (inhaled apomorphine hydrochloride) forParkinson's Disease. Apomorphine is an effective treatment for hypomobility, the reduced control ofvoluntary movement that is a key symptom of PD, and we believe that inhaleddelivery will address the two key clinically-unmet patient needs of rapid onsetof action and non-invasive administration. Inhaled apomorphine will reduce thetherapeutic dose required, thereby minimising unwanted side-effects whencompared with other direct-acting dopaminergic drugs, including apomorphinedelivered by injection. We will be starting clinical development of ourproprietary formulation, delivered with our Aspirair(R) device, in 2006. Thefirst clinical study will be a Phase IIa proof-of-concept study in approximately24 patients. VR496 for Cystic Fibrosis (CF) receives orphan drug status VR496 has now been granted Orphan Drug Status by the European Committee forOrphan Drug Products and by the US Office of Orphan Products Development. Thiswill provide VR496 with regulatory approval advantages to speed its progressthrough the required CF trials. Other pipeline products In addition to our lead products, our pipeline comprises other productcandidates targeting COPD, female sexual dysfunction, migraine and asthma. Generating value from our enabling technologies Vectura's three pulmonary technologies, PowderHale(R) Aspirair(R), andGyrohaler(R), are based on our in-depth knowledge of particle science anddevice engineering, which enable Vectura to re-formulate and patent a broadrange of drugs for pulmonary delivery. Vectura's strategy is to licence rights to these technologies to otherpharmaceutical companies where the resulting license will complement the Group'soverall business strategy and commercial returns. Licensing discussions for GyroHaler(R) are at an advanced stage with severalthird parties. The current DPI market for respiratory diseases is estimated tobe worth in excess of US$5 billion and GyroHaler(R) therefore represents asignificant licensing opportunity for Vectura. FINANCIAL REVIEW International Financial Reporting Standards ("IFRS") To date, Vectura has prepared its primary financial statements under UKGenerally Accepted Accounting Practice ("UK GAAP"). The financial resultspresented here are, for the first time, presented in accordance with the Group'saccounting policies based on IFRS. The unaudited interim results for the sixmonths ended 30 September 2005 are prepared in accordance with the IFRSaccounting policies that are expected to apply in the year ending 31 March 2006.The comparative numbers for the six months ended 30 September 2004 and the 12months ended 31 March 2005 have been restated under IFRS. In the Appendix tothe interim report, we describe our new IFRS accounting policies and reconcilepreviously reported UK GAAP results to IFRS results. All comparisons belowrefer to the comparative results reported under IFRS. Operating Performance In the six months to 30 September 2005, Vectura's revenues, realised fromproduct licensing and Pharmaceutical Development Services, were £3.6m, anincrease over 2004/05 of 35%. Our first product licensing revenues (£1.8m) were generated during the period,all of which relate to our licensing agreement with Novartis for NVA237. Theupfront access fee of £7.9m was received in April 2005 and is non-refundable.This revenue is being recognised over a 24-month period. Pharmaceutical Development Services revenues of £1.6m are 8% in excess of thesame period last year (2004/05: H1 £1.5m; H2 £1.2m). Technology licensing revenues of £0.1m were realised during the period (2004/05:H1 £1.1m; H2 £0.7m). The majority of the 2004/05 income was generated from ourlicensing agreement with SkyePharma PLC. The gross profit in the period to 30 September 2005 was £2.7m, a £0.9mimprovement (2004/05: H1 £1.8m; H2 £1.2m). The main reason for the increasewas the increase in milestone licensing revenues. Total investment in research and development was £4.4m, a 2% decrease on theprior year (2004/05: H1 £4.5m; H2 £5.2m). Expenditure was incurred primarily onthe Phase IIb VR004 trial. The initiation of the second VR004 Phase IIb trial,the VR776 clinical trials and the VR040 Phase IIa trial will result in anincrease in our investment in research and development in the second half of theyear, which will be almost double that incurred in the first half of the year. Administrative expenses are £0.2m lower at £1.3m (2004/05: H1 £1.5m; H2 £1.4m)as the comparative costs include additional expenditure incurred at the time ofthe flotation. R&D tax credits are recorded on the earlier of the cash receipt or theconfirmation from the Inland Revenue that the claim has been approved. £0.9m ofR&D tax credits have been received in the period in relation to the year ended 31 March 2005 and these have been recorded in the six months to 30September 2005 (2004/05: H1 £1.2m; H2 nil). Net cash inflow from operating activities in the six months to 30 September 2005was £4.3m compared to the £2.6m cash outflow in the prior period (2004/05: H2(£2.4m)). As at 30 September 2005, Vectura had cash and short-term depositstotalling £23.1m. The net loss per share in the six months to 30 September 2005 was 1.4p, a 62%reduction on the prior year (2004/05: H1 3.7p; H2 5.0p). Headcount at 30 September 2005 was 125 (31 March 2005: 110). OUTLOOK As Vectura carries out its strategy for growth, the highest priorities for 2005/06 are the successful continuation of NVA237 and VR004 Phase IIb clinical trialsand the commencement of VR776 and VR040 Phase IIa proof of principal clinicaltrials. We will continue to advance the products in the pipeline and pursueappropriate licensing opportunities both for our products and our technologiesto generate value for shareholders. Consolidated income statementfor the six months ended 30 September 2005 (unaudited) 6 months 6 months Year ended ended ended 30 September 30 September 31 March 2005 2004 2005 (restated) (restated) Notes £'000 £'000 £'000Revenue 2 3,564 2,637 4,484Cost of sales (847) (803) (1,472) ______ ______ ______Gross profit 2,717 1,834 3,012Research and development expenses (4,424) (4,505) (9,719) Other administrative expenses (922) (1,249) (2,239)Share-based compensation (371) (252) (621) ______ ______ ______Administrative expenses (1,293) (1,501) (2,860) ______ ______ ______Operating loss 3 (3,000) (4,172) (9,567) Interest income 568 265 755Finance costs 4 (4) (148) (155) ______ ______ ______Loss before taxation (2,436) (4,055) (8,967)Taxation 5 894 1,181 1,181 ______ ______ ______Loss after taxation attributable to equity holdersof the Company (1,542) (2,874) (7,786) ______ ______ ______ Loss per ordinary share basic and diluted 6 (1.4p) (3.7p) (8.7p) ______ ______ ______ All results are all derived from continuing activities. Consolidated balance sheetat 30 September 2005 (unaudited) 30 September 30 September 31 March 2005 2004 2005 (restated) (restated) Notes £'000 £'000 £'000ASSETSGoodwill and intangible assets 2,012 2,231 2,012Property, plant and equipment 2,848 3,235 3,102Other receivables 7 428 428 428 ______ ______ ______Non-current assets 5,288 5,894 5,542 ______ ______ ______Trade and other receivables 8 824 1,829 850Cash and cash equivalents 23,129 20,720 18,388 ______ ______ ______Current assets 23,953 22,549 19,238 ______ ______ ______Total assets 29,241 28,443 24,780 ______ ______ ______LIABILITIESLoans and obligations under finance leases 9 - 43 14Deferred income 2,150 - - ______ ______ ______Non-current liabilities 2,150 43 14 ______ ______ ______Trade and other payables 10 2,256 2,128 2,784Deferred income 3,968 - - ______ ______ ______Current liabilities 6,224 2,128 2,784 ______ ______ ______Total liabilities 8,374 2,171 2,798 ______ ______ ______NET ASSETS 20,867 26,272 21,982 ______ ______ ______EQUITYShare capital 11 61 61 61Share premium 22,579 22,512 22,523Shares to be issued 918 867 918Special reserve 8,245 8,245 8,245Merger reserve 3,211 3,020 3,211Share-based compensation reserve 1,033 294 662Retained loss (15,180) (8,727) (13,638) ______ ______ ______TOTAL EQUITY 20,867 26,272 21,982 ______ ______ ______ Consolidated cash flow statementfor the six months ended 30 September 2005 (unaudited) 6 months 6 months Year ended ended ended 30 September 30 September 31 March 2005 2004 2005 (restated) (restated) Notes £'000 £'000 £'000 Net cash flows from operating activities 12 4,294 (2,618) (4,982) ______ ______ ______ Cash flows from investing activitiesInterest received 568 265 755Purchase of property plant and equipment (113) (94) (492) ______ ______ ______Net cash flows from investing activities 455 171 263 ______ ______ ______Cash flows from financing activitiesProceeds from issue of redeemable preference share - 34 34Proceeds from issue of ordinary shares 56 23,620 23,651Share issue costs - (1,117) (1,117)Payment of finance lease liabilities (56) (80) (141)Interest element of payments under finance leases (4) (9) (16)Repayment of loans (4) (1,269) (1,272)Interest on loans - (119) (139) ______ ______ ______Net cash flows from / (used in) financing (8) 21,060 21,000activities ______ ______ ______Increase in cash and cash equivalents 4,741 18,613 16,281Cash and cash equivalents at beginning of period 18,388 2,107 2,107 ______ ______ ______Cash and cash equivalents at end of period 23,129 20,720 18,388 ______ ______ ______ Consolidated statement of changes in equityfor the eighteen months ended 30 September 2005 (unaudited) Share Share Shares to Special capital premium be issued reserve £'000 £'000 £'000 £'000 At 1 April 2004 16 20,781 867 - Loss for the year - - - - ______ ______ ______ ______Total recognised income and expense for the year - - - -Cancellation of share premium account - (20,781) - 20,781Transfer of parent companyretained loss to special reserve - - - (11,399)Issue of redeemable preference shares 34 - - -Conversion of Loan Note to ordinary shares 1 1,519 - -Issue of ordinary shares 10 22,121 - -Share issue costs - (1,117) - -Shares issued - - (145) -Shares cancelled - - (72) -Uplift in market value for shares to be issued - - 268 -Transfer of parent company deficit on profit andloss account at 22 June 2004 to special reserve - - - (1,137)Share-based compensation - - - - ______ ______ ______ ______At 1 April 2005 61 22,523 918 8,245 Loss for the period - - - - ______ ______ ______ ______Total recognised income and expense for theperiod - - - - Share-based compensation - - - -Exercise of warrants and options - 56 - - ______ ______ ______ ______At 30 September 2005 61 22,579 918 8,245 ______ ______ ______ ______ Consolidated statement of changes in equityfor the eighteen months ended 30 September 2005 (unaudited) - continued Share-based Merger compensation Retained Total reserve reserve loss equity £'000 £'000 £'000 £'000 At 1 April 2004 3,020 41 (18,388) 6,337 Loss for the year - - (7,786) (7,786) ______ ______ ______ ______Total recognised income and expense for the year - - (7,786) (7,786)Cancellation of share premium account - - - -Transfer of parent companyretained loss to special reserve - - 11,399 -Issue of redeemable preference shares - - - 34Conversion of Loan Note to ordinary shares - - - 1,520Issue of ordinary shares - - - 22,131Share issue costs - - - (1,117)Shares issued 191 - - 46Shares cancelled - - - (72)Uplift in market value for shares to be issued - - - 268Transfer of parent company deficit on profit andloss account at 22 June 2004 to special reserve - - 1,137 -Share-based compensation - 621 - 621 ______ ______ ______ ______At 1 April 2005 3,211 662 (13,638) 21,982 Loss for the period - - (1,542) (1,542) ______ ______ ______ ______Total recognised income and expense for the period - - (1,542) (1,542) Share-based compensation - 371 - 371Exercise of warrants and options - - - 56 ______ ______ ______ ______At 30 September 2005 3,211 1,033 (15,180) 20,867 ______ ______ ______ ______ Notes to the financial information 1. Basis