Placing of New Ordinary Shares

THIS ANNOUNCEMENT (INCLUDING THE APPENDICES) AND THE INFORMATION HEREIN IS RESTRICTED AND NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, OUTSIDE OF THE UNITED KINGDOM, INCLUDING IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA (EXCEPT IN COMPLIANCE WITH CANADIAN SECURITIES LAWS), JAPAN, NEW ZEALAND, SOUTH AFRICA, OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

Further, this announcement is for information purposes only and shall not constitute an offer to sell or issue or the solicitation of an offer to buy, subscribe for or otherwise acquire any new ordinary shares of Vectura in any jurisdiction in which any such offer or solicitation would be unlawful.

This announcement should be read in its entirety. In particular, you should read and understand the information provided in the "Important Notices" section and in the appendices.

13 March 2014

Vectura Group Plc

("Vectura" or the "Company")

PLACING OF NEW ORDINARY SHARES

Vectura Group Plc placing of approximately 33.6 million new ordinary shares

Vectura announces today its intention to place (the "Placing") approximately 33.6 million new ordinary shares (the "Placing Shares") representing approximately 9.9 per cent of the Company's existing issued share capital (prior to the Placing).

In addition to the Placing, Vectura today separately announced that it has entered into an acquisition agreement to purchase the entire issued share capital of Activaero ("Acquisition") for a total consideration of €130 million (£108 million) to be funded through a mix of existing cash and equity and consisting of €95 million (£79 million) payable at completion, comprising €45 million (£38 million) in cash and €50 million (£42 million) in new Vectura ordinary shares (the "Consideration Shares"), and €35 million (£29 million) deferred (non-contingent) cash consideration payable on 1st August 2015 (or the next business day thereafter). Activaero shareholders may also receive additional payments (up to a cap of €6 million (£5 million) in aggregate) in relation to future transactions involving Activaero's technology. Activaero is a therapeutic area specialist with a focus on developing products to treat severe respiratory diseases (e.g. Asthma, Chronic Obstructive Pulmonary Disease, Cystic Fibrosis and Idiopathic Pulmonary Fibrosis). The Vectura Directors consider that the Acquisition fulfils a number of strategic priorities in a single transaction and creates a therapeutic specialist for airways diseases. 

Vectura's strategy to date has been to focus on developing products for the treatment of airways-related diseases through leading and enabling the development of innovative and efficacious medicines to address unmet medical and payer needs. The net funds raised from the Placing will be used to progress the development of FAVOLIR® (Activaero's lead asset) and to launch and/or partner FAVOLIR® in the EU and US markets. Any remaining proceeds will be used to fund the development of the Enlarged Group's pipeline.

The Placing is being conducted by way of a fully underwritten accelerated book-build process which will be launched immediately following this announcement, in accordance with the terms and conditions set out in Appendix 1 to this announcement. Significant support for the Placing has already been received from a number of the Company's existing institutional shareholders and new investors.

Peel Hunt LLP ("Peel Hunt") and J.P. Morgan Securities plc (which conducts its UK investment banking business under the name J.P. Morgan Cazenove) ("JPMC") have been appointed joint bookrunners in respect of the Placing (the "Joint Bookrunners"). The timing of the closing of the book and allocations for all placees is at the discretion of the Joint Bookrunners. The transaction is being fully underwritten by the Joint Bookrunners subject to the conditions and termination rights set out in the placing agreement between the Company, Peel Hunt and J.P. Morgan Cazenove (the "Placing and Sponsor Agreement"). Further details of the Placing Agreement can be found in the terms and conditions contained in Appendix 1 to this announcement.

A number of the Directors are subscribing for shares in the Placing amounting to approximately £0.08 million in aggregate.

Application will be made to the Financial Conduct Authority (the "FCA") for admission of the Placing Shares and Consideration Shares to the premium segment of the Official List of the UK Listing Authority (the "Official List") and to the London Stock Exchange for admission to trading on its main market for listed securities (together, "Admission"). It is expected that Admission will become effective on or around 18 March 2014 and that dealings in the Placing Shares will commence at that time.

The Placing is conditional, inter alia, upon:

(i) Admission becoming effective by not later than 8:00 a.m. on 18 March 2014 (or such later time and/or date as Peel Hunt and J.P. Morgan Cazenove and the Company may agree, not being later than 25 March 2014);

(ii) the Placing and Sponsor Agreement becoming unconditional in all respects; and

(iii) the Acquisition Agreement not having been terminated prior to Admission.

Accordingly, if any of such conditions are not satisfied or, if applicable, waived, the Placing will not proceed.

The Placing Shares will, when issued, be credited as fully paid and will rank pari passu in all respects with the existing ordinary shares of 0.025 pence each in the capital of the Company, including the right to receive all dividends and other distributions declared, made or paid on or in respect of such shares after the date of issue of the Placing Shares. The Placing will be made on a non-pre-emptive basis.

Appendix 1 to this announcement (which forms part of this announcement) sets out the terms and conditions of the Placing. By choosing to participate in the Placing and by making an oral and legally binding offer to acquire Placing Shares, investors will be deemed to have read and understood this announcement in its entirety (including Appendix 1) and to be making such offer on the terms and subject to the terms and conditions in it, and to be providing the representations, warranties and acknowledgements contained in Appendix 1.

Also set out in this announcement is further information on the acquisition of Activaero and, in Appendix 2, the risk factors that will be provided in the prospectus that is expected to be published later today.

Unless otherwise specified, this announcement contains certain translations of Euros into amounts in Pounds Sterling for the convenience of the reader based on the exchange rate of £1.00 = €1.20, being the published exchange rate by the Bank of England at the close of business on 11 March 2014 (the latest practicable date prior to the date of this announcement).

Enquiries

IMPORTANT NOTICES

MEMBERS OF THE PUBLIC ARE NOT ELIGIBLE TO TAKE PART IN THE PLACING. PRIOR TO PUBLICATION OF THE PROSPECTUS (AS DEFINED BELOW), ALL OFFERS OF THE PLACING SHARES WILL BE MADE PURSUANT TO AN EXEMPTION UNDER DIRECTIVE 2003/71/EC (AND AMENDMENTS THERETO, INCLUDING DIRECTIVE 2010/73/EU (THE "2010 PD AMENDING DIRECTIVE"), TO THE EXTENT IMPLEMENTED, AND INCLUDING ANY RELEVANT IMPLEMENTING MEASURE, IN THE RELEVANT MEMBER STATE OF THE EUROPEAN ECONOMIC AREA ("EEA")) (THE "PROSPECTUS DIRECTIVE"), FROM THE REQUIREMENT TO PRODUCE A PROSPECTUS FOR OFFERS OF THE PLACING SHARES. THIS ANNOUNCEMENT AND THE TERMS AND CONDITIONS SET OUT IN THIS ANNOUNCEMENT ARE FOR INFORMATION PURPOSES ONLY AND ARE DIRECTED ONLY AT PERSONS WHO ARE: (A) PERSONS IN AN EEA MEMBER STATE WHICH HAS IMPLEMENTED THE PROSPECTUS DIRECTIVE (A "RELEVANT MEMBER STATE"), UNDER THE FOLLOWING EXEMPTIONS UNDER THE PROSPECTUS DIRECTIVE, IF AND TO THE EXTENT THEY HAVE BEEN IMPLEMENTED IN THAT RELEVANT MEMBER STATE: (I) TO ANY LEGAL ENTITY WHICH IS A "QUALIFIED INVESTOR" AS DEFINED IN THE PROSPECTUS DIRECTIVE; (II) TO FEWER THAN 100 OR, IF THE RELEVANT MEMBER STATE HAS IMPLEMENTED THE RELEVANT PROVISION OF THE 2010 PD AMENDING DIRECTIVE, 150, NATURAL OR LEGAL PERSONS (OTHER THAN QUALIFIED INVESTORS AS DEFINED IN THE PROSPECTUS DIRECTIVE), AS PERMITTED UNDER THE PROSPECTUS DIRECTIVE; OR (III) IN ANY OTHER CIRCUMSTANCES WHICH DO NOT REQUIRE THE PUBLICATION BY THE COMPANY OF A PROSPECTUS PURSUANT TO ARTICLE 3 OF THE PROSPECTUS DIRECTIVE, PROVIDED THAT NO SUCH OFFER TO THE PUBLIC SHALL RESULT IN A REQUIREMENT FOR THE PUBLICATION BY THE COMPANY OR THE MANAGERS OF A PROSPECTUS PURSUANT TO ARTICLE 3 OF THE PROSPECTUS DIRECTIVE; AND (B) (I) INVESTMENT PROFESSIONALS FALLING WITHIN ARTICLE 19(5) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005, (THE "ORDER"); OR (II) HIGH NET WORTH COMPANIES, UNINCORPORATED ASSOCIATIONS AND OTHER PERSONS FALLING WITHIN ARTICLE 49(2)(A) TO (D) OF THE ORDER; OR (III) ARE PERSONS TO WHOM IT MAY OTHERWISE BE LAWFULLY COMMUNICATED (ALL SUCH PERSONS TOGETHER BEING REFERRED TO AS "RELEVANT PERSONS").

THIS ANNOUNCEMENT AND THE TERMS AND CONDITIONS SET OUT HEREIN MUST NOT BE ACTED ON OR RELIED ON BY PERSONS WHO ARE NOT RELEVANT PERSONS. ANY INVESTMENT OR INVESTMENT ACTIVITY TO WHICH THIS ANNOUNCEMENT RELATES IS AVAILABLE ONLY TO RELEVANT PERSONS AND WILL BE ENGAGED IN ONLY WITH RELEVANT PERSONS. PERSONS DISTRIBUTING THIS ANNOUNCEMENT MUST SATISFY THEMSELVES THAT IT IS LAWFUL TO DO SO. EACH PLACEE SHOULD CONSULT WITH ITS OWN ADVISERS AS TO LEGAL, TAX, BUSINESS AND RELATED ASPECTS OF A SUBSCRIPTION OF PLACING SHARES.

The distribution of this announcement and the offering, placing and/or issue of the Placing Shares in certain jurisdictions may be restricted by law. No action has been taken by the Company, the Joint Bookrunners or any of their respective affiliates that would permit an offer of the Placing Shares or possession or distribution of this announcement or any other offering or publicity material relating to such Placing Shares in any jurisdiction where action for that purpose is required. Persons into whose possession this announcement comes are required by the Company and the Joint Bookrunners to inform themselves about and to observe any such restrictions.

THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND SHALL NOT CONSTITUTE AN OFFER TO SELL OR ISSUE OR THE SOLICITATION OF AN OFFER TO BUY, SUBSCRIBE FOR OR OTHERWISE ACQUIRE SECURITIES IN THE UNITED STATES, AUSTRALIA, CANADA (EXCEPT IN COMPLIANCE WITH CANADIAN SECURITIES LAWS), JAPAN, NEW ZEALAND OR SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL. NO PUBLIC OFFERING OF THE PLACING SHARES IS BEING MADE IN ANY SUCH JURISDICTION.

ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF THE SECURITIES LAWS OF SUCH JURISDICTIONS.

In particular, the securities of the Company (including the Placing Shares) have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act"), or under the securities laws of any state or other jurisdiction of the United States, and accordingly the Placing Shares may not be offered, sold or transferred, directly or indirectly, within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and the securities laws of any relevant state or jurisdiction of the United States. There will be no public offer of the Placing Shares in the United States.

This announcement is not being distributed by, nor has it been approved for the purposes of section 21 of the Financial Services and Markets Act, as amended ("FSMA") by, a person authorised under FSMA. This Announcement is being distributed and communicated to persons in the UK only in circumstances in which section 21(1) of FSMA does not apply.

By participating in the Placing, Placees are deemed to have read and understood this announcement in its entirety, to be participating, making an offer and acquiring Placing Shares on the terms and conditions contained herein and to be providing the representations, warranties, indemnities, acknowledgements and undertakings contained herein.

This announcement may contain and the Company may make verbal statements containing "forward-looking statements" with respect to certain of the Company's plans and its current goals and expectations relating to its future financial condition, performance, strategic initiatives, objectives and results including statements about the discovery, development and commercialisation of products. Forward-looking statements sometimes use words such as "aim", "anticipate", "target", "expect", "estimate", "intend", "plan", "goal", "believe", "seek", "may", "could", "outlook" or other words of similar meaning. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond the control of the Company, including amongst other things, 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, UK domestic and global economic business conditions, the policies and actions of governmental and regulatory authorities, the effect of competition, inflation, deflation, the effect of tax and other legislation and other regulations in the jurisdictions in which the Company and its respective affiliates operate, the effect of volatility in the equity, capital and credit markets on the Company's profitability and ability to access capital and credit, the effect of operational risks, and the loss of key personnel. As a result, the actual future financial condition, performance and results of the Company may differ materially from the plans, goals and expectations set forth in any forward-looking statements. Any forward-looking statements made herein by or on behalf of the Company speak only as of the date they are made. Except as required by applicable law or regulation, the Company expressly disclaims any obligation or undertaking to publish any updates or revisions to any forward-looking statements contained in this announcement to reflect any changes in the Company's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.

No statement in this announcement is intended to be a profit forecast, and no statement in this announcement should be interpreted to mean that earnings per share of the Company for the current or future financial years would necessarily match or exceed the historical published earnings per share of the Company.

RISK FACTORS

Any investment in the Ordinary Shares is subject to a number of risks. Prior to subscribing or purchasing any Ordinary Shares in the Company, any potential investor should carefully consider the factors and risks associated with any investment in the Company, the Group's business and the industry in which the Group operates and in particular, those risks described below. A full set of Risk Factors can be found in Appendix 2 to this announcement.

The following risk factors, which the Directors believe to be the most significant risks for potential investors in relation to the Company or its industry, the Placing and the Acquisition, should be carefully considered by investors when deciding whether to make an investment in the Company. Investors should be aware that any investment in the Company involves a high degree of risk and should be made only by those with the necessary expertise to appraise the investment.

