Vectura delivers strong financial performance for H1 2019 and confirms proposed special dividend of approximately £40m in aggregate plus a £20m buyback programme
Vectura delivers strong financial performance for H1 2019 and confirms proposed special dividend of approximately £40m in aggregate plus a £20m buyback programme
Chippenham, UK – 10 September 2019: Vectura Group plc (LSE: VEC) ("Vectura" or "the Group") announces its unaudited Interim Results for the six months ended 30 June 2019.
Financial highlights
H1 2019 | H1 2018 | % change | |
Revenue | £91.7m | £79.9m | 14.8% |
Gross profit | £51.9m | £52.6m | (1.3%) |
R&D* | (£24.5m) | (£27.2m) | (9.9%) |
Adjusted EBITDA1* | £25.1m | £22.7m | 10.6% |
Operating loss | (£14.1m) | (£30.2m) | (53.3%) |
Basic loss per share | (2.0p) | (3.5p) | (42.9%) |
Cash from operating activities | £3.2m | £5.5m | (41.8%) |
At 30 Jun 2019 | At 31 Dec 2018 | % change | |
Cash and cash equivalents | £105.9m | £108.2m | (2.1%) |
*To ensure consistency with the Annual Report and Accounts 2018, the H1 2018 financial statements have been represented such that a £1.0m credit for the release of accruals, previously recorded in R&D expenses, is now presented within exceptional items and redundancy costs of £0.9m, previously presented in exceptional items, are now presented within R&D expenses. The net impact of these reclassifications has been to reduce exceptional items and increase R&D expenses in the comparative period by £1.9m.
Commenting on the Interim Results, Paul Fry, Interim Chief Executive Officer and Chief Financial Officer of Vectura, said:
"Vectura has had a strong first half in 2019, with the year as a whole tracking to guidance. Following the shift in focus we announced in July, we are now executing on our strategy to build a leading inhaled CDMO business. With our continued confidence in the outlook for Vectura, we have also announced today an increase in our proposed capital return to shareholders from £50 million to £60 million.”
Business highlights
- Total revenue of £91.7m, +14.8%
- Product supply revenue up 42.9% to £54.3m, driven by 45.8% growth in flutiform® product supply chain revenues to £48.4m
- As expected, royalty and other marketed revenue down 16.5% to £30.3m, following Q3 2018 expiry of EXPAREL® patents and a one-off milestone recognised in the prior period
- Development revenue up 26.8% to £7.1m, including EU filing milestone of $2.5m for QVM149
- Gross profit declined by 1.3% compared to the prior period, impacted by normalisation of flutiform® supply chain margins and reduction in royalty and other marketed revenue
- R&D costs of £24.5m reduced 9.9% versus prior period
- Adjusted EBITDA of £25.1m, up 10.6% versus the prior period
- Operating loss of £14.1m down from a loss of £30.2m in the prior period, as a result a lower charge for amortisation of intangible assets
- Strong liquidity maintained with closing cash and cash equivalents of £105.9m
- Awarded $89.7m in damages by trial jury for the infringement of the relevant asserted claim of Vectura’s US patent by US sales of three of GlaxoSmithKline's (GSK) Ellipta® products for the period from August 2016 through December 2018. Outcome of post-trial applications from both sides awaited. GSK has the right to appeal
- VR315 (US) progressing as planned, submission of the CRL response expected Q4 2019
Board updates
- James Ward-Lilley stepped down from the Board and his position as Chief Executive Officer on 30 June 2019
- Dr Kevin Matthews appointed as an Independent Non-Executive Director on 29 March 2019
Post period updates
- Capital returns - Given the Group's focus on organic growth, with lower risk R&D spend supported by partners, the Board has today announced a proposed special dividend of approximately £40m to be accompanied by a share consolidation, both subject to shareholder approval, with a £10m on-market share buyback to commence following the share consolidation. The Board also intends to undertake a further on-market £10m buyback, to be announced in due course after the completion of the first tranche.
