TIDMCIR
RNS Number : 1864D
Circassia Pharmaceuticals Plc
25 April 2017
CIRCASSIA PHARMACEUTICALS PLC
PRELIMINARY RESULTS FOR THE YEARED 31 DECEMBER 2016
Transformational transaction with AstraZeneca for US commercial
rights to two COPD products
Leverages commercial infrastructure established as key growth
platform
Robust NIOX(R) sales growth
Broad respiratory pipeline progressing
Allergy investment halted following additional disappointing
study results
Oxford, UK - 25 April 2017: Circassia Pharmaceuticals plc
("Circassia" or "the Company") (LSE: CIR), a specialty
pharmaceutical company focused on respiratory disease, today
announces its preliminary results for the year ended 31 December
2016 and a post-period update.
Transformational transaction with AstraZeneca (AZ) announced
post-period
-- Collaboration to commercialise COPD product Tudorza(R) in US (AZ 2016 revenues $80 million)
-- Secures US commercial rights to phase III product Duaklir(R)(1) with filing planned H1 2018
-- Collaboration to fund immediate doubling of Circassia's US sales force plus R&D contributions
-- $50 million of shares issued to AZ
-- Third-party debt to fund further consideration of up to $180 million
Commercial platform expanded as strategic asset
-- US sales force expanded to approximately 100 in 2016; further
expansion to 200 under AZ collaboration
-- US key accounts and managed markets teams established
-- UK direct sales force launched
-- German and Chinese commercial teams strengthened
-- Appointing new specialist distributors in France and Italy
NIOX(R) performing strongly
-- Sales increased 23% (10% at CER(2) ) to GBP23.1 million (2015
CER(2) : GBP21.0 million of which GBP9.5 million under previous
ownership)
-- Direct clinical sales (ie non-research(3) ) increased 35% (21% CER(2) ) compared with 2015
-- Rapid US clinical revenue growth following sales force
expansion; 57% increase in Q1 2017 vs Q1 2016
-- Reimbursement established with a number of additional health systems in US
-- US label extension to include four, five and six year olds filed
-- Successful primary ciliary dyskinesia diagnosis study; EU certification update initiated
Respiratory portfolio progressing
-- Fliveo(R) (Flixotide(R) pMDI substitute) EU rights discussions initiated H2 2016
-- Seriveo(R) (Seretide(R) pMDI substitute) filing targeted H1 2019
-- Spiriva(R) DPI substitute pharmacokinetic study planned H1 2018
-- Two COPD formulations in development; LABA / LAMA on track to enter clinic 2018
Allergy investment curtailed
-- House dust mite allergy phase IIb study did not meet primary endpoint
-- Investment in allergy portfolio halted
Cost containment ongoing
-- Facilities consolidated in US, Sweden and UK; Chicago and Solna closed with Oxford reduced
-- Positions reduced in R&D and G&A
Financial highlights
-- Revenues increased to GBP23.1 million (2015: GBP10.8 million)
-- R&D investment GBP46.2 million (2015: GBP46.8 million)
including allergy expenditure of GBP21.5 million
-- Underlying loss for year GBP57.4 million (2015: GBP50.0
million); total loss GBP137.4 million (2015: GBP50.0 million)
-- Allergy portfolio provisions, restructuring costs and
impairments GBP80.0 million(4) (2015: GBPnil)
-- Strong balance sheet with GBP117.4 million cash(5) at 31
December 2016 (31 December 2015: GBP203.8 million with GBP33.2
million relating to 2015 acquisitions paid during 2016)
Steve Harris, Circassia's Chief Executive, said: "Following the
receipt of disappointing phase III allergy results in June last
year, we worked hard to strengthen our commercial platform and
respiratory portfolio. We have substantially increased sales of our
market-leading NIOX(R) asthma management products and recently
completed a transformational transaction with AstraZeneca to
commercialise the COPD products Tudorza(R) and Duaklir(R) in the
United States. We also broadened our respiratory pipeline, adding
three earlier-stage COPD products. In addition, we maintained a
resolute focus on costs, while continuing to invest in our
commercial infrastructure as a strategic growth platform. Following
disappointing results from our house dust mite allergy field study,
we have taken the difficult decision to curtail investment in our
allergy programmes."
"With these significant developments now behind us, we look
forward to the coming year with optimism. We have built a strategic
asset in our direct specialty sales infrastructure, which we plan
to strengthen further as we accelerate our commercial collaboration
with AstraZeneca. We also intend to advance our other respiratory
products, as well as pursuing additional in-licensing and
acquisition opportunities to expand our commercial portfolio. As a
result, we are increasingly well positioned to achieve our ambition
of becoming a world-class, self-sustaining specialty pharmaceutical
business."
Analyst meeting and webcast
An analyst meeting will take place today at 9.30am at FTI
Consulting, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD. A
webcast of the event will be available in the Media section of the
Company's website at www.circassia.com.
Enquiries
Circassia
Steve Harris, Chief Executive Tel: +44 (0) 1865 405
Officer 560
Julien Cotta, Chief Financial
Officer
Rob Budge, Corporate Communications
JP Morgan Cazenove
James Mitford / Chris Cargill Tel: +44 (0) 20 7742
4000
Numis Securities
Clare Terlouw / Freddie Tel: +44 (0) 20 7260
Barnfield 1000
FTI Consulting
Ben Atwell / Simon Conway Tel: +44 (0) 20 3727
/ Mo Noonan 1000
About Circassia
Circassia is a world-class specialty respiratory pharmaceutical
business with a strong commercial infrastructure, marketed products
and portfolio of treatments targeting major market opportunities.
The Company sells its novel, market-leading NIOX(R) asthma
management products directly to specialists in the United States,
United Kingdom and Germany, and in a wide range of other countries
through its network of partners. Circassia recently established a
collaboration with AstraZeneca in the United States in which it
promotes the chronic obstructive pulmonary disease (COPD) treatment
Tudorza(R), and has the US commercial rights to late-stage COPD
product Duaklir(R).
Circassia's broad-based development pipeline includes a range of
respiratory medicines. The Company's lead asthma treatment,
Fliveo(R), targets substitution of GSK's Flixotide(R) pMDI and is
approved in the UK. Circassia is also developing a direct
substitute for Seretide(R) pMDI, Seriveo(R). In addition, the
Company's pipeline includes a number of inhaled medicines for COPD,
including single and combination dose products. For more
information on Circassia please visit www.circassia.com.
(1) Duaklir(R) is a registered trademark in certain European
countries; the US trademark is to be confirmed
(2) Constant exchange rates (CER) for 2015 represent reported
2015 numbers re--stated using 2016 average exchange rates;
management believes constant currency numbers better represent the
underlying performance of the Group due to subsidiary functional
currency fluctuations against Sterling
(3) Direct clinical sales to clinicians, hospitals and
distributors; research sales to pharmaceutical companies for use in
clinical studies
(4) Impairment of goodwill (GBP74.5 million), intangible assets
impairment (GBP0.3 million), restructuring costs (GBP2.8 million)
and cost for termination of certain contracts (GBP2.4 million)
(5) Cash, cash equivalents and short-term deposits
Forward-looking statements
This press release contains certain projections and other
forward-looking statements with respect to the financial condition,
results of operations, businesses and prospects of Circassia. The
use of terms such as "may", "will", "should", "expect",
"anticipate", "project", "estimate", "intend", "continue", "target"
or "believe" and similar expressions (or the negatives thereof) are
generally intended to identify forward-looking statements. These
statements are based on current expectations and involve risk and
uncertainty because they relate to events and depend upon
circumstances that may or may not occur in the future. There are a
number of factors that could cause actual results or developments
to differ materially from those expressed or implied by these
forward-looking statements. Any of the assumptions underlying these
forward-looking statements could prove inaccurate or incorrect and
therefore any results contemplated in the forward-looking
statements may not actually be achieved. Nothing contained in this
press release should be construed as a profit forecast or profit
estimate. Investors or other recipients are cautioned not to place
undue reliance on any forward-looking statements contained herein.
Circassia undertakes no obligation to update or revise (publicly or
otherwise) any forward-looking statement, whether as a result of
new information, future events or other circumstances.
CHAIRMAN'S STATEMENT
The past year, and in particular the last ten months, has been a
period of great change with Circassia experiencing significant
challenges as well as major opportunities. While disappointing
phase III allergy results tested the Company's resilience, I am
pleased to report that swift action helped conserve shareholders'
funds, broaden the development portfolio and establish a
transformational commercial collaboration with AstraZeneca. With
results from the Company's house dust mite allergy study mirroring
the earlier cat allergy phase III data, the Board has taken the
difficult decision to cease further investment in the field and to
focus Circassia's resources on its respiratory portfolio. With much
progress made in a short period of time, the Company is now
building positive momentum across its wider business.
Robust strategy
Since its establishment, Circassia's strategy has focused on
building a world-class specialty pharmaceutical business, directly
commercialising its products in key markets and developing a broad
and balanced portfolio. During 2015, the Company accelerated this
strategy, acquiring a direct specialty sales capability in the US
and Germany and broadening its pipeline to include a number of
respiratory products. Following the allergy results in 2016, the
Board revisited this strategy to ensure the Company continues to
focus on building shareholder value.
This strategic review considered multiple approaches, and
ultimately concluded that Circassia's strategy continued to offer
the best opportunity to exploit the Company's commercial
infrastructure and pipeline assets. The Board considered options to
accelerate self-sustainability and determined that expansion of the
Company's commercial capabilities would offer both revenue growth
opportunities and a strategic platform with which to attract
third-party products. In parallel, out-licensing out-of-focus
pipeline assets, focusing R&D efforts and driving efficiencies
would reduce costs and help conserve resources.
Rapid action
Following the review, management acted quickly to implement this
strategy, expanding the Company's commercial presence, driving
efficiencies across the organisation, curtailing allergy investment
and halting the development of out-of-focus products. The Company
also added three novel formulations to its respiratory pipeline,
initiated negotiations for the return of EU rights to its lead
asthma treatment and established a transformational commercial
collaboration with AstraZeneca.
As a result of this rapid action, Circassia's significantly
enhanced commercial capability was an important factor in
attracting AstraZeneca as a valued partner. During 2016, the
Company doubled its sales force in its largest market, the United
States, and as part of its new commercial collaboration will double
this team again by the end of July 2017. In 2016, Circassia also
launched a direct sales team in the UK and strengthened its
commercial teams in Germany and China. In parallel, the Company's
market-leading NIOX(R) asthma management products enjoyed robust
sales growth and its pipeline now features additional chronic
obstructive pulmonary disease (COPD) treatments. These advances
were complemented by significant efficiency savings, with the
Company's facilities costs set to decrease by approximately 40%
next year and headcount reduced outside the commercial team.
Leveraging infrastructure
With its commercial infrastructure now firmly established,
Circassia is well positioned to commercialise its in-house
portfolio as well as third-party specialty products. The Company's
respiratory pipeline targets a large and growing market, and is
well positioned to leverage Circassia's commercial platform with
specialist treatments exploiting its direct sales capabilities and
substitute therapies that do not require significant promotion
using its distribution, supply chain and market access
expertise.
This commercial strategy was recently validated by the Company's
collaboration with AstraZeneca, in which Circassia will undertake
the US promotion of COPD treatments Tudorza(R) and Duaklir(R), once
approved. With this transaction transforming Circassia into a
world-class specialty respiratory business, the Company is well
positioned to attract further products that can benefit from its
highly focused commercial capabilities.
Board changes
As well as the changes to the Company, Circassia's Board has
also evolved. During 2016, Paul Edick and Cathrin Petty retired as
Non-Executive Directors, and as announced alongside the preliminary
results Tim Corn and Charles Swingland have informed the Company
that after serving for over 10 years they will retire at the
forthcoming Annual General Meeting. Each of these Directors has
provided invaluable counsel and strategic advice based on
long-standing industry experience, and we thank them all for their
contribution to the progress made by Circassia. Following the
addition of two new independent Directors during 2015, the Board
remains strong, with five Non-Executive and three Executive
members. The Board will continue to review its mix of skills and
experience to ensure an optimal composition, both overall and of
its Committees.
Positive outlook
Following the disappointment of the phase III allergy results in
June 2016, Circassia has worked to refocus and broaden its
business. After a period of consolidation and rebuilding, the
Company is positioned for strong growth as it builds momentum in
both its commercial and development portfolios. During the coming
year, Circassia anticipates further progress with the Company
capitalising on its asthma management products' market-leading
position, focused promotion of its partnered COPD treatment
Tudorza(R) and pursuit of opportunities to commercialise additional
products through its specialty infrastructure. In addition, the
Company plans to conclude discussions on the EU rights to its lead
asthma treatment, expand its NIOX(R) registrations in the US and
Europe and prepare two new novel COPD formulations to enter the
clinic.
Following the setbacks of 2016, Circassia is looking forward
with optimism as it builds its revenues and advances its pipeline
of promising respiratory treatments. As a result, I believe the
Company is increasingly well positioned to achieve its ambition of
becoming a world-class, self-sustaining specialty pharmaceutical
company.
Dr Francesco Granata
Chairman
OPERATING REVIEW
The past year has been a period of significant change and
refocusing for Circassia. Our NIOX(R) asthma management products
and commercial expansion plans made good progress and we recently
established a ground-breaking commercial collaboration with
AstraZeneca. However, we also received disappointing clinical data
in our allergy portfolio. We acted quickly to curtail
allergy-related expenditure, and also broadened our pipeline of
respiratory products and realigned our R&D efforts to drive
these programmes towards the market as quickly as possible.
In addition, we conducted a formal review of the Company's
business. This reconfirmed the significant potential of our
specialty business model, the value of a strong direct commercial
presence and the importance of using our resources as efficiently
as possible. Consequently, we substantially expanded our
commercialisation capabilities to act as a strategic growth driver,
and identified significant efficiency savings across our global
operations.
With this period of consolidation and refocusing complete we
have emerged in a strong position. Circassia now features a growing
portfolio of marketed products, a broad pipeline of respiratory
medicines and a robust balance sheet. With our ambition undimmed,
we remain committed to building a world-class company for
shareholders, customers and employees alike.
NIOX(R) asthma management products
Our NIOX(R) products play an important role helping physicians
diagnose and manage asthma by providing an accurate measure of
underlying airway inflammation through the monitoring of patients'
fractional exhaled nitric oxide (FeNO). NIOX(R) is used both in
clinical practise and pharmaceutical companies' studies, and is the
market-leading point-of-care FeNO measurement system available
across major markets. The current generation VERO(R) device is
launched in a wide range of countries, including the US, Europe,
Japan and China, and during the first quarter of 2017 was approved
in Canada.
Strong sales performance
During 2016, NIOX(R) sales increased significantly, growing 23%
to GBP23.1 million (10% CER) versus 2015 (2015: GBP18.7 million -
GBP10.3 million under Circassia ownership and GBP8.4 million under
previous ownership).
Of these revenues, sales for clinical use increased 35% compared
with the year before (21% CER) reflecting significant commercial
efforts by Circassia and its partners. NIOX(R) sales to
pharmaceutical companies are influenced by the timing of clinical
studies and are therefore more unpredictable, and these revenues
decreased during the year by 6% (16% CER).
During the first quarter of 2017 this strong sales growth has
continued, notably in the key US market following the significant
expansion of the sales force in H2 2016. As a result, US clinical
sales grew 57% in Q1 2017 versus the same period in 2016.
Experience programme performing well
Our NIOX VERO(R) experience programme continues to make good
progress. During 2016, our US team continued to roll out the
initiative placing approximately 900 devices in specialist clinics,
over three times the 2015 level, providing physicians the
opportunity to experience NIOX(R) in practise. Of the programme
participants, the majority subsequently acquired a new NIOX(R)
system, with the period to purchase reducing by approximately 25%
compared with 2015. In 2017 we are maintaining momentum, with our
teams in Germany and the UK adopting customer evaluation
initiatives and our US programme evolving to focus on rapidly
converting customers.
Reimbursement and key accounts increasing
During the second half of 2016, we also established a team of
experienced managed markets professionals to increase the
proportion of the US population covered by reimbursement for
NIOX(R). This initiative is now delivering results with a number of
important health plans reimbursing NIOX(R) usage, and during the
first quarter of 2017 the team made further progress, extending
coverage to more than 2.8 million additional Americans through
several new plans.
Circassia also established a key accounts team during 2016,
which is performing well. By identifying and targeting major health
providers in the asthma field, the team has signed 17 significant
contracts since the beginning of 2017, with negotiations underway
with a similar number of potential customers.
New US pricing model
Circassia's US commercial team recently completed an economic
analysis of potential NIOX(R) pricing models, and in 2017 rolled
out a new approach designed to encourage greater use. To measure
patients' FeNO, clinicians require both a NIOX(R) device and
pre-programmed replaceable test sensor, which are available for a
fixed number of tests. The new pricing model aims to increase the
number of tests used over the five-year life of the NIOX VERO(R) by
separating the cost of the device and the sensors, compared with a
bundled price previously. As a result, the new pricing aims to
increase the commercial returns for customers while boosting
margins for the Company.
Distributor improvement plan
In addition to our direct sales capabilities, we sell our
NIOX(R) products through a network of distributors in approximately
35 further countries around the world. During the second half of
2016, we recruited an experienced Distributor Management Director
to manage and improve these partnerships, and conducted a detailed
performance review of our distribution network. We are currently
further strengthening our distribution management team, and are
working with distributors in the EU and other key territories to
ensure transparency on local sales and marketing activities and to
provide regular performance updates.
During 2016 we terminated our distribution agreements in France
and Italy due to poor performance. We have now assessed a range of
opportunities to boost our presence in these potentially
significant markets, including via direct sales forces. This review
concluded that partnering with high performing distributors offers
the optimal approach, and we are appointing local specialists in
both countries to promote our NIOX(R) products.
Positive registration extension studies
Recently, we completed two successful clinical studies designed
to extend our NIOX VERO(R) usage. The first demonstrated the
equivalence and utility of the six- and 10-second test functions in
children aged four to six years old. As a result, we have now filed
for an extension to the US label to match our European
certification, which already includes this age group and both test
functions.
Our second study, which included 160 subjects, identified a
diagnostic level of FeNO in people with the orphan condition
primary ciliary dyskinesia (PCD). PCD affects approximately 50,000
people in the EU and can be complex to diagnose. However, it is
known that sufferers have unusually low levels of nasal nitric
oxide, and our recently completed study demonstrated that the NIOX
VERO(R) system can accurately measure this exhaled gas. As a
result, we plan to add PCD diagnosis to our European certification
in the coming months.
