TIDMVRP
RNS Number : 8595X
Verona Pharma PLC
27 February 2017
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES
OF ARTICLE 7 OF REGULATION (EU) NO 596/2014.
Verona Pharma plc
("Verona Pharma" or the "Company")
Financial results for the year ended 31 December 2016
27 February 2017, London - Verona Pharma plc (AIM: VRP.L)
(Verona Pharma), a clinical-stage biopharmaceutical company focused
on developing and commercialising innovative therapeutics for the
treatment of respiratory diseases with significant unmet medical
needs, today announces its audited results for the year ended 31
December 2016.
2016 CLINICAL AND DEVELOPMENT HIGHLIGHTS
-- Reported positive results from "add-on" Phase 2a study with
RPL554 in COPD patients. Data continues to suggest the drug could
be meaningful for the treatment of COPD:
o RPL554 produced a highly significant (P<0.001) and a
clinically meaningful additional (>50%) bronchodilation on top
of the administered standard of care bronchodilators, salbutamol or
ipratropium bromide.
o The bronchodilatory effects seen when RPL554 was added to each
of the two bronchodilators were significantly (P<0.001) larger
than those of either salbutamol or ipratropium bromide alone, which
were in turn all significantly greater than placebo.
o When RPL554 was added to each of salbutamol or ipratropium
bromide it caused a significant reduction (p=0.0002 and p=0.004
respectively) in trapped air in the lung (residual volume) as
compared to salbutamol or ipratropium bromide alone, suggesting
that RPL554 treatment may reduce dyspnea, a major debilitating
symptom of COPD.
o Consistent with previous studies, RPL554 was well tolerated
both alone and when added to either of the two bronchodilators:
-- No effect on vital signs or ECG parameters.
-- No gastro-intestinal adverse events recorded.
-- Reported positive results from a Phase 2a dose finding study
with RPL554 in asthmatic patients:
o Nebulised RPL554 demonstrated a dose-dependent bronchodilator
response in asthma patients; the FEV(1) response as compared to
placebo was highly statistically significant (p<0.0001) at all
doses tested.
o The maximum bronchodilator effect of RPL554 in this study was
comparable to the effect observed with the supramaximal dose
(7.5mg) of nebulised salbutamol used in the study.
o Wide dose range (0.4 to 24mg) examined; suggests RPL554
potentially has a large safety margin.
o RPL554 did not elicit any serious adverse events or adverse
events of concern at any dose:
-- Fewer adverse events recorded with RPL554 than with nebulised
salbutamol.
-- No gastro-intestinal adverse events or cardiovascular events
of concern.
-- Data from first Phase 1 study with RPL554 supporting the
Company's view that RPL554 could become an important, novel and
complementary inhaled medicine for the treatment of respiratory
diseases such as COPD, cystic fibrosis and asthma presented at
American Thoracic Society (ATS) 2016 International Conference in
USA:
o Studies continue to demonstrate the bronchodilator properties
of RPL554.
o Formulation is better tolerated than the earlier solution
formulation prototype, with no maximum tolerated dose observed even
at 16 times the active bronchodilator dose.
o New formulation is suitable for twice daily dosing.
-- Formulation provides for a longer pulmonary residence time,
lower peak plasma exposure and longer half-life in blood than the
earlier formulation suggesting a more pronounced effect locally in
the lung and comparatively less effects in other organs in the
body.
2016 OPERATIONAL AND FINANCIAL HIGHLIGHTS
-- Raised gross proceeds of GBP44.7m from a placing of 1.56bn
units at a price of 2.873 pence per unit (31.1m units at a price of
GBP1.4365 per unit after taking account of the 50-for-1 share
consolidation) with each unit comprising one new ordinary share and
one warrant to purchase 0.4 of an ordinary share.
-- Appointed Mr. Rishi Gupta, Dr. Mahendra Shah, Dr. Andrew
Sinclair, and Mr. Vikas Sinha as Non-Executive Directors of the
Board.
-- Appointed Mr. Piers Morgan as Chief Financial Officer.
-- Loss after tax of GBP5.02m (2015: GBP7.49m), reflecting tight
cost control and a lower level of R&D spend especially on
clinical studies during the year.
-- Loss per share of 0.30 pence (2015: 0.74 pence). After taking account of the 50-for-1 share consolidation approved by Shareholders at the General Meeting on 8 February, 2017 the loss per share for the year ended 31 December, 2016 would be 14.98p (2015: 37.10p).
-- Net cash used in operating activities during the year of
GBP5.59m (2015: GBP6.36m) reflecting clinical progress, with cash
and cash equivalents as at 31 December, 2016 increasing to
GBP39.79m (2015: GBP3.52m).
-- Announced plans to conduct a registered initial public
offering in the United States. The number of shares and price of
the proposed offering have not yet been determined. The proposed
offering is expected to commence in the first half of 2017, after
the U.S. Securities and Exchange Commission completes its review
process of the registration statement relating to the proposed
offering and subject to market and other conditions.
POST PERIOD
-- Initiation of a Phase 2a study to evaluate in approximately
30 COPD patients the addition of nebulised RPL554 to tiotropium, a
commonly used long-acting bronchodilator for COPD.
-- On 8 February, 2017 shareholders approved a 50-for-1 share
consolidation of the Company's shares. The consolidation took place
after the period covered by these financial statements and
therefore the financial statements have not been adjusted to take
account of the share consolidation.
Dr. Jan-Anders Karlsson, CEO of Verona Pharma, commented:
"2016 brought highly encouraging clinical data for RPL554,
substantial endorsement in the form of additional financing from a
very experienced syndicate of existing and new investors, and
further strengthening of our Board and executive team. During 2017
we look forward to progressing both our clinical development of
RPL554 in further Phase 2 clinical trials and also our plans for a
NASDAQ IPO."
An electronic copy of the annual report and accounts will be
made available today on the Company's website
(http://www.veronapharma.com) and printed copies will be posted to
shareholders in due course, together with a notice ofthe Company's
annual general meeting. This press release does not constitute an
offer to sell or the solicitation of an offer to buy securities,
and shall not constitute an offer, solicitation or sale in any
jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of that jurisdiction.
-Ends-
For further information please contact:
Verona Pharma plc Tel: +44 (0)20 3283 4200
Jan-Anders Karlsson, info@veronapharma.com
Chief Executive Officer
N+1 Singer (Nominated Tel: +44 (0)20 7496 3000
Adviser and UK Broker)
Aubrey Powell / James
White
FTI Consulting (UK Media Tel: +44 (0)20 3727 1000
and Investor enquiries)
Simon Conway / Stephanie veronapharma@fticonsulting.com
Cuthbert /
Natalie Garland-Collins
ICR, Inc. (US Media and
Investor enquiries)
James Heins Tel: +1 203-682-8251
James.Heins@icrinc.com
Stephanie Carrington Tel. +1 646-277-1282
Stephanie.Carrington@icrinc.com
About Verona Pharma plc
Verona Pharma is a clinical-stage biopharmaceutical company
focused on developing and commercialising innovative therapeutics
for the treatment of respiratory diseases with significant unmet
medical needs.
Verona Pharma's product candidate, RPL554, is a first-in-class,
inhaled, dual inhibitor of the enzymes phosphodiesterase 3 and 4
that acts as both a bronchodilator and an anti--inflammatory agent
in a single compound. In clinical trials, treatment with RPL554 has
been observed to result in statistically significant improvements
in lung function as compared to placebo and has shown clinically
meaningful and statistically significant improvements in lung
function when added to two commonly used bronchodilators as
compared to either bronchodilator administered as a single agent.
Verona Pharma is developing RPL554 for the treatment of chronic
obstructive pulmonary disease (COPD), cystic fibrosis, and
potentially asthma.
Forward Looking Statements
This press release contains forward-looking statements. All
statements contained in this press release that do not relate to
matters of historical fact should be considered forward-looking
statements.
These forward-looking statements are based on management's
current expectations. These statements are neither promises nor
guarantees, but involve known and unknown risks, uncertainties and
other important factors that may cause our actual results,
performance or achievements to be materially different from our
expectations expressed or implied by the forward-looking
statements, including, but not limited to, the timing of our
clinical development of RPL554, and the potential for and timing of
our planned NASDAQ IPO.
These and other important factors could cause actual results to
differ materially from those indicated by the forward-looking
statements made in this press release. Any such forward-looking
statements represent management's estimates as of the date of this
press release. While we may elect to update such forward-looking
statements at some point in the future, we disclaim any obligation
to do so, even if subsequent events cause our views to change.
These forward-looking statements should not be relied upon as
representing our views as of any date subsequent to the date of
this press release.
CHAIRMAN AND CHIEF EXECUTIVE'S JOINT STATEMENT
We are a clinical stage biopharmaceutical company focused on
developing and commercialising innovative therapeutics for the
treatment of respiratory diseases with significant unmet medical
needs. Our product candidate, RPL554, is a first in class, inhaled,
dual inhibitor of the enzymes phosphodiesterase 3 and 4, or PDE3
and PDE4, that acts as both a bronchodilator and an
anti-inflammatory agent in a single compound. We believe RPL554 has
the potential to be the first novel class of bronchodilator in over
40 years. We have completed eight Phase 1 and 2a clinical trials
for RPL554, with 282 subjects enrolled. In our clinical trials,
treatment with RPL554 has been observed to result in statistically
significant improvements in lung function as compared to placebo
and has shown clinically meaningful and statistically significant
improvements in lung function when added to two commonly used
bronchodilators as compared to either bronchodilator administered
as a single agent. RPL554 also has shown anti-inflammatory effects
and been well tolerated in our clinical trials, and has not been
observed to result in the gastrointestinal or other side effects
commonly associated with the only PDE4 inhibitor currently on the
market for the treatment of COPD.
We are developing RPL554 for the treatment of patients with
chronic obstructive pulmonary disease, or COPD. We believe there is
an urgent and unmet medical need for new and more effective
treatments for COPD to reduce the number and burden of symptoms,
reduce acute periods of worsening symptoms, or exacerbations, and
establish a consistent and durable treatment response. We are also
developing RPL554 for the treatment of cystic fibrosis, or CF, a
fatal inherited disease where we believe the bronchodilatory and
anti-inflammatory effects of RPL554 may be beneficial. We believe
RPL554, if approved, has the potential to become an important and
novel treatment and standard of care for COPD and CF patients. We
may also explore, alone or with a collaborator, the development of
RPL554 to treat asthma and other respiratory diseases.
We are developing RPL554 in a nebulised formulation for the
maintenance treatment of COPD patients and for the treatment of CF.
We also are developing RPL554 in a nebulised formulation as an
add-on therapy to short acting bronchodilators and other commonly
used therapies for the treatment of hospitalised patients with
acute exacerbations of COPD.
To evaluate RPL554 in a nebulised formulation for the
maintenance treatment of COPD, we plan to commence a Phase 1
single-dose pharmacokinetic, or PK, trial in 12 healthy volunteers
in 2017 and a four-week Phase 2b dose ranging clinical trial for
RPL554 for the maintenance treatment of COPD in approximately 400
patients by the end of 2017. A PK trial involves the study of the
process of bodily absorption, distribution, metabolism and
excretion of a drug. In February 2017 we also commenced a Phase 2a
clinical trial evaluating RPL554 in approximately 30 patients with
COPD as an add-on therapy to tiotropium, a commonly used long
acting bronchodilator, and expect to report top line data from this
trial in the fourth quarter of 2017. We also intend to commence in
2018 a Phase 2 clinical trial for RPL554 for the treatment of acute
exacerbations of COPD in approximately 150 patients. In addition,
we plan to commence a Phase 2a single dose PK and pharmacodynamics,
or PD, trial in the first half of 2017 evaluating RPL554 in
approximately ten CF patients. A PD trial involves the study of the
biochemical and pharmacological effects of a drug and its mechanism
of action, including the correlation of the drug's actions and
effects with its mechanism of action. The results of this clinical
trial will support dose selection for a proof of concept Phase 2b
trial in approximately 100 patients with CF.
In addition to our nebulised formulation of RPL554, we are
developing RPL554 in both dry powder inhaler, or DPI, and metered
dose inhaler, or MDI, formulations for the maintenance treatment of
COPD. We may explore the development of RPL554 in these
formulations for the treatment of asthma and other respiratory
diseases.
According to the World Health Organization, over one billion
people suffer from chronic respiratory diseases. Among the most
common of these afflictions is COPD, which is a progressive
respiratory disease for which there is no cure. COPD damages the
airways and the lungs and leads to shortness of breath, impacting a
person's ability to perform daily activities. In some cases,
patients experience acute exacerbations, which are estimated to
cause approximately 1.5 million emergency department visits,
687,000 hospitalisations and 129,000 deaths per year in the United
States alone. According to the World Health Organization, COPD is
the third leading cause of death globally, with 210 million people
worldwide suffering from the disease. Global sales of drugs
currently indicated for COPD are expected to be $10.6 billion in
2016 and are expected to grow to $15.6 billion in 2019.
According to the Cystic Fibrosis Foundation, more than 30,000
people in the United States and more than 70,000 people worldwide
are living with CF and approximately 1,000 new cases of CF are
diagnosed each year. CF is the most common fatal inherited disease
in the United States and Europe. CF causes impaired lung function
and is commonly associated with repeat and persistent lung
infections due to the inability to clear thickened phlegm, or
mucus, from the lung. This condition often results in frequent
exacerbations and hospitalisations. There is no cure for CF and the
median age of death for CF patients is 37 years. CF is considered a
rare, or orphan, disease by both the U.S. Food and Drug
Administration, or FDA, and the European Medicines Agency, or
EMA.
By inhibiting PDE3 and PDE4, RPL554 increases the levels of two
critical intracellular messengers, resulting in bronchodilatory and
anti-inflammatory effects. RPL554 also stimulates the cystic
fibrosis transmembrane conductance regulator, or CFTR, which is an
ion channel in the epithelial cells lining the airways. Mutations
in the CFTR protein result in poorly or non-functioning ion
channels, which cause CF and are potentially important in COPD.
Dual inhibition of PDE3 and PDE4 has been observed to be more
effective than inhibition of either PDE alone at relaxing airway
smooth muscle cells and suppressing the activation and functions of
pro-inflammatory cells residing in the lung, both of which are
recognised to play a significant role in COPD and CF.