- VR647 programme - Whilst partnering discussions continue, given developments in the status and timing of these discussions post the balance sheet date and in consideration of the Group’s R&D investment priorities announced in July 2019, the Board concluded on 9 September 2019, that it was appropriate to impair the intangible asset in full, resulting in an impairment charge in H2 2019 of £8.2m offset by the release of deferred tax liabilities of £2.2m.
Summary guidance and outlook
Vectura made a positive start to trading in 2019, and given the Group's visibility of flutiform® product supply volumes for the rest of 2019, the Group expects this strong performance to continue into the second half of the year. The Group maintains its financial guidance and outlook expectations for 2019.
Analyst briefing
Vectura will present its Interim Results for analysts today from 9.30am to 10.30am BST. The presentation will be held at the offices of Numis, 10 Paternoster Square, London, EC4M 7LT. There will be a simultaneous live conference call.
Dial-in details are:
Participant local dial-in: +44 (0) 207 192 8000
Participant free phone dial-in: 0800 376 7922
Participant code: 2182309
A live webcast of the meeting and the presentation slides, will be available on Vectura's website: https://www.vectura.com/investors/presentations-and-webcasts
- Ends-
For more information, please contact:
Vectura Group plc
Elizabeth Knowles - VP Investor Relations +44 (0)7767 160 565
David Ginivan - VP Corporate Communications +44 (0)7471 352 720
Consilium Strategic Communications +44 (0)20 3709 5700
Mary-Jane Elliott / Sue Stuart / David Daley
About Vectura
Vectura is a provider of innovative inhaled drug delivery solutions that enable partners to bring their medicines to patients. With differentiated proprietary technology and pharmaceutical development expertise, Vectura is one of the few companies globally with the device, formulation and development capabilities to deliver a broad range of complex inhaled therapies.
Vectura has ten key inhaled and eleven non-inhaled products marketed by partners with global royalty streams, and a diverse partnered portfolio of drugs in clinical development. Our partners include Hikma, Novartis, Sandoz (a division of Novartis AG), Mundipharma, Kyorin, GSK, Bayer, Chiesi, Almirall, and Tianjin KingYork.
For further information, please visit Vectura's website at www.vectura.com
Operational Review
Revenue growth from partnered In-market products driven by flutiform® product supply
The Group reported revenue of £91.7m for the six-months ended 30 June 2019. As expected, royalty and other marketed revenues declined following EXPAREL® patent expiry in Q3 2018 and one-off sales milestones in the prior period. However, overall revenue grew by 14.8%, driven by strong performance from flutiform® product supply.
flutiform® (Mundipharma, Europe and Rest of world (excl. North America) / Kyorin, Japan) for the treatment of asthma
- flutiform® continues to perform well in the competitive asthma ICS/LABA market ex US, generating total in-market sales of €123.6m (constant exchange rates ‘CER’) during H1 2019, up 12.2% in value (CER) and up 15.2% in volume compared to the prior period.2
- In a competitive and genericised European ICS/LABA market which declined by 3.5% in value (CER) compared to the prior period, flutiform® in-market sales grew by 2.0% (CER) with 3.6% volume growth.2
- flutiform® sales grew by 13.9% (CER) in the less mature and non-genericised Japanese market, contributing to royalty revenue of £3.0m, an increase of 11.1% compared to the prior period. Volumes grew 16.9% compared to H1 2018.2
- flutiform® remains at an early stage of its lifecycle in rest of world territories and has continued to grow strongly , with in-market sales of €14.6m (CER) up 74.7% compared to H1 2018.2
- Growth in flutiform® product supply revenues reflects the fact that H1 2018 product supply revenues had not fully normalised following partner stock management in 2017. From a lower comparative base, increased in-market volumes, alongside partner supply chain management, flutiform® contributed product supply revenues to Vectura of £48.4m, a 45.8% increase versus the prior period (H1 2018: £33.2m).