of preparation of interim financial information The Group will prepare consolidated financial statements in accordance withInternational Financial Reporting Standards ('IFRS') and applicableinterpretations, as adopted for use in the EU, and with those parts of theCompanies Act 1985 applicable to companies reporting under IFRS, for the firsttime for the year ended 31 March 2006. The interim financial information for thesix months ended 30 September 2005 is unaudited and has been prepared for thefirst time in accordance with the accounting principles that are expected to beapplied in the annual financial statements. The Group has established IFRSaccounting principals which it expects to apply in its financial statements forthe year ending 31 March 2006 and applied these principles to its results forthe six months ended 30 September 2005. The comparative financial informationpreviously reported in accordance with UK General Accepted Accounting Practicefor the year ended 31 March 2005 and for the six months ended 30 September 2004has also been restated to conform to the same basis of presentation, as detailedin the Appendix to this report. Subject to EU endorsement of outstandingstandards and no further changes from the IASB, the information presented isexpected to form the basis for comparatives when reporting financial results forthe year ending 31 March 2006 and subsequent reporting periods. The date of theGroup's transition to IFRS is 1 April 2004. In preparing the statements, theDirectors have applied certain first-time adoption provisions allowed by IFRS 1;these are set out below. As provided by IFRS 2 "Share-based Payments", the group has taken advantage ofthe transitional provisions in respect of equity-settled awards and has appliedIFRS 2 only to equity-settled awards granted after 7 November 2002 and notvested at 1 January 2005. As provided by IFRS 3 "Business Combinations", goodwill recognised under UK GAAPprior to the date of the Group's transition to IRFS on 1 April 2004 is stated atnet book value at that date. As provided by IAS 32 "Financial Instruments Disclosure and Presentation" andIAS 39 "Financial Instruments: Recognition and Measurement", the group has takenadvantage of the fact that a first-time adopter need not restate the comparativeinformation. IAS 32 and IAS 39 have been applied with effect from 1 April 2005.The restatement of the financial instruments in place at 31 March 2005 to IFRSas at 1 April 2005 has no impact. These preliminary IFRS financial statements do not constitute statutory accountsas defined in section 240 of the Companies Act 1985. Statutory accounts for theyear ended 31 March 2005, prepared in accordance with accounting principlesgenerally accepted in the UK, and upon which the auditors issued an unqualifiedopinion, have been delivered to the Registrar of Companies. Key accounting policy changes required as a result of the adoption of IFRS areincluded in the Appendix to this report, as are the accounting policies. 2. Revenue Revenue represents amounts invoiced to third parties, derived from the provisionof licenses and services which fall within the group's sole ordinary activity,the development of pharmaceutical products. 6 months 6months Year ended ended ended 30 September 30 September 31 March 2005 2004 2005Revenue by category: £'000 £'000 £'000Product Licensing 1,819 - -Technology Licensing 120 1,131 1,822Pharmaceutical Development Services 1,625 1,506 2,662 ______ ______ ______ 3,564 2,637 4,484 ______ ______ ______ 6 months 6months Year ended ended ended 30 September 30 September 31 March 2005 2004 2005Revenue by customer location: £'000 £'000 £'000United Kingdom 897 1,430 2,527Rest of Europe 2,667 1,197 1,876United States of America - 10 41Rest of world - - 40 ______ ______ ______ 3,564 2,637 4,484 ______ ______ ______ Interest income is disclosed separately in the income statement and has beenexcluded from this note. All revenue and losses before taxation originate in the United Kingdom. 3. Operating loss This is stated after charging: 6 months 6months Year ended ended ended 30 September 30 September 31 March 2005 2004 2005 £'000 £'000 £'000Amortisation of intangible assets - 582 1,043Depreciation of tangible fixed assets - owned 373 379 750- held under finance leases and hire purchase contracts 33 105 159Share-based compensation 371 252 621Operating lease rentals- land and buildings 148 125 251- plant and machinery 46 38 92 ______ ______ ______ 4. Finance costs 6 months 6months Year ended ended ended 30 September 30 September 31 March 2005 2004 2005 £'000 £'000 £'000Loans - 139 139Finance charges payable under finance leases 4 9 16 ______ ______ ______ 4 148 155 ______ ______ ______ 5. Taxation 6 months 6months Year ended ended ended 30 September 30 September 31 March 2005 2004 2005 £'000 £'000 £'000R&D tax credits 894 1,181 1,181 ______ ______ ______ The taxation recorded in the income statement relates to research anddevelopment tax credits. The credit is recorded on the earlier of the cashreceipt and the confirmation from the Inland Revenue that the claim has beenapproved. 6. Loss per ordinary share The calculations of loss per share are based on the following losses and numberof shares: 6 months 6months Year ended ended ended 30 September 30 September 31 March 2005 2004 2005Retained loss for the period (£'000) (1,542) (2,874) (7,786)Weighted average number of ordinary shares (No. 108,057 76,430 89,193000)Loss per share (1.4p) (3.7p) (8.7p) The loss per share is based on the weighted average number of shares in issueduring the period. IAS 33 "Earnings per share" requires presentation of dilutedearnings per share when a company could be called upon to issue shares thatwould decrease net profit or increase net loss per share. No adjustment has beenmade to the basic loss per share, as the exercise of share options would havethe effect of reducing the loss per ordinary share and is therefore notdilutive. 