Interim Results

24th Nov 2008 07:00



Vectura Group plc - Interim Results for the six months ended 30 September 2008

- Pipeline progress and strong financial position -

Chippenham, UK - 24 November 2008: Vectura Group plc (LSE: VEC) ("Vectura"), the inhaled product development company, today announces its interim results for the six months ended 30 September 2008.

Financial Highlights

Revenues increased 9% to £13.3m (2007/08 H1: £12.3m)

Gross profit up 17% to £11.4m (2007/08 H1: £9.8m)

Investment in research and development up 10% to £16.1m (2007/08 H1: £14.6m)

Cash and cash equivalents of £73.8m at 30 September 2008 (£78.8m at 31 March 2008)

Net cash outflow of £5.0m (2007/08 H1: £6.1m)

Operational and Product Highlights

Boehringer Ingelheim - achievement of milestone on collaboration to develop a new dry powder inhaler (DPI) - €7.5m cash received in November 2008

Sandoz, the generics division of Novartis, confirmed as licensee for Vectura's combination asthma/COPD products, VR315 and VR632 

NVA237 Phase II data presented at the European Respiratory Society meeting showed similar efficacy and duration of action to Spiriva®, with potentially a more rapid onset of action

Start of Phase II studies with VR496 for cystic fibrosis with the potential for use in reversible/irreversible airways disease such as asthma and/or COPD

Dr Chris Blackwell, Chief Executive of Vectura, commented: 

"Vectura's pipeline and technology platforms continued to progress well during 2008. Our recent milestone from Boehringer Ingelheim resulting from our collaboration to develop a new dry powder inhaler, as well as the positive data presented by Novartis on our COPD drug, NVA237, at the October 2008 European Respiratory Society meeting, underline Vectura's involvement in high-value respiratory product development. As expected, our revenues are growing and we have maintained a strong cash position, whilst maintaining solid investment in our core development activities."

"Over the course of the next 12 months we will progress our proprietary pipeline and look forward to the start of registration studies on some of our partnered respiratory programmes, with the expectation of receiving significant revenues from milestones as these move closer to the market."

 

- Ends -

 

Chris Blackwell and Chief Financial Officer Anne Hyland will discuss the Company's results at an analyst/investor presentation and conference call today at 9:30 a.m. GMT. For further details please contact Claire Rowell at Financial Dynamics on +44(0)20 7269 7285.

Enquiries

 

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

Notes for Editors 

About Vectura

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

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

Vectura has development collaborations with several pharmaceutical companies, including Boehringer Ingelheim, Novartis and Sandoz (the generics arm of Novartis). The acquisition of Innovata in January 2007 brought established alliances with a number of additional companies, such as Baxter, GlaxoSmithKline (GSK), Mylan Inc, UCB and Otsuka, as well as providing revenue streams, complementary products and critical mass. For further information, please visit Vectura's website at www.vectura.com.

Forward-Looking Statements

This press release contains "forward-looking statements", including statements about the discovery, development and commercialisation of products. Various risks may cause Vectura's actual results to differ materially from those expressed or implied by the forward-looking statements, including adverse results in clinical development programmes; failure to obtain patent protection for inventions; commercial limitations imposed by patents owned or controlled by third parties; dependence upon strategic alliance partners to develop and commercialise products and services; difficulties or delays in obtaining regulatory approvals to market products and services resulting from development efforts; the requirement for substantial funding to conduct research and development and to expand commercialisation activities; and product initiatives by competitors. As a result of these factors, prospective investors are cautioned not to rely on any forward-looking 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 continued to improve its financial performance in the six months to 30 September 2008, with revenues increasing 9% to £13.3m (2007/08 H1 - £12.3m) and gross profit increasing 17% to £11.4m (2007/08 H1 - £9.8m), ending the period with £73.8m in cash and cash equivalents.

Vectura is increasingly viewed as one of the key players in the respiratory market, a fast-growing market that is expected to grow from $23bn in 2007 to $46bn by 2017. This comes against a backdrop of increasing pressure for cheaper medicines as some key drugs face patent losses and patients and payors seek cost-effective options. Vectura is endeavouring to capture as great a market share as possible of this growing respiratory market by developing innovative, branded medicines such as NVA237 and QVA149, licensed to Novartis, and its own proprietary product for cystic fibrosis (CF), VR496. The Company is also working with the leading generics company, Sandoz, to develop the inhaled generic combination therapies for asthma, VR315 and VR632, and with Boehringer Ingelheim to develop a dry powder inhaler to deliver its proprietary products. These collaborations allow Vectura to capture value from competitor products.