Ultibro® Breezhaler®, Seebri® Breezhaler® Utibron™ Neohaler® Inhalation Powder and Seebri™ Neohaler® (Novartis/Sunovion, US) for the treatment of COPD
- Ultibro® Breezhaler® continues its class-leadership of the dual bronchodilator LAMA/LABA class (ex. US) with overall in-market sales growth of 2.5% (CER) compared to the prior period, despite increased competition.2
- Vectura recognised royalties of £6.6m in respect of sales of Ultibro® Breezhaler® (H1 2018: £6.5m)
- Seebri® Breezhaler® in-market sales declined by 10% to $76.1m (CER) and Vectura recognised royalties of £1.7m in respect of sales of this product (H1 2018: £2.0m)
Partnered development portfolio
VR315 (US), partnered with Hikma: Generic Advair® programme for the treatment of asthma and COPD
- Hikma anticipates being able to submit data to the US Food and Drug Administration (FDA) during 2019 to support its regulatory application, enabling a potential US launch in 2020
VR354, partnered with Hikma: Generic Breo® Ellipta® programme for the treatment of asthma and COPD
- Continued strong growth of this franchise supports the longer-term potential for the range of Ellipta® AB-rated substitutable generics that Vectura is developing in partnership with Hikma
- Work on the development of generic Breo® Ellipta® is progressing in-line with management’s expectations
VR506 (US), partnered with Hikma: Generic fluticasone propionate for the treatment of asthma
- Reflecting portfolio prioritisation of other key generic programmes partnered with Hikma, including VR730, Hikma and Vectura have mutually agreed to terminate development of the VR506 programme
VR2081 (US), partnered with Sandoz: Undisclosed generic pMDI programme for the treatment of asthma and COPD
- Development is ongoing, building on recent encouraging pharmacokinetics (PK) data for VR2081
VR632 (EU), partnered with Sandoz: Generic ICS/LABA combination for the treatment of asthma and COPD
- Post-period update: VR632 was launched in Europe during July 2019
- Marketed by Sandoz as Airbufo® Forspiro®, this product utilises Vectura’s GyroPLUS® device and reflects the Group’s ability to combine device technology with formulation expertise to develop a treatment that meets European bioequivalence requirements
QVM149 (Europe & ROW), partnered with Novartis: LAMA/LABA/ICS for the treatment of asthma
- As announced on 24 May 2019, Vectura has recognised milestone revenue of $2.5m, which was received post period, following the acceptance of a Marketing Authorisation Application (MAA) made by Novartis to the EU Regulatory Authorities for the regulatory approval of QVM149
- EU launch expected in FY2020, subject to regulatory approval
- Vectura will receive a $5m milestone upon approval of the product in Europe and a low-single digit royalty upon net sales
Pre-partnered development portfolio
- Vectura enhanced therapies pipeline - The Group has made good progress with three Vectura enhanced non-budesonide projects using the Group’s nebulised platform
- In-line with the Group’s R&D investment priorities announced in July 2019, from the end of FY2019, the Group will not make further investments in pre-partnered assets in the absence of a partner
Corporate update
Strategic focus and R&D investment priorities
The global contract development and manufacturing organisation (CDMO) market is large and growing at an annual growth rate of c. 7%. This growth rate slightly outpaces the growth of the pharmaceutical sector as a whole, reflecting the ongoing shift towards increased outsourcing.3
Within the inhaled therapies market, there are over three hundred inhaled assets in development globally4, both respiratory and non-respiratory, that are well matched to our capabilities. Of this total, approximately 70% are in the pre-Phase II stage of development2 where Vectura can support a partner to achieve the right formulation and device combination for clinical development and ultimate commercialisation. For inhaled therapies, approximately 30-35% of projects are currently outsourced, and this proportion is expected to grow to 40-45% over the next five years.5
Vectura has a proven track record of successful partnering and is well positioned to capture value within this market by leveraging its core capabilities in inhaled drug delivery solutions across a larger number of partnership arrangements. The Group is seeking to build a pipeline of potential partnering opportunities with feasibility work on two new molecular entities having already commenced during H2 2019.
