TIDMCIR
RNS Number : 6582X
Circassia Pharmaceuticals Plc
01 May 2019
CIRCASSIA PHARMACEUTICALS PLC
PRELIMINARY RESULTS FOR THE YEARED 31 DECEMBER 2018
Oxford, UK - 1 May 2019: 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
2018 and a post-period update.
Financial progress
Key 2018 2017 2018 total 2017 total
performance underlying underlying
indicators continuing continuing
operations operations
Revenue GBP48.3m GBP46.3m GBP48.3m GBP46.3m
---------------------- ------------------------ ----------------------- -----------------------
R&D (GBP10.8m) (GBP13.3m(1) (GBP89.4m) (GBP103.0m)
)
---------------------- ------------------------ ----------------------- -----------------------
G&A (GBP11.4m) (GBP10.7m(1) (GBP11.8m) (GBP11.1m)
)
---------------------- ------------------------ ----------------------- -----------------------
S&M (GBP54.4m) (GBP49.5m(1) (GBP57.3m) (GBP50.1m)
)
---------------------- ------------------------ ----------------------- -----------------------
Loss for (GBP25.9m) (GBP34.5m(1) (GBP117.1m) (GBP99.1m)
the year )
---------------------- ------------------------ ----------------------- -----------------------
Net cash(2) (GBP18.8m) (GBP57.9m) (GBP18.8m) (GBP57.9m)
outflow
---------------------- ------------------------ ----------------------- -----------------------
Cash(2) at GBP40.7m GBP59.5m GBP40.7m GBP59.5m
year
end
---------------------- ------------------------ ----------------------- -----------------------
NIOX(R) progress
-- Sales increased 5% to GBP27.4 million (2017 CER(3) : GBP26.2 million)
-- Clinical (non-research(4) ) revenues increased 7% compared with 2017 CER
-- China sales decreased 11% vs 2017 CER following destocking
and disruption during transition to direct sales; new sales model
now in place
-- Q1 2019 unaudited revenues increased 38% vs Q1 2018 CER
US COPD portfolio progress
-- Tudorza(R) profit share revenues increased 11% to GBP20.9 million (2017 CER: GBP18.8 million)
-- Q1 2019 unaudited revenues increased 31% vs Q4 2018 CER
following option exercise at year end; prescriptions stable
-- Tudorza(R) option exercised acquiring product's full commercial rights
-- Tudorza(R) ASCENT study data filed for inclusion in label; FDA approved March 2019
-- Duaklir(R) NDA filed; FDA approved March 2019
Commercial platform progress
-- China direct sales force launched; commercial team expansion
to approximately 100 near completion
-- UK team expanded; Commercial Director hired in Italy;
European commercial operations strengthened
-- US dedicated COPD and device teams launched to prepare for product launches
Corporate progress
-- AstraZeneca subscription raising $26.7 million completed
Post-period highlights
-- US and China commercialisation rights to novel nitric oxide
product AirNOvent(5) acquired January 2019
-- Move to AIM completed February 2019
-- AstraZeneca five-year loan addresses outstanding COPD
transaction consideration, option and R&D payments
Steven Harris, Circassia's Chief Executive, said: "We made good
progress in 2018 completing our strategic transition into a
commercially-focused specialty pharmaceutical business focused on
respiratory disease. Our revenues continued to grow and we
maintained our commercial investment and broad cost control
activities. As a result, we dramatically reduced our net cash
outflow and decreased the loss in our underlying business."
"During 2018, our global NIOX(R) business continued to grow, and
following the launch of our direct sales team in China we look
forward to expanding our presence in this significant market. We
also advanced our US COPD portfolio, and in the first half of 2018
our partner filed for Duaklir(R) approval and an expanded label for
Tudorza(R). We are delighted that both filings were successful and
we now look forward to enhancing our Tudorza(R) promotion and
launching Duaklir(R) later this year."
"During 2019 we have maintained our momentum, taking full
commercial control of Tudorza(R), adding late-stage product
AirNOvent to our portfolio, significantly increasing NIOX(R)
revenues and boosting our commercial platform. As a result, we are
making good progress building a robust business with growing
revenue potential and an exciting commercial future."
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 presentation will be available on the Company's
website.
Contacts
Circassia
Steven Harris, Chief Executive Officer Tel: +44 (0) 1865 405
560
Julien Cotta, Chief Financial Officer
Rob Budge, Corporate Communications
Peel Hunt (Nominated Adviser and Joint Broker)
James Steel / Dr Christopher Golden Tel: +44 (0) 20 7418
8900
Numis Securities (Joint Broker)
James Black / Freddie Barnfield Tel: +44 (0) 20 7260 1000
FTI Consulting
Simon Conway / Ciara Martin Tel: +44 (0) 20 3727 1000
About Circassia
Circassia is a world-class specialty pharmaceutical business
focused on respiratory disease. The Company sells its novel,
market-leading NIOX(R) asthma management products directly to
specialists in the United States, United Kingdom, China and
Germany, and in a wide range of other countries through its network
of partners. In the United States, Circassia has a commercial
collaboration with AstraZeneca in which it has the commercial
rights to chronic obstructive pulmonary disease (COPD) treatments
Tudorza(R) and Duaklir(R). Circassia also has the US and Chinese
commercial rights to the late-stage ventilator-compatible nitric
oxide product AirNOvent. For more information please visit
www.circassia.com.
(1) Underlying operations restated to show the results of
in-house respiratory development in discontinued operations
(2) Cash, cash equivalents and short-term deposits
(3) Constant exchange rates (CER) for 2017 represent reported
numbers re--stated using 2018 average exchange rates; management
believes CER comparisons better represent underlying performance
due to currency fluctuations against sterling
(4) Clinical revenues represent sales to clinicians, hospitals
and distributors; research revenues represent sales to
pharmaceutical companies for use in clinical studies
(5) AirNOvent is not an approved name and may not be the final
name submitted for approval
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.
OPERATING REVIEW
Strategic overview
In 2018 Circassia made good progress implementing its strategy.
The Company completed its transition into a commercially-focused
specialty pharmaceutical business, and has continued to build on
this positive momentum. The Company has refocused its R&D
expenditure, with device development, regulatory, medical affairs,
quality and supply chain functions focused on supporting its
commercial products, and spending on its in-house respiratory
pipeline halted. In parallel, Circassia has maintained investment
in its commercial platform, dramatically increasing its presence in
China and strengthening its team in Europe. The Company also
expanded its product portfolio, exercising its option to take full
US commercial control of chronic obstructive pulmonary disease
(COPD) treatment Tudorza(R) at the end of 2018, and acquiring the
US and Chinese commercial rights to late-stage
ventilator-compatible nitric oxide product AirNOvent at the start
of 2019.
Circassia also made good corporate progress. It amended its
commercialisation agreement with AstraZeneca for COPD products
Tudorza(R) and Duaklir(R), and AstraZeneca increased its equity
stake in Circassia to 19.9% following a subscription of new shares.
As part of the approval process for this related-party transaction,
the Company agreed with the UK Financial Conduct Authority (FCA) to
seek shareholder approval to move to AIM if the percentage of its
shares held in public hands did not reach the level required for
the Main Market. Circassia's shareholders subsequently approved
this move to AIM and it was completed in early 2019. The move also
provides potential strategic advantages as AIM's more flexible
regulatory regime may help the Company acquire, partner or
in-license additional products more efficiently to leverage its
commercial platform.
Alongside the Company's strategic and corporate progress, the
past year was also a period of financial transition. Circassia
continued to grow its revenues despite headwinds in the second
half, controlled its non-commercial costs, reduced the net loss in
its underlying business and dramatically decreased its net cash
outflow. As a result, Circassia is continuing to advance towards
its strategic objective of building a self-sustaining specialty
pharmaceutical business.
NIOX(R) asthma management products
NIOX(R) is the leading point-of-care system for measuring
fractional exhaled nitric oxide (FeNO), an important biomarker of
the major underlying cause of asthma, type 2 airway inflammation.
NIOX(R) is used around the world to improve asthma diagnosis and
management, and Circassia sells the product directly in the United
States, UK and Germany, and following the recent launch of its
local sales team, in China also. In addition, the Company promotes
NIOX(R) through its network of international partners, which
extends across more than 35 countries.
Sales growth
NIOX(R) sales continued to grow during 2018. Global revenues of
GBP27.4 million were 5% (CER) higher than the year before, with
sales for clinical use increasing 7% and less predictable sales for
use in pharmaceutical company clinical studies declining 6%.
Overall growth was held back by lower sales in China, which
decreased 11% with destocking and distributor disruption during the
transition to the Company's direct sales model. In Germany and the
UK, revenues grew 8% and 27% (CER) respectively, while in the
United States sales declined by 1% (CER) due to disruption at the
end of the year caused by territory realignment as the Company
launched dedicated COPD and NIOX(R) sales teams.
With much of this disruption now complete, NIOX(R) revenue
growth has accelerated significantly during the first quarter of
2019, and global sales were 38% higher at CER compared with the
same period the year before.
Increasing access
Circassia is working to increase NIOX(R) market access in a
number of countries. In the United States, payor coverage grew
significantly during 2018 and the market access team is targeting a
number of additional healthcare plans to increase this further. In
the US and UK, the Company's commercial teams are working with
pharmacy chains to explore the potential of providing NIOX(R)
testing in convenient locations. In China, reimbursement for FeNO
testing was recently granted in Beijing, providing an opportunity
to target the more than 100 top level hospitals in the city. In
Australia, the Company's partner plans to grow the local market
following the introduction of reimbursement for FeNO testing
alongside spirometry.
Geographic expansion
Outside its direct sales territories, Circassia sells NIOX(R)
through a network of international partners. During 2018 the
Company added new partners in Malaysia, Mexico, Saudi Arabia and
Thailand and has now received approvals in each of these
countries.
NIOX(R) support
Circassia supports its partners' NIOX(R) promotion via a
dedicated commercial team. During 2018, the team launched a new
NIOX(R) marketing campaign at the European Respiratory Society
International Congress, where it also held a partner meeting to
provide training on the new materials. The Company also provided
training in South Korea and recently held training sessions at the
Chest World Congress in Thailand.
During 2018 Circassia's commercial team also continued NIOX(R)
brand building activities in its direct markets, including the roll
out of its digital strategy with online advertising, e-shots,
refreshed web resources and the launch of a new NIOX.com web
portal. In the UK, Circassia is providing healthcare professionals
with training via its Asthma Masterclass programme, which is
delivered by a specialist respiratory nurse advisor. It is also
working with the Primary Care Respiratory Society to offer members
exclusive benefits when purchasing NIOX(R).
In the US, the Company has partnered with reimbursement
specialists to provide support for NIOX(R) customers. This new
service offers coding and reimbursement support via a dedicated
hotline team of certified coders. Additionally, Circassia has
launched a dedicated NIOX(R) promotional team in the US to improve
targeting and promotional efficiency. The team includes telesales
and customer service professionals working alongside the dedicated
field-based sales force.
US collaboration with AstraZeneca
In 2017, Circassia established a US commercial collaboration
with AstraZeneca for COPD products Tudorza(R) and Duaklir(R). Under
the agreement, Circassia acquired the commercialisation rights to
Duaklir(R) and entered a profit share arrangement for Tudorza(R) in
which the Company was responsible for the product's promotion and
AstraZeneca its manufacture, distribution, pharmacovigilance and
regulatory activities.
Agreement amendment and option exercise
During 2018, the companies amended the original agreement, and
AstraZeneca increased its shareholding in Circassia to 19.9% via
subscription for newly-issued ordinary shares. Circassia used the
$26.7 million consideration to pay a $20.0 million R&D
contribution due to AstraZeneca by 31 December 2018 and to part
settle the final $25.0 million payable by the end of 2019. The
remaining $18.3 million of this final R&D payment is addressed
by a five-year loan provided by AstraZeneca.
At the end of 2018, Circassia issued a notice of option exercise
to acquire the full US commercialisation rights to Tudorza(R). This
completed as anticipated on 31 December 2018, and from 1 January
2019 Circassia has recorded Tudorza(R)'s in-market sales and costs
and retained the full profits from commercialisation. The option
exercise triggered an initial payment obligation of $5 million, and
following the approval of Duaklir(R) a final option payment of $20
million became payable to AstraZeneca. These payment obligations
are addressed by a five-year loan provided by AstraZeneca under the
companies' agreement. This loan facility provided by AstraZeneca
also addresses the final consideration of $100 million due under
the companies' agreement, in addition to the R&D payment
outlined above.
Tudorza(R) collaboration
Tudorza(R) contains the long-acting muscarinic antagonist (LAMA)
aclidinium bromide, which is administered twice-daily via the
easy-to-use inhaler Pressair(R) for the maintenance treatment of
COPD. In the United States, the market for LAMA therapies totalled
an estimated $2 billion in 2018 presenting a significant
opportunity for Tudorza(R). With the product's prescriptions making
up approximately 2.6% of the market, a modest increase in volumes
or uptake in higher value channels could substantially grow the
product's sales, which would be of material importance to the
Company.
Commercial progress
Following the establishment of the Tudorza(R) collaboration in
2017, Circassia's sales force rapidly achieved its target call
volumes as part of the Company's plan to turn round the product's
previously declining prescriptions. During 2018 the prescription
rate continued to stabilise, although the GBP20.9 million profit
share revenues for the year were impacted by higher rebates in
federal channels during the second half. In the final quarter of
the year the Company refined its physician targeting strategy and
during piloting the new prescription rate per call responded
positively.
Circassia plans to build on this progress during the coming
year. Following the exercise of its option to acquire the full US
commercial rights to Tudorza(R) at the end of 2018, first quarter
revenues in 2019 increased 31% at CER compared with the final
quarter the previous year. With the imminent transfer of the
product's licence to Circassia, the Company will have significant
additional flexibility in managing its sales force composition,
customer targeting, product detail prioritisation, territory
definition, distribution strategy, pricing and market access
activities. Circassia is leveraging this increased flexibility and
recently refocused its US sales capabilities launching a dedicated
COPD sales force to improve targeting and promotional efficacy.
Regulatory progress
Following the successful completion of the phase IV ASCENT study
at the end of 2017, Tudorza(R) has made good regulatory progress.
The study met both its primary endpoints, and during the first half
of 2018 a supplemental New Drug Application (sNDA) was submitted to
the FDA requesting inclusion of the data in the product's
prescribing information. The FDA recently completed its review of
the filing and approved the sNDA at the end of March.
As a result, Tudorza(R)'s expanded label now includes unique
data from ASCENT. The study, which was conducted in patients with
moderate to very severe COPD and cardiovascular disease and / or
significant cardiovascular risk factors, demonstrated that
Tudorza(R) is effective at reducing COPD exacerbations with no
increase in major cardiovascular events and at reducing
hospitalisations due to COPD exacerbations in this at-risk
population. Cardiovascular disease is the most common and
significant co-morbidity of COPD, with approximately 30% of COPD
patients dying from cardiovascular conditions. Tudorza(R) is the
only LAMA in the United States with these data in its label, which
Circassia plans to use in payor discussions as part of its market
access strategy.
Duaklir(R) collaboration
Duaklir(R) is a fixed-dose combination of the LAMA aclidinium
bromide and long-acting beta agonist (LABA) formoterol fumarate,
which is administered twice-daily via the breath-actuated
Pressair(R) inhaler for the maintenance treatment of COPD.
Duaklir(R) targets the rapidly growing $850 million US LAMA / LABA
market, which represents an important commercial opportunity for
the Company.
Regulatory progress
During 2018, Duaklir(R) made good regulatory progress following
the successful completion of the AMPLIFY phase III study the prior
year. In the first half of 2018, a New Drug Application was
submitted for Duaklir(R), which was approved in March 2019 by the
FDA. The approval is based on a broad clinical database, including
data from AMPLIFY and two earlier phase III studies, ACLIFORM and
AUGMENT. The label also includes clinical data from the phase IV
ASCENT study, which shows aclidinium therapy is effective at
reducing COPD exacerbations. As a result, Duaklir(R) is the only
twice-daily LAMA / LABA in the United States with COPD exacerbation
data included in its prescribing information.
Commercial progress
Circassia plans to launch Duaklir(R) in the second half of 2019
through its dedicated COPD sales force. The Company is making good
progress with its preparations and is working with specialist
agencies and an advisory board of medical experts as it finalises
its launch plans. The team has completed market research to inform
the product's value proposition, brand messaging and creative
campaign, and is developing Duaklir(R)'s market access contracting
strategy and payor value propositions while public relations
specialists finalise the communications strategy.