NIOX(R) development programme
During the past year, we began initial concept development for a
new NIOX(R) generation to ensure we retain our leading position in
the FeNO market. With rapid advancements in wireless and web
technologies we have the opportunity to build on our ongoing
collaboration with Microsoft for cloud-based applications, while
also exploring additional functionality to enhance the utility of
the NIOX(R) system.
Commercial collaboration with AstraZeneca
Circassia's recently completed transaction with AstraZeneca is
an ideal fit with our strategy and transforms the Company into a
world-class respiratory business. It represents a major commercial
opportunity, doubling our number of marketed products, with the
potential to triple the current number within two years. Under the
initial collaboration, we plan to immediately double our US sales
team to promote the COPD product Tudorza(R), as well as our
existing NIOX(R) franchise. Additionally, the transaction structure
is highly attractive, allowing us to fund the consideration without
further investment from shareholders, while at the same time
welcoming AstraZeneca as a major shareholder.
Tudorza(R) collaboration
We have established an initial collaboration and profit share
for the commercialisation of Tudorza(R) in the US, and in the next
approximately two and half years we will have the option to acquire
the full US commercial rights to the product. During the
collaboration, Circassia will be responsible for the promotion of
Tudorza(R) while AstraZeneca will manufacture and supply the
product and provide regulatory and pharmacovigilance support.
Tudorza(R) (aclidinium bromide 400 <MU>g twice daily) is a
long-acting muscarinic antagonist (LAMA) indicated for the
long-term maintenance treatment of bronchospasm associated with
COPD, including chronic bronchitis and emphysema. It was initially
approved in the United States in 2012 and is authorised in
approximately 60 countries around the world under a range of brand
names. AstraZeneca revenues related to the product's worldwide
sales were $170 million in 2016, of which $80 million was in the
United States.
Tudorza(R) is supported by a broad clinical database, including
three pivotal phase III studies and three one-year long-term safety
studies. These data demonstrate that Tudorza(R) provides
statistically and clinically significant improvements in lung
function (FEV(1) ), improves symptom severity, and due to its rapid
onset of action provides bronchodilation from the first dose, which
is sustained over long-term treatment. In a head-to-head comparison
with the market-leading LAMA, Spiriva(R) (tiotropium bromide 18
<MU>g once a day), Tudorza(R) demonstrated significantly
greater improvements in lung function (FEV(1) ) during the night
time on day one, which followed the evening dose of aclidinium that
provided additional and sustained bronchodilation. Additionally,
Tudorza(R) provided improvements in early morning and night-time
symptom severity compared with Spiriva(R). Studies also show that
Tudorza(R) is well tolerated, with a low incidence of adverse
events that are commonly associated with LAMA-containing
products.
Duaklir(R) follow-on product
As part of the transaction we also secured the US commercial
rights to the COPD product Duaklir(R). The product is an orally
inhaled fixed dose long-acting muscarinic antagonist / long-acting
beta agonist (LAMA / LABA) combination (400 ug aclidinium bromide /
12 ug formoterol fumarate twice daily), which is in late-stage
development by AstraZeneca in the United States. The product is
currently undergoing a phase III trial, which is anticipated to
complete in H2 2017, with a subsequent filing planned for H1 2018.
Duaklir(R) was initially approved in the European Union in 2014 and
is authorised in approximately 50 countries around the world under
a range of brand names. AstraZeneca revenues related to Duaklir(R)
sales outside the United States were $63 million in 2016.
The clinical development programme on which the product was
approved in the EU and elsewhere included approximately 4,000 COPD
patients, with a number of phase III studies complemented by
long-term safety studies. These studies show that Duaklir(R)
provided significant and clinically meaningful improvements in lung
function (FEV(1) ) and symptom reduction compared with placebo and
with the product's individual LAMA and LABA components. It also
improved daytime, night-time and early morning COPD symptoms and
the rate of moderate or severe exacerbations was significantly
reduced compared to placebo. In addition, a comparison study versus
leading inhaled corticosteroid / long-acting beta agonist (ICS /
LABA) combination Seretide(R) showed that Duaklir(R) provided
significantly improved FEV(1) , with fewer pneumonia and
treatment-related adverse events. Studies also show that Duaklir(R)
demonstrated favourable safety and tolerability, which is
comparable to its mono-components, with adverse event rates similar
to placebo.
Unique Pressair(R) inhaler
Both Tudorza(R) and Duaklir(R) are delivered by the novel dry
powder inhaler Pressair(R). A number of studies show a clear
patient preference for Pressair(R) versus many competing devices,
including Handihaler(R) which is used by market leading LAMA
Spiriva(R). Pressair(R) also has fewer steps than many other
inhalers, with a simple two-step delivery process. In addition, it
prevents the release of a second dose before the first is
successfully inhaled to prevent accidental overdosing. It has a
unique combination of feedback mechanisms to indicate when the
device is ready to use, whether the patient's inhalation is
successful and the number of remaining doses. The device also locks
after the final dose to prevent further use and it does not require
cleaning.
Robust commercialisation plan
The US COPD market represents a major opportunity, with 2016
sales estimated at more than $5 billion. The disease's prevalence
is expected to grow, and approximately 15.7 million Americans
currently have diagnosed COPD, with several million more
undiagnosed. As a result, COPD is responsible for over 120,000
deaths per year, making it the third leading cause of death in the
United States.
The Global Initiative for Chronic Obstructive Lung Disease
(GOLD), which comprises a number of leading agencies, including the
US National Heart, Lung and Blood Institute and National Institutes
of Health, has recently released its 2017 treatment guidelines.
These support a move away from ICS / LABA products for many COPD
patients and LAMA-containing products are now recommended as
preferred initial treatments for every patient group. Consequently,
these influential guidelines support a market move towards products
such as Tudorza(R) and Duaklir(R).
With the transaction with AstraZeneca now complete, Circassia is
responsible for Tudorza(R)'s promotion in the US and we will make
the product our lead promotional priority. Through highly focused
commercialisation efforts we believe we can maintain the product's
recent commercial performance and potentially increase sales in the
medium- to longer-term. Third-party estimates suggest the product
has peak sales potential of over $90 million.
As part of our commercial plan, we intend to increase our US
field force to approximately 200 by the end of July 2017. We will
focus our initial promotional efforts on the highest Tudorza(R)
prescribing physicians, targeting those who account for 80% of its
prescriptions. In addition, we will target physicians who account
for 40% of non-Tudorza(R) COPD prescriptions to increase the
product's customer base. We believe that by providing highly
targeted, focused resources we will significantly increase the
level and intensity of one-to-one sales calls where the product
benefits can be presented in detail. This will also serve to
establish the customer base for future sales of Duaklir(R) once
approved. Additionally, we will use existing AstraZeneca marketing
materials, training and data to ensure branding continuity and
drive promotional efficiency. As well as having a strong focus on
Tudorza(R) we will continue to advance our NIOX(R) business. Our
expanded sales team will focus 30% of its calls on allergists to
promote NIOX(R), and will also promote the products to Tudorza(R)
target physicians.
We believe the combination of recent changes to the GOLD
guidelines, Tudorza(R) and Duaklir(R)'s compelling product benefits
and our focused commercialisation plans provide a strong foundation
to capture a portion of a large and growing market.
Attractive transaction structure
In addition to the commercial opportunity offered by the
products, the structure of the transaction is highly attractive. It
provides Circassia with the benefits of a broader portfolio and
significantly expanded commercial infrastructure without requiring
funding from shareholders. It also allows the majority of the
consideration to be deferred, with the amount payable dependent on
the successful approval of Duaklir(R) and commercialisation of
Tudorza(R). As a result, the transaction comprises a number of
stages with different amounts payable over a period of
approximately two and a half years, up to a maximum of $230 million
plus royalties on future Duaklir(R) US sales.
With AstraZeneca taking a $50 million upfront stake in
Circassia, we welcome the blue chip pharmaceutical company as a
major shareholder. We also anticipate that our commercial
collaboration will fund the major expansion of Circassia's US
commercial team as well as the Company's R&D contributions to
ongoing clinical studies. With third-party funding anticipated to
cover the remaining deferred payments, we expect the transaction to
be earnings enhancing after one year, broadly cashflow neutral for
three years and then cash generative.
Commercial growth platform
Prior to establishing our AstraZeneca collaboration we greatly
strengthened our commercial capabilities to boost NIOX(R) revenues
and build an attractive platform for third-party products. In the
third quarter of 2016, we doubled the size of our US sales force to
approximately 100, targeting over 7,000 key specialist and primary
care physicians. We also built a US managed markets team to focus
on major healthcare systems and extend NIOX(R) reimbursement
coverage. Recent successes have increased coverage to an additional
2.8 million Americans in the first quarter of 2017 and we
anticipate further advances in the coming months. Additionally, our
US key accounts team is targeting over 160 large customers with a
particular focus on healthcare systems, integrated delivery
networks, multi-site practises and federal organisations where
penetration is currently low. This investment is now beginning to
deliver, and in Q1 2017 US clinical sales grew over 50% compared
with the same period in 2016, with March representing the team's
best monthly performance.
Alongside this growth in the US, we established a direct
presence in the UK, launching our new sales force at the end of
2016. The team is actively targeting both healthcare commissioners
and specialist physicians, and in the first quarter of 2017 sales
increased by approximately 15% compared with our revenues in the
same period the prior year. In China, we also strengthened our
commercial team during 2016 with the addition of medical and market
access expertise to support the promotional activities of our
distribution partners, and during the year revenues grew by
approximately 70% in this important NIOX(R) market.
In addition to our sales team expansion, we are strengthening
our commercial operations to support field-based activities. We
have recently recruited an experienced head of global marketing and
are expanding our marketing team in the US and adding marketing
support in the UK.
As a result of this major commercial expansion, and future sales
force growth under our collaboration with AstraZeneca, we are
targeting a significantly broader customer base. With an
established market-leading position in FeNO measurement, we
anticipate continued NIOX(R) revenue growth in the coming year. We
are also well positioned to attract additional products to broaden
the Company's portfolio through acquisition, in-licensing or
partnering, and we intend to pursue further opportunities in the
coming year that fit our specialty strategy.
Respiratory portfolio
Fliveo(R) EU rights negotiations
Our lead asthma product, Fliveo(R), is a particle-engineered
fluticasone propionate formulation targeting substitution of
GlaxoSmithKline's Flixotide(R) pMDI. Fliveo(R) is currently
approved in the UK and the product was out-licensed under previous
ownership in a number of major territories, including the EU and
US. The United States remains the product's largest potential
market, and during the second half of 2016 we initiated discussions
with our partner for the potential return of the commercialisation
rights in the more modest marketplace in Europe, and we hope to
finalise our approach in the coming months.
Seriveo(R) progressing
Seriveo(R), Circassia's fluticasone / salmeterol asthma therapy,
targets direct substitution of GSK's Seretide(R) pMDI. The product
has a major market opportunity, with global sales of the GSK
originator in pMDI and DPI formats totalling approximately $4.7
billion last year.
During 2016, we initiated a clinical pharmacokinetic study
comparing two Seriveo(R) formulations with Seretide(R) to inform
further development work. The Company recently received the
results, which indicate the fluticasone component of one the
formulations matched the originator product. Additionally, the
formulation's salmeterol absorbed dose and peak plasma
concentration were in the same range as Seretide(R). However, the
salmeterol components differed at the 90% confidence interval
required for approval. Based on these results and previous
development data Circassia plans to adjust the formulation and
delivery device and reiterate the trial before moving to a
registration pharmacokinetic study. As a result, the Company
anticipates filing a Marketing Authorisation Application in H1
2019.
Spiriva(R) DPI substitute advancing
During 2016, we further broadened our respiratory portfolio
adding a particle-engineered formulation of tiotropium bromide to
the pipeline. The product is designed as a direct substitute for
Boehringer Ingelheim's COPD treatment Spiriva Handihaler(R). Global
revenues for Spiriva(R) totalled $3.3 billion in 2016. The product
has made good initial progress and we are initiating formulation
scale-up prior to progressing into an exploratory pharmacokinetic
clinical study in H1 2018.
Novel formulations for COPD
In the second half of 2016, Circassia initiated development of
two products targeting an underserved segment of the COPD market,
in particular patients with more severe COPD. Circassia has
completed initial market research for the products, confirming that
both have significant commercial opportunities. Formulation
development is progressing well, and the most advanced, a fixed
dose LABA / LAMA combination based on existing approved products,
is on track to begin an initial clinical study in 2018.
Non-strategic products
Circassia is focused on building a world-class specialty
pharmaceutical company and we intend to divest products that do not
fit this strategic focus. Two such out-of-focus COPD products are a
'triple' fixed dose combination and a novel glycopyrronium bromide
formulation that is currently partnered in China, Taiwan, Hong Kong
and Macau. Both have completed first-in-human clinical studies,
which provide a clinical foundation to inform potential partners'
development plans. In these studies, the glycopyrronium formulation
demonstrated significantly improved lung function versus placebo,
while the fixed dose triple combination showed bioavailability for
each of the components following inhalation.
Allergy portfolio
Allergy investment curtailed
During 2016, Circassia received unexpected and highly
disappointing phase III results from its lead allergy product.
Subsequent analysis and expert review concluded that the study's
design and conduct were robust and there were no major confounding
factors. As a result, the Company minimised expenditure on its
broader allergy portfolio, halting development activities for its
grass and ragweed allergy products. As ongoing house dust mite and
birch allergy studies were well advanced, and required only limited
further investment, these continued. During the summer, the Company
received results from the birch allergy study, which were
encouraging, although this was an early-stage, small-scale (n=64)
trial with limited efficacy endpoints.
Subsequently, the Company received disappointing results from
its large-scale house dust mite allergy study, which did not meet
its primary efficacy endpoint. Following receipt of these data,
Circassia has halted investment in its allergy portfolio and will
no longer progress its allergy product development programmes.
Focus on costs
During 2016, Circassia took a number of measures to drive
efficiencies across its broader business, reduce expenditure in the
allergy portfolio and contain costs.
-- The Company completed a review of its facilities and
consolidated operations onto single sites in the United States and
Sweden where previously we operated out of two locations. We have
now closed our Chicago and Solna sites and transferred operations
to our facilities in Morrisville, North Carolina and Uppsala
respectively. In addition, we have downsized our activities in
Oxford, vacating one of our previous premises. As a result, we
anticipate cutting future facilities costs by approximately
40%.
-- As part of this efficiency drive we decreased the size of our
back office support functions, and our G&A headcount is now 15%
lower than at the end of H1 2016 despite the substantial increase
in our commercial presence. We also reduced the size of our R&D
organisation and refocused the team on our respiratory programmes.
Although we have established a dedicated in-house device team to
drive the development of our inhaled products and next generation
NIOX(R) device, our R&D headcount remains 20% lower than at the
end of H1 2016, and following the decision to halt investment in
our allergy portfolio we intend to conduct a further review of
future requirements.
Summary and outlook
The past year has been a period of challenges and major
opportunities for Circassia. Our market-leading asthma management
products continue to grow strongly and our respiratory portfolio is
advancing. We also established a transformational commercial
collaboration with AstraZeneca that leverages and expands our US
infrastructure and brings new products to the Company. However,
this progress was tempered by disappointing allergy data. Following
these results we moved quickly to conserve resources, expand our
commercial footprint and broaden our respiratory pipeline with the
addition of several new products.
During the coming months we intend to build on this progress. We
plan to rapidly expand our US sales force to promote Tudorza(R) and
increase sales of our NIOX(R) products. With a growing specialty
commercial presence in key markets, we are becoming increasingly
well placed to attract further products, and we hope to exploit
this opportunity in the coming year.
We also anticipate extending our NIOX VERO(R) usage in the US
and Europe based on our successful clinical studies and recent
filing in the United States. In parallel, we intend to progress our
respiratory development programmes with our Spiriva(R) substitute
and novel COPD treatment formulations moving towards the clinic and
our Seretide(R) pMDI substitute advancing towards the final phase
of pharmacokinetic testing.
With a clear strategy, strong commercial products, compelling
pipeline and robust balance sheet we have the foundations of a
highly successful business. Despite the setbacks of 2016 we remain
determined to build a leading specialty pharmaceutical Company and
are making good progress towards our goal.
FINANCIAL REVIEW
The financial results for the year reflect two main factors that
differentiate this year from 2015. The first is impairment of
goodwill that was allocated to the allergy franchise to reflect the
future potential benefit of the acquired Aerocrine commercial
infrastructure in the commercialisation of the Company's allergy
portfolio. Following the disappointing results from the cat allergy
phase III study, this goodwill has been fully impaired. The second
factor is the full year's contribution from the NIOX(R) and
Prosonix respiratory businesses compared with a little over half a
year's contribution in 2015 following their acquisition on 18 June
2015 and 15 June 2015 respectively.
The financial results for the year to 31 December 2016 are set
out in the table below.
Underlying Non-underlying Total Total
operations items(2) Group Group
2016 2015
GBPm GBPm GBPm GBPm
Revenue 23.1 - 23.1 10.8
Cost of goods sold (8.0) - (8.0) (4.3)
Gross profit 15.1 - 15.1 6.5
Sales and marketing (28.9) (75.8) (104.7) (13.5)
Research & development (42.3) (3.9) (46.2) (46.8)
Administrative expenditure (15.4) (0.3) (15.7) (13.7)
Other gains - - - 1.1
Operating loss (71.5) (80.0) (151.5) (66.4)
Finance income net 6.0 - 6.0 3.5
Share of profit of
joint venture 0.6 - 0.6 0.1
Loss before tax (64.9) (80.0) (144.9) (62.8)
Taxation 7.5 - 7.5 12.8
Loss for the financial
year (57.4) (80.0) (137.4) (50.0)
Cash(1) 117.4 - 117.4 203.8
============================ ============ =============== ======== =======
(1) Includes cash and cash equivalents and short-term
deposits
(2) Includes impairment of goodwill (GBP74.5 million),
intangible assets impairment (GBP0.3 million), restructuring costs
(GBP2.8 million) and cost for termination of certain contracts
(GBP2.4 million)
Revenue
Revenue of GBP23.1 million (2015: GBP10.8 million) reflects the
full year contribution from the NIOX(R) business that accounts for
nearly all the Group's turnover for the year. These revenues
include sales of NIOX VERO(R) and NIOX MINO(R) for clinical use in
the US, Europe and rest of world of GBP18.0 million (2015: GBP7.3
million), and for research use in pharmaceutical companies'
clinical studies of GBP4.5 million (2015: GBP2.6 million), as well
as other revenues including licence income and freight of GBP0.6
million (2015: GBP0.4 million).