Post period, in July 2019, Vectura confirmed that it will focus on securing new partner contracts for the development of inhaled therapies, including novel and generic molecules. The Group will move towards a development services model, seeking to grow development service revenues to reduce the Group’s dependence on contingent milestones.
The Group’s R&D investment priorities will be clearly aligned to this partnering focus and the Board expects a progressive reduction in R&D. Future increases in R&D investment will be associated with new partnering deals.
Return of capital
In light of the Group's reducing R&D risk profile, future cash generation expectations and strong cash balance, in July 2019, the Board announced its intention to return approximately £50m to shareholders. Reflecting shareholder feedback, the Group today announced that the total value to be returned will be increased to £60m, as set out below.
The Board has proposed a special dividend of approximately £40 million in aggregate, representing six pence per ordinary share, to be accompanied by a consolidation of the Company's ordinary share capital. Subject to shareholder approval at a General Meeting to be held on 10 October, it is expected that the special dividend will become payable to shareholders on 25 October 2019.
In addition, the Group has entered into arrangements with J.P. Morgan Securities to execute a £10m on-market buyback of shares, to commence following the share consolidation. The Board also intends to undertake a further on-market £10m buyback, to be announced in due course after the completion of the first tranche.
The Board recognises that considerable financial upsides remain in the outlook for the Group, and, in the absence of future inorganic growth opportunities, it intends to make additional future 'special' returns of excess capital arising from operations or from material one-off events, by the most appropriate mechanism.
GSK Litigation
On 7 May 2019, Vectura confirmed that following a jury trial in the United States District Court for the District of Delaware, the relevant asserted claim of its US patent was found valid and infringed by US sales of three of GlaxoSmithKline's (GSK’s) Ellipta products. The jury awarded Vectura $89.7m in damages for the period from August 2016 through December 2018, based on a calculation of 3% of US sales of these products. The jury also found that GSK's infringement was wilful and, in addition to filing a claim for damages for the period from January 2019 to expiry of the patent in June 2021, Vectura has therefore applied for further damages for wilful infringement. A ruling on these additional applications as well as post-trial applications filed by GSK to overturn or reduce the jury decision is awaited, expected in September 2019.
Board changes
The Board was pleased to announce the appointment of Dr Kevin Matthews as an Independent Non-Executive Director of the Company with effect from the 29 March 2019.
Kevin has highly relevant experience from senior management roles in the chemical, technology and pharmaceutical sectors, alongside significant strategy and business management expertise. His experience in current and previous Non-Executive Director and advisory roles will also be valuable to the Board.
On 10 June 2019, Vectura announced that James Ward-Lilley would be stepping down from the Board and his position as Chief Executive Officer with effect from 30 June 2019. Paul Fry, Chief Financial Officer, has assumed the role of CEO in an interim capacity whilst a search for a new CEO is being carried out.
Brexit
The Group has closely reviewed the potential risks associated with Brexit. The Board believes Vectura has undertaken a robust approach to ensuring any impact within the Group's control is mitigated as far as possible.
Mitigating activities have included continued close working with our supply chain network and partners, establishing a new EU legal entity and transferring our notified regulatory body for our device assets.
Guidance and outlook
The Group is now primarily focused on organic growth through securing further partnership contracts, with lower risk R&D spend supported by partners.
Given the Group’s visibility of flutiform® product supply volumes for the rest of 2019, the Group expects the strong performance of flutiform® to continue into the second half of the year.
The Group maintains its financial guidance and outlook expectations for a sustained performance in 2019, following a strong 2018. The Group expects overall revenue growth to be offset at the gross profit level by the loss of EXPAREL® revenues and the normalisation of the flutiform® product supply gross margin.
R&D guidance for the current year remains unchanged at £45m to £55m.