If any of the following risks were to actually materialise, the Group's business, financial condition and results of operations could be materially and adversely affected and investors may lose all or part of their investment. All risks of which the Directors are aware at the date of this announcement and which they consider material are set out in the risk factors below; however, additional risks and uncertainties currently unknown to Vectura, or currently believed to be immaterial, could have an adverse effect on the Group as enlarged the Acquisition (the "Enlarged Group"). Any or all of these factors could have a material and adverse effect on the Enlarged Group's operational results, financial condition and prospects. Furthermore, the trading price of the Ordinary Shares could decline, possibly rapidly, resulting in the loss of all or part of any investment therein. 

The risk factors below are not listed in any order of priority with regard to significance or probability. It is not possible to quantify the significance to the Enlarged Group of each individual risk factor, as each risk described below may materialise to a greater or lesser degree or have unforeseen consequences.

· There can be no assurance that the Enlarged Group's or a collaborator's products will receive and maintain regulatory approvals. Even if the Enlarged Group's, or a collaborator's products are approved, they may still face subsequent regulatory difficulties. No assurance can be made that the Enlarged Group or its collaborators will be able to bring any product candidates to market. Adverse or inconclusive results from pre-clinical testing or clinical trials may substantially delay, or halt entirely, the development of products. Even if the Enlarged Group's or its collaborators', products receive approval for marketing, there can be no assurance that the Enlarged Group or its collaborators will not experience delays in the development or approval process that could adversely affect the cost of development or commercial value of its products.

· The products that the Enlarged Group and its collaborators bring to market may not be commercially successful. The Enlarged Group's success depends on acceptance of the Enlarged Group's and its collaborators' products by the market, including by physicians and third-party payers, and consequently the Enlarged Group's and its collaborators' progress may be adversely affected if it is unable to achieve market acceptance of their products. In addition, the Enlarged Group's business faces intense competition from major pharmaceutical companies and specialised biotechnology companies. The Enlarged Group and its collaborators will need to persuade patients and physicians to adopt its products over its competitors' products. If they fail to build a strong position in their markets, this would have a material adverse effect on the Enlarged Group's profitability.

· The Enlarged Group is, and its collaborators may be, dependent upon contracts with third party contractors and the failure to provide services in an adequate or timely manner or according to the quality standards requested, could have a material adverse effect on the Enlarged Group's business. The Enlarged Group may experience difficulties with the supply chain for its marketed products, including those that are managed by partners, that could impact product availability and impact market penetration/sales levels at any time during their commercialisation.

· The Enlarged Group and its collaborators may be unable to successfully establish and protect their intellectual property which is significant to the Enlarged Group's competitive position.

The commercial success of some of the Enlarged Group's products will also depend to a degree on being able to use and enforce certain trademarks. There can be no assurance that these trademarks will not be challenged and if challenged that the trademark would not be found invalid. If the Enlarged Group fails to obtain adequate protection for its intellectual property, the Enlarged Group's competitors may be able to take advantage of the Enlarged Group's and its collaborators' research and development efforts.

This announcement has been issued by, and is the sole responsibility of, Vectura. Peel Hunt LLP ("Peel Hunt") is authorised and regulated in the United Kingdom by the FCA. Each of JP Morgan Securities plc, which conducts its UK investment banking business under the name J.P. Morgan Cazenove, ("JP Morgan") and NM Rothschild & Sons Limited ("Rothschild") is authorised in the United Kingdom by the Prudential Regulatory Authority ("PRA") and regulated in the United Kingdom by the Financial Conduct Authority ("FCA") and the PRA. Each of Peel Hunt and JP Morgan is acting solely for the Company and no one else in connection with the arrangements described in this announcement and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the arrangements described in this announcement and will not be responsible to anyone other than the Company for providing the protections afforded to the respective clients of Peel Hunt and JP Morgan nor for providing advice in connection with the arrangements described in this announcement or any other matter referred to in this announcement. Rothschild is acting solely for the Company and no one else in connection with the Acquisition and Admission and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the Acquisition and/or Admission and will not be responsible to anyone other than the Company for providing the protections afforded to the clients of Rothschild nor for providing advice in connection with the Acquisition and/or Admission or any other matter referred to in this announcement. Apart from the responsibilities and liabilities, if any, which may be imposed on Peel Hunt, JP Morgan and Rothschild under FSMA or the regulatory regime established thereunder, neither Peel Hunt nor JP Morgan nor Rothschild accepts any responsibility whatsoever and makes no representation, express or implied, for the contents of this announcement, including its accuracy, completeness or verification or for any other written oral statement made or purported to be made by it, or on its behalf, in connection with the Company, or the arrangements described in this announcement. Subject to applicable law, each of Peel Hunt, JP Morgan and Rothschild accordingly disclaims all and any liability whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise have in respect of this announcement or any such statement.

No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by the Joint Bookrunners or Rothschild or by any of their respective affiliates or agents as to, or in relation to, the accuracy or completeness of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefore is expressly disclaimed.

The price of shares and any income expected from them may go down as well as up and investors may not get back the full amount invested upon disposal of the shares. Past performance is no guide to future performance, and persons needing advice should consult an independent financial adviser.

The Placing Shares to be issued or sold pursuant to the Placing will not be admitted to trading on any stock exchange other than the London Stock Exchange.

In this announcement, "Placee" means a person (including individuals, funds or others) who is, or becomes, committed to subscribe for Placing Shares in the Placing.

Neither the content of the Company's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this announcement.

This announcement has been prepared for the purposes of complying with applicable law and regulation in the United Kingdom and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and regulations of any jurisdiction outside of the United Kingdom.

Future strategy of Vectura and rationale for the Acquisition

Vectura's strategy to date has been to focus on developing products for the treatment of airways-related diseases (airways diseases) through leading and enabling the development of innovative and efficacious medicines to address unmet medical and payer needs.

As the Company's pipeline has matured and de-risked, with key products having received regulatory approvals, the next stage of the Company's strategy is to transform its business from a development stage company into a significant, profitable and self-sustaining specialty pharmaceutical company. Vectura has sought to expand its development portfolio within airways diseases whilst attempting to mitigate specific product development and market risk, with appropriate deal making through in-licensing, co-development and acquisition whilst aiming to deliver superior returns for its Shareholders.

Whilst continuing to focus on airways diseases, Vectura's strategy is to grow its revenues by leveraging its research, development and commercial capability, via the following routes:

1. Co-development with partners: to capture and retain greater economics and source new innovative assets without undertaking exploratory research;

2. Partnering: to capture value from larger, commercially attractive indications that require large sales forces and high marketing spend; and

3. Self-commercialisation: for products that require a small focused sales force addressing the needs of the specialist physician.

The Directors' strategic priorities have been to transform Vectura into a product development company with a focus on products to treat airways disease. A range of enabling technologies in the formulation and delivery of products through dry powder inhalers has underpinned this product focus.

Vectura's strategy has also included the search for complementary and near to market assets to add to its development pipeline to create a balanced pipeline from early-stage to late-stage, near to market assets, with the aim of seeking opportunities for self-commercialisation.

The Directors have followed the progress of Activaero with interest for some time and have an in-depth understanding of the business, its strategy and its opportunities. The acquisition of Activaero addresses many of the strategic priorities outlined by Vectura. Activaero has a broad therapeutic scope within the airways disease area, enabling the combined entity to become a therapeutic specialist for airways disease. The Directors believe the Acquisition will broaden and enrich Vectura's pipeline in a single transaction, providing a mix of early and late-stage assets validated through partnerships with pharmaceutical and biotechnology companies as well as un-partnered assets, which have the potential to be commercially exploited by Vectura, either alone or in partnership. The combined pipeline offers the potential for development of up to seven clinical stage assets (alone or through existing or new partners) and several pre-clinical programmes in the broad area of airways diseases, a market in which Vectura's management has significant development, regulatory and commercial expertise.

Activaero's late-stage pipeline includes the following potentially significant assets; FAVOLIR® and SCIPE (Safe Corticosteroid Inhalation in Paediatrics), which address the needs of adult and paediatric severe asthma patients, respectively. These assets in particular, offer specialist sales opportunities in both Europe and the United States, allowing retention of greater economics. Activaero also extends Vectura's current technology platform into proprietary smart nebuliser-based technology, incorporated into both desktop and portable inhaler devices. Activaero generates revenue from device sales in Germany and licence and development revenues from partners.

As such, the Directors believe that the combination of Vectura and Activaero has clear strategic and long term value enhancing benefits. In addition, the Acquisition will accelerate a number of Vectura's core strategic objectives and enhance business and development opportunities through the enlarged pipeline and technology base.

Activaero GmbH

Activaero is a therapeutic area specialist with a focus on developing products to treat severe respiratory diseases (e.g.Asthma, Chronic Obstructive Pulmonary Disease (COPD), Cystic Fibrosis, and Idiopathic Pulmonary Fibrosis (IPF)).

The company was founded in 1999 and is privately owned with venture capital funding. It is located in Gemünden, North-East of Frankfurt-am-Main, Germany and has another facility in Munich, Germany. Activaero has a multidisciplinary team of approximately 50 staff, primarily located at these two sites. Two employees reside in the United States.

Activaero recorded revenues (unaudited under German GAAP) for the year ended December 31, 2013 of approximately €10.2 million, including device sales of €0.2 million, licensing fees and milestones of €2.5 million and fee for service (contract revenue) of €2.4 million.

The Acquisition enhances the Company's medium and long-term growth profile. The Acquisition accelerates the revenue growth over a five year period. The EBITDA growth profile remains broadly in line over a five year period. The Acquisition is expected to deliver double digit returns on investment. The potential new income streams will continue to diversify Vectura's revenue streams across a wider range of products and technologies. Vectura's growth therefore will become less dependent upon any one source of revenue. The peak sales potential of the lead asset alone exceeds the total consideration of the Acquisition.

Near-term synergies of approximately €1.5 million are assumed, resulting from reducing duplicate head office and administrative costs. Vectura intends to conduct a further strategic review of early stage pipeline and manufacturing options.

Activaero's assets comprise:

1. Nebuliser-based technology platform, comprising three device families, AKITA® JET, APIXNEB and FOX;

2. Pipeline of a broad range of assets, some of which have been validated through partnerships with large pharmaceutical and biotechnology companies; and

3. Late-stage asset, FAVOLIR®.

Activaero's technology

Activaero has explored how a patient's breathing pattern can alter the efficiency of drug delivery to different parts of the lung. Their work shows that controlling the inspiratory flow rate, the inspiratory volume and time during the inspiration when the drug aerosol is emitted, can materially affect how much drug gets to central or peripheral parts of the lung.

Administering the drug aerosol early in the inspiratory period and flushing it through with clean air will allow the drug to reach the peripheral (small) airways of the lung. This is particularly important for anti-inflammatory drugs that need to reach the small airways as well as the larger ones, to provide optimal benefit. Reversing the air/aerosol order will result in a more central deposition that better suits bronchodilator drugs. When this is done under conditions in which the flow rate and volume delivered into a patient's lung is controlled, a consistent effect can be achieved. This is the basis of Activaero's proprietary smart nebulisation-based technology termed FAVORITE (Flow And VOlume Regulated Inhalation TEchnology). This control is achieved by a modified nebuliser unit, comprising pump and valve technology that delivers the nebulised airstream into the patient, only on inspiration, at a given rate and volume for each breath, tailored to the individual patient's breathing capacity.

The increased efficiency of the delivery means that less of the drug is needed for clinical effect and the drug is distributed more efficiently by targeting the desired deposition area in the lung. This approach offers the potential to reduce the drug dose required and the duration and number of nebulisation periods, as a result the treatment may be more acceptable to the patient, through reduced negative impact on quality of life and potentially reduced side effects. A range of flow and volume combinations can be programmed onto a chip card that, when placed into the base nebuliser unit, will control the air/aerosol delivery in a way that best suits the patients' breathing pattern. The Directors believe that the FAVORITE platform is unique in combining nebulisation and flow and volume control technology which delivers highly consistent and reproducible dosing.

Activaero's three device families are described below. In 2003 the AKITA® inhalation system was licensed to Grifols. Subsequently Activaero initiated further development of the AKITA® Jet nebuliser, resulting in the APIXNEB nebuliser, utilising a mesh rather than a jet. This latest device is now being utilised by Grifols to deliver the same protein. Activaero has received a CE mark in accordance with the EU Medical Device Directive for the AKITA® Jet nebuliser, the APIXNEB nebuliser and the FOX inhalation system and a medical device 510(k) approval by FDA in the US for the AKITA® Jet nebuliser and the APIXNEB nebuliser. The Activaero technology can be applied to a wide variety of molecular entities, including small molecules (both branded and generic) and biologics.

Activaero continued to license its technology to several biotech and pharmaceutical companies and began to miniaturise the AKITA®inhalation technology platform. This resulted in the development of the FOX hand-held, battery driven device that has been the subject of a licensing deal.

Activaero's proprietary smart nebuliser-based technology is incorporated into its devices. This differentiated technology has broad, multi-layered IP covering components of the drug-device combination estate and, following recent additional patent applications, has the potential to extend coverage out to 2033.

The nebuliser market is new to Vectura but is deemed to be additive to the current DPI market, rather than cannibalistic. As such the potential of the nebuliser market broadens Vectura's therapeutic offering.

Nebulisers are deemed to be suitable for people with more severe disease, often those who are less mobile and possibly home bound. This population often coincides with elderly or paediatric patient groups, who are less able to inspire well or co-ordinate their breathing. This potentially gives Vectura access to a wider patient population (ranging from the very young to the elderly) and across a broader range of airways diseases.

Activaero's technology platform utilising its smart nebulisation-based technology offers the possibility of accessing small airways in the lung. These are deemed to be important for the treatment of inflammatory lung diseases. There is also the potential that targeted drug delivery (as is possible with the Activaero technology) in more severe diseases could improve disease control.

Nebulisation capability may also offer the prospect of additional business development opportunities as there is a view that nebulised products are easier to formulate and thus products are frequently developed first in a nebuliser and then migrate to DPI later in their development (e.g. Phase II or as a line extension).