In 2015, out of GBP10.8 million revenue, GBP10.3 million was
NIOX(R) sales from 19 June to 31 December 2015 and GBP0.5 million
was licence fees and milestone payments related to the respiratory
business acquired on 15 June 2015.
Gross profit
Gross profit on NIOX(R) sales was GBP15.1 million (2015: GBP6.1
million), with a gross margin of 65% (2015: 59%). This increase
reflects the continuous growth of NIOX(R) test sales.
Sales and marketing
During the year, the underlying sales and marketing expenditure
was GBP28.9 million (2015: GBP13.5 million). This reflects a
significant strengthening of the Group's commercial presence in the
US. In particular, the US sales force increased substantially and
the teams supporting the commercial infrastructure expanded in
support of the Group's sales effort.
Goodwill arising on the acquisition of Aerocrine last year was
allocated to reflect the potential benefit provided by the acquired
commercial infrastructure in the future commercialisation of the
allergy franchise. This goodwill has now been fully impaired
following the disappointing outcome of the cat allergy phase III
study resulting in a charge of GBP74.5 million to sales and
marketing expenses. Goodwill impairment comprises the majority of
the non-underlying items included in sales and marketing costs. For
the full breakdown of non-underlying items see note 10 of the
consolidated financial statements.
Research and development
Underlying investment in research and development activities was
GBP42.3 million (2015: GBP46.8 million). Of this, GBP19.1 million
(2015: GBP30.5 million) relates to Circassia's portfolio of allergy
candidates, GBP6.9 million (2015: GBP6.1 million) to the
development of the respiratory portfolio and GBP5.3 million (2015:
GBP2.0 million) to the NIOX(R) franchise, of which GBP2.0 million
relates to an amortisation charge for acquired R&D technology.
Costs not specific to R&D projects, including personnel costs,
were GBP11.0 million (2015: GBP8.2 million).
Following the results from the cat allergy phase III study in
June 2016, expenditure on the allergy portfolio was halted except
for the following activities:
- Limited costs that had already been committed.
- Completion of the ongoing house dust mite allergy field study (TH005).
- Completion of the two year cat allergy follow up study (CP007A).
- Expenditure required to maintain drug product and drug stability programmes.
Of the GBP19.1 million expenditure on the allergy programme,
GBP13.8 million was incurred in H1 2016 and GBP5.3 million in H2
2016. Of the total costs of GBP7.7 million (2015: GBP14.2 million)
in respect of the house dust mite allergy programme, GBP2.2 million
was incurred in H2 2016 on TH005. The total spend on the cat
allergy programme was GBP5.5 million (2015: GBP9.8 million), of
which GBP2.0 million was incurred in H2 mainly in respect of drug
product and stability programmes, committed costs of the cat phase
III study (CP007) and the two year follow-up study (CP007A). In H1
2016, the grass allergy programme moved into the final phase of
clinical testing with the start of the registration field study
(TG005), contributing GBP4.8 million of expenditure in the year,
however the majority of activities were stopped after the cat
allergy results.
Investment in the respiratory portfolio mainly relates to the
Seretide(R) / Advair(R) pMDI substitute development programme and
the tiotropium bromide product targeting direct substitution of
Spiriva(R) DPI.
In addition, a charge of GBP3.9 million has been recorded as
non-underlying research and development expenditure. Of this,
GBP2.4 million relates to a contract provision for the manufacture
of trial batches for allergy programmes, GBP1.2 million in
redundancy costs and closure of the site in Solna and an impairment
of GBP0.3 million for allergy licences and patents following the
cat allergy results.
Administrative expenditure
Underlying administrative expenses includes overheads specific
to corporate functions, centrally managed support functions and
corporate costs. These increased to GBP15.4 million (2015: GBP13.7
million) reflecting a full year of costs of the two businesses
acquired in June 2015.
Financial income
Net finance income increased to GBP6.0 million (2015: GBP3.5
million). Included in this is bank interest income of GBP0.9
million (2015: GBP1.7 million) and a net gain on foreign exchange
of GBP5.2 million (2015: GBP1.8 million). The foreign exchange gain
arose as a result of sterling weakening during the year against the
US dollar and Swedish krona.
R&D tax credits on qualifying expenditure
Taxation for the year was GBP7.5 million credit (2015: GBP12.8
million credit). Included within this is a tax credit of GBP8.6
million (2015: GBP10.3 million) recoverable under current
legislation relating to R&D expenditure. The decrease over the
previous year reflects the decrease in R&D expenditure
qualifying for R&D tax credit, which is due in particular to
the decrease in expenditure on the allergy portfolio.
Loss after tax and loss per share
Total loss for the financial year was GBP137.4 million (2015:
GBP50.0 million), of which GBP137.3 million (2015: GBP49.9 million)
was attributable to the owners of Circassia Pharmaceuticals plc.
Basic loss per share attributable to the owners of Circassia
Pharmaceuticals plc was 48p (2015: 20p). This includes impairment
charges and other non-underlying items of GBP80.0 million.
Excluding these costs, the loss per share for the underlying
operations was 20p (2015: 20p).
Statement of financial position
The Group's net assets were GBP280.7 million at 31 December 2016
(2015: GBP409.7 million). The decrease includes impairment charges
of GBP74.5 million and GBP0.3 million to goodwill and intangible
assets respectively as well as reduction in cash. Further detail on
the impairment charges can be found in notes 14 and 15. Other
factors are commented on below.
The weakening of pound sterling against the US dollar and
Swedish krona resulted in a credit of GBP9.8 million to Other
Comprehensive Income and Expense due to retranslation of the
Group's overseas operations.
Current liabilities were GBP21.5 million (2015: GBP48.3
million). The decrease is mainly due to the payment in January 2016
of contingent consideration of GBP30.0 million for the purchase of
Prosonix. This reduction was partly offset by GBP2.3 million
restructuring costs accrued at the year-end (2015: GBPnil) relating
to cost reduction initiatives.
Current tax assets were GBP8.7 million at 31 December 2016
(2015: GBP11.8 million), representing the R&D tax credit due
from H M Revenue and Customs. A payment of GBP11.8 million was
received in H2 2016 from HMRC.
Restructuring provisions for Chicago (US) and Solna (Sweden)
offices
Following a review of operations to drive efficiencies across
the wider business, the Company decided to consolidate its US and
Swedish operations and close its Chicago and Solna offices.
As a result, Chicago office closure costs of GBP1.3 million
included in the financial statements relate to severance and
compensation for loss of office, and property cost commitments that
are deemed non-recoverable. These costs were recorded as
non-underlying sales and marketing expenditure. It is expected that
the consolidation in the US will ultimately yield annual cost
savings of GBP4.6 million.
Similarly, Solna office closure costs of GBP1.0 million included
in the financial statements relate to severance and compensation
for loss of office, and non-recoverable property cost commitments.
These costs were recorded as non-underlying expense in sales and
marketing (GBP0.2 million), research and development (GBP0.5
million), and administrative expenditure (GBP0.3 million). It is
expected that this consolidation will provide annual cost savings
of GBP1.6 million.
Cash flow
The Group's cash position (including short-term deposits)
decreased from GBP203.8 million at 31 December 2015 to GBP117.4
million at 31 December 2016. Main cash outflows were:
-- GBP30.0 million deferred consideration paid to the former
shareholders of Prosonix in January 2016 following receipt of UK
marketing authorisation for its lead product in December 2015.
-- GBP56.7 million cash used in operating activities (2015:
GBP55.8 million) reflecting a full year of operations of the two
businesses acquired in June 2015 as well as R&D expenditure and
the expansion of the US sales and marketing infrastructure.
-- GBP3.2 million payment to acquire the remaining 2.1% of
issued shares of Aerocrine AB under the Swedish formal 'squeeze
out' procedure. Please see note 28 for further details of the
transaction.
The exchange gain on cash and cash equivalents for the period
was GBP4.1 million (2015: GBP0.6 million).
Events occurring after the reporting date
On 17 March, Circassia announced a collaboration and profit
share arrangement with AstraZeneca and securing of certain US
commercial rights to Tudorza(R) and Duaklir(R) for a maximum total
consideration of US $230 million. Circassia will also make R&D
contributions of up to US$62.5 million payable to AstraZeneca as
deferred payments and will pay royalties on future sales of
Duaklir(R). Further details are available in note 34 of the
financial statements.
Summary and outlook
Following the significant setback of the cat allergy results in
June 2016, Circassia reacted swiftly with a significant cost
reduction programme to curtail expenditure on the allergy portfolio
and consolidate operations with the closure of Chicago and Solna
together with other redundancies across the Group. In addition, the
Company invested significantly in its US commercial operations,
increasing field force numbers from 40 to approximately 100 in July
and August 2016. This decision was recently validated by the
announcement in March 2017 of the collaboration with AstraZeneca to
secure US commercial rights to Tudorza(R) and Duaklir(R) as well as
the continued growth of the Company's NIOX(R) products.
As a result of these initiatives Circassia continues to have a
robust balance sheet, with cash of GBP117.4 million as at 31
December 2016 and is well funded to deliver on its strategy. With a
period of challenges now behind the Company, Circassia looks
forward to further strengthening its business in 2017.
Julien Cotta
Chief Financial Officer
Consolidated statement of comprehensive income
for the year ended 31 December 2016
Notes 2016 2015
----------------------------------------------------------------- -------
Underlying operations Non-underlying items (note 10) Total Total
GBPm GBPm GBPm GBPm
Revenue 4 23.1 - 23.1 10.8
Cost of sales (8.0) - (8.0) (4.3)
---------------------------------- ------ ---------------------- ------------------------------- -------- -------
Gross profit 15.1 - 15.1 6.5
Research and development costs (42.3) (3.9) (46.2) (46.8)
Sales and marketing (28.9) (75.8) (104.7) (13.5)
Administrative expenses (15.4) (0.3) (15.7) (13.7)
Other gains 9 - - - 1.1
---------------------------------- ------ ---------------------- ------------------------------- -------- -------
Operating loss 7 (71.5) (80.0) (151.5) (66.4)
Finance costs 6 (0.1) - (0.1) -
Finance income 6 6.1 - 6.1 3.5
Share of profit of joint venture 17 0.6 - 0.6 0.1
---------------------------------- ------ ---------------------- ------------------------------- -------- -------
Loss before tax (64.9) (80.0) (144.9) (62.8)
Taxation 11 7.5 - 7.5 12.8
---------------------------------- ------ ---------------------- ------------------------------- -------- -------
Loss for the financial year (57.4) (80.0) (137.4) (50.0)
---------------------------------- ------ ---------------------- ------------------------------- -------- -------
Loss attributable to:
Owners of Circassia
Pharmaceuticals plc (57.3) (80.0) (137.3) (49.9)
Non-controlling interests (0.1) - (0.1) (0.1)
---------------------------------- ------ ---------------------- ------------------------------- -------- -------
Loss for the financial year (57.4) (80.0) (137.4) (50.0)
---------------------------------- ------ ---------------------- ------------------------------- -------- -------
Items that may be subsequently
reclassified to profit or loss
Share of other comprehensive
income of joint venture 17 0.1 - 0.1 -
Currency translation differences 28 9.8 (0.1) 9.7 3.1
Total other comprehensive income
/ (expense) for the year 9.9 (0.1) 9.8 3.1
---------------------------------- ------ ---------------------- ------------------------------- -------- -------
Total comprehensive expense for
the year (47.5) (80.1) (127.6) (46.9)
---------------------------------- ------ ---------------------- ------------------------------- -------- -------
Total comprehensive expense attributable to:
Owners of Circassia Pharmaceuticals plc (47.4) (80.1) (127.5) (46.8)
Non-controlling interests (0.1) - (0.1) (0.1)
----------------------------------------------- ------- ------- -------- -------
Total comprehensive expense for the year (47.5) (80.1) (127.6) (46.9)
----------------------------------------------- ------- ------- -------- -------
Loss per share attributable to owners of the parent during the
year (expressed in GBP per share)
Basic and diluted loss per share
GBP GBP
-------------------------------------------- ---- ------- -------
Loss per share from continuing operations 12 (0.48) (0.20)
The results for the financial years above are derived entirely
from continuing operations.
The Company has elected to take the exemption under section 408
of the Companies Act 2006 not to present the parent company profit
and loss account.
The profit for the parent company for the year was GBP2.4
million (2015: loss GBP3.2 million).
The notes on pages 21 to 50 are an integral part of these
consolidated financial statements.
Consolidated statement of financial position
as at 31 December 2016
Notes 2016 2015
GBPm GBPm
------------------------------- ------ -------- --------
Assets
Non-current assets
Property, plant and equipment 13 1.4 1.3
Goodwill 14 9.7 81.2
Intangible assets 15 167.1 165.6
Deferred tax assets 23 16.6 17.2
Investment in joint venture 17 0.9 0.2
------------------------------- ------ -------- --------
195.7 265.5
------------------------------- ------ -------- --------
Current assets
Inventories 18 4.6 3.0
Trade and other receivables 19 7.7 5.1
Current tax assets 11 8.7 11.8
Short-term bank deposits 20 20.0 37.8
Cash and cash equivalents 20 97.4 166.0
------------------------------- ------ -------- --------
138.4 223.7
------------------------------- ------ -------- --------
Total assets 334.1 489.2
------------------------------- ------ -------- --------
Equity and liabilities
Ordinary shares 24 0.2 0.2
Share premium 26 563.8 564.0
Other reserves 28 12.5 2.8
Accumulated losses 27 (295.8) (158.5)
------------------------------- ------ -------- --------
280.7 408.5
Non-controlling interests - 1.2
------------------------------- ------ -------- --------
Total equity 280.7 409.7
------------------------------- ------ -------- --------
Liabilities
Non-current liabilities
Deferred tax liabilities 23 31.9 31.2
------------------------------- ------ -------- --------
31.9 31.2
------------------------------- ------ -------- --------
Current liabilities
Trade and other payables 21 21.5 48.3
21.5 48.3
------------------------------- ------ -------- --------
Total liabilities 53.4 79.5
------------------------------- ------ -------- --------
Total equity and liabilities 334.1 489.2
------------------------------- ------ -------- --------
The notes on pages 21 to 50 are an integral part of these
consolidated financial statements.
The financial statements on pages 15 to 50 were authorised for
issue by the Board of Directors on
25 April 2017 and were signed on its behalf by
Steven Harris Julien Cotta
Chief Executive Officer Chief Financial Officer
Circassia Pharmaceuticals plc Circassia Pharmaceuticals plc
Registered number: 05822706
Parent Company statement of financial position
as at 31 December 2016
Notes 2016 2015
GBPm GBPm
-------------------------------------------------- ------ ------ ------
Assets
Non-current assets
Investments in subsidiaries 16 262.0 242.6
-------------------------------------------------- ------ ------ ------
262.0 242.6
-------------------------------------------------- ------ ------ ------
Current assets
Trade and other receivables 19 220.9 185.0
Short-term bank deposits 20 20.0 37.8
Cash and cash equivalents 20 73.0 130.7
-------------------------------------------------- ------ ------ ------
313.9 353.5
-------------------------------------------------- ------ ------ ------
Total assets 575.9 596.1
-------------------------------------------------- ------ ------ ------
Equity and liabilities
Equity attributable to the owners of the Company
Ordinary shares 24 0.2 0.2
Share premium 26 563.8 564.0
Other reserves 28 6.1 3.7
Retained earnings/(accumulated losses) 27 0.4 (2.0)
Total equity 570.5 565.9
Liabilities
Current liabilities
Trade and other payables 21 5.4 30.2
5.4 30.2
Total equity and liabilities 575.9 596.1
-------------------------------------------------- ------ ------ ------
The notes on pages 21 to 50 are an integral part of these
financial statements.
The financial statements on pages 15 to 50 were authorised for
issue by the Board of Directors on
25 April 2017 and were signed on its behalf by
Steven Harris Julien Cotta
Chief Executive Officer Chief Financial Officer
Circassia Pharmaceuticals plc Circassia Pharmaceuticals plc
Registered number: 05822706
Consolidated and parent Company statement of cash flows
for the year ended 31 December 2016
Group Company
---------------------------------------------------------- ------ ----------------- -----------------
2016 2015 2016 2015
Notes GBPm GBPm GBPm GBPm
---------------------------------------------------------- ------ ------- -------- ------- --------
Cash flows from operating activities
Cash (used in) / generated from operations 29 (68.4) (64.9) 1.9 (5.8)
Interest paid (0.1) - (0.1) -
Tax credit received 11.8 9.1 - -
---------------------------------------------------------- ------ ------- -------- ------- --------
Net cash (used in) / generated from operating activities (56.7) (55.8) 1.8 (5.8)
---------------------------------------------------------- ------ ------- -------- ------- --------
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired (0.2) (161.9) (19.0) (206.8)
Purchases of property, plant and equipment 13 (0.7) (0.2) - -
Contingent consideration payment 21 (30.0) - (30.0) -
Purchases of intangible assets 15 - (0.1) - -
Interest received 0.7 3.0 0.7 2.9
Receipt on maturity of forward contract - 1.1 - -
Repayment of borrowings - (28.1) - -
Loans granted to subsidiary undertakings - - (29.0) (63.5)
Decrease in short-term bank deposits 17.8 119.1 17.8 119.1
---------------------------------------------------------- ------ ------- -------- ------- --------
Net cash used in investing activities (12.4) (67.1) (59.5) (148.3)
---------------------------------------------------------- ------ ------- -------- ------- --------
Cash flows from financing activities
Proceeds from issue of ordinary shares 24 - 266.1 - 266.1
Purchase of treasury shares 33 (0.4) (0.3) - -
Transactions with non-controlling interests 28 (3.2) (7.2) - -
Net cash (used in) / generated from financing activities (3.6) 258.6 - 266.1
---------------------------------------------------------- ------ ------- -------- ------- --------
Net (decrease)/increase in cash and cash equivalents (72.7) 135.7 (57.7) 112.0
Cash and cash equivalents at 1 January 20 166.0 29.7 130.7 18.8
Exchange gains/(losses) on cash and cash equivalents 4.1 0.6 - (0.1)
---------------------------------------------------------- ------ ------- -------- ------- --------
Cash and cash equivalents at 31 December 20 97.4 166.0 73.0 130.7
---------------------------------------------------------- ------ ------- -------- ------- --------
The notes on pages 21 to 50 are an integral part of these
consolidated financial statements.
