Preliminary Results

Vectura Group plc - Preliminary Results

Transformational Year - Maiden Profit

Chippenham, UK - 20 May 2015: Vectura Group plc (LSE: VEC) ("Vectura"), which specialises in the development of products for the treatment of airways-related diseases, announces today its preliminary results for the year ended 31 March 2015.

Financial Highlights

Transformational year for Vectura

· Maiden profit after tax of £3.7m

· Revenues up 59% to £58.0m (2013/14: £36.5m) from increased royalties and milestone payments

· EBITDA1 up 212% to £16.2m (2013/14: £5.2m)

· Basic EPS of 0.9p (2013/14: 0.7p loss)

Operational Highlights

Partnered Products

· Ultibro® Breezhaler®(indacaterol/glycopyrronium bromide, QVA149) achieved total net sales of $156m within our financial year (Q2, Q3, Q4 2014 and Q1 2015; as reported by Novartis) generating increased royalty income for Vectura

o The product has been launched in 21 countries (including Germany, Japan and Canada)

o The product is approved for use in over 60 countries including countries within the EU, Japan, Latin America, Canada, Switzerland and Australia

· QVA149 US FDA filing acceptance triggered a milestone payment to Vectura of $12.5m

o Novartis expects US Food and Drug Administration ("FDA") action by Q4 2015

o Launch of QVA149 in the US is anticipated to generate additional royalty income for Vectura

· Seebri® Breezhaler® (glycopyrronium bromide, NVA237) achieved total net sales of $153m within our financial year (Q2, Q3, Q4 2014 and Q1 2015; as reported by Novartis) generating increased royalty income for Vectura

o The product is approved for use in over 80 countries including countries within the EU, Japan, Latin America, Canada, Switzerland and Australia

· NVA237 US FDA filing acceptance triggered a milestone payment to Vectura of $7.5m

o Novartis expects US FDA action by Q4 2015

o Launch of NVA237 in the US is anticipated to generate additional royalty income for Vectura

· US launch of Anoro® Ellipta®(umeclidinium/vilanterol) by GSK for the once-daily, long-term maintenance treatment of airflow obstruction in patients with chronic obstructive pulmonary disease (COPD) triggered a £2m milestone to Vectura

· AirFluSal® Forspiro® (salmeterol/fluticasone) has been launched in 12 European countries, and also in South Korea and Mexico. It has been approved in approximately 30 countries

o Receipt of the Czech Republic and Portuguese marketing authorisation by Sandoz triggered milestone payments to Vectura of €1.5m each

1 Earnings before investment income, finance (costs) / gains, tax, depreciation, amortisation, share-based compensation and adjusted for non-recurring expenditure items

Pipeline

VR315 for the treatment of asthma and COPD

· Vectura received two additional milestones, each of $1.5m, as a result of further progress with VR315 in the US

VR506 (inhaled corticosteroid) for the treatment of asthma

· Licence agreement signed in the US with Vectura's established US partner for VR315

o Important step in the development of VR506 for the US market

o Extends the successful collaboration with our US partner

VR475 EU (FAVOLIR®)

· A clinical study design has been agreed with the CHMP and clinical trial activities will start imminently, with filing anticipated in mid-2018

· Refocused to target a broader patient population

· Phase IIb/III trial results published

VR475 US (FAVOLIR®)

· Following the revised development strategy for FAVOLIR® in the EU, a similar approach will be sought for the US once the European Phase III study completes. At that time the Company will seek endorsement of this approach with the US FDA

o Creates an affordable development programme that builds off the positive clinical momentum created in the EU from the conduct of the current study

o Targets an increased market opportunity

· Approach is aligned with our strategic desire to optimise return on R&D investment over the near term

VR647 (SCIPE)

· Pre-IND meeting scheduled in June 2015 to agree the US regulatory strategy

· Objective is to retain current label/indication of budesonide, with an additional claim for reduced dosing time

· Continuing to evaluate incoming licensing opportunities to further expedite value return

VR611 (TRPV1 receptor modulator)

· Further development has been stopped

Assets acquired following the purchase of Activaero GmbH are now integrated into development plans

· Important assets for ongoing partnered programmes

· Post period: the Gemünden site will be closed by March 2016 and device manufacturing will be relocated to other facilities