The AKITA® Jet nebuliser was developed in 2000. It has a high capacity pump (when compared with a conventional air jet nebuliser pump) that provides the air pressure for the nebulisation process and, using proportional valve-based technology, drives the positive ventilation of the FAVORITE system. The system has been supplied out of Activaero's Gemünden site for use in clinical trials. This is the system used by the FAVOLIR®investigational product in conjunction with smart card technology. The smart card ensures full device exclusivity for FAVOLIR® and prevents the administration of other generic products.

The APIXNEB nebuliser is similar to the AKITA®device, with the exception that it has a mesh-based nebuliser handset. The mesh provides the advantages of a much higher nebulisation efficiency than a jet nebuliser, which can also be used to nebulise some biomolecules that cannot tolerate the higher shear forces of a jet nebuliser.

The FOX inhalation system is a hand-held, self-contained, battery-powered, mesh nebuliser device with high performance using Activaero's own vibrating mesh aerosol generator. The mesh-based aerosolisation engine used in FOX is proprietary to Activaero, the rights having been in-licensed to Activaero on an exclusive basis from a third party. The FOX inhalation system also makes use of a flow sensing/controlling valve system and is both re-chargeable and Bluetooth®-enabled. The latter feature allows for remote firmware updates without cable connection or for the system to upload patient use data for review by a healthcare professional.

Overview of Activaero's pipeline

Activaero's development pipeline has broad therapeutic scope, providing a mix of assets validated through partnerships with pharmaceutical and biotechnology companies as well as un-partnered assets, which have the potential to be commercially exploited by Vectura, either alone or in partnership. The late-stage pipeline comprises assets of significant potential, including FAVOLIR®, which address the needs of adult and paediatric severe asthma patients, and SCIPE, which addresses the needs of mild/moderate paediatric asthma patients. These assets in particular, offer specialist sales opportunities in both Europe and the United States. SCIPE, the paediatric opportunity, has completed proof of principle.

Several of the pipeline products are integral to key partnerships with pharmaceutical and biotechnology companies.

* Decision Resources, management estimates

** Vectura owns a minority share

FAVORITE and FAVOLIR®

Activaero has generated data to show that inspiratory flow and volume can be optimised during nebulisation to give more efficient delivery of a range of drugs. Using the FAVORITE technology, a patient's inspiration is controlled such that drug deposition can be targeted at areas of the lung where drug deposition may provide greater benefit to a patient.

A stepwise approach to achieve and maintain control of asthma with pharmacological treatment should take into account the risk/benefit of the drug. As budgetary pressures increase on health authorities throughout the developed world, the cost of treatment is often an important payer consideration in the choice of treatments.

Treatment of asthma for patients older than 5 years is now governed by the internationally agreed Global Initiative for Asthma (GINA) in which a stepwise approach to medication is dictated by the degree of control of the disease measured in terms of patient symptoms (night-time awakening, short-acting beta-2 agonist (SABA) use, symptoms, lung function and activity limitation) and in terms of expected future risk such as exacerbations and treatment-related side-effects.

Mild disease is treated with SABA bronchodilators, as defined in Step 1 of the GINA guidelines. If control is not gained, anti-inflammatory treatment will be added until control is achieved, covered by Steps 2, 3 and 4 of the guidelines. The principal approach is to add increasing doses of inhaled corticosteroid (ICS) against a background of long-acting beta-2 agonist (LABA) bronchodilators. Continued use of SABA is advised for acute symptomatic relief. Additional anti-inflammatories can be used if appropriate. In a small percentage (less than 5 per cent.1) of asthma sufferers, this is not enough to control the symptoms of the disease and the only choice remaining is to add oral corticosteroids (OCS) to the patient's treatment regime. According to GINA2, approximately 18 per cent. of participants with asthma in clinical studies in Western Europe and in the United States were graded severe, rising to slightly over 30 per cent. in those patients diagnosed with persistent asthma, this is the target population of the FAVOLIR® product.

FAVOLIR® will be positioned in the market for OCS-dependent patients, a group of patients that while a small minority of the total asthmatic population, account for a significant portion of the cost of the disease. There are approximately 13.7 million active diagnosed asthmatic patients in the US and 17.9 million in the EU53. Nineteen per cent. (2.6 million in the US and 3.4 million in the EU5)1 are classified as severe persistent asthmatics. The populations of severe persistent asthmatics that make up the addressable patient population for FAVOLIR® are a subset of this group.

According to the REACT study published in JACI in 2007, approximately 55 per cent.4 of severe asthmatics remain uncontrolled as defined by the NIH guidelines for the treatment and management of asthma. They remain uncontrolled despite being treated with multiple asthma therapies including; ICS, ICS/LABA and ICS/LABA plus OCS. Seventeen per cent. remain uncontrolled despite taking OCS as part of their treatment regimen2 Applying these findings to the epidemiology described previously, the addressable patient population for FAVOLIR® is estimated at 240,000 patients in the US and 320,000 patients in the EU5.2

In 2012, according to Decision Resources, the asthma market in the US and EU5 was worth $15.3 billion growing to $16.2 billion by 2022.5 Assuming a per patient annual treatment cost of FAVOLIR® at $3,000 in the EU-5 and $5,500 in the US, a potential $2 billion market exists.

The SCIPE programme focuses on improving the delivery and safety profile of nebulised budesonide for mild/moderate asthmatics aged from 3 to 12 years. Nebulised budesonide is a well-established therapy, particularly in the US, where sales remain at $410 million per year despite generic introductions3. At present, Decision Resources estimates that nearly 200,000 paediatric patients3 are on nebulised budesonide for the treatment of their asthma.

In the US, there are 13.7 million actively diagnosed asthmatics and 5.2 million of these are classified as mild/moderate.1 Twenty-two per cent. of all asthmatics in the US are 12 years old and under. Thus, the SCIPE programme looks to address the estimated 1.1 million mild/moderate asthmatics under the age of 12.1

The SCIPE programme seeks to prove equivalent efficacy to the currently nebulised budesonide at lower doses, with potentially better safety. Further, administration time would be significantly reduced which would provide for further differentiation. If the programme achieves these goals and is priced in the market at the previously established brand price of $17.671 per day, the current value of the total market in the US would be potentially $750 million per year.

It is generally accepted by clinicians that the chronic use of OCS should be reduced to minimise side-effects. FAVOLIR®delivers an effective ICS, using a novel nebulisation method, achieving better lung distribution (including reproducible dosing in one target) with less drug and over a shorter treatment time compared to conventional nebulisation thereby allowing the weaning (or removal) of the OCS dose, benefiting patients in potentially four key ways:

1. The disease may be brought under better control.

2. Steroid-induced side-effects may be reduced.

3. Reduction of the risk of exacerbations and the potential to provide pharmaco-economic benefit.

4. Minimised treatment time which is important in view of the fact that FAVOLIR® is seen as a long-term answer to minimising OCS use and providing good asthma control in difficult-to-control patients.

FAVOLIR® is the approved trademark for a drug/device product based on the AKITA® Jet nebuliser and the FAVORITE technology. FAVOLIR®delivers nebulised budesonide to patients with severe asthma and who are OCS-dependent. A smart card is used to restrict the use of budesonide to the AKITA® device. The use of budesonide in asthma patients is well characterised and the drug is widely available as a generic across European markets.

Activaero has completed one multi-centre, double-blind, randomised, placebo controlled Phase IIb trial (AICS 01), which met its primary endpoint with supporting secondary endpoints. This data will be used as the basis for discussion with the German regulator. Depending upon the outcome of those discussions, there is the possibility to launch in Germany in 2015 based on a potential filing in Q2 2014. If subsequently approved, FAVOLIR® may provide the basis for Vectura to establish a small specialist sales and marketing infrastructure in Germany to commercialise this product. The means of commercialisation throughout the rest of the EU shall be determined closer to launch.

It is also envisaged to initiate an EU Phase III clinical study and US pharmacokinetic study in the second half of 2014. Vectura will seek regulatory advice following completion of the Acquisition and is currently planning another pivotal trial to maximise the data package and accelerate the US timeline. A marketing authorisation is envisaged to be filed following the completion of an additional clinical trial in Europe and another supporting US filing. Filing is anticipated in in the EU in late 2017, and potentially in the US by 2020. This would support Vectura's goal to further diversify its revenue streams, provide progress towards profitability and support Vectura's strategy of becoming a self-sustaining specialty pharmaceutical company.

Vectura believes that the commercialisation of FAVOLIR® could be positioned favourably between conventional nebulisers (lower cost but less efficient) and biological therapies (potentially higher cost but targeting a smaller patient pool of selective responders). Vectura understands that FAVOLIR® can be tailored to individual patients (and their breathing capacity) by use of a smart card. This smart card system is required to activate the breath control unit (within the nebuliser compressor unit), acting as "key-lock" between drug and device. It can be customised for specific patients or with specific therapies. Vectura envisages that the use of the smart card could be pharmaco-economically positive by virtue of this method of drug delivery.

Principal terms of the Acquisition Agreement

The Acquisition Agreement provides that:

· on completion of the Acquisition Agreement, Vectura will pay the existing shareholders of Activaero an upfront payment of €95 million (£79 million) (in aggregate), comprising €45 million (£38 million) in cash and €50 million (£42 million) to be satisfied by the issue of Consideration Shares at a price of 160.9 per Consideration Share;

· on 1 August 2015 (or the next business day thereafter), Vectura will pay deferred consideration of €35 million (£29 million) in cash; and

· the existing shareholders of Activaero may receive additional payments (up to a cap of €6 million (£5 million) (in aggregate) in relation to future transactions involving Activaero's technology.

Each of the existing shareholders of Activaero has agreed to provide representations and warranties as to the title to the shares being sold and their capacity to enter into the relevant transaction documents. Certain members of the management team of Activaero have agreed to provide customary representations and warranties in relation to Activaero and its business, assets and undertakings. The representations and warranties are supported by an escrow arrangement and a right of set-off against the deferred and contingent consideration, and are subject to certain agreed caps and other limitations. Pursuant to the Acquisition, major shareholders of Activaero will be subject to lock-up agreements of 12 months. Any trading in respect of the Consideration Shares during the 6 month period following the end of the 12 month lock-up period shall be through Vectura's brokers.

Completion of the Acquisition Agreement is conditional on admission of the Consideration Shares to listing on the Official List and to trading on the main market of the London Stock Exchange becoming effective.

Reasons for and Principal terms of the Placing

Appendix 1 to this announcement (which forms part of the announcement) sets out the terms and conditions of the Placing. By choosing to participate in the Placing and by making an oral and legally binding offer to acquire Placing Shares, investors will be deemed to have read and understood this announcement in its entirety (including Appendix 1) and to be making such offer on the terms and subject to the terms and conditions in it, and to be providing the representations, warranties and acknowledgements contained in Appendix 1.

The Company intends to use the net proceeds of the Placing to progress the development of FAVOLIR® (Activaero's lead asset) and launch and/or partner FAVOLIR® inthe EU and US markets. Any remaining proceeds will be used to fund the development of the Enlarged Group's pipeline.

The Placing is conditional upon the Acquisition Agreement not having been terminated prior to Admission.

Pursuant to and subject to the terms and conditions of the Placing and Sponsor Agreement, Peel Hunt and J.P. Morgan Cazenove as agents for Vectura, have agreed conditionally to place the New Ordinary Shares with certain existing Shareholders and institutional investors. The Placing is being conducted by way of a fully underwritten accelerated book-build process which will be launched immediately following this announcement, in accordance with the terms and conditions set out in Appendix 1 to this announcement. Significant support for the Placing has already been received from a number of the Company's existing institutional shareholders and new investors.

The Placing is conditional, inter alia, upon:

(i) Admission becoming effective by not later than 8:00 a.m. on 18 March 2014 (or such later time and/or date as Peel Hunt and J.P. Morgan Cazenove and the Company may agree, not being later than 25 March 2014);

(ii) the Placing and Sponsor Agreement becoming unconditional in all respects; and

(iii) the Acquisition Agreement not having been terminated prior to Admission.

Accordingly, if any of such conditions are not satisfied or, if applicable, waived, the Placing will not proceed.

Directors' Participation in the Placing

The Directors hold 1,010,535 Existing Ordinary Shares representing 0.297 per cent. of the existing ordinary share capital of the Company in aggregate. A number of the Directors are subscribing for shares in the Placing amounting to £0.08 million in aggregate.

Effect of the Placingand the Acquisition

Upon Admission and assuming no furtherexercise of options under the Share Schemes, the Enlarged Share Capital is expected to be 399,550,371 Ordinary Shares. On this basis, New Ordinary Shares issued through the Placing and the Acquisition will represent 14.8% per cent. of the Enlarged Share Capital.

Following the issue of the Placing Shares and the Consideration Shares pursuant to the Acquisition, Shareholders who do not participate in the Placing will suffer a dilution of approximately 14.8% per cent. of their interests in the Company.

Use of proceeds

The Company intends to use the net proceeds of the Placing to progress the development of FAVOLIR® (Activaero's lead asset) and launch and/or partner FAVOLIR® inthe EU and US markets. Any remaining proceeds will be used to fund the development of the Enlarged Group's pipeline.

Additional information

On 23 September 2013, the Company held its Annual General Meeting, at which Shareholders granted the Directors authority to:

(i) allot Ordinary Shares up to an aggregate nominal value of £27,971.08 in accordance with section 551 of the Companies Act, and

(ii) to dis-apply pre-emption rights on the allotment of shares for cash, up to a maximum nominal value of £8,391.32, in accordance with section 570 of the Companies Act.

Pursuant to the Placing, the Company will issue 33,565,280 New Ordinary Shares in accordance with the authority to allot and the authority to dis-apply pre-emption rights, granted to the Directors at the Company's Annual General Meeting on 23 September 2013. Therefore, the allotment of the Placing Shares shall not require further approval of Shareholders.