In our clinical trials, RPL554 has shown rapid onset and durable
bronchodilation in healthy subjects and patients with COPD when
inhaled from a nebuliser. In addition, RPL554 has been observed to
be complementary and additive when administered as an add-on
therapy to other currently marketed bronchodilators. Our most
recent clinical trial of RPL554 was a Phase 2a clinical trial in 36
patients with COPD. Our primary objective in this clinical trial
was to evaluate the improvement in lung function, as measured by
the maximal volume of air a person can forcefully exhale in one
minute, or FEV(1) , and the duration of action of RPL554. We
evaluated RPL554 administered as a single agent as compared to
placebo and two commonly used bronchodilators, albuterol, also
known as salbutamol and marketed as Ventolin, and ipratropium,
marketed as Atrovent. We also evaluated RPL554 administered as an
add-on therapy to either albuterol or ipratropium, in each case as
compared to albuterol or ipratropium alone. We observed that RPL554
administered as a single agent produced statistically significant
improvements in lung function, as measured by FEV(1) , as compared
to placebo, with a p value of less than 0.001. P value is a
conventional statistical method for measuring the statistical
significance of clinical results. A p value of 0.05 or less
represents statistical significance, meaning that there is a less
than 1 in 20 likelihood that the observed results occurred by
chance. We also observed clinically meaningful and statistically
significant improvement in lung function, as measured by FEV(1) ,
when RPL554 was administered as an add- on therapy to standard
doses of albuterol and ipratropium as compared to standard doses of
either bronchodilator alone. In this clinical trial, we observed
the effect size, or peak improvement minus placebo improvement, was
51% higher for the add- on therapy of RPL554 with albuterol as
compared to albuterol alone, and 66% higher in the add- on therapy
of RPL554 with ipratropium as compared to ipratropium alone. In
addition, we observed RPL554 administered as an add- on therapy to
either albuterol or ipratropium resulted in a statistically
significant reduction in time of onset of bronchodilation as
compared to albuterol or ipratropium alone.
We have worldwide commercialisation rights for RPL554. We have
raised GBP74.6m in gross proceeds from investors since our listing
on AIM in 2006, of which GBP44.7m was raised in our most recent
private placement of equity securities in July 2016 with a number
of European and U.S. based healthcare specialist investment firms.
Members of our management team and board of directors have
extensive experience in large pharmaceutical and biotechnology
companies in respiratory product development from drug discovery
through commercialisation and have played important roles in the
development and commercialisation of several approved respiratory
treatments, including Symbicort, Daliresp/Daxas, Spiriva and
Flutiform.
FINANCIALS
The operating loss for the year ended 31 December, 2016 was
GBP7.02m (2015: GBP8.97m) and the loss after tax for the year ended
31 December, 2016 was GBP5.02m (2015: GBP7.49m).
Research and development costs for the year ended 31 December,
2016 were GBP4.52m (2015: GBP7.27m), a decrease of GBP2.75 million.
The decrease was attributable to a GBP3.6m decrease in clinical
trial expenses related to the completion of our Phase 2a clinical
trials of RPL554 in late 2015 and early 2016, a GBP0.4m decrease in
pre-clinical research and related costs and a GBP0.2m decrease in
patent-related costs and expenses, which were partially offset by a
GBP0.7m increase in research and development personnel costs and a
GBP0.7m increase in contract manufacturing and associated costs.
General and administrative costs for the year ended 31 December,
2016 were GBP2.50m (2015: GBP1.71m), an increase of GBP0.79m. The
increase was attributable to a GBP0.3m increase in personnel costs,
a GBP0.3m increase in professional service fees and expenses, and a
GBP0.2m increase in other facility and office related costs, all
attributable to the growth of the organisation as we prepare to
expand our team in preparation for the next stage in the Company's
development, which is expected to include the NASDAQ IPO and
initiating larger clinical studies.
Finance income for the year ended 31 December, 2016 was GBP1.84m
(2015: GBP0.04m). The increase in Finance income was primarily due
to a decrease in the fair value of the warrant liability of GBP1.1m
caused by changes in the underlying assumptions for measuring the
liability of the warrant, including the price and volatility of
Verona shares, as well as the unwinding of the expected life of the
warrant.
Finance expense for the year ended 31 December, 2016 was
GBP0.79m (2015: GBP0.07m). The increase was primarily due to the
inclusion of the proportion of expenses incurred as part of the
July Placement which related to the issue of the warrants, and
which are recorded as a Finance expense (the remainder of the July
Placement expenses related to the equity issued and were recorded
as a charge against share premium), as well as an increase in the
calculated value of the assumed contingent obligation resulting
from the Vernalis agreement.
Taxation for the year ended 31 December, 2016 amounted to a
credit of GBP0.95m (2015: GBP1.51m), a decrease in the credit
amount of GBP0.56m. The credits are obtained at a rate of 14.5% of
230% of our qualifying research and development expenditure, and
the decrease in the credit amount was primarily attributable to our
decreased expenditure on research and development.
As at 31 December, 2016 the Company had approximately GBP39.8m
in cash and cash equivalents (2015: GBP3.5m).
CORRECTION OF ERRORS IN 2015 GROUP AND COMPANY COMPARATIVE
FIGURES
Certain errors in historic financial information have been
identified and corrected in the 2015 Group and Company comparative
figures. Further details are set out in note 2.2 to the financial
statements.
MANAGEMENT AND STAFF
The Company continued to strengthen its Board and Management
team during the year.
Mr. Rishi Gupta joined the Board in July 2016. Since 2002, Mr.
Gupta has held various positions at OrbiMed Advisors LLC, a global
healthcare investment firm, where he is currently a Private Equity
Partner. Mr. Gupta currently is a member of the board of directors
of Symbiomix Therapeutics, LLC, Dimension Therapeutics, Inc.,
Avitide, Inc. and Turnstone Biologics Inc. Mr. Gupta received an
A.B. in biochemical sciences from Harvard College and a J.D. from
the Yale Law School.
Dr. Mahendra Shah joined the Board in July 2016. Since March
2010, Dr. Shah has served as a Managing Director of Vivo Capital, a
healthcare investment firm. Dr. Shah is also the founder and
Executive Chair of Semnur Pharmaceuticals, Inc., a specialty
pharmaceutical company. Dr. Shah serves as a member of the board of
directors of Fortis Inc., Crinetics Pharmaceuticals, Inc.,
Essentialis Therapeutics LLC, and Impel Neuropharma, Inc. In
addition, Dr. Shah serves on the board of directors of private
companies in the biopharmaceutical and biotechnology industries.
Dr. Shah received his Ph.D. in industrial pharmacy from St. John's
University and a Master's Degree in Pharmacy from L.M. College of
Pharmacy in Gujarat, India.
Dr. Andrew Sinclair joined the Board in July 2016. Since 2008,
Dr. Sinclair has held various positions at Abingworth LLP, a life
sciences investment group, where he is currently a Partner and
Portfolio Manager. Dr. Sinclair received a Ph.D. in chemistry and
genetic engineering at the BBSRC Institute of Plant Science,
Norwich, and a B.Sc. in microbiology from King's College London. He
is a member of the Institute of Chartered Accountants in England
and Wales.
Mr. Vikas Sinha joined the Board in September 2016. From 2005 to
December 2016, Mr. Sinha served as the Chief Financial Officer of
Alexion Pharmaceuticals, Inc., a biotechnology company. Mr. Sinha
holds a Master's degree in business administration from the Asian
Institute of Management. He is also a qualified chartered
accountant from the Institute of Chartered Accountants of India and
a Certified Public Accountant in the United States.
The Company appointed Mr. Piers Morgan as Chief Financial
Officer in September 2016. From November 2015 to September 2016,
Mr. Morgan was an independent consultant. From May 2014 to November
2015, Mr. Morgan was the Chief Executive Officer of C4X Discovery
plc, a biotechnology company. Prior to C4X, Mr. Morgan co-founded
uniQure N.V., a biotechnology company in Amsterdam, where he served
as Chief Financial Officer from December 2009 to May 2014. Mr.
Morgan is a member of the Institute of Chartered Accountants in
England and Wales. He replaced Mr. Biresh Roy who had previously
stepped down from the Board and left the Company.
OUTLOOK
We intend to become a leading biopharmaceutical company focused
on the treatment of respiratory diseases with significant unmet
medical needs. The key elements of our strategy to achieve this
goal include:
-- Rapidly advance the development of nebulised RPL554 for the
maintenance treatment of COPD. We intend to develop RPL554 for the
maintenance treatment of COPD. To evaluate RPL554 in a nebulised
formulation for the maintenance treatment of COPD, we plan to
commence a Phase 1 single-dose PK trial in 12 healthy volunteers
and a four-week Phase 2b dose ranging clinical trial for RPL554 in
this indication in approximately 400 patients with COPD by the end
of 2017. In February 2017 we commenced a Phase 2a clinical trial
evaluating RPL554 in approximately 30 patients with COPD as an
add-on therapy to tiotropium. We expect to report top line data
from this trial in the fourth quarter of 2017.
-- Rapidly advance the development of nebulised RPL554 for the
treatment of acute exacerbations of COPD. We also are developing
RPL554 as an add-on therapy to short acting bronchodilators and
other commonly used therapies for the treatment of hospitalised
patients with acute exacerbations of COPD. We plan to commence a
Phase 2 clinical trial for RPL554 for this indication in
approximately 150 patients in 2018.
-- Develop RPL554 for the treatment of CF. We plan to commence a
Phase 2a single dose trial with RPL554 in approximately ten CF
patients to evaluate the PK and PD profile and tolerability of
RPL554, as well as examine the effect on lung function and
inflammatory biomarkers. The results of this trial will help with
dose selection for a proof of concept Phase 2b trial in
approximately 100 patients with CF.
-- Develop DPI and MDI formulations of RPL554. In addition to
our nebulised formulation of RPL554, we are developing RPL554 in
both DPI and MDI formulations for the maintenance treatment of
COPD. We believe the development of DPI and MDI formulations has
the potential to significantly increase the market opportunity for
RPL554, if approved, for the maintenance treatment of COPD. In
addition, we may explore the development of RPL554 in these
formulations for the treatment of asthma and other respiratory
diseases.
-- Pursue development of RPL554 in other forms of respiratory
disease. We believe that RPL554's properties as an inhaled, dual
inhibitor of PDE3 and PDE4 give it broad potential applicability in
the treatment of other respiratory diseases. We may explore
development of RPL554 to treat other forms of respiratory disease
following development of RPL554 for the treatment of COPD and
CF.
-- Seek strategic collaborative relationships. We may seek
strategic collaborations with market leading biopharmaceutical
companies to develop and commercialise RPL554. We believe these
collaborations could provide significant funding to advance the
development of RPL554 while allowing us to benefit from the
development or commercialisation expertise of our
collaborators.
-- Acquire or in license product candidates for the treatment of
respiratory diseases. We plan to leverage our respiratory disease
expertise to identify and in license or acquire additional clinical
stage product candidates that we believe have the potential to
become novel treatments for respiratory diseases with significant
unmet medical needs.
We would like to thank the staff and Board members for all their
contributions and shareholders for their continued support during a
successful year.
Dr. David Ebsworth Dr. Jan-Anders Karlsson
Chairman Chief Executive Officer
27 February, 2017 27 February, 2017
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARSED 31 DECEMBER, 2015 AND 2016
Restated
Year ended Year ended
31 December, 31 December,
Notes 2015 2016
------ --------------- ---------------
GBP GBP
Research and development
costs.......................................................... (7,268,847) (4,521,820)
General and administrative
costs.......................................................... (1,705,944) (2,498,349)
--------------- ---------------
Operating
loss................................................................
.................. 7 (8,974,791) (7,020,169)
Finance
income..............................................................
..................... 9 44,791 1,841,282
Finance
expense.............................................................
.................... 9 (72,291) (793,690)
--------------- ---------------
Loss before
taxation............................................................
............ (9,002,291) (5,972,577)
Taxation -
credit..............................................................
................. 11 1,509,448 954,184
--------------- ---------------
Loss for the
year................................................................
.............. (7,492,843) (5,018,393)
Other comprehensive income:
Exchange differences on translating foreign
operations.......................... 3,784 42,559
--------------- ---------------
Total comprehensive loss attributable to owners of the Company. (7,489,059) (4,975,834)
=============== ===============
Loss per ordinary share - basic and diluted
(pence)............................. 5 (0.74) (0.30)
Loss per ordinary share - basic and diluted (pence) after giving
effect to the 50-for-1 share
consolidation approved by shareholders on 8 February, 2017...... 5 (37.10) (14.98)
The accompanying notes form an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS OF 31 DECEMBER, 2015 AND 2016
Restated
As of As of
31 December, 31 December,
Notes 2015 2016
------ --------------- ---------------
GBP GBP
ASSETS
Non--current assets:
Property, plant and
equipment.................................................................
.. 15 13,163 13,838
Intangible
assets....................................................................
................... 16 1,813,756 1,876,684
441,000
Goodwill..................................................................
................................ 17 2,331,522
--------------- ---------------
441,000
2,267,919
--------------- ---------------
Current assets:
Prepayments and other
receivables........................................................... 12 513,300 2,958,587
Current tax
receivable................................................................
.............. 1,534,788 1,067,460
Cash and cash
equivalents...............................................................
......... 13 3,524,387 39,785,098
--------------- ---------------
5,572,475 43,811,145
--------------- ---------------
Total
assets....................................................................
....................... 7,840,394 46,142,667
=============== ===============
EQUITY AND LIABILITIES
Capital and reserves attributable to equity holders:
Share
capital...................................................................
......................... 18 1,009,923 2,568,053
Share
premium...................................................................
...................... 26,650,098 58,526,502
Share--based payment
reserve................................................................... 1,525,897 2,101,790
Accumulated (28,728,038)
loss......................................................................
............... 34,468,307
=============== ===============
Total (23,752,204)
equity....................................................................
....................... 5,433,714
=============== ===============
Current liabilities:
Trade and other
payables..................................................................
........ 14 1,798,682 2,823,489
Tax payable - US
operations................................................................
.... 14,057 126,063
Derivative financial 7,922,603
instrument................................................................
.. 22 10,872,155
=============== ===============
Total current -
liabilities...............................................................
........... 1,812,739
=============== ===============
Non--current liabilities:
802,205
Assumed contingent 802,205
obligation................................................................
.. 21 46,142,667
=============== ===============
Total non--current
liabilities................................................................
..
===============
593,941
Total equity and 593,941
liabilities...............................................................
...... 7,840,394
=============== ===============
The accompanying notes form an integral part of these
consolidated financial statements.
The financial statements were approved by the Company's board of
Directors on 27 February, 2017 and signed on its behalf by:
Dr. Jan--Anders Karlsson
Chief Executive Officer of the Company.