Whilst it is not always possible to disclose details, over the past six months we have seen positive progress in all of Vectura's programmes and expect to see significant value generated from their development over the coming twelve months.

The recent milestone receipt from Boehringer Ingelheim endorses the strength of our technological capabilities as Boehringer Ingelheim progresses to develop its own proprietary products in the device. Boehringer Ingelheim is one of the world's leading companies developing therapies to treat asthma and COPD, for which the majority of treatments are delivered by inhalation, with Spiriva® being the company's strongest brand. Milestones and equity payments received from Boehringer Ingelheim since April 2006 now total €37.5m (£31.2m) and additional milestones will be payable to Vectura for each product developed in the inhaler, as well as royalties on global sales. 

The European Respiratory Society (ERS) meeting in Berlin at the beginning of October was an important event for Vectura. Novartis presented encouraging Phase II data on NVA237, our long-acting muscarinic antagonist (LAMA) licensed to Novartis in 2005, which demonstrated 24-hour duration of effect on FEV1 (forced expiratory volume in one second) and an improved onset of effect compared to Spiriva®. Novartis also presented positive Phase II data on indacaterol (QAB149), its once-daily, long-acting beta-agonist (LABA), which is set for first regulatory submission by the end of 2008 as a monotherapy treatment for COPD. This is important as it is being developed as a combined formulation with NVA237, the product known as QVA149, in which Vectura retains a significant interest. The recent disappointing data on Almirall's LAMA, aclidinium, provides a real opportunity for NVA237 as the next once-daily LAMA on the market, and also for QVA149 as the first LAMA/LABA combination. Another important outcome from the ERS meeting was the publication of the tiotropium (Spiriva®) safety database from approximately 20,000 patients. This meta-analysis, which included the prospectively designed UPLIFT study, demonstrated the cardiovascular safety of tiotropium and, in our view, allays any cardiovascular safety concerns over this class of drug.

Progress has been made with both our generic asthma/COPD products, VR315 and VR632. Our partner, Sandoz, the generics division of Novartis, has publicly stated that it is investing $50m in manufacturing facilities for GyroHaler®. With a number of key respiratory drugs coming off patent over the coming years and with increasing pressure on the regulatory authorities to approve cheaper drugs, both programmes have significant potential financial upside for Vectura, particularly VR315, for which Vectura has a cost-share/profit-share agreement for the US market.

We extended our proprietary clinical pipeline with the recent start of the Phase II trial for VR496 for cystic fibrosis. We aim to advance this programme through clinical development toward commercialisation, allowing us the opportunity to retain a greater proportion of the value. It is our belief that the anti-mucolytic and anti-inflammatory properties we expect to see with VR496 will also provide benefit to patients with reversible and/or irreversible airways diseases, such as asthma and COPD. If the current study demonstrates these properties, we will look to develop and partner the VR496 for these significant markets.

Licensing activities for Vectura's non-respiratory assets continue.  While still planning to out licence our Parkinson's disease programme, VR040, before the start of Phase III trials, Vectura will initiate a Phase II "at home" study later this year.

Outlook

Vectura has a broad and innovative development portfolio which combines mid- and late-stage pharmaceutical products with earlier stage opportunities, addressing fast-growing market sectors.

It is our stated intent to progress to the point at which we are sustainably generating cash whilst continuing to invest in the Company's future revenue streams by funding new product opportunities. To achieve this without a requirement for further financing, it is important to manage our cash resources carefully. We ended the six month period to 30 September 2008 with £73.8m in cash and cash equivalents. Our net cash utilisation was £5.0m, and this accommodated a £16.1m (+10%) investment in our development activities. We are committed to growing the business whilst maintaining a strong cash position. 

To this end, Vectura benefits from a steady stream of revenues from products marketed by Baxter and a flexible development model which, combined with careful financial management, allows us to focus on our key financial goal of becoming a sustainably cash-generative business. Our future sees substantial milestone and royalty revenues from our partnered late-stage respiratory programmes which, over the coming year, will be our principal focus.

It is an exciting time in the Company's trajectory as we look forward to the commencement of registration trials both with the COPD programmes partnered with Novartis and with our generic asthma/COPD programmes partnered with Sandoz. The markets we target provide us with huge opportunities and are significant value drivers for Vectura.

We have a healthy pipeline of products in development and a number of innovative opportunities for future development and we will continue to drive these forward diligently.