Consolidated statement of changes in equity
for the year ended 31 December 2016
Notes Share Share Other Accumulated Total Non-controlling Total
capital premium (1) losses interests equity
reserves
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------ --------- --------- ---------- ------------ -------- ---------------- --------
24,
26,
At 1 January 27,
2015 28 0.2 297.9 1.3 (108.6) 190.8 - 190.8
Loss for
the financial
year - - - (49.9) (49.9) (0.1) (50.0)
Other comprehensive
income
Currency
translation
differences 28 - - 3.1 - 3.1 - 3.1
Total comprehensive 27,
expense 28 - - 3.1 (49.9) (46.8) (0.1) (46.9)
Transactions
with owners:
Issue of
ordinary
shares 24 - 266.1 - - 266.1 - 266.1
Purchase
of own shares 28 - - (0.3) - (0.3) - (0.3)
Employee
share option
scheme 28 - - 2.7 - 2.7 - 2.7
Non-controlling
interests
on acquisition
of subsidiary 28 - - - - - 4.5 4.5
Transactions
with non-controlling
interests 28 - - (4.0) - (4.0) (3.2) (7.2)
----------------------- ------ --------- --------- ---------- ------------ -------- ---------------- --------
24,
26,
At 31 December 27,
2015 28 0.2 564.0 2.8 (158.5) 408.5 1.2 409.7
----------------------- ------ --------- --------- ---------- ------------ -------- ---------------- --------
24,
26,
At 1 January 27,
2016 28 0.2 564.0 2.8 (158.5) 408.5 1.2 409.7
Loss for
the financial
year - - - (137.3) (137.3) (0.1) (137.4)
Other comprehensive
income
Share of
other comprehensive
income of
joint venture - - 0.1 - 0.1 - 0.1
Currency
translation
differences 28 - - 9.7 - 9.7 - 9.7
Total comprehensive 27,
expense 28 - - 9.8 (137.3) (127.5) (0.1) (127.6)
Transactions
with owners:
Purchase
of own shares 28 - - (0.4) - (0.4) - (0.4)
Employee
share option
scheme 28 - - 2.4 - 2.4 - 2.4
Expenses
offset against
share premium 26 - (0.2) - - (0.2) - (0.2)
Transactions
with non-controlling
interests 28 - - (2.1) - (2.1) (1.1) (3.2)
24,
26,
At 31 December 27,
2016 28 0.2 563.8 12.5 (295.8) 280.7 - 280.7
----------------------- ------ --------- --------- ---------- ------------ -------- ---------------- --------
( (1) () Other reserves include share option reserve,
translation reserve, treasury shares reserve, and transactions with
NCI reserve.
The notes on pages 21 to 50 are an integral part of these
consolidated financial statements.
Parent Company statement of changes in equity
for the year ended 31 December 2016
Notes Share Share Share option reserve Retained Total
capital premium earnings equity
/(Accumulated losses)
GBPm GBPm GBPm GBPm GBPm
---------------------- --------------- --------- --------- --------------------- ---------------------- --------
At 1 January 2015 24, 26, 27, 28 0.2 297.9 1.3 1.2 300.6
Loss and total
comprehensive
expense 27 - - - (3.2) (3.2)
Transactions with
owners:
Issue of ordinary
shares 24 - 266.1 - - 266.1
Employee share option
scheme 28 - - 2.4 - 2.4
---------------------- --------------- --------- --------- --------------------- ---------------------- --------
At 31 December 2015 24,26, 27, 28 0.2 564.0 3.7 (2.0) 565.9
---------------------- --------------- --------- --------- --------------------- ---------------------- --------
At 1 January 2016 24, 26, 27, 28 0.2 564.0 3.7 (2.0) 565.9
Profit and total
comprehensive income 27 - - - 2.4 2.4
Transactions with
owners:
Expenses offset
against share
premium 26 - (0.2) - - (0.2)
Employee share option
scheme 28 - - 2.4 - 2.4
---------------------- --------------- --------- --------- --------------------- ---------------------- --------
At 31 December 2016 24, 26, 27, 28 0.2 563.8 6.1 0.4 570.5
====================== =============== ========= ========= ===================== ====================== ========
The notes on pages 21 to 50 are an integral part of these
financial statements.
Notes to the financial statements
1. Summary of significant accounting policies
General information
The Group is a specialty pharmaceutical group focused on the
development and commercialisation of a range of asthma and
respiratory products.
Circassia Pharmaceuticals plc is a public limited company which
is listed on the London Stock Exchange and incorporated and
domiciled in England and Wales. The Company is resident in England
and the registered office is The Magdalen Centre, Robert Robinson
Avenue, Oxford Science Park, Oxford, Oxfordshire, England, OX4
4GA.
The principal accounting policies adopted in the preparation of
this financial information are set out below. These policies have
been consistently applied to all the financial years presented,
unless otherwise stated.
Basis of preparation
The financial information has been prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union ('IFRS'), IFRS Interpretations Committee ('IFRS IC')
interpretations endorsed by the European Union and with those parts
of the Companies Act 2006 applicable to companies reporting under
IFRS. The financial statements have been prepared using the
historical cost convention modified by the revaluation of certain
items, as stated in the accounting policies, and on a going concern
basis.
The results shown for the years ended 31 December 2016 and 2015
are audited. The consolidated financial information contained in
this announcement does not constitute statutory accounts within the
meaning of Section 434 of the Companies Act 2006. Statutory
accounts of the Company in respect of the financial year ended 31
December 2016 were approved by the Board of directors on 25 April
2017 and will be delivered to the Registrar of Companies in due
course. The report of the auditors on those accounts was
unqualified and did not contain an emphasis of matter paragraph nor
any statement under Section 498 of the Companies Act 2006.
Going concern
Though the Group continues to make losses, the Directors have
reviewed the current and projected financial position of the Group,
taking into account existing cash balances. On the basis of this
review, the Directors have not identified any material
uncertainties to the Group's ability to continue to adopt the going
concern basis of accounting for a period of at least 12 months from
the date of approval of the financial statements.
Changes in accounting policy and disclosures
a) The following new standards and amendments to standards were
mandatory for the first time for the financial year beginning 1
January 2016 but had no significant impact on the Group:
- Annual improvements to IFRS 2012-2014 cycle;
- Accounting for acquisition of interests in joint operations - amendments to IFRS 11;
- Clarification of acceptable methods of depreciation and
amortisation - amendments to IAS 16 and IAS 38;
- Equity method in separate financial statements - amendments to IAS 27;
- Disclosure initiative - amendments to IAS 1; and
- Investment entities: applying the consolidation exception -
amendments to IFRS 10, IFRS 12 and IAS 28.
b) Standards, amendments and interpretations to existing
standards that are not yet effective (and in some cases, had not
yet been adopted by the EU) and have not been early adopted by the
Group:
IFRS 9 'Financial instruments', on 'Classification and
measurement' (effective 1 January 2018). This is the first part of
a new standard on classification and measurement of financial
assets that will replace IAS 39. IFRS 9 has two measurement
categories: amortised cost and fair value. All equity instruments
are measured at fair value.
A debt instrument is at amortised cost only if the entity is
holding it to collect contractual cash flows and the cash flows
represent principal and interest. Otherwise it is at fair value
through profit or loss. Amortised cost accounting will also be
applicable for most financial liabilities, with bifurcation of
embedded derivatives. The main change is that in cases where the
fair value option is taken for financial liabilities, the part of a
fair value change due to an entity's own credit risk is recorded in
other comprehensive income rather than the income statement, unless
this creates an accounting mismatch. The Group is yet to assess the
impact of IFRS 9 on its financial information. The Group will also
consider the impact of the remaining phases of IFRS 9.
IFRS 15 'Revenue from contract with customers' (effective 1
January 2018) supersedes current revenue recognition guidance
including IAS 18 'Revenue' and specifies how and when entities
recognise revenue as well as requiring such entities to provide
users of financial statements with more informative, relevant
disclosures. The standard provides a single, principles based
five-step model to be applied to all contracts with customers. The
impact on the Group's financial statements is currently being
assessed.
Notes to the financial statements
1. Summary of significant accounting policies (continued)
IFRS 16 'Leases' (effective 1 January 2019) removes the current
distinction between an operating and finance lease, introducing
consistent requirements for all leases similar to the current
finance lease accounting. The impact on the Group's financial
statements is currently being assessed and it is anticipated that
the standard will be adopted in the Group's financial statements in
line with the effective date stated above.
There are no other IFRSs or IFRIC interpretations that are not
yet effective that would be expected to have a material impact on
the Group.
Use of estimates and assumptions
The preparation of financial information in conformity with IFRS
requires the use of certain critical accounting estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial information and the
reported amounts of revenues and expenses during the reporting
period. Estimates and judgements are continually made and are based
on historic experience and other factors, including expectations of
future events that are believed to be reasonable in the
circumstances.
Critical accounting estimates and assumptions
Where the Group makes estimates and assumptions concerning the
future, the resulting accounting estimates will seldom exactly
match actual results. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year
are addressed below.
Fair value of acquired assets
Intangibles - Technology
In estimating the fair value of Technology, a variation of the
Income Approach called the Relief from Royalty Method is used. This
methodology is considered the standard and preferred technique to
value assets such as trademark, core technology and patents.
Intangibles - Customer Relationships and IPR&D
The Customer Relationships and IPR&D have been valued based
on the Excess Earnings Method. This valuation method is based on
discounting the cash flows that can be attributed to the intangible
asset, after taking into account the contribution of other
assets.
Deferred tax
Deferred tax assets have been recognised in relation to tax
losses carried forward in Aerocrine and Prosonix, but only to the
extent of deferred tax liabilities arising in the same
jurisdictions as the brought forward losses. Management have
concluded that it is not yet probable that taxable profits will be
available in the relevant jurisdictions to utilise brought forward
losses in excess of deferred tax liabilities. Judgement is required
in making this determination. Management anticipate that taxable
profits will be considered probable for the purposes of recognising
deferred tax assets under IAS 12 only when there is a stable
history of profitability in those tax jurisdictions.
Share issue costs
In June 2015 the Group completed an offer and placement of new
shares to finance the acquisitions of Aerocrine and Prosonix. Under
IFRS incremental costs that are directly attributable to an equity
transaction that otherwise would have been avoided had the equity
instruments not been issued are accounted for through equity. Any
acquisition related costs (for example due diligence) must be
expensed in the income statement. There is a level of judgement in
determining which costs meet the criteria of an equity
transaction.
Goodwill and other intangible assets
Goodwill and other intangible assets impairment reviews are
undertaken annually or more frequently if events or changes in
circumstances indicate a potential impairment. Judgements and
estimates are made in respect of the carrying value of the cash
generating units (CGU) containing the goodwill taking into account
key assumptions (see note 14) about the product candidates. If the
Group is unable to obtain regulatory approval or to commercialise
its product candidates, or experiences significant delays in doing
so, this could result in an impairment of the related goodwill and
intellectual property rights.
Share based payments
Options were valued using the Black Scholes option pricing model
or the Monte Carlo Simulation depending on the type of option
issued. For each relevant option grant, individual valuation
assumptions were assessed based upon conditions at the date of
grant. The range of assumptions in the calculation of share based
payments is given in note 25.
Notes to the financial statements
1. Summary of significant accounting policies (continued)
Non-underlying items
The Group presents certain items of income and expense as
non-underlying in the Consolidated Statement of Comprehensive
Income. The determination that an item should be presented as
non-underlying is a judgement of the management. The management
considers whether providing separate disclosure is helpful in
understanding the underlying performance of the business, based on
the nature and size of the items and infrequency of the events
giving rise to them.
Business combinations
The Group accounts for all business combinations under the
acquisition method. Under the acquisition method, the identifiable
assets acquired and liabilities and contingent liabilities assumed
are measured at their fair value at the acquisition date.
Judgements are made in determining the basis on which goodwill
arising on business combinations is allocated to CGUs. Estimates
are made in relation to the cash flow forecasts, probability
factors and discount rates used for this purpose.
Consolidation
Subsidiaries
Subsidiaries are all entities (including structured entities)
over which the Group has control. The Group controls an entity when
the Group is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those
returns through its power over the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the
Group. They are de-consolidated from the date that control ceases.
Inter-company transactions, balances and unrealised gains on
transactions between Group companies are eliminated. Accounting
policies of subsidiaries are consistent with the policies adopted
by the Group.
Joint arrangements
The Group applies IFRS 11 to all joint arrangements. Under IFRS
11 investments in joint arrangements are classified as either joint
operations or joint ventures depending on the contractual rights
and obligations of each investor. Circassia Pharmaceuticals plc has
assessed the nature of its joint arrangements and determined them
to be joint ventures. Joint ventures are accounted for using the
equity method.
Under the equity method of accounting, interests in joint
ventures are initially recognised at cost and adjusted thereafter
to recognise the Group's share of the post-acquisition profits or
losses and movements in other comprehensive income. When the
Group's share of losses in a joint venture equals or exceeds its
interests in the joint ventures (which includes any long-term
interests that, in substance, form part of the Group's net
investment in the joint ventures), the Group does not recognise
further losses, unless it has incurred obligations or made payments
on behalf of the joint ventures.
Unrealised gains on transactions between the Group and its joint
ventures are eliminated to the extent of the Group's interest in
the joint ventures. Unrealised losses are also eliminated unless
the transaction provides evidence of an impairment of the asset
transferred. Accounting policies of the joint ventures have been
changed where necessary to ensure consistency with the policies
adopted by the Group.
Segmental reporting
The Group had three business segments during 2016, Allergy,
Respiratory and NIOX(R). This is consistent with the internal
reporting provided to the chief operating decision-maker. The chief
operating decision-maker, who is responsible for allocating
resources and assessing performance, has been identified as the
Executive Directors, who make strategic decisions.
Clinical study expenses
Where payments to clinical study sites are made in advance for
the purchase of stocks of materials for use in clinical studies,
the relevant costs are included in receivables as prepaid clinical
study expenses. Expenses are charged to the income statement as
clinical study services are carried out by third party suppliers,
or clinical study materials are received.
Financial instruments
The Group's financial instruments comprise cash and cash
equivalents, short-term bank deposits, receivables and payables
arising directly from operations.
Cash and cash equivalents comprise cash in hand and short-term
deposits which have an original maturity of three months or less
and are readily convertible into known amounts of cash. Such assets
are classified as current, where management intend to dispose of
the asset within 12 months of the end of the reporting period. Bank
deposits with maturity of more than 12 months after the end of the
reporting period are classified as non-current assets.
Notes to the financial statements
1. Summary of significant accounting policies (continued)
Where derivatives exist in the financial year, they are
initially recognised at fair value on the date a derivative
contract is entered into and are subsequently re-measured at their
fair value at each reporting date, with any resulting gain or loss
recognised through profit or loss.
The Group does not have any committed borrowing facilities, as
its cash, cash equivalents and short-term deposits are sufficient
to finance its current operations. Cash balances are mainly held on
short and medium term deposits with quality financial institutions,
in line with the Group's policy to minimise the risk of loss. The
main risks associated with the Group's financial instruments relate
to interest rate risk and foreign currency risk (note 2).
Leases
Leases in which a significant portion of the risks and rewards
of ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases (net of any incentives
received from the lessor) are charged to the income statement on a
straight line basis over the period of the lease.
Goodwill and Intangible assets
Intangible fixed assets, relating to goodwill, customer
relationships, technology and intellectual property rights acquired
through licensing or assigning patents and know-how are carried at
historic cost, less accumulated amortisation, where the useful
economic life of the asset is finite and the asset will probably
generate economic benefits exceeding costs.
Amortisation is calculated using the straight line method to
allocate the cost of intangible assets over their estimated useful
lives, as follows:
Intangible asset Estimated useful
lives
----------------------- -----------------
IPR&D 5 - 10 years
Customer Relationships 18 years
Technology 15 - 20 years
Software 5 years
----------------------- -----------------
Goodwill arising on the acquisition of subsidiaries represents
the excess of the consideration transferred, the amount of any
non-controlling interests in the acquiree and the acquisition date
fair value of any previous equity interest in the acquiree over the
fair value of the identifiable net assets acquired.
For the purpose of impairment testing, goodwill acquired in a
business combination is allocated to each of the CGUs, or groups of
CGUs, that are expected to benefit from the synergies of the
combination. Each unit or group of units to which the goodwill is
allocated represents the lowest level within the entity at which
the goodwill is monitored for internal management purposes.
Goodwill is monitored at the operating segment level.
Goodwill impairment reviews are undertaken annually or more
frequently if events or changes in circumstances indicate a
potential impairment. The carrying value of the CGU containing the
goodwill is compared to the recoverable amount, which is the higher
of value in use and the fair value less costs of disposal. Any
impairment is recognised immediately as an expense and is not
subsequently reversed.
Where an acquired intangible asset is not yet available for use
in the manner intended by management, the asset is tested annually
for impairment by allocating the assets to the CGUs to which they
relate. Amortisation would commence when product candidates
underpinned by the intellectual property rights become available
for commercial use. Amortisation would be calculated on a straight
line basis over the shorter of the remaining useful life of the
intellectual property or the estimated sales life of the product
candidates.
Expenditure on product development is capitalised as an
intangible asset and amortised over the expected useful economic
life of the product candidate concerned. Capitalisation commences
from the point at which technical feasibility and commercial
viability of the product candidate can be demonstrated and the
Group is satisfied that it is probable that future economic
benefits will result from the product candidate once completed.
Capitalisation ceases when the product candidate receives
regulatory approval for launch. No such costs have been capitalised
to date.
Expenditure on research and development activities that do not
meet the above criteria, including ongoing costs associated with
acquired intellectual property rights and intellectual property
rights generated internally by the Group, is charged to the income
statement as incurred. Intellectual property and in-process
research and development from acquisitions are recognised as
intangible assets at fair value. Any residual excess of
consideration over the fair value of net assets in an acquisition
is recognised as goodwill in the financial statements.