Pursuant to the Acquisition, the Company will issue 25,641,398 New Ordinary Shares in accordance with the authority to allot granted to the Directors at the Company's Annual General Meeting on 23 September 2013. Section 565 of the Companies Act states that an existing shareholder's right of pre-emption does not apply to the allotment of shares if they are to be paid up otherwise than in cash. Therefore, the allotment of the Consideration Shares shall not require further approval of Shareholders.

The Company has a total number of 17,325,374 options granted under the Share Schemes. Approximately 3 million options under the Share Schemes are due to expire on 29 April 2014 and 2 July 2014, all of which have been granted to past and existing directors and employees.

Anticipated News Flow

· AirFluSal® Forspiro® has been approved in Denmark, Germany, Hungary, Sweden, Romania, Norway, Belgium, Bulgaria and South Korea. Product launches are expected in these countries throughout 2014. Further approval is also expected in Luxembourg.

· NVA237 is expected to be filed with the FDA in the US by the end of 2014.

· QVA149 is expected to be filed with the FDA in the US by the end of 2014.

· In addition, the Company is currently in discussions with a potential partner for US rights to VR506 and a further announcement will be made in due course.

References

1 Real-world Evaluation of Asthma Control And Treatment (REACT), Peters et al JACI , June 2007

2 www.GlobalasthmaReport.org

3 Decision Resources PatientBase Base Year 2012 (Accessed 18 February 2014)

4 Real-world Evaluation of Asthma Control And Treatment (REACT), Peters et al JACI , June 2007

5 Decision Resources Pharmacor Asthma 13 December 2013

APPENDIX 1 - TERMS AND CONDITIONS OF THE PLACING

THIS ANNOUNCEMENT (INCLUDING THIS APPENDIX) AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, OUTSIDE OF THE UNITED KINGDOM, INCLUDING IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA (EXCEPT IN COMPLIANCE WITH CANADIAN SECURITIES LAWS), JAPAN, NEW ZEALAND, SOUTH AFRICA, OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL

This announcement is for information purposes only and shall not constitute an offer to sell or issue or the solicitation of an offer to buy, subscribe for or otherwise acquire any Placing Shares in any jurisdiction in which any such offer or solicitation would be unlawful.

Prior to publication of the Prospectus (as defined below), all offers of the Placing Shares will be made pursuant to an exemption under the Prospectus Directive from the requirement to produce a prospectus. This announcement is being distributed and communicated to persons in the UK only in circumstances in which section 21(1) of FSMA does not apply.

Members of the public are not eligible to participate in the Placing.

The Placing Shares referred to in this announcement have not been and will not be registered under the Securities Act or under the securities laws of any state or other jurisdiction of the United States, and may not be offered, sold or transferred within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. There will be no public offer of the Placing Shares in the United States.

The distribution of this announcement and the Placing and/or issue of the Placing Shares in certain jurisdictions may be restricted by law. No action has been taken by the Company, the Joint Bookrunners or any of their respective affiliates that would permit an offer of the Placing Shares or possession or distribution of this announcement or any other offering or publicity material relating to such Placing Shares in any jurisdiction where action for that purpose is required. Persons into whose possession this announcement comes are required by the Company and the Joint Bookrunners to inform themselves about and to observe any such restrictions.

This announcement should be read in its entirety. In particular, you should read and understand the information provided in the "Important notices" section of this announcement.

By participating in the Placing, Placees are deemed to have read and understood this announcement in its entirety, to be participating, making an offer and subscribing for Placing Shares on the terms and conditions contained herein and to be providing the representations, warranties, indemnities, acknowledgements and undertakings contained herein. In particular, each such Placee represents, warrants and acknowledges (amongst other things), that:

1. it is a Relevant Person and undertakes that it will subscribe for, acquire, hold, manage or dispose of any Placing Shares that are allocated to it for the purposes of its business;

2. in the case of a Relevant Person in a Relevant Member State who subscribes for any Placing Shares pursuant to the Placing:

(A) it is a Qualified Investor (as defined in the Prospectus Directive); and

(B) in the case of any Placing Shares subscribed for by it as a 'financial intermediary', as that term is used in Article 3(2) of the Prospectus Directive,

(i) the Placing Shares subscribed for by it in the Placing have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than Qualified Investors or in circumstances in which the prior consent of the Joint Bookrunners has been given to the offer or resale; or

(ii) where Placing Shares have been subscribed for by it on behalf of persons in any member state of the EEA other than Qualified Investors, the offer of those Placing Shares to it is not treated under the Prospectus Directive as having been made to such persons; and

3. is subscribing for the Placing Shares for its own account or is subscribing for the Placing Shares for an account with respect to which it exercises sole investment discretion and has the authority to make and does make the acknowledgements, representations and agreements contained in this announcement.

Prospectus

A prospectus will be published in connection with the application for admission of the New Ordinary Shares to listing on the premium segment of the Official List and to trading on the main market of the London Stock Exchange (the "Prospectus") and is expected to be approved by the UK Listing Authority later today.

Each Placee, by accepting a participation in the Placing, agrees that this announcement is not, and is not intended to be, a prospectus or constitute an offer to sell, or a solicitation of an offer to subscribe for, the securities being issued in connection with the Placing.

Each Placee, by accepting a participation in the Placing, agrees that the content of this announcement is exclusively the responsibility of the Company and the persons stated therein as accepting responsibility for the announcement and confirms to the Joint Bookrunners and the Company that other than publicly available information and this announcement, it has not relied on any information, representation, warranty or statement made by or on behalf of the Joint Bookrunners (other than the amount of its allocation in the Placing in the oral or written confirmation to be given to Placees), any of their respective affiliates, the Company, any of its affiliates, any persons acting on their behalf or any other person and neither the Joint Bookrunners nor any of their respective affiliates, nor the Company nor any of its affiliates nor any persons acting on their behalf, nor any other person will be liable for the decision of any Placee to participate in the Placing based on any other information, representation, warranty or statement which the Placee may have obtained or received (regardless of whether or not such information, representation, warranty or statement was given or made by or on behalf of any such persons). By participating in the Placing, each Placee acknowledges to and agrees with each of the Joint Bookrunners and the Company that it has relied on its own investigation of the business, financial or other position of the Company and Activaero in deciding to participate in the Placing. Nothing in this paragraph shall exclude the liability of any person for fraudulent misrepresentation.

Details of the Sponsor and Placing Agreement and the Placing Shares

Each Joint Bookrunner has entered into the Placing and Sponsor Agreement with the Company under which it has undertaken, on the terms and subject to the conditions set out in the Placing and Sponsor Agreement, to use all reasonable endeavours to procure Placees for the Placing Shares, or failing which, to subscribe themselves for any Placing Shares for which they were unable to procure Placees. The Placing is therefore being underwritten by the Joint Bookrunners.

The Placing Shares will, when issued, be credited as fully paid and will rank pari passu in all respects with the existing issued ordinary shares with a nominal value of 0.025 pence per share in the capital of the Company, including the right to receive all dividends and other distributions declared, made or paid in respect of such ordinary shares after the date of issue of the Placing Shares.

Under the Placing and Sponsor Agreement, the Company has agreed that it will not issue or sell any ordinary shares for the period between the date of this announcement and the date which falls three months after Admission without the prior written consent of the Joint Bookrunners. This agreement does not prevent or restrict the grant of options under, or the allotment and issue of shares pursuant to options under any existing employee share schemes of Vectura.

Application for admission to listing and trading

Application will be made to the FCA for admission of the Placing Shares to the Official List and to the London Stock Exchange for admission to trading of the Placing Shares on the London Stock Exchange's main market for listed securities (together "Admission").

It is expected that Admission of Placing Shares will take place on or before 8.00 a.m. on 18 March 2014 and that dealings in the Placing Shares on the London Stock Exchange's main market for listed securities will commence at the same time.

Principal terms of the Placing

1. Peel Hunt and J.P. Morgan Cazenove are acting as Joint Bookrunners to the Placing, as agents of the Company.

2. Participation in the Placing is only available to persons who may lawfully be, and are, invited by the Joint Bookrunners to participate. The Joint Bookrunners and their respective affiliates are entitled to participate in the Placing as a Placee.

3. Each of the Joint Bookrunners is arranging the Placing severally, and not jointly, or jointly and severally, as agent of the Company.

4. An offer to acquire Placing Shares which has been communicated by a prospective Placee to the Joint Bookrunners which has not been withdrawn or revoked prior to publication of this announcement shall not be capable of withdrawal or revocation immediately following the publication of this announcement without the consent of the Joint Bookrunners.

5. Each Placee's allocation will be agreed by the Joint Bookrunners in consultation with the Company and will be confirmed orally or in writing by the relevant Bookrunner following publication of this announcement. The relevant Joint Bookrunner's oral or written confirmation of an allocation will give rise to a legally binding commitment (the "Placing Commitment") by the Placee concerned, in favour of the relevant Joint Bookrunner and the Company, under which it agrees to acquire the number of Placing Shares allocated to it at the Placing Price and otherwise on the terms and subject to the conditions set out in this Appendix and the Company's articles of association. Each Placee will have an immediate, separate, irrevocable and binding obligation, owed to the relevant Joint Bookrunner, to pay to it (or as it may direct) in cleared funds an amount equal to the product of the Placing Price and the number of Placing Shares comprised in such Placee's Placing Commitment.

6. Each prospective Placee's Placing Commitment will be evidenced by a contract note issued to such Placee by one of the Joint Bookrunners as soon as practicable following the relevant Bookrunner's oral or written confirmation of the relevant Placee's allocation. The terms of this Appendix will be deemed incorporated therein.

7. Except as required by law or regulation, no press release or other announcement will be made by the Joint Bookrunners or the Company using the name of any Placee (or its agent), in its capacity as Placee (or agent), other than with such Placee's prior written consent.

8. Irrespective of the time at which a Placee's allocation(s) pursuant to the Placing is/are confirmed following publication of this announcement, settlement for all Placing Shares to be acquired pursuant to the Placing will be required to be made at the same time, on the basis explained below under 'Registration and Settlement'.

9. All obligations under the Placing will be subject to fulfilment of the conditions referred to below under 'Conditions of the Placing' and to the Placing not being terminated on the basis referred to below under 'Termination of the Placing'.

10. Each Placee will agree that its rights and obligations in respect of the Placing will terminate only in the circumstances described below and will not be capable of rescission or termination by the Placee.

11. To the fullest extent permissible by law, none of the Joint Bookrunners nor any of their affiliates shall have any liability to Placees (or to any other person whether acting on behalf of a Placee or otherwise). In particular, none of the Joint Bookrunners nor any of their affiliates shall have any liability (including, to the extent permissible by law, any fiduciary duties) in respect of the Joint Bookrunners' conduct of the Placing or of such alternative method of effecting the Placing as the Joint Bookrunners and the Company may agree.

Registration and Settlement

If Placees are allocated any Placing Shares in the Placing they will be sent a contract note or electronic confirmation which will confirm the number of Placing Shares allocated to them, the Placing Price and the aggregate amount owed by them to the relevant Bookrunner. Each Placee will be deemed to agree that it will do all things necessary to ensure that delivery and payment is completed in accordance with either the standing CREST or certificated settlement instructions which they have in place with the relevant Bookrunner.

Settlement of transactions in the Placing Shares following Admission of Placing Shares will take place within the CREST system. Settlement through CREST is expected to occur on or before 18 March 2014 (the "Settlement Date") unless otherwise notified by the Joint Bookrunners. Settlement will be on a delivery versus payment basis. However, in the event of any difficulties or delays in the admission of the Placing Shares to CREST or the use of CREST in relation to the Placing, the Company and the Joint Bookrunners may agree that the Placing Shares should be issued in certificated form. The Joint Bookrunners reserve the right to require settlement for the Placing Shares, and to deliver the Placing Shares to Placees, by such other means as they deem necessary if delivery or settlement to Placees is not practicable within the CREST system or would not be consistent with regulatory requirements in a Placee's jurisdiction.

Interest is chargeable daily on payments not received from Placees on the due date in accordance with the arrangements set out above, in respect of either CREST or certificated deliveries, at the rate of 2 percentage points above prevailing LIBOR as determined by the Joint Bookrunners.

If Placees do not comply with their obligations the relevant Joint Bookrunner may sell their Placing Shares on their behalf and retain from the proceeds, for its own account and benefit, an amount equal to the Placing Price of each share sold plus any interest due. Placees will, however, remain liable for any shortfall below the Placing Price and for any stamp duty or stamp duty reserve tax (together with any interest or penalties) which may arise upon the sale of their Placing Shares on their behalf.

If Placing Shares are to be delivered to a custodian or settlement agent, Placees must ensure that, upon receipt, the conditional contract note is copied and delivered immediately to the relevant person within that organisation. Insofar as Placing Shares are registered in a Placee's name or that of its nominee or in the name of any person for whom a Placee is contracting as agent or that of a nominee for such person, such Placing Shares should, subject as provided below, be so registered free from any liability to UK stamp duty or stamp duty reserve tax. Placees will not be entitled to receive any fee or commission in connection with the Placing.

Conditions of the Placing

The obligations of the Joint Bookrunners under the Placing and Sponsor Agreement in relation to the Placing are subject to certain conditions including, amongst others:

(A) the Company having complied with and not being in breach, at any time prior to Admission, of any of its obligations under the Placing and Sponsor Agreement or under the terms of the Placing which, in each case, fall to be performed or satisfied prior to Admission of Placing Shares in any respect; and

(B) Admission of Placing Shares becoming effective on 18 March 2014 or such later time or date as may be agreed between the Company and the Joint Bookrunners and Rothschild acting as sponsor solely in relation to Admission (together with the Joint Bookrunners, the "Banks"), such date not to be any later than 25 March 2014.

If any of the conditions to the Placing and Sponsor Agreement are not satisfied (or waived by the Banks) or have become incapable of being satisfied by the required time and/or date, the Banks may terminate the Placing and Sponsor Agreement in certain circumstances, but only prior to Admission of Placing Shares.