Dr Chris Blackwell Mr Jack Cashman

PRODUCT PIPELINE 

Respiratory 

NVA237 and QVA149 for chronic obstructive pulmonary disease (COPD) 

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

Novartis intends to launch NVA237 as a once-daily monotherapy for COPD and in combination with Novartis's once-daily, long-acting beta agonist (LABA) indacaterol (or QAB149), which is set for the first regulatory submissions by the end of 2008 as a monotherapy treatment for COPD. The combination of NVA237 and indacaterol is known as QVA149.

COPD affects 210 million people worldwide and is projected to be the third leading cause of death by 2030. It is a progressive lung disease with symptoms including chronic bronchitis and/or emphysema, which slowly progresses and eventually leads to a largely irreversible loss of lung function. While there is no cure, bronchodilators such as LAMAs make breathing easier by enlarging the patient's airways, and are recognised in international guidelines as an integral part of the treatment for COPD.

Under the terms of the licence agreement, Vectura and Sosei each received an initial payment of US$15.0m (£7.9m) in April 2005. Clinical, regulatory and commercialisation milestones receivable upon the achievement of pre-agreed targets for both the monotherapy and the combination product could reach US$172.5m for each company. In addition, royalties on product sales will be received for both the monotherapy and combination products.

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

Novartis has made substantial progress in the Phase II development of NVA237 and QVA149 and presented results of two Phase II studies evaluating the efficacy, safety and tolerability of NVA237 at the annual congress of the European Respiratory Society (ERS) in Berlin in October 2008. The new data shows that NVA237 provides sustained 24-hour bronchodilation in patients with moderate-to-severe COPD and showed similar efficacy and duration of action to Spiriva® with potentially a more rapid onset of action. In addition, studies lasting up to 28 days showed that NVA237 was safe and well tolerated with no clinically relevant cardiovascular findings.

VR315 for asthma/COPD 

Combination therapy for asthma is the biggest and fastest growing sector of the asthma market, with annual sales currently exceeding US$9bn.

VR315 is an inhaled combination therapy for asthma and COPD that is being jointly developed with Sandoz, the generics division of Novartis, using the GyroHaler® DPI delivery device. Vectura licensed the European rights for VR315 to Sandoz in March 2006, in a deal worth up to €22.5m in milestones and development funding together with royalties on all product sold. The US rights were licensed to Sandoz in December 2006 in a profit-sharing agreement which includes the payment of up to $63m in milestones to Vectura. Sandoz has since stated that it is investing $50m in manufacturing facilities for the GyroHaler®.

With some key respiratory drugs coming off patent over the coming years and with increasing pressure on the regulatory authorities to approve cheaper drugs, both programmes have significant financial upside for Vectura. Vectura expects to receive a further €10m in milestones from its EU collaboration and up to US$30m from its US collaboration prior to the launch of VR315 in these regions. Revenues will also be earned on all product sales in the EU and from a profit share in the US. Vectura will also earn a margin on the commercial manufacture and supply of GyroHaler® and retains rights for other territories.

VR632 for asthma/COPD 

In December 2007, Vectura announced that its collaboration partner for VR315, subsequently disclosed as Sandoz, had exercised an option to license VR632, a second combination therapy for asthma and COPD. VR632 is being developed as a generic combination product using the GyroHaler®. 

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

Boehringer Ingelheim collaboration on respiratory medicines

Most treatments for asthma and COPD are delivered by inhalation. Dry powder inhalers (DPIs) are increasingly the first choice for patients with these conditions and it is expected that DPIs will be used to deliver the majority of the drugs sold in these markets by 2011. This explains the growing demand for DPIs, particularly those that can deliver good performance and consistent dosing. Vectura believes that its device and formulation technologies are well placed to capture a significant market share.

In April 2006, Vectura agreed a non-exclusive, worldwide collaboration, development and licence agreement with Boehringer Ingelheim to develop a fully-integrated, multi-dose DPI. The device will be available to Boehringer Ingelheim in the development and marketing of its proprietary respiratory medicines for the treatment of respiratory diseases such as asthma and COPD.

Boehringer Ingelheim is one of the world's leading companies developing therapies to treat asthma and COPD, with its COPD therapy, Spiriva®, being the company's strongest brand.