Commercial infrastructure progress
During 2018 Circassia continued to develop its commercial
infrastructure to increase revenues from its existing portfolio and
provide a platform to attract additional products. In China it
significantly expanded its team, launching a direct sales team at
the end of the year. This represents a significant change to the
Company's business model in the country, with Circassia's
previously modest team focusing solely on distributor support,
marketing and market access activities. During the second half of
the year, the Company recruited a full range of commercial and back
office functions to support its direct sales field force, and by
the end of the year the vast majority of the 100-strong commercial
team was in place. Following the launch of this direct sales
capability, Circassia now commercialises NIOX(R) using a mixed
business model in China. In major cities the sales force works with
logistics providers to supply customers directly, while in
secondary cities the team works alongside distributors and in
remoter regions the Company uses distribution partners. This new
approach represents a significant opportunity for the Company to
significantly increase its gross margin and expand its overall
sales.
The launch and transition to this new model in China resulted in
disruption and destocking at the end of 2018 impacting revenues.
However, with this now complete and Circassia focusing promotion
significantly beyond the 400 hospitals where NIOX(R) was previously
installed, as well as capturing additional margin from selling
directly, the Company anticipates continued strong sales growth in
China.
Circassia is also strengthening its presence in Europe. The UK
sales force expanded to increase coverage in the South East and add
dedicated territories in the South West and Republic of Ireland. In
Italy, the Company recently appointed a Commercial Director with
significant respiratory and market access experience who will play
a key role in finalising the commercialisation strategy in the
country, including the potential for direct sales. Additionally,
the Company is recruiting further marketing, analysis and
operations expertise to support local promotional activities.
Investment strategy
In 2018, the Company refocused its investment approach as part
of the strategy to transition into a self-sustaining,
commercially-focused specialty pharmaceutical business. As a
result, Circassia focused investment on its commercial platform
while halting R&D expenditure on its in-house respiratory
pipeline and aligning its regulatory, medical affairs, quality and
supply chain resources to support the Company's marketed and
late-stage products. The Company reduced its underlying R&D
expenditure by nearly 20%, with headcount decreasing by over 50%,
and increased its sales and marketing investment by 10% with growth
focused in the United States and China. At the same time, the
Company controlled its underlying administrative expenditure, which
increased only marginally following increased office costs to
support the Company's significant expansion in China.
During 2019, Circassia plans to maintain its commercial
investment alongside an ongoing focus on cost containment. With the
refocusing of its investment strategy now complete, the Company
anticipates ongoing control of non-commercial expenditure, and
sales and marketing costs reflecting the larger team in China and
upcoming launch of Duaklir(R) in the United States.
Post-period highlights
Portfolio expansion
As part of its strategy to leverage its commercialisation
platform, Circassia is actively pursuing opportunities to add to
its portfolio through partnering, in-licensing or acquisition. The
Company continued its business development programme throughout
2018, and at the beginning of 2019 announced the acquisition of the
exclusive US and Chinese commercialisation rights to AirNOvent from
AIT Therapeutics Inc. AirNOvent is a late-stage,
ventilator-compatible novel inhaled nitric oxide product, initially
targeting use in the treatment of hypoxic respiratory failure
associated with persistent pulmonary hypertension of the newborn
(PPHN).
Under the terms of the agreement, Circassia paid AIT initial
consideration of $7.35 million, and a further $3.15 million
following the successful completion of a pre-submission FDA
meeting. Both payments were satisfied through the issuance of new
ordinary shares in the Company to AIT. Further deferred contingent
consideration, also payable in Circassia shares, will become due on
the achievement of certain milestones, including $12.6 million
following FDA approval, $8.4 million on US approval of a related
indication and $1.05 million on the product's launch in China.
Additionally, the Company will pay tiered royalties based on gross
profits from future product sales.
AirNOvent overview
AirNOvent is a portable system that utilises an electric voltage
to produce precise quantities of nitric oxide from the nitrogen and
oxygen in air. Inhaled nitric oxide is a pulmonary vasodilator,
which is approved in the United States for use as part of a regimen
in the treatment of hypoxic respiratory failure associated with
PPHN. PPHN is the failure of normal circulatory transition after
birth, which occurs in approximately 1,500 - 26,200 newborns in the
United States. The condition is potentially fatal and management
can be complex involving a number of treatments, which in addition
to supplemental oxygen can include the administration of inhaled
nitric oxide.
The currently available product, INOMAX(R), is used in neonatal
intensive care units (NICUs) and its delivery system administers
nitric oxide from pressurised cylinders in conjunction with
ventilator systems. The product generated US revenues estimated at
over $400 million in 2018. AirNOvent offers a number of potential
benefits over the existing competition. It is cylinder-free and is
smaller, significantly lighter and more convenient, and unlike
nitric oxide cylinder-based systems does not require special
storage and handling. As a result, it has the potential for use by
NICUs, as well as smaller clinics without the facilities required
to manage nitric oxide cylinders.
Under the companies' agreement, AIT is responsible for the
product's development, US regulatory filings and manufacture, with
Circassia managing the regulatory process in China. AIT plans to
submit AirNOvent to the FDA in the coming weeks for Premarket
Approval (PMA) for use in the treatment of PPHN, and Circassia
anticipates launching the product in the first half of 2020
following approval.
AirNOvent commercialisation
Circassia intends to leverage its existing commercial platform
in the United States to commercialise AirNOvent and anticipates
modestly expanding its commercial team, adding further key accounts
and medical affairs experts. The Company plans to target top
hospitals with NICUs, many of which are called on by the existing
dedicated device sales team. Additionally, the team will target
facilities that do not currently use inhaled nitric oxide, such as
those without the appropriate handling facilities.
Move to AIM
AstraZeneca's subscription for additional equity in 2018
decreased the 'free float' in the Company's shares to approximately
10%. The free float excludes holdings by directors and
shareholdings of over 5%, and the Financial Conduct Authority's
(FCA) Listing Rules require a level of at least 25%. As a result,
the Company committed to the FCA that if the free float did not
meet this required level within six months it would seek
shareholder approval to move to AIM, which does not have the same
requirement.
During the subsequent months, there was little movement in the
free float and consequently Circassia sought approval to move to
AIM. This was granted at a shareholder meeting on 4 January 2019
and the Company's shares were removed from trading on the London
Stock Exchange's Main Market and admitted to trading on AIM on 4
February 2019.
Board changes
Following six years as Non-Executive Chairman, Dr Francesco
Granata has informed the Company of his intention to retire from
Circassia's Board in order to focus on his other business
commitments. Francesco will continue as Chairman while the Company
completes the ongoing search for his replacement. Additionally,
following 12 years as Non-Executive Director, Russ Cummings has
informed the Company he will not stand for re-election to the Board
at the forthcoming Annual General Meeting. The Board wishes to
express its sincere appreciation to Francesco for his leadership
and significant contribution to the Company's development during
his time at Circassia and to Russ for providing strategic insight
and extensive financial market experience during his significant
time as a Non-Executive Director.
In parallel with the ongoing Chairman search process, the
Company is further strengthening its commercial focus through the
creation and appointment of a Chief Operating Officer. The COO will
lead Circassia's global commercial strategy and operational
management and will be appointed to the Company's Board. The
Company intends to announce the appointment of both the new
Chairman and COO in due course.
Summary and outlook
During 2018, Circassia continued to make good progress
implementing its strategy. The Company grew its revenues, despite
headwinds in the second half, and maintained its financial strategy
focusing on commercial investment and cost containment elsewhere.
As a result, it reduced net cash outflow significantly and
decreased the loss in its underlying business despite increased
investment in its commercial infrastructure.
During the year, the Company's products also made progress, with
the NIOX(R) business continuing to grow and filings in the US COPD
portfolio resulting in the recent approval of Duaklir(R) and label
expansion for Tudorza(R). With dedicated NIOX(R) and COPD sales
teams in the US, direct sales capabilities in China and a broader
commercial platform in Europe, Circassia anticipates building on
the encouraging Q1 2019 sales with strong revenue growth in the
coming year. In the coming months, the Company looks forward to
further progress, with the upcoming US filing for AirNOvent and
launch of Duaklir(R) in the second half of 2019.
Over the last three years, the Company has completed its
transformation from an R&D-based organisation into a strong
commercially-focused business. The Company now features a unique
commercial platform promoting compelling respiratory products
across the world's largest markets. With a clear strategy focused
on building a self-sustaining specialty pharmaceutical business,
combined with growing revenues, Circassia is well positioned to
continue its drive towards profitability.
FINANCIAL REVIEW
During 2018 revenues continued to grow, increasing 4% to GBP48.3
million, while the Company maintained control of overall costs,
reducing R&D expenditure and investing in the commercial
platform.
The table below sets out the Group's results for the year ended
31 December 2018, separated into continuing and discontinued
operations. Continuing operations are further divided into
underlying and non-underlying operations. Continuing underlying
operations include revenues from the Tudorza(R) collaboration with
AstraZeneca and sales of NIOX(R), as well as the costs of the
underlying business. These key performance indicators are used by
management to manage the business and measure performance.
Non-underlying operations include irregular and non-recurring
expenditure, such as those relating to restructuring the US field
force into dedicated NIOX(R) and COPD units, the prior year's
R&D contribution to AstraZeneca and other non-cash gains and
losses relating to the deferred consideration payable to
AstraZeneca. Discontinued operations include direct costs and
overheads associated with the in-house respiratory pipeline which
ceased in April 2018 and residual costs from the allergy programmes
for which all development ceased in April 2017.
Underlying Non-underlying Total continuing Discontinued Total
operations operations operations(1)
2018 2017 2018 2017 2018 2017 2018 2017 2018 2017
Restated(2) Restated(2) Restated(2) Restated(2)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 48.3 46.3 - - 48.3 46.3 - - 48.3 46.3
Cost of sales (8.9) (10.0) - - (8.9) (10.0) - - (8.9) (10.0)
Gross profit 39.4 36.3 - - 39.4 36.3 - - 39.4 36.3
Gross margin 82% 78% - - 82% 78% - - 82% 78%
Research and
development (10.8) (13.3) - (45.1) (10.8) (58.4) (78.6) (44.6) (89.4) (103.0)
Sales and
marketing (54.4) (49.5) (2.9) - (57.3) (49.5) - (0.6) (57.3) (50.1)
Administrative
expenditure (11.4) (10.7) (0.3) 0.1 (11.7) (10.6) (0.1) (0.5) (11.8) (11.1)
EBITDA (32.8) (32.3) (3.2) (45.0) (36.0) (77.3) (78.7) (45.7) (114.7) (123.0)
Operating loss (37.2) (37.2) (3.2) (45.0) (40.4) (82.2) (78.7) (45.7) (119.1) (127.9)
Other gains and
(losses) 1.9 (1.1) (5.6) 11.5 (3.7) 10.4 (0.1) (0.2) (3.8) 10.2
Finance costs (0.1) (0.1) (11.9) (2.7) (12.0) (2.8) - - (12.0) (2.8)
Finance income 0.3 0.4 - - 0.3 0.4 - - 0.3 0.4
Loss before tax (35.1) (38.0) (20.7) (36.2) (55.8) (74.2) (78.8) (45.9) (134.6) (120.1)
Taxation 9.2 3.5 - 10.2 9.2 13.7 8.3 7.3 17.5 21.0
Loss for the
financial year (25.9) (34.5) (20.7) (26.0) (46.6) (60.5) (70.5) (38.6) (117.1) (99.1)
Cash(3) 40.7 59.5
================ ======= ============ ======= ============ ======= ============ ======= ============ ======== ========
(1) Disclosed as a single amount in the consolidated statement
of comprehensive income
(2) Restated to show the results of the respiratory business in
discontinued operations, see note 10 to the consolidated financial
statements
(3) Includes cash and cash equivalents and short-term
deposits.
Revenue
Circassia's revenues of GBP48.3 million (2017: GBP46.3 million)
include Tudorza(R) revenues of GBP20.9 million (2017: GBP19.0
million) and NIOX(R) sales of GBP27.4 million (2017: GBP27.3
million).
During 2018, Tudorza(R) revenues derived from the profit share
arrangement with AstraZeneca. AstraZeneca recorded in-market sales,
cost of sales and other operational costs while Circassia recorded
the costs of the field force and promotion and the companies each
recorded 50% of the resultant profit. On 31 December 2018,
Circassia completed the exercise of its option to take full
commercial control of Tudorza(R) in the United States, and during
2019 will receive the full benefits of commercialisation and will
record both the product's sales and costs.
NIOX(R) revenues include sales for use in clinical practice of
GBP23.4 million (2017: GBP22.8 million), sales for use in
pharmaceutical company research of GBP3.7 million (2017: GBP4.1
million) and other revenues such as freight of GBP0.3 million
(2017: GBP0.4 million).
Gross profit
Gross margin increased from 78% to 82%. This was mainly due to
the contribution of revenues from the AstraZeneca collaboration for
the full year, which due to the agreement structure have a 100%
gross margin. Gross profit on NIOX(R) sales was GBP18.5 million
(2017: GBP17.3 million), with a gross margin of 68% (2017: 63%).
This increase mainly reflects the weakening of sterling against the
dollar.
Sales and marketing
Sales and marketing costs increased to GBP57.3 million (2017:
GBP50.1 million). This was mainly due to a full year of investment
in the US field force promoting Tudorza(R) versus 9 months in 2017,
as well as significant expansion of commercial operations in China
during the second half of the year. Sales and marketing costs of
GBP2.9 million included in non-underlying continuing operations
represents the re-organisation costs associated with restructuring
the US field force into dedicated NIOX(R) and COPD teams.
R&D activities
Research and development activities include the costs associated
with regulatory, quality and medical affairs support for marketed
products, device development, and depreciation and amortisation.
Research and development costs from underlying operations decreased
to GBP10.8 million (2017: GBP13.3 million) mainly as a result of
significantly lower headcount.
Discontinued operations include costs relating to the in-house
respiratory pipeline of GBP78.6 million (2017: GBP44.6 million)
most of which relates to an impairment charge of the associated
intangible assets as set out below. The impairment costs have no
impact on cash.
Impairment of intangibles GBPm
--------------------------- -----
Goodwill 4.4
Flixotide substitute 21.1
Seretide substitute 22.1
Spiriva substitute 8.5
Technology 18.9
--------------------------- -----
Total 75.0
Total R&D expenditure reduced to GBP89.4 million (2017:
GBP103.0 million).
Administrative expenditure
Administrative expenditure, which includes overheads relating to
corporate functions, centrally managed support functions and
corporate costs, increased to GBP11.8 million (2017: GBP11.1
million). This was mainly due to the costs associated with the
transfer of the Company's shares to AIM and increased business
development costs.
Other gains and losses
Other losses increased to GBP3.8 million (2017: GBP10.2 million
gain). This was mainly due to unrealised foreign exchange losses
relating to deferred consideration payable to AstraZeneca following
the weakening of sterling against the dollar.
Net finance costs
Net finance costs were GBP11.7 million (2017: GBP2.4 million)
for the year. This mainly relates to a non-cash charge to the
income statement for the period reflecting the difference in the
discounted and actual deferred consideration payable to AstraZeneca
recorded on the balance sheet. The discounted amount reflects the
time value of money.
Taxation
Taxation for the year was a credit of GBP17.5 million (2017:
GBP21.0 million) of which GBP9.2 million (2017: GBP3.5 million)
relates to underlying continuing operations. Included in underlying
continuing operations is an R&D tax credit of GBP1.0 million
(2017: GBP3.5 million) which is lower than the previous year
because of a decrease in qualifying R&D expenditure. Also
included is a deferred tax credit of GBP8.2 million (2017: GBPnil)
which has arisen on an increase in recognised carried-forward tax
losses in the Group.
An R&D tax credit of GBP10.2 million was included in
non-underlying continuing operations in 2017, which related to the
R&D contribution paid to AstraZeneca.
Taxation for discontinued operations increased to a credit of
GBP8.3 million (2017: GBP7.3 million credit), mainly due to a
reduction in the deferred tax liability following the impairment of
intangible assets in the respiratory pipeline.
Loss after tax and loss per share
Basic loss per share for the period was 34p (2017: 31p)
reflecting a loss of GBP117.1 million (2017: GBP99.1 million), with
the increase mainly due to impairment of intangible assets in the
in-house respiratory portfolio. Loss per share for continuing
operations decreased to 14p (2017: 19p) reflecting a loss for the
financial period of GBP25.9 million (2017: GBP34.5 million).
Statement of financial position
The Group's net assets at 31 December 2018 were GBP125.9 million
(31 December 2017: GBP224.8 million). The decrease was mainly due
to impairment of the in-house respiratory intangible assets and
lower trade receivables and deposit balances, combined with an
increase in the recognised non-contingent consideration payable to
AstraZeneca reflecting the time value of money.