Final Chinese Government approval of Kinnovata anticipated in Financial Year 2015/16, upon which an exceptional non-cash gain will be recognised

· Currently in process of transferring all critical intellectual property and trademarks pertaining to the licensed technology to the new joint venture

· Building work has commenced on the new, purpose-built, manufacturing facility for the products that are currently in development

Corporate Development

· Entered into a global development and licence agreement with Janssen Biotech, Inc. for the exclusive development of novel anti-inflammatory therapies for the treatment of asthma/COPD

· Enlarged technology platform now attracting significant deal interest

Post-period Event

· FDA approval of RAPLIXA™ triggered a milestone payment of approximately $3.5m from Vectura's licensee, The Medicines Company

Corporate Governance

· Changes to the Board:

o Andrew J. Oakley was appointed Chief Financial Officer and Company Secretary in January 2015, succeeding Paul Oliver

o Dr Per-Olof Andersson was appointed a Non-Executive Director of the Board in April 2015 (post period)

o Dr Chris Blackwell announced his intention to step down as Chief Executive at the end of June 2015

o The search for a new CEO is underway and is making good progress

o Dr Trevor Phillips will be appointed as Interim CEO on 1 July 2015 in the event that a new CEO is not in place by this time

Dr Chris Blackwell, Chief Executive:

"Vectura made significant progress in the last 12 months. Our partnered assets have started to generate meaningful royalties that, together with important development and regulatory milestones, helped Vectura achieve a maiden profit. We now benefit from some significant brands building value: Ultibro® Breezhaler®, Seebri® Breezhaler®, Relvar®/Breo® Ellipta®, Anoro® Ellipta® and AirFluSal® Forspiro®. We have other value opportunities in development with partners and in our own portfolio. Our ability to attract additional business development and partnership interest has been enhanced by the range of exciting technologies acquired with Activaero. We remain committed to a strategy of growth and becoming a specialty pharmaceutical company focused on airways-related diseases that creates both near and longer-term value for our shareholders."

- Ends -

Chris Blackwell, Chief Executive and Andrew J Oakley, Chief Financial Officer, will host an analyst briefing today at 9.30am BST at the offices of Citigate Dewe Rogerson, 3 London Wall Buildings, London Wall, London, EC2M 5SY. A live webcast of the meeting, with the presentation slides, will be available on Vectura's website: http://www.vectura.com/investors/reports-presentations/2015.aspx. For further details please contact Malcolm Robertson at Citigate Dewe Rogerson on 0207 282 2867 or by email: [email protected]. 

Enquiries

About Vectura

Vectura is a product development company that focuses on the development of pharmaceutical therapies for the treatment of airways-related diseases (airways diseases). This growing market includes asthma and chronic obstructive pulmonary disease (COPD) and is estimated to be worth $44 billion worldwide.2

Vectura now has eight products marketed by partners with growing global royalty streams and a portfolio of drugs in clinical development, a number of which have been licensed to major pharmaceutical companies. Vectura currently has disclosed development collaborations and licence agreements with several global pharmaceutical and biotechnology companies, including Novartis, Sandoz, Baxter, GlaxoSmithKline, UCB, Ablynx, Grifols, Janssen Biotech and Tianjin KingYork Group Company.

Vectura develops products for airways diseases and owns formulation and inhalation technologies that are available to other pharmaceutical companies on an out-licensing basis where this complements Vectura's business strategy.

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

2 Decision Resources 2014

Forward-looking statements

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

Transformational Year - Maiden Profit

Operating Review

Partnered Products

· Ultibro® Breezhaler®(indacaterol/glycopyrronium bromide, QVA149) for the treatment of chronic obstructive pulmonary disease (COPD), achieved total net sales of $156m within our financial year (Q2, Q3, Q4 2014 and Q1 2015; as reported by Novartis) generating additional royalty income for Vectura

o Launched in 21 countries (including Germany, Japan and Canada)

o The product is approved for use in over 60 countries, including countries within the EU, Japan, Latin America, Canada, Switzerland and Australia

· QVA149 US FDA filing acceptance triggered a milestone payment to Vectura of $12.5m

o Novartis expects US FDA action by Q4 2015

o Launch of QVA149 in the US is anticipated to generate additional milestone and royalty income for Vectura