7. Other receivables Other receivables represent an investment bond in respect of a rental depositpaid under the terms of a lease agreement for the premises at Chippenham. Thedeposit is for a fixed period of one year and is renewed annually. The interestrate is fixed annually and is 3.75% for the year ending 30 June 2006. Theinterest rate is recognised on an accruals basis. 8. Trade and other receivables 30 September 30 September 31 March 2005 2004 2005 £'000 £'000 £'000Trade debtors 641 431 668Other debtors 2 86 23Prepayments and accrued income 124 71 66VAT recoverable 57 60 93R&D tax credits receivable - 1,181 - ______ ______ ______ 824 1,829 850 ______ ______ ______ 9. Loans and obligations under finance leases 30 September 30 September 31 March 2005 2004 2005 £'000 £'000 £'000Loans - 1 -Obligations under finance leases - 42 14 ______ ______ ______ - 43 14 ______ ______ ______ 10. Trade and other payables 30 September 30 September 31 March 2005 2004 2005 £'000 £'000 £'000Loans 1 6 4Trade creditors 996 845 880Obligations under finance leases 42 116 84Other taxes and social security costs 139 117 128Other creditors 4 5 1Accruals 1,074 1,039 1,687 ______ ______ ______ 2,256 2,128 2,784 ______ ______ ______ 11. Share capital 30 September 2005 30 September 2004 31 March 2005 £000 No.'000 £000 No.'000 £000 No.'000Authorised:Ordinary shares of 0.025p each 45 181,200 45 181,200 45 181,200Redeemable preference shares of £1 each 34 34 34 34 34 34 ______ ______ ______ ______ ______ ______Allotted, called up and fully paid:Ordinary shares of 0.025p each 27 108,450 27 107,559 27 107,899Redeemable preference shares of £1 each 34 34 34 34 34 34 ______ ______ ______ ______ ______ ______ Redeemable preference shares The rights attaching to the redeemable preference shares are summarised asfollows: a) the shares do not confer any right to dividend or otherdistributions; b) on a return of capital on liquidation or otherwise, the assetsof the company available for distribution among the members are to be appliedfirst in repaying to the holders of the redeemable preference shares the amountspaid up or credited as paid up in respect of such shares; c) holders ofredeemable preference shares have the right to receive notice of and attendgeneral meetings, but have no right to vote thereat; d) the price per share atwhich redeemable preference shares are transferred may not exceed the amountpaid or credited as being paid up, and e) the Company may specify by notice inwriting the date upon which it intends to redeem all (but not some only) of theshares. The price per share payable by the Company to the holders of theredeemable preference shares on their redemption shall be the amount paid up orcredited as paid up on each such share. Warrants On 30 August 2005, Pictet Private Equity Investors S.A. exercised the rightconferred on them under a Warrant Instrument dated 20 November 2002 andsubscribed £73.32 for 293,271 ordinary shares of 0.025p each at par. On 30 August 2005, GATX European Venture Finance Limited exercised the rightconferred on them under a Warrant Instrument dated 20 November 2002 andsubscribed £8.15 for 32,585 ordinary shares of 0.025p each at par. Deferred share consideration Under a share purchase agreement dated 5 February 2002 between Vectura Group plcand Cambridge Consultants Limited ("CCL"), whereby Vectura acquired the entireshare capital of Vectura Delivery Devices Limited, CCL are due deferredconsideration in the form of ordinary shares of 0.025p each. The outstandingbalance of deferred consideration is to be issued on the satisfaction of certainpatent and revenue milestones, or by 31 December 2006 if earlier. As at 30September 2005, 1,350,000 (30 September 2004 - 1,800,000; 31 March 2005 -1,350,000) ordinary shares remained to be issued. Options The Company's Directors, officers and employees (and a former Director) holdoptions under the Vectura Unapproved Share Option Plan (the "Unapproved Plan"),Enterprise Management Incentive arrangements (the "EMI Plan") and the VecturaGroup plc Save as You Earn Share Option Scheme (the "Sharesave Scheme") tosubscribe for ordinary shares in the Company, as shown below. Unapproved EMI Sharesave Total Plan Plan Scheme options Shares under option at 1 April 2005 8,171,847 4,779,908 579,661 13,531,416Options granted 368,880 - - 368,880Options exercised (118,000) (107,556) - (225,556)Options lapsed (13,613) (59,916) (34,317) (107,846) ______ ______ ______ ______Shares under option at 30 September 2005 8,409,114 4,612,436 545,344 13,566,894 ______ ______ ______ ______Option price per share 0.025p - 89.5p 0.025p - 48.125p 50.8pWeighted average option price per share 42.05p 28.94p 50.8p The options exercised during the six months ended 30 September 2005 providedproceeds of £55,102.33. Long-Term Incentive Plan Under the rules of this plan, set up in accordance with an ordinary resolutionof the shareholders at the Annual General Meeting held on 12 September 2005,Executive Directors and certain senior managers received conditional rights toacquire a maximum number of shares at the beginning of a three-year period, aproportion of which they will be entitled to receive at the end of that perioddepending on the extent to which the challenging performance conditions set bythe Remuneration Committee at the time the allocation was made are satisfied. At30 September 2005, eligible employees hold rights which may result in the issueof 1,032,611 ordinary shares on 12 September 2008. 