Current liabilities at the end of the period were GBP124.4
million (31 December 2017: GBP30.8 million). The increase at 31
December 2018 was mainly due to reclassification of the $100
million deferred non-contingent consideration payable to
AstraZeneca as a current liability payable due within one year.
Current tax assets at 31 December 2018 were GBP1.0 million (31
December 2017: GBP6.5 million), representing the R&D tax credit
due from HM Revenue and Customs. An R&D tax credit of GBP10.9
million was received in July 2018.
Cash flow
The Group's cash position, including cash equivalents and
short-term deposits, decreased from GBP59.5 million at 31 December
2017 to GBP40.7 million at 31 December 2018.
Cash used in operations decreased to GBP51.3 million (2017:
GBP66.4 million), reflecting higher revenues and a net decrease in
the overall cost base of the business. Cash used in operations in
2017 included settlement of the $17.5 million (GBP13.1 million)
R&D contribution due to AstraZeneca. In 2018, the contribution
of $20.0 million (GBP15.3 million) was satisfied through the issue
of new shares to AstraZeneca.
Other significant cashflows included an R&D tax credit of
GBP10.9 million (2017: GBP8.9 million) and proceeds from the issue
of share capital of GBP20.4 million (2017: GBPnil), which were used
to pay the AstraZeneca R&D contribution of $20.0 million and
the remainder part paying the final tranche of $25.0 million due by
the end of 2019. The remaining $18.3 million of this final R&D
payment, plus the $125.0 million consideration payable, is
addressed by a five-year loan provided by AstraZeneca.
Outlook
In the coming year, Circassia anticipates significant sales
growth with a number of factors expected to contribute to the
increase. In particular, the Company expects higher NIOX(R)
revenues in China following the implementation of direct sales in
the country, increased Tudorza(R) revenues following the exercise
of the option at the end of 2018 and initial Duaklir(R) sales later
this year following the product's approval by the FDA at the end of
March. The Company also plans to continue its cost control and
commercial investment strategy and as a result, Circassia looks
forward to continuing its trajectory towards profitability.
Julien Cotta
Chief Financial Officer
Consolidated statement of comprehensive income
for the year ended 31 December 2018
2018 2017
Underlying Non-underlying Total Underlying Non-underlying Total
operations items operations items
Restated(1) Restated(1)
Notes GBPm GBPm GBPm GBPm GBPm GBPm
Continuing operations
Revenue from contracts with
customers 4 48.3 - 48.3 46.3 - 46.3
Cost of sales (8.9) - (8.9) (10.0) - (10.0)
----------------------------- ------ ------------ --------------- -------- ------------ --------------- -------
Gross profit 39.4 - 39.4 36.3 - 36.3
Research and development
costs (10.8) - (10.8) (13.3) (45.1) (58.4)
Sales and marketing (54.4) (2.9) (57.3) (49.5) - (49.5)
Administrative expenses (11.4) (0.3) (11.7) (10.7) 0.1 (10.6)
Operating loss 8 (37.2) (3.2) (40.4) (37.2) (45.0) (82.2)
Other gains and (losses) 6 1.9 (5.6) (3.7) (1.1) 11.5 10.4
Finance costs 7 (0.1) (11.9) (12.0) (0.1) (2.7) (2.8)
Finance income 7 0.3 - 0.3 0.4 - 0.4
Loss before tax (35.1) (20.7) (55.8) (38.0) (36.2) (74.2)
Taxation 12 9.2 - 9.2 3.5 10.2 13.7
----------------------------- ------ ------------ --------------- -------- ------------ --------------- -------
Loss for the financial year
from continuing operations (25.9) (20.7) (46.6) (34.5) (26.0) (60.5)
----------------------------- ------ ------------ --------------- -------- ------------ --------------- -------
Discontinued operations
Loss for the year from
discontinued
operations attributable to
owners of Circassia
Pharmaceuticals
plc 10 - (70.5) (70.5) - (38.6) (38.6)
Loss for the financial year (25.9) (91.2) (117.1) (34.5) (64.6) (99.1)
----------------------------- ------ ------------ --------------- -------- ------------ --------------- -------
Other comprehensive
(expense)/income
items that may be
subsequently
reclassified to profit or
loss
Currency translation
differences 29 (4.8) - (4.8) 2.2 - 2.2
Total other comprehensive
(expense)/income for the
year (4.8) - (4.8) 2.2 - 2.2
----------------------------- ------ ------------ --------------- -------- ------------ --------------- -------
Total comprehensive expense
for the year (30.7) (91.2) (121.9) (32.3) (64.6) (96.9)
----------------------------- ------ ------------ --------------- -------- ------------ --------------- -------
Loss per share attributable to owners of the parent during the
year (expressed in GBP per share)
2018 2017
Restated(1)
Basic and diluted loss per share GBP GBP
---------------------------------- ------- ------- -------------
Loss per share from continuing
operations 13 (0.14) (0.19)
Total loss per share 13 (0.34) (0.31)
---------------------------------- ------- ------- -------------
(1) Restated to show the results of the respiratory business as
discontinued. See note 10 for details.
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 notes on pages 18 to 53 are an integral part of these
financial statements.
Consolidated statement of financial position
as at 31 December 2018
2018 2017
Notes GBPm GBPm
------------------------------------- ------ -------- --------
Assets
Non-current assets
Property, plant and equipment 14 0.5 1.4
Goodwill 15 9.3 10.0
Intangible assets 16 221.4 199.7
Deferred tax assets 24 19.1 15.7
Investment in joint venture 18 0.1 0.5
Prepayment for business combination 35 - 77.9
Non-current tax assets 12 3.0 7.3
------------------------------------- ------ -------- --------
253.4 312.5
------------------------------------- ------ -------- --------
Current assets
Inventories 19 4.2 5.0
Trade and other receivables 20 8.1 18.9
Current tax assets 12 1.0 6.5
Short-term bank deposits 21 - 15.0
Cash and cash equivalents 21 40.7 44.5
------------------------------------- ------ -------- --------
54.0 89.9
------------------------------------- ------ -------- --------
Total assets 307.4 402.4
------------------------------------- ------ -------- --------
Equity and liabilities
Ordinary shares 25 0.3 0.3
Share premium 27 622.5 602.2
Other reserves 29 15.1 17.2
Accumulated losses 28 (512.0) (394.9)
------------------------------------- ------ -------- --------
Total equity 125.9 224.8
------------------------------------- ------ -------- --------
Liabilities
Non-current liabilities
Deferred tax liabilities 24 10.9 24.1
Non-contingent consideration 35 - 68.7
Contingent consideration 35 46.2 33.6
Non-current trade payables 22 - 20.4
------------------------------------- ------ -------- --------
57.1 146.8
------------------------------------- ------ -------- --------
Current liabilities
Non-contingent consideration 35 80.3 -
Contingent consideration 35 15.4 -
Trade and other payables 22 28.7 30.8
124.4 30.8
------------------------------------- ------ -------- --------
Total liabilities 181.5 177.6
------------------------------------- ------ -------- --------
Total equity and liabilities 307.4 402.4
------------------------------------- ------ -------- --------
The notes on pages 18 to 53 are an integral part of these
financial statements.
The financial statements on pages 12 to 53 were authorised for
issue by the Board of Directors on
1 May 2019 and were signed on its behalf by
Steven Harris
Chief Executive Officer
Circassia Pharmaceuticals plc
Julien Cotta
Chief Financial Officer
Circassia Pharmaceuticals plc
Registered number: 05822706
Parent Company statement of financial position
as at 31 December 2018
2018 2017
Notes GBPm GBPm
-------------------------------------------------- ------ -------------- ----------
Assets
Non-current assets
Investments in subsidiaries 17 67.6 273.5
67.6 273.5
-------------------------------------------------- ------ -------------- ----------
Current assets
Trade and other receivables 20 282.6 328.2
Short-term bank deposits 21 - 15.0
Cash and cash equivalents 21 0.1 0.3
-------------------------------------------------- ------ -------------- ----------
282.7 343.5
-------------------------------------------------- ------ -------------- ----------
Total assets 350.3 617.0
-------------------------------------------------- ------ -------------- ----------
Equity and liabilities
Equity attributable to the owners of the Company
Ordinary shares 25 0.3 0.3
Share premium 27 622.5 602.2
Other reserves 29 11.3 8.6
(Accumulated losses)/ retained earnings 28 (289.9) 1.9
Total equity 344.2 613.0
Liabilities
Current liabilities
Trade and other payables 22 6.1 4.0
6.1 4.0
Total equity and liabilities 350.3 617.0
-------------------------------------------------- ------ -------------- ----------
The loss for the Parent Company for the year was GBP291.8
million (2017: GBP1.5 million profit).
The notes on pages 18 to 53 are an integral part of these
financial statements.
The financial statements on pages 12 to 53 were authorised for
issue by the Board of Directors on
1 May 2019 and were signed on its behalf by
Steven Harris
Chief Executive Officer
Circassia Pharmaceuticals plc
Julien Cotta
Chief Financial Officer
Circassia Pharmaceuticals plc
Registered number: 05822706
Consolidated and Parent Company statementS of cash flows
for the year ended 31 December 2018
Group Company
---------------- ----------------
2018 2017 2018 2017
Notes GBPm GBPm GBPm GBPm
--------------------------------------------------------- ------ ------- ------- ------- -------
Cash flows from operating activities
Cash (used in)/generated from operations 30 (51.3) (66.4) 11.7 0.4
Interest paid 7 (0.2) (0.1) - -
Tax credit received 12 10.9 8.9 - -
--------------------------------------------------------- ------ ------- ------- ------- -------
Net cash (used in)/generated from operating activities (40.6) (57.6) 11.7 0.4
--------------------------------------------------------- ------ ------- ------- ------- -------
Cash flows from investing activities
Recapitalisation of subsidiary 17 - - - (9.0)
Purchases of property, plant and equipment 14 (0.1) (0.8) - -
Purchases of intangible assets 16 (0.3) - - -
Proceeds from sale of property, plant and equipment 14 0.5 - - -
Interest received 7 0.2 0.8 - 0.7
Joint venture distributions to owners 18 0.3 0.2 - -
Loans granted to subsidiary undertakings 20 - - (45.5) (68.2)
Decrease in short-term bank deposits 15.0 5.0 15.0 5.0
--------------------------------------------------------- ------ ------- ------- ------- -------
Net cash generated from/ (used in) investing activities 15.6 5.2 (30.5) (71.5)
--------------------------------------------------------- ------ ------- ------- ------- -------
Cash flows from financing activities
Proceeds from issuance of ordinary shares 25 20.4 - 20.4 -
Share issue costs offset against share premium 27 (0.1) (1.6) (0.1) (1.6)
Acquisition of interest in a subsidiary 17 - - (1.7) -
Net cash generated from/ (used in) financing activities 20.3 (1.6) 18.6 (1.6)
--------------------------------------------------------- ------ ------- ------- ------- -------
Net decrease in cash and cash equivalents (4.7) (54.0) (0.2) (72.7)
Cash and cash equivalents at 1 January 21 44.5 97.4 0.3 73.0
Exchange gains on cash and cash equivalents 0.9 1.1 - -
--------------------------------------------------------- ------ ------- ------- ------- -------
Cash and cash equivalents at 31 December 21 40.7 44.5 0.1 0.3
--------------------------------------------------------- ------ ------- ------- ------- -------
The notes on pages 18 to 53 are an integral part of these
financial statements.
Consolidated statement of changes in equity
for the year ended 31 December 2018
Ordinary Share Other Accumulated Total
shares premium (1) reserves losses equity
Notes GBPm GBPm GBPm GBPm GBPm
------------------------ ------ --------- --------- -------------- ------------ --------
At 1 January 2017 0.2 563.8 12.5 (295.8) 280.7
Loss for the financial
year 28 - - - (99.1) (99.1)
Currency translation
differences 29 - - 2.2 - 2.2
Total comprehensive
income/ (expense) - - 2.2 (99.1) (96.9)
Transactions with
owners:
Issue of ordinary
shares 25 0.1 38.4 - - 38.5
Employee share option
scheme 29 - - 2.5 - 2.5
At 31 December 2017 0.3 602.2 17.2 (394.9) 224.8
------------------------ ------ --------- --------- -------------- ------------ --------
At 1 January 2018 0.3 602.2 17.2 (394.9) 224.8
Loss for the financial
year 28 - - - (117.1) (117.1)
Currency translation
differences 29 - - (4.8) - (4.8)
Total comprehensive
expense - - (4.8) (117.1) (121.9)
Transactions with
owners:
Issue of ordinary
shares 25 - 20.3 - - 20.3
Employee share option
scheme 29 - - 2.7 - 2.7
At 31 December 2018 0.3 622.5 15.1 (512.0) 125.9
------------------------ ------ --------- --------- -------------- ------------ --------
(1) Other reserves include share option reserve, translation
reserve, treasury shares reserve, and transactions with NCI
reserve.
The notes on pages 18 to 53 are an integral part of these
financial statements.
Parent Company statement of changes in equity
for the year ended 31 December 2018
Ordinary shares Share Share option reserve (Accumulated losses)/ Total
premium Retained equity
earnings
Notes GBPm GBPm GBPm GBPm GBPm
----------------------- ------- ---------------- --------- --------------------- ---------------------- --------
At 1 January 2017 0.2 563.8 6.1 0.4 576.9
Profit and total
comprehensive income 28 - - - 1.5 1.5
Transactions with
owners:
Issue of ordinary
shares 25, 27 0.1 38.4 - - 38.5
Employee share option
scheme 29 - - 2.5 - 2.5
----------------------- ------- ---------------- --------- --------------------- ---------------------- --------
At 31 December 2017 0.3 602.2 8.6 1.9 613.0
At 1 January 2018 0.3 602.2 8.6 1.9 613.0
Loss and total
comprehensive expense 28 - - - (291.8) (291.8)
Transactions with
owners:
Issue of ordinary
shares 25, 27 - 20.3 - - 20.3
Employee share option
scheme 29 - - 2.7 - 2.7
----------------------- ------- ---------------- --------- --------------------- ---------------------- --------
At 31 December 2018 0.3 622.5 11.3 (289.9) 344.2
======================= ======= ================ ========= ===================== ====================== ========
The notes on pages 18 to 53 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 respiratory products.
Circassia Pharmaceuticals plc is a public company limited by
shares which is listed on the Alternative Investment Market (AIM)
and incorporated and domiciled in the United Kingdom. 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 2018 and 2017
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 2018 were approved by the Board of Directors on 1 May 2019
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.
The exemption from audit has been claimed for the individual
financial statements of Circassia Pharma Limited (registered number
6410308) and Prosonix Limited (registered number 05679156) for the
year ended 31 December 2018 under section 479A of Companies Act
2006. Circassia Pharmaceuticals plc has given the required
guarantee under section 479C in respect of the reporting year.
Circassia Pharma Limited and Prosonix Limited results are included
in these consolidated financial statements.
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.
The directors note that as at 31 December 2018, the Group is in
a net current liability position. This is mainly due to the $125
million consideration payable to AstraZeneca. Payment of this
amount is addressed by a loan provided by AstraZeneca.
New and amended standards adopted by the Group
The Group has applied the following standards and amendments for
the first time for their annual reporting period commencing 1
January 2018:
-- IFRS 9 - Financial Instruments
-- IFRS 15 - Revenue from Contracts with Customers
The new standards listed above did not have any impact on the
amounts recognised in prior periods or the current period and are
not expected to significantly affect future periods.
New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been
published that are not mandatory for 31 December 2018 reporting
periods and have not been early adopted by the Group. The Group's
assessment of the impact of these new standards and interpretations
is set out below.
IFRS 16 - Leases
This new standard was issued in January 2016. It will result in
almost all leases being recognised on the balance sheet by lessees,
as the distinction between operating and finance leases is removed.
Under the new standard, an asset (the right to use the leased item)
and a financial liability to pay rentals are recognised. The only
exceptions are short-term and low-value leases.
The Group has reviewed all leasing arrangements considering the
new lease accounting rules in IFRS 16. The standard will affect
primarily the accounting for the Group's operating leases.
As at the reporting date, the Group has non-cancellable
operating lease commitments of GBP3.7 million, see note 32. Of
these commitments, approximately GBP0.1 million relates to low
value leases which will be recognised on a straight-line basis as
expense in profit or loss.
Notes to the financial statements
1. Summary of significant accounting policies (continued)
For the remaining lease commitments, the group expects to
recognise right-of-use assets of approximately GBP2.3 million on 1
January 2019, lease liabilities of GBP2.5 million (after
adjustments for prepayments and accrued lease payments recognised
as at 31 December 2018). The related deferred tax asset is
immaterial. Overall net assets will be approximately GBP0.1 million
lower, and net current assets will be GBP0.6 million lower due to
the presentation of a portion of the liability as a current
liability.