Notes to the financial statements
1. Summary of significant accounting policies (continued)
Computer Software
Expenditure on software costs are capitalised as an intangible
asset and amortised over the expected useful economic life of the
software. Until such an asset is fully developed, the costs are
capitalised and classified within intangibles assets as 'Software
in development'. These costs are not amortised until the software
has been fully developed and operational, at which point the total
cost of the software development is amortised over its estimated
useful life.
Investments
Investments in subsidiary companies are recognised and carried
at cost less any identified impairment losses at the end of each
reporting period. Investments are impaired where there is objective
evidence that the estimated future cash flows of the investment
have been affected.
Inventories
Inventories are valued at the lower of the acquisition cost and
the net realisable value. The FIFO (first in, first out) principle
is used to calculate the value of inventories. Inventories mainly
comprise products for sale and stocks of components for the service
activities in Sweden and the US. The acquisition value comprises
all expenses for purchases. The net realisable value is the
expected sale price less expected costs for preparation and
selling.
Impairment of non-financial assets
Assets that have an indefinite useful life, for example goodwill
or intangible assets not ready for use, are not subject to
amortisation and are tested annually for impairment. Assets that
are subject to amortisation are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised for
the amount by which the asset's carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an
asset's fair value less costs to sell and value in use. For the
purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows
(cash-generating units). Non-financial assets other than goodwill
that suffered an impairment are reviewed for possible reversal of
the impairment at each reporting date. Charges or credits for
impairment are passed through the income statement.
Property, plant and equipment
Property, plant and equipment is stated at historical cost less
depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items. Subsequent costs are
included in the asset's carrying amount or recognised as a separate
asset, as appropriate, only when it is probable that future
economic benefits associated with the item will flow to the Group
and the cost of the item can be measured reliably. The carrying
amount of replaced parts is derecognised. All other repairs and
maintenance are charged to the income statement during the
financial period in which they are incurred.
Depreciation is calculated using the straight line method to
allocate the cost of assets over their estimated useful lives, as
follows:
Property, plant and equipment Depreciation rate
------------------------------- ------------------------
Leasehold improvements Over the life of the
unbreakable portion of
the lease
Plant and equipment 10% - 33%
Fixtures and fittings 20%
------------------------------- ------------------------
Individually significant tangible assets that are intended to be
held by the Group for use in the production or supply of goods and
services or for administrative purposes and that are expected to
provide economic benefit for more than one year are capitalised.
All other assets of insignificant value are charged to the income
statement in the year of acquisition.
Costs incurred relating to an asset that is not yet complete are
capitalised and held as Assets under construction until they are
brought into use. The asset is then transferred to the appropriate
asset class and depreciated in line with the policy above.
Trade and other receivables
Trade receivables are carried at original invoice amount less
any provisions for doubtful debts. Provisions are made where there
is evidence of a risk of non-payment, taking into account ageing,
previous experience and general economic conditions. When a trade
receivable is determined to be uncollectable, it is written off,
firstly against any provision available and then to the income
statement. Subsequent recoveries of amounts previously provided for
are credited to the income statement. Other receivables are
recognised initially at fair value and subsequently measured at
amortised cost, using the effective interest method, less provision
for impairment. A provision for impairment of other receivables is
established when there is objective evidence that the Group will
not be able to collect all amounts due according to the original
terms of the receivables.
Notes to the financial statements
1. Summary of significant accounting policies (continued)
Trade payables
Trade payables are obligations to pay for goods or services that
have been acquired in the ordinary course of business from
suppliers. They are initially recognised at fair value and
subsequently held at amortised cost. Accounts payable are
classified as current liabilities if payment is due within one year
or less. If not, they are presented as non-current liabilities.
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources will be required to settle
the obligation and a reliable estimate can be made of the amount of
the obligation. If the amounts involved are significant, provisions
are determined by discounting the expected future cash flows at a
pre-tax rate which reflects the current market assessment of the
time value of money and, when appropriate, the risks specific to
the liability.
Where a leasehold property substantially ceases to be used for
the Group's business, or a commitment is entered into which would
cause this to occur, provision is made to the extent that the
recoverable amount of the interest in the property is expected to
be insufficient to cover the future obligations relating to the
lease.
A charge for restructuring costs is taken to the income
statement when the Group has approved a detailed and formal
restructuring plan, and the restructuring has either commenced
or the Group has a constructive obligation ,for example
having made an announcement publicly to the employee or the
Group as a whole.
Cash and cash equivalents
In the consolidated statement of cash flows, cash and cash
equivalents include cash in hand, deposits held on call with banks,
and other short-term highly liquid investments with original
maturities of three months or less from the date of original
investment.
Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares or options are
shown in equity as a deduction, net of tax, from the proceeds.
Employee benefit costs
The Group makes contributions to defined contribution personal
pension schemes for its Directors and employees. The pension cost
charge recognised in the year represents amounts payable by the
Group to the funds. The Group has no further payment obligations
once the contributions have been paid. The contributions are
recognised as employee benefit expense when they are due.
Share based payments
The Group operates a number of equity-settled, share based
compensation plans, under which the entity receives services from
employees as consideration for equity instruments (options) of the
Group. The fair value of the employee services received in exchange
for the grant of the options is recognised as an expense. The total
amount to be expensed is determined by reference to the fair value
of the options granted:
- including the effect of any market performance conditions (for
example, an entity's share price);
- excluding the impact of any service and non-market performance
vesting conditions (for example, profitability, sales growth
targets and remaining an employee of the entity over a specified
time period); and
- including the impact of any non-vesting conditions (for
example, the requirement for employees to save).
Non-market performance and service conditions are included in
assumptions about the number of options that are expected to vest.
The total expense is recognised over the vesting period, which is
the period over which all of the specified vesting conditions are
to be satisfied.
The grant by the Company of options over its equity instruments
to the employees of subsidiary undertakings in the Group is treated
as a capital contribution. The fair value of employee services
received, measured by reference to the grant date fair value, is
recognised over the vesting period as an increase to investment in
subsidiary undertakings, with a corresponding credit to equity in
the parent entity financial statements.
The Group's employees participate in various share option
schemes as disclosed in note 25. Equity settled share based
payments are measured at fair value at the date of grant and
expensed on a straight line basis over the vesting period of the
award. At the end of each reporting period the Group revises its
estimate of the number of options that are expected to become
exercisable. The financial consequences of revisions to the
original estimates, if any, are recognised in the income statement,
with a corresponding adjustment to equity.
Notes to the financial statements
1. Summary of significant accounting policies (continued)
The fair value of share options is measured using either the
Black Scholes option pricing model or the Monte Carlo Simulation.
This is dependent on the conditions attached to each of the issued
options. Where conditions are non-market based the Black Scholes
option pricing model is used. Where market based conditions are
attached to options, the fair value is determined using the Monte
Carlo Simulation.
Other employee benefits
The expected cost of compensated short-term absence (e.g.
holidays) is recognised when employees render services that
increase their entitlement. An accrual is made for holidays earned
but not taken, and prepayments recognised for holidays taken in
excess of days earned.
Revenue
Revenue comprises the fair value of consideration received or
receivable for the sale of goods and services in the ordinary
course of the Group's activities. Revenue is shown net of value
added tax and trade discounts and after elimination of intra-Group
sales. Income is reported as follows:
Sale of goods
The Group sells medical technology equipment that enables
inflammation of the airways to be measured as well as consumable
items and spare parts. Sales are reported as income when the
significant risks and benefits have transferred to the buyer and
the seller no longer has any significant control over the goods.
The Group provides 12 month guarantees for certain products and
includes a provision for estimated future claims.
Licence income
Technology and product licensing revenue represents amounts
earned for licences granted under licensing agreements, including
up-front payments, milestone payments and technology access fees.
Revenues are recognised when this income becomes non-refundable
under the terms of the licence and where the Group's obligations
related to the revenues have been completed. Refundable licensing
revenue is treated as deferred until such time that it is no longer
refundable. In general, up-front payments are deferred and
amortised in line with the period of development. Milestone
payments relating to defined project achievements are recognised as
income when the milestone is accomplished.
Royalty revenue is recognised on an accrued basis and represents
income earned as a percentage of product sales in accordance with
the relevant agreement net of any amounts contractually payable to
others under the terms of the relevant royalty agreement.
Foreign currency translation
Monetary assets and liabilities in foreign currencies are
translated into Sterling at the rates of exchange ruling at the end
of the financial year. Transactions in foreign currencies are
translated into Sterling at the rates of exchange ruling at the
date of the transaction. Foreign exchange differences are taken to
the income statement in the year in which they arise and presented
within 'Finance costs or income'.
Foreign exchange differences on translation of foreign
operations into the Group presentational currency, are recognised
as a separate element of other comprehensive income. Cumulative
exchange differences are presented in a separate component of
equity entitled Translation reserve.
Taxation including deferred tax
The charge for current tax is based on the results for the year,
adjusted for items which are non-assessable or disallowed. It is
calculated using tax rates that have been enacted or substantively
enacted at the end of each reporting period.
The Group is entitled to claim tax credits in the United Kingdom
for certain research and development expenditure. The amount
included in the financial statements at the year end represents the
credit receivable by the Group for the year and adjustments to
prior years.
Deferred tax is accounted for using the liability method in
respect of temporary differences arising from differences between
the carrying amount of assets and liabilities in the financial
information and the corresponding tax bases used in the computation
of taxable profit. In principle, deferred tax liabilities are
recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible
temporary differences can be utilised.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries and joint
ventures, except where the Group is able to control the reversal of
the temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future.
Notes to the financial statements
1. Summary of significant accounting policies (continued)
Deferred tax is calculated at the average tax rates that are
expected to apply to the period when the asset is realised or the
liability is settled. Deferred tax is charged or credited in the
statement of comprehensive income, except when it relates to items
credited or charged directly to equity, in which case the deferred
tax is also dealt with in equity.
2. Financial and capital risk management
Capital risk management
The Group's objectives when managing capital are to safeguard
the ability to continue as a going concern and ensure that
sufficient capital is in place to fund the Group's activities. The
Group's principal method of adjusting the capital available has
been through issuing new shares. During 2015, the Company issued
95,469,537 Ordinary shares which funded the acquisitions of
Aerocrine and Prosonix. The shares were offered at 288.05p each,
raising gross proceeds of GBP275.0 million. The Group's capital is
comprised of share capital and share premium, which are disclosed
in notes 24 and 26 respectively. The Group monitors the
availability of capital with regard to its forecast future
expenditure on an ongoing basis.
Transaction and translation risk
Foreign exchange fluctuations may adversely affect the Group's
results and financial condition. The Group prepares its financial
statements in pound sterling, but a significant proportion of its
expenditure and subsidiary results are in various currencies
including US dollars, Swedish krona and Euros. The Group does not
currently hedge against translation risk.
Financial risk factors
The Group's simple structure and the lack of external debt
financing reduces the range of financial risks to which it is
exposed. Monitoring of financial risk is part of the Board's
ongoing risk management, the effectiveness of which is reviewed
annually. The Group's agreed policies are implemented by the Chief
Executive Officer, who submits periodic reports to the Board.
Foreign exchange risk
The majority of operating costs are denominated in Sterling,
United States dollars, Euro or Swedish krona. Foreign exchange risk
arises from future commercial transactions and recognised assets
and liabilities. The nature or level of risk that the Group is
exposed to has changed during 2016 as a result of the UK referendum
decision to leave the European Union. It is considered that it is
too early to quantify the exact impact for the Group and the
Directors will keep the situation under review and act to mitigate
any increased risks accordingly.
In relation to foreign currency risk, the Group's policy is to
hold the majority of its funds in Sterling, and to use short -
medium term currency purchase options (including spot purchases and
forward contracts) and interest-bearing foreign currency deposits
to manage short - medium term fluctuations in exchange rates.
The change in foreign exchange rates that is assessed to be
reasonably likely for each currency in 2016 is 15% (2015: 5%).
At 31 December 2016, if the Euro had weakened/strengthened by
15% against Sterling with all other variables held constant, the
post tax loss for the year would have been GBP1.6 million (2015:
GBP0.5 million) lower/higher, as a result of net foreign exchange
gains/losses on translation of Euro-denominated payables,
receivables and foreign exchange losses/gains on translation of
Euro-denominated bank balances.
The impact on post tax loss at 31 December 2016 of a 15%
weakening/strengthening of the US dollar against Sterling with all
other variables held constant would have been a decrease/increase
of GBP0.6 million (2015: GBP1.3 million).
The impact on post tax loss at 31 December 2016 of a 15%
weakening/strengthening of the Swedish krona against Sterling with
all other variables held constant would have been a
decrease/increase of GBP0.3 million (2015: GBP1.1 million).
The Group is also exposed to currency translation risk in
respect of the foreign currency denominated assets and liabilities
of its overseas subsidiaries. At present, the Group does not
consider this to be a significant risk since the Group does not
intend to move assets between Group companies.
Notes to the financial statements
2. Financial and capital risk management (continued)
Interest rate risk
The Group's policy in relation to interest rate risk is to
monitor short and medium term interest rates and to place cash on
deposit for periods that optimise the amount of interest earned
while maintaining access to sufficient funds to meet day to day
cash requirements.
The Group does not have any committed external borrowing
facilities, as its cash and cash equivalents and short-term deposit
balances are sufficient to finance its current operations.
Consequently, there is no material exposure to interest rate risk
in respect of interest payable.
If interest rates had been 10 basis points higher/lower the
impact on net loss in 2016 would have been an increase/decrease of
GBP0.1 million (2015: GBP0.2 million) due to changes in the amount
of interest receivable.
Credit risk
The Group's policy following Admission to the London Stock
Exchange is to place funds with financial institutions which have a
minimum credit rating with Fitch IBCA of A- long term / F1
short-term. During 2016 the Group placed funds on deposit with 7
banks (2015: 10 banks). The Group does not allocate a quota to
individual institutions but seeks to diversify its investments,
where this is consistent with achieving competitive rates of
return. It is the Group's policy to place not more than GBP35
million (or the equivalent in other currencies) with any one
counterparty.
The value of financial instruments held represents the maximum
exposure that the Group has to them. There is no collateral held
for this type of credit risk.
No credit limits were exceeded during any of the periods
reported, and management does not expect any material losses from
non-performance by these counterparties.
Cash flow and liquidity risk
Funds are generally placed on deposit with the maturity profile
of investments being structured to ensure that sufficient liquid
funds are available to meet operating requirements. The Directors
do not consider that there is presently a material cash flow or
liquidity risk.
The table below analyses the Group's financial liabilities into
relevant maturity groupings based on the remaining period at the
balance sheet date to the contractual maturity date. There were no
financial liabilities outstanding for periods greater than one
year. The amounts disclosed in the table are the contracted
undiscounted cash flows:
At 31 December Less than 1 year Less than 1 year
2016 2015
GBPm GBPm
Trade and other payables 21.5 48.3
Total 21.5 48.3
-------------------------- ----------------- -----------------
Derivative financial instruments and hedging
There were no derivatives at 31 December 2016 or 31 December
2015.
3. Operating segments
The chief operating decision-maker (the Executive Directors) is
responsible for making key operating decisions in the Group.
Assessment of performance and decisions regarding the allocation of
resources are made by operating segment. The 2016 operating
segments are identified within the Group by product portfolios:
- Allergy: relates to a range of immunotherapy development products.
- NIOX(R) relates to the portfolio of products used to improve
asthma diagnosis and management by measuring fractional exhaled
nitric oxide (FeNO) and
- Respiratory relates to the portfolio of asthma and chronic
obstructive pulmonary disease product candidates.
The table below presents information regarding the Group's
operating segments for the years ended 31 December 2016 and 2015.
During 2016 the Aerocrine and Prosonix businesses acquired in June
2015 have been further integrated into the Group resulting in
consolidation of some operations (mainly support functions). Hence
some costs are now shared between the segments and are not
allocated to individual segments for decision making purposes.
Notes to the financial statements
3. Operating segments (continued)
Segment operating loss
Year ended 31 December 2016 Allergy NIOX(R) Respiratory Unallocated Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------------------------------ -------- -------- ------------ ------------ --------
Revenue (from external customers by country, based on the
destination of the customer)
US - 7.8 - - 7.8
EU - 7.8 - - 7.8
Other countries - 7.5 - - 7.5
------------------------------------------------------------ -------- -------- ------------ ------------ --------
Total segment revenue - 23.1 - - 23.1
Research and development (25.4) (7.7) (6.8) (4.3) (44.2)
Sales and marketing - (28.3) - - (28.3)
Administrative expenses - (4.2) - (9.8) (14.0)
Depreciation, amortisation and impairment (1) (74.8) (4.4) (0.4) (0.5) (80.1)
Other - (8.0) - - (8.0)
Operating loss (100.2) (29.5) (7.2) (14.6) (151.5)
------------------------------------------------------------ -------- -------- ------------ ------------ --------
Year ended 31 December 2015 Allergy NIOX(R) Respiratory Unallocated Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------------------------------ -------- -------- ------------ ------------ --------
Revenue (from external customers by country, based on the
destination of the customer)
US - 3.6 0.3 - 3.9
EU - 3.9 0.2 - 4.1
Other countries - 2.8 - - 2.8
------------------------------------------------------------ -------- -------- ------------ ------------ --------
Total segment revenue - 10.3 0.5 - 10.8
Research and development (37.3) (2.0) (5.5) - (44.8)
Sales and marketing (5.2) (7.5) - - (12.7)
Administrative expenses (10.6) (2.2) (0.9) - (13.7)
Depreciation and amortisation (1) (0.1) (2.2) (0.6) - (2.9)
Other 1.1 (4.1) (0.1) - (3.1)
Operating loss (52.1) (7.7) (6.6) - (66.4)
------------------------------------------------------------ -------- -------- ------------ ------------ --------
(1) Depreciation, amortisation and impairment is included on the
face of the statement of comprehensive income within 'Research and
development costs', 'Sales and marketing' and 'Administrative
expenses'
Assets by segment
As at 31 December 2016 Allergy NIOX(R) Respiratory Unallocated Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------------------ -------- -------- ------------ ------------ ------
Cash, cash equivalents and short term deposits - 7.3 3.5 106.6 117.4
Property, plant and equipment - - - 1.4 1.4
Goodwill - 5.3 4.4 - 9.7
Intangible assets - 59.5 107.6 - 167.1
Deferred tax assets - - - 16.6 16.6
Investment in joint venture - - - 0.9 0.9
Inventories - - - 4.6 4.6
Trade and other receivables - - - 7.7 7.7
Current tax assets - - - 8.7 8.7
Total assets - 72.1 115.5 146.5 334.1
Aa at 31 December 2015 Allergy NIOX(R) Respiratory Unallocated Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------------------ -------- -------- ------------ ------------ ------
Cash, cash equivalents and short term deposits 200.4 0.4 3.0 - 203.8
Property, plant and equipment - - - 1.3 1.3
Goodwill 72.1 4.7 4.4 - 81.2
Intangible assets 0.4 57.7 107.5 - 165.6
Deferred tax assets - - - 17.2 17.2
Investment in joint venture - - - 0.2 0.2
Inventories - - - 3.0 3.0
Trade and other receivables - - - 5.1 5.1
Current tax assets - - - 11.8 11.8
Total assets 272.9 62.8 114.9 38.6 489.2
Notes to the financial statements
3. Operating segments (continued)
Following the cat allergy immunotherapy phase III study results
in 2016, the Allergy portfolio value has been fully written down
resulting in the goodwill impairment charge of GBP74.5 million. In
addition, related licences and patents have been fully impaired
resulting in GBP0.3 million impairment charge to Allergy intangible
assets.