Company number: 05375156
COMPANY STATEMENT OF FINANCIAL POSITION
AS OF 31 DECEMBER, 2015 AND 2016
Restated
As of As of
31 December, 31 December,
Notes 2015 2016
------- --------------- ---------------
GBP GBP
ASSETS
Non--current assets:
Property, plant and
equipment................................................................
... 15 13,163 13,838
Intangible
assets...................................................................
.................... 16 1,813,756 1,876,684
Goodwill.................................................................
................................. 17 441,000 441,000
242,557
Investment...............................................................
................................ 10 2,574,079
--------------- ---------------
79,593
2,347,512
--------------- ---------------
Current assets:
Prepayments and other
receivables........................................................... 12 513,829 2,953,358
Current tax
receivable...............................................................
............... 1,534,788 1,067,460
Cash and cash
equivalents..............................................................
.......... 3,523,140 39,733,658
--------------- ---------------
5,571,757 43,754,476
--------------- ---------------
Total
assets...................................................................
........................ 7,919,269 46,328,555
=============== ===============
EQUITY AND LIABILITIES
Capital and reserves attributable to equity holders:
Share
capital..................................................................
.......................... 18 1,009,923 2,568,053
Share
premium..................................................................
....................... 26,650,098 58,526,502
Share--based payment
reserve..................................................................
. 1,525,897 2,101,790
Accumulated (28,742,983)
loss.....................................................................
................ 34,453,362
=============== ===============
Total (23,778,496)
equity...................................................................
........................ 5,407,422
=============== ===============
Current liabilities:
Trade and other
payables.................................................................
......... 14 1,917,906 3,150,385
Derivative financial 7,922,603
instrument...............................................................
... 22 11,072,988
=============== ===============
Total current -
liabilities..............................................................
............ 1,917,906
=============== ===============
Non--current liabilities:
802,205
Assumed contingent 802,205
obligation...............................................................
... 21 46,328,555
=============== ===============
Total non--current
liabilities..............................................................
....
===============
593,941
Total equity and 593,941
liabilities..............................................................
....... 7,919,269
=============== ===============
The accompanying notes form an integral part of these
consolidated financial statements.
The financial statements were approved by the Company's board of
Directors on 27 February, 2017 and signed on its behalf by:
Dr. Jan--Anders Karlsson
Chief Executive Officer of the Company.
Company number: 05375156
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARSED 31 DECEMBER, 2015 AND 2016
Restated
Year ended Year ended
31 December, 31 December,
2015 2016
--------------- ---------------
GBP GBP
Cash used in operating activities:
Loss before
taxation..........................................................................
........... (9,002,291) (5,972,577)
Finance
income............................................................................
................ (44,791) (1,841,282)
Finance
expense...........................................................................
............... 72,291 793,690
Share--based payment
charge........................................................................ 398,943 575,893
Decrease / (increase) in prepayments and other
receivables........................... 57,633 (1,808,832)
Increase in trade and other
payables............................................................. 1,274,370 1,067,595
Depreciation of property, plant and
equipment................................................ 9,689 10,051
Loss on disposal of property, plant and
equipment.......................................... - 2,625
Loss on disposal of intangible
assets.............................................................. 134,532 8
Amortisation of intangible
assets................................................................... 43,428 51,571
--------------- ---------------
Cash used in operating
activities.................................................................... (7,056,196) (7,121,258)
Cash inflow from
taxation..........................................................................
... 699,519 1,533,287
--------------- ---------------
Net cash used in operating
activities....................................................... (6,356,677) (5,587,971)
--------------- ---------------
Cash flow from investing activities:
Interest
received..........................................................................
................ 50,592 86,542
Purchase of plant and
equipment................................................................... (1,193) (13,351)
Payment for patents and computer
software.................................................. (141,878) (114,506)
--------------- ---------------
Net cash used in investing
activities........................................................ (92,479) (41,315)
--------------- ---------------
Cash flow from financing activities:
Gross proceeds from issue of shares and
warrants......................................... - 44,750,364
Transaction costs on issue of shares and warrants.................................
........ (2,910,461)
(636,455)
--------------- ---------------
Transaction costs on upcoming Global -
Offering.............................................. -
--------------- ---------------
Net cash generated from financing
activities........................................... - 41,203,448
--------------- ---------------
Net (decrease) / increase in cash and cash equivalents........................... (6,449,156) 35,574,162
Cash and cash equivalents at the beginning of the
year................................... 9,969,759 3,524,387
Effect of exchange rates on cash and cash
equivalents................................... 3,784 686,549
--------------- ---------------
Cash and cash equivalents at the end of the period................................. 3,524,387 39,785,098
=============== ===============
The accompanying notes form an integral part of these
consolidated financial statements.
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEARSED 31 DECEMBER, 2015 AND 2016
Restated
Year ended Year ended
31 December, 31 December,
2015 2016
--------------- ---------------
GBP GBP
Cash used in operating activities:
Loss before
taxation..........................................................................
........... (9,037,581) (6,048,360)
Finance
income............................................................................
................ (44,791) (1,841,282)
Finance
expense...........................................................................
............... 72,291 793,690
Share--based payment
charge........................................................................ 319,352 412,929
Decrease / (increase) in prepayments and other
receivables........................... 57,103 (1,803,072)
Increase in trade and other
payables............................................................. 1,393,593 1,232,258
Depreciation of property, plant and
equipment................................................ 9,689 10,051
Loss on disposal of property, plant and
equipment.......................................... - 2,625
Loss on disposal of intangible
assets.............................................................. 134,532 8
Amortisation of intangible
assets................................................................... 43,428 51,571
--------------- ---------------
Cash used in operating
activities.................................................................... (7,052,384) (7,189,582)
Cash inflow from
taxation..........................................................................
... 699,519 1,551,419
--------------- ---------------
Net cash used in operating
activities....................................................... (6,352,865) (5,638,163)
--------------- ---------------
Cash flow from investing activities:
Interest
received..........................................................................
................ 50,591 86,542
Purchase of plant and
equipment................................................................... (1,193) (13,351)
Payment for patents and computer
software.................................................. (141,876) (114,507)
--------------- ---------------
Net cash used in investing
activities........................................................ (92,478) (41,316)
--------------- ---------------
Cash flow from financing activities:
Gross proceeds from issue of shares and
warrants......................................... - 44,750,364
Transaction costs on issue of shares and warrants.................................
........ (2,910,461)
(636,455)
--------------- ---------------
Transaction costs on upcoming Global -
Offering.............................................. -
--------------- ---------------
Net cash generated from financing
activities........................................... - 41,203,448
--------------- ---------------
Net (decrease) / increase in cash and cash equivalents........................... (6,445,343) 35,523,969
Cash and cash equivalents at the beginning of the
year................................... 9,968,483 3,523,140
Effect of exchange rates on cash and cash
equivalents................................... - 686,549
--------------- ---------------
Cash and cash equivalents at the end of the period................................. 3,523,140 39,733,658
=============== ===============
The accompanying notes form an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARSED 31 DECEMBER, 2015 AND 2016
Share-- Total
Share Share based Accumulated Total
Capital Premium Expenses Losses Equity
----------- ------------ ----------- -------------- -------------
GBP GBP GBP GBP GBP
Balance at 1 January, 2015 (Restated)......... 1,009,923 26,650,098 1,126,954 (16,263,145) 12,523,830
----------- ------------ ----------- -------------- -------------
Loss for the
year.........................................
..... - - - (7,492,843) (7,492,843)
Other comprehensive income for the year:
Exchange differences on translating foreign
operations
=========== ============ =========== ============== =============
Total comprehensive loss for the
period..............
Share--based
payments.....................................
.
Balance at 31 December, 2015 (Restated)... - - - 3,784 3,784
- - - (7,489,059) (7,489,059)
- - 398,943 - 398,943
1,009,923 26,650,098 1,525,897 (23,752,204) 5,433,714
=========== ============ =========== ============== =============
Balance at 1 January, 2016
........................... 1,009,923 26,650,098 1,525,897 (23,752,204) 5,433,714
----------- ------------ ----------- -------------- -------------
Loss for the
year.........................................
..... - - - (5,018,393) (5,018,393)
Other comprehensive income for the year:
Exchange differences on translating foreign
operations
----------- ------------ ----------- -------------- -------------
- - - 42,559 42,559
Total comprehensive loss for the
period.............. - - - (4,975,834) (4,975,834)
----------- ------------ ----------- -------------- -------------
New share capital
issued................................... 1,555,796 34,151,439 - - 35,707,235
Transaction costs on share capital
issued............
----------- ------------ ----------- -------------- -------------
Share options exercised during the
period...........
Share--based payments........................
.............. - (2,325,035) - - (2,325,035)
2,334 50,000 - - 52,334
- - 575,893 - 575,893
----------- ------------ ----------- -------------- -------------
Balance at 31 December, 2016
.................... 2,568,053 58,526,502 2,101,790 (28,728,038) 34,468,307
=========== ============ =========== ============== =============
The currency translation reserve for 2015 and 2016 was not
considered material and as such was not presented in a separate
reserve but was included in the total accumulated losses
reserve.
The accompanying notes form an integral part of these
consolidated financial statements.
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEARSED 31 DECEMBER, 2015 AND 2016
Share-- Total
Share Share based Accumulated Total
Capital Premium Expenses Losses Equity
---------- ----------- ---------- ------------- ------------
GBP GBP GBP GBP GBP
Balance at 1 January, 2015 (Restated)......... 1,009,923 26,650,098 1,126,954 (16,264,420) 12,522,555
---------- ----------- ---------- ------------- ------------
Loss for the
year.............................................. - - - (7,514,076) (7,514,076)
Other comprehensive income for the year: - - - - -
---------- ----------- ---------- ------------- ------------
Total comprehensive income for the year: - - - (7,514,076) (7,514,076)
Share based payments recognised as expense.... - - 319,352 - 319,352
Share based payments recognised as investment. - - 79,591 - 79,591
---------- ----------- ---------- ------------- ------------
Balance at 31 December, 2015 (Restated)... 1,009,923 26,650,098 1,525,897 (23,778,496) 5,407,422
========== =========== ========== ============= ============
Share-- Total
Share Share based Accumulated Total
Capital Premium Expenses Losses Equity
---------- ------------ ---------- ------------- ------------
GBP GBP GBP GBP GBP
Balance at 1 January, 2016
........................... 1,009,923 26,650,098 1,525,897 (23,778,496) 5,407,422
---------- ------------ ---------- ------------- ------------
Loss for the
year.............................................
. - - - (4,964,487) (4,964,487)
Other comprehensive income for the year: - - - - -
---------- ------------ ---------- ------------- ------------
Total comprehensive income for the year: - - - (4,964,487) (4,964,487)
New share capital
issued................................... 1,555,796 34,151,439 - - 35,707,235
Transaction costs on share capital
issued............ - (2,325,035) - - (2,325,035)
Share options exercised during the
period........... 2,334 50,000 - - 52,334
Share based payments recognised as expense.... - - 412,929 - 412,929
Share based payments recognised as investment. - - 162,964 - 162,964
---------- ------------ ---------- ------------- ------------
Balance at 31 December, 2016..................... 2,568,053 58,526,502 2,101,790 (28,742,983) 34,453,362
========== ============ ========== ============= ============
The accompanying notes form an integral part of these
consolidated financial statements.
1. General information
Verona Pharma plc (the "Company") and its subsidiaries
(together, the "Group") are a clinical--stage biopharmaceutical
group focused on developing and commercialising innovative
therapeutics for the treatment of respiratory diseases with
significant unmet medical needs.
The Company is a public limited company, which is listed on the
Alternative Investment Market of the London Stock Exchange and
incorporated and domiciled in the United Kingdom.
The Company has two subsidiaries, Verona Pharma, Inc. and
Rhinopharma Limited ("Rhinopharma"), both of which are wholly
owned.
On 8 February, 2017 the Company effected a 50-for-1
consolidation of its shares. Prior to the consolidation the total
number of issued shares as at 31 December, 2016 would read as
2,568,053,160 shares and after the consolidation this number would
read as 51,361,063 shares. Earnings per share information has been
retrospectively adjusted to reflect the consolidation as if it had
occurred at the beginning of the accounting period.
2. Accounting policies
A summary of the principal accounting policies, all of which
have been applied consistently throughout the year, is set out
below.
2.1 Basis of preparation
The consolidated financial statements of the Group have been
prepared in accordance with International Financial Reporting
Standards ("IFRS") as issued by the European Union and the
Companies Act 2006 applicable to companies reporting under IFRS.
The consolidated financial statements have been prepared under the
historical cost convention, with the exception of derivative
financial instruments which have been measured at fair value.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated
financial statements are disclosed in note 4.
Going concern
During the year ended 31 December, 2016, the Group had a loss of
GBP5,018 thousand (2015: GBP7,493 thousand). As of 31 December,
2016, the Group had net assets of GBP34,468 thousand (2015:
GBP5,434 thousand) of which GBP39,785 thousand (2015: GBP3,524
thousand) was cash and cash equivalents.
The operation of the Group is currently being financed from
funds that the Company raised from share placings. On July 29,
2016, the Company raised gross proceeds of GBP44.7 million from a
placing, subscription and open offer (the "July Placement"). These
funds are expected to be used primarily to support the development
of RPL554 in chronic obstructive pulmonary disease ("COPD") as well
as corporate and general administrative expenditures.
The Directors believe that the Group has sufficient funds to
complete the current clinical trials, to cover corporate and
general administration costs and for it to comply with all
commitments for at least 12 months from the end of the reporting
period and, accordingly, are satisfied that the going concern basis
remains appropriate for the preparation of these consolidated
financial statements.
2. Accounting policies (continued)
Business combination
The Group applies the acquisition method to account for business
combinations regardless of whether equity instruments or other
assets are acquired. The consideration transferred for the
acquisition of a subsidiary is the fair value of the assets
transferred, the liabilities incurred to the former owners of the
acquiree and the equity interests issued by the Group. The
consideration transferred includes the fair value of any asset or
liability resulting from a contingent consideration arrangement and
the fair value of any pre--existing equity interest in the
subsidiary. The excess of the cost of acquisition over the fair
value of the Group's share of the identifiable net assets acquired
is recorded as goodwill. Goodwill arising on acquisitions is
capitalised and is subject to an impairment review, both annually
and when there are indications that the carrying value may not be
recoverable.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date.
Acquisition--related costs are expensed as incurred and included in
administrative expenses.
Basis of consolidation
These consolidated financial statements include the accounts of
Verona Pharma plc and its wholly owned subsidiaries Verona Pharma,
Inc. and Rhinopharma. The acquisition method of accounting was used
to account for the acquisition of Rhinopharma.