The Group expects that loss after tax will increase by
approximately GBP0.1 million for 2019 as a result of adopting the
new rules.
Operating cash flows will increase, and financing cash flows
decrease by approximately GBP1.6 million as repayment of the
principal portion of the lease liabilities will be classified as
cash flows from financing activities.
The Group's activities as a lessor are not material and hence
the Group does not expect any significant impact on the financial
statements. However, some additional disclosures will be required
from next year. The Group will apply the standard from its
mandatory adoption date of 1 January 2019. The Group intends to
apply the simplified transition approach and will not restate
comparative amounts for the year prior to first adoption.
There are no other standards that are not yet effective and that
would be expected to have a material impact on the entity in the
current or future reporting periods and on foreseeable future
transactions.
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 historical experience and other factors, including expectations
of future events that are believed to be reasonable in the
circumstances.
Significant accounting estimates and judgements
The preparation of financial statements requires the use of
accounting estimates which, by definition, will seldom equal the
actual results. Management also needs to exercise judgement in
applying the Group's accounting policies. This note provides an
overview of the areas that involved a higher degree of judgement or
complexity, and of items which are more likely to be materially
adjusted due to estimates and assumptions being revised.
The areas involving significant estimates are listed below:
Recognition of deferred tax asset for carried-forward tax
losses
The deferred tax assets include an amount of GBP8.2 million
which relates to carried-forward tax losses of Circassia AB
(previously known as Aerocrine AB). These losses were generated
before the company was acquired by Circassia Pharmaceuticals plc.
The Group has concluded that the deferred assets will be
recoverable using the estimated future taxable income based on the
approved business plans and budgets for the subsidiary. The
subsidiary has generated taxable income in both years ended 2017
and 2018 is expected to continue generating taxable income from
2019 onwards. The losses can be carried forward indefinitely and
have no expiry date. The judgement is how much of the asset can be
recognised based on probable future profits. Changes in the
expected future profits of Circassia AB might result in a
significantly higher or lower deferred tax asset. A 10% higher or
lower taxable profit generated by Circassia AB would result in a
GBP0.8 million higher or lower deferred tax asset recognised.
Accounting for collaboration with AstraZeneca
Following the collaboration and profit share arrangement with
AstraZeneca in the previous year, a Purchase Price Allocation
exercise was performed in relation to the Duaklir(R) acquisition.
It was considered that the Group assumed control over the
Duaklir(R) business only on this date, as the acquisition of
Tudorza(R) was contingent on net sales achievement. The following
key accounting areas were of focus:
-- Valuation of Duaklir(R) IPR&D
The Excess Earnings Method approach was determined to be the
most appropriate methodology to use for the valuation of the
In-Process Research & Development (IPR&D). This methodology
made use of the same cash flows used in the Duaklir(R) business
valuation with certain key assumptions including a specific rate of
return of net working capital, no additional workforce requirement
and minimal tangible fixed asset requirements.
As at 31 December 2018, the carrying amount of the Duaklir(R)
IPR&D was GBP33.3 million (2017: GBP33.3 million). The Group
estimates the useful life of this IPR&D to be 17 years, based
on the expected future cash flows that the asset is expected to
generate. However, the actual useful life might be shorter or
longer than 17 years, depending on product innovations and
competitor actions. As at 31 December 2018, the asset is not yet
ready for use as the Duaklir(R) product has not been launched, and
therefore this estimate has no impact on the carrying amount in the
current year.
Notes to the financial statements
1. Summary of significant accounting policies (continued)
-- Valuation of Duaklir(R) royalties
As part of the collaboration, Circassia will pay royalties to
AstraZeneca on future sales of Duaklir(R) in the United States.
There is some uncertainty over the final amount of future sales and
thus royalties due and therefore actual outcomes could differ
significantly from the estimates made. Under IFRS 3, these
royalties have been classified as additional consideration and
initially recognised as an IPR&D asset with a corresponding
contingent liability. The value of the IPR&D asset and
corresponding liability was calculated by management using a
tax-effected NPV of the future royalty cash outflows at the date of
the transaction.
As at 31 December 2018, the royalty liability has been
remeasured using sales projections based on financial budgets
approved by management covering a ten-year period. Expected sales
beyond the ten-year period are extrapolated using estimated growth
rates. See note 35 for further details.
Accounting for the Tudorza(R) option exercise
Following the Tudorza(R) option becoming substantive in October,
a Purchase Price Allocation exercise was performed focusing on the
following key accounting area:
- Initial valuation of Tudorza(R) CMP
The Excess Earnings Method approach was determined to be the
most appropriate methodology to use for the valuation of the
Currently Marketed Product (CMP). This methodology made use of the
cash flows associated with the Tudorza(R) business with certain key
assumptions including a specific rate of return of net working
capital, workforce requirements and minimal tangible fixed asset
requirements. In addition, the Cost Approach was used to value the
Assembled Workforce. As per IAS 38, the fair value of the Assembled
Workforce has not been recognised as a separate intangible asset.
The valuation of the Assembled Workforce was solely used for
allowing a return on the Assembled Workforce in the valuation
analyses of the CMP.
Investments
Circassia Pharmaceuticals plc holds a number of investment
balances in subsidiary companies. Investment 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 (CGUs) containing the investment. If there is a
significant impairment of a particular CGU or if the Group's market
capitalisation remains below the carrying value of Circassia
Pharmaceuticals plc's aggregate investment in subsidiaries, this
could result in an impairment of the investment. Please see note 17
for sensitivity analysis and further information.
The areas involving judgement are listed below:
Date of acquisition regarding Tudorza(R) option exercise
The business combination relating to the exercise of the
Tudorza(R) option has been accounted for on 23 October 2018.
This is determined to be the point at which there were no
barriers to prevent Circassia from exercising the option, rather
than 11 December 2018, being the date at which formal notice of
exercise was served to AstraZeneca.
Non-underlying items
The Group presents certain items of income and expense as
non-underlying in the Consolidated Statement of Comprehensive
Income. Management primarily manage the business and measure
performance based on the results of "underlying operations".
Significant irregular and exceptional items are classified as
"non-underlying" items and are excluded from the underlying
measures. This is a judgemental area and is performed by
management.
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 and
losses on transactions between Group companies are eliminated.
Accounting policies of subsidiaries are consistent with the
policies adopted by the Group. Acquisition-related costs are
expensed as incurred.
Notes to the financial statements
1. Summary of significant accounting policies (continued)
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 four business segments during 2018, allergy,
respiratory, NIOX(R) and US AZ collaboration. 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.
The allergy and respiratory operating segments have been
classified as discontinued operations. Information about these
discontinued segments is provided in note 10.
Discontinued operations
A discontinued operation is a component of the Group's business
that represents a separate major line of business or geographical
area of operations that will not be progressed in the future.
Discontinued operations are presented on the income statement as a
separate line and are shown net of tax. Cash flows relating to
discontinued operations are disclosed in the notes.
The decision to treat the allergy business as discontinued was
made on 25 April 2017 when the Group announced a decision to cease
all further activities on the allergy programmes. As such, the
allergy programme costs and the associated research and development
tax credit for the year ended 31 December 2017 and 31 December 2018
are classified as discontinued operations in the Consolidated
statement of comprehensive income in accordance with IFRS 5
requirements.
The respiratory programme costs and the associated research and
development tax credit for the year ended 31 December 2017 have
been reclassified as discontinued operations in the Consolidated
statement of comprehensive income in accordance with IFRS 5
requirements. The decision to treat the in-house respiratory
pipeline as discontinued was made in April 2018 when the Group
announced a decision to cease investment in the respiratory
pipeline and to seek an out-license partner.
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.
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.
Payment of the $125 million consideration payable and the $18.3
million R&D payment is addressed by a five-year loan provided
by AstraZeneca. 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).
Notes to the financial statements
1. Summary of significant accounting policies (continued)
Trade and other receivables
Trade receivables are amounts due from customers for goods sold
or services performed in the ordinary course of business. They are
generally due for settlement within 30 days and therefore are all
classified as current. Trade receivables are recognised initially
at fair value and subsequently measured at amortised cost using the
effective interest method, less credit loss allowance. In respect
of 2018 and subsequent years, the Group applies the IFRS 9
simplified approach to measuring expected credit losses which uses
a lifetime expected loss allowance for all trade receivables and
contract assets. In respect of 2017, the Group applied as incurred
loss methodology, in accordance with IAS39.
Trade receivables are written off when there is no reasonable
expectation of recovery.
Other receivables are recognised initially at fair value and
subsequently measured at amortised cost, using the effective
interest method, less provision for impairment.
Trade and other 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.
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, intellectual property rights and
currently marketed products acquired through licensing or assigning
patents and know-how are carried at historical 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 - 17 years
CMP 13 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.
Notes to the financial statements
1. Summary of significant accounting policies (continued)
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.
Computer Software
Expenditure on software costs is 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. Write-downs of inventory occur in the general course of
business and are recognised in cost of sales.
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
Fixtures and fittings 20%
Plant and equipment 10% - 33%
------------------------------- ---------------------------------
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.
Notes to the financial statements
1. Summary of significant accounting policies (continued)
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.
Deferred non-contingent consideration
Deferred non-contingent consideration is measured by discounting
the liability, where the effect of the time value of money is
material, using a pre-tax discount rate that reflects current
market assessments of the time value of money and, when
appropriate, the risks specific to the liability. Where discounting
is used, the increase in the liability due to the passage of time
is recognised as an interest expense in the income statement.
Deferred contingent consideration
Deferred contingent consideration is recognised as a liability
and measured at fair value on the acquisition date. It is measured
by discounting the liability, where the effect of the time value of
money is material, using a pre-tax discount rate that reflects
current market assessments of the time value of money and, when
appropriate, the risks specific to the liability. The liability is
subsequently measured at fair value at each reporting date, with
changes in fair value recognised as other gains or losses in the
income statement. Where discounting is used, the increase in the
liability due to the passage of time is recognised as an interest
expense in the income statement.
Contingent royalty consideration
In a business combination, future royalty payments owed to the
seller are treated as contingent consideration. The contingent
consideration is recognised as a liability, an asset or equity
depending on its terms. A contingent consideration arrangement is
initially measured at fair value on the acquisition date based on a
tax-effected net present value basis of the future cash outflows.
Contingent consideration that is classified as a liability is
remeasured to fair value at each reporting date, with changes
included in the income statement in the post-combination period
until the uncertainty is resolved.
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).
Notes to the financial statements
1. Summary of significant accounting policies (continued)
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 26. 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 with non-market performance
conditions 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.
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 is accounted for under IFRS 15. 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. Revenue is recognised when a contractual
promise to a customer (performance obligation) has been fulfilled
by transferring control of the product to the customer,
substantially all of which is on confirmation of delivery to the
customer.
Rendering of services
Under the AstraZeneca collaboration agreement, the Group
promotes the chronic obstructive pulmonary disease (COPD) treatment
Tudorza(R) in the United States. Revenues recognised are the
amounts invoiced to AstraZeneca pursuant to the right to
collaborate with AstraZeneca on the commercialisation and
development of Tudorza(R) in the United States. Revenue is
recognised in the accounting periods in which the services are
rendered.
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 'Other gains and losses'.
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'.
Notes to the financial statements
1. Summary of significant accounting policies (continued)
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.
Deferred tax assets are recognised only to the extent that it is
probable that future taxable profit will be available against which
the temporary differences can be utilised.
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 2018, the Company issued
23,725,800 ordinary shares with a value of GBP20.4 million to
AstraZeneca (AZ). The Group's capital is comprised of share capital
and share premium, which are disclosed in notes 25 and 27
respectively. The Group monitors the availability of capital
through forecasting 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 British pound sterling, but a significant proportion
of its expenditure and subsidiary results are in various currencies
including United States dollar, Swedish krona, euro and Chinese
yuan. 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 British pound
sterling, United States dollar, Swedish krona or euro. Foreign
exchange risk arises from future commercial transactions and
recognised assets and liabilities.
In relation to foreign currency risk, the Group's policy is to
hold the majority of its funds in sterling, monitor foreign
currency rates and purchase foreign currency at spot rates. The
change in foreign exchange rates that is assessed to be reasonably
likely for each currency in 2018 is 10% (2017: 10%).
At 31 December 2018, if the euro had weakened/strengthened by
10% against sterling with all other variables held constant, the
post tax loss for the year would have been GBP0.5 million (2017:
GBP0.4 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 2018 of a 10%
weakening/strengthening of the US dollar against British pound
sterling with all other variables held constant would have been a
decrease/increase of GBP0.7 million (2017: GBP2.7 million), as a
result of net foreign exchange gains/losses on translation of
dollar denominated payables, receivables and foreign exchange
losses/gains on translation of dollar denominated bank
balances.
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 2018 would have been an increase/decrease of
GBP0.0 million (2017: GBP0.1 million) due to changes in the amount
of interest receivable.
Credit risk
Credit risk arises from cash and cash equivalents, deposits with
banks and financial institutions, as well as credit exposures to
customers, including outstanding receivables.
i) Risk management
The Group's policy is to place funds with financial institutions
which have a minimum credit rating with Fitch IBCA of A-
long-term/F1 short-term. During 2018, the Group opened a bank
account with China Merchant Bank which has a Fitch IBCA rating of
BBB. This is a short-term arrangement until a permanent solution is
implemented.
During 2018 the Group placed funds on deposit with 8 banks
(2017: 6 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.
ii) Impairment of financial assets
The Group only has one type of financial asset that is subject
to the expected credit loss model being trade receivables. The
Company only has one type of financial asset that is subject to the
expected credit loss model being receivables from subsidiary
undertakings. While cash and cash equivalents are also subject to
the impairment requirements of IFRS 9, the identified impairment
loss was immaterial.
The Group and Company applies the IFRS 9 simplified approach to
measuring expected credit losses which uses an expected loss
allowance for all trade receivables and receivables from subsidiary
undertakings. To measure the expected credit losses, trade
receivables and receivables from subsidiary undertakings have been
grouped based on the days past due.
The expected loss rates are based on the payment profiles of
sales over a period of 36 months before 31 December 2018 and the
corresponding historical credit losses experienced within this
period. The historical loss rates are adjusted to reflect current
and forward looking information on macroeconomic factors affecting
the ability of the customers to settle the receivables.
On that basis, the loss allowance as at 31 December 2018 was
determined as follows:
More than More than More than
30 days 60 days 90 days
Current past due past due past due Total
-------------------------
Group GBPm GBPm GBPm GBPm GBPm
31 December 2018
------------------------- -------- ---------- ---------- ---------- ------
Expected loss rate 2% 12% 10% 8%
Gross trade receivables
carrying amount 3.4 0.1 0.1 0.2 3.8
------------------------- -------- ---------- ---------- ---------- ------
Loss allowance (0.1) - - - (0.1)
------------------------- -------- ---------- ---------- ---------- ------
More than More than More than
30 days 60 days 90 days
Current past due past due past due Total
--------------------------
Company GBPm GBPm GBPm GBPm GBPm
31 December 2018
-------------------------- -------- ---------- ---------- ---------- -------
Expected loss rate 24% 0% 0% 0%
Gross receivables from
subsidiary undertakings
carrying amount 373.1 - - - 373.1
-------------------------- -------- ---------- ---------- ---------- -------
Loss allowance (91.4) - - - (91.4)
-------------------------- -------- ---------- ---------- ---------- -------
Notes to the financial statements
2. Financial and capital risk management (continued)
The closing loss allowance as at 31 December 2018 reconciles to
the opening loss allowances as follows:
Group Company
--------------------- ----------
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
-------------------------------------------------------------------------- ------ ------ --------- ------
Opening loss allowance as at 1 January - (0.2) - -
Increase in loss allowances recognised in profit or loss during the year (0.1) - (91.4) -
Receivables written off during the year as uncollectible - 0.1 - -
Unused amount reversed - 0.1 - -
At 31 December (0.1) - (91.4) -
-------------------------------------------------------------------------- ------ ------ --------- ------
Trade receivables are written off where there is no reasonable
expectation of recovery. Indicators that there is no reasonable
expectation of recovery include, amongst others, the failure of a
debtor to engage in a repayment plan with the Group, and a failure
to make contractual payments for a period of greater than 120 days
past due.
Impairment losses on trade receivables and receivables from
subsidiary undertakings are presented within operating profit.
Subsequent recoveries of amounts previously written off are
credited against the same line item.