12. Reconciliation of net cash flows from operating activities 6 months 6months Year ended ended ended 30 September 30 September 31 March 2005 2004 2005 £'000 £'000 £'000Operating loss (3,000) (4,172) (9,567)Amortisation of intangible assets - 582 1,043Depreciation of property plant and equipment 406 484 909(Increase) / decrease in debtors 26 (126) (167)Increase / (decrease) in creditors (521) 362 998Deferred income 6,118 - -Share-based compensation 371 252 621 ______ ______ ______Net cash inflow / (outflow) from operations 3,400 (2,618) (6,163)Research and development tax credit received 894 - 1,181 ______ ______ ______Net cash inflow / (outflow) from operating 4,294 (2,618) (4,982)activities ______ ______ ______ INDEPENDENT REVIEW REPORT TO VECTURA GROUP PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 30 September 2005 which comprises the Consolidated IncomeStatement, Consolidated Balance Sheet, Consolidated Cash Flow Statement,Consolidated Statement of Changes in Equity, and the related notes 1 to 12. Wehave read the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. This report is made solely to the company in accordance with guidance containedin Bulletin 1999/4 'Review of interim financial information' issued by theAuditing Practices Board. To the fullest extent permitted by law, we do notaccept or assume responsibility to anyone other than the company, for our work,for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority. As disclosed in note 1, the next annual financial statements of the group willbe prepared in accordance with those IFRSs adopted for use by the EuropeanUnion. The accounting policies are consistent with those that the directors intend touse in the next financial statements. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4'Review of interim financial information' issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of makingenquiries of group management and applying analytical procedures to thefinancial information and underlying financial data, and based thereon,assessing whether the accounting policies have been applied. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 September 2005. Ernst & Young LLPBristol15 November 2005 Notes: The maintenance and integrity of the Vectura Group plc web site is theresponsibility of the directors; the work carried out by the auditors does notinvolve consideration of these matters and, accordingly, the auditors accept noresponsibility for any changes that may have occurred to the financialinformation since it was initially presented on the web site. Legislation in the United Kingdom governing the preparation and dissemination offinancial statements may differ from legislation in other jurisdictions. APPENDIX Reporting under International Financial Reporting Standards (IFRS) From 1 April 2005 Vectura Group plc will produce its consolidated report andaccounts in accordance with IFRS. This financial information has been preparedon the basis of IFRS expected to be applicable at that date. These standardsare subject to ongoing review and endorsement by the EU or possible amendment byinterpretive guidance from the IASB and are therefore still subject to change.We will update our restated information for any such changes when they are made. The commentary below highlights the key changes that have arisen due to thetransition from reporting under UK GAAP to reporting under IFRS. The Group'sdate of transition is 1 April 2004, which is the beginning of the comparativeperiod for the 2005/06 financial year. Therefore, the opening balance sheet forIFRS purposes is that reported at 1 April 2004, as amended for changes due toIFRS. This interim financial report is the first to be prepared under IFRS. Thecomparative figures have been prepared on the same basis and are thereforerestated from those previously reported under UK GAAP. To help understand theimpact of the transition, reconciliations have been prepared to show the changesmade to the statements, previously reported under UK GAAP, in arriving at theequivalent statements under IFRS. The following are the unauditedreconciliations which are included in this Appendix: 1. Consolidated balance sheet at 1 April 2004 2. Consolidated income statement for the year ended 31 March 2005 3. Consolidated balance sheet at 31 March 2005 4. Consolidated income statement for the six months ended 30 September 2004 5. Consolidated balance sheet at 30 September 2004 A full set of accounting policy changes are included within this report. A fullset of IFRS accounting policies will be published in the Group's report andaccounts for the year ending 31 March 2006. The net effect of presenting the financial statements for the year ended 31March 2005 under IFRS rather than UK GAAP is to increase the net loss after taxfor the year from £7.7 million to £7.8 million and increase net assets at thatdate from £21.7 million to £22.0 million. The changes have no impact on the cashflows previously reported. The key areas of change are outlined below. First-time adoption IFRS 1 "First-time Adoption of International Financial Reporting Standards" setsout the approach to be followed when IFRS are applied for the first time. As ageneral principle, IFRS 1 requires that the accounting policies are to beapplied retrospectively, although IFRS 1 provides a number of optionalexemptions where the cost of compliance is deemed to exceed the benefits tousers of the financial statements. Where applicable, the options selected bymanagement under IFRS 1 are set out in the explanatory notes below. Share-based payment IFRS 2 requires the fair value of all share-based payments to be charged in theincome statement over their respective vesting periods. Share-based paymentsinclude executive and employee share option schemes. Fair value is determined atthe date of grant and is calculated using an appropriate option pricing model.Under UK GAAP, an expense was recorded in respect of share option grants wherethe grant price was below the fair value of the shares at the date of grant. Inrestating the financial results of the Company under IFRS, expenses previouslyso recorded under UK GAAP have been reversed and an expense has been recordedbased upon the fair value of share option grants. The Group has taken advantageof the transitional provisions of IFRS 2 in respect of equity-settled awards andhas applied IFRS 2 only to equity- settled awards granted after 7 November 