Inter--company transactions, balances and unrealised gains on
transactions between Group companies are eliminated.
Verona Pharma Inc. and Rhinopharma adopt the same accounting
policies as the Company.
2.2 Correction of errors in 2015 Group and Company comparative figures
Acquisition of Rhinopharma Limited
On September 19, 2006, the Group acquired Rhinopharma for a
total consideration of GBP1,520 thousand payable in ordinary
shares. Net assets of GBP51 thousand were recorded as part of the
acquisition, resulting in excess consideration of GBP1,469
thousand, which was classified in its entirety as goodwill in the
statement of financial position.
During 2016, the Group identified an error relating to the
accounting for this acquisition. After further due diligence it has
been identified that the excess consideration should have been
recorded as an in--process research and development intangible ("IP
R&D") and a corresponding deferred tax liability should have
been recorded in relation to this intangible. In addition, there
was a financial liability in relation to an assumed contingent
obligation that Rhinopharma held with Vernalis plc ("Vernalis")
that was not identified and fair valued at the date of the
acquisition. The intangible asset and the financial liability
should have been recognised at fair value on the acquisition date.
The impact of these to the Group and Company as of the time of the
acquisition was as follows:
-- Reclassification from goodwill to IP R&D of GBP1,469 thousand;
-- Recognition of a deferred tax liability of GBP441 thousand; and
-- Recognition of goodwill of GBP441 thousand.
The assumed contingent obligation was deemed to be insignificant
at the acquisition date and therefore not recognised.
2. Accounting policies (continued)
Subsequent to the business combination the following should have
been applied:
Goodwill and IP R&D are not amortised as explained in the
accounting policy in note 2.8 and should be annually tested for
impairment. The cash generating unit ("CGU") has been tested for
impairment annually and no impairment has been recorded.
The assumed contingent obligation is subsequently carried at
amortised cost using the effective interest method. Further, since
2006, a corresponding deferred tax asset has been recognised in
relation to Verona Pharma plc losses which offset the deferred tax
liability.
The financial statements have been restated retrospectively for
these errors. The entries to the 2015 opening Consolidated
Statement of Financial Position as of 1 January, 2015 are:
-- an IP R&D asset of GBP1,469 thousand;
-- an assumed contingent obligation of GBP522 thousand;
-- a decrease in goodwill of GBP1,028 thousand; and
-- a reduction in accumulated loss of GBP81 thousand.
The entries to the Consolidated Statement of Financial Position
on 31 December, 2015 as a result of the errors identified, are:
-- an IP R&D asset of GBP1,469 thousand;
-- an assumed contingent obligation of GBP594 thousand;
-- a decrease in goodwill of GBP1,028 thousand; and
-- a reduction in accumulated loss of GBP81 thousand.
As a consequence the net impact on the Consolidated Statement of
Comprehensive Income for 2015 is:
-- a GBP72 thousand finance expense in respect of the movement
in the value of the assumed contingent obligation. Further details
are set out in note 21 to these consolidated financial
statements.
The following tables set forth a summary of the restatements
performed:
1 January, 2015
Pre Post
restatement Correction restatement
Financial statement element GBP'000 amount GBP'000
------------------------------------------------------------------------ ------------- ----------- -------------
Intangibles - IP
R&D................................................................. - 1,469 1,469
Assumed contingent
obligation....................................................... - (522) (522)
Goodwill...............................................................
........................ 1,469 (1,028) 441
Accumulated
loss...................................................................
...... 15,733 81 15,814
31 December, 2015
Pre Post
restatement Correction restatement
Financial statement element GBP'000 amount GBP'000
--------------------------------------------------------------------- ------------- ----------- -------------
Intangibles - IP
R&D................................................................ - 1,469 1,469
Assumed contingent
obligation...................................................... - (594) (594)
Goodwill.............................................................
......................... 1,469 (1,028) 441
Accumulated
loss.................................................................
........ 23,096 81 23,177
Finance
expense..............................................................
............ - 72 72
2. Accounting policies (continued)
The business within Rhinopharma was hived up to the Company
immediately after the acquisition of Rhinopharma by the Group. The
hive-up was accounted for in the Company's separate financial
statements using the acquisition values for Rhinopharma. Therefore
the error relating to the initial business combination accounting
is also reflected in the separate financial statements of the
Company.
Reclassifications
During the period, five reclassifications have been made to the
31 December, 2015 primary statements as follows:
-- Taxation recoverable amounting to GBP1,535 thousand has been
reclassified from prepayments and other receivables to current tax
receivable (for both Group and Company).
-- Computer software with a net book value of GBP1 thousand has
been reclassified from property, plant and equipment to intangible
assets (for both Group and Company).
-- Exchange differences arising on translating foreign
operations have been reclassified from research and development to
other comprehensive gains due to an error in the prior period
amounting to GBP4 thousand (for the Group only).
-- Transfers of previously expensed share--based payment charges
upon lapse of options between the share--based payment reserve and
the total accumulated losses have been reclassified amounting to
GBP503 thousand (both for Group and Company).
-- US taxation payable amounting to GBP14 thousand has been
reclassified from trade and other payables to tax payable - US
operations (for the Group only).
The following table sets forth a reconciliation of Group
accumulated loss before restatements and reclassifications to the
accumulated loss following the restatements and
reclassifications.
1 January, 2015
Group Company
GBP'000 GBP'000
--------- ---------
Accumulated loss before
restatements/reclassification............................................ 15,733 15,750
Impact of business combination
restatement........................................................... 81 65
--------- ---------
Accumulated loss following restatement
above....................................................... 15,814 15,815
--------- ---------
Impact of reclassification from the share based payment reserve............................. 449 449
--------- ---------
Accumulated losses per the statement of changes in equity..................................... 16,263 16,264
========= =========
31 December, 2015
Group Company
GBP'000 GBP'000
--------- ---------
Accumulated loss before
restatements/reclassification............................................ 23,096 23,138
Impact of business combination
restatement........................................................... 81 65
--------- ---------
Accumulated loss following restatement
above....................................................... 23,177 23,203
--------- ---------
Assumed contingent obligation income statement charge......................................... 72 72
Impact of reclassification from the share based payment reserve............................. 503 503
--------- ---------
Accumulated losses per the statement of changes in equity..................................... 23,752 23,778
========= =========
2. Accounting policies (continued)
IAS 8 requires the disclosure of an opening balance sheet when
an error has occurred before the earliest period presented.
Management has judged that this disclosure gives sufficient
information for a user to understanding the impact on the opening
balance sheet. Management has also judged due to the nature of this
adjustment, which is mainly a balance sheet gross up that not
including the full opening balance sheet would not be misleading to
the user.
2.3 Foreign currency translation
Items included in the Group's consolidated financial statements
are measured using the currency of the primary economic environment
in which the Group operates ("the functional currency"). The
consolidated financial statements are presented in pounds sterling
("GBP"), which is the functional and presentational currency of the
Company and the presentational currency of the Group.
Transactions in foreign currencies are recorded using the rate
of exchange ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies are translated
using the rate of exchange ruling at the balance sheet date and the
gains or losses on translation are included in the Consolidated
Statement of Comprehensive Income. Non--monetary items that are
measured in terms of historical cost in a foreign currency are
translated using the exchange rates at the dates of the original
transactions. Non--monetary items measured at fair value in a
foreign currency are translated using the exchange rates at the
date when the fair value was determined.
The assets and liabilities of foreign operations are translated
into pounds sterling at the rate of exchange ruling at the balance
sheet date. Income and expenses are translated at weighted average
exchange rates for the period. The exchange differences arising on
translation for consolidation are recognised in Other Comprehensive
Income.
2.4 Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held
at call with banks, and other short--term highly liquid investments
with original maturities of three months or less.
2.5 Deferred taxation
Deferred tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated
financial statements. Deferred tax is determined using tax rates
(and laws) that have been enacted or substantially enacted by the
balance sheet date and expected to apply when the related deferred
tax is realised or the deferred liability is settled.
Deferred tax assets are recognised to the extent that it is
probable that the future taxable profit will be available against
which the temporary differences can be utilised.
2.6 Research and development costs
Capitalisation of expenditure on product development commences
from the point at which technical feasibility and commercial
viability of the product can be demonstrated and the Group is
satisfied that it is probable that future economic benefits will
result from the product once completed. No such costs have been
capitalised to date, given the early stage of the Group's product
candidate development.
Expenditure on research and development activities that do not
meet the above criteria is charged to the Consolidated Statement of
Comprehensive Income as incurred.
2. Accounting policies (continued)
2.7 Property, plant and equipment
Property, plant and equipment are stated at cost, net of
depreciation and any provision for impairment. Cost includes the
original purchase price of the asset and the costs attributable to
bringing the asset to its working condition for its intended use.
Depreciation is calculated so as to write off the cost less their
estimated residual values, on a straight--line basis over the
expected useful economic lives of the assets concerned. The
principal annual periods used for this purpose are:
Computer hardware...................................................................... 3 years
Office equipment.......................................................................... 5 years
2.8 Intangible assets and goodwill
(a) Goodwill
Goodwill arises on the acquisition of subsidiaries and
represents the excess of the consideration transferred over the
fair value of the identifiable net assets acquired.
(b) Patents
Patent costs associated with the preparation, filing, and
obtaining of patents are capitalised and amortised on a
straight--line basis over the estimated useful lives of the patents
of ten years.
(c) Computer software
Amortisation is calculated so as to write off the cost less
estimated residual values, on a straight--line basis over the
expected useful economic life of two years.
(d) In--process research & development
IP R&D assets acquired through business combinations which,
at the time of acquisition, have not reached technical feasibility
are recognised at fair value. The amounts are capitalised and are
not amortised but are subject to impairment testing until
completion, abandonment of the projects or when the research
findings are commercialised through a revenue generating project.
The Group determines whether intangible assets (including goodwill)
are impaired on an annual basis and this requires the estimation of
the higher of fair value less costs of disposal and value in use.
Upon successful completion or commercialisation of the relevant
project, IP R&D will be reclassified to developed technology.
The Group will make a determination as to the then useful life of
the developed technology, generally determined by the period in
which the substantial majority of the cash flows are expected to be
generated, and begin amortisation. In case of abandonment the asset
will be impaired.
2.9 Impairment of intangible assets, goodwill and non--financial assets
Goodwill and intangible assets that have an indefinite useful
life and intangible assets not ready to use are not subject to
amortisation. These assets are tested annually for impairment or
more frequently if impairment indicators exist. Non--financial
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 of disposal) and value
in use.
For the purpose of assessing impairment, assets are grouped at
the lowest levels for which there are separately identifiable cash
flows, which are largely independent of the cash flows from other
assets or group of assets (i.e. CGU).
2. Accounting policies (continued)
Goodwill is allocated to CGUs for the purpose of impairment
testing. The allocation is made to those CGUs or groups of CGUs
that are expected to benefit from the business combination in which
the goodwill arose. The units or group of units are identified at
the lowest level at which goodwill is monitored for internal
management purposes, being the operating segments.
The Group is a single cash generating unit. Goodwill that arose
on the acquisition of Rhinopharma has been thus allocated to this
single CGU. IP R&D is tested for impairment at this level as
well, since it is the lowest level at which independent cash flows
can be identified.
Non--financial assets, other than goodwill, that have been
previously impaired are reviewed for possible reversal of the
impairment at each subsequent reporting date.
2.10 Employee Benefits
(a) Pension
The Group operates a defined contribution pension scheme for UK
employees. Contributions payable for the year are charged to the
Consolidated Statement of Comprehensive Income. The contributions
are recognised as employee benefit expense when they are due.
Differences between contributions payable in the year and
contributions actually paid are shown as either accruals or
prepayments in the Consolidated Statement of Financial Position.
The Group has no further payment obligation once the contributions
have been paid.
(b) Bonus plans
The Company recognises a liability and an expense for bonus
plans if contractually obligated or if there is a past practice
that has created a constructive obligation.
2.11 Share--based payments
The Group operates a number of equity--settled, share--based
compensation schemes. The fair value of share--based payments under
such schemes is expensed on a straight--line basis over the vesting
period, based on the Group's estimate of shares that will
eventually vest.
Where equity-settled transactions are entered into with third
party service providers, fair value is determined by reference to
the value of the services provided in lieu of payment. The expense
is measured based on the services received at the date of receipt
of those services and is charged to the Consolidated Statement of
Comprehensive Income over the period for which the services are
received and a corresponding credit is made to reserves. For other
equity--settled transactions fair value is determined using the
Black--Scholes model and requires several assumptions and estimates
as disclosed in note 20.
For equity settled share-based payments where employees of
subsidiary undertakings are rewarded with shares issued by the
parent company, a capital contribution is recorded in the
subsidiary with a corresponding increase in the investment by the
parent company.
2.12 Provisions
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the
obligation, and the amount can be reliably estimated. Provisions
are measured at the present value of the expenditures expected to
be required to settle the obligation using a pre--tax rate that
reflects current market assessments of the time value of money and
the risks specific to the obligation.
2. Accounting policies (continued)
2.13 Assumed contingent obligation related to the business combinations
On September 19, 2006, the Company acquired Rhinopharma for a
total consideration of GBP1,520 thousand payable in ordinary
shares. In addition, the Group assumed certain contingent
obligations owed by Rhinopharma to Vernalis under an assignment and
license agreement (the "assumed contingent consideration")
following the sale of IP by Vernalis to Rhinopharma. Pursuant to
the agreement, Vernalis (i) assigned to the Company all of its
rights to certain patents and patent applications relating to
RPL554 and related compounds (the "Vernalis Patents") and (ii)
granted to the Company an exclusive, worldwide, royalty--bearing
license under certain Vernalis know--how to develop, manufacture
and commercialise products (the "Licensed Products") developed
using Vernalis Patents, Vernalis know--how and the physical stock
of certain compounds.
The assumed contingent obligation comprises (a) a milestone
payment on obtaining the first approval of any regulatory authority
for the commercialisation of a Licensed Product; (b) low--to--mid
single digit royalties based on the future sales performance of all
Licensed Products; and (c) a portion equal to a mid--twenty percent
of any consideration received from any sub--licensees for the
Vernalis Patents and for Vernalis know--how.
On the date of acquisition the fair value of the assumed
contingent obligation was estimated as the expected value of the
milestone payment, royalty payments and sub--license payments,
based on management's estimate of the likely probability of
success. The risk--weighted value of the assumed contingent
arrangement was then discounted back to its net present value
applying an effective interest rate of 12%. The initial fair value
of the assumed contingent obligation as of 31 December, 2006 was
deemed to be insignificant at the date of the acquisition, so it
was not recorded.