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. The only
financial liability outstanding for periods greater than one year
in 2018 is a proportion of the contingent royalty consideration
relating to sales of Duaklir(R) and Tudorza(R) made in 2020 and
onwards. Financial liabilities outstanding for periods greater than
one year in 2017 included non-contingent consideration, contingent
royalty consideration and R&D contribution payable to
AstraZeneca. The amounts disclosed in the table are the contracted
cash flows discounted to present value where such impact is
material:
At 31 December Less than 1 year Over 1 year Less than 1 year Over 1 year
2018 2018 2017 2017
GBPm GBPm GBPm GBPm
Non-contingent consideration 80.3 - - 68.7
Contingent consideration 15.4 46.2 - 33.6
Trade and other payables 28.7 - 30.8 20.4
Total 124.4 46.2 30.8 122.7
------------------------------ ----------------- ------------ ----------------- ------------
As at 31 December 2018, the Group is in a net current liability
position. This is mainly due to the $125 million consideration
payable to AstraZeneca. Payment of this amount is addressed by a
loan provided by AstraZeneca.
Derivative financial instruments and hedging
There were no derivatives at 31 December 2018 or 31 December
2017.
3. Operating segments
The chief operating decision-maker (the Chief Executive Officer)
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 2018 operating
segments are identified within the Group by product portfolios:
- NIOX(R) relates to the portfolio of products used to improve
asthma diagnosis and management by measuring fractional exhaled
nitric oxide (FeNO); and
- US AZ collaboration relates to the US collaboration agreement with AstraZeneca regarding the commercialisation of Tudorza(R) and Duaklir(R).
The allergy and respiratory operating segments have been
classified as discontinued operations. Information about these
discontinued segments is provided in note 10.
There were no sales between the segments in either reporting
year.
The table below presents information regarding the Group's
operating segments for the years ended 31 December 2018 and 2017.
Costs shared between the segments are not allocated to individual
segments for decision making purposes. These are disclosed under
the column headed 'Unallocated'.
Notes to the financial statements
3. Operating segments (continued)
Segment operating loss
Year ended 31 December 2018 NIOX(R) US AZ collaboration Unallocated Total
GBPm GBPm GBPm GBPm
--------------------------------------------------------------- -------- -------------------- ------------ -------
Revenue (from external customers by country, based on the
destination of the customer)
US 9.4 20.9 - 30.3
EU 8.4 - - 8.4
Asia Pacific 9.5 - - 9.5
Rest of world 0.1 - - 0.1
--------------------------------------------------------------- -------- -------------------- ------------ -------
Total segment revenue 27.4 20.9 - 48.3
Research and development (3.2) (1.0) (6.6) (10.8)
Sales and marketing (32.3) (22.1) - (54.4)
Administrative expenses - - (11.4) (11.4)
Operating loss from continuing operations (17.0) (2.2) (18.0) (37.2)
--------------------------------------------------------------- -------- -------------------- ------------ -------
Depreciation, amortisation & impairment included in the
expenditure above (3.8) - (0.6) (4.4)
--------------------------------------------------------------- -------- -------------------- ------------ -------
Year ended 31 December 2017 NIOX(R) US AZ collaboration Unallocated Total
Restated(1)
GBPm GBPm GBPm GBPm
--------------------------------------------------------------- -------- -------------------- ------------ -------
Revenue (from external customers by country, based on the
destination of the customer)
US 9.5 19.0 - 28.5
EU 8.4 - - 8.4
Asia Pacific 9.3 - - 9.3
Rest of world 0.1 - - 0.1
--------------------------------------------------------------- -------- -------------------- ------------ -------
Total segment revenue 27.3 19.0 - 46.3
Research and development (4.4) (45.1) (8.9) (58.4)
Sales and marketing (32.6) (16.8) (0.1) (49.5)
Administrative expenses - - (10.6) (10.6)
Operating loss from continuing operations (19.7) (42.9) (19.6) (82.2)
--------------------------------------------------------------- -------- -------------------- ------------ -------
Depreciation, amortisation & impairment included in the
expenditure above (4.2) - (0.7) (4.9)
--------------------------------------------------------------- -------- -------------------- ------------ -------
Assets by segment
As at 31 December 2018 NIOX(R) US AZ collaboration Unallocated Total
GBPm GBPm GBPm GBPm
------------------------------------------------ -------- -------------------- ------------ ------
Cash, cash equivalents and short term deposits 7.1 4.9 28.7 40.7
Property, plant and equipment - 0.5 - 0.5
Goodwill 5.2 4.1 - 9.3
Intangible assets 50.7 170.7 - 221.4
Deferred tax assets 8.2 10.9 - 19.1
Investment in joint venture - 0.1 - 0.1
Non-current tax assets - 3.0 - 3.0
Inventories 4.2 - - 4.2
Trade and other receivables 6.1 2.0 - 8.1
Current tax assets - 1.0 - 1.0
------------------------------------------------ -------- -------------------- ------------ ------
Total assets 81.5 197.2 28.7 307.4
------------------------------------------------ -------- -------------------- ------------ ------
As at 31 December 2017 NIOX(R) US AZ collaboration Unallocated Total
Restated(1)
GBPm GBPm GBPm GBPm
------------------------------------------------ -------- -------------------- ------------ ------
Cash, cash equivalents and short term deposits 3.7 55.8 - 59.5
Property, plant and equipment - 1.4 - 1.4
Goodwill 5.4 0.2 4.4 10.0
Intangible assets 74.9 124.8 - 199.7
Deferred tax assets - 15.7 - 15.7
Investment in joint venture - 0.5 - 0.5
Prepayment for business combination - 77.9 - 77.9
Non-current tax assets - 7.3 - 7.3
Inventories - 5.0 - 5.0
Trade and other receivables - 18.9 - 18.9
Current tax assets - 6.5 - 6.5
Total assets 84.0 314.0 4.4 402.4
------------------------------------------------ -------- -------------------- ------------ ------
(1) Restated to show the results of the respiratory business in discontinued operations, see
note 10 for further details.
Notes to the financial statements
4. Revenue from contracts with customers
The Group derives the following types of revenue:
2018 2017
GBPm GBPm
--------------------------------------------- ------ ------
Sale of goods 27.0 27.2
Rendering of services 21.3 19.0
Licence and milestone revenue - 0.1
Total revenue from contracts with customers 48.3 46.3
--------------------------------------------- ------ ------
All revenue is recognised at a point in time, rather than over
time.
5. Employees and directors
The average monthly number of persons (including Executive
Directors) employed during the year was:
Group Company
-------------------------- -------- -------- -------- --------
2018 2017 2018 2017
By activity Number Number Number Number
-------------------------- -------- -------- -------- --------
Office and management 43 42 8 7
Sales and marketing 285 256 - -
Research and development 39 68 - -
--------------------------- -------- -------- -------- --------
Total average headcount 367 366 8 7
--------------------------- -------- -------- -------- --------
The average number of administration staff employed by the Group
during the year, including Executive and Non-Executive Directors,
was 2 (2017: 2).
Employee benefit costs Group Company
------------------------------ -------------- --------------
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
------------------------------ ------ ------ ------ ------
Wages and salaries 39.1 39.6 1.5 1.4
Social security costs 5.7 3.2 0.2 0.2
Other pension costs 1.5 1.5 - 0.1
Share options expense 2.7 2.5 - -
------------------------------ ------ ------ ------ ------
Total employee benefit costs 49.0 46.8 1.7 1.7
------------------------------ ------ ------ ------ ------
The Group contributes to defined contribution pension schemes
for its Executive Directors and employees. Contributions of GBP0.1
million (included in other payables) were payable to the funds at
the year end (2017: GBP0.1 million).
The details of directors of the Group who received emoluments
from the Group during the year are shown in the Remuneration
Committee report.
Key management personnel
The average number of key management personnel employed by the
Group during the year including directors (Executive and
Non-Executive) was 13 (2017: 13).
Key management personnel during the year included directors
(Executive and Non-Executive), Senior VP of Commercial US, Senior
VP of General Counsel and Chief Compliance Officer, Senior VP of
Human Resources and Senior VP of Commercial EU & RoW. The
compensation paid or payable to key management is set out
below.
2018 2017
GBPm GBPm
------------------------------------------------ ------ ------
Short-term employee benefits (including bonus) 3.7 3.0
Post-employment benefits 0.1 0.2
Share based payment 1.0 0.8
Total 4.8 4.0
------------------------------------------------ ------ ------
Notes to the financial statements
6. Other gains and losses
2018 2017
GBPm GBPm
--------------------------------------------------------------------- ------------------ -------
Net foreign exchange gain/ (loss) 1.9 (1.1)
Change in fair value of contingent Duaklir(R) royalty consideration (1.1) 3.2
Change in fair value of deferred consideration 5.4 -
Foreign exchange (loss)/ gain on non-contingent consideration (4.4) 5.4
Foreign exchange (loss)/ gain on contingent royalty consideration (2.5) 2.9
Foreign exchange loss on exercise of Tudorza(R) option (2.7) -
Foreign exchange loss on contingent consideration (0.3) -
Total other gains and losses (3.7) 10.4
--------------------------------------------------------------------- ------------------- ------
A GBP5.4 million gain on change in fair value of the deferred
non-contingent consideration between date of the initial business
combination and Tudorza(R) option exercise has been recognised.
This gain has arisen due to the unwinding of the discount on the
consideration payable between initial recognition on 12 April 2017
and 23 October 2018, being the date that Circassia Limited had the
substantive rights to exercise the Tudorza(R) option. See note
35.
7. Finance income and costs
2018 2017
GBPm GBPm
--------------------------------------------------------- ------- ------
Finance costs:
Bank charges and interest payable (0.1) (0.1)
Non-contingent consideration: unwinding of discount (7.2) (2.7)
Contingent royalty consideration: unwinding of discount (3.5) -
Non-current trade payables: unwinding of discount (1.2) -
--------------------------------------------------------- ------- ------
Total finance costs (12.0) (2.8)
--------------------------------------------------------- ------- ------
Finance income:
Bank interest receivable 0.3 0.4
Total finance income 0.3 0.4
--------------------------------------------------------- ------- ------
8. Operating expenses by nature
Operating loss is stated after charging the following:
2018 2017
GBPm GBPm
---------------------------------------------------- ------ ------
Employee benefit costs (note 5) 49.0 46.8
Externally contracted research and development(1) 1.6 52.7
Marketing costs 10.7 10.0
Legal and professional fees including patent costs 7.5 3.6
Depreciation(2) 0.6 0.8
Amortisation(2) 3.8 4.1
Impairment of goodwill and other intangible assets 75.0 37.0
Operating lease payments 0.8 0.8
---------------------------------------------------- ------ ------
(1) 2017 includes AZ R&D contribution of GBP45.1 million,
see note 11.
(2) Depreciation and amortisation is included on the face of the
statement of comprehensive income within 'Research and development
costs', 'Sales and marketing' and 'Administrative expenses'
9. Auditors' remuneration
Services provided by the Group's auditors and its associates
During the year the Group obtained the following services from
the Group's auditors and its associates:
2018 2017
GBPm GBPm
--------------------------------------------------------------------------------------------- ------ ------
Fees payable to the Group's auditors and its associates for the audit of the Parent Company
and consolidated financial statements 0.2 0.2
Fees payable to the Group's auditors and its associates for other services:
* The audit of the Company's subsidiaries 0.1 0.1
* Other assurance services(1) - 0.2
Total 0.3 0.5
--------------------------------------------------------------------------------------------- ------ ------
(1) Other assurance services in 2017 mainly relate to reporting
accountant services performed on prospective acquisitions. 2017
costs were offset against the share premium reserve.
Notes to the financial statements
10. Discontinued operations
During 2017 it was announced that the Group would no longer
continue development of the allergy programmes. Subsequently during
2018, it was announced that the Group would cease investment in the
in-house respiratory pipeline. As such, the allergy and respiratory
programme costs and the associated research and development tax
credit are classified as discontinued operations in the
consolidated statement of comprehensive income to comply with IFRS
5 requirements.
2018 2017
Loss for the year Notes Restated(1)
GBPm GBPm
------------------------------------------- -------- ------- -------------
Expenditure (3.7) (8.7)
Goodwill and intangible assets impairment (75.0) (37.0)
Share of loss of joint venture 18 (0.1) (0.2)
------------------------------------------- -------- ------- -------------
Loss before tax (78.8) (45.9)
Taxation 12 8.3 7.3
------------------------------------------- -------- ------- -------------
Loss from discontinued operations (70.5) (38.6)
------------------------------------------- -------- ------- -------------
Cash flow 2018 2017
Restated(1)
GBPm GBPm
--------------------------------------------------- ------ -------------
Net cash outflow from operating activities (0.3) (4.7)
---------------------------------------------------- ------ -------------
Net decrease in cash from discontinued operations (0.3) (4.7)
---------------------------------------------------- ------ -------------
(1) Restated to show the results of the respiratory business as
discontinued. See note 10 for details
The disposal groups constituting discontinued operations are all
held at fair value less cost to sell.
11. Non-underlying items
Management primarily manage the business and measure performance
based on the results of "underlying operations". Significant
irregularly occurring and exceptional items are excluded from the
underlying measures. The following non-underlying items have been
recognised in the income statement for the period:
Notes 2018 2017
GBPm Restated(1)
GBPm
Charged to research and development costs
AZ R&D contribution - (45.1)
- (45.1)
Charged to sales and marketing costs
Restructuring costs (2.9) -
(2.9) -
(Charged)/credited to administrative expenses
AIM transfer costs (0.3) -
Restructuring costs - 0.1
--------------------------------------------------------------------- ------ ------- -------------
(0.3) 0.1
(Charged)/credited to other gains and losses
Foreign exchange movement on non-contingent consideration 35 (4.4) 5.4
Change in fair value of deferred consideration 35 5.4 -
Foreign exchange movement on contingent consideration 35 (0.3) -
Change in fair value of contingent Duaklir(R) royalty consideration 35 (1.1) 3.2
Foreign exchange movement on exercise of Tudorza(R) option exercise 35 (2.7) -
Foreign exchange movement on contingent royalty consideration 35 (2.5) 2.9
(5.6) 11.5
Charged to finance costs
Contingent royalty consideration: unwinding of discount 35 (7.1) -
Contingent consideration: unwinding of discount 35 (0.1) -
Non-contingent consideration: unwinding of discount 35 (3.5) (2.7)
Non-current trade payables: unwinding of discount 35 (1.2) -
--------------------------------------------------------------------- ------ ------- -------------
(11.9) (2.7)
Loss before tax (20.7) (36.2)
Credited to taxation - 10.2
--------------------------------------------------------------------- ------ ------- -------------
Loss from continuing operations (20.7) (26.0)
Loss from discontinued operations 10 (70.5) (38.6)
--------------------------------------------------------------------- ------ ------- -------------
Total loss (91.2) (64.6)
(1) Restated to show the results of the respiratory business as
discontinued. See note 10 for details
Notes to the financial statements
11. Non-underlying items (continued)
AstraZeneca R&D contribution
2017 includes a R&D contribution of GBP45.1 million for
Tudorza(R) and Duaklir(R) product development.
Restructuring costs
Restructuring costs comprise cost optimisation initiatives
including severance payments, compensation for loss of office,
property and other contract termination costs. Restructuring in
2018 relates to the resizing of the US field force, and as such
allocated to sales and marketing. Restructuring in 2017 related to
property costs in relation to the closure of the Solna office in
Sweden, and therefore allocated to administrative expenses.
AIM transfer costs
AIM transfer costs comprise professional fees in relation to the
transfer of Circassia Pharmaceuticals plc shares from the Main
Market to AIM.
Non-contingent consideration
The GBP4.4 million (2017: GBP5.4 million) foreign exchange
movement on non-contingent consideration relates to the impact of
the strengthening dollar on translation of the $100 million and $5
million deferred non-contingent consideration payable to
AstraZeneca. The consideration was measured by discounting the
liability with GBP3.5 million (2017: GBP2.7 million) increase in
the liability due to the passage of time (unwinding of discount)
recognised as a finance cost in the year.
Contingent consideration
Contingent consideration relates to the $20 million payable to
AstraZeneca on approval of Duaklir(R). The consideration was
measured by discounting the liability with GBP0.1 million (2017:
GBPnil) increase in the liability due to the passage of time
(unwinding of discount) recognised as a finance cost in the year.
The GBP0.3 million (2017: GBPnil) foreign exchange movement on
non-contingent consideration relates to the impact of the
strengthening dollar.