Financial review
Summary financial information for the six months ended 30th June 2019
Unaudited | H1 2019 £m | H1 2018 £m | % change |
Product supply revenues | 54.3 | 38.0 | 42.9% |
Royalty and other marketed revenues | 30.3 | 36.3 | (16.5%) |
Development revenues | 7.1 | 5.6 | 26.8% |
Revenue | 91.7 | 79.9 | 14.8% |
Cost of sales | (39.8) | (27.3) | 45.8% |
Gross profit | 51.9 | 52.6 | (1.3%) |
Gross profit margin | 56.6% | 65.8% | (9.2 ppts) |
Research and development (“R&D”) expenditure* | (24.5) | (27.2) | (9.9%) |
Other operating expenditure and income | (8.4) | (6.6) | 27.3% |
Exceptional items* | (2.6) | (3.8) | (31.6%) |
Amortisation | (30.5) | (45.2) | (32.5%) |
Operating loss | (14.1) | (30.2) | (53.3%) |
Adjusted EBITDA6* | 25.1 | 22.7 | 10.6% |
Adjusted EBITDA margin % | 27.4% | 28.4% | (1.0 ppts) |
*To ensure consistency with the Annual Report and Accounts 2018, the H1 2018 financial statements have been represented such that a £1.0m credit for the release of accruals, previously recorded in R&D expenses, is now presented within exceptional items and redundancy costs of £0.9m, previously presented in exceptional items, are now presented within R&D expenses. The net impact of these reclassifications has been to reduce exceptional items and increase R&D expenses in the comparative period by £1.9m.
Revenue growth of 14.8% reflects strong growth from product supply revenues. flutiform® in-market demand and partner supply chain management resulted in product supply revenues of £48.4m, a 45.8% increase on the prior period. flutiform® product supply delivered a gross margin of 34.5% contributing £16.7m to gross profit (H1 2018: 38.9% gross margin, £12.9m gross profit).
Overall gross profit declined by 1.3% as the increased contribution from flutiform® product supply was offset by the loss of EXPAREL® revenues following patent expiry in 2018 and the recognition of a milestone in the prior period as part of an agreement with Sandoz regarding revised territory rights for AirFluSal® Forspiro®. These two items together totalled £5.8m in the prior period.
R&D costs declined 9.9% due mainly to the reduction in clinical costs associated with VR475 and this decline was offset by higher corporate costs which include CEO severance costs. The Group’s operating loss was significantly reduced versus the prior period as a result of lower amortisation charges. Adjusted EBITDA, which is a measure of underlying performance, increased by 10.6% to £25.1m (H1 2018: £22.7m).
1.1 Product supply revenue
The Group generates significant revenues from the supply of finished or semi-finished products, largely manufactured by third party suppliers, to commercial distribution partners. The costs incurred to deliver these revenues are reported under Cost of sales. These revenues grew by 42.9% in H1 2019, driven by strong volume demand from partners for flutiform®.
Total Product supply revenues and gross margin
H1 2019 £m | H1 2018 £m | % change | |
flutiform® | 48.4 | 33.2 | 45.8% |
Other inhaled products | 2.0 | 1.4 | 42.9% |
Other non-inhaled products | 3.9 | 3.4 | 14.7% |
Revenue | 54.3 | 38.0 | 42.9% |
Cost of sales | (39.8) | (27.3) | 45.8% |
Gross profit | 14.5 | 10.7 | 35.5% |
Gross profit margin % | 26.7% | 28.2% | (1.5ppts) |
flutiform®
Revenue from the supply of finished flutiform® products to Mundipharma (Europe and Rest of World) and Kyorin (Japan) represented 52.8% (H1 2018: 41.6%) of the Group’s total reported revenue. flutiform® in-market sales grew 12.2% on a constant exchange rate ‘CER’ basis, compared to the prior period, with volume growth of 15.2%7.