· Seebri® Breezhaler® (glycopyrronium bromide, NVA237) for the treatment of COPD, achieved total net sales of $153m within our financial year (Q2, Q3, Q4 2014 and Q1 2015; as reported by Novartis) generating additional royalty income for Vectura

o The product is approved for use in over 80 countries including countries within the EU, Japan, Latin America, Canada, Switzerland and Australia

· NVA237 US FDA filing acceptance triggered a milestone payment to Vectura of $7.5m

o Novartis expects US FDA action by Q4 2015

o Launch of NVA237 in the US is anticipated to generate additional milestone and royalty income for Vectura

· US launch of Anoro® Ellipta®(umeclidinium/vilanterol) by GSK for the once-daily, long-term maintenance treatment of airflow obstruction in patients with chronic obstructive pulmonary disease (COPD) triggered a £2m milestone to Vectura

· AirFluSal® Forspiro® (salmeterol/fluticasone) for the treatment of asthma, which was first approved in Denmark, has now been launched in 12 European countries, and also in South Korea and Mexico. It has been approved in approximately 30 countries and our collaboration partner, Sandoz, confirmed that "the planned global roll-out continues apace on a market-by-market basis, in line with local regulatory requirements".

o Receipt of the Czech Republic and Portugese marketing authorisation by Sandoz triggered milestone payments to Vectura of €1.5m each

Pipeline

Portfolio review complete - details announced at our Interim results in November 2014

· Prioritised our portfolio and aligned our resources to ensure our investment in R&D is measured, controlled, realises value near-term and is supportive of our strategy

· Near-term priorities are to:

o Accelerate the overall value of our existing pipeline

o Demonstrate value realisation in our pipeline within the strategic period through to 2021

VR315, a combination therapy for asthma and COPD, delivered using Vectura's proprietary technology

· During 2014/15, Vectura received two additional development milestones, each of $1.5m, from its US partner as a result of further progress with VR315 in the US

· In August 2011, Vectura signed a licence agreement with a US division of a leading international pharmaceutical company for the development, manufacturing and commercialisation of VR315 in the US. To date, Vectura has announced development milestones under this agreement totalling $9.0m

· Vectura will receive a further $26m upon achievement of future predetermined development milestones. These milestones, together with the initial payment of $10m in August 2011, total $45m

· Vectura will receive a royalty from all net sales of VR315 in the US

VR506 (inhaled corticosteroid) for the treatment of asthma

· Licence agreement signed in the US with Vectura's established US partner for VR315

o Important step in the development of VR506 for the US market

o Extends the successful collaboration with our US partner

· Under the terms of this agreement, Vectura's partner is responsible for manufacture, clinical development and commercialisation

· Vectura has received an initial payment of $4m and will receive up to $8m upon achievement of predetermined milestones

· Vectura will receive a royalty from net sales of VR506 US

VR475 EU (FAVOLIR®)

· Initiation of clinical trial activities to start imminently, driving an anticipated MAA submission in mid-2018

· Refocused to target the broader patient population of Step 4 and 5 GINA patients, as an effective, inhaled treatment option to reduce exacerbations which increases the market opportunity

· Phase IIb/III trial results published3, investigating the efficacy, safety and tolerability of VR475 in the treatment of oral corticosteroid (OCS)-dependent (GINA Step 5) asthma patients

VR475 US (FAVOLIR®)

· Following the revised development strategy for FAVOLIR® in the EU, a similar approach will be sought for the US once the European Phase III study completes. At that time the Company will seek endorsement of this approach with the US FDA

o Creates an affordable development programme that builds off the positive clinical momentum created in the EU from the conduct of the current study

o Targets an increased market opportunity

· Approach is aligned with our strategic desire to optimise return on R&D investment over the near term

VR647 (SCIPE)

· Budesonide is the only nebulised ICS approved in the US

· Paediatric label only; age range 1-8 years

· Indicated for the maintenance treatment of asthma

· Objective is to retain current label/indication for budesonide, with an additional claim for reduced dosing time

· Pre-IND scheduled in June 2015 to agree the US regulatory strategy proposing abbreviated 505(b)(2) programme

· Continuing to evaluate licensing opportunities to further expedite value return

VR611 (TRPV1 receptor modulator)

· Further development and investment in this asset has been stopped following pre-clinical investigation