4. Revenue
The Group derives the following types of revenue:
2016 2015
GBPm GBPm
------------------------------- ------ ------
Sale of goods 23.0 10.3
Licence and milestone revenue 0.1 0.5
Total revenue 23.1 10.8
------------------------------- ------ ------
5. Employees and directors
The average monthly number of persons (including Executive
Directors) employed by the Group during the year was:
2016 2015
By activity Number Number
-------------------------- -------- --------
Office and management 46 49
Sales and marketing 138 67
Research and development 107 88
-------------------------- -------- --------
Total average headcount 291 204
-------------------------- -------- --------
The average number of administration staff employed by the
Company during the year, including Executive Directors, was 2
(2015: 2).
For 2015 medical affairs staff was reclassified from sales and
marketing to research and development to align reporting with
2016.
Employee benefit costs Group Company
------------------------------ -------------- --------------
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
------------------------------ ------ ------ ------ ------
Wages and salaries 28.1 13.2 1.1 1.5
Social security costs 2.8 2.2 0.2 0.1
Other pension costs 1.2 0.5 0.1 0.1
Share options expense 2.4 2.7 - -
------------------------------ ------ ------ ------ ------
Total employee benefit costs 34.5 18.6 1.4 1.7
------------------------------ ------ ------ ------ ------
The Group contributes to defined contribution pension schemes
for its Executive Directors and employees. Contributions of
GBP101,236 (included in other payables) were payable to the funds
at the year end (2015: GBP52,979).
The details of Directors of the Group who received emoluments
from the Group during the year are shown in the Annual report on
remuneration in the Remuneration Committee report.
Key management personnel
Key management personnel during the year included Directors
(Executive and Non-executive), the Chief Commercial Officer, the
General Counsel, VP of Human Resources and the Chief Business
Officer. The compensation paid or payable to key management is set
out below.
2016 2015
GBPm GBPm
------------------------------------------------ ------ ------
Short term employee benefits (including bonus) 2.3 3.4
Post-employment benefits 0.2 0.2
Share based payment 1.5 1.1
Total 4.0 4.7
------------------------------------------------ ------ ------
Notes to the financial statements
6. Finance income and costs
2016 2015
GBPm GBPm
----------------------------------- ------- ------
Finance costs:
Bank charges and interest payable (0.1) -
----------------------------------- ------- ------
Total finance costs (0.1) -
----------------------------------- ------- ------
Finance income:
Bank interest receivable 0.9 1.7
Net gain on foreign exchange 5.2 1.8
----------------------------------- ------- ------
Total finance income 6.1 3.5
----------------------------------- ------- ------
7. Operating expenses
Operating loss is stated after charging the following:
2016 2015
GBPm GBPm
---------------------------------------------------- ------ ------
Employee benefit costs (note 5) 34.5 18.6
Externally contracted research & development 27.6 36.4
Legal and professional fees including patent costs 5.1 6.8
Depreciation (1) 0.7 0.5
Amortisation (1) 4.6 2.4
Impairment of goodwill and other intangible assets 74.8 -
Operating lease 1.6 0.8
---------------------------------------------------- ------ ------
(1) Depreciation and amortisation is included on the face of the
statement of comprehensive income within 'Research and development
costs' and 'Sales and marketing'
8. Auditors' remuneration
Services provided by the Group's auditors and their
associates
During the year the Group obtained services from the auditors as
detailed below:
2016 2015
GBPm GBPm
----------------------------------------------------------------------------------------------- ------ ------
Fees payable to the Group's auditors and their associates for the audit of the parent company
and consolidated financial statements 0.2 0.2
Fees payable to the Group's auditors and their associates for other services:
The audit of the Company's subsidiaries 0.1 0.1
Other assurance services (1) 0.3 0.2
Total 0.6 0.5
----------------------------------------------------------------------------------------------- ------ ------
(1) Other assurance services in 2016 mainly relate to due
diligence services performed on perspective acquisitions. In 2015
the costs related to services performed in respect of the
acquisition of Aerocrine and Prosonix. 2015 costs were offset
against the share premium reserve.
9. Other gains
2016 2015
GBPm GBPm
---------------------------------------- ------- ------
Forward contract foreign exchange gain - 1.1
---------------------------------------- ------- ------
Notes to the financial statements
10. Non-underlying items
Non-underlying items charged to loss for the year comprise
significant non-recurring items. Management considers that
providing separate disclosure of such items is helpful in
understanding the underlying performance of the business.
The following non-underlying items have been recognised in the
income statement for the year:
2016 2015
GBPm GBPm
------------------------------------------ ------ ------
Charged to research and development costs
Onerous contract costs 2.4 -
Restructuring costs 1.2 -
Intangible assets impairment 0.3 -
------------------------------------------ ------ ------
3.9 -
Charged to sales and marketing costs
Restructuring costs 1.3 -
Goodwill impairment 74.5 -
------------------------------------------ ------ ------
75.8 -
Charged to administrative expenses
Restructuring costs 0.3 -
------------------------------------------ ------ ------
0.3 -
------------------------------------------ ------ ------
Total 80.0 -
------------------------------------------ ------ ------
Onerous contract costs
Following the negative result from the cat allergy phase III
study, management has reassessed R&D expenditure in line with
the updated strategy resulting in termination of some trial batch
manufacturing contracts.
Restructuring costs
Restructuring costs comprise cost optimisation initiatives
including severance payments, compensation for loss of office,
property and other contract termination costs.
Goodwill and other intangible assets impairment
Impairments totalling GBP74.8 million (2015: GBPnil) were
recognised in the year following the negative result from the cat
allergy phase III study. Further disclosures are given in notes 14
and 15.
11. Taxation
The Group is entitled to claim tax credits in the United Kingdom
for certain research and development expenditure. The amount
included in the financial statements for the years ended 31
December 2016 and 2015 represents the credit receivable by the
Group for the year and adjustments to prior years. The 2016 amounts
have not yet been agreed with the relevant tax authorities.
2016 2015
GBPm GBPm
---------------------------------------------------------------- ------ -------
Current tax
United Kingdom corporation tax research and development credit (8.6) (10.3)
Adjustments in respect of prior year (0.2) (0.3)
---------------------------------------------------------------- ------ -------
Total current tax (8.8) (10.6)
---------------------------------------------------------------- ------ -------
Deferred tax
(Increase) / decrease in deferred tax assets (0.8) 0.5
Increase / (decrease) in deferred tax liabilities 0.6 (2.7)
Adjustments in respect of prior year 1.5 -
---------------------------------------------------------------- ------ -------
Total deferred tax 1.3 (2.2)
---------------------------------------------------------------- ------ -------
Total tax (7.5) (12.8)
---------------------------------------------------------------- ------ -------
Notes to the financial statements
11. Taxation (continued)
The tax credit for the year is lower (2015: higher) than the
standard rate of corporation tax in the UK of 20% (2015: 20.25%).
The differences are explained below:
2016 2015
GBPm GBPm
------------------------------------------------------------------------------------------- -------- -------
Loss on ordinary activities before tax (144.9) (62.8)
------------------------------------------------------------------------------------------- -------- -------
Loss on ordinary activities before tax multiplied by the standard rate of corporation tax
in the UK of 20% (2015: 20.25%) (29.0) (12.7)
Expenses not deductible for tax purposes (permanent differences) 15.6 0.8
Temporary timing differences on employee share options 0.2 -
Research & development relief uplift (3.5) (4.0)
Utilisation of losses not previously recognised - (0.2)
Adjustments in respect of prior year 1.3 (0.3)
Tax losses for which no deferred income tax asset was recognised 7.9 3.6
Tax credit for the year (7.5) (12.8)
------------------------------------------------------------------------------------------- -------- -------
At 31 December 2016, the Group has tax losses to be carried
forward of approximately GBP292.8 million (2015: GBP223.3
million).
At 31 December 2016, the Group has current tax assets arising
from tax credits in the United Kingdom for certain research and
development expenditure of GBP8.7 million (2015: GBP11.8
million).
A reduction in the rate of UK corporation tax to 19% from 1
April 2017 and to 17% from 1 April 2020 has been substantively
enacted. UK deferred tax assets and liabilities are recognised at a
rate of 17% (2015: 18%).
12. Loss per share
Basic loss per share is calculated by dividing the loss
attributable to ordinary equity holders of the Company by the
weighted average number of Ordinary shares in issue during the
year.
2016 2016 2016 2015
Underlying operations Non-underlying items Total Total
------------------------------------------- ---------------------- --------------------- ------------ ------------
Loss from continuing operations
attributable to ordinary equity owners of
the parent company
(GBPm) (57.3) (80.0) (137.3) (49.9)
Weighted average number of Ordinary shares
in issue (Number) 284,889,171 284,889,171 284,889,171 249,578,520
------------------------------------------- ---------------------- --------------------- ------------ ------------
Loss per share GBP(0.20) GBP(0.28) GBP(0.48) GBP(0.20)
------------------------------------------- ---------------------- --------------------- ------------ ------------
As net losses from continuing operations were recorded in 2016
and 2015, the dilutive potential shares are anti-dilutive and
therefore were excluded from the earnings per share
calculation.
Notes to the financial statements
13. Property, plant and equipment
Total property,
Fixtures and Assets under plant and
Leasehold fittings Plant and construction equipment
improvements machinery
Group GBPm GBPm GBPm GBPm GBPm
------------------- ------------------ ------------------ ------------------ ------------------ -----------------
At 1 January 2015
Cost 0.3 - - - 0.3
Accumulated - - - - -
depreciation
------------------- ------------------ ------------------ ------------------ ------------------ -----------------
Net book amount 0.3 - - - 0.3
------------------- ------------------ ------------------ ------------------ ------------------ -----------------
Year ended 31
December 2015
Opening net book
amount 0.3 - - - 0.3
Acquisition of
subsidiaries 0.2 0.1 0.5 0.5 1.3
Additions - - 0.1 0.1 0.2
Depreciation (0.2) - (0.3) - (0.5)
Transfers - - 0.6 (0.6) -
------------------- ------------------ ------------------ ------------------ ------------------ -----------------
Closing net book
amount 0.3 0.1 0.9 - 1.3
------------------- ------------------ ------------------ ------------------ ------------------ -----------------
At 31 December
2015
Cost 0.5 0.1 1.2 - 1.8
Accumulated
depreciation (0.2) - (0.3) - (0.5)
------------------- ------------------ ------------------ ------------------ ------------------ -----------------
Net book amount 0.3 0.1 0.9 - 1.3
------------------- ------------------ ------------------ ------------------ ------------------ -----------------
Year ended 31
December 2016
Opening net book
amount 0.3 0.1 0.9 - 1.3
Additions 0.1 0.1 0.5 - 0.7
Depreciation (0.2) (0.1) (0.4) - (0.7)
Exchange
differences - 0.1 - - 0.1
Closing net book
amount 0.2 0.2 1.0 - 1.4
------------------- ------------------ ------------------ ------------------ ------------------ -----------------
At 31 December 2016
Cost 0.6 0.3 1.7 - 2.6
Accumulated depreciation (0.4) (0.1) (0.7) - (1.2)
-------------------------- ------ ------ ------ ------
Net book amount 0.2 0.2 1.0 - 1.4
-------------------------- ------ ------ ------ ------
Notes to the financial statements
14. Goodwill
2016 2015
GBPm GBPm
--------------------------- ------- ------
At 1 January
Cost 81.2 1.8
Accumulated impairment - -
--------------------------- ------- ------
Net book amount 81.2 1.8
--------------------------- ------- ------
Year ended 31 December
--------------------------- ------- ------
Opening net book amount 81.2 1.8
Acquisition of businesses - 77.2
Impairment (74.5) -
Exchange differences 3.0 2.2
--------------------------- ------- ------
Closing net book amount 9.7 81.2
--------------------------- ------- ------
At 31 December
--------------------------- ------- ------
Cost 84.2 81.2
Accumulated impairment (74.5) -
--------------------------- ------- ------
Net book amount 9.7 81.2
--------------------------- ------- ------
During 2015, Circassia completed the acquisition of two
businesses, resulting in the recognition of GBP77.2 million of
goodwill. The majority of this goodwill related to the acquisition
of Aerocrine AB (NIOX(R) business). This goodwill was allocated to
the NIOX(R) and Allergy (existing Circassia business) cash
generating units (CGUs) for impairment testing purposes as the
benefits of the Aerocrine acquisition were split between these
CGUs. The goodwill recognised on the acquisition of Prosonix
Limited (Respiratory business) has been allocated to the
Respiratory CGU, being the CGU for impairment testing purposes.
The goodwill arising on the Aerocrine acquisition was
attributable to the benefit of having an established sales force
with future customer relationships. A large element of the
advantages of having an established sales force was expected to
accrue to the Allergy business as its products could have been
cross sold to the same customers by this sales force. The
acquisition of Aerocrine was based on a strategic benefit to the
Allergy CGU in leveraging the existing sales force within the
business to generate future sales within Circassia. Goodwill was
allocated based on the proportion of discounted cash flows
attributable to each CGU. For this reason, 94% of the goodwill
acquired on acquisition of Aerocrine was allocated to the Allergy
CGU.
Following the cat allergy immunotherapy phase III study results,
the Allergy portfolio value has been fully discounted resulting in
the impairment charge during 2016 for the Allergy CGU of GBP74.5
million.
The carrying value of goodwill, translated at year end exchange
rates, is allocated to the following CGUs:
2016 2015
Cash generating unit GBPm GBPm
Allergy - 72.1
NIOX(R) 5.3 4.7
Respiratory 4.4 4.4
---------------------- ----- -----
9.7 81.2
====================== ===== =====
The recoverable amount of the Respiratory CGU is assessed using
a value in use model. Value in use is calculated as the net present
value of the projected risk-adjusted pre-tax cash ows plus a
terminal value of the CGU to which the goodwill is allocated.
The value in use for the Respiratory CGU was calculated over a
ten year period using a discount factor of 13% (being a weighted
average cost of capital rate for the CGU used by some analysts
covering the Group). The calculations use pre-tax cash flow
projections. In light of the stage of development of the product
candidates these cover a ten year period. Cash flows beyond the ten
year period were extrapolated using the estimated terminal growth
rate stated below. The growth rate does not exceed the long-term
average growth rate for the business. The discount rate used is
pre-tax and reflects specific risks relating to the Group and
uncertainties surrounding the cash flow projections, particularly
in relation to the assumed successful launch of the Group's
products in the expected timeframe and the resulting sales.
Notes to the financial statements
14. Goodwill (continued)
As a result of recent strategic developments, management deemed
it appropriate to change the valuation basis for the NIOX(R) CGU.
The recoverable amount of the NIOX(R) CGU is assessed using a fair
value less costs of disposal model (2015: value in use model). Fair
value less costs of disposal is calculated using a discounted cash
flow approach, with a pre-tax discount rate applied to the
projected risk-adjusted pre-tax cash flows and terminal value of
the CGU to which the goodwill is allocated. The valuation
methodology uses significant inputs which are not based on
observable market data, therefore this valuation technique is
classified as level 3 in the fair value hierarchy.
The fair value less costs of disposal for the NIOX(R) CGU was
calculated over a ten year period using a discount factor of 10%
(being a weighted average cost of capital rate for the CGU used by
some analysts covering the Group). The calculations use pre-tax
cash flow projections. Cash flows beyond the ten year period were
extrapolated using the estimated terminal growth rate stated below.
The growth rate does not exceed the long-term average growth rate
for the business. The discount rate used is pre-tax and reflects
specific risks relating to the Group and uncertainties surrounding
the cash flow projections.
The key assumptions used for the valuations of the Respiratory
and NIOX(R) CGUs are as follows:
Respiratory CGU NIOX(R) CGU
-------------------------------------- -------------------------------------- --------------------------------------
Valuation basis Value in use Fair value less cost of disposal
-------------------------------------- -------------------------------------- --------------------------------------
Anticipated launch dates Group product candidate portfolio n/a - commercialised product
2017 - 2026
-------------------------------------- -------------------------------------- --------------------------------------
Research and development costs Based on management forecasts of clinical study costs for its product
candidates, as well
as related expenses associated with the regulatory approval process and
commercialisation
-------------------------------------- ------------------------------------------------------------------------------
Sales value, volume and growth rates Estimates of sales value, volume and growth rates are internal forecasts
based on both internal
and external market information and market research commissioned by the
Company
-------------------------------------- ------------------------------------------------------------------------------
Advertising and promotion investment Based on management forecasts of advertising and promotion required in the
key territories
-------------------------------------- ------------------------------------------------------------------------------
Profit margins Margins reflect management's Margins reflect past experience
forecasts of sales values and costs adjusted for management's
of manufacture adjusted for expectations of market developments
its expectations of market
developments
-------------------------------------- -------------------------------------- --------------------------------------
Period of specified projected cash 10 years 10 years
flows
-------------------------------------- -------------------------------------- --------------------------------------
Terminal growth rate Terminal growth rates based on management's estimate of future long term
average growth rate
2016 - 1%
2015 - 1%
-------------------------------------- ------------------------------------------------------------------------------
Discount rate Discount rates based on weighted Discount rates based on weighted
average cost of capital for the CGU, average cost of capital for the CGU,
adjusted where appropriate. adjusted where appropriate.