By participating in the Placing, each Placee agrees that its rights and obligations cease and terminate only in the circumstances described above and under "Termination of the Placing" below and will not be capable of rescission or termination by it.

The Banks may, at their discretion and upon such terms as they think fit, waive fulfilment of all or any of the conditions in the Placing and Sponsor Agreement or extend the time provided for fulfilment of any such conditions in respect of all or any part of the performance thereof, save that certain conditions, including the condition relating to Admission, may not be waived. Any such extension or waiver will not affect Placees' commitments as set out in this Appendix.

Neither the Banks nor any of their affiliates nor the Company shall have any liability to any Placee (or to any other person whether acting on behalf of a Placee or otherwise) in respect of any decision any of them may make as to whether or not to waive or to extend the time and/or date for the satisfaction of any condition to the Placing nor for any decision any of them may make as to the satisfaction of any condition or in respect of the Placing generally and by participating in the Placing each Placee agrees that any such decision is within the absolute discretion of the Banks and the Company.

Termination of the Placing and Sponsor Agreement

The Banks may by notice to the Company terminate the Placing and Sponsor Agreement on behalf of all parties at any time up to and including Admission in certain circumstances, including a breach of a warranty given by the Company to the Banks which, in the absolute discretion of the Banks, is material in the context of the Placing, the Acquisition or Admission or the occurrence of a material adverse change or force majeure type event.

If the Placing and Sponsor Agreement is terminated in accordance with its terms, the rights and obligations of each Placee in respect of the Placing as described in this announcement shall cease and terminate at such time and no claim can be made by any Placee in respect thereof.

By participating in the Placing, each Placee agrees with the Company and the Banks that the exercise by the Banks of any right of termination or any other right or other discretion under the Placing and Sponsor Agreement shall be within the absolute discretion of the Banks and that neither the Company nor the Banks need make any reference to such Placee and that none of the Company, the Banks and their respective affiliates shall have any liability to such Placee (or to any other person whether acting on behalf of a Placee or otherwise) whatsoever in connection with any such exercise.

By participating in the Placing, each Placee agrees that its rights and obligations terminate only in the circumstances described above and under the 'Conditions of the Placing' above and will not be capable of rescission or termination by it after oral confirmation by the Joint Bookrunners of its Placing Commitment following publication of this announcement.

Representations and further terms

By participating in the Placing, each Placee (and any person acting on such Placee's behalf) represents, warrants, acknowledges and agrees (for itself and for any such prospective Placee) that:

1. represents and warrants that it has read and understood this announcement (including this Appendix) in their entirety and acknowledges that its participation in the Placing will be governed by the terms of this Appendix;

2. acknowledges that its participation in the Placing is by way of a collateral contract and as such section 87Q of the FSMA does not entitle it to withdraw Placing Commitment if the Company publishes a supplementary prospectus in connection with the Placing; and (ii) irrevocably undertakes to the Joint Bookrunners and the Company that if at any time it becomes entitled pursuant to section 87Q of the FSMA to withdraw its Placing Commitment or otherwise not to acquire the Placing Shares in the Placing upon the terms and conditions of this Appendix, it will forthwith re-confirm in writing to the Joint Bookrunners its Placing Commitment on the terms in this Appendix.

3. the Company's ordinary shares are listed on the Official List, and that the Company is therefore required to publish certain business and financial information in accordance with the rules and practices of the FCA or the London Stock Exchange (together, the "Exchange Information"), which includes a description of the Company's business and certain of the Company's financial information, including certain balance sheets and income statements, and that it is able to obtain or access the Exchange Information without undue difficulty, and is able to obtain access to Exchange Information or comparable information concerning any other publicly traded company, without undue difficulty;

4. none of the Joint Bookrunners, any of their respective affiliates nor any person acting on behalf of any of them has provided, or will provide, it with any written or oral information regarding the Placing Shares or the Company and it has not requested the Joint Bookrunners, the Company, any of their respective affiliates nor any person acting on behalf of any of them to provide it with any such information;

5. none of the Joint Bookrunners, nor any of their respective affiliates have made any representation to it, express or implied, with respect to the Company, the Placing or the Placing Shares or the accuracy, completeness or adequacy of this announcement, or the Exchange Information or any other written or oral information made available to any Placee, any person acting on such Placee's behalf or any of their respective advisers and any such liability is expressly disclaimed;

6. acknowledges that the content of this announcement is exclusively the responsibility of the Company and the persons stated therein as accepting responsibility for this announcement,) and that neither the Banks, nor any of their respective affiliates nor any person acting on their behalf will be responsible for or shall have any liability for any information, representation or statement relating to the Company contained in this announcement or any information previously published by or on behalf of the Company and neither the Banks, nor any of their respective affiliates nor any person acting on their behalf will be liable for any Placee's decision to participate in the Placing based on any information, representation or statement contained in this announcement or otherwise. Each Placee further represents, warrants and agrees that the only information on which it is entitled to rely and on which such Placee has relied in committing to subscribe for the Placing Shares is contained in this announcement and any Exchange Information, such information being all that it deems necessary to make an investment decision in respect of the Placing Shares, and that it has neither received nor relied on any other information given or representations, warranties or statements made by any of the Joint Bookrunners, the Company, their respective affiliates or any person acting on their behalf and that none of such persons will be responsible or liable for any Placee's decision to participate in the Placing based on any other information, representation, warranty or statement. Each Placee further represents, warrants and agrees that it has relied on its own investigation with respect to the Placing Shares and the Company in connection with its decision to subscribe for the Placing Shares and acknowledges that it is not relying on any investigation that the Joint Bookrunners, any of their respective affiliates or any person acting on their behalf may have conducted with respect to the Placing Shares or the Company and none of such persons has made any representations to it, express or implied, with respect thereto;

7. it is not, and at the time the Placing Shares are subscribed for will not be, a resident of Australia, Japan, New Zealand or South Africa;

8. it and the beneficial owner of the Placing Shares is, and at the time the Placing Shares are acquired will be, outside the United States and acquiring the Placing Shares in an "offshore transaction" as defined in, and in accordance with, Regulation S under the Securities Act;

9. the Placing Shares are not being subscribed for as a result of any "directed selling efforts" (within the meaning of Regulation S);

10. the Placing Shares have not been registered or otherwise qualified, and will not be registered or otherwise qualified, for offer and sale nor will a prospectus be cleared in respect of any of the Placing Shares under the securities laws of the United States, or any state or other jurisdiction of the United States, Australia, Canada, Japan, New Zealand or South Africa and may not be offered, sold, taken up, renounced or delivered or transferred, directly or indirectly, within the United States, Australia, Canada (except in compliance with applicable securities laws), Japan, New Zealand or South Africa;

11. it and/or each person on whose behalf it is participating:

(A) is entitled to subscribe for Placing Shares pursuant to the Placing under the laws of all relevant jurisdictions;

(B) has fully observed such laws;

(C) has capacity and authority and is entitled to enter into and perform its obligations as an acquirer of Placing Shares and will honour such obligations;

(D) has obtained all necessary consents and authorities (including, without limitation, in the case of a person acting on behalf of a Placee, all necessary consents and authorities to agree to the terms set out or referred to in this Appendix) to enable it to enter into the transactions contemplated hereby and to perform its obligations in relation thereto; and

(E) has not taken any action (including, without limitation, the acceptance of its Placing Shares) which will or may result in the Company or the Joint Bookrunners (or any of them) being in breach of a legal or regulatory requirement of any territory in connection with the Placing and the other arrangements described in this announcement;

12. if it is a pension fund or investment company, its acquisition of Placing Shares is in full compliance with applicable laws and regulations;

13. understands that the Placing Shares are being issued to it either through CREST or in certificated, definitive form;

14. it will not distribute, forward, transfer or otherwise transmit this announcement or any part of itor any other presentational or other materials concerning the Placing (including electronic copies thereof) in or into the United States to any person, and it has not distributed, forwarded, transferred or otherwise transmitted any such materials to any person;

15. neither of the Joint Bookrunners, their respective affiliates or any person acting on behalf of any of them is making any recommendations to it, advising it regarding the suitability of any transactions it may enter into in connection with the Placing and that participation in the Placing is on the basis that it is not and will not be a client of any of the Joint Bookrunners and that the Joint Bookrunners have no duties or responsibilities to it for providing the protections afforded to their clients or customers or for providing advice in relation to the Placing nor in respect of any representations, warranties, undertakings or indemnities contained in the Placing and Sponsor Agreement nor for the exercise or performance of any of its rights and obligations thereunder including any rights to waive or vary any conditions or exercise any termination right;

16. it will make payment to the Joint Bookrunners in accordance with the terms and conditions of this announcement on the due times and dates set out in this announcement, failing which the relevant Placing Shares may be placed with others on such terms as the Joint Bookrunners determines and it will remain liable for any shortfall below the net proceeds of such sale and placing proceeds of such Placing Shares and may be required to bear any stamp duty or stamp duty reserve tax (together with any interest or penalties due pursuant to the terms set out or referred to in this Announcement) which may arise upon the sale of such Placee's Placing Shares on its behalf;

17. its allocation (if any) of Placing Shares will represent a maximum number of Placing Shares which it will be entitled, and required, to subscribe for, and that the Company may call upon it to subscribe for a lower number of Placing Shares (if any), but in no event in aggregate more than the aforementioned maximum;

18. no action has been or will be taken by any of the Company, the Joint Bookrunners or any person acting on behalf of the Company or the Joint Bookrunners that would, or is intended to, permit a public offer of the Placing Shares in the United States or in any country or jurisdiction where any such action for that purpose is required;

19. the person who it specifies for registration as holder of the Placing Shares will be (i) the Placee or (ii) a nominee of the Placee, as the case may be. The Joint Bookrunners and the Company will not be responsible for any liability to stamp duty or stamp duty reserve tax resulting from a failure to observe this requirement. It agrees to acquire Placing Shares pursuant to the Placing on the basis that the Placing Shares will be allotted to a CREST stock account of the Joint Bookrunners who will hold them as nominee on behalf of the Placee until settlement in accordance with its standing settlement instructions with it;

20. the allocation, allotment, issue and delivery to it, or the person specified by it for registration as holder, of Placing Shares will not give rise to a stamp duty or stamp duty reserve tax liability under (or at a rate determined under) any of sections 67, 70, 93 or 96 of the Finance Act 1986 (depository receipts and clearance services) and that it is not participating in the Placing as nominee or agent for any person or persons to whom the allocation, allotment, issue or delivery of Placing Shares would give rise to such a liability;

21. it and any person acting on its behalf falls within Article 19(5) and/or 49(2) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, and undertakes that it will acquire, hold, manage and (if applicable) dispose of any Placing Shares that are allocated to it for the purposes of its business only and represents and warrants that it is entitled to subscribe for Placing Shares comprised in its allocation under the laws of all relevant jurisdictions which apply to it and that it has fully observed such laws and obtained all governmental and other consents which may be required thereunder and complied with all necessary formalities;

22. it has not offered or sold and will not offer or sell any Placing Shares to persons in the United Kingdom prior to Admission of Placing Shares except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their business or otherwise in circumstances which have not resulted and which will not result in an offer to the public in the United Kingdom within the meaning of section 85 (1) of FSMA;

23. it is a qualified investor as defined in section 86(7) of FSMA, being a person falling within Article 2.1(e) of the Prospectus Directive;

24. it has only communicated or caused to be communicated and it will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) relating to Placing Shares in circumstances in which section 21(1) of FSMA does not require approval of the communication by an authorised person;

25. it has complied and it will comply with all applicable laws with respect to anything done by it or on its behalf in relation to the Placing Shares (including all relevant provisions of FSMA in respect of anything done in, from or otherwise involving the United Kingdom);

26. represents and warrants that, if it is a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive (including any relevant implementing measure in any member state), the Placing Shares purchased by it in the Placing will not be acquired on a non-discretionary basis on behalf of, nor will they be acquired with a view to their offer or resale to, persons in a member state of the EEA which has implemented the Prospectus Directive other than qualified investors, or in circumstances in which the prior consent of the Joint Bookrunners has been given to the offer or resale.

27. it has not offered or sold and will not offer or sell any Placing Shares to persons in the European Economic Area prior to Admission of Placing Shares except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purpose of their business or otherwise in circumstances which have not resulted and which will not result in an offer to the public in any member state of the European Economic Area within the meaning of the Prospectus Directive (which means Directive 2003/71/EC, as amended, and includes any relevant implementing measure in any member state);

28. it has complied with its obligations in connection with money laundering and terrorist financing under the Proceeds of Crime Act 2002, the Terrorism Act 2000, and the Money Laundering Regulations (2003) (the "Regulations") and, if making payment on behalf of a third party, that satisfactory evidence has been obtained and recorded by it to verify the identity of the third party as required by the Regulations;

29. acknowledges that its commitment to subscribe for Placing Shares on the terms set out herein will continue notwithstanding any amendment that may in future be made to the terms and conditions of the Placing and that Placees will have no right to be consulted or require that their consent be obtained with respect to the Company's or the Joint Bookrunners' conduct of the Placing;

30. acknowledges that it has knowledge and experience in financial, business and international investment matters as is required to evaluate the merits and risks of subscribing for the Placing Shares. It further acknowledges that it is experienced in investing in securities of this nature and is aware that it may be required to bear, and is able to bear, the economic risk of, and is able to sustain, a complete loss in connection with the Placing. It has had sufficient time to consider and conduct its own investigation with respect to the offer and subscription for the Placing Shares, including the tax, legal and other economic considerations and has relied upon its own examination and due diligence of the Company and its affiliates taken as a whole, and the terms of the Placing, including the merits and risks involved;

31. the Company, the Joint Bookrunners and their affiliates and others will rely upon the truth and accuracy of the foregoing representations, warranties, acknowledgements and agreements, which are given to each Joint Bookrunner on its own behalf and on behalf of the Company and are irrevocable;

32. acknowledges that in connection with the Placing, the Joint Bookrunners and any of their affiliates acting as an investor for its own account may purchase shares in the Company and in that capacity may retain, purchase or sell for its own account such shares in the Company and any securities of the Company or related investments and may offer or sell such securities or other investments otherwise than in connection with the Placing. Accordingly, references in this announcement to shares being issued, offered or placed should be read as including any issue, offering or placement of such shares in the Company to any of the Joint Bookrunners and any affiliate acting in such capacity. Neither the Joint Bookrunners nor any affiliates intend to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligations to do so;

33. the Placing Shares will be issued subject to the terms and conditions of this Appendix 1; and

34. this Appendix 1 validly forms a part will be governed by and construed in accordance with English law. All agreements to subscribe for or otherwise acquire shares pursuant to the Placing will be governed by English law and the English courts shall have exclusive jurisdiction in relation thereto except that proceedings may be taken by the Company or the Joint Bookrunners in any jurisdiction in which the relevant Placee is incorporated or in which any of its securities have a quotation on a recognised stock exchange.