· A study to determine the suitability of VR611 for delivery via inhalation demonstrated suitability for inhaled delivery via prolonged (24 hours) and significantly greater VR611 lung tissue levels compared with blood levels

· A second study, designed to evaluate anti-tussive activity at two doses of VR611, did not show anti-tussive activity with either dose

Corporate Development

· Entered into a global development and licence agreement with Janssen Biotech Inc., for the exclusive development of novel anti-inflammatory therapies for the treatment of asthma/COPD

o Deal will leverage Vectura's expertise and proprietary dry powder inhaler technologies for the development of inhaled therapeutics. Vectura will apply its delivery technologies to develop Janssen's pulmonary products into late-stage clinical development and commercialisation

o Initial focus is on the development of a Phase II candidate with the possibility to include additional clinical-stage candidates. Janssen will lead the clinical development programmes, with Vectura taking responsibility for pharmaceutical development and manufacturing to support Phase II clinical trials and beyond

o Deal comprises upfront and development milestone payments, with a tiered royalty on net sales. Financial terms of this agreement have not been disclosed publicly

3 Eur Respir J. 2015 May;45(5):1273-82 / ERJ Express. E-pub reference; doi: 10.1183/09031936.00152014

Post-period events

In April, the Company announced that all activities from its Gemünden site are being transferred to the remaining three Vectura facilities. The Company plans to close the site in March 2016. The Gemünden site was acquired by Vectura as part of the acquisition of Activaero GmbH in March 2014. The facility is currently involved in the production of the Company's nebuliser devices, supporting clinical trials and marketing of the devices. In order to improve manufacturing efficiencies, all activities currently carried out in Gemünden will be transferred to Vectura's facilities in Gauting, Germany, Chippenham, UK, and Cambridge, UK. Vectura intends to use a contract manufacturing organisation for any commercial production of its nebuliser devices.

The Medicines Company (NASDAQ:MDCO) announced that the US FDA approved RAPLIXA™ triggering a milestone payment of approximately $3.5m to Vectura as part of the consideration related to the acquisition by The Medicines Company of ProFibrix B.V. in 2013. In addition, Vectura will receive a single digit royalty on the sales of RAPLIXA™ as well as potential milestone payments based on the sales of the product in the US and Europe.

The patents licensed by Vectura to ProFibrix B.V. in relation to RAPLIXA™ (previously known as FibrocapsTM) were acquired by Vectura as part of its acquisition of Innovata plc.

Delivering our strategy

Vectura's goal is to be become a leading specialty pharmaceutical company focused on airways-related diseases.

Our revenue continues to grow, driven by increasing royalty income as our partnered products continue their global roll-out, and we are very proud that we have reported a maiden profit for this year. Our business focus continues to optimise return on investment in our development pipeline.

At our Interim results in November 2014, we announced we had evaluated the strategic perspectives of our business through a thorough evaluation of our development portfolio, maintaining alignment with the evolution of our business model. This resulted in a prioritisation of our R&D expenditure, with an emphasis on attaining value inflection points within our strategic period through to 2021.

Vectura has become an established expert and 'partner of choice' in the development of products for airways diseases. This can be seen from the products that have already been brought to market by our partners and the development and partnering deals that we have announced over the last 12 months. Leveraging value from the Company's technologies, via our own projects and with partners, is critical for Vectura to deliver its strategic goal.

Organisational Change

Vectura announced two important changes to the Executive Board during the period.

Andrew J Oakley was appointed to the Executive Board as Chief Financial Officer and Company Secretary, replacing Paul Oliver. Andrew brings a wealth of experience to the Group. The Board would like to thank Paul for his eight years' service with Vectura and they wish him well for the future.

After twelve years of dedicated service to Vectura, Dr Chris Blackwell, Chief Executive, announced his intention to step down from this position. Chris will leave the Group at the end of June 2015. The Chairman and the rest of the Board would like to thank Chris for the dedication he has given to the Group and for the value he has created for its shareholders, over many years. Chris leaves the Group in a very strong position, with an experienced senior management team in place. The Company has engaged an external search firm to assist it to evaluate both internal and external candidates and the comprehensive search, is making good progress. The Company hopes to be in a position to bring this to a successful conclusion in the near future. In order to ensure continuity of leadership, Dr Trevor Phillips, currently the Group's Chief Operations Officer, will assume the role of Interim CEO on 1 July 2015 in the event that a new CEO is not in place by this time.