The discount factor has been adjusted The discount factor has been adjusted
to reflect the change in the risk to reflect the change in the risk
profile of the CGU profile of the CGU
2016 -13% 2016 - 10%
2015 - 10% 2015 - 10%
-------------------------------------- -------------------------------------- --------------------------------------
In each case the valuations of Respiratory and NIOX(R) indicate
sufficient headroom such that a change to key assumptions that are
reasonably possible is unlikely to result in an impairment of the
related goodwill.
Impact of possible changes in key assumptions
Delayed launch of key product candidate in the Respiratory
CGU
Management have, in their sensitivity analysis, assessed the
impact of the possibility that the launch of one of the key product
candidates in the Respiratory CGU is delayed by two years.
Reduction in revenue growth in the NIOX(R) CGU
Management have, in their sensitivity analysis, assessed the
impact of the possibility that the sales in the NIOX(R) CGU growth
is less than that of internal forecasts.
Neither change in the key assumption mentioned above would have
resulted in an impairment charge.
Notes to the financial statements
15. Intangible assets
Total intangible assets
Customer relationships
IPR&D Technology Other
Group GBPm GBPm GBPm GBPm GBPm
---------------------------- -------- ------------------------- ------------- -------- --------------------------
At 1 January 2015
Cost - - - 0.5 0.5
Accumulated amortisation
and impairment - - - (0.3) (0.3)
---------------------------- -------- ------------------------- ------------- -------- --------------------------
Net book amount - - - 0.2 0.2
---------------------------- -------- ------------------------- ------------- -------- --------------------------
Year ended 31 December
2015:
Opening net book amount - - - 0.2 0.2
Acquisition of businesses 88.9 29.9 46.0 1.2 166.0
Additions - - - 0.1 0.1
Amortisation charge - (0.9) (0.9) (0.6) (2.4)
Exchange differences - 0.9 0.8 - 1.7
---------------------------- -------- ------------------------- ------------- -------- --------------------------
Closing net book amount 88.9 29.9 45.9 0.9 165.6
---------------------------- -------- ------------------------- ------------- -------- --------------------------
At 31 December 2015
Cost 88.9 30.8 46.8 1.8 168.3
Accumulated amortisation
and impairment - (0.9) (0.9) (0.9) (2.7)
---------------------------- -------- ------------------------- ------------- -------- --------------------------
Net book amount 88.9 29.9 45.9 0.9 165.6
---------------------------- -------- ------------------------- ------------- -------- --------------------------
Year ended 31 December
2016:
Opening net book amount 88.9 29.9 45.9 0.9 165.6
Amortisation charge (0.1) (1.8) (2.0) (0.7) (4.6)
Impairment charge - - - (0.3) (0.3)
Exchange differences - 3.3 3.0 0.1 6.4
---------------------------- -------- ------------------------- ------------- -------- --------------------------
Closing net book amount 88.8 31.4 46.9 - 167.1
---------------------------- -------- ------------------------- ------------- -------- --------------------------
At 31 December 2016
Cost 88.9 34.3 50.0 1.6 174.8
Accumulated amortisation
and impairment (0.1) (2.9) (3.1) (1.6) (7.7)
---------------------------- -------- ------------------------- ------------- -------- --------------------------
Net book amount 88.8 31.4 46.9 - 167.1
---------------------------- -------- ------------------------- ------------- -------- --------------------------
An impairment test is performed annually based on the value in
use of the intangible assets.
The Group tests annually whether goodwill and intangible assets
have suffered any impairment and tests more frequently when events
or circumstances indicate that the current carrying value may not
be recoverable. Due to the negative result of the investigational
cat allergy immunotherapy phase III study and the subsequent impact
on a wider Allergy product portfolio, related licences and patents
have been fully impaired in 2016. Key assumptions and sensitivities
used in the impairment review are disclosed in note 14.
In-Process Research & Development (IPR&D)
IPR&D comprise a portfolio of asthma and chronic obstructive
pulmonary disease product candidates still in development.
The IPR&D has been initially valued using the Excess
Earnings Method. This valuation method is based on discounting the
cash flows that are attributable to the intangible asset, after
taking into account the contribution of other assets. IPR&D
assets are tested for impairment on the same basis.
Customer relationships
Customer relationships represent the existing customers, as at
the date of acquisition that are expected to continue to support
the business. A remaining useful life of 18 years was determined at
acquisition. Amortisation has been calculated on a straight line
basis over this period from the date of acquisition.
Notes to the financial statements
15. Intangible assets (continued)
Technology
Prosonix achieves a sophisticated level of control over the
physicochemical properties of drug particles via an integrated
platform of unique and proprietary particle engineering
technologies and formulation processes. The Relief from Royalty
Method was used to determine the fair value of the acquired
Technology. In the Relief from Royalty Method, estimates of the
value of these types of intangible assets are made by capitalising
the royalties saved because the company owns the intangible asset.
A remaining useful life of 20 years was determined at acquisition
and amortisation will commence when the products underpinned by
this technology become available for commercial use. A value in use
model is used in testing for impairment.
Aerocrine has been developing its technology to measure
fractional exhaled nitric oxide ("FeNO") since the mid-1990s. The
Company was the first to develop an instrument for the measurement
of FeNO and is continuously developing the measurement FeNO as a
valuable tool in the management of airway inflammation. The
valuation of the Technology was based on pre-determined
hypothetical royalty rate attributable to the use of the
Technology. The estimated remaining useful life of the Technology
is 15 years. Amortisation has been calculated on a straight line
basis over this period from the date of acquisition.
Other
Other intangible assets relate to licences and software.
16. Investments in subsidiaries
2016 2015
GBPm GBPm
---------------------------------------------------------------------- ------ ------
Investments in subsidiaries at 1 January 242.6 3.0
Investment in Prosonix Limited - 100.3
Investment in Aerocrine AB 3.2 136.9
Investment in Circassia Pharmaceuticals Inc (formerly Aerocrine Inc) 15.5 -
Equity settled instruments granted to employees of subsidiaries 2.4 2.4
Impairment of Circassia Limited investment (1.7) -
---------------------------------------------------------------------- ------ ------
Investments in subsidiaries at 31 December 262.0 242.6
---------------------------------------------------------------------- ------ ------
The capital contribution relating to share based payment is for
7,660,654 (2015: 5,532,518) 0.08p share options granted by the
Company to employees of subsidiary undertakings in the Group.
Further details on the Group's share option schemes can be found in
note 25.
Following the cat allergy immunotherapy phase III study results,
the investment relating to the Allergy technology purchase has been
fully impaired.
Details of the Company's related entities are provided below.
All subsidiaries are included in the consolidation and the
Directors believe that the fair value of the investment in all
subsidiaries exceeds their carrying values.
Proportion of ordinary
shares held
Name Registered address Nature of business
----------------------------- ---------------------------- ---------------------------- ---------------------------
McMaster Innovation Park,
Suite 305, 175 Longwood
Road South Hamilton,
Adiga Life Sciences Ontario, Canada Pharmaceutical research 50%
The Magdalen Centre, Robert Pharmaceutical research and
Robinson Avenue, Science sale of devices for
Circassia Limited Park, Oxford, OX4 4GA, UK management of asthma 100%
The Magdalen Centre, Robert
Robinson Avenue, Science
Circassia Pharma Limited Park, Oxford, OX4 4GA, UK Pharmaceutical research 100%
5151 McCrimmon Parkway, Pharmaceutical research and
Circassia Pharmaceuticals Suite 260, Morrisville, sale of devices for
Inc North Carolina 27560, USA management of asthma 100%
Development and sale of
Fyrislundsgatan 80, 754 50, devices for management of
Circassia AB Uppsala, Sweden asthma 100%
Louisenstraße 21,
61348, Bad Homburg, Sale of devices for
Circassia AG Germany management of asthma 100%
The Magdalen Centre, 1
Robert Robinson Avenue,
Oxford Science Park,
Prosonix Limited Oxford, OX4 4GA, UK Pharmaceutical research 100%
----------------------------- ---------------------------- ---------------------------- ---------------------------
Notes to the financial statements
17. Investment in joint venture
2016 2015
GBPm GBPm
------------------------------------- ------ ------
At 1 January 0.2 0.1
Share of profit 0.6 0.1
Share of other comprehensive income 0.1 -
------------------------------------- ------ ------
At 31 December 0.9 0.2
------------------------------------- ------ ------
Nature of investment in joint venture 2016 and 2015
Nature of the
Name of entity Registered address % of ownership interest relationship Measurement method
-------------------- ----------------------- ------------------------ ------------------------ -------------------
Adiga Life Sciences McMaster Innovation 50 Note 1 Equity
Park, Suite 305, 175
Longwood Road South
Hamilton, Ontario,
Canada
-------------------- ----------------------- ------------------------ ------------------------ -------------------
Note 1.
Adiga Life Sciences ("Adiga") is a joint venture with McMaster
University in Canada for early epitope and mechanistic clinical
studies. Adiga is a private company and there is no quoted market
price available for its shares.
There are no contingent liabilities or commitments relating to
the Group's interest in the joint venture.
Summarised financial information for joint venture
Set out below is the summarised financial information for Adiga
which is accounted for using the equity method.
Summarised statement of financial position at 31 December 2016 2015
GBPm GBPm
----------------------------------------------------------- ------ ------
Current assets
Trade and other receivables 1.0 1.2
Cash 0.8 0.2
----------------------------------------------------------- ------ ------
1.8 1.4
----------------------------------------------------------- ------ ------
Current liabilities
Trade payables - (0.9)
Other payables - (0.1)
----------------------------------------------------------- ------ ------
- (1.0)
----------------------------------------------------------- ------ ------
Net assets 1.8 0.4
----------------------------------------------------------- ------ ------
Summarised statement of comprehensive income
for the year ended 31 December 2016 2015
GBPm GBPm
----------------------------------------------------------- ------ ------
Revenue 1.8 2.3
Research & development costs (1.8) (2.6)
Administration expense 0.2 (0.2)
Profit/(loss) from continuing operations 0.2 (0.5)
Income tax 1.0 0.7
----------------------------------------------------------- ------ ------
Post tax profit from continuing operations 1.2 0.2
Other comprehensive income:
Currency translation differences 0.2 -
----------------------------------------------------------- ------ ------
Total comprehensive income 1.4 0.2
----------------------------------------------------------- ------ ------
The information above reflects the amounts presented in the
financial statements of the joint venture adjusted for differences
in accounting policies between the Group and the joint venture (and
not Circassia Pharmaceuticals plc's share of those amounts).
Notes to the financial statements
17. Investment in joint venture (continued)
Reconciliation of summarised financial information
Reconciliation of the summarised financial information presented
to the carrying amount of the Company's interest in the joint
venture.
2016 2015
Summarised financial information GBPm GBPm
---------------------------------- ------ ------
Opening net assets 1 January 0.4 0.2
Profit for the year 1.2 0.2
Other comprehensive income 0.2 -
Closing net assets 1.8 0.4
---------------------------------- ------ ------
Interest in joint venture @ 50% 0.9 0.2
Carrying value 0.9 0.2
---------------------------------- ------ ------
18. Inventories
2016 2015
GBPm GBPm
---------------- ----- -----
Finished goods 4.6 3.0
================ ===== =====
Inventories recognised as an expense during the year ended 31
December 2016 amounted to GBP7.1 million (2015: GBP3.6 million).
These were included in 'Cost of sales'.
Write-down of inventories to net realisable value amounted to
GBP0.5 million (2015: GBP0.5 million). These were recognised as an
expense during the year and included in 'Cost of sales'.
19. Trade and other receivables
Group Company
------------------------------------------ ------------------- ---------------
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
------------------------------------------ --------- -------- ------- ------
Trade receivables 3.4 3.0 - -
Other receivables 2.1 1.4 1.9 0.3
Prepayments and accrued interest 2.2 0.7 0.4 0.2
Receivables from subsidiary undertakings - - 218.6 184.5
Total trade and other receivables 7.7 5.1 220.9 185.0
------------------------------------------ --------- -------- ------- ------
The fair value of other receivables are their current book
values. Included within receivables is GBP1.2 million (2015: GBP0.3
million) of trade receivables that were past due at the end of the
reporting period but have not been impaired.
Receivables from subsidiary undertakings are amounts provided by
the Company to its subsidiaries in order to undertake commercial
operations and research studies. The receivable is unsecured,
interest free and has no fixed date of repayment. Recoverability of
the amounts are dependent on the success of those studies and
future profitability of subsidiary undertakings.
The carrying amounts of the Group and Company receivables,
excluding prepayments and recoverable taxes, are denominated in the
following currencies:
Group Company
---------------------- -------------------------------------- --------------
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
---------------------- ------------------ ------------------ ------ ------
UK pound 0.6 0.4 192.1 176.2
United States dollar 2.0 1.4 27.7 4.8
Swedish krona 1.2 0.9 1.1 2.0
Euro 1.5 1.1 - 2.0
5.3 3.8 220.9 185.0
---------------------- ------------------ ------------------ ------ ------
Notes to the financial statements
20. Cash and cash equivalents and short-term bank deposits
Group Company
-------------------------------------------------- -------------- ----------------
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
-------------------------------------------------- ------ ------ ------- -------
Short-term bank deposit, with original maturity:
More than 3 months 20.0 37.8 20.0 37.8
Total short-term bank deposits 20.0 37.8 20.0 37.8
-------------------------------------------------- ------ ------ ------- -------
Cash and cash equivalents:
Cash at bank and in hand 97.4 166.0 73.0 130.7
-------------------------------------------------- ------ ------ ------- -------
Total cash and cash equivalents 97.4 166.0 73.0 130.7
-------------------------------------------------- ------ ------ ------- -------
The Group and Company cash and cash equivalents and short-term
deposits are held with institutions with the following Fitch IBCA
long-term rating:
Group Company
----- -------------------------------------- --------------
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
----- ------------------ ------------------ ------ ------
AA 0.8 - - -
AA- 32.7 33.1 11.9 0.5
A+ 35.0 72.7 35.0 70.0
A 48.9 90.7 46.1 90.7
A- - 7.3 - 7.3
117.4 203.8 93.0 168.5
----- ------------------ ------------------ ------ ------
The Group and Company cash and cash equivalents and short-term
deposits are held in the following currencies at 31 December:
Group Company
----------------------- -------------------------------------- --------------
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
----------------------- ------------------ ------------------ ------ ------
UK pound 96.0 138.3 90.9 135.5
United States dollar 3.2 22.2 - 20.5
Canadian dollar 0.6 8.5 - 7.3
Euro 10.5 7.5 2.1 5.2
Swiss franc 2.0 7.1 - -
Swedish krona 5.0 20.2 - -
Chinese yuan renminbi 0.1 - - -
117.4 203.8 93.0 168.5
----------------------- ------------------ ------------------ ------ ------
21. Trade and other payables
Group Company
------------------------------------- -------------- --------------
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
------------------------------------- ------ ------ ------ ------
Trade payables 9.2 5.1 0.1 0.1
Social security and other taxes 0.5 0.3 - -
Accruals 8.1 12.0 0.2 0.1
Other payables 3.7 0.9 - -
Contingent consideration(1) - 30.0 - 30.0
Payables to subsidiary undertakings - - 5.1 -
Total trade and other payables 21.5 48.3 5.4 30.2
------------------------------------- ------ ------ ------ ------
(1) The contingent consideration arrangement required the Group
to pay the former owners of Prosonix Limited GBP30.0 million upon
the Company receiving a product marketing authorisation in respect
of Prosonix Limited's lead product in the United Kingdom on or
before 31 December 2016. UK marketing approval was received during
2015 and the contingent consideration of GBP30.0 million was paid
on 6 January 2016. The fair value of the contingent consideration
as at 31 December 2015 was equal to its book value and was no
longer contingent.
Notes to the financial statements
22. Financial instruments
The Group's financial instruments comprise cash and cash
equivalents, short-term bank deposits, trade and other receivables,
trade and other payables and contingent consideration. Additional
disclosures are set out in the accounting policies relating to
financial and capital risk management (note 2).
The Group had the following financial instruments at 31 December
each year:
2016 2015
Assets GBPm GBPm
Cash and cash equivalents 97.4 166.0
Short-term bank deposits 20.0 37.8
Trade and other receivables 5.3 3.8
----------------------------------------- ------ ------
Loans and receivables 122.7 207.6
----------------------------------------- ------ ------
2016 2015
Liabilities GBPm GBPm
----------------------------------------- ------ ------
Trade and other payables - current 18.4 47.5
Financial liabilities at amortised cost 18.4 47.5
----------------------------------------- ------ ------
The Company had the following financial instruments at 31
December each year:
2016 2015
Assets GBPm GBPm
----------------------------------------- ------ ------
Cash and cash equivalents 73.0 130.7
Short-term bank deposits 20.0 37.8
Other receivables 2.3 0.5
Receivable from subsidiary undertaking 218.6 184.5
----------------------------------------- ------ ------
Loans and receivables 313.9 353.5
----------------------------------------- ------ ------
2016 2015
Liabilities GBPm GBPm
----------------------------------------- ------ ------
Trade and other payables - current 0.3 30.2
Payables to subsidiary undertakings 5.1 -
Financial liabilities at amortised cost 5.4 30.2
----------------------------------------- ------ ------
Cash balances comprise floating rate instant access deposits
earning interest at prevailing bank rates.
Short-term deposits earn interest at fixed rates.
In accordance with IAS 39 'Financial Instruments Recognition and
Measurement' the Group has reviewed all contracts for embedded
derivatives that are required to be separately accounted for if
they do not meet certain requirements set out in the standard.
There were no such derivatives identified at 31 December 2016 or 31
December 2015.
Fair value
The Directors consider that the fair values of the Group's
financial instruments do not differ significantly from their book
values.
Notes to the financial statements
23. Deferred taxation
Net deferred
Intangibles Tax losses tax liability
GBPm GBPm GBPm
As at 1 January 2015 - - -
Acquisitions 34.0 (17.8) 16.2
Change in rate (2.2) 0.5 (1.7)
(Credit)/charge to
the income statement (0.6) 0.1 (0.5)
------------------------ -------------- ------------- ---------------
As at 31 December 2015 31.2 (17.2) 14.0
------------------------ -------------- ------------- ---------------
As at 1 January 2016 31.2 (17.2) 14.0
Charge to the income
statement 0.7 0.6 1.3
------------------------ -------------- ------------- ---------------
As at 31 December
2016 31.9 (16.6) 15.3
======================== ============== ============= ===============
In 2015 on acquisition of Aerocrine and Prosonix, the Group
recognised a net deferred tax liability of GBP16.2 million,
comprising a deferred tax liability of GBP34.0 million, offset by a
deferred tax asset arising in the same jurisdictions of GBP17.8
million.