To date, Vectura has received a total of €37.5m in equity and milestone payments from Boehringer Ingelheim, the latest receipt being €7.5m in November 2008. Boehringer Ingelheim will be responsible for further development, manufacturing and clinical trial use of the DPI with its proprietary compounds, as well as the commercialisation of these products. Vectura will receive development milestones and royalties on sales of each product marketed in the device. Our collaboration with Boehringer Ingelheim has added significantly to our intellectual property portfolio and provided Vectura with an excellent DPI platform to deliver further value from its inhaled therapy technologies through other collaborations.

VR496 for cystic fibrosis (potential for asthma and/or COPD) 

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

Duohaler® for asthma/COPD

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

Budesonide Clickhaler® for asthma in Japan 

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

Other development products 

VR040 for Parkinson's disease (PD) 

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

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

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

Vectura will initiate a Phase II "at home" study later this year. Vectura intends to out-license VR040 before the start of Phase III trials.

VR147 for migraine 

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

Vectura is exploring out-licensing opportunities for VR147.

VR004 for erectile dysfunction (ED) and VR776 for premature ejaculation (PE) 

Vectura is seeking licensing partners for these products. 

MARKETED PRODUCTS

ADVATE® for Haemophilia A

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

There is strong demand for ADVATE®, and Baxter continues to differentiate the product with various dosage forms, making it easier for patients to administer higher doses from fewer vials and to reduce the total infusion time. ADVATE® sales growth has continued to exceed Baxter's expectations as patients switch from plasma-based and other competitive products. Further growth is expected from increased compliance, establishing prophylaxis as the standard of care and continuing to support global penetration of the therapy and Baxter projects sales for 2008 in the region of US$1.4bn.

Adept® for prevention of surgical adhesions

Adept® is a 4% icodextrin solution used during surgery to reduce post-surgical adhesions, a frequent and major complication following gynaecological and other abdominal surgery. It has been used for this purpose in Europe since 2000 and in the US since October 2006. Vectura signed a global licence deal with Baxter in December 2005 for the manufacture and distribution of Adept®.

Extraneal® for peritoneal dialysis

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

Asmasal® and Asmabec® for asthma

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

Budesonide Clickhaler® and Formoterol Clickhaler® for asthma

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

Meptin Clickhaler® for asthma

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

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

FINANCIAL REVIEW

Summary of results

The results for the six months ended 30 September 2008 show total revenue of £13.3m (2007/08 H1 - £12.3m) with gross profit of £11.4m (2007/08 H1 - £9.8m). The operating loss for the period was £12.6m (2007/08 H1 - £12.9m). The loss before tax was £11.7m (2007/08 H1 - £11.2m) and the loss after tax £10m (2007/08 H1 - £10.1m).

Risks and uncertainties

The key business risks facing Vectura on a standalone basis remain unchanged from those set out in the Annual Report & Accounts for the year ended 31 March 2008, although the recent credit crunch and turmoil in the financial markets bring additional uncertainties to Vectura as in 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 remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. Particular risks include industry risk, clinical and regulatory risk, competition and intellectual property risk, economic risk and financial risk (cash flow, credit, liquidity and price). The credit crunch could result in the failure of banks where funds are deposited, the failure of customers or 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 and any increase in revenues resulting from the devaluation in sterling against the US dollar is offset to some extent by the losses incurred on a US dollar financial liability. The Board has policies in place to mitigate these risks and uncertainties. 

Revenue

In the six months to 30 September 2008 revenue increased by 9% to £13.3m compared to the six months to 30 September 2007 (£12.3m). Revenue includes fee income from royalties, product licensing, technology licensing, development fees and device sales. 

Total royalties were £5.9m (2007/08 H1 - £4.5m). ADVATE® contributed 66% of the royalties generated in the period with Extraneal® contributing 25%. Royalties were also generated from Adept® and products delivered in Clickhaler®.

Product licensing revenues in the period were £0.5m.  This was released from deferred income and was generated on VR315.

Technology licensing revenues of £2.7m includes £0.8m generated from a 2003 licence on Innovata technology and £1.9m released from deferred income. The deferred income relates to the milestone payment of €10m received from Boehringer Ingelheim in December 2007, which is being recognised over a two-year period in line with the period in which services are being provided. The €7.5m milestone received in November 2008 will be recognised over a similar period.

Pharmaceutical Development Services (PDS) revenues were £3.1m. These revenues principally represent contractual development fees charged to licensing partners for work carried out during the period on Vectura's generic programmes. As reported in May 2008, we expect these revenues to decline in the second half of the year as we complete our work on these programmes.