In addition to the changes to the Executive Directors, the following changes were also announced:

On 1 April 2015, post period, Dr Per-Olof Andersson was appointed as a Non-Executive Director.

We also welcomed Joanne Hombal, who joined as Director of Human Resources and a member of the Executive Management Team.

The acquisition of Activaero GmbH provided Vectura with people and technologies that will help shape the future of Vectura. Our sincere gratitude goes to Gerhard Scheuch, who will leave Vectura on 31 July 2015, leaving behind a positive legacy upon which the Company can build.

Our people

We are very proud of the quality and dedication of our people. We would like to take this opportunity to express our gratitude to all employees of the Group, past and present, for their commitment and hard work.

Financial Review

Financial Highlights

FY 14/15 has been a transformational year for Vectura. We are pleased to report a 59% increase in revenues to £58.0m, driven by significant organic growth in royalty streams derived from recently launched products, augmented by significant development milestones in respect of partnered programmes.

Revenue growth of £21.5m and an increase of £10.5m in operating expenditures as we continue to invest in growth, translates to an £11.0m increase in EBITDA1 to £16.2m. Research and development expenditure for the financial year was below our guidance range as the result of the timing of certain expenditure commitments relative to our financial year end. The phasing of this spend will consequently impact our research and development investment for FY 15/16 and, as a result, we anticipate that research and development expenditure for the forthcoming year will be at the higher end of our stated guidance range.

Revenue

Vectura categorises revenues into five streams: royalties, product licensing, technology licensing, development services and device sales. In FY 14/15, we have seen revenue growth across the board in each of our revenue streams.

Royalties

Royalty revenue of £25.2m has increased by 55% year-on-year; this increase has been driven by a sustained increase in underlying sales of recently launched products.

Net sales of Seebri® Breezhaler®, as reported by Novartis, have grown by 87% to $153m for the twelve-month period ended 31 March 2015. For Ultibro® Breezhaler®, which was launched in calendar Q4 2013, Novartis reported net sales of $156m for the financial year under review. In light of the strong growth in net sales, royalty income received from Novartis for these two products has increased to £8.5m during the year (2013/14: £2.7m).

In addition, we benefited from a full year of royalty revenue from GlaxoSmithKline (GSK) for sales of Relvar®/Breo® Ellipta® and Anoro® Ellipta®, and we received our first royalties on sales of Incruse® Ellipta®. GSK reported net sales of £135m for sales of these three products, upon which Vectura earned a royalty of £3.8m (2013/14: £0.3m). Under the terms of our agreement with GSK, the maximum annual royalties payable to Vectura for sales of these products are £13m.

Other royalty revenue is mainly derived from the two products licensed to Baxter. Underlying sales of Advate® have continued to advance by 6% during the year under review on a constant currency basis and accordingly royalty revenue earned from Baxter from sales of Advate® has increased to £11.8m. Adept® contributed royalty revenues of £0.4m during the year.

Product Licensing

Product licensing of £19.8m has increased by 49% year-on-year. FY 14/15 has been a year of excellent progress across new and existing partnerships, marked by a number of milestone events which are linked to significant revenue streams to Vectura over the coming years.

Technology Licensing

Technology licensing revenues of £6.6m (2013/14: £4.3m) primarily relates to two significant milestones achieved during the year; £3.3m ($5m) relates to an upfront milestone recognised upon entering into a global development and licensing agreement with Janssen Biotech, Inc. for the exclusive development of novel anti-inflammatory therapies for the treatment of asthma/COPD and £2.0m relates to the final milestone defined in a non-exclusive licence with GSK. As explained in the royalties section of this report, Vectura now earns royalties on the commercial sale of Relvar®/Breo® Ellipta®, Anoro® Ellipta®, and Incruse® Ellipta®.

Development Services

Development service revenues of £3.9m were recognised during FY 14/15. This increase is the result of higher demand for these specialist services from Vectura's existing partners as well as a positive contribution from new partnerships and those partnerships acquired as part of the Activaero acquisition.

Device Sales

Device sales of £2.5m have increased significantly compared to the prior year (2013/14: £0.9m) due the launch of AirFluSal® Forspiro®, which uses Vectura's GyroHaler® device, in a number of European and Rest of the World territories.