The amount of royalties payable under the agreement is based on
the future sales performance of certain products, and so the total
amount payable is unlimited. The level of sales that may be
achieved under the agreement is inherently uncertain and difficult
to predict and the range of outcomes cannot be reliably
estimated.
The value of this assumed contingent obligation is measured at
amortised cost using the effective interest rate method, and is
re-measured for changes in estimated cash flows, which may include
charges based upon management's assessment as to the timing or the
probability of achieving the various outcomes which trigger
payment, or due to the time value of money, or due to changes in
exchange rates, which affect the expected value of future net sales
made in foreign currencies. The assumed contingent obligation is
accounted for as a liability, and any adjustments made to the value
of the liability will be recognised in the Consolidated Statement
of Comprehensive Income for the period.
2.14 Government and other grants
The Group may receive government, regional or charitable grants
to support its research efforts in defined projects where these
grants provide for reimbursement of approved costs incurred as
defined in the respective grants. Income in respect of such grants
would include contributions towards the costs of research and
development. Income would be recognised when costs under each grant
are incurred in accordance with the terms and conditions of the
grant and the collectability of the receivable is reasonably
assured. Government, regional and charitable grants relating to
costs would be deferred and recognised in the Consolidated
Statement of Comprehensive Income over the period necessary to
match them with the costs they are intended to compensate. When the
cash in relation to recognised government, regional or charitable
grants is not yet received the amount is included as a receivable
on the Consolidated Statement of Financial Position.
2. Accounting policies (continued)
Where the grant income is directly related to the specific items
of expenditure incurred, the income would be netted against such
expenditure. Where the grant income is not a specific reimbursement
of expenditure incurred, the Group would include such income under
"Other income" in the Consolidated Statement of Comprehensive
Income. Grants or investment credits may be repayable if the Group
successfully commercialises a relevant program that was funded in
whole or in part by the grant or investment credit within a
particular timeframe. Prior to successful commercialisation, the
Group would not make any provision for repayment.
2.15 Financial instruments-initial recognition and subsequent measurement
Initial recognition
The Company classifies a financial instrument, or its component
parts as a financial liability, a financial asset or an equity
instrument in accordance with the substance of the contractual
arrangement and the definitions of a financial liability, a
financial asset and an equity instrument.
The Company evaluates the terms of the financial instrument to
determine whether it contains an asset, a liability or an equity
component. Such components shall be classified separately as
financial assets, financial liabilities or equity instruments.
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
(a) Financial assets, initial recognition and measurement
All financial assets, such as receivables and deposits, are
recognised initially at fair value plus transaction costs, for all
financial assets not recorded at fair value through profit or loss.
Financial assets carried at fair value through profit or loss are
initially recognised at fair value, and transaction costs are
expensed in the income statement.
(b) Financial liabilities, initial recognition and measurement
Financial liabilities are classified, at initial recognition, as
financial liabilities at fair value through profit or loss, loans
and borrowings, or payables, as appropriate. All financial
liabilities are recognised initially at fair value and, in the case
of loans and borrowings and payables, net of directly attributable
transaction costs.
The Group's financial liabilities include trade and other
payables and derivative financial instruments.
(c) Subsequent measurement
The measurement of financial assets and financial liabilities
depends on their classification.
Financial liabilities at fair value through profit or loss
include financial liabilities held for trading and financial
liabilities designated upon initial recognition as at fair value
through profit or loss. These are subsequently measured at fair
value with any gains or losses recognised in profit or loss. All
other financial liabilities are measured at amortised cost using
the effective interest method.
Financial assets such as receivables and deposits are
subsequently measured at amortised cost. The Group does not hold
any financial assets at fair value through profit or loss or
available for sale financial assets.
(d) Derivative financial instruments
Derivatives are initially recognised at fair value on the date a
derivative contract is entered into and are subsequently
re-measured at fair value at the end of each reporting date. The
Company holds only one type of derivative financial instrument, the
warrants, as explained in Note 2.16.
The full fair value of the derivative is classified as a
non-current asset or liability when the item is more than 12 months
and as a current asset or liability when the remaining maturity of
the item is less than 12 months.
2. Accounting policies (continued)
Changes in fair value of a derivative financial liability when
related to a financing arrangement are recognised in the
Consolidated Statement of Comprehensive Income within Finance
income or Finance expense. Fair value gains or losses on
derivatives used for non-financing arrangements are recognised in
other operating income or expense.
2.16 Warrants
Warrants issued by the Company to investors as part of a share
subscription are compound financial instruments where the warrant
meets the definition of a financial liability. A compound financial
instrument is separated into its equity and financial liability
component.
The financial liability component is initially measured at fair
value in the Consolidated Statement of Financial Position. Equity
is measured at the residual between the subscription price for the
entire instrument and the liability component. Subsequently the
financial liability component is subsequently remeasured depending
on its classification. Equity is not subsequently remeasured.
2.17 Transaction costs
Qualifying transaction costs are often incurred in anticipation
of an issuance of equity instruments and may cross reporting
periods. The entity defers these costs on the balance sheet until
the equity instrument is recognised. Deferred costs are
subsequently reclassified as a deduction from equity when the
equity instruments are recognised, to the extent that the costs are
directly attributable to the equity transaction. If the equity
instruments are not subsequently issued, the transaction costs are
expensed. Any costs not directly attributable to the equity
transaction are expensed.
Transaction costs that relate to the issue of a compound
financial instrument are allocated to the liability and equity
components of the instrument in proportion to the allocation of
proceeds. Where the liability component is held at fair value
through profit or loss, the transaction costs are expensed to the
Consolidated Statement of Comprehensive Income. For liabilities
held at amortised cost, transaction costs are deducted from the
liability and subsequently amortised. The amount of transaction
costs accounted for as a deduction from equity in the period is
disclosed separately in accordance with IAS 1.
2.18 Investments in subsidiaries
Investments in subsidiaries are shown at cost less any provision
for impairment.
2.19 New standards, amendments and interpretations adopted by the Group
The following amendment has been adopted by the Group for the
first time for the financial year beginning on or after 1 January,
2016. It did not materially impact the Group's results:
-- Annual Improvements 2014 (2012-2014 cycle)
2. Accounting policies (continued)
2.20 New standards, amendments and interpretations issued but
not effective for the financial year beginning 1 January, 2016 and
not early adopted
A number of new standards and amendments to standards and
interpretations have been issued but are not yet effective for
annual periods beginning after 1 January, 2017 (noted below), and
have not been adopted in preparing these consolidated financial
statements.
-- IFRS 9) "Financial instruments" (effective for annual periods
beginning on or after 1 January, 2018)
-- IFRS 15 "Revenue from contracts with customers" (effective
for annual periods beginning on or after 1 January, 2018
-- IFRS 16 "Leases" (effective for annual periods beginning on or after 1 January, 2019)
IFRS 9 is not expected to have a material impact on the
accounting for the assumed contingent obligation or the derivative
financial instrument. IFRS 15 and 16 will have an immaterial impact
on the financial statements of the Group as the Group is not
currently revenue generating and does not have any leases of over
one year.
3. Financial Instruments
3.1 Financial Risk Factors
The Group's activities have exposed it to a variety of financial
risks: market risk (including currency risk and interest rate
risk), credit risk, and liquidity risk. The Group's overall risk
management program is focused on preservation of capital and the
unpredictability of financial markets and has sought to minimise
potential adverse effects on the Group's financial performance and
position.
(a) Currency risk
Foreign currency risk reflects the risk that the Group's net
assets will be negatively impacted due to fluctuations in exchange
rates. The Group has not entered into foreign exchange contracts to
hedge against gains or losses from foreign exchange fluctuations.
As of 31 December, 2016, cash and cash equivalents included EUR282
thousand, US $13,110 thousand, and SEK 20 thousand, and accounts
payable and accrued liabilities included balances of EUR211
thousand and US $375 thousand.
Foreign currency denominated trade payables are short term in
nature (generally 30 to 45 days). The Group has a US-operation,
whose net assets are exposed to foreign currency translation
risk.
(b) Credit risk
Credit risk reflects the risk that the Group may be unable to
recover contractual receivables. The Group is still in the
development stage; therefore, no policies are required at this time
to mitigate this risk.
For banks and financial institutions, only independently rated
parties with a minimum rating of "B+" are accepted. The Directors
recognise that this is an area in which they may need to develop
specific policies should the Group become exposed to further
financial risks as the business develops.
3. Financial Instruments (continued)
As of 31 December, 2016 and 31 December, 2015, the majority of
cash and cash equivalents were placed at the following banks:
Year ended Credit rating Year ended Credit rating
31 December, 2015 31 December, 2016
------------------- -------------- ------------------- --------------
GBP thousands GBP thousands
Banks
Royal Bank of
Scotland..................................
..........................................
................ 63 A3 11,287 A3
Lloyds
Bank......................................
..........................................
............................ 3,460 A1 28,447 A1
Wells Fargo (1)
..........................................
..........................................
..................... 1 Aa1 51 Aa2
------------------- -------------------
Total.....................................
..........................................
........................................ 3,524 39,785
=================== ===================
(1) The Wells Fargo account holds the operating account for the
Verona Pharma Inc. US operations.
(c) Management of capital
The Group considers capital to be its equity reserves. At the
current stage of the Group's life cycle, the Group's objective in
managing its capital is to ensure funds raised meet the research
and operating requirements until the next development stage of the
Group's suite of projects.
The Group ensures it is meeting its objectives by reviewing its
Key Performance Indicators ("KPIs") to ensure the research
activities are progressing in line with expectations, costs are
controlled and unused funds are placed on deposit to conserve
resources and increase returns on surplus cash held.
(d) Interest rate risk
As of 31 December, 2016, the Group had cash deposits of
GBP39,785 thousand (2015: GBP3,524 thousand). The rates of interest
received during 2016 ranged between 0.0% and 0.5%. The Group's
exposure to interest rate risk, which is the risk that the interest
received will fluctuate as a result of changes in market interest
rates on classes of financial assets and financial liabilities, was
as follows:
31 December, 2016
--------------------------------
Floating Fixed
interest rate Interest rate
--------------- ---------------
GBP GBP
Financial asset
Cash
deposits..........................................................................
.................. 11,338,225 28,446,873
=============== ===============
3. Financial Instruments (continued)
(e) Liquidity risk
The Group prepares periodic working capital forecasts for the
foreseeable future, allowing an assessment of the cash requirements
of the Group, to manage liquidity risk. The following table
provides an analysis of the remaining contractually agreed cash
flows for the Group's non--derivative financial liabilities on an
undiscounted basis, which therefore differs from both the carrying
value and fair value. Balances due within 12 months equal their
carrying value balances as the impact of discounting is not
significant.
BETWEEN
LESS THAN 1 AND 2 BETWEEN OVER
1 YEAR YEARS 2 AND 5 YEARS 5 YEARS(1)
---------- --------- --------------- ------------
At 31 December, 2015 GBP GBP GBP GBP
Trade
payables.......................................................
.......... 1,108,991 - - -
Corporation tax payable - US
operation............................. 14,057 - - -
Trade payables due to related
parties................................. 172,955 - - -
Other
payables.......................................................
.......... 40,907 - - -
---------- --------- --------------- ------------
Total..........................................................
..................... 1,336,910 - - -
========== ========= =============== ============
(1) This table excludes a milestone payment, which may fall due
under the assumed contingent obligation, of GBP5 million and sales
based royalties.
BETWEEN
LESS THAN 1 AND 2 BETWEEN OVER
1 YEAR YEARS 2 AND 5 YEARS 5 YEARS(1)
---------- --------- --------------- ------------
At 31 December, 2016 GBP GBP GBP GBP
Trade
payables.......................................................
......... 592,931 - - -
Corporation tax payable - US
operation............................ 126,063 - - -
Trade payables due to related
parties................................ - - - -
Other
payables.......................................................
......... 180,567 - - -
---------- --------- --------------- ------------
Total..........................................................
.................... 899,561 - - -
========== ========= =============== ============
(1) This table excludes a milestone payment which may fall due
under the assumed contingent obligation, of GBP5 million and sales
based royalties.
3.2 Fair value estimation
The carrying amounts of cash and cash equivalents, receivables,
accounts payable, accrued liabilities and the assumed contingent
obligation, approximate to fair value due to their short--term
nature.
For financial instruments that are measured in the Consolidated
Statement of Financial Position at fair value, IFRS 7 requires
disclosure of fair value measurements by level of the following
fair value measurement hierarchy:
-- Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
-- Inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly or
indirectly (level 2); and
-- Inputs for the asset or liability that are not based on observable market data (level 3).
For the year ended 31 December, 2016 and 2015 fair value
adjustments to financial instruments through profit and loss
resulted in the recognition of finance income of GBP1,068 thousand
and GBPnil respectively.
3. Financial Instruments (continued)
The fair value of financial instruments that are not traded in
an active market is determined by using valuation techniques. These
valuation techniques maximise the use of observable market data
where it is available and rely as little as possible on entity
specific estimates. If all significant inputs required to ascertain
the fair value of an instrument are observable, the instrument is
included in level 2. If one or more of the significant inputs are
not based on observable market data, the instrument is included in
level 3. The carrying amount of a financial asset or financial
liability is a reasonable approximation of the fair value and
therefore information about the fair values of each class has not
been disclosed.
Level 1 Level 2 Level 3 Total
--------- --------- ----------- -----------
At 31 December, 2016 GBP GBP GBP GBP
Derivative financial instrument .........................................
=========== ===========
- - 7,922,603 7,922,603
Total...............................................................
................ - - 7,922,603 7,922,603
========= ========= =========== ===========
Movements in Level 3 items during the year ended 31 December,
2016 are as follows:
Derivative financial instrument Total
-------------------------------- --------------
At 1 January, 2016 GBP GBP
Initial recognition of derivative financial
instrument............... 8,990,794 8,990,794
Fair value adjustments recognised in profit or
loss................
(1,068,191) (1,068,191)
At 31 December,
2016................................................... 7,922,603 7,922,603
================================ ============
Further details relating to the derivative financial instrument
are set out in notes 4 and 22 of these financial statements.
In determining the fair value of the derivative financial
instrument the Company applied the Black Scholes model; key inputs
include the share price at reporting date, estimations on
timelines, volatility and risk-free rates. These assumptions and
the impact of changes in these assumptions, where material, are
disclosed in note 22.