Device sales revenue of £1.0m (2007/08 H1 - £0.6m) was derived from the sale of devices to licensees. 

Gross profit

The gross profit in the six months to 30 September 2008 was £11.4m, a £1.6m improvement on the same period in the prior year (£9.8m). Gross profit in the period to 30 September 2008 represents 86% of revenue (2007/08 H1 - 79%), the increase being due to the increase in royalties as a proportion of total revenue during the period.

Research and development expenses

Total investment in research and development was £16.1m, a 10% increase on the same period in the prior year (£14.6m). We expect our investment in this area to continue to increase as some of our key products move to late-stage development.

Other administrative expenses

Other administrative expenses for the period were £1.3m, a £0.4m decrease on the prior period which included the costs of our move to the main London Stock Exchange in July 2007.

Loss after taxation and loss per share

The loss for the period after taxation was £10.0m (2007/08 H1 - £10.1m) giving a loss per ordinary share of 3.1p (2007/08 H1 - 3.2p).

Non-current assets

Non-current assets were £112.0m, compared with £117.0m at 31 March 2008, including goodwill (£49.6m), intangible assets (£57.4m), and property, plant and equipment (£3.7m). 

Financial liability

Current liabilities include £4.9m of a total £10.0m ($19.0m) financial liability, which represents a liability to Royalty Securitization Fund in respect of a loan secured against US dollar denominated royalty streams.  A £1.1m exchange loss was recorded on this liability in the period due to the depreciation of sterling against the US dollar. As the royalty streams that support this liability will be received in US dollars this loss will be offset by the gains made on these future income streams.

Deferred income

Deferred income relates to milestones received in cash but not yet recognised as revenue. The £11.3m to be recognised as revenue in later periods includes £1.5m for VR315, £4.2m relating to Boehringer Ingelheim, £3.3m for Clickhaler® and £2.3m for Duohaler®. 

Cash flow

Net cash outflow in the period was £5.0m compared to a net cash outflow of £6.1m in the six months to 30 September 2007. At 30 September 2008, Vectura had cash and cash equivalents of £73.8m (31 March 2008 - £78.8m).

Anne Hyland

Chief Financial Officer

23 November 2008

RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge:

the condensed set of financial statements has been prepared in accordance with IAS 34 - Interim Financial Reporting;

 

the condensed set of financial statements, which has been prepared in accordance with the applicable set of accounting standards, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer, or the undertakings included in the consolidation as a whole as required by DTR 4.2.4R.

 

this report includes a fair review of the information required by the Disclosure and Transparency Directive DTR 4.2.7R (indication of important events during the first six- months and description of principal risks and uncertainties for the remaining six-months of the year); and

 

this report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board,

Anne Hyland

Director

23 November 2008

Consolidated income statement

for the six months ended 30 September 2008

			Restated (1)
		6 months	6 months	Year
		ended	ended	ended
		30 September	30 September	31 March
		2008	2007	2008
		(unaudited)	(unaudited)	(audited)
	Notes	£000	£000	£000
Revenue	2	13,314	12,270	25,225
Cost of sales		(1,927)	(2,517)	(4,399)
		-----------	-----------	-----------
Gross profit		11,387	9,753	20,826
		-------	------	------
Research and development expenses		(16,117)	(14,637)	(29,659)
		-------	------	------
Other administrative expenses		(1,338)	(1,694)	(3,052)
Amortisation		(5,008)	(4,687)	(10,177)
Share-based compensation		(1,238)	(1,471)	(2,702)
		-----------	-----------	-----------
Total administrative expenses		(7,584)	(7,852)	(15,931)
		-------	-------	------
Share of loss of associate		(284)	(153)	(314)
		-------	-------	------
Operating loss		(12,598)	(12,889)	(25,078)
Investment income	3	2,150	2,137	4,482
Finance costs	3	(1,284)	(467)	(773)
		-----------	-----------	-----------
Loss before taxation		(11,732)	(11,219)	(21,369)
Taxation	4	1,752	1,133	2,163
		-----------	-----------	-----------
Loss after taxation attributable to equity holders of the Company		(9,980)	(10,086)	(19,206)
		-----------	-----------	-----------
Loss per ordinary share basic and diluted	5	(3.1p)	(3.2p)	(6.1p)
		-----------	-----------	-----------

 (1) Restated to reflect the final allocation of the cost of the acquisition of Innovata. The provisional accounting for the acquisition of the Innovata group was finalised in the year ended 31 March 2008. The impact of the restatement on the six months to 30 September 2007 has been to decrease amortisation by £0.1m and to decrease the tax income by £0.6m, compared to the figures reported in November 2007.