Research and Development Expenses

Total investment in research and development (R&D) was £36.1m, representing a 29% increase on the previous year (2013/14: £28m).

During the year, we completed a portfolio review which has allowed us to prioritise our portfolio and align our resources to ensure that our investment in R&D is measured, controlled and supportive of our strategic objectives. Accordingly, we have begun to exploit two of our newly acquired assets namely VR475 EU and VR876 and total external expenditure on these programmes was £5.2m during the year. We have continued to develop VR942 in collaboration with our partner UCB and external expenditure on this programme has increased compared to the prior year. These increases were partially offset by a decrease in external project spend associated with VR315 in the US as we have now effectively come to the conclusion of our commitments on this project.

R&D spend in FY 14/15 was lower than our guidance due to the timing of certain expenditure commitments relative to our year end. We remain committed to managing our research and development within a predefined range and we anticipate that our R&D expenditure will be at the higher end of this range in the forthcoming year, as we undertake clinical activities in respect of VR475 EU. Furthermore, during FY 15/16, we will incur non-recurring expenditure as we transfer activities from our Gemnden site to our other sites in the UK and Germany. Overall the closure of the site will result in cost savings, as from FY 16/17, in both R&D expenditure and other administrative expenses.

Other Administrative Expenses

Other administrative expenses have increased from £3.4m to £4.5m, with the majority of this increase attributed to the acquisition of Activaero.

Taxation

The total taxation credit of £9.9m comprises R&D tax credits of £3.1m and non-cash taxation credits of £6.8m relating to movement in deferred taxation liabilities and assets within the Group.

Goodwill

As outlined in the FY 13/14 annual report, given the proximity of the Activaero acquisition to Vectura's year end, the acquisition accounting reported as at 31 March 2014 was deemed to be provisional. In accordance with IFRS 3 - Business Combinations, the fair values assigned to the identifiable assets, liabilities and contingent liabilities have been revised in the period to 18 March 2015 to reflect new information about facts and circumstances that existed as of the acquisition date.

During the year, an additional payment of €0.6m was made to the former shareholders of Activaero during FY 14/15. This additional payment was in consideration for working capital items that were acquired during the acquisition. Accordingly, the goodwill associated with the acquisition has increased from €9.3m to €9.9m. In accordance with IFRS 3 "Business Combinations", the revised amounts have been recognised as though they were the amounts known at the acquisition date and so comparative information for the prior year has been restated. The acquisition accounting is now considered to be final.

With the exception of the deferred consideration payment to be made in August 2015, which was reflected in the provisional acquisition accounting, no additional payments are to be made in respect of this acquisition.

Intangible Assets

Intangible assets of £104.3m include assets of £5.1m relating to the Innovata acquisition and assets of £99.2m relating to the Activaero acquisition.

The intangible assets of £5.1m (2014: £10.7m) associated with the Innovata acquisition have been amortised by £5.6m (2013/14: £6.4m) during the year. These assets will be fully written down over the forthcoming year.

The carrying value of the intangible assets associated with the acquisition of Activaero is £99.2m (2014: £128.2m), at the prevailing exchange rate at the balance sheet date. The assets will continue to be amortised over their remaining useful life.

Translation Reserve

The assets and liabilities, including goodwill, acquired from Activaero are denominated in Euros and therefore, in accordance with accounting standards, the Group has recognised a net foreign exchange difference of £11.4m within reserves as a result of the movement in the exchange rate between 31 March 2014 and 31 March 2015. In future periods, the movement in this reserve will be dependent upon the £/€ exchange rate at the relevant balance sheet dates.

Property, Plant and Equipment

Vectura has invested £1.4m in its inhaled product manufacturing capabilities during the year (2014: £2.5m). Capital investment is expected to increase in FY 15/16 as we transfer manufacturing activities previously performed at our Gemünden site to our other sites in Germany and the UK.

Deferred Income

Deferred income relates to milestones received in cash but not yet recognised as revenue. Of the £1.7m on the balance sheet at 31 March 2015 (2014: £1.8m), £0.2m will be recognised as revenue in 2015/16 and £1.5m, which relates to the VR315 (AirFluSal® Forspiro®) RoW deal with Sandoz, will be recognised as revenue in later periods.