Contingent royalty consideration
Contingent royalty consideration relates to the amount of
royalties payable to AstraZeneca on the future Tudorza(R) and
Duaklir(R) sales. The liability was remeasured to fair value at the
year end with the resulting GBP1.1 million (2017: GBP3.2 million
credit) charge recorded in other gains and losses in the income
statement. The GBP2.5 million (2017: GBP2.9 million) foreign
exchange movement relates to the impact of the strengthening dollar
on translation of the contingent royalty consideration.
Taxation
The R&D tax credit of GBP10.2 million for the year ended 31
December 2017 relates to the above R&D contribution to
AstraZeneca.
Loss from discontinued operations
The costs relating to the discontinued allergy and respiratory
operations are deemed to be an exceptional item to be excluded from
the underlying operations, see note 10 for further details.
Notes to the financial statements
12. 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 2018 and 2017 represents the credit receivable by the
Group for the year and adjustments to prior years. The 2018 amounts
have not yet been agreed with the relevant tax authorities.
2018 2017
Restated(1)
GBPm GBPm
Current tax
United Kingdom corporation tax research and development credit (1.0) (13.8)
Adjustments in respect of prior year - (0.2)
---------------------------------------------------------------- ------- -------------
Total current tax (1.0) (14.0)
---------------------------------------------------------------- ------- -------------
Deferred tax
Decrease/(increase) in deferred tax assets (3.5) 0.6
(Decrease)/increase in deferred tax liabilities (13.9) (7.0)
Adjustments in respect of prior year 0.9 (0.6)
---------------------------------------------------------------- ------- -------------
Total deferred tax (16.5) (7.0)
---------------------------------------------------------------- ------- -------------
Total tax (17.5) (21.0)
---------------------------------------------------------------- ------- -------------
Tax is attributable to:
Loss on continuing operations (9.2) (13.7)
Loss on discontinued operations (8.3) (7.3)
---------------------------------------------------------------- ------- -------------
(17.5) (21.0)
---------------------------------------------------------------- ------- -------------
The tax credit for the year is lower (2017: lower) than the
standard rate of corporation tax in the UK of 19.00% (2017:
19.25%). The differences are explained below:
2018 2017
GBPm Restated(1)
GBPm
Loss from continuing operations before tax (55.8) (74.2)
Loss from discontinued operation before tax (78.8) (45.9)
------------------------------------------------------------------------------------------- -------- -------------
Loss before tax (134.6) (120.1)
------------------------------------------------------------------------------------------- -------- -------------
Loss on ordinary activities before tax multiplied by the standard rate of corporation tax
in the UK of 19.00% (2017: 19.25%) (25.6) (23.1)
Expenses not deductible for tax purposes (permanent differences) - 0.5
Employee share options 0.3 -
Research & development relief uplift (0.4) (5.8)
Adjustments in respect of prior year 0.9 (0.8)
Tax losses for which no deferred income tax asset was recognised 7.3 8.2
Tax credit for the year (17.5) (21.0)
------------------------------------------------------------------------------------------- -------- -------------
(1) Restated to show the results of the respiratory business as
discontinued. See note 10 for details.
At 31 December 2018, the Group has tax losses to be carried
forward of approximately GBP341.3 million (2017: 354.7 million).
These can be utilised against future taxable profits. At 31
December 2018, Circassia Limited had tax losses to be carried
forward of approximately GBP148.1 million (2017: GBP131.2 million).
The utilisation of these losses will be restricted to 50% of
profits generated in the United Kingdom.
At 31 December 2018, the Group has tax assets arising from tax
credits in the United Kingdom for certain research and development
expenditure of GBP4.0 million (2017: GBP13.8 million). Of this
GBP3.0 million (2017: GBP7.3 million) tax is receivable after more
than one year and is classified as a non-current tax asset.
A reduction in the rate of UK corporation tax to 17% from 1
April 2020 has been substantively enacted. UK deferred tax assets
and liabilities are recognised at a rate of 17% (2017: 17%).
Notes to the financial statements
13. 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. As net losses were recorded in both 2018 and 2017, the
dilutive potential shares are anti-dilutive and therefore excluded
from the earnings per share calculation.
For the year ended
31 December 2018
Continuing operations
----------------------------------------------------------
Underlying Non-underlying Total Discontinued Total
operations operations operations
--------------------- --------------------- --------------------- ------------ --------------------- ------------
Loss attributable to
ordinary equity
owners of the
Parent Company
(GBPm) (25.9) (20.7) (46.6) (70.5) (117.1)
Weighted average
number of ordinary
shares in issue
(Number) 344,347,267 344,347,267 344,347,267 344,347,267 344,347,267
--------------------- --------------------- --------------------- ------------ --------------------- ------------
Loss per share (0.08) (0.06) (0.14) (0.20) (0.34)
--------------------- --------------------- --------------------- ------------ --------------------- ------------
For the year ended 31 December 2017 (Restated(1) )
Continuing operations
----------------------------------------------------------
Underlying Non-underlying Total Discontinued Total
operations operations operations
--------------------- --------------------- --------------------- ------------ --------------------- ------------
Loss attributable to
ordinary equity
owners of the
Parent Company
(GBPm) (34.5) (26.0) (60.5) (38.6) (99.1)
Weighted average
number of ordinary
shares in issue
(Number) 319,541,498 319,541,498 319,541,498 319,541,498 319,541,498
--------------------- --------------------- --------------------- ------------ --------------------- ------------
Loss per share (0.11) (0.08) (0.19) (0.12) (0.31)
--------------------- --------------------- --------------------- ------------ --------------------- ------------
(1) Restated to show the results of the respiratory business as
discontinued. See note 10 for details.
14. Property, plant and equipment
Leasehold improvements Fixtures and fittings Plant and equipment Total property, plant
and equipment
Group GBPm GBPm GBPm GBPm
----------------------- ----------------------- ---------------------- -------------------- ----------------------
At 1 January 2017
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
----------------------- ----------------------- ---------------------- -------------------- ----------------------
Year ended 31 December
2017
Opening net book
amount 0.2 0.2 1.0 1.4
Additions 0.2 0.2 0.4 0.8
Depreciation (0.1) (0.1) (0.6) (0.8)
Exchange differences - - - -
----------------------- ----------------------- ---------------------- -------------------- ----------------------
Closing net book
amount 0.3 0.3 0.8 1.4
----------------------- ----------------------- ---------------------- -------------------- ----------------------
At 31 December 2017
Cost 0.8 0.5 2.1 3.4
Accumulated
depreciation (0.5) (0.2) (1.3) (2.0)
----------------------- ----------------------- ---------------------- -------------------- ----------------------
Net book amount 0.3 0.3 0.8 1.4
----------------------- ----------------------- ---------------------- -------------------- ----------------------
Year ended 31 December
2018
Opening net book
amount 0.3 0.3 0.8 1.4
Additions - 0.1 - 0.1
Depreciation (0.1) (0.1) (0.4) (0.6)
Disposals - - (0.4) (0.4)
Closing net book
amount 0.2 0.3 - 0.5
----------------------- ----------------------- ---------------------- -------------------- ----------------------
At 31 December 2018
Cost 0.8 0.6 1.7 3.1
Accumulated
depreciation (0.6) (0.3) (1.7) (2.6)
----------------------- ----------------------- ---------------------- -------------------- ----------------------
Net book amount 0.2 0.3 - 0.5
----------------------- ----------------------- ---------------------- -------------------- ----------------------
Notes to the financial statements
15. Goodwill
2018 2017
GBPm GBPm
----------------------------------- ------- -------
At 1 January
Cost 84.5 84.2
Accumulated impairment (74.5) (74.5)
----------------------------------- ------- -------
Net book amount 10.0 9.7
----------------------------------- ------- -------
Year ended 31 December
----------------------------------- ------- -------
Opening net book amount 10.0 9.7
Acquisition of business (note 35) 3.9 0.2
Impairment (4.4) -
Exchange differences (0.1) 0.1
----------------------------------- ------- -------
Closing net book amount 9.3 10.0
----------------------------------- ------- -------
At 31 December
----------------------------------- ------- -------
Cost 88.2 84.5
Accumulated impairment (78.9) (74.5)
----------------------------------- ------- -------
Net book amount 9.3 10.0
----------------------------------- ------- -------
During 2018, Circassia Limited exercised its option to acquire
the full US commercial rights over Tudorza(R) resulting in goodwill
of GBP3.9 million being recognised.
In 2018, following the decision to cease investment in the
in-house respiratory portfolio, the respiratory portfolio value was
written off in full resulting in an impairment charge for the
respiratory CGU of GBP75.0 million, of which GBP4.4 million related
to goodwill.
The carrying value of goodwill is allocated to the following
CGUs:
2018 2017
Cash generating unit GBPm GBPm
NIOX(R) 5.2 5.4
Respiratory - 4.4
AstraZeneca collaboration 4.1 0.2
--------------------------- ----- -----
9.3 10.0
=========================== ===== =====
The recoverable amount of the CGUs 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 NIOX(R) CGU was calculated over a ten
year period using a discount factor of 12.5% (being a weighted
average cost of capital rate for the CGU). The calculations use
pre-tax cash flow projections. Cash flows over ten years have been
considered appropriate based on the product lifecycle. 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 value in use for the AstraZeneca collaboration CGU was
calculated over a ten year period using a discount factor of 17.0%
(being a weighted average cost of capital rate for the CGU). The
calculations use risked pre-tax cash flow projections. Cash flows
over ten years have been considered appropriate based on the
product lifecycle. 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.
Notes to the financial statements
15. Goodwill (continued)
The key assumptions used for the valuations of the CGUs are as
follows:
NIOX CGU
----------------------------------------- ---------------------------------------------------------------------------
Valuation basis Value in use
----------------------------------------- ---------------------------------------------------------------------------
Research and development costs Based on management forecasts of testing and development 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
----------------------------------------- ---------------------------------------------------------------------------
Advertising and promotion investment Based on management forecasts of advertising and promotion required in the
key territories
----------------------------------------- ---------------------------------------------------------------------------
Profit margins Margins reflect management's forecasts of sales values and costs of
manufacture adjusted for
its expectations of market developments
----------------------------------------- ---------------------------------------------------------------------------
Period of specified projected cash flows 10 years
----------------------------------------- ---------------------------------------------------------------------------
Terminal growth rate Terminal growth rates based on management's estimate of future long-term
average growth rate
2018 - 1%
2017 - 1%
----------------------------------------- ---------------------------------------------------------------------------
Discount rate Discount rates based on weighted average cost of capital for the CGU,
adjusted where appropriate.
2018 - 12.5%
2017 - 10.0%
----------------------------------------- ---------------------------------------------------------------------------
AstraZeneca collaboration CGU
----------------------------------------- ---------------------------------------------------------------------------
Valuation basis Value in use
----------------------------------------- ---------------------------------------------------------------------------
Anticipated launch dates 2019
----------------------------------------- ---------------------------------------------------------------------------
Research and development costs Based on management forecasts of testing and development 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
----------------------------------------- ---------------------------------------------------------------------------
Advertising and promotion investment Based on management forecasts of advertising and promotion required in the
United States
----------------------------------------- ---------------------------------------------------------------------------
Profit margins Margins reflect management's forecasts of sales values and costs of
manufacture adjusted for
its expectations of market developments
----------------------------------------- ---------------------------------------------------------------------------
Period of specified projected cash flows 10 years
----------------------------------------- ---------------------------------------------------------------------------
Terminal growth rate Terminal growth rates based on management's estimate of future long-term
average growth rate
2018 - (5%)
2017 - 1%
----------------------------------------- ---------------------------------------------------------------------------
Discount rate Discount rates based on weighted average cost of capital for the CGU,
adjusted where appropriate.
2018 - 17.0%
2017 - 11.5%
----------------------------------------- ---------------------------------------------------------------------------
Period of projected cash flows of 10 years is in line with
management's forecasts. This is deemed to be the most appropriate
period to assess cash flows due to the time taken to reach peak
sales.
In each case the valuations of NIOX(R) and AstraZeneca
collaboration 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
Reduction in revenue growth in the NIOX(R) and AstraZeneca
collaboration CGUs
Management have, in their sensitivity analysis, assessed the
impact of the possibility that sales growth in the NIOX(R) and
AstraZeneca collaboration CGUs is less than that of internal
forecasts.
No change in the key assumptions mentioned above would have
resulted in a goodwill or intangible assets impairment charge.
Notes to the financial statements
16. Intangible assets
Total intangible assets
Customer
IPR&D CMP relationships Technology Other
Group GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ -------- ------ ----------------------- ------------- -------- ------------------------
At 1 January 2017
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
------------------------ -------- ------ ----------------------- ------------- -------- ------------------------
Year ended 31 December
2017:
Opening net book amount 88.8 - 31.4 46.9 - 167.1
Acquisition of business
(note 35) 73.0 - - - - 73.0
Amortisation charge (0.1) - (1.9) (2.1) - (4.1)
Impairment charge (37.0) - - - - (37.0)
Exchange differences 0.1 - 0.3 0.3 - 0.7
------------------------ -------- ------ ----------------------- ------------- -------- ------------------------
Closing net book amount 124.8 - 29.8 45.1 - 199.7
------------------------ -------- ------ ----------------------- ------------- -------- ------------------------
At 31 December 2017
Cost 161.9 - 34.6 50.3 1.6 248.4
Accumulated
amortisation and
impairment (37.1) - (4.8) (5.2) (1.6) (48.7)
------------------------ -------- ------ ----------------------- ------------- -------- ------------------------
Net book amount 124.8 - 29.8 45.1 - 199.7
------------------------ -------- ------ ----------------------- ------------- -------- ------------------------
Year ended 31 December
2018:
Opening net book amount 124.8 - 29.8 45.1 - 199.7
Additions - 97.4 - - 0.3 97.7
Amortisation charge - - (1.8) (2.0) - (3.8)
Impairment charge (51.7) - - (18.9) - (70.6)
Exchange differences - - (0.8) (0.8) - (1.6)
------------------------ -------- ------ ----------------------- ------------- -------- ------------------------
Closing net book amount 73.1 97.4 27.2 23.4 0.3 221.4
------------------------ -------- ------ ----------------------- ------------- -------- ------------------------
At 31 December 2018
Cost 161.9 97.4 34.6 50.3 1.9 346.1
Accumulated
amortisation and
impairment (88.8) - (7.4) (26.9) (1.6) (124.7)
------------------------ -------- ------ ----------------------- ------------- -------- ------------------------
Net book amount 73.1 97.4 27.2 23.4 0.3 221.4
------------------------ -------- ------ ----------------------- ------------- -------- ------------------------
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. An impairment test is based on the value in use of
the intangible assets. Key assumptions and sensitivities used in
the impairment review at a CGU level are disclosed in note 15.
An impairment charge of GBP70.6 million has been recognised in
research and development in the income statement in relation to
product candidates in the respiratory portfolio following the
inability to find an out-licensing partner.
In-Process Research & Development (IPR&D)
IPR&D comprise a portfolio of asthma and chronic obstructive
pulmonary disease product candidates.
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.
Currently Marketed Product (CMP)
CMP comprises the Tudorza(R) product, which is currently
marketed in the United States. This has a useful economic life of
13 years, based on the cumulative present value of the positive
excess earnings.
The CMP 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. CMP 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
16. Intangible assets (continued)
Technology
Aerocrine developed 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 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. Current
year additions relate to the development costs of the new ERP
software. Amortisation will be charged once the software has been
fully developed and is operational.
17. Investments in subsidiaries
2018 2017
Company GBPm GBPm
----------------------------------------------------------------- -------- ------
Investments in subsidiaries at 1 January 273.5 262.0
Additional investment in Prosonix Limited - 9.0
Equity settled instruments granted to employees of subsidiaries 2.7 2.5
Investment in Circassia Beijing 1.7 -
Provision against investments (210.3) -
----------------------------------------------------------------- -------- ------
Investments in subsidiaries at 31 December 67.6 273.5
----------------------------------------------------------------- -------- ------
Investments in subsidiaries are recorded at cost, which is the
fair value of the consideration paid.
The Group tests annually whether investments in subsidiaries
have suffered any impairment and tests more frequently when events
or circumstances indicate that the current carrying value may not
be recoverable. An impairment test is based on the value in use of
the subsidiaries. Key assumptions and sensitivities used in the
impairment review are disclosed in note 15.
A credit loss provision of GBP210.3 million has been recognised
due to the cessation of investment in the in-house respiratory
portfolio.
Changes in the value in use of the subsidiaries might result in
a significantly higher or lower fair value of investments. 10%
higher or lower value in use would result in GBP35.4 million lower
or higher fair value of investments.
The capital contribution relating to share based payment is for
5,103,400 (2017: 4,141,200) 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 26.
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. Consequently, the
majority of the Company's investment in Prosonix Limited was
reclassified to investment in Circassia Limited.