By participating in the Placing, each Placee (and any person acting on such Placee's behalf) agrees to indemnify and hold the Company, each of the Joint Bookrunners and each of their respective affiliates harmless from any and all costs, claims, liabilities and expenses (including legal fees and expenses) arising out of or in connection with any breach of the representations, warranties, acknowledgements, agreements and undertakings given by the Placee in this Appendix and further agrees that the provisions of this Appendix shall survive after completion of the Placing.

No claim shall be made against the Company, the Joint Bookrunners, their respective affiliates or any other person acting on behalf of any of such persons by a Placee to recover any damage, cost, charge or expense which it may suffer or incur by reason of or arising from the carrying out by it of the work to be done by it pursuant hereto or the performance of its obligations hereunder or otherwise in connection with the Placing.

Please also note that the agreement to allot and issue Placing Shares to Placees (or the persons for whom Placees are contracting as agent) free of stamp duty and stamp duty reserve tax in the UK relates only to their allotment and issue to Placees, or such persons as they nominate as their agents, direct by the Company. Such agreement assumes that the Placing Shares are not being acquired in connection with arrangements to issue depositary receipts or to transfer the Placing Shares into a clearance service. If there were any such arrangements, or the settlement related to other dealings in the Placing Shares, stamp duty or stamp duty reserve tax may be payable, for which neither the Company nor the Joint Bookrunners would be responsible. If this is the case, it would be sensible for Placees to take their own advice and they should notify the Joint Bookrunners accordingly. In addition, Placees should note that they will be liable for any capital duty, stamp duty and all other stamp, issue, securities, transfer, registration, documentary or other duties or taxes (including any interest, fines or penalties relating thereto) payable outside the UK by them or any other person on the acquisition by them of any Placing Shares or the agreement by them to acquire any Placing Shares and each Placee, or the Placee's nominee, in respect of whom (or in respect of the person for whom it is participating in the Placing as an agent or nominee) the allocation, allotment, issue or delivery of Placing Shares has given rise to such non-UK stamp, registration, documentary, transfer or similar taxes or duties undertakes to pay such taxes and duties, including any interest and penalties (if applicable), forthwith and to indemnify on an after-tax basis and to hold harmless the Company and the Joint Bookrunners in the event that either the Company and/or the Joint Bookrunners have incurred any such liability to such taxes or duties.

The representations, warranties, acknowledgements and undertakings contained in this Appendix are given to the Joint Bookrunners for themselves (and for the benefit of their affiliates) and on behalf of the Company and are irrevocable.

The Joint Bookrunners are acting exclusively for the Company and no one else in connection with the Placing, and the Joint Bookrunners will not be responsible to anyone (including any Placees) other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Placing or any other matters referred to in this announcement.

Each Placee and any person acting on behalf of the Placee acknowledges that the Joint Bookrunners do not owe fiduciary or other duties to any Placee in respect of any representations, warranties, undertakings or indemnities in the Sponsor and Placing Agreement.

Each Placee and any person acting on behalf of the Placee acknowledges and agrees that either of the Joint Bookrunners may (at their absolute discretion) satisfy its obligations to procure Placees by itself agreeing to become a Placee in respect of some or all of the Placing Shares or by nominating any connected or associated person to do so.

When a Placee or any person acting on behalf of the Placee is dealing with the Joint Bookrunners, any money held in an account with the Joint Bookrunners on behalf of the Placee and/or any person acting on behalf of the Placee will not be treated as client money within the meaning of the relevant rules and regulations of the FCA which therefore will not require the Joint Bookrunners to segregate such money, as that money will be held by it under a banking relationship and not as trustee.

Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser.

All times and dates in this announcement may be subject to amendment. The Joint Bookrunners will notify Placees and any persons acting on behalf of the Placees of any changes.

APPENDIX 2

Any investment in the Ordinary Shares is subject to a number of risks. Prior to subscribing or purchasing any Ordinary Shares in the Company, any potential investor should carefully consider the factors and risks associated with any investment in the Company, the Group's business and the industry in which the Group operates, together with all the information set out in this Announcement, and in particular, those risks described below.

The following risk factors, which the Directors believe to be the most significant risks for potential investors in relation to the Company or its industry, the Placing and the Acquisition, should be carefully considered by investors when deciding whether to make an investment in the Group as enlarged by the Acquisition (the "Enlarged Group").

Investors should be aware that any investment in the Company involves a high degree of risk and should be made only by those with the necessary expertise to appraise the investment.

If any of the following risks were to actually materialise, the Group's business, financial condition and results of operations could be materially and adversely affected and investors may lose all or part of their investment. All risks of which the Directors are aware at the date of this Announcement and which they consider material are set out in the risk factors below; however, additional risks and uncertainties currently unknown to Vectura, or currently believed to be immaterial, could have an adverse effect on the Enlarged Group. Any or all of these factors could have a material and adverse effect on the Enlarged Group's operational results, financial condition and prospects. Furthermore, the trading price of the Ordinary Shares could decline, possibly rapidly, resulting in the loss of all or part of any investment therein. 

The risk factors below are not listed in any order of priority with regard to significance or probability. It is not possible to quantify the significance to the Enlarged Group of each individual risk factor, as each risk described below may materialise to a greater or lesser degree or have unforeseen consequences.

A. RISK ASSOCIATED WITH THE PLACING AND THE ACQUISITION

Vectura's Shareholders who do not participate in the Placing or who are not party to the Acquisition, will suffer a dilution to their interests in the Company as a result of the Placing and the Acquisition

The New Ordinary Shares issued through the Placing and the Acquisition will represent 14.8 per cent. of the Enlarged Share Capital. Following the issue of the Placing Shares and the Consideration Shares pursuant to the Acquisition, Shareholders who do not participate in the Placing will suffer a dilution of approximately 14.8 per cent. to their interests in the Company.

The Enlarged Group may experience integration challenges as a consequence of the Acquisition

The Enlarged Group may encounter numerous integration challenges as a consequence of the Acquisition, including challenges that are not currently foreseeable. During the integration process, the Enlarged Group's management and resources may be diverted away from its core business activities due to people being required to assist in the integration process. Furthermore, the Enlarged Group may not be able to retain personnel with the appropriate skill set for the tasks associated with the integration programme. This integration process may take longer or be more costly than expected, or difficulties relating to the integration, of which the Directors are not yet aware, may arise. These difficulties may include the discovery of potential liabilities arising from Activaero's prior business activities and contractual commitments which were not apparent to the Group from its legal, commercial and financial due diligence. This could adversely affect the implementation of the Directors' plans for the Enlarged Group, which may adversely affect its business or financial condition.

B. RISKS RELATED TO THE BUSINESS OF THE ENLARGED GROUP

Risks relating to the Enlarged Group's industry

There can be no assurance that the Enlarged Group's, or a collaborator's, products will receive and maintain regulatory approvals

The international pharmaceutical industry is highly regulated by governmental authorities in the UK, the US and Europe and by regulatory agencies in other countries where the Enlarged Group or a collaborator intends to test or market products they may develop. Regulatory authorities administer a wide range of laws and regulations governing the testing, approval, manufacturing, labelling and marketing of drugs and also review the quality, safety and effectiveness of pharmaceutical products. These regulatory requirements are a major factor in determining whether a substance can be developed into a marketable product and the amount of time and expense associated with such development.

Government regulation imposes significant costs and restrictions on the development of pharmaceutical products for human use, including those being developed by the Enlarged Group and its collaborators. The development, clinical evaluation, manufacture and marketing of the Enlarged Group's and its collaborators' products and on-going research and development activities are subject to regulation by governments and regulatory agencies in all territories within which the Enlarged Group and its collaborators intend to manufacture and market their products (whether themselves or through partners). No assurance can be given that any of the Enlarged Group's or its collaborators' products will successfully complete the clinical trial process or that regulatory approvals to manufacture and market these products will ultimately be obtained.

The time taken to obtain regulatory approval varies between territories and no assurance can be given that any of the Enlarged Group's and its collaborators' products will be approved in any territory within the timescale envisaged, or at all or that the regulations may not change during the period of development. This may result in a delay to, or make impossible, the commercialisation of their products.

Furthermore, each regulatory authority may impose its own requirements (for instance, by restricting the product's indicated uses) and may refuse to grant, or may require additional data before granting, an approval, even though the relevant product candidate may have been approved by another country's equivalent authority.

Even if the Enlarged Group or a collaborator's products are approved, they may still face subsequent regulatory difficulties

Even if the Enlarged Group or a collaborator receives regulatory approval to sell any of its products, the FDA, the UK Medicines & Healthcare Products Regulatory Agency or comparable foreign regulatory agencies could require the Enlarged Group or a collaborator to conduct post-marketing trials or could prevent the Enlarged Group or a collaborator from using the labelling claims which the Enlarged Group or a collaborator would like to use to promote its products. Regulators will undertake periodic reviews and inspections. If they discover previously unknown problems with a product or its manufacturing facility or if the Enlarged Group or a collaborator fails to comply with regulatory requirements, regulators could:

· impose fines against the Enlarged Group or a collaborator;

· impose restrictions on the product, its manufacturer, or the Enlarged Group or a collaborator;

· require the Enlarged Group or a collaborator to recall or remove a product from the market;

· suspend or withdraw its regulatory approvals;

· require the Enlarged Group or a collaborator to conduct additional clinical trials;

· require the Enlarged Group or a collaborator to change its product labelling; or

· require the Enlarged Group or a collaborator to withdraw and amend its marketing and promotional materials for a product.

If any of these events occur, the ability to sell its products will be impaired and the Enlarged Group or a collaborator may incur substantial additional expense to comply with the regulatory requirements. In addition, in certain countries, even after regulatory approval, the Enlarged Group or a collaborator is still required to obtain price reimbursement approval. This may delay the marketing of the products or, when approval cannot be obtained, mean that the product cannot be sold at all.

In addition, changes in applicable legislation or regulatory policies, or discovery of problems with the class of product, or its production process, site or manufacturer, may result in the imposition of restrictions on the product, its sale, manufacture or use, including withdrawal of the product from the market, or may otherwise have an adverse effect on the Enlarged Group's business.

Unforeseen side effects may result from use of the Enlarged Group's or a collaborator's products or product candidates

All drugs have a risk of adverse reactions and side effects. While Vectura and its collaborators test for adverse reactions and side effects in pre-clinical and clinical trials, if any of the Enlarged Group's or its collaborators' products are found to cause adverse reactions and side effects other than those acceptable to regulators, the Enlarged Group or such collaborators may have to conduct additional clinical trials, which would cause delays and result in additional costs in the development of a product, or such development programmes may have to be terminated or suspended on the basis that participants are being exposed to unacceptable health risks. Even after a pre-clinical or clinical trial is deemed successful, or regulatory approval is received, a product may later be shown to be unsafe. The existence of adverse reactions or side effects may require the Enlarged Group and its collaborators to conduct additional trials or studies, and may subject the Enlarged Group and its collaborators to suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and even civil litigation. The occurrence of any such event could have a material adverse effect on the Enlarged Group's business, financial position, results of operations and future growth prospects.

The Enlarged Group's business faces intense competition from a range of pharmaceutical and biotechnology companies

The Enlarged Group's competitors in the biotechnology and pharmaceutical industries may have superior research and development capabilities, products, manufacturing capability or sales and marketing expertise. Many of the Enlarged Group's competitors have significantly greater financial and human resources and may have more experience in research and development. As a result, the Enlarged Group's competitors may develop safer or more effective products, implement more effective sales and marketing programmes or be able to establish superior proprietary positions. In addition, the Enlarged Group anticipates that it will face increased competition in the future as new companies enter the Enlarged Group's markets and alternative products and technologies become available.

The Enlarged Group's products under development are based on a range of different technologies and are expected to address a number of different markets. The Enlarged Group's competitive position will be determined in part by the potential indications for which the Enlarged Group's products are developed and ultimately approved by regulatory authorities. In addition, the first pharmaceutical product to reach the market in a therapeutic or preventive area may be at a significant competitive advantage relative to later entrants to the market. Accordingly, the relative speed with which the Enlarged Group or its collaborative partners can develop products, complete the clinical trials and approval processes and supply commercial quantities of the products to the market, are expected to be important competitive factors.

The Enlarged Group's competitors are developing products that could compete with the product candidates the Enlarged Group is developing. The Enlarged Group and its collaborators will need to persuade patients and physicians to adopt its products over its competitors' products. If they fail to build a strong position in their markets, this would have a material adverse effect on the Enlarged Group's profitability.

Technological changes could overtake the products being developed by the Enlarged Group or by its collaborators

The biotechnology and pharmaceutical industries are subject to rapid technological change which could affect the success of the Enlarged Group's and its collaborators' drugs or make them obsolete. Research and discoveries by others may result in medical insights or breakthroughs that render the Enlarged Group's or its collaborators' product candidates less competitive or even obsolete before they generate revenue.

The Enlarged Group and its collaborators may be unable to retain certain important employees

Vectura is significantly dependent on certain scientific and management personnel. The loss of these employees could weaken the Enlarged Group's scientific and management capabilities, resulting in delays in the development of its products and impacting negatively on the Enlarged Group's business.