All results are derived from continuing activities.

Consolidated balance sheet

at 30 September 2008

		30 September	31 March
		2008	2008
		(unaudited)	(audited)
	Notes	£000	£000
Assets
Goodwill		49,562	49,562
Intangible assets		57,428	62,437
Property, plant and equipment		3,690	3,389
Investments in associates and joint ventures		630	914
Trade investment		250	250
Other receivables		428	428
		-----------	-----------
Non-current assets		111,988	116,980
		-----------	-----------
Inventories		121	190
Trade and other receivables	6	7,775	5,986
Cash and cash equivalents		73,795	78,804
		-----------	-----------
Current assets		81,691	84,980
		-----------	-----------
Total assets		193,679	201,960
		-----------	-----------
Liabilities
Trade and other payables	7	(11,335)	(9,970)
Deferred income	8	(5,442)	(5,499)
Financial liabilities	9	(4,868)	(860)
		-----------	-----------
Current liabilities		(21,645)	(16,329)
		-----------	-----------
Deferred income	8	(5,873)	(8,194)
Financial liabilities	9	(5,151)	(7,897)
		-----------	-----------
Non-current liabilities		(11,024)	(16,091)
		-----------	-----------
Total liabilities		(32,669)	(32,420)
		-----------	-----------
Net assets		161,010	169,540
		-----------	-----------
Equity
Share capital	10	114	114
Share premium		77,194	76,982
Special reserve		8,245	8,245
Other reserve		124,905	124,905
Share-based compensation reserve		6,976	5,738
Retained loss		(56,424)	(46,444)
		-----------	-----------
Total equity		161,010	169,540
		-----------	-----------

Consolidated cash flow statement

for the six months ended 30 September 2008

		Restated (1)
	6 months	6 months	Year
	ended	ended	ended
	30 September	30 September	31 March
	2008	2007	2008
	(unaudited)	(unaudited)	(audited)
	£000	£000	£000
Cash flows from operating activities
Operating loss	(12,598)	(12,889)	(25,078)
Depreciation and amortisation	5,786	5,531	11,809
Share-based compensation	1,238	1,471	2,702
Decrease in inventories	69	80	12
(Increase)/decrease in receivables	(389)	1,785	2,244
Increase/(decrease) in payables	1,364	(92)	1,910
(Decrease)/increase in deferred income	(2,378)	(2,058)	2,405
Other non-cash movements	284	153	314
	-----------	-----------	-----------
Net cash outflow from operations	(6,624)	(6,019)	(3,682)
Taxation paid	(138)	(52)	(164)
Research and development tax credits received	491	228	2,327
	-----------	-----------	-----------
Net cash outflow from operating activities	(6,271)	(5,843)	(1,519)
	-----------	-----------	-----------
Cash flows from investing activities
Interest received	2,150	2,137	4,482
Purchase of property plant and equipment	(1,077)	(366)	(745)
Receipts from sale of property, plant and equipment	-	-	1,359
	-----------	-----------	-----------
Net cash inflow from investing activities	1,073	1,771	5,096
	-----------	-----------	-----------
Net cash (outflow)/inflow before financing activities	(5,198)	(4,072)	3,577
	-----------	-----------	-----------
Cash flows from financing activities
Proceeds from issue of ordinary shares	211	438	4,094
Payment of financial liabilities	(22)	(2,049)	(5,213)
Payment of finance lease liabilities	-	(410)	(410)
Interest paid on finance leases	-	(14)	(14)
Interest paid on loans and financial liabilities	-	-	(759)
	-----------	-----------	-----------
Net cash inflow/(outflow) from financing activities	189	(2,035)	2,302
	-----------	-----------	-----------
(Decrease)/increase in cash and cash equivalents	(5,009)	(6,107)	1,275
Cash and cash equivalents at beginning of period	78,804	77,529	77,529
	-----------	-----------	-----------
Cash and cash equivalents at end of period	73,795	71,422	78,804
	-----------	-----------	-----------

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

Consolidated statement of changes in equity

for the six months ended 30 September 2008 (unaudited)