2016 2015
GBPm GBPm
----------------------------- ------- -------
Deferred tax liabilities 31.9 31.2
Deferred tax assets (16.6) (17.2)
Total deferred tax position 15.3 14.0
----------------------------- ------- -------
The Group has the following unrecognised potential deferred tax
assets as at 31 December:
2016 2015
GBPm GBPm
--------------------------------------- ------ ------
Losses 51.8 40.2
Accelerated capital allowances - 0.5
Share based payments and provisions 1.3 1.7
--------------------------------------- ------ ------
Total unrecognised deferred tax asset 53.1 42.4
--------------------------------------- ------ ------
24. Share capital
Authorised, called up and fully paid 2016 2015
GBPm GBPm
--------------------------------------------------------------- -------- -------
284,889,171 (2015: 284,889,171) Ordinary shares of 0.08p each 0.2 0.2
---------------------------------------------------------------- ------- -------
On 11 June 2015, the Company issued 95,469,537 Ordinary shares
which funded the acquisitions of Aerocrine and Prosonix. The shares
were offered at 288.05p each, raising gross proceeds of GBP275.0
million. Deal costs relating to the acquisitions and the share
issue were GBP12.8 million, of which GBP8.8 million was offset
against the Share Premium Account and GBP4.0 million of indirect
Admission costs were included in the income statement in 2015.
Notes to the financial statements
25. Share based payments
Share options
Options have been awarded under the Circassia PSP Share Option
Scheme ("the PSP Scheme"), the Circassia EMI Share Option Scheme
("the EMI Scheme") and the Circassia Unapproved Share Option Scheme
("the Unapproved Scheme").
The share options outstanding can be summarised as follows:
2016 2015
Number of Ordinary shares Number of
('000) Ordinary shares
('000)
------------------------ --------------------------- -----------------
PSP Scheme(i) 6,610 4,336
EMI Scheme(ii) 535 535
Unapproved Scheme(iii) 516 661
------------------------ --------------------------- -----------------
7,661 5,532
------------------------ --------------------------- -----------------
The contractual life of all options is 10 years and the options
cannot normally be exercised before the third anniversary of the
date of grant.
(i) Options granted under the PSP Scheme do not have a fixed
exercise price and are subject to additional vesting performance
conditions. The performance conditions state that a proportion of
an award shall vest subject to the Company Total Shareholder Return
(TSR) ranking against the Comparator Index TSR and the remaining
shall vest subject to the meeting of certain strategic Company
objectives.
(ii) Options granted under the EMI Scheme have a fixed exercise
price based on the market price at the date of grant.
(iii) Options granted under the Unapproved Scheme also have a
fixed exercise price based on the market price at the date of
grant.
The movement in share options outstanding is summarised in the
following table:
2016 2016 2015 2015
Number ('000) Weighted average exercise Number Weighted average exercise
price (GBP) ('000) price (GBP)
---------------------------- -------------- ----------------------------- -------- -----------------------------
Outstanding at 1 January 5,532 0.15 3,165 0.25
---------------------------- -------------- ----------------------------- -------- -----------------------------
Granted 3,346 0.0008 2,853 0.0008
Expired - n/a - n/a
Forfeited (1,217) 0.29 (486) 0.0003
Exercised - n/a - n/a
---------------------------- -------------- ----------------------------- -------- -----------------------------
Outstanding at 31 December 7,661 0.06 5,532 0.15
---------------------------- -------------- ----------------------------- -------- -----------------------------
Exercisable at 31 December 1,014 0.36 708 0.0008
---------------------------- -------------- ----------------------------- -------- -----------------------------
The exercise prices of the share options outstanding at the end
of the year were GBPnil, GBP0.0008 and GBP2.42 (2015: GBPnil,
GBP0.0008 and GBP2.42). The weighted average remaining contractual
life of share options outstanding at the end of the period was 7.9
years (2015: 8.2 years).
There were no options exercised during the year ended 31
December 2016 or 2015.
Notes to the financial statements
25. Share based payments (continued)
Valuation models
The fair value of PSP share options granted during the period
was determined using the Monte Carlo Simulation model and Black
Scholes model dependent on the performance vesting conditions.
There have been no EMI Scheme or Unapproved Scheme options
granted during the year (2015: nil), all options granted in
previous years were valued using the Black Scholes model.
Black Scholes
There were no options granted during the year (2015: nil) that
were valued solely using the Black Scholes model.
Monte Carlo Simulation
The following weighted average assumptions were used in the
Monte Carlo Simulation model in calculating the fair values of the
options granted during the year:
2016 2015
------------------------- ---------- ----------
Exercise price GBP0.0008 GBP0.0008
Expected volatility 35% 32%
Expected life 3 years 3 years
Expected dividends 0% 0%
Risk free interest rate 0.4% 1%
-------------------------- ---------- ----------
The Monte Carlo Simulation model has been used to value the
portion of the awards which have a market performance vesting
condition (Total Shareholder Return (TSR)). The model incorporates
a discount factor reflecting this performance condition into the
fair value of this portion of the award.
The weighted average fair value of options granted during the
period determined using the Monte Carlo Simulation model at the
grant date was GBP1.75 per option (2015: GBP2.04).
For the options valued using the Monte Carlo Simulation,
expected volatility is measured by calculating the standard
deviation of the natural logarithm of share price movements of
comparable companies. This is a standard approach to calculating
volatility. The risk free rate of return is the rate of interest
obtainable from government securities as at the date of grant (i.e.
Gilts in the UK) over the expected term (i.e. three years).
Restricted shares
The Company previously made awards of Ordinary shares to
employees and Non-Executive Directors by entering into a form of
restricted share agreement with each participant, under which the
participant subscribed for or purchased Ordinary shares in the
Company at 10p per ordinary share (converted into 0.08p shares post
capital reorganisation). These shares are subject to certain
restrictions on transfer and forfeiture, as set out in the
restricted share agreement. The restrictions lift on the earlier of
a sale of the Company and the expiry of a vesting period of between
two and three years (depending on the date of award of the
restricted shares).
There were 0.1 million Ordinary shares of 0.08p (2015: 0.6
million Ordinary shares of 0.08p) in issue at 31 December 2016.
Deferred shares
During the year the Group awarded 156,035 (2015: 110,845)
deferred shares to Executive Directors as part of a deferred bonus
for 2015. The shares are held by the Group's Employee Benefit Trust
until the third anniversary of the grant date when they will
transfer to the Executive Directors so long as they are still an
officer or employee of the Group.
Income statement
See note 5 for the total expense recognised in the income
statement in respect of the above equity settled instruments
granted to Directors and employees.
Notes to the financial statements
26. Share premium
Group and Company 2016 2015
GBPm GBPm
---------------------------------- ------ ------
At 1 January 564.0 297.9
Issue of new shares - 274.9
Expenses relating to share issue (0.2) (8.8)
At 31 December 563.8 564.0
---------------------------------- ------ ------
27. (Accumulated losses) / retained earnings
Group Company
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
---------------------------- -------- -------- ------ ------
At 1 January (158.5) (108.6) (2.0) 1.2
(Loss)/profit for the year (137.3) (49.9) 2.4 (3.2)
At 31 December (295.8) (158.5) 0.4 (2.0)
---------------------------- -------- -------- ------ ------
28. Other reserves
Transactions
Share option Treasury shares with
reserve Translation reserve non-controlling Total other
reserve interests (a, b) reserves
Group GBPm GBPm GBPm GBPm GBPm
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
At 1 January 2015 1.3 - - - 1.3
Employee share
option scheme 2.7 - - - 2.7
Currency
translation
differences - 3.1 - - 3.1
Purchase of own
shares (note 33) - - (0.3) - (0.3)
Transactions with
non-controlling
interests - - - (4.0) (4.0)
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
At 31 December
2015 4.0 3.1 (0.3) (4.0) 2.8
Employee share
option scheme 2.4 - - - 2.4
Currency
translation joint
venture - 0.1 - - 0.1
Other currency
translation
differences - 9.7 - - 9.7
Purchase of own
shares (note 33) - - (0.4) - (0.4)
Transactions with
non-controlling
interests - - - (2.1) (2.1)
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
At 31 December
2016 6.4 12.9 (0.7) (6.1) 12.5
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
(a) On 1 July and 4 July 2015, the Group acquired an additional
4.6% and 0.7% respectively of the issued shares of Aerocrine AB for
SEK94.3 million (GBP7.2 million). Immediately prior to the
purchase, the carrying amount of the existing 7.4% non-controlling
interests in Aerocrine AB was GBP4.5 million. The Group recognised
a decrease in non-controlling interests of GBP3.2 million and a
decrease in equity attributable to owners of the parent of GBP4.0
million.
(b) On 13 May 2016, the Group acquired the remaining 2.1% of the
issued shares of Aerocrine AB for SEK37.6 million (GBP3.2 million)
to become the owner of 100% of the shares in Aerocrine AB.
Immediately prior to the purchase, the carrying amount of the
existing 2.1% non-controlling interests in Aerocrine AB was GBP1.1
million. The Group recognised a decrease in non-controlling
interests of GBP1.1 million and a decrease in equity attributable
to owners of the parent of GBP2.1 million.
The effect on the equity attributable to the owners of Circassia
Pharmaceuticals plc is summarised as follows:
2016 2015
GBPm GBPm
-------------------------------------------------------------------------------------------- ------ ------
Carrying amount of non-controlling interests acquired 1.1 3.2
Consideration paid to non-controlling interests (3.2) (7.2)
-------------------------------------------------------------------------------------------- ------ ------
Excess of consideration paid recognised in the transactions with non-controlling interests
reserve within equity (2.1) (4.0)
-------------------------------------------------------------------------------------------- ------ ------
Notes to the financial statements
28. Other reserves (continued)
Company Share option reserve Total other reserves
------------------------------ ----------------------- -----------------------
GBPm GBPm
------------------------------ ----------------------- -----------------------
At 1 January 2015 1.3 1.3
Employee share option scheme 2.4 2.4
------------------------------ ----------------------- -----------------------
At 31 December 2015 3.7 3.7
Employee share option scheme 2.4 2.4
At 31 December 2016 6.1 6.1
------------------------------ ----------------------- -----------------------
29. Cash used in operations
Reconciliation of (loss)/profit before tax to net cash used in
operations
Group Company
------------------------------------------------------ ----------------- --------------
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
------------------------------------------------------ -------- ------- ------ ------
Continuing operations
(Loss)/profit before tax (144.9) (62.8) 2.4 (3.2)
Adjustment for:
Interest income (0.9) (1.7) (0.9) (1.6)
Interest expense 0.1 - 0.1 -
Depreciation 0.7 0.5 - -
Amortisation 4.6 2.4 - -
Impairment 74.8 - 1.7 -
Share of joint venture profit (0.6) (0.1) - -
Fair value gain on forward contract - (1.1) - -
Share based payment charge 2.4 2.7 - -
Foreign exchange on non-operating cash flows (7.8) (1.1) - 0.1
Changes in working capital:
(Increase) / decrease in trade and other receivables (1.4) 1.5 (1.6) (0.3)
Increase in inventories (1.2) (0.4) - -
Increase / (decrease) in trade and other payables 5.8 (4.8) 0.2 (0.8)
------------------------------------------------------ -------- ------- ------ ------
Net cash (used in) / generated from operations (68.4) (64.9) 1.9 (5.8)
------------------------------------------------------ -------- ------- ------ ------
30. Contingent liabilities
There were no contingent liabilities at 31 December 2016 or at
31 December 2015.
31. Operating lease commitments
The total of future minimum lease payments payable under the
Group's non-cancellable operating lease for each of the following
periods is as follows:
2016 2015
GBPm GBPm
------------------------------------ ------ ------
Due within one year 1.0 1.0
Due between one and five years 1.7 0.8
Over five years 0.7 -
------------------------------------ ------ ------
The Group leases various offices and warehouses under
non-cancellable operating leases expiring within one to over five
years.
32. Capital commitments
The Group had no capital commitments at 31 December 2016 or at
31 December 2015.
Notes to the financial statements
33. Related party transactions
Group
There is no ultimate controlling party of the Group as ownership
is split between the Company's shareholders. The most significant
shareholders as at 31 December 2016 are as follows: Invesco Asset
Management (35.13% of total voting rights); Woodford Investment
Management (22.17% of total voting rights); OppenheimerFunds Inc
(10.58% of total voting rights); Touchstone Innovations (9.30% of
total voting rights); Aviva Investors (5.57% of total voting
rights).
Transactions with related parties during the year and balances
with related parties at 31 December are as follows:
Related party 2016 2015 2016 2015
Purchases Purchases Payables Payables
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------- --------------- --------------- ------------- -------------
Adiga Life Sciences (Joint venture) 1,929 1,370 - 7
Touchstone Innovations(1) 42 42 - -
Iterum Pharmaceuticals LLC(2) - 89 - -
(1) 'Purchases' includes compensation paid or payable in respect of services provided by Russ
Cummings as Non-Executive Director of the Company.
(2) Iterum Pharmaceuticals LLC was considered a related party by virtue of Paul Edick, a Non-Executive
Director of the Company, being the Chairman of the Board until 19 May 2016.
Disclosure of compensation provided to Directors is given in the
Annual Report on Remuneration and in note 5 for key management.
Included within key management personnel is Chief Commercial
Officer Linda Szyper. Linda is the spouse of Paul Edick, a
Non-Executive Director of the Company who stepped down on 19 May
2016. The compensation paid or payable to Linda up to 19 May 2016
is shown below:
2016 2015
GBPm GBPm
------------------------------------------------ ------ ------
Linda Szyper:
Short-term employee benefits (including bonus) 0.3 0.5
Share based payment 0.1 0.1
------------------------------------------------ ------ ------
Total 0.4 0.6
------------------------------------------------ ------ ------
Company
The following transactions with subsidiaries occurred in the
year:
Related party 2016 2015
GBPm GBPm
--------------------------------------------------------- -------- -----------
Rendering of services to Circassia Limited (1) 0.8 1.3
Settlement of liabilities on behalf of the subsidiaries (5.5) (139.2)
Net transfer of funds to subsidiaries 33.6 201.4
--------------------------------------------------------- -------- -----------
28.9 63.5
--------------------------------------------------------- -------- -----------
(1) Remuneration costs (excluding share options charges)
relating to Steven Harris and Julien Cotta in respect of services
rendered to Circassia Limited.
2016 2015
GBPm GBPm
---------------------------------------- ------ ------
Balances due from subsidiary companies 218.6 184.5
Balances due to subsidiary companies (5.1) -
---------------------------------------- ------ ------
The amount due is unsecured, interest free and has no fixed date
of repayment.
Employee benefit trust
In 2014 the Company set up an Employee benefit trust for the
purposes of buying and selling shares on the employees' behalf. A
total of GBP414,729 of funding was paid into the Trust by the
Company during the year ended 31 December 2016 (2015:
GBP291,081).
A total of 156,035 shares (0.08p nominal value each) were
purchased by the Trust during the year ended 31 December 2016
(2015: 110,845). As at 31 December 2016 a cash balance of GBP5,068
(2015: GBP5,080) was held by the Trust.
Notes to the financial statements
34. Events occurring after the reporting date
Collaboration and profit share arrangement with AstraZeneca
On 17 March 2017 Circassia Pharmaceuticals Plc announced a
collaboration and profit share arrangement with AstraZeneca and
secured certain US commercial rights to Tudorza(R) and Duaklir(R)
for a maximum total consideration of $230 million (including $50
million in ordinary shares) plus future sales based royalties upon
the commercialisation of Duaklir(R) in the United States.
The consideration is structured as follows:
- Circassia issued 47,355,417 ordinary shares with a value of US$50 million to AstraZeneca;
- Circassia will pay AstraZeneca deferred non-contingent
consideration of $100 million on the earlier of: (i) 30 June 2019;
and (ii) the approval of Duaklir(R) by the FDA;
- Circassia will initially enter a commercial collaboration and
profit share arrangement with AstraZeneca for Tudorza(R) in the
United States. Based on the sales performance of Tudorza(R) in a 12
month period ending no earlier than 30 September 2018, or if
Duaklir(R) gains FDA approval before 31 December 2019, Circassia
will have the option to secure the remaining commercial rights and
economic benefits of Tudorza(R). If this option is taken, Circassia
will make further payments to AstraZeneca of up to $80 million
dependent on the level of Tudorza(R)'s sales in the United
States;
- Circassia will pay royalties to AstraZeneca on sales of
Duaklir(R) in the United States; and
- Circassia will make R&D contributions of up to $62.5
million payable to AstraZeneca as deferred payments.
Transfer of trade and certain assets from Prosonix Limited to
Circassia Limited
On 2 March 2017, Prosonix Limited allotted one new Ordinary
share to Circassia Pharmaceuticals plc for GBP9.0 million. This
consisted of share capital of GBP0.001 and share premium of
GBP8,999,999.999. Immediately following the share issue, Prosonix
Limited reduced its issued share capital from GBP35,394,779.66 to
GBP1,189.72 by cancelling and extinguishing 2,284,294 ordinary
shares of GBP0.001 each, 1,891,840 A shares of GBP0.001 each and
9,941,261 B shares of GBP0.001 each, and by cancelling and
extinguishing the entire share premium account, leaving behind
1,189,724 C shares of GBP0.001 each. The reduction in share capital
was credited to a Capital reduction reserve account.
On 3 March 2017, Prosonix Limited fully repaid the intercompany
loan due to Circassia Pharmaceuticals plc of GBP10,906,586.98. In
addition, Prosonix Limited sold its business and certain assets for
the price of GBP1,284,321.55 to Circassia Limited, representing the
net book value of its business and certain assets, as part of a
bona fide solvent reorganisation of the Circassia Group, subject to
and on the terms and conditions of an asset purchase agreement
between Prosonix Limited and Circassia Limited.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BIGDSXUDBGRS
(END) Dow Jones Newswires
April 25, 2017 02:00 ET (06:00 GMT)
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