Although the Enlarged Group has entered into employment or consultancy arrangements with each of the Enlarged Group's important personnel, with the aim of securing their services, the retention of such services cannot be guaranteed.

Development stage pharmaceutical companies such as Vectura are highly dependent on employees who have an in-depth and long-term understanding of the industry and their company's technologies, products, programmes, collaborative relationships and strategic goals. The biotechnology and pharmaceutical industries have a highly competitive market for qualified scientific and managerial employees. Competitors may try to recruit some of the Enlarged Group's important employees.

The loss of these employees and the Enlarged Group's inability to recruit new employees to replace them could have a negative impact on the business and prospects of the Enlarged Group.

Competition regulation may have an impact on the way the Enlarged Group conducts its business and its dealings with private counterparties and government collaborators

The Enlarged Group's activities will be subject to several competition law regimes, including those of the European Union, Canada, the US and the UK. Article 81(1) of the EC Treaty prohibits agreements between undertakings that have as their object, or effect, the restriction, prevention or distortion of competition within the European Union and which may affect trade between member states. The UK has equivalent competition law provisions concerning agreements that affect trade within the UK.

Certain agreements that the Enlarged Group has entered into or may enter into, such as with collaborators and licensees, contain provisions that might be deemed to be restrictive of competition under Article 81(1). In the event that an agreement is deemed restrictive of competition, the agreement may be deemed unenforceable which could have a material adverse effect on the Enlarged Group. In addition, the Enlarged Group could also potentially be subject to fines and/or claims for damages in relation to any anti-competitive arrangements into which it enters.

The Enlarged Group's activities will also be subject to the EC rules on state aid. Article 87(1) of the EC Treaty prohibits any aid granted by a member state or through state resources which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods and which affects trade between member states.

Certain arrangements that the Enlarged Group may enter into, for example with governmental collaborators, may involve benefits that might be said to be state aid under Article 87(1). The relevant company will determine on a case-by-case basis whether the effect of any arrangement is to grant or alter aid which should be notified to the European Commission. Any such arrangements that are not notified and subsequently found to be incompatible with the common market could potentially have to be repaid.

The use of hazardous materials may subject the Enlarged Group to additional compliance costs and/or liability in the event of a hazardous waste spill or other accident

The Enlarged Group is, or may become, subject to UK, European and US environmental laws and regulations governing the use, storage, handling and disposal of hazardous materials and other waste products. Despite its precautions for handling and disposing of these materials, the Enlarged Group cannot eliminate the risk of accidental contamination or injury. In the event of a hazardous waste spill or other accident, the Enlarged Group could be liable for damages, penalties or other forms of censure. If the Enlarged Group fails to comply with any laws or regulations, or if an accident occurs, the Enlarged Group may have to pay significant penalties and may be held liable for any damages that result. This liability could exceed the Enlarged Group's financial resources and could harm its reputation. The Enlarged Group may also have to incur significant additional costs to comply with current or future environmental laws and regulations.

The Enlarged Group's failure to comply with any government regulation applicable to its laboratory and the materials used in its laboratory may adversely affect its ability to develop, produce, market or partner any products it may develop.

The Enlarged Group may face product liability claims

In carrying out its activities the Enlarged Group will potentially face contractual and statutory claims, or other types of claim from customers, suppliers and/or investors. In addition, the Enlarged Group is exposed to potential product liability risks that are inherent in the research, the pre-clinical and clinical evaluation, pre-clinical study, clinical trials, manufacturing, marketing and use of pharmaceutical products. Consumers, healthcare producers or persons selling products based on the Enlarged Group's and its collaborators' technology may be able to bring claims against the Enlarged Group based on the use of such products in clinical trials and the sale of products based on the Enlarged Group's technology.

The Enlarged Group may be unable to secure adequate insurance at an acceptable cost

The Enlarged Group's business exposes it to potential product liability and professional indemnity and other risks which are inherent in the research, pre-clinical and clinical evaluation, manufacturing, sales and marketing and use of pharmaceutical products. No assurance can be made that product liability, clinical trials or any future necessary insurance cover will be available to the Enlarged Group at an acceptable cost, if at all, or that, if there is any claim, the level of the insurance the Enlarged Group carries now or in the future will be adequate or that a product liability, professional indemnity or other claim would not materially and adversely affect the Enlarged Group's business. In addition, it may be necessary for the Enlarged Group to secure certain levels of insurance as a condition to the conduct of clinical trials. In the event of any claim, the Enlarged Group's insurance coverage may not be adequate.

The Enlarged Group may be subject to the attention of special interest groups and adverse public opinion

Government bodies and regulatory agencies require that potential pharmaceutical products are subject to pre-clinical studies, including animal testing, prior to conducting human trials. The Enlarged Group arranges for such work to be performed by third parties. Such work can be subject to adverse public opinion and has attracted the attention of special interest groups, including those of animal rights activists. Such special interest groups have targeted Vectura in the past but this has not impacted on the Enlarged Group's operations to date. There can, however, be no assurance that such groups will not, in the future, focus on the Enlarged Group's activities or those of its licensees or collaborators, or that any such public opinion would not adversely affect the Enlarged Group's operations.

The pharmaceutical industry is frequently subject to adverse publicity on many topics, including product recalls and research and discovery methods, as well as to political controversy over the impact of novel techniques and therapies on humans, animals and the environment. Adverse publicity about the Enlarged Group, its collaborators, its products, or any other part of the industry may hurt the Enlarged Group's public image, which could harm its operations, cause its share price to decrease or impair its ability to gain market acceptance for its products.

Risks relating to the development and commercialisation of new medicines

The Enlarged Group may not be able to sell its products profitably if reimbursement from third party payers, including government and private health insurers, is unavailable or limited

The Enlarged Group may be adversely affected by third party reimbursement and healthcare cost containment initiatives. A significant portion of the Enlarged Group's future revenue is likely to depend on payments by third party payers, including government health administration authorities and private health insurers. The Enlarged Group may not be able to sell its products profitably if reimbursement from these sources is unavailable or limited. Third party payers are increasingly attempting to contain healthcare costs through measures that are likely to impact the products the Enlarged Group is developing, including:

· challenging the prices charged for healthcare products, limiting both coverage and the amount of reimbursement for new therapeutic products, and denying or limiting coverage for products that are approved by the regulatory agencies but are considered experimental by third party payers; and

· refusing to provide coverage when an approved drug is used in a way that has not received regulatory marketing approval.

In addition, in many European countries, there has been an increasing trend towards reference pricing, where the amount of reimbursement is determined in light of reimbursement levels for comparable drugs in other European countries, which is likely to severely restrict the potential per unit price for many new drugs unless such drugs can be significantly differentiated from existing products. These or other healthcare reforms that may be adopted in the future could harm the Enlarged Group's business, and in particular, could have a material adverse effect on the amounts that public and private payers will pay for the Enlarged Group's products that are commercialised. If products developed by the Enlarged Group or its partners are not covered by government or other third party reimbursement schemes, are reimbursed at prices lower than those expected by the Enlarged Group, or become subject to legislation controlling treatments or pricing, the Enlarged Group and/or its partners may not be able to generate significant revenue or attain profitability for any product candidates which are approved for marketing, which development would have a material adverse effect on the Enlarged Group's business, financial position, results of operations and future growth prospects.

The development of the Enlarged Group's early stage products face a long product development cycle

The development of a therapeutic drug up to marketing approval by the competent authority is a lengthy and complex process. During this time a research project must proceed through pre-clinical and several clinical stages of development, as well as the regulatory approval process. The consequence of this lengthy process and the uncertainties in connection with the research and development of pharmaceuticals is that only a small fraction of initial product candidates ultimately receive regulatory approval. A failure to develop additional products successfully and within a reasonable time frame could have significant detrimental consequences for the Enlarged Group's business, financial position, and results of operations, prospects and market price of the shares.

No assurance can be made that the Enlarged Group or its collaborators will be able to bring any product candidates to market

The Enlarged Group has product candidates at varying stages of development and these will require further clinical evaluation to ensure their safety and/or efficacy. Any product candidate which the Enlarged Group or its collaborators wish to offer commercially to the public must be put through extensive research and pre-clinical, clinical and formulation development which will be costly to the Enlarged Group and its collaborators. This development process takes several years. In addition, the Enlarged Group and its collaborators will need to obtain regulatory approvals to conduct clinical trials and manufacture products before they can be marketed. Results of pre-clinical studies are not necessarily indicative of results that may be obtained in clinical trials and results in early clinical trials may be different from those obtained in long-term testing or in general use. Adverse or inconclusive results from pre-clinical testing or clinical trials may substantially delay, or halt entirely, the development of products.

Even if the Enlarged Group's or its collaborator's products receive approval for marketing, there can be no assurance that the Enlarged Group or its collaborators will not experience delays in the development or approval process that could adversely affect the cost of development or commercial value of its products. Similarly, there can be no assurance that any regulatory approvals will not be more limited in scope than the Directors currently anticipate.

The Enlarged Group and its collaborators may fail to successfully develop a product candidate for many reasons, including:

· the failure to establish any collaborative third party agreements to support product development;

· the failure to produce a promising compound in sufficient quantities to conduct clinical trials or to manufacture the compound at commercially acceptable quantities and prices;

· the failure of the drug in pre-clinical or bioequivalence studies;

· the failure to develop a viable formulation with differentiating characteristics from existing drugs;

· the inability of clinical trials to demonstrate that the drug is safe and effective in humans;

· the failure to obtain required regulatory approvals; or

· insufficient financial resources.

With respect to products being developed by joint ventures between the Enlarged Group and third parties, no assurance can be made that the joint venture partner will continue to be financially viable, or will continue to invest in the development programme, or be willing and able to deliver its obligations to the joint venture.

There is a risk that the failure of any one product candidate could have a significant and sustained adverse impact on the Company's share price. Shareholders and investors should therefore be aware that any investment in the Company involves a high degree of risk and should be made only by those investors with the necessary expertise to appraise the investment.

The products that the Enlarged Group and its collaborators bring to market may not be commercially successful

The Enlarged Group's success depends on acceptance of the Enlarged Group's and its collaborators' products by the market, including by physicians and third-party payers, and consequently the Enlarged Group's and its collaborators' progress may be adversely affected if it is unable to achieve market acceptance of their products. Some factors that may affect the rate and level of market acceptance of any of the Enlarged Group's and its collaborators' products include:

· the existence or entry into the market of superior competing products or therapies;

· the entry to market of competing products earlier than those of the Enlarged Group or its collaborators;

· the price of the Enlarged Group's or its collaborators' products compared to competing products;

· public perception regarding the safety, efficacy and benefits of the Enlarged Group's or its collaborators' products compared to competing products or therapies;

· the effectiveness of the sales and marketing efforts of the Enlarged Group or its collaborators;

· regulatory developments relating to manufacturing or use of the Enlarged Group's or its collaborators' products;

· the willingness of physicians to adopt a new treatment regimen; and

· publicity concerning the product type in general.

The Enlarged Group is, and its collaborators may be, dependent upon contracts with third party contractors and the failure to provide services in an adequate or timely manner or according to the quality standards requested, could have a material adverse effect on the Enlarged Group's business

As the Enlarged Group is, and its collaborators may be, unable to provide for all of its research, development, manufacturing, marketing or sales needs, the Enlarged Group will, and its collaborators may, also be dependent on third party contractors and their services and upon their effort and skill in providing those services. The Enlarged Group's success is dependent on these commercial arrangements. The Enlarged Group's collaborators have substantial responsibility for some of the development and commercialisation of the Enlarged Group's drug and medical device candidates. Certain of the Enlarged Group's collaborators also have significant discretion over the resources they devote to these efforts. The Enlarged Group's success, therefore, will depend on the ability and efforts of those third parties. The Enlarged Group cannot guarantee that these collaborators will devote sufficient resources to collaborations with the Enlarged Group or that the Enlarged Group's drug or medical device candidates can be developed and commercialised without these collaborators. The Enlarged Group and its collaborators may not be able to manage or control adequately such third parties, who may not always act in the best interests of the Enlarged Group or its collaborators. If any of the counterparties tasked with carrying out research activities, pre-clinical and clinical studies, manufacturing or sales or distribution activities fails to fulfil its obligations acts in a manner which is in contravention with the contract to which they are a party or otherwise fails to provide services in an adequate or timely manner or according to the quality standards requested by the Enlarged Group or its collaborators, this may delay, complicate or frustrate the Enlarged Group's or its collaborators' ability to successfully develop or sell its products or technologies, or otherwise require the Group and/or its collaborators to take legal action to enforce their contractual rights, which would likely have a material adverse effect on the Enlarged Group's or its collaborators' business, financial condition, results of operations and/or growth prospects. In addition, the termination of any agreements with third party contractors would have a disruptive effect on the Enlarged Group's or its collaborators' business.

The Enlarged Group may be dependent on multiple key partners, the loss of any of which could have a material adverse effect on the Enlarged Group

At present the Enlarged Group has several partnership and licensing agreements and may depend upon single or multiple key partners to assist in future commercialisation of its products. These partners may be unwilling or unable to meet the Enlarged Group's future needs. The Enlarged Group cannot guarantee that:

· existing collaborative arrangements or licence agreements or agreements with third party contractors will be able to be maintained;

· any new collaborative arrangements or licence agreements or agreements with third party contractors will be on favourable terms; or

· any collaborative arrangements or licence agreements or agreements with third party contractors will prove successful.

Replacing one of these partners or finding additional partners could take a long time. If the Enlarged Group had to interrupt its development programmes in order to locate an alternative partner, the Enlarged Group could be forced to delay pre-clinical or clinical trials, product testing and potential regulatory approval of its product candidates. Any of these events would adversely affect the Enlarged Group's programmes and projectedrevenues.

No assurance can be made that the Enlarged Group or its licensees will be able to achieve expected sales in major markets following marketing authorisation

The Enlarged Group is selling products and has licensees who are selling products that were developed by the Enlarged Group and/or incorporate technologies licensed by the Enlarged Group. There can be no assurances that these products achieve expected sales in all or any country or that the licensee continues to actively market and/or sell licensed products in all or any country.