4. Critical accounting estimates
The preparation of financial statements in conformity with IFRS
requires the use of accounting estimates and assumptions that
affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of income and
expenses during the reporting period. Although these estimates are
based on management's best knowledge of current events and actions,
actual results ultimately may differ from those estimates. IFRS
also requires management to exercise its judgement in the process
of applying the Group's accounting policies.
The areas involving a higher degree of judgement or complexity,
or areas where assumptions and estimates are significant to the
consolidated financial statements are as follows:
(a) Impairment of intangible assets
The Group is required to test goodwill and the IP R&D
annually for impairment in accordance with the accounting policy in
note 2.9. Goodwill and the IP R&D are tested for impairment at
the Group level, which is viewed as a single CGU in accordance with
the accounting policy in note 2.9.
The Group determines the recoverable amount of the single CGU
and compares it to its carrying amount. Impairment is recognised
when the carrying amount exceeds the recoverable amount of the
CGU.
Determining the recoverable amount of the CGU, containing
goodwill and IP R&D for impairment purposes requires
estimation.
4. Critical accounting estimates (continued)
Since the Group is a single CGU, the entity measures its
recoverable amount with reference to the market capitalisation of
the Group, as an indication of the fair value less costs of
disposal. Details of the Group's impairment assessment for the CGU
containing goodwill and IP R&D are disclosed in notes 16 and
17.
(b) Share--based payments
The Group records charges for share--based payments. For option
based share--based payments management estimates certain factors
used in the option pricing model, including volatility, vesting
date of options and number of options likely to vest. If these
estimates vary from actual occurrence, this will impact the value
of the equity carried in reserves. Further details of the Group's
estimation of share--based payments are disclosed in note 20.
(c) Assumed contingent obligation
The Group has a material obligation for the future payment of
royalties and milestones associated with contractual obligations on
RPL554, a development product acquired as part of the acquisition
of Rhinopharma. The estimation of the fair value of the assumed
contingent obligation requires the selection of an appropriate
valuation model at the date of acquisition, consideration as to the
inputs necessary for the valuation model chosen, the estimation of
the likelihood that the regulatory milestone will be achieved and
fair value of the future cash flows (for further detail see note
21). The estimates for the assumed contingent obligation are based
on a discounted cash flow model. Key assessments and judgements
included in the calculation of deferred consideration are:
-- development, regulatory and marketing risks associated with
progressing the product to market approval in key target
territories;
-- market size and product acceptance by clinicians, patients and reimbursement bodies;
-- gross and net selling price;
-- costs of manufacturing, product distribution and marketing support;
-- launch of competitive products; and
-- discount rate and time to crystallisation of contingent consideration.
In accordance with IAS 39 ("Financial Instruments Recognition
and Measurement" (para AG8)), when there is a change in the
projected cash flows, the assumed contingent obligation will be
remeasured with the change in value going through the Consolidated
Statement of Comprehensive Income. The assumed contingent
obligation is measured at amortised cost with the discount
unwinding in the Consolidated Statement of Comprehensive Income
throughout the year. Actual outcomes could differ significantly
from the estimates made.
The value of the assumed contingent obligation as of 31
December, 2016 amounts to GBP802 thousand. (2015: GBP594 thousand.
The increase in value of the assumed contingent obligation during
2016 amounted to GBP208 thousand (2015: GBP72 thousand) and was
recorded as finance expense. Periodic remeasurement is triggered by
changes in updated timelines of achieving commercialisation and
updated probabilities of success resulting from clinical
programmes. The discount percentage applied is 12 %.
(d) Valuation of the July 2016 warrants
The fair value is determined by applying the Black-Scholes
valuation model and requires several assumptions and estimates as
disclosed in note 4(d) and 22.
Pursuant to the July Placement, the Company issued 1,555,796,345
units to new and existing investors at the placing price of 2.8730p
per unit. Each unit comprises one placing share and one warrant.
The warrants entitle the investors to subscribe for in aggregate a
maximum of 622,318,538 shares.
4. Critical accounting estimates (continued)
In accordance with IAS 32 and Company accounting policy as
disclosed in note 2.17, the Company classified the warrants as a
derivative financial liability to be presented on the Company's
Consolidated Statement of Financial Position.
The fair value of these warrants is determined by applying the
Black-Scholes model. Assumptions are made on inputs such as time to
maturity, the share price, volatility and risk free rate, in order
to determine the fair value per warrant. For further details please
see note 22.
Transaction costs arising on the issues of these shares and
warrants are allocated to the equity and warrant liability
components in proportion to the allocation of proceeds.
5. Earnings per share
Basic loss per share of 0.30p (2015: 0.74p) for the Group is
calculated by dividing the loss for the year ended 31 December,
2016 by the weighted average number of ordinary shares in issue of
1,674,970,686 as of 31 December, 2016 (2015: 1,009,923,481).
Potential ordinary shares are not treated as dilutive as the entity
is loss making and such shares would be anti--dilutive.
After giving effect to the 50-for-1 consolidation of shares (as
described in Note 1) the above numbers would read as follows: Basic
loss per share of 14.98p (2015: 37.10p) for the Group is calculated
by dividing the loss for the year ended 31 December, 2016 by the
weighted average number of ordinary shares in issue of 33,499,413
as of 31 December, 2016 (2015: 20,198,469).
6. Segmental reporting
During 2016, there has been a change to management's assessment
of the operating and reporting segments of the Group and how the
Chief Operating Decision Maker reviews management information.
Management has concluded that the Group's activities now consist of
one operating and reportable segment: Drug development. Previously
management had two reporting segments: Clinical research for RPL554
and Basic research, which contained VRP700 and NAIP. During the
year ended 31 December, 2015, the Group abandoned the development
of the product candidates VRP700 and NAIP. As a consequence,
management information is only prepared and reviewed for RPL554,
resulting in a single operating and reportable segment.
All non--current assets are based in the United Kingdom.
7. Operating loss
Year ended Year ended
Group 31 December, 2015 31 December, 2016
------------------- -------------------
GBP GBP
Operating Loss is stated after charging:
Research and development costs:
Employee benefits (note
8)........................................................................
. 1,322,109 2,036,505
Amortisation of patents (note
16)................................................................. 43,262 50,972
Loss on disposal of patents (note
16)........................................................... 134,532 8
Other research and development
expenses................................................... 5,768,944 2,434,335
------------------- -------------------
Total research and development
costs.......................................................... 7,268,847 4,521,820
------------------- -------------------
General and administrative costs:
Employee benefits (note
8)........................................................................
.. 624,821 865,250
Legal and professional
fees......................................................................
... 608,447 884,040
Amortisation of computer software (note
16)............................................... 166 599
Loss on disposal of property, plant and equipment (note
15)........................... - 2,625
Depreciation of property, plant and equipment (note
15)................................ 9,689 10,051
Operating lease charge - land and
buildings................................................ 156,632 168,763
Loss on variations in foreign exchange
rate.................................................. 20,732 139,091
Other general and administrative
expenses................................................... 285,457 427,930
------------------- -------------------
Total general and administrative
costs.......................................................... 1,705,944 2,498,349
------------------- -------------------
Operating
loss......................................................................
...................... 8,974,791 7,020,169
=================== ===================
During the periods indicated, the Group obtained the services
from and paid the fees of the Group's auditors and their associates
as detailed below:
Year ended Year ended
31 December, 2015 31 December, 2016
------------------- -------------------
GBP GBP
Audit of Verona Pharma plc and consolidated financial
statements............................ 25,000 80,000
Audit related
services................................................................
............................. - 525,000
IT services -
review...................................................................
............................... 9,972
------------------- -------------------
Total...................................................................
.................................................. 34,972 605,000
=================== ===================
For the year ended 31 December, 2016, audit related services
include assurance reporting on historical financial information
included in the Company's U.S. initial public offering registration
statement that was confidentially filed with the U.S. Securities
and Exchange Commission on November 23, 2016. As per 31 December,
2016 an amount of GBP466 thousand in relation to these services was
booked in deferred IPO costs as they will be offset against share
premium on completion of the plans to conduct a registered initial
public offering in the United States (the "Global Offering") (see
note 12).
8. Directors' emoluments and staff costs
Year ended Year ended
Group 31 December, 2015 31 December, 2016
------------------- -------------------
The monthly average number of employees of the Group during the
year:....................
Research and
Development.............................................................
......................... 5 5
General and
Administrative..........................................................
............................. 3 2
------------------- -------------------
Total...................................................................
.................................................... 8 7
------------------- -------------------
Year ended Year ended
31 December, 2015 31 December, 2016
------------------- -------------------
GBP GBP
Aggregate emoluments of directors:
Salaries and other short--term employee
benefits......................................................... 854,012 1,068,529
Incremental payment for additional
services............................................................... 89,051 44,000
Pension
costs...................................................................
........................................ 37,989 18,882
------------------- -------------------
Total directors'
emoluments..............................................................
........................ 981,052 1,131,411
Share--based payment
charge..................................................................
.................. 231,790 256,615
------------------- -------------------
Directors' emoluments including share--based payment
charge.................................... 1,212,842 1,388,026
=================== ===================
Year ended Year ended
31 December, 2015 31 December, 2016
------------------- -------------------
GBP GBP
Aggregate other staff costs:
Wages and
salaries................................................................
.................................. 539,802 1,027,339
Social security
costs...................................................................
.............................. 41,966 97,827
Incremental payment for additional
services............................................................... - 57,917
Share--based payment
charge..................................................................
.................. 137,393 319,278
Pension
costs...................................................................
........................................ 14,927 11,368
------------------- -------------------
Total other staff
costs...................................................................
........................... 734,088 1,513,729
=================== ===================
The Group operates a defined contribution pension scheme for
U.K. employees and executive directors. The total pension cost
during the year ended 31 December, 2016 was GBP30 thousand (2015:
GBP53 thousand). There were no prepaid or accrued contributions to
the scheme at 31 December, 2016.
9. Finance income and expense
Year ended Year ended
Group 31 December, 2015 31 December, 2016
------------------- -------------------
GBP GBP
Finance income:
Interest received on cash
balances............................................................ 44,791 86,542
Foreign exchange gain on translating foreign currency denominated bank
balances..................................................................
................................ - 686,549
Fair value adjustment on derivative financial instruments (note
22).............. - 1,068,191
=================== ===================
Total finance
income....................................................................
............ 44,791 1,841,282
=================== ===================
Year ended Year ended
31 December, 2015 31 December, 2016
------------------- ---------------------
GBP GBP
Finance expense:
Transaction costs allocated to the issue of warrants (note
22).................... - 585,425
Remeasurement of assumed contingent arrangement (note
21).................. 9,239 123,554
Unwinding of discount factor related to the assumed contingent
arrangement (note 21) 63,052 84,711
------------------- -------------------
Total finance
expense.........................................................
..................... 72,291 793,690
=================== ===================
10. Investment in subsidiaries
The Company currently has two wholly owned subsidiaries,
Rhinopharma Limited and Verona Pharma Inc.
2015 2016
GBP GBP
Net book amount:
At the start of the year 2 79,593
Capital contribution arising
from share-based payments 79,591 162,964
--------- ----------
Net book amount at the end
of year 79,593 242,557
========= ==========
A capital contribution arises where share-based payments are
provided to employees of subsidiary undertakings settled with
equity to be issued by the Company.
The Company's investments comprise interests in Group
undertakings, details of which are shown below:
Name of undertaking Verona Pharma Rhinopharma
Inc. Limited
-------------- -----------------
Country of incorporation Delaware British Columbia
USA Canada
-------------- -----------------
Description of shares held $0.001 Without Par
Value
Common stock Common shares
-------------- -----------------
Proportion of shares held
by the Company 100% 100%
10. Investment in subsidiaries (continued)
Verona Pharma Inc. was incorporated on the 12 December 2014
under the laws of the State of Delaware, USA and has its registered
office at 2711 Centerville Road, Suite 400, City of Wilmington
19808, County of New Castle, Delaware, United States of
America.
Rhinopharma Limited is incorporated under the laws of the
Province of British Columbia, Canada and has its registered office
at Suite 700, 625 Howe Street, Vancouver, British Columbia, Canada
V6C 2T6. Rhinopharma Limited was a drug discovery and development
company focused on developing proprietary drugs to treat allergic
rhinitis and other respiratory diseases prior to its acquisition by
the Company on 18 September 2006.
11. Taxation
Year ended Year ended
Group 31 December, 2015 31 December, 2016
------------------- -------------------
GBP GBP
Analysis of tax credit for the year
Current tax:
UK and US tax
..........................................................................
............ (1,520,732) (937,772)
Adjustment in respect of prior
periods....................................................... 11,284 (16,412)
------------------- -------------------
Total tax
credit....................................................................
................. (1,509,448) (954,184)
=================== ===================
Factors affecting the tax charge for the year
Loss on ordinary
activities................................................................
........ (9,002,291) (5,972,577)
=================== ===================
Multiplied by standard rate of corporation tax of 20% (2015:
20.25%)......... (1,822,964) (1,194,515)
Effects of:
Non--deductible
expenses..................................................................
....... 113,529 78,489
Research and development
incentive........................................................ (599,368) (427,304)
Timing differences not
recognised............................................................ (1,880) (4,131)
Difference in overseas tax
rates............................................................... - 55,581
Tax losses carried forward not
recognised................................................ 789,951 554,108
------------------- -------------------
(1,520,732) (937,772)
------------------- -------------------
Adjustment in respect of prior
periods....................................................... 11,284 (16,412)
------------------- -------------------
Total tax
credit....................................................................
................. (1,509,448) (954,184)
=================== ===================
UK corporation tax is charged at 20% (2015: 20.25%) and US
federal tax at 35% (2015: 35%).
11. Taxation (continued)
Deferred tax
The following tables represent deferred tax balances recognised
in the Consolidated Statement of Financial Position and the Company
Statement of Financial Position, and the movements in both the
deferred tax asset and the deferred tax liability.
Year ended Year ended
31 December, 2015 31 December, 2016
------------------- -------------------
GBP GBP
Deferred tax
assets....................................................................
.................. 265,000 249,749
Deferred tax (249,749)
liabilities...............................................................
.................... -
=================== ===================
Net (265,000)
balances..................................................................
.............................. -
=================== ===================
Year ended Year ended
31 December, 2015 31 December, 2016
------------------- -------------------
GBP GBP
Movements on the deferred tax asset
1
January...................................................................
....................................... 294,000 265,000
Impact of rate (15,251)
changes...................................................................
................... 249,749
=================== ===================
31 (29,000)
December..................................................................
.................................. 265,000
=================== ===================
Year ended Year ended
31 December, 2015 31 December, 2016
------------------- -------------------
GBP GBP
Movements on the deferred tax liability
1
January...................................................................