	Share	Share	Special	Other
	capital	premium	reserve	reserve
	£000	£000	£000	£000
At 1 April 2007 (restated (1))	113	72,889	8,245	124,905
	-----------	-----------	----------	-----------
Loss for the period	-	-	-	-
	-----------	-----------	----------	-----------
Total recognised income and expense for the period
Share-based compensation	-	-	-	-
Exercise of share options	-	438	-	-
	-----------	-----------	----------	-----------
At 30 September 2007 (restated (1))	113	73,327	8,245	124,905
Loss for the period	-	-	-	-
	-----------	-----------	----------	-----------
Total recognised income and expense for the period
Issue of ordinary shares	1	3,480	-	-
Share-based compensation	-	-	-	-
Exercise of share options	-	175	-	-
	-----------	-----------	----------	-----------
At 31 March 2008	114	76,982	8,245	124,905
Loss for the period	-	-	-	-
	-----------	-----------	----------	-----------
Total recognised income and expense for the period
Share-based compensation	-	-	-	-
Exercise of share options	-	212	-	-
	-----------	-----------	----------	-----------
At 30 September 2008	114	77,194	8,245	124,905
	-----------	-----------	----------	-----------

(continued from table above)

	Share-
	based
	compen-
	sation	Retained	Total
	reserve	loss	equity
	£000	£000	£000
At 1 April 2007 (restated (1))	3,036	(27,238)	181,950
	-----------	----------	----------
Loss for the period	-	(10,086)	(10,086)
	-----------	----------	----------
Total recognised income and expense for the period	-	(10,086)	(10,086)
Share-based compensation	1,471	-	1,471
Exercise of share options	-	-	438
	-----------	----------	----------
At 30 September 2007 (restated (1))	4,507	(37,324)	173,773
Loss for the period	-	(9,120)	(9,120)
	-----------	----------	----------
Total recognised income and expense for the period	-	(9,120)	(9,120)
Issue of ordinary shares	-	-	3,481
Share-based compensation	1,231	-	1,231
Exercise of share options	-	-	175
	-----------	----------	----------
At 31 March 2008	5,738	(46,444)	169,540
Loss for the period	-	(9,980)	(9,980)
	-----------	----------	----------
Total recognised income and expense for the period	-	(9,980)	(9,980)
Share-based compensation	1,238	-	1,238
Exercise of share options	-	-	212
	-----------	----------	----------
At 30 September 2008	6,976	(56,424)	161,010
	-----------	----------	----------

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

Notes to the condensed set of financial statements

 

1. Basis of preparation of the condensed half yearly financial statements

These condensed half yearly financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and International Accounting Standard 34 - Interim Financial Reporting, and do not include all the statements required for full annual financial statements. The same accounting policies, presentation and methods of computation have been followed in the interim financial statements as applied in the annual audited financial statements of Vectura Group plc for the year ended 31 March 2008.

These condensed half yearly financial statements are unaudited and do not constitute statutory accounts of the group as defined in section 240 of the Companies Act 1985. The auditors, Deloitte & Touche LLP, have carried out a review of the financial information in accordance with the guidance contained in International Standard on Review Engagements (UK and Ireland) 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, and their review report is set out at the end of this report.

The financial information for the year ended 31 March 2008 has been extracted from the group's published financial statements for that year, which contain an unqualified audit report, which did not contain statements under section 237(2) and 237(3) of the Companies Act 1985 and which have been filed with the Registrar of Companies.

2. Revenue 

	6 months	6 months	Year
	ended	ended	ended
	30 September	30 September	31 March
	2008	2007	2008
Revenue by category:	£000	£000	£000
Royalties	5,919	4,450	9,062
Product licensing	520	1,682	2,313
Technology licensing	2,688	1,360	3,420
Pharmaceutical development services	3,138	4,138	8,959
Device sales	1,049	640	1,471
	-----------	-----------	-----------
	13,314	12,270	25,225
	-----------	-----------	-----------
	6 months	6 months	Year
	ended	ended	ended
	30 September	30 September	31 March
	2008	2007	2008
Revenue by customer location:	£000	£000	£000
United Kingdom	2,498	4,511	7,869
Rest of Europe	5,007	2,735	8,372
United States of America	5,789	4,839	8,931
Rest of world	20	185	53
	-----------	-----------	-----------
	13,314	12,270	25,225
	-----------	-----------	-----------

All revenue and losses before taxation originate in the United Kingdom.

Interest income is disclosed separately in the income statement and has been excluded from this note.

Segmental reporting

For management purposes the group is currently organised into one business segment, which is the development and commercialisation of pharmaceutical products. Since this is the only primary reporting segment, no further information has been shown.