The Enlarged Group's suppliers may encounter unexpected difficulties in the design and construction of manufacturing processes and the scale-up of production to viable clinical trial or commercialisation levels

Because of the complex nature of the Enlarged Group's product candidates and devices, its contracted manufacturers may not be able to manufacture the product candidates and devices in a timely manner at cost or in quantities necessary to successfully commercialise the Enlarged Group's products. Many of the Enlarged Group's products under development are designed to incorporate drug formulations and devices, some of which have historically only been manufactured in small quantities. Later stage development and commercial supply of such products will require the Enlarged Group to scale up the manufacture of both formulations and devices. There can be no assurance that this can be successfully completed or that, if completed, it will result in commercially acceptable manufacturing costs.

The Enlarged Group may encounter issues with the supply chain for its, or its partners' products, that could adversely affect the sales of products on the market

The production of pharmaceutical products is often complex and requires multiple raw materials or components that must be available to enable production of the commercial product. The successful production and release into the supply chain of finished product can be affected in many ways, ultimately impacting the availability of the product on the market, including:

· failure of raw material/component suppliers to meet orders within acceptable timelines, impacting production schedules;

· failure of manufacturing runs to produce product to a standard that allows release of the product into the market; and

· in cases where Contract Manufacturing Organisations (CMO's) are employed, issues faced by a CMO with an unrelated product in their facility could lead to shut down and suspension of production of the Enlarged Group's product.

Any instance that impacts the release or availability of product in the supply chain will impact the perception/acceptance of the product by physicians, patients, payers and regulatory authorities and will have significant impact on the commercial success of such products

Risks relating to Intellectual Property

The Enlarged Group and its collaborators may be unable to successfully establish and protect their intellectual property which is significant to the Enlarged Group's competitive position

The Enlarged Group's success depends in part on its ability and the ability of its collaborators to obtain and maintain protection for their inventions and proprietary information, so that it can prevent others from making, using or selling its inventions or proprietary rights. The Enlarged Group owns a portfolio of patents and patent applications and is the authorised licensee of other patents.

There is a significant delay between the time of filing of a patent application and the time its contents are made public, and others may have filed patent applications for subject matter covered by the Enlarged Group's or its collaborators' pending patent applications without the Enlarged Group or its collaborators being aware of those applications. The Enlarged Group's or its collaborators' patent applications may not have priority over patent applications of others and their pending patent applications may not result in issued patents. Even if the Enlarged Group and its collaborators obtain patents, they may not be valid or enforceable against others. Moreover, even if the Enlarged Group and its collaborators receive patent protection for some or all of their products, those patents may not give the Enlarged Group or its collaborators an advantage over competitors with similar products.

To develop and maintain its competitive position, the Enlarged Group also relies on unpatented trade secrets and improvements, unpatented know-how and continuing technological innovation, which it protects with security measures it considers to be reasonable, including confidentiality agreements with its collaborators, consultants and employees. The Enlarged Group may not have adequate remedies if these agreements are breached and the Enlarged Group's competitors may independently develop any of this proprietary information.

The Company's policy is to ensure that the development of trade secrets, know-how and other inventions created by its employees are protected by confidentiality agreements and that all of its employees are subject to terms in their respective contracts of employment which provide that any invention made or intellectual property rights generated by such employees in the performance of their duties shall belong to the Company. Following the Acquisition, Activaero will become part of the Enlarged Group. For employee-generated inventions, German law does not provide for the automatic transfer of such rights to Activaero by its employees. Instead any such transfer requires that the invention has been notified to Activaero by the relevant employee inventor. Moreover, for employee-generated inventions that were notified to Activaero prior to 1 October 2009, Activaero is required to take active steps to acquire or to obligate the employee to assign the rights to such invention to it. There can be no guarantee that Activaero has effectively acquired the rights to all employee-generated inventions or intellectual property that are applicable to the Activaero pipeline and technology.

The commercial success of some of the Enlarged Group's products will also depend to a degree on being able to use and enforce certain trademarks. Some of the Enlarged Group's products are or may be marketed using trademarks licensed from and/or owned by the Enlarged Group. There can be no assurance that these trademarks will not be challenged and if challenged that the trademark would not be found invalid.

If the Enlarged Group fails to obtain adequate protection for its intellectual property, the Enlarged Group's competitors may be able to take advantage of the Enlarged Group's and its collaborators' research and development efforts. The Enlarged Group's success will depend, in large part, on its ability to obtain and maintain patent or other proprietary protection for its technologies in general and, in particular, drugs and processes. The Enlarged Group may not be able to obtain patent protection for the composition of matter of discovered compounds, processes developed by its employees or medical uses of compounds discovered through its technology. Legal standards relating to patents covering pharmaceutical or biotechnological inventions and the scope of claims made under these patents are still developing. There is no consistent policy regarding the breadth of claims allowed in biotechnology and pharmaceutical patents. The Enlarged Group's patent position is therefore highly uncertain and involves complex legal and factual issues.

Generic drug manufacturers, particularly in the US, may seek marketing approval for pharmaceutical products currently under patent protection by attacking the validity or enforceability of a patent. The more successful the product is commercially, the more likely the patent covering the product will be challenged by generic manufacturers. If a generic manufacturer succeeds in invalidating a patent protecting one of the products of the Enlarged Group or its collaborators, that product could be exposed to generic competition before the expected expiration date of the patent. If one or more important products lose patent protection in profitable markets, sales of those products are likely to decline significantly as a result of generic versions of those products becoming available. The results of operations of the Enlarged Group may be adversely affected by such sales decline. Decisions which adversely impact the Enlarged Group's patents could also result in third party claims by, for example, direct and indirect purchasers and state and federal governmental entities, seeking damages for having wrongly precluded competition in the market place.

The Enlarged Group may incur substantial costs as a result of disputes relating to intellectual property

The Enlarged Group may have to initiate litigation to enforce its patent and licence rights. If the Enlarged Group's competitors file patent applications that claim technology also claimed by the Enlarged Group, the Enlarged Group may have to participate in interference or opposition proceedings to determine the priority of invention. An adverse outcome could subject the Enlarged Group to significant liabilities and require the Enlarged Group either to cease using a technology or to pay licence fees. The Enlarged Group could incur substantial costs in any litigation or other proceedings relating to patent rights, even if it is resolved in the Enlarged Group's favour. Some of the Enlarged Group's competitors may be able to sustain the costs of complex litigation more effectively or for a longer time than the Enlarged Group can because of their substantially greater resources. In addition, uncertainties relating to any patent, pending patent or other intellectual property litigation could have a material adverse effect on the Enlarged Group's ability to bring a product candidate to market, enter into collaborations in respect of the disputed or other product candidates, or raise additional funds.

A third party may claim that the Enlarged Group and/or its collaborators is infringing its patents and trademarks

There are a large number of companies that are seeking to develop novel delivery formulations of pharmaceutical products using a range of different drug delivery technologies. There are a significant number of filed and granted patents and other intellectual property that aim to protect these technologies. A third party may claim that the Enlarged Group or its collaborators is using inventions covered by the third party's patents and may go to court to stop the Enlarged Group or its collaborators from engaging in normal operations and activities, including developing and marketing product candidates. There is a risk that a court would decide that the Enlarged Group or its collaborators is infringing third party patents and would order the Enlarged Group or its collaborators to stop those activities and/or require the Enlarged Group or its collaborators to pay significant amounts in damages.

The commercial success of the Enlarged Group's products may also depend on third parties not enforcing their trademark rights. If such third party is successful in enforcing its trademark, the Enlarged Group, or its licensees, may need to abstain from using a mark, obtain an alternative mark or reach commercial terms on the in-licensing of such third parties' intellectual property rights.

An unfavourable decision could require the Enlarged Group or its collaborators to redesign or rebrand the Enlarged Group's or its collaborators' products, or require the Enlarged Group or its collaborators to license a third party's intellectual property. There is no guarantee that the Enlarged Group or its collaborators can enter such licence arrangements on favourable terms, or at all, and if a licence or redesign is not available the Enlarged Group or its collaborators could be forced to abandon a product candidate entirely.

Risks relating to financial performance

The Company's ability to pay dividends in the future is not certain

The Company has not paid dividends in the past. The declaration and payment of any dividends in the future and the amount of any future dividends will depend upon the results of operations, financial conditions, cash requirements, future prospects, profits available for distribution and other factors deemed by Directors to be relevant at the time.

Foreign exchange rate fluctuations may adversely affect the Enlarged Group's results of operations and financial condition

The Enlarged Group records its transactions and prepares its financial statements in pounds sterling, but a substantial proportion of the Enlarged Group's income from collaborative agreements is received in Euros and US dollars. Furthermore, the Enlarged Group incurs a proportion of its expenditure in Euros and US dollars and other currencies. The Enlarged Group's cash balances are predominantly held in pounds sterling. To the extent that the Enlarged Group's foreign currency assets and liabilities are not matched, fluctuations in exchange rates between pounds sterling, the US dollar and the Euro may result in realised or unrealised exchange gains and losses on translation of the underlying currency into pounds sterling that may increase or decrease the Enlarged Group's results of operations and may adversely affect the Enlarged Group's financial condition, each as stated in pounds sterling. In addition, if the currencies in which the Group earns its revenues and/or holds its cash balances weaken against the currencies in which it incurs its expenses, this could adversely affect the Enlarged Group's profitability and liquidity. Where a substantial net foreign currency liability exists, the Enlarged Group will consider hedging against it to minimise foreign currency expense. However, such hedging is based on estimates of liabilities and future revenues and will not fully eliminate future foreign currency exchange fluctuations.

C. RISKS RELATING TO THE STOCK MARKET AND TO SHARE TRADING

Vectura's share price may be volatile and affected by a number of factors, some outside the Company's control

The share prices of publicly traded biotechnology and emerging pharmaceutical companies such as Vectura can be highly volatile. The price at which the Ordinary Shares will be quoted and the price which investors may realise for their Ordinary Shares will be influenced by a large number of factors, some specific to Vectura and its operations and some which may affect the quoted healthcare and pharmaceutical sectors, or quoted companies generally. Consequently, the value of an investment in the Company may go down, as well as up. The Company's share price has fluctuated, and may continue to fluctuate. The factors that may affect the Company's share price include:

· actual or anticipated results of clinical trials;

· actual or anticipated changes in the development status of a development programme;

· actual or anticipated regulatory approvals of healthcare products or of competing products;

· changes in laws or regulations applicable to healthcare products;

· actual or anticipated variations in periodic operating results;

· announcements of technological innovations by the Enlarged Group, or its competitors;

· new products or services introduced or announced by the Enlarged Group, or its competitors;

· conditions or trends in the biotechnology and pharmaceutical industries;

· changes in the market valuations of similar companies;

· announcements by the Enlarged Group of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

· additions or departures of key personnel;

· disputes or other developments relating to proprietary rights, including patents, litigation matters and the Enlarged Group's ability to obtain, maintain and defend patent protection for its technologies and to avoid infringement of third-party intellectual property rights; and

· trading volume of the Ordinary Shares.

Furthermore, the Company's share price may fall in response to market appraisal of its current strategy or if the Enlarged Group's operating results and prospects from time to time are below the expectations of market analysts and investors. In addition, stock markets have from time to time experienced significant price and volume fluctuations that have affected the market price of the companies whose shares are traded on such markets. Such fluctuations could affect the Company's share price, though they may be unrelated to the Group's actual operating performances and prospects.

The market price of the Placing Shares may decline below the Placing Price

There can be no assurance that the public trading market price of the Placing Shares will not decline below the Placing Price. Should that occur, relevant Shareholders will suffer an immediate loss as a result. Moreover, there can be no assurance that, following Shareholders' acquisition of the Placing Shares, Shareholders will be able to sell their Placing Shares at a price equal to or greater than the Placing Price.

Future issues or sales of Ordinary Shares could adversely affect the Company's share price and dilute Shareholders

The Company may issue additional shares in the future, which may adversely affect the market price of the outstanding Ordinary Shares and may result in the dilution of Shareholders' interests in the Company's shares. The Company has no current plans for a subsequent offering of its shares or of rights or invitations to subscribe for shares. Significant sales of shares by major Shareholders or the public perception that an offering may occur, could also have an adverse effect on the market price of the Company's outstanding Ordinary Shares.

Suitability of the New Ordinary Shares as an investment

The New Ordinary Shares may not be a suitable investment for all the recipients of this document. Before making a final decision, Shareholders and other prospective investors are advised to consult an appropriate independent financial adviser under the FSMA if such Shareholder or other prospective investor is resident in the UK or, if not, from another appropriately authorised independent financial adviser who specialises in advising on acquisitions of shares and other securities.

In the event of a winding-up of the Company, the New Ordinary Shares will rank behind any liabilities of the Company and therefore any return for Shareholders will depend on the Company's assets being sufficient to meet the prior entitlements of creditors.

If securities or industry analysts do not publish research or reports about Vectura's business, or if they change their recommendations regarding the Company's shares adversely, the price and/or trading volume of the shares could decline.

The trading market for the Company's shares may be influenced by the research and reports that industry or securities analysts publish about Vectura or Vectura's business. Currently there are several institutions which publish research reports on the Company. If one or more of the analysts who cover Vectura or Vectura's industry downgrade the shares, the market price of the shares could decline. If one or more of these analysts ceases coverage of Vectura or fails to regularly publish reports on Vectura, the Company could lose visibility in the financial markets, which could cause the market price and/or trading volume of the shares to decline.

Investors outside the United Kingdom are subject to exchange rate risk

The New Ordinary Shares are priced in pounds sterling and the Company's Ordinary Shares are quoted and traded in pounds sterling. Accordingly, any investors outside the United Kingdom are subject to adverse movements in pounds sterling against their local currency, which may reduce the value of the New Ordinary Shares, as well as any dividends paid in pounds sterling in relation to shares.