Deferred Consideration

The deferred consideration of £25.6m relates to the €35m payment in cash which is due to be paid to the former Activaero shareholders in August 2015 as part of the acquisition consideration.

Foreign Exchange Rates

The following foreign exchange rates were used during the year:

Cash Flow

Vectura continues to maintain a strong cash position with cash and cash equivalents at 31 March 2015 of £90.0m (2014: £81.7m). Vectura achieved a net cash inflow of £8.0m from operating activities (2014: £0.7m outflow), which is reflective of growing and sustainable cash receipts from royalty revenue and a focus on cost control throughout the business. The negative movement in trade and other receivables is largely due to the timing of the $20m in milestones earned from Novartis following FDA acceptance of the NDA filings for QVA129 and NVA237 in the US. This amount has now been received during FY 15/16.

By order of the Board,

Andrew J Oakley

Director

19 May 2015

Consolidated income statement

for the year ended 31 March 2015

(1) Restated to reflect the final allocation of the cost of the acquisition of Activaero GmbH (see note 12)

(2) Earnings before investment income, finance gains/(costs), tax, depreciation, amortisation, share-based compensation, adjusted for non-recurring items.

All results are derived from continuing activities.

Consolidated statement of comprehensive income

for the year ended 31 March 2015

(1) Restated to reflect the final allocation of the cost of the acquisition of Activaero GmbH (see note 12)

Consolidated Balance sheetat 31 March 2015

(1) Restated to reflect the final allocation of the cost of the acquisition of Activaero GmbH (see note 12)

Consolidated Cash flow statementfor the year ended 31 March 2015

(1) Restated to reflect the final allocation of the cost of the acquisition of Activaero GmbH (see note 12)

Consolidated Statement of changes in equityfor the year ended 31 March 2015

(1) Restated to reflect the final allocation of the cost of the acquisition of Activaero GmbH (see note 12)

Notes to the financial statements for the year ended 31 March 2015

1. Basis of preparation

The financial information included in this statement does not constitute statutory accounts as defined in sections 434 to 436 of the Companies Act 2006. The financial information has been extracted without material adjustment from the consolidated financial statements of Vectura Group plc for the year ended 31 March 2015, which have been audited. The auditor has made reports in respect of the statutory consolidated accounts for the years ended 31 March 2015 and 31 March 2014. Their reports were (i) unqualified, (ii) did not include reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under sections 498(2) or 498(3) of the Companies Act 2006.

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

Statutory accounts for the financial year ended 31 March 2014 have been delivered to the Registrar of Companies, whereas those for the year ended 31 March 2015 will be delivered following the Annual General Meeting.

The Group's Annual Report and Accounts will be sent to shareholders in July 2015 and will be available on our website www.vectura.com.

Risks and uncertainties

The key business risks facing Vectura on a stand-alone basis are consistent with those set out in the Annual Report and Accounts for the year ended 31 March 2014 and those to be included in the Annual Report and Accounts for the year ended 31 March 2015. There are a number of potential risks and uncertainties that could have a material impact on the Group's performance over the forthcoming financial year and could cause actual results to differ materially from expected and historical results. Particular risks include industry risk, clinical and regulatory risk, counterparty risk, competition and intellectual property risk, economic risk and financial risk (cash flow, credit, liquidity and price risks). The Board has policies in place to mitigate these risks and uncertainties.

Going concern

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

The Group made a profit after tax of £3.7m for the financial year ended 31 March 2015 (2013/14: £2.3m loss after tax) and had £90.0m of cash and cash equivalents as at 31 March 2015 (2014: £81.7m). The Board operates an investment policy under which the primary objective is to invest in low-risk cash or cash equivalent investments to safeguard the principal. The Group's forecasts, taking into account likely revenue streams, show that the Group has sufficient funds to operate for the foreseeable future.

After reviewing the Group's forecasts and assessing the uncertain nature of some of the Group's forecast revenues, the Directors believe that the Group is adequately placed to manage its business and financing risks successfully. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts. 

2. Accounting policies

The financial information has been prepared in accordance with accounting policies as set out in the previous financial statements and those signed today for the year ended 31 March 2015. The policies have been consistently applied to all periods presented. Full details of the Group's accounting policies can be found in the 2013/14 Annual Report, which is available on our website www.vectura.com.