....................................... (294,000) (265,000)
Impact of rate 15,251
changes...................................................................
................... (249,749)
=================== ===================
31 29,000
December..................................................................
.................................. (265,000)
=================== ===================
Factors that may affect future tax charges
The Group and Company have UK tax losses available for offset
against future profits in the UK. However an additional deferred
tax asset has not been recognised in respect of such items due to
uncertainty of future profit streams. As of 31 December, 2016, the
unrecognised deferred tax asset at 17% is estimated to be GBP3,149
thousand (2015: GBP2,819 thousand at 18%).
12. Prepayments and other receivables
As of As of
Group 31 December, 2015 31 December, 2016
------------------- -------------------
GBP GBP
Prepayments and accrued income
.......................................................... 196,313 1,360,812
Deferred IPO
costs.....................................................................
........... - 1,526,829
Other
receivables...............................................................
.................... 316,987 70,946
------------------- -------------------
Total prepayments and other
receivables.................................................. 513,300 2,958,587
=================== ===================
Deferred IPO costs relate to the Global Offering. These costs
will be offset against share premium in the period in which the
Global Offering is completed.
The prepayments balance includes prepayments for insurance and
clinical activities.
As of As of
Company 31 December, 2015 31 December, 2016
------------------- -------------------
GBP GBP
Prepayments and accrued income
.......................................................... 196,313 1,354,959
Deferred IPO
costs.....................................................................
........... - 1,526,829
Other
receivables...............................................................
.................... 316,987 70,918
Amounts due from group
undertakings..................................................... 529 652
------------------- -------------------
Total prepayments and other
receivables.................................................. 513,829 2,953,358
=================== ===================
There are no impaired assets within prepayments and other
receivables. Amounts due from group undertakings are unsecured,
interest free and have no fixed date of repayment.
13. Cash and cash equivalents
As of As of
Group 31 December, 2015 31 December, 2016
------------------- -------------------
GBP GBP
Cash at bank and in
hand......................................................................
.. 3,524,387 39,785,098
=================== ===================
As of As of
Company 31 December, 2015 31 December, 2016
------------------- -------------------
GBP GBP
Cash at bank and in
hand......................................................................
.. 3,523,140 39,733,658
=================== ===================
The increase in cash during 2016 resulted from the July
Placement.
14. Trade and other payables
As of As of
Group 31 December, 2015 31 December, 2016
------------------- -------------------
GBP GBP
Trade
payables..................................................................
............................... 1,108,991 718,994
Trade payables due to related -
parties................................................................. 172,955
Other
payables..................................................................
............................... 40,907 54,504
Accruals..................................................................
........................................ 475,829 2,049,991
------------------- -------------------
Total trade and other
payables..................................................................
......... 1,798,682 2,823,489
=================== ===================
As of 31 December, 2016 accruals include GBP890 thousand related
to expenses associated with the Global Offering.
As of As of
Company 31 December, 2015 31 December, 2016
------------------- -------------------
GBP GBP
Trade payables
..........................................................................
...................... 1,108,991 718,994
Trade payables due to related -
parties................................................................. 172,955
Other payables
..........................................................................
...................... 32,328 53,718
Amounts due to group
undertakings..............................................................
..... 135,900 462,131
Accruals..................................................................
........................................ 467,732 1,915,542
------------------- -------------------
Total trade and other
payables..................................................................
......... 1,917,906 3,150,385
=================== ===================
Amounts due to Group undertakings are not interest bearing and
have no fixed repayment date.
15. Property, plant and equipment
Computer Office
Group and Company hardware equipment Total
---------- ---------- ---------
GBP GBP GBP
Cost
At 1 January,
2015............................................................................. 41,302 36,461 77,763
Additions........................................................................
................... 1,193 - 1,193
---------- ---------- ---------
At 31 December,
2015........................................................................ 42,495 36,461 78,956
---------- ---------- ---------
Accumulated depreciation
At 1 January,
2015............................................................................. 35,890 20,214 56,104
Charge for the
year............................................................................ 2,664 7,025 9,689
---------- ---------- ---------
At 31 December,
2015........................................................................ 38,554 27,239 65,793
---------- ---------- ---------
Net book value
At 31 December,
2015........................................................................ 3,941 9,222 13,163
========== ========== =========
Computer Office
hardware equipment Total
---------- ---------- ---------
GBP GBP GBP
Cost
At 1 January,
2016............................................................................. 42,495 36,461 78,956
Additions........................................................................
................... 13,351 - 13,351
Disposals........................................................................
................... (38,845) (36,461) (75,306)
---------- ---------- ---------
At 31 December,
2016........................................................................ 17,001 - 17,001
---------- ---------- ---------
Accumulated depreciation
At 1 January,
2016............................................................................. 38,554 27,239 65,793
Charge for the
year............................................................................ 3,027 7,024 10,051
Disposals........................................................................
................... (38,418) (34,263) (72,681)
---------- ---------- ---------
At 31 December,
2016........................................................................ 3,163 - 3,163
---------- ---------- ---------
Net book value
At 31 December,
2016........................................................................ 13,838 - 13,838
========== ========== =========
16. Intangible assets
Computer
Group and Company IP R&D software Patents Total
---------- ---------- ---------- ----------
GBP GBP GBP GBP
Cost
At 1 January,
2015....................................................... 1,469,112 23,934 515,569 2,008,615
Additions...........................................................
.......... - 637 141,239 141,876
Disposal............................................................
........... - - (174,944) (174,944)
---------- ---------- ---------- ----------
At 31 December,
2015.................................................. 1,469,112 24,571 481,864 1,975,547
---------- ---------- ---------- ----------
Accumulated amortisation
At 1 January,
2015....................................................... - 23,746 135,029 158,775
Charge for
year............................................................ - 166 43,262 43,428
Disposal............................................................
........... - - (40,412) (40,412)
---------- ---------- ---------- ----------
At 31 December,
2015.................................................. - 23,912 137,879 161,791
---------- ---------- ---------- ----------
Net book value
At 31 December,
2015.................................................. 1,469,112 659 343,985 1,813,756
========== ========== ========== ==========
Computer
IP R&D software Patents Total
---------- ---------- ---------- ----------
GBP GBP GBP GBP
Cost
At 1 January,
2016....................................................... 1,469,112 24,571 481,864 1,975,547
Additions...........................................................
.......... - 4,750 109,757 114,507
Disposal............................................................
........... - (23,982) - (23,982)
---------- ---------- ---------- ----------
At 31 December,
2016.................................................. 1,469,112 5,339 591,621 2,066,072
---------- ---------- ---------- ----------
Accumulated amortisation
At 1 January,
2016....................................................... - 23,912 137,879 161,791
Charge for
year............................................................ - 599 50,972 51,571
Disposal............................................................
........... - (23,974) - (23,974)
---------- ---------- ---------- ----------
At 31 December,
2016.................................................. - 537 188,851 189,388
---------- ---------- ---------- ----------
Net book value
At 31 December,
2016.................................................. 1,469,112 4,802 402,770 1,876,684
========== ========== ========== ==========
Intangible assets comprise patents, computer software and an IP
R&D asset that arose on the acquisition of Rhinopharma and
investment in patents to protect RPL554.
IP R&D is currently not amortised and is reviewed for
impairment on an annual basis or where there is an indication that
the assets might be impaired until the asset is brought into
use.
Patents are amortised over a period of ten years and are
regularly reviewed for impairment to ensure the carrying amount
exceeds the recoverable amount in accordance with note 2.9.
Recognising that the Group is still in pre--revenue phase and
that the research projects are not yet ready for commercial use,
the Group assesses the recoverable amount of the CGU containing the
IP R&D with reference to the Group's market capitalisation as
of 31 December, 2016, the date of testing of goodwill impairment.
The market capitalisation of the Group was approximately GBP80
million as of 31 December, 2016, compared to the Group's net assets
of GBP34.5 million. Therefore, no impairment was recognised.
17. Goodwill
As of As of
31 December, 31 December,
Group and Company 2015 2016
--------------- ---------------
GBP GBP
Goodwill at 1 January and 31
December...................................................... 441,000 441,000
=============== ===============
Goodwill represents the excess of the purchase price over the
book value of the net assets acquired in connection with the
acquisition of Rhinopharma Limited in September 2006.
Recognising that the Group is still in pre-revenue phase and
that the research projects are not yet ready for commercial use,
management assesses the recoverable amount of such goodwill with
reference to Verona's market capitalisation. As at 31 December 2016
this was several times the carrying value of goodwill. Accordingly,
management believes it is appropriate to carry goodwill at full
historical value.
Goodwill is not amortised, but is tested annually for
impairment. Annual impairment testing is performed by comparing the
expected recoverable amount of the CGU to the carrying amount of
the CGU to which goodwill has been allocated to the carrying amount
of the CGU. See notes 2.9, 4 and 16 to these financial
statements.
18. Share Capital
The movements in the Company's share capital are summarised
below:
Date Description Number of shares Share Capital amounts in GBP
--------------------------------- --------------------- ----------------- -----------------------------
1 January, 2015.............. Brought forward 1,009,923,481 1,009,923
31 December, 2015....... 1,009,923,481 1,009,923
July 29, 2016.................. Issuance of shares 1,555,796,345 1,555,796
September 12, 2016........ Exercise of options 166,667 167
October 24, 2016............ Exercise of options 166,667 167
December 28, 2016......... Exercise of options 2,000,000 2,000
31 December, 2016....... 2,568,053,160 2,568,053
The total number of authorised ordinary shares, with a nominal
value of 0.1p each, is 10,000,000,000 (share capital of
GBP10,000,000). All 2,568,053,160 ordinary shares at 31 December,
2016 are allotted, unrestricted, called up and fully paid.
On July 29, 2016, the Company issued 1,555,796,345 units to new
and existing investors at the placing price of 2.8730p per unit.
Each unit comprises one ordinary share and one warrant (with an
entitlement to subscribe for 0.4 of an ordinary share at a per
share exercise price of 120% of the placing price or 3.4476p). The
warrants entitle the investors to subscribe for in aggregate a
maximum of 622,318,538 shares. The gross proceeds received of
GBP44.7 million were in exchange for both ordinary shares and the
warrants. During 2016, the Company issued 2,333,334 ordinary shares
(2015: nil) upon exercise of employee share options.
19. Related parties transactions
The Company entered into relationship agreements with Vivo
Capital Fund VIII ("Vivo Capital"), Orbimed Private Investments VI
L.P. ("Orbimed"), Abingworth Bioventures VI L.P. ("Abingworth") and
Arix Bioscience plc ("Arix"), Arthurian Life Sciences SPV GP
Limited, ("Arthurian"). As agreed in these relationship agreements,
the above parties invested in the Company as part of the July
Placement, and the Company agreed to appoint representatives
designated by Vivo Capital, OrbiMed, Arix and Arthurian, and
Abingworth to the board of directors, who are Dr. Mahendra Shah,
Mr. Rishi Gupta, Dr. Ken Cunningham and Dr. Andrew Sinclair,
respectively.
19. Related parties transactions (continued)
These agreements will continue in effect after the Company's
intended NASDAQ listing, except that the appointment rights within
the relationship agreement with Arix and Arthurian will be
terminated prior to the closing of that offering. The respective
appointment rights under the remaining relationship agreements will
automatically terminate upon (i) Vivo Capital, OrbiMed or
Abingworth (or any of their associates), as applicable, ceasing to
beneficially hold 6.5% of the issued ordinary shares, or (ii) the
ordinary shares ceasing to be admitted to AIM.
The Company also has a management rights agreement with Novo A/S
under which Novo A/S is entitled to appoint an observer to the
Board until the earlier to occur of the Company's intended NASDAQ
listing or a sale by Novo A/S of 50% of its shares in the
Company.
The Company entered into a shareholder agreement with the Wales
Life Sciences Investment Fund ("WLSIF") in connection with the
March 2014 financing under which the Company has certain
obligations to the WLSIF, including the obligation to maintain the
registered office in Wales and to carry out certain other
activities in Wales.
For the year ended 31 December, 2015, the Company and Group were
charged GBP2,376 thousand by Simbec--Orion in respect of clinical
and pre--clinical support and research services, a group of which
Prof. Trevor Jones is a Director. As of 31 December, 2015, the
Company owed GBP173 thousand to this related party. Prof. Trevor
Jones was a Director of the Company until September 2015. During
2016, there were no transactions with Simbec-Orion or any other
related parties. As of 31 December, 2016, there were no outstanding
balances to related parties.
The Directors have authority and responsibility for planning,
directing and controlling the activities of the Group and they
therefore comprise key management personnel as defined by IAS 24,
("Related Party Disclosures"). Remuneration of Directors and senior
management is disclosed in the Directors' emoluments report in note
8.
20. Share--based payments charge
Group and Company
In accordance with IFRS 2 "Share Based Payments," the cost of
equity--settled transactions is measured by reference to their fair
value at the date at which they are granted. Where equity--settled
transactions were entered into with third party service providers,
fair value is determined by reference to the value of the services
provided. For other equity--settled transactions fair value is
determined using the Black--Scholes model. The cost of
equity--settled transactions is recognised over the period until
the award vests. No expense is recognised for awards that do not
ultimately vest. At each reporting date, the cumulative expense
recognised for equity--based transactions reflects the extent to
which the vesting period has expired and the number of awards that,
in the opinion of the Directors at that date, will ultimately
vest.
The costs of equity-settled share-based payments to employees
are recognised in the Statement of Comprehensive Loss, together
with a corresponding increase in equity during the vesting period.
During the twelve months ended 31 December, 2016, the Group
recognised a share-based payment expense of GBP576 thousand (2015:
GBP399 thousand). The charge is included within both general and
administrative costs as well as in research and development costs
and represents the current year's allocation of the expense for
relevant share options.
The Company grants share options under an Unapproved Share
Option Scheme (the "Unapproved Scheme") and under its tax efficient
EMI Option Scheme (the "EMI Scheme"). Under the Unapproved Scheme,
options are granted to employees, directors and consultants to
acquire shares at a price to be determined by the Directors which
is typically set at a price that is above the share price at the
date of the grant. In general, options are granted at a premium to
the share price at the date of grant and vest over a period of
three years from the date of the grant in two different methods.