Notes to the financial statements
17. Investments in subsidiaries (continued)
The Group had the following subsidiaries at 31 December
2018:
Proportion of ordinary
shares held
Name Registered address Nature of business
---------------------------- ---------------------------- ---------------------------- ----------------------------
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 Dormant 100%
5151 McCrimmon Parkway, Pharmaceutical research and
Circassia Pharmaceuticals Suite 260, Morrisville, sale of asthma and
Inc North Carolina 27560, USA respiratory products 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 Dormant 100%
Room 1109 Jing Guang Center
Office Building, No 1 Chao
Yang Men Wai Avenue, Hu
Jia Lou, Chao
Circassia (Beijing) Medical Yang District, Beijing, Sale of devices for
Device Co. Limited 100020, P.R. China management of asthma 100%
---------------------------- ---------------------------- ---------------------------- ----------------------------
All subsidiary undertakings are included in the consolidation.
The proportion of the voting rights in the subsidiary undertakings
held directly by the Parent Company does not differ from the
proportion of ordinary shares held. The Parent Company does not
have any shareholdings in the preference shares of subsidiary
undertakings included in the Group.
Notes to the financial statements
18. Investment in joint venture
2018 2017
GBPm GBPm
------------------------- ------ ------
At 1 January 0.5 0.9
Share of loss (0.1) (0.2)
Distributions to owners (0.3) (0.2)
At 31 December 0.1 0.5
------------------------- ------ ------
The joint venture listed below has share capital consisting
solely of ordinary shares, which is held directly by the Group.
Nature of investment in joint venture 2018 and 2017:
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.
Adiga Life Sciences 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 2018 2017
GBPm GBPm
----------------------------------------------------------- ------ ------
Current assets
Trade and other receivables 0.1 0.8
Cash 0.1 0.2
----------------------------------------------------------- ------ ------
0.2 1.0
----------------------------------------------------------- ------ ------
Net assets 0.2 1.0
----------------------------------------------------------- ------ ------
Summarised statement of comprehensive income
for the year ended 31 December 2018 2017
GBPm GBPm
----------------------------------------------------------- ------ ------
Revenue - 0.1
Research and development costs - (1.0)
Administrative expense (0.2) (0.1)
Loss from operation (0.2) (1.0)
Income tax - 0.6
----------------------------------------------------------- ------ ------
Post tax loss from operation (0.2) (0.4)
----------------------------------------------------------- ------ ------
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
18. Investment in joint venture (continued)
The Adiga Life Sciences joint venture managed clinical research
organisations (CROs) in Canada in respect of allergy programmes on
behalf of Circassia Pharmaceuticals plc. As the allergy programmes
are no longer being continued, the results of the joint venture for
the year ended 31 December 2018 and 2017 have been included within
discontinued operations in the consolidated statement of
comprehensive income, see note 10.
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.
2018 2017
Summarised financial information GBPm GBPm
---------------------------------- ------ ------
Opening net assets 1 January 1.0 1.8
Loss for the year (0.2) (0.4)
Dividends paid (0.6) (0.4)
Closing net assets 0.2 1.0
---------------------------------- ------ ------
Interest in joint venture @ 50% 0.1 0.5
Carrying value 0.1 0.5
---------------------------------- ------ ------
19. Inventories
2018 2017
GBPm GBPm
---------------- ----- -----
Finished goods 4.2 5.0
================ ===== =====
Inventories recognised as an expense during the year ended 31
December 2018 amounted to GBP7.5 million (2017: GBP8.5 million).
These were included in 'Cost of sales'.
Write-down of inventories to net realisable value amounted to
GBP0.5 million (2017: GBP0.9 million). These were recognised as an
expense during the year and included in 'Cost of sales'. There has
been no reversal of any write down in the year ended 31 December
2018.
20. Trade and other receivables
Group Company
------------------------------------------ -------------- --------------
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
------------------------------------------ ------ ------ ------ ------
Trade receivables 3.7 3.7 - -
Prepayments and accrued income 3.9 6.0 - -
Other receivables 0.5 9.2 0.9 0.7
Receivables from subsidiary undertakings - - 281.7 327.5
Total trade and other receivables 8.1 18.9 282.6 328.2
------------------------------------------ ------ ------ ------ ------
Included within trade receivables is GBP0.4 million (2017:
GBP0.7 million) of invoices that were more than 30 days past due at
the end of the reporting year 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 receivables are unsecured,
interest free and have no fixed date of repayment. Recoverability
of the amounts are dependent on the success of those studies and
future profitability of subsidiary undertakings. As at 31 December
2018, an expected credit loss of GBP91.4 million (2017: GBPnil) was
recognised against receivables from subsidiary undertakings.
The carrying amounts of the Group and Company receivables,
excluding prepayments and recoverable taxes, are denominated in the
following currencies:
Group Company
------------------------ -------------- --------------
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
------------------------ ------ ------ ------ ------
British pound sterling 0.7 0.2 181.7 263.4
United States dollar 3.7 7.0 100.9 64.8
Swedish krona 0.1 0.1 - -
Euro 1.8 1.6 - -
6.3 8.9 282.6 328.2
------------------------ ------ ------ ------ ------
Notes to the financial statements
21. Cash and cash equivalents and short-term bank deposits
Group Company
-------------------------------------------------- -------------- --------------
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
-------------------------------------------------- ------ ------ ------ ------
Short-term bank deposit, with original maturity:
More than 3 months - 15.0 - 15.0
Total short-term bank deposits - 15.0 - 15.0
-------------------------------------------------- ------ ------ ------ ------
Cash and cash equivalents:
Cash at bank and in hand 40.7 44.5 0.1 0.3
-------------------------------------------------- ------ ------ ------ ------
Total cash and cash equivalents 40.7 44.5 0.1 0.3
-------------------------------------------------- ------ ------ ------ ------
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
----- -------------- --------------
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
----- ------ ------ ------ ------
AA 0.6 0.3 - -
AA- 31.4 19.3 0.1 0.3
A+ - 20.1 - -
A 7.1 19.8 - 15.0
BBB 1.6 - - -
40.7 59.5 0.1 15.3
----- ------ ------ ------ ------
The Group and Company cash and cash equivalents and short-term
deposits are held in the following currencies at 31 December:
Group Company
------------------------ -------------- --------------
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
------------------------ ------ ------ ------ ------
British pound sterling 23.2 39.6 0.1 15.3
United States dollar 13.0 16.6 - -
Canadian dollar - 0.2 - -
Euro 4.0 2.6 - -
Swedish krona 0.5 0.5 - -
40.7 59.5 0.1 15.3
------------------------ ------ ------ ------ ------
22. Trade and other payables
Group Company
------------------------------------- -------------- --------------
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
------------------------------------- ------ ------ ------ ------
Payable within one year
Trade payables 19.1 22.7 0.1 0.1
Social security and other taxes 0.3 0.3 - -
Accruals 7.6 6.7 0.5 0.2
Other payables 1.7 1.1 - -
Payables to subsidiary undertakings - - 5.5 3.7
Total trade and other payables 28.7 30.8 6.1 4.0
------------------------------------- ------ ------ ------ ------
Payable after one year
Trade payables - 20.4 - -
------------------------------------- ------ ------ ------ ------
Total non-current trade payables - 20.4 - -
------------------------------------- ------ ------ ------ ------
Non-current trade payables in 2017 related to an R&D
contribution payable to AZ on 31 December 2019. As at 31 December
2018 the amount is due within 1 year therefore the balance has been
reclassified as trade payables.
Notes to the financial statements
23. 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:
2018 2017
Assets GBPm GBPm
Cash and cash equivalents 40.7 44.5
Short-term bank deposits - 15.0
Trade and other receivables 8.1 8.9
----------------------------------------------------------------------- ------ ------
Financial assets held at amortised cost (2017: Loans and receivables) 48.8 68.4
----------------------------------------------------------------------- ------ ------
2018 2017
Liabilities GBPm GBPm
----------------------------------------------------------------------- ------ ------
Trade and other payables - current 28.7 29.9
Trade payables - non-current - 20.4
Non-contingent consideration - current 80.3 -
Non-contingent consideration - non-current - 68.7
Contingent consideration - current 15.4 -
Contingent consideration - non-current 46.2 33.6
Financial liabilities held at amortised cost 170.6 152.6
----------------------------------------------------------------------- ------ ------
The Company had the following financial instruments at 31
December each year:
2018 2017
Assets GBPm GBPm
----------------------------------------------------------------------- ------ ------
Cash and cash equivalents 0.1 0.3
Short-term bank deposits - 15.0
Other receivables 0.9 0.7
Receivable from subsidiary undertaking 281.7 327.5
----------------------------------------------------------------------- ------ ------
Financial assets held at amortised cost (2017: Loans and receivables) 282.7 343.5
----------------------------------------------------------------------- ------ ------
2018 2017
Liabilities GBPm GBPm
----------------------------------------------------------------------- ------ ------
Trade and other payables - current 0.6 0.3
Payables to subsidiary undertakings 5.5 3.7
Financial liabilities held at amortised cost 6.1 4.0
----------------------------------------------------------------------- ------ ------
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 IFRS 9 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 2018 or 31 December 2017.
Fair value
The directors consider that the fair values of the Group's
financial instruments do not differ significantly from their book
values except as described below.
Contingent consideration is remeasured to fair value calculated
using a discounted cash flow approach. The valuation methodology
uses significant inputs which are not based on observable market
data (unobservable inputs), therefore this valuation technique is
classified as level 3 in the fair value hierarchy. See note 35 for
further detail.
Notes to the financial statements
24. Deferred taxation
Net deferred
Intangibles Tax losses tax liability
GBPm GBPm GBPm
As at 1 January 2017 31.9 (16.6) 15.3
(Credit)/charge to the income
statement (7.8) 0.9 (6.9)
-------------------------------- -------------- ------------- ---------------
As at 31 December 2017 24.1 (15.7) 8.4
-------------------------------- -------------- ------------- ---------------
As at 1 January 2018 24.1 (15.7) 8.4
Credit to the income statement (13.2) (3.4) (16.6)
-------------------------------- -------------- ------------- ---------------
As at 31 December 2018 10.9 (19.1) (8.2)
================================ ============== ============= ===============
2018 2017
GBPm GBPm
----------------------------- ------- -------
Deferred tax liabilities 10.9 24.1
Deferred tax assets (19.1) (15.7)
Total deferred tax position (8.2) 8.4
----------------------------- ------- -------
The GBP3.4 million credit to the income statement in relation to
tax losses consists of a GBP8.2 million credit relating to the
recognition of a deferred tax asset for expected future profits
generated by Circassia AB, and a GBP4.8 million charge relating to
the derecognition of a deferred tax asset held by Prosonix Limited
due to no future taxable profits expected to be generated.
The Group has the following unrecognised potential deferred tax
assets as at 31 December:
2018 2017
GBPm GBPm
--------------------------------------- ------ ------
Losses 58.0 60.3
Total unrecognised deferred tax asset 58.0 60.3
--------------------------------------- ------ ------
25. Ordinary shares
Authorised, called up and fully paid 2018 2017
GBPm GBPm
----------------------------------------------------------- -------------- -------------
357,286,434 (2017: 333,466,262) ordinary shares of 0.08p each 0.3 0.3
------------------------------------------------------------------ ------- -------------
On 18 July 2018, Circassia Pharmaceuticals plc issued 23,725,800
ordinary shares with a value of GBP20.4 million to AstraZeneca such
that AstraZeneca's holding increased from 14.2% to 19.9%. Costs of
GBP0.1 million related to the deal which are offset against the
share premium reserve.
Movements in ordinary shares
Number of shares Par value
GBPm
------------------------------ ----------------- ----------
As at 1 January 2018 333,466,262 0.3
Share issue to AZ 23,725,800 -
Employee share scheme issues 94,372 -
------------------------------ ----------------- ----------
As at 31 December 2018 357,286,434 0.3
------------------------------ ----------------- ----------
Notes to the financial statements
26. Share based payments
Share options
Options have been awarded under the Circassia PSP Share Option
Scheme ("the PSP Scheme") and the Circassia Unapproved Share Option
Scheme ("the Unapproved Scheme").
The share options outstanding can be summarised as follows:
2018 2017
Number of ordinary shares Number of
('000) ordinary shares
('000)
------------------------ --------------------------- -----------------
PSP Scheme (i) 10,671 8,855
Unapproved Scheme (ii) 187 187
------------------------ --------------------------- -----------------
10,858 9,042
------------------------ --------------------------- -----------------
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 have a fixed exercise
price and are subject to additional vesting performance conditions.
The exercise price of options granted under the 2014 PSP scheme is
GBPnil and all subsequent PSP scheme awards have an exercise price
of GBP0.0008. 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 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:
2018 2018 2017 2017
Number Weighted average exercise Number Weighted average exercise
('000) price (GBP) ('000) price (GBP)
-------------------------------- -------- ------------------------------- -------- -------------------------------
Outstanding at 1 January 9,042 0.05 7,661 0.06
-------------------------------- -------- ------------------------------- -------- -------------------------------
Granted 5,103 0.0008 4,141 0.0008
Expired - n/a - n/a
Forfeited/lapsed (3,129) 0.0007 (1,879) 0.0003
Exercised (158) 0.0005 (881) 0.0008
-------------------------------- -------- ------------------------------- -------- -------------------------------
Outstanding at 31 December 10,858 0.04 9,042 0.05
-------------------------------- -------- ------------------------------- -------- -------------------------------
Vested and exercisable at 31
December 762 0.59 535 0.84
-------------------------------- -------- ------------------------------- -------- -------------------------------
Share options outstanding at the end of the year have the
following expiry and exercise prices:
Scheme Grant year Expiry year Exercise price (GBP) 2018 2017
Number ('000) Number ('000)
------------ ------------- ------------- --------------------- -------------- --------------
PSP 2014 2014 2024 0 284 348
PSP 2015 2015 2025 0.0008 291 1,925
PSP 2016 2016 2026 0.0008 2,510 2,760
PSP 2017 2017 2027 0.0008 3,029 3,822
PSP 2018 2018 2028 0.0008 4,557 -
Unapproved 2013 - 2014 2023 - 2024 2.416 187 187
Total 10,858 9,042
------------------------------------------ --------------------- -------------- --------------
The weighted average remaining contractual life of share options
outstanding at the end of the year was 8.4 years (2017: 8.4
years).
Options exercised in 2018 resulted in 158,044 (2017: 880,532)
shares being issued at a weighted average price of GBP0.0005 (2017:
GBP0.0008) each. The related weighted average share price at the
time of exercise was GBP0.74 (2017: GBP0.88) per share.
Notes to the financial statements
26. Share based payments (continued)
Valuation models
The fair value of PSP share options granted during the year was
determined using the Monte Carlo Simulation model and Black Scholes
model dependent on the performance vesting conditions.
There have been no Unapproved Scheme options granted during the
year (2017: nil), all options granted in previous years were valued
using the Black Scholes model.
Black Scholes
There were no options granted during the year (2017: 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:
2018 2017
------------------------- ---------- ----------
Exercise price GBP0.0008 GBP0.0008
Share price GBP0.90 GBP0.96
Expected volatility 35% 30%
Expected life 3 years 3 years
Expected dividends 0% 0%
Risk free interest rate 0.89% 0.1%
-------------------------- ---------- ----------
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
year determined using the Monte Carlo Simulation model at the grant
date was GBP0.90 per option (2017: GBP0.75).
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 no restricted shares in issue at 31 December 2018 and
31 December 2017.
Deferred shares
During the year the Group awarded nil (2017: nil) deferred
shares to Executive Directors as part of a deferred bonus for 2018.