3. Revenue

Revenue represents amounts invoiced to third parties, derived from the provision of licences and services that fall within the Group's sole principal activity, the research, development and commercialisation of novel therapeutic products and drug delivery systems for human use.

4. Investment income and finance gains/(costs)

5. Taxation

The major components of the income tax credit for the years ended 31 March 2015 and 31 March 2014 were as follows:

(1) Restated to reflect the final allocation of the cost of the acquisition of Activaero GmbH (see note 12)

6. Earnings per ordinary share

The calculation of earnings/(loss) per share is based on the following data:

(1) Restated to reflect the final allocation of the cost of the acquisition of Activaero GmbH (see note 12)

7. Trade and other receivables

 (1) Includes research and development tax credits of £2.8m (2014: £3.3m).

The Directors consider that the carrying value of trade and other receivables approximates to their fair value.

8. Trade and other payables

(1) Restated to reflect the final allocation of the cost of the acquisition of Activaero GmbH (see note 12)

The Directors consider that the carrying value of trade and other payables approximates to their fair value.  

9. Deferred income

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

10. Equity

Share capital

Between 1 April 2014 and 31 March 2015 the Company did not issue any ordinary shares to the Vectura Group plc Employee Benefit Trust (2013/14: nil).

Between 1 April 2014 and 31 March 2015 the Company issued 3,062,229 (2013/14: 5,173,784) ordinary shares of 0.025p each on the exercise of employee share options at a weighted average exercise price of 56.38p per share (2013/14: 61.19p).

Between 1 April 2014 and 31 March 2015 the Company issued 180,691 (2013/14: 171,736) ordinary shares of 0.025p each on the exercise of Sharesave options at a weighted average exercise price of 64.25p (2013/14: 55.5p) per share.

Between 1 April 2014 and 31 March 2015 the Company issued 561,253 (2013/14: 646,484) ordinary shares of 0.025p each on the exercise of LTIP nil-cost options.

During 2013/14, the Company placed 33,565,280 new shares at a price of £1.55 per share and the Company issued 25,641,398 to the shareholders of Activaero GmbH as part of the purchase consideration for 100% of its ordinary share capital. The ordinary shares issued have the same rights as the other shares in issue. The fair value of the shares issued amounted to £41.3m (£1.609 per share). 

11. Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. There has been no material change in the type of related party transactions described in the last Annual Report and Accounts.

12. Business combinations

On 18 March 2014, the Group acquired 100% of the issued share capital and obtained control of Activaero GmbH ("Activaero"), a company focused on the development of products for the treatment of respiratory diseases.

In accordance with IFRS 3 - Business Combinations, the fair values assigned to the identifiable assets, liabilities and contingent liabilities acquired with the Activaero business on 18 March 2014 were determined provisionally on that date and these provisional estimates have been revised in the period to 18 March 2015 to reflect new information about facts and circumstances that existed as of the acquisition date. The revised amounts have been recognised as though they were the amounts known at the acquisition date and so comparative information for the prior year has been restated.

During the year, an additional payment of €0.6m was made in respect of working capital items that were acquired during the acquisition. Accordingly, the goodwill associated with the transaction has increased from €9.3m to €9.9m.

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

The transaction contains certain translations of euros into amounts in pounds sterling based on the exchange rate of £1.00 = €1.1913, being the published exchange rate by the Financial Times at the close of business on 18 March 2014, the date of acquisition.

12. Business combinations(continued)

Satisfied by:

The initial cash payment of €45m (£37.8m) and equity component of the consideration were payable upon legal completion of the acquisition. During the year, an additional payment of €0.6m (£0.5m) was made to reflect working capital items acquired.

The final element of consideration, being the deferred consideration of €35m, is payable in August 2015. The deferred cash consideration is non-contingent. The total liability has been translated into sterling at the prevailing £/€ exchange rate on the balance sheet date and is shown as a current liability on the balance sheet as 31 March 2015.

Directors' responsibility statement

The Directors' responsibility statement below has been prepared in connection with the Company's full Annual Report for the year ended 31 March 2015. Certain parts thereof are not included within this announcement: We confirm that to the best of our knowledge:

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

· the strategic report includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties which they face; and,

· the annual report and financial statements, taken as whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the company's performance, business model and strategy.

By order of the Board,

Andrew J Oakley

Director

19 May 2015