2002and not vested at 1 January 2005. Business combinations Under IFRS 1, the Group may elect not to apply IFRS 3 "Business Combinations"retrospectively to transactions occurring prior to the date of transition toIFRS and management has elected to take advantage of this exemption. Thecarrying amount of goodwill in the opening IFRS balance sheet is that recordedunder UK GAAP at the date of transition. As from the date of transition,goodwill is not amortised, but subject to annual tests of impairment. Holiday pay Under IAS 19 "Employee Benefits" a provision for holiday to which employees areentitled, but have not yet taken, is required. This charge was not requiredunder UK GAAP. Financial Instruments As provided by IAS 32 "Financial Instruments Disclosure and Presentation" andIAS 39 "Financial Instruments: Recognition and Measurement", the group has takenadvantage of the fact that a first-time adopter need not restate the comparativeinformation. IAS 32 and IAS 39 have been applied with effect from 1 April 2005.The restatement of the financial instruments in place at 31 March 2005 to IFRSas at 1 April 2005 has no impact. Reconciliation of consolidated balance sheetat 1 April 2004 As previously IFRS 2 IFRS 3 reported under share-based business Restated UK GAAP payment combinations Other (1) under IFRS £000 £000 £000 £000 £000ASSETSGoodwill and intangible assets 2,813 - - - 2,813Property, plant and equipment 3,616 - - - 3,616Other receivables 428 - - - 428 ______ ______ ______ ______ ______Non-current assets 6,857 - - - 6,857 ______ ______ ______ ______ ______Trade and other receivables 683 - - - 683Cash and cash equivalents 2,107 - - - 2,107 ______ ______ ______ ______ ______Current assets 2,790 - - - 2,790 ______ ______ ______ ______ ______Total assets 9,647 - - - 9,647 ______ ______ ______ ______ ______ LIABILITIESLoans and obligations under finance (682) - - - (682)leases ______ ______ ______ ______ ______Non-current liabilities (682) - - - (682) ______ ______ ______ ______ ______Trade and other payables (2,581) - - (47) (2,628) ______ ______ ______ ______ ______Current liabilities (2,581) - - (47) (2,628) ______ ______ ______ ______ ______Total liabilities (3,263) - - (47) (3,310) ______ ______ ______ ______ ______NET ASSETS 6,384 - - (47) 6,337 ______ ______ ______ ______ ______EQUITYShare capital 16 - - - 16Share premium 20,781 - - - 20,781Shares to be issued 867 - - - 867Merger reserve 3,020 - - - 3,020Share-based compensation reserve - 41 - - 41Retained loss (18,300) (41) - (47) (18,388) ______ ______ ______ ______ ______TOTAL EQUITY 6,384 - - (47) 6,337 ______ ______ ______ ______ ______ (1) The adjustment relates to an accrual for employee holiday pay. Reconciliation of consolidated income statementfor the year ended 31 March 2005 Previously IFRS 2 IFRS 3 reported under share-based business Restated UK GAAP payment combinations Other(1) under IFRS £000 £000 £000 £000 £000Revenue 4,484 - - - 4,484Cost of sales (1,472) - - - (1,472) ______ ______ ______ ______ ______Gross profit 3,012 - - - 3,012Research and development expenses (10,209) 116 376 (2) (9,719)Other administrative expenses (2,239) - - - (2,239)Share-based compensation - (621) - - (621) ______ ______ ______ ______ ______Administrative expenses (2,239) (621) - - (2,860) ______ ______ ______ ______ ______Operating loss (9,436) (505) 376 (2) (9,567)Interest income 755 - - - 755Finance costs (155) - - - (155) ______ ______ ______ ______ ______Loss before taxation (8,836) (505) 376 (2) (8,967)Taxation 1,181 - - - 1,181 ______ ______ ______ ______ ______Loss after taxation attributable to (7,655) (505) 376 (2) (7,786) equity holders of the Company ______ ______ ______ ______ ______ Loss per share basic and diluted (8.6p) (8.7p) (1) The adjustment relates to an accrual for employee holiday pay. Reconciliation of the consolidated balance sheetat 31 March 2005 Previously IFRS 2 IFRS 3 reported under UK share-based business Restated GAAP payment combinations Other(1) under IFRS £000 £000 £000 £000 £000ASSETSGoodwill and intangible assets 1,636 - 376 - 2,012Property, plant and equipment 3,102 - - - 3,102Other receivables 428 - - - 428 ______ ______ ______ ______ ______Non-current assets 5,166 - 376 - 5,542 ______ ______ ______ ______ ______Trade and other receivables 850 - - - 850Cash and cash equivalents 18,388 - - - 18,388 ______ ______ ______ ______ ______Current assets 19,238 - - - 19,238 ______ ______ ______ ______ ______Total assets 24,404 - 376 - 24,780 ______ ______ ______ ______ ______ LIABILITIESLoans and obligations under finance (14) - - - (14)leases ______ ______ ______ ______ ______Non-current liabilities (14) - - - (14) ______ ______ ______ ______ ______Trade and other payables (2,735) - - (49) (2,784) ______ ______ ______ ______ ______Current liabilities (2,735) - - (49) (2,784) ______ ______ ______ ______ ______Total liabilities (2,749) - - (49) (2,798) ______ ______ ______ ______ ______NET ASSETS 21,655 - 376 (49) 21,982 ______ ______ ______ ______ ______EQUITYShare capital 61 - - - 61Share premium 22,523 - - - 22,523Shares to be issued 918 - - - 918Special reserve 8,245 - - - 8,245Merger reserve 3,211 - - - 3,211Share-based compensation reserve - 662 - - 662Retained loss (13,303) (662) 376 (49) (13,638) ______ ______ ______ ______ ______TOTAL EQUITY 21,655 - 376 (49) 21,982 ______ ______ ______ ______ ______ (1) The adjustment relates to an accrual for employee holiday pay. Reconciliation of consolidated income statementfor the six months ended 30 September 2004 Previously IFRS 2 reported under share-based IFRS 3 business Restated UK GAAP payment combinations Other(1) under IFRS £000 £000 £000 £000 £000Revenue 2,637 - - - 2,637Cost of sales (803) - - - (803) ______ ______ ______ ______ ______Gross profit 1,834 - - - 1,834Research and development expenses (4,759) 64 191 (1) (4,505)Other administrative expenses (1,249) - - - (1,249)Share-based compensation - (252) - - (252) ______ ______ ______ ______ ______Administrative expenses (1,249) (252) - - (1,501) ______ ______ ______ ______ ______Operating loss (4,174) (188) 191 (1) (4,172)Interest income 265 - - - 265Finance costs (148) - - - (148) ______ ______ ______ ______ ______Loss before taxation (4,057) (188) 191 (1) (4,055)Taxation 1,181 - - - 1,181 ______ ______ ______ ______ ______ Loss after taxation attributable to (2,876) (188) 191 (1) (2,874)equity holders of the Company ______ ______ ______ ______ ______Loss per share basic and diluted (3.8p) (3.7p) (1) The adjustment relates to an accrual for employee holiday pay. Reconciliation of the consolidated balance sheetat 30 September 2004 Previously IFRS 2 reported under share-based IFRS 3 business Restated UK GAAP payment combinations Other(1) under IFRS £000 £000 £000 £000 £000ASSETSGoodwill and intangible assets 2,040 - 191 - 2,231Property, plant and equipment 3,235 - - - 3,235Other receivables 428 - - - 428 ______ ______ ______ ______ ______Non-current assets 5,703 - 191 - 5,894 ______ ______ ______ ______ ______Trade and other receivables 1,829 - - - 1,829Cash and cash equivalents 20,720 - - - 20,720 ______ ______ ______ ______ ______Current assets 22,549 - - - 22,549 ______ ______ ______ ______ ______Total assets 28,252 - 191 - 28,443 ______ ______ ______ ______ ______ LIABILITIESLoans and obligations under (43) - - - (43)finance leases ______ ______ ______ ______ ______Non-current liabilities (43) - - - (43) ______ ______ ______ ______ ______Trade and other payables (2,080) - - (48) (2,128) ______ ______ ______ ______ ______Current liabilities (2,080) - - (48) (2,128) ______ ______ ______ ______ ______Total liabilities (2,123) - - (48) (2,171) ______ ______ ______ ______ ______NET ASSETS 26,129 - 191 (48) 26,272 ______ ______ ______ ______ ______EQUITYShare capital 61 - - - 61Share premium 22,512 - - - 22,512Shares to be issued 867 - - - 867Special reserve (2) 8,245 - - - 8,245Merger reserve 3,020 - - - 3,020Share-based compensation reserve - 294 - - 294Retained loss (2) (8,576) (294) 191 (48) (8,727) ______ ______ ______ ______ ______TOTAL EQUITY 26,129 - 191 (48) 26,272 ______ ______ ______ ______ ______ (1) The adjustment relates to an accrual for employee holiday pay. (2) The amount previously reported under UK GAAP has been adjusted to move£1,114 trading loss for the period from 22 June 2004 to 30 September 2004 fromthe special reserve to retained loss. Accounting policies The accounting policies adopted in the preparation of the Group's IFRSstatements are set out below: Basis of consolidation The consolidated annual financial statements comprise the financial statementsof Vectura Group plc and its subsidiaries as at 31 March each year. Thefinancial statements of subsidiaries are prepared for the same reporting year asthe parent company, using consistent accounting policies. Adjustments are madeto bring into line any dissimilar accounting policies that may exist. All inter-company balances and transactions, including unrealised profitsarising from intra-group transactions, have been eliminated in full. Unrealisedlosses are eliminated unless costs cannot be recovered. Subsidiaries are consolidated from the date on which control is transferred tothe Group and cease to be consolidated from the date on which control istransferred out of the Group. Where there is a loss of control of a subsidiary,the consolidated financial statements include the results for the part of thereporting year during which Vectura Group plc has control. Revenue recognition Revenue represents the amount receivable for goods and services provided androyalties earned, net of trade discounts, VAT and other sales-related taxes.Revenue is recognised as follows: Technology and product licensing Technology and product licensing income represents amounts earned for licensesprovided under licensing agreements, including up-front payments, milestonepayments and technology access fees. Revenues are recognised where they arenon-refundable, the Group's obligations related to the revenues have beendischarged and their collection is reasonably assured. Refundable licensingrevenue is treated as deferred until such time that it is no longer refundable.In general, up-front payments are deferred and amortised on a systematic basisin line with the period of development. Milestone payments related toscientific or technical achievements are recognised as income when the milestoneis accomplished. Royalty income Royalty income is recognised on an accruals basis and represents income earnedas a percentage of product sales in accordance with the substance of therelevant agreement. Pharmaceutical Development Services Pharmaceutical Development Services revenues principally comprise contractproduct development and contract clinical trial manufacturing fees invoiced tothird parties. Revenues are recognised upon the transfer to the customer ofsignificant risks and rewards or upon the completion of agreed tasks or numbersof man days. Interest income Interest income is recognised on a time-proportion basis using the effectiveinterest method. Intangible assets Goodwill Goodwill recognised under UK GAAP prior to 1 April 2004 is stated at net bookvalue at that date. Goodwill arising on the acquisition of subsidiary orassociate undertakings and businesses subsequent to 1 April 2004, representingany excess of the fair value of the consideration given over the fair value ofthe identifiable assets and liabilities acquired, is capitalised. Goodwill istested annually for impairment. Intellectual property Intellectual property comprises acquired patents, trade marks, know-how andother similarly identified rights. These are recorded at their fair value atthe acquisition date and are amortised on a straight line basis over theirestimated useful economic lives from the time they are available for use. Theperiod over which the Group expects to derive economic benefits does not exceed20 years. Research and