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
27. Share premium
Group and Company 2018 2017
GBPm GBPm
---------------------------------- ------ ------
At 1 January 602.2 563.8
Issue of new shares 20.4 40.0
Expenses relating to share issue (0.1) (1.6)
At 31 December 622.5 602.2
---------------------------------- ------ ------
28. (Accumulated losses)/retained earnings
Group Company
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
---------------------------- -------- -------- -------- ------
At 1 January (394.9) (295.8) 1.9 0.4
(Loss)/profit for the year (117.1) (99.1) (291.8) 1.5
At 31 December (512.0) (394.9) (289.9) 1.9
----------------------------- -------- -------- -------- ------
29. Other reserves
Transactions
Share option Treasury shares with
reserve Translation reserve non-controlling Total other
reserve interests reserves
Group GBPm GBPm GBPm GBPm GBPm
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
At 1 January 2017 6.4 12.9 (0.7) (6.1) 12.5
Employee share
option scheme 2.5 - - - 2.5
Currency
translation
differences - 2.2 - - 2.2
At 31 December
2017 8.9 15.1 (0.7) (6.1) 17.2
Employee share
option scheme 2.7 - - - 2.7
Currency
translation
differences - (4.8) - - (4.8)
At 31 December
2018 11.6 10.3 (0.7) (6.1) 15.1
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Company Share option reserve Total other reserves
GBPm GBPm
------------------------------ ----------------------- -----------------------
At 1 January 2017 6.1 6.1
Employee share option scheme 2.5 2.5
------------------------------ ----------------------- -----------------------
At 31 December 2017 8.6 8.6
Employee share option scheme 2.7 2.7
At 31 December 2018 11.3 11.3
------------------------------ ----------------------- -----------------------
Notes to the financial statements
30. Cash used in operations
Reconciliation of (loss)/profit before tax to net cash used in
operations
Group Company
---------------------------------------------------- ---------------------
2018 2017 2018 2017
Restated(1)
GBPm GBPm GBPm GBPm
(Loss)/profit from continuing operations before tax (55.8) (74.2) (291.8) 1.5
Loss from discontinued operation before tax (78.8) (45.9) - -
Loss before tax (134.6) (120.1) (291.8) 1.5
Adjustment for:
Interest income (0.3) (0.4) (0.2) (0.3)
Interest expense 12.0 2.8 (4.6) 1.5
Depreciation (note 8) 0.6 0.8 - -
Amortisation (note 8) 3.8 4.1 - -
Goodwill impairment charge (note 15) 4.4 - - -
Intangible assets impairment charge (note 16) 70.6 37.0 - -
Profit on sale of fixed assets (0.1) - - -
Impairment of investments (note 17) - - 210.3 -
Share of joint venture profit 0.1 0.2 - -
Fair value gain on contingent royalty consideration 1.1 (3.2) - -
Change in fair value of deferred consideration (5.4) - - -
Share based payment charge (note 5) 2.7 2.5 - -
Foreign exchange on non-operating cash flows 6.7 (8.5) 6.2 (3.5)
Changes in working capital:
Decrease/ (increase) in trade and other receivables 10.9 (11.4) (0.1) 1.2
Increase/ (decrease) in credit loss provision 0.1 (0.2) 91.4 -
Increase in inventories (0.1) - - -
(Decrease)/ increase in trade and other payables (23.8) 30.0 0.5 -
Cash (used in)/generated from operations (51.3) (66.4) 11.7 0.4
(1) Restated to show the results of the respiratory business as
discontinued. See note 10 for details.
In the statement of cash flows, proceeds from sale of property,
plant and equipment comprise:
2018 2017
GBPm GBPm
Net book amount (note 14) 0.4 -
Profit on disposal of property, plant and equipment 0.1 -
Proceeds from disposal of property, plant and equipment 0.5 -
31. Contingent liabilities
There were no contingent liabilities at 31 December 2018 or at
31 December 2017.
During 2017, the Group received a notification about an
arbitration claim raised for up to $4.0 million for the
non-performance of certain obligations of the contract against one
of the subsidiary companies. On 4 October 2018, a settlement of
$2.5 million was agreed. As at 31 December 2018, $1.5 million
remains unpaid and is recognised within accruals.
32. 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:
2018 2017
GBPm GBPm
-------------------------------- ------ ------
Due within one year 1.2 0.8
Due between one and five years 1.4 1.8
Over five years 1.1 0.5
-------------------------------- ------
The Group leases various offices and warehouses under
non-cancellable operating leases expiring within one to over five
years.
The total of future minimum sublease payments expected to be
received for the Chicago property no longer utilised by the Group
is GBP1.3 million (2017: GBP1.5 million).
Notes to the financial statements
33. Commitments
As per the signed Tudorza(R) transition services agreement, on
the date that the Tudorza(R) NDA and sNDA are transferred to
Circassia Limited, Circassia Limited has the commitment to purchase
from AstraZeneca any remaining Tudorza(R) inventory and
replenishment stock, up to a maximum of one batch. The maximum
payable is $1.4 million.
There were no capital commitments as at 31 December 2017.
34. 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 2018 are as follows: Invesco Asset
Management (24.1% of total voting rights); Woodford Investment
Management (23.8% of total voting rights); AstraZeneca PLC (19.9%
of total voting rights); OppenheimerFunds Inc (7.9% of total voting
rights); Imperial Innovations Businesses LLP (7.4% of total voting
rights); Neptune Investment Management (6.1% of total voting
rights).
Transactions with related parties during the year and balances
with related parties at 31 December are as follows:
Related party 2018 2017 2018 2017
Purchases Purchases Payables Payables
GBP'000 GBP'000 GBP'000 GBP'000
Adiga Life Sciences (Joint venture) - 330 - -
Touchstone Innovations(1) - 46 - -
(1) 'Purchases' include compensation paid or payable in respect of services provided by Russell
Cummings as Non-Executive Director of the Company.
Company
The following transactions with subsidiaries occurred in the
year:
Related party 2018 2017
GBPm GBPm
Rendering of services to Circassia Limited (1) 1.2 1.2
Settlement of liabilities on behalf of the subsidiaries (2.5) (2.8)
Net transfer of funds to subsidiaries 89.2 69.8
Deed of assignment transfer - 42.1
87.9 110.3
(1) Remuneration costs (excluding share options charges)
relating to Steven Harris and Julien Cotta in respect of services
rendered to Circassia Limited.
2018 2017
GBPm GBPm
Balances due from subsidiary companies 281.7 327.5
Balances due to subsidiary companies (5.5) (3.7)
The amounts due are unsecured and have no fixed date of
repayment. Interest is charged at a rate of LIBOR + 4%.
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. No
funding was paid into the Trust by the Company during the year
ended 31 December 2018 (2017: GBPnil).
No shares were purchased by the Trust during the year ended 31
December 2018 (2017: 373,299). As at 31 December 2018 a cash
balance of GBP4,733 (2017: GBP4,733) was held by the Trust.
Notes to the financial statements
35. Business combinations
Duaklir(R)
On 12 April 2017, Circassia Pharmaceuticals plc's collaboration
and profit share arrangement with AstraZeneca became unconditional.
Under the agreement, Circassia Pharmaceuticals plc secured certain
US commercial rights to Tudorza(R) and Duaklir(R). On that day
Circassia Pharmaceuticals plc issued 47,355,417 ordinary shares
with a value of $50 million to AstraZeneca. In addition, Circassia
Pharmaceuticals plc 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; and royalties on
sales of Duaklir(R) in the United States.
Following positive results from the AMPLIFY Phase III study, the
filing of a New Drug Application (NDA) for Duaklir(R) with the
United States Food and Drug Administration (FDA) took place in
2018, with approval granted on 29 March 2019. Circassia
Pharmaceuticals plc has exclusive commercialisation rights to
Duaklir(R) in the United States and as such it is considered that
the Group assumed control over the Duaklir(R) business when the
collaboration agreement became unconditional.
The future royalty payments to third-parties on Duaklir(R) are
recognised as an additional intangible asset and contingent
consideration liability. A contingent consideration arrangement is
initially measured at fair value on the acquisition date based on
discounted future cash outflows. Contingent consideration that is
classified as a liability is remeasured to fair value at each
reporting date, with changes taken to the income statement. The
amount of royalties payable as determined in the collaboration
agreement is based on the future Duaklir(R) sales. As the valuation
methodology uses this significant input which is not based on
observable market data, this valuation technique is classified as
level 3 in the fair value hierarchy. The fair values are calculated
using the discount rate of 17.0% (2017: 20.5%).
Transaction costs totalling GBP1.9 million were incurred on the
collaboration arrangement with AstraZeneca, of which GBP0.3 million
is included within the operating loss (administrative expenses
line) for the year ended 31 December 2017 and GBP1.6 million was
offset against the share premium reserve.
The consideration for the Duaklir(R) business was determined to
be GBP73.2 million. Intangible assets (IPR&D) of GBP73.0
million have been recognised in the accounts. The difference
between total value of the business and identifiable assets
resulted in a recognition of GBP0.2 million goodwill.
Tudorza(R) option
The net sales report was received from AstraZeneca on 23 October
2018 and the net sales for the 12 month period to 30 September 2018
exceeded the minimum sales requirement. The threshold was met and
therefore Circassia Limited had the ability to exercise the option.
On 23 October 2018, Circassia Limited had substantive rights to
exercise the option, and therefore this is the date that Circassia
Pharmaceuticals plc had control over the Tudorza(R) business.
Circassia Limited exercised the option on 11 December 2018.
Based on the net sales achieved, further consideration of $25
million is payable to AstraZeneca within 30 days of Duaklir(R)
approval. Of the maximum $25 million payable, $20 million is
contingent on the approval of Duaklir(R). Under the terms of the
agreement, the completion date was 31 December 2018, at which point
the licence will transfer to Circaasia Limited.
The future royalty payments to third-parties on Tudorza(R) are
recognised as an additional intangible asset and contingent
consideration liability. A contingent consideration arrangement is
initially measured at fair value on the acquisition date based on
discounted future cash outflows. Contingent consideration that is
classified as a liability is remeasured to fair value at each
reporting date, with changes taken to the income statement. The
amount of royalties payable as determined in the collaboration
agreement is based on the future Tudorza(R) sales. As the valuation
methodology uses this significant input which is not based on
observable market data, this valuation technique is classified as
level 3 in the fair value hierarchy. The fair values are calculated
using the discount rate of 19.0%.
Notes to the financial statements
35. Business combinations (continued)
2018 2017
Consideration GBPm GBPm
Ordinary share capital 47,355,417 shares at GBP0.0008 - -
Share premium 40.0 40.0
Deferred non-contingent consideration 77.9 71.4
Contingent Duaklir(R) royalty consideration 39.7 39.7
Deferred contingent consideration 14.2 -
Contingent Tudorza(R) royalty consideration 2.7 -
174.5 151.1
Recognised amounts of identifiable assets acquired GBPm GBPm
Duaklir(R) IPR&D 33.3 33.3
Duaklir(R) royalty IPR&D 39.7 39.7
Tudorza(R) CMP 94.7 -
Tudorza(R) royalty CMP 2.7 -
Total identifiable net assets 170.4 73.0
AZ collaboration goodwill (Duaklir(R)) 0.2 0.2
AZ collaboration goodwill (Tudorza(R)) 3.9 -
Prepayment for Tudorza(R) business combination - 77.9
174.5 151.1
The value of the contingent and non-contingent consideration
payable on exercise of Tudorza(R) was calculated by discounting the
liability using a pre-tax discount rate of 5.4%.
2018 2017
Deferred non-contingent consideration GBPm GBPm
At 1 January 68.7 71.4
Additional non-contingent consideration payable on exercise of Tudorza(R) 3.7 -
Unwinding of discount 3.5 2.7
Foreign exchange movement 4.4 (5.4)
At 31 December 80.3 68.7
2018 2017
Deferred contingent consideration GBPm GBPm
At 1 January - -
Consideration payable on exercise of Tudorza(R) 14.2 -
Unwinding of discount 0.1 -
Foreign exchange movement 0.3 -
At 31 December 14.6 -
2018 2017
Contingent Duaklir(R) royalty consideration GBPm GBPm
At 1 January 33.6 39.7
Unwinding of discount 7.0 -
Change in fair value 1.1 (3.2)
Foreign exchange movement 2.4 (2.9)
At 31 December 44.1 33.6
2018 2017
Contingent Tudorza(R) royalty consideration GBPm GBPm
At 1 January - -
Consideration payable on exercise of Tudorza(R) 2.7 -
Unwinding of discount 0.1 -
Foreign exchange movement 0.1 -
At 31 December 2.9 -
Duaklir(R) and Tudorza(R) royalties payable within 1 year amount
to GBP0.0 million and GBP0.8 million respectively (2017: GBPnil and
GBPnil).
Until the Tudorza(R) option completion date, the Group promoted
the chronic obstructive pulmonary disease (COPD) treatment
Tudorza(R) in the US in accordance with the collaboration and
profit share arrangement. The commission fees receivable are based
on Tudorza(R) product in-market sales and promotion activities
performed by Circassia Pharmaceuticals Inc. In 2018 revenue
recognised for rendering this service was GBP20.9 million (2017:
GBP19.0 million).
Notes to the financial statements
35. Business combinations (continued)
A GBP5.4 million gain on change in fair value of the deferred
non-contingent consideration between date of the initial business
combination and Tudorza(R) option exercise is included in 'Other
(losses)/gains' in the income statement. This gain has arisen due
to the unwinding of the discount on the consideration payable
between initial recognition on 12 April 2017 and 23 October 2018,
being the date that Circassia Limited had the substantive rights to
exercise the option. This is offset by a GBP2.7 million loss due to
fluctuations in foreign exchange. See note 6.
Changes in fair value and foreign exchange movements relating to
contingent Duaklir(R) and Tudorza(R) royalty consideration are
included in 'Other (losses)/gains' in the income statement. See
note 6.
Changes in future Duaklir(R) and Tudorza(R) sales might result
in a significantly higher or lower fair value of contingent royalty
consideration (see the table below for list of key inputs used in
the fair value measurement). 10% higher or lower Duaklir(R) sales
would result in GBP4.4 million lower or higher fair value of the
liability. 10% higher or lower Tudorza(R) sales would result in
GBP0.3 million lower or higher fair value of the liability.
Significant estimates relating to contingent royalty
consideration valuation
The assessment of the fair value of the contingent Duaklir(R)
and Tudorza(R) royalty consideration requires the selection of an
appropriate valuation model at the date of acquisition,
consideration as to the inputs necessary for the valuation model
chosen and the estimation of the future cash flows of the product
discounted at the risk adjusted rate. Key assessments and
judgements included in the calculation of deferred royalty
consideration are as follows:
Duaklir(R)
----------------------------------------- ---------------------------------------------------------------------------
Valuation model Discounted cash flow
----------------------------------------- ---------------------------------------------------------------------------
Anticipated launch date 2019 - reviewed and amended to take into account development, regulatory
and marketing risks
----------------------------------------- ---------------------------------------------------------------------------
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
----------------------------------------- ---------------------------------------------------------------------------
Period of specified projected cash flows 17 years
----------------------------------------- ---------------------------------------------------------------------------
Discount rate 2018: 17.0%
2017: 20.5%
----------------------------------------- ---------------------------------------------------------------------------
Tudorza(R)
----------------------------------------- ---------------------------------------------------------------------------
Valuation model Discounted cash flow
----------------------------------------- ---------------------------------------------------------------------------
Anticipated launch date Product already launched with Circassia Pharmaceuticals plc full ownership
from 1 January
2019
----------------------------------------- ---------------------------------------------------------------------------
Sales value, volume and growth rates Estimates of sales value, volume and growth rates are internal forecasts
based on previous
product performance and market research commissioned by the Company
----------------------------------------- ---------------------------------------------------------------------------
Period of specified projected cash flows 7 years
----------------------------------------- ---------------------------------------------------------------------------
Discount rate 2018: 19.0%
----------------------------------------- ---------------------------------------------------------------------------
On 1 September 2017, a deed of assignment was signed between
Circassia Pharmaceuticals plc and Circassia Limited and Circassia
Limited was assigned all rights, powers, interests and benefits of
the agreement. Under the terms of the agreement, Circassia Limited
had the option to secure the remaining commercial rights and
economic benefits of Tudorza(R) based on the sales performance of
Tudorza(R) in the preceding 12 month period.
36. Events occurring after the reporting date
On 24 January 2019, Circassia Pharmaceuticals plc announced that
Circassia Limited had entered into a definitive agreement with AIT
Therapeutics Inc. ("AIT") to acquire the exclusive
commercialisation rights from to its ventilator compatible nitric
oxide product, AirNOvent, in the United States and China.
Under the terms of the agreement, the consideration is
structured as follows:
-- Circassia Pharmaceuticals plc issued 12,300,971 ordinary
shares with a value of $7.35 million to AIT;
-- Circassia Pharmaceuticals plc issued 5,271,844 ordinary
shares with a value of $3.15 million to AIT following the
successful completion of a pre-submission meeting with FDA;
-- Circassia Limited will pay AIT $12.6 million upon the sooner
of the product's US launch in PPHN or 90 days post FDA
approval;
-- Circassia Limited will pay AIT $8.4 million upon label
expansion in a related indication in the US;
-- Circassia Limited will pay AIT $1.05 million on launch in China.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SDWEFSFUSELL
(END) Dow Jones Newswires
May 01, 2019 02:01 ET (06:01 GMT)
Circassia (LSE:CIR)
Historical Stock Chart
From Apr 2024 to May 2024
Circassia (LSE:CIR)
Historical Stock Chart
From May 2023 to May 2024