3. Investment income and finance costs

	6 months	6 months	Year
	ended	ended	ended
	30 September	30 September	31 March
	2008	2007	2008
	£000	£000	£000
Investment income:
Interest receivable on bank deposits and similar income	2,150	2,137	4,482
	-----------	-----------	-----------
Finance costs:
Finance charges payable under finance leases	-	(13)	(14)
Imputed interest charge on financial liabilities	(194)	(454)	(759)
Exchange rate adjustment on financial liabilities	(1,090)	-	-
	-----------	-----------	-----------
	(1,284)	(467)	(773)
	-----------	-----------	-----------

4. Taxation 

		Restated (1)
	6 months	6 months	Year
	ended	ended	ended
	30 September	30 September	31 March
	2008	2007	2008
	£000	£000	£000
Current income tax:
Current income tax charge	(138)	(52)	(164)
Research and development tax credits	1,890	1,185	2,327
	-----------	-----------	-----------
	1,752	1,133	2,163
	-----------	-----------	-----------

Included in the research and development tax credits above is £1,399,000 (2007 - £957,000) yet to be received.

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

5. Loss per ordinary share

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

		Restated (1)
	6 months	6 months	Year
	ended	ended	ended
	30 September	30 September	31 March
	2008	2007	2008
Loss for the period (£000)	(9,980)	(10,086)	(19,206)
Weighted average number of ordinary shares (No. 000)	320,284	315,106	315,793
Loss per ordinary share	(3.1p)	(3.2p)	(6.1p)
	-----------	-----------	-----------

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

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

6. Trade and other receivables

	30 September	31 March
	2008	2008
	£000	£000
Trade receivables	2,689	2,920
Other receivables	1,535	18
Prepayments and accrued income	3,272	2,798
VAT recoverable	279	250
	-----------	-----------
	7,775	5,986
	-----------	-----------

7. Trade and other payables

	30 September	31 March
	2008	2008
	£000	£000
Trade payables	1,525	1,854
Other taxes and social security costs	35	380
Other payables	437	404
Accruals	9,338	7,332
	-----------	-----------
	11,335	9,970
	-----------	-----------

8. Deferred income

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

	30 September	31 March
	2008	2008
	£000	£000
Amounts due within one year	5,442	5,499
Amounts due in more than one year	5,873	8,194
	-----------	-----------
	11,315	13,693
	-----------	-----------

9. Financial liabilities

	6 months	Year
	ended	ended
	30 September	31 March
	2008	2008
	£000	£000
Opening balance	8,757	13,970
Utilised	172	(5,213)
Exchange rate adjustment	1,090	-
	-----------	-----------
Closing balance	10,019	8,757
	-----------	-----------
Provisions due within one year	4,868	860
Provisions due after more than one year	5,151	7,897
	-----------	-----------
Closing balance	10,019	8,757
	-----------	-----------

The financial liability relates to $19m due to Royalty Securitization Trust which is secured against certain royalty streams, the majority of which are received in US dollars. 

The provision as at 30 September 2008 of £10m ($17.9m) is based on the total future discounted minimum payments due excluding an imputed interest charge of £0.6m ($1.1m).

The exchange rate used at 30 September 2008 was £/$1.7825 (31 March 2008 - £/$1.9875).

10. Share capital

	30 September 2008		31 March 2008
	£000	No.000	£000	No.000
Authorised:
Ordinary shares of 0.025p each	110	441,200	110	441,200
Redeemable preference shares of £1 each	34	34	34	34
	-----------	-----------	-----------	-----------
Allotted, called up and fully paid:
Ordinary shares of 0.025p each	80	320,998	80	319,511
Redeemable preference shares of £1 each	34	34	34	34
	-----------	-----------	-----------	-----------

Between 1 April 2008 and 30 September 2008 the company issued 592,796 (2007 - 816,660) ordinary shares of 0.025p each on exercise of employee share options at an average exercise price of 35.6p per share (2007 - 53.6p).

INDEPENDENT REVIEW REPORT TO VECTURA GROUP PLC

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six-months ended 30 September 2008 which comprises the consolidated income statement, the consolidated balance sheet, the consolidated cash flow statement, the consolidated statement of changes in equity and related notes 1 to 10. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements 2410 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 - Interim Financial Reporting, as adopted by the European Union.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of the review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six-months ended 30 September 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Deloitte & Touche LLP

Chartered Accountants 

Cambridge, United Kingdom

23 November 2008

ENDIR FKQKBABDKCDB

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Related Shares:

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