development expenditure Research expenditure is charged to the income statement in the period in whichit is incurred. Development expenditure is capitalised when the criteria forrecognition as an asset are met - when it is probable that the project will be asuccess, considering its commercial and technological feasibility, and costs canbe measured reliably. Regulatory and other uncertainties generally mean thatsuch criteria are not met. When development costs are capitalised they areamortised over their useful economic lives from product launch. Prior to productlaunch, the expenditure so capitalised is tested for impairment annually. Computer software The Group writes off software costs as incurred, except for purchases from thirdparties in respect of major systems. In such cases, these are capitalised andwritten off over a period of three years from the date of purchase. Property, plant and equipment Property, plant and equipment is stated at cost, net of depreciation andprovision for impairment. Depreciation is provided on all property, plant andequipment at rates calculated to write off the cost of each asset, less itsestimated residual value, on a straight line basis over its expected usefullife, as follows: Laboratory equipment 3 - 7 yearsOffice and IT equipment 3 yearsLeasehold improvements over the shorter of 3 years or the period of the lease The carrying values of tangible fixed assets are reviewed for impairment whenevents or circumstances indicate the carrying values may not be recoverable. Impairment of assets Assets that have an indefinite life are not subject to amortisation and aretested annually for impairment. Assets that are subject to amortisation ordepreciation are reviewed for impairment whenever events or changes incircumstances indicate that the carrying value may not be recoverable. Animpairment loss is recognised for the amount by which the asset's carrying valueexceeds its recoverable amount. The recoverable amount is the higher of anasset's fair value less costs to sell and its value in use. Any impairment lossis charged to the income statement in the year concerned. For the purposes ofassessing impairment, assets are grouped at the lowest levels for which thereare identifiable cash in-flows (cash-generating units). The expected cash flows generated by the assets are discounted usingasset-specific discount rates which reflect the risks associated with the groupof assets. These risks vary with the nature and location of the cash-generatingunits. Leases and hire purchase contracts Assets held under finance leases and hire purchase contracts, which confer risksand rewards similar to those attaching to owned assets, are capitalised asproperty, plant and equipment and are depreciated over the shorter of the leaseterms and their useful economic lives. The capital elements of future leaseobligations are recorded as liabilities, while the interest elements are chargedthrough the income statement over the period of the lease to produce a constantrate of charge on the capital repayments outstanding. Rentals under operatingleases are charged on a straight line basis over the lease term, even if thepayments are not made on such a basis. Foreign currencies Transactions in foreign currencies are recorded at the rate of exchange at thedate of the transaction. Monetary assets and liabilities denominated in foreigncurrencies at the balance sheet date are reported at the rates of exchangeprevailing at that date. Any gain or loss arising from a change in exchange ratesubsequent to the date of the transaction is included as an exchange gain orloss in the income statement. Taxation UK corporation tax is provided on taxable profits at amounts expected to bepaid, or recovered, applying the tax rates and laws that have been enacted, orsubstantively enacted, by the balance sheet date. Deferred tax is accounted for using the balance sheet liability method inrespect of temporary timing differences arising from differences between thecarrying amount of assets and liabilities in the financial statements and thecorresponding tax bases used in the computation of taxable profit or loss. Deferred tax assets are recognised to the extent that it is probable that futuretaxable profits will be available against which the temporary differences can beutilised. Their carrying amount is reviewed at each balance sheet date on thesame basis. Deferred tax is measured on an undiscounted basis, and at the taxrates that are expected to apply in the period in which the asset or liabilityis settled. It is recognised in the income statement except when it relates toitems credited or charged directly to equity, in which case the deferred tax isalso dealt with in equity. Post-retirement benefits The Group contributes a set proportion of employees' gross salary to a definedcontribution personal pension plan. The amount charged to the income statementin respect of pension costs is the contribution payable in the year.Differences between contributions payable in the year and contributions actuallypaid are shown either as prepayments or creditors in the balance sheet. Share-based payments The Group operates a number of executive and employee share option schemes. Inaccordance with IFRS 2, for all grants of share options and awards, the cost ofequity-settled transactions is measured by reference to their fair value at thedate at which they are granted, with fair value determined using a binomialpricing model. The cost of equity-settled transactions is recognised, together with acorresponding increase in equity, over the period until the award vests. Ateach reporting date, the cumulative expense recognised for equity-basedtransactions reflects the extent to which the vesting period has expired and thenumber of awards that, in the opinion of the directors at that date, willultimately vest. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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