The first method is with one half vesting over 24 months and the
other half vesting over 36 months. The second method is one third
vesting over one year, the second third vesting over two years and
the final third vesting over three years. The
20. Share based payments charge (continued)
vesting period is defined as the period between the date of
grant and the date when the options become exercisable. The options
are exercisable during a period ending ten years after the date of
grant. Options also are issued to advisors under the Unapproved
Scheme. Such options generally vest immediately and are exercisable
between one and two years after grant. Under the EMI Scheme,
options are granted to employees and directors who are contracted
to work at least 25 hours a week for the Company or for at least
75% of their working time. The options granted under the EMI Scheme
are exercisable at a price that is above the share price at the
date of the grant and in accordance with a vesting schedule
determined by the Directors at the time of grant and have an
exercise period of ten years from the date of grant.
In the year ended 31 December, 2016, the Company granted
1,600,000 (2015: 5,100,000) share options under the EMI Scheme and
83,500,000 (2015: 27,500,000) share options under the Unapproved
Scheme. The total fair values were estimated either by reference to
the fair value of the services provided in respect of
equity--settled transactions that were entered into with
third--party service providers, or using the Black--Scholes
option--pricing model for other equity--settled transactions and
amounted to GBP1,927 thousand (2015: GBP371 thousand). The cost is
amortised over the vesting period of the options on a
straight--line basis. The expense for the Company during 2016
amounted to GBP413 thousand and the balance of GBP163 thousand is
in relation to Verona Pharma Inc. and is held as an investment.
Prior to the July Placement, management determined to take an
option's contractual maximum life as an input into the
Black-Scholes option-pricing model. Starting from the July
Placement and in line with the continued development of the
Company's clinical trials, the Company determined the time to
maturity to be used in the valuation model to be better represented
by the weighted-average life of the options granted.
The following assumptions were used for the Black--Scholes
valuation of share options granted in 2015 and 2016. For the
options granted under the Unapproved Scheme the table indicates the
ranges used in determining the fair-market values, aligning with
the various dates of the underlying grants. The volatility is
calculated using historic weekly averages of the Company's share
price over a period that is in line with the expected life of the
options.
Issued in 2015
Options EMI Scheme Unapproved Scheme
granted............................................................................. Employees Employees
.....
5,100,000 27,500,000
----------- ------------------
Risk--free interest
rate......................................................................... 1.42% 1.42%
Expected life of
options...................................................................... 10 years 10 years
Annualised
volatility.........................................................................
... 76.5% 76.5%
Dividend
rate...............................................................................
...... 0.00% 0.00%
Issued in 2016
Options
granted............................................................................
...... 1,600,000 83,500,000
Risk--free interest
rate......................................................................... 1.42% 0.23% - 1.42%
Expected life of
options...................................................................... 10 years 5.5 - 10 years
Annualised
volatility..........................................................................
.. 88.0% 74.3% - 88.0%
Dividend
rate...............................................................................
...... 0.00% 0.00%
20. Share--based payments charge (continued)
The Company had the following share options movements in the
year ended 31 December, 2016:
Exercise At At
price 1 January, Options Options Options Options 31 December,
Year of issue (p) 2016 granted exercised forfeited expired 2016 Expiry date
---------------------------------------- ------------ ------------- ------------- -------------- -------------- ------------- --------------- ------------
September 18,
2006.................................. 5 8,000,000 - - - (8,000,000) - 2016*
2012.................................. 5 -15 5,000,000 - - - - 5,000,000 June 1, 2022
January 31,
2013.................................. 4.8 5,000,000 - - - (5,000,000) - 2016**
2013.................................. 4 5,000,000 - - - - 5,000,000 April 15, 2023
June 1,
2013.................................. 4 1,000,000 - - - - 1,000,000 2023***
2013.................................. 4 8,000,000 - - - - 8,000,000 July 29, 2023
2014.................................. 3.5 5,500,000 - - - - 5,500,000 May 15, 2024
May 15,
2014.................................. 3.5 3,500,000 - - (333,333) - 3,166,667 2024***
September 26,
2014.................................. 2.2 6,000,000 - (2,000,000) (4,000,000) - - 2024***
2.2 - August 6,
2014.................................. 3.5 10,000,000 - - - - 10,000,000 2018****
January 29,
2015.................................. 2.5 5,100,000 - (333,334) (666,666) - 4,100,000 2025***
January 29,
2015.................................. 2.5 27,500,000 - - (2,000,000) - 25,500,000 2025
February 2,
2016.................................. 4 - 13,000,000 - - - 13,000,000 2026
February 2,
2016.................................. 4 - 1,600,000 - (500,000) - 1,100,000 2026***
2016.................................. 3.6 - 40,500,000 - - - 40,500,000 August 3, 2026
September 13,
2016.................................. 3.78 - 15,000,000 - - - 15,000,000 2026
2016.................................. September 16,
4.08 2026
============ ============= ============= ============== ============== =============
- 15,000,000 - - - 15,000,000
Total................................. 89,600,000 85,100,000 (2,333,334) (7,4999,999) (13,000,000) 151,866,667
============ ============= ============= ============== ============== =============
* 10,000,000 directors' options with an expiry date on September
18, 2011 were extended for five years to September 18, 2016
(2,000,000 of these options expired during 2015)
** Options granted to agents upon closing of a placing or financing facility.
*** Options granted under the EMI Scheme.
**** Valued based on fair value of services received.
The average fair value in p at grant date, by year of grant and
plan, of the exercisable options as per 31 December, 2016 is
presented in the below table.
Year of issue EMI Scheme Unapproved Scheme
------------------------------ ----------- ------------------
2012........................ 1.27 -2.40 -
2013........................ 1.66 1.57 - 1.91
2014........................ 1.53 0.47 - 1.53
2015........................ 1.14 1.14
2016........................ 2.70 1.86 - 2.70
Outstanding and exercisable share options by scheme as of 31
December, 2016:
Weighted average Weighted average
exercise price exercise price
Plan Outstanding Exercisable in p for Outstanding in p for Exercisable
----------------------------------- ------------- ------------ ---------------------- ----------------------
Unapproved.........................
...................................
....... 139,500,000 30,833,335 3.55 3.29
EMI................................
...................................
............ 9,033,336 5.80 6.74
------------- ------------
Total.............................. 12,366,667
...................................
............. 151,866,667 39,866,671 3.73 4.08
------------- ============
20. Share--based payments charge (continued)
The options outstanding at 31 December, 2016 had a weighted
average remaining contractual life of 8.2 years (2015: 6.6 years).
For 2015 and 2016, the number of options granted and expired and
the weighted average exercise price of options were as follows:
Weighted
average
Number of exercise price
options (p)
------------ ---------------
At 1 January,
2015................................................................................. 60,155,717 4.2
------------
Options granted in 2015:
Employees......................................................................
................... 15,600,000 2.5
Directors......................................................................
..................... 17,000,000 2.5
Options expired in the
year..................................................................... (3,155,717) 5.4
------------
At 31 December,
2015........................................................................... 89,600,000 3.6
============
Exercisable at 31 December,
2015....................................................... 42,333,338 4.5
============
Weighted
average
exercise
Number of price
options (p)
-------------- --------------
At 1 January,
2016................................................................................ 89,600,000 3.6
--------------
Options granted in 2016:
Employees.....................................................................
................... 50,100,000 3.8
Directors.....................................................................
..................... 35,000,000 4.1
Options exercised in the
year................................................................ 2.2
--------------
Options forfeited in the
year.................................................................. 2.5
Options expired in the year.......................................................
............. (2,333,334)
(7,499,999)
(13,000,000) 4.9
--------------
At 31 December,
2016......................................................................... 151,866,667 3.7
==============
Exercisable at 31 December,
2016...................................................... 39,866,671 4.1
==============
21. Assumed contingent obligation related to the business combination
Group and Company
The value of the assumed contingent obligation as of 31
December, 2016 amounts to GBP802 thousand (2015: GBP594 thousand.
The increase in value of the assumed contingent obligation during
2016 amounted to GBP208 thousand (2015: 72 thousand) and was
recorded as finance expense. Periodic remeasurement is triggered by
changes in updated timelines of achieving commercialisation and
updated probabilities of success resulting from clinical
programmes. In 2016 remeasurement was triggered by the success of
the results of the Company's Phase 2a trials which were presented
in March 2016. The discount percentage applied is 12%.
2015 2016
GBP GBP
-------- --------
1 January,
2016.................................................................................................... 521,650 593,941
Re--measurement of assumed contingent obligation................................................. 9,239 123,554
Unwinding of discount
factor................................................................................ 63,052 84,710
-------- --------
31 December,
2016.............................................................................................. 593,941 802,205
======== ========
21. Assumed contingent obligation related to the business combination (continued)
The table below describes the reported change to the value of
the liability during 2016 of GBP208 thousand (2015: GBP72 thousand)
compared to what this number would be following the presented
variations to the underlying assumptions:
2015 2016
Change in value of the assumed contingent obligation, in GBP thousand....................... GBP72 GBP208
1% lower discount rate GBP73
%.................................................................................... GBP216
1% higher discount rate GBP71
%................................................................................... GBP201
10% lower revenue GBP69
assumption............................................................................ GBP202
10% higher revenue GBP75
assumption........................................................................... GBP215
1% lower risk GBP70
assumption.................................................................................... GBP216
1% higher risk GBP75
assumption.................................................................................... GBP201
22. Warrants
Group and Company
Pursuant to the July Placement the Company has issued
1,555,796,345 units to new and existing investors at the placing
price of 2.8730p per unit. Each unit comprises one ordinary share
and one warrant.
The warrant holders can subscribe for 0.4 of an ordinary share
at a per share exercise price of 120% of the placing price or
3.4476p. The warrant holders can opt for a cashless exercise of
their warrants. The warrant holders can choose to exchange the
warrants held for reduced number of warrants exercisable at nil
consideration. The reduced number of warrants is calculated based
on a formula considering the share price and the exercise price of
the shares. The warrants were therefore classified as a derivative
financial liability, since their exercise might result into a
variable number of shares to be issued.
The warrants entitle the investors to subscribe for in aggregate
a maximum of 622,318,538 shares. The warrants can be exercised on
the earlier of the Company's planned Global Offering or the first
anniversary of the grant, and the exercise period shall end on the
fifth anniversary of such date.
The ordinary share and warrant were accounted for as a compound
financial instrument. The warrants component of the instrument
issued at the July Placement were classified as a derivative
financial liability and were initially measured at fair value of
GBP8,991 thousand. The residual amount of proceeds totalling
GBP35,707,235 has been recognised within equity. Subsequently the
financial liability was re-measured at the reporting date at fair
value through profit or loss. A change in fair value of GBP1,068
thousand is recognised in the Consolidated Statement of
Comprehensive Income within Finance income.
The residual value of the proceeds less the fair value of the
financial instrument of GBP8,991 thousand was attributed to the
equity component of the instrument.
The total of transaction costs the Company incurred for the
above transactions amounted to GBP2,910 thousand of which GBP585
thousand was allocated to the warrants and the remaining GBP2,325
thousand has been presented as a reduction to share premium, by
reference to the proceeds allocated to each component. The amount
assigned to the financial liability of the warrants was
subsequently presented as finance expense in the Consolidated
Statement of Comprehensive Income.
22. Warrants (continued)
The table below presents the assumptions in applying the
Black-Scholes model to determine the fair value of the warrants at
date of recognition and the reporting date of 31 December, 2016.
For valuation purposes at recognition the Company used the closing
share price on July 29, 2016.
Issued in 2016 At recognition on July 29, 2016 At 31 December, 2016
-------------------------------- ---------------------
Warrants...................................................
................................... 622,318,532 622,318,532
Exercise
price......................................................
......................... 3.4476p 3.4476p
Risk--free interest
rate.......................................................
............ 0.039 % 0.088 %
Expected life of
options.....................................................
............ 2.86 years 2.43 years
Annualised
volatility.................................................
..................... 82.61% 73.53%
Dividend
rate.......................................................
......................... 0.00% 0.00%
As per the reporting date the Company updated the underlying
assumptions and calculated a fair value of these warrants amounting
to GBP7,923 thousand. The variance of GBP1,068 thousand is recorded
as finance income in the Consolidated Statement of Comprehensive
Income.
Derivative financial instrument Total
------------------------------------------------------------------------------ ------------
At 1 January, 2016 GBP GBP
Derivative Financial instrument issued following the July Placement 8,990,794 8,990,794
Fair value adjustments recognised in profit or loss.....................
(1,068,191) (1,068,191)
At 31 December, 2016........................................................ 7,922,603 7,922,603
============ ============
For the amount recognised at 31 December, 2016, the effect, when
some of these underlying parameters would deviate up or down, is
presented in the below table.
Volatility (up / down 10 % pts) Time to maturity (up / down 6 months)
-------------------------------- --------------------------------------
GBP thousands GBP thousands
Variable
up........................................
.................................... 8,972 8,687
Base case, reported fair
value.....................................
....... 7,923 7,923
Variable
down......................................
................................. 6,826 7,046
23. Financial commitments
As of 31 December, 2016, the Group was committed to making the
following payments under non--cancellable operating leases related
to its facilities.
Land and Land and
Buildings Buildings
----------- -----------
2015 2016
----------- -----------
GBP GBP
Operating leases which expire:
Within one
year...............................................................................
.................................... 151,240 270,350
Beyond one -
year................................................................................
............................. -
----------- -----------
Total..............................................................................
................................................. 151,240 270,350
=========== ===========
As of 31 December, 2016, the Company was committed to making the
following payments under non--cancellable operating leases related
to its facilities.
Land and Land and
Buildings Buildings
----------- -----------
2015 2016
----------- -----------
GBP GBP
Operating leases which expire:
Within one
year...............................................................................
.................................... 151,240 249,440
Beyond one -
year................................................................................
............................. -
----------- -----------
Total..............................................................................
................................................. 151,240 249,440
=========== ===========
24. Loss of the parent company
The Parent has taken advantage of the exemption permitted by
Section 408 of the Companies Act 2006 not to present an income
statement for the year. The Parent Company's loss for the year was
GBP4,964,487 (2015: loss of GBP7,514,076), which has been included
in the Group's income statement.
25. Control
The Company is not under the control of any individual or group
of connected parties.
26. Events after the reporting date
On 8 February, 2017 the board of the Company approved a share
consolidation where every 50 existing ordinary shares of GBP0.001
each shall be consolidated into one ordinary share of GBP0.05.
Prior to the consolidation the total number of issued shares as at
31 December, 2016 would read as a total of 2,568,053,160 shares and
after the consolidation this number would read as a total of
51,361,063 shares. Earnings per share information has been
retrospectively adjusted to reflect the consolidation as if it had
occurred at the beginning of the earliest period presented.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR TFMBTMBMTTAR
(END) Dow Jones Newswires
February 27, 2017 02:01 ET (07:01 GMT)
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