Growth in flutiform® product supply revenues reflects the fact that H1 2018 product supply revenues had not fully normalised following partner stock management in 2017 (H1 2018: £33.2m). From a lower comparative base, increased in-market volumes, alongside partner supply chain management, contributed to product supply revenues to Vectura of £48.4m, a 45.8% increase versus the prior period.
Given the Group's visibility of flutiform® product supply volumes for the rest of 2019, the strong performance of flutiform® is expected to continue into the second half of the year.
flutiform® revenues
In-market flutiform® sales2 (CER) | H1 2019 €m | H1 2018 €m | % change |
Territory | |||
Europe | 60.0 | 58.8 | 2.0% |
Japan | 49.0 | 43.0 | 14.0% |
RoW (ex. North America) | 14.6 | 8.4 | 73.8% |
Total in-market sales | 123.6 | 110.2 | 12.2% |
Vectura product supply revenues and gross profit | H1 2019 £m | H1 2018 £m | % change |
flutiform® product supply revenue | 48.4 | 33.2 | 45.8% |
Cost of sales | (31.7) | (21.4) | 48.1% |
One-off margin credit | - | 1.1 | n/a |
Gross profit | 16.7 | 12.9 | 29.5% |
Gross profit margin % | 34.5% | 38.9% | (4.4 ppts) |
Gross profit margin % (ex. one-off credits/(debits)) | 34.5% | 35.5% | (1.0 ppts) |
flutiform® gross profit margin was down 4.4 percentage points compared to H1 2018 as the prior period benefited from the release of a £1.1m supplier provision. Despite market price reductions in Japan in April 2018, which impacted the Group’s supply prices in H1 2019, the gross margin earned for product supply sales, excluding one-off items, was 34.5% (H1 2018: 35.5%), in line with guidance.
The Group also earns royalties on flutiform® sales made by Kyorin in Japan. Including these royalties, total revenues for flutiform® were £51.4m (H1 2018: £35.9m).
Other inhaled products
Vectura also earns revenue from the supply of devices to partners including the GyroHaler® device to Sandoz for the AirFluSal® Forspiro® product and the FOX® device to Bayer for use in their BreelibTM product. In total this revenue stream contributed £2.0m, an increase of 42.9% compared to the prior period.
Other non-inhaled products
The Group’s oral manufacturing facility in Lyon, France generates product supply revenues from sales of oral tablets to partners. In H1 2019, product supply revenues from Lyon were £3.9m, a 14.7% increase compared to the prior period (H1 2018: £3.4m).
The operational focus of the Lyon site continues to be on improving profitability by replacing steady volume declines in mature and off-patent products, with growing new manufacturing volumes, supply revenues and associated development fees through new agreements. Four new such agreements were signed during H1 2019 (H1 2018: one).
Some of the products manufactured at the Lyon site also earn the Group royalties, reported separately.
1.2 Royalty and other marketed revenues
The Group also generates revenues from products marketed by partners which incorporate Vectura’s intellectual property. These revenues typically comprise royalties, share of sales arrangements or sales-based milestones, reflecting financial returns from historic R&D investments in partnered programmes. These revenues are earned without further material costs being incurred by the Group.
Total royalty and other marketed revenues
H1 2019 £m | H1 2018 £m | % change | |
Ultibro® and Seebri® | 8.3 | 8.5 | (2.4%) |
Ellipta® | 9.0 | 8.8 | 2.3% |
flutiform® | 3.0 | 2.7 | 11.1% |
AirFluSal® Forspiro® | 1.3 | 1.5 | (13.3%) |
Non-inhaled royalties | 7.3 | 7.7 | (5.2%) |
Royalty revenue | 28.9 | 29.2 | (1.0%) |
Share of net sales of EXPAREL® | - | 3.4 | n/a |
Other marketed revenues | 1.4 | 3.7 | (62.2%) |
Royalty and other marketed revenues | 30.3 | 36.3 | (16.5%) |
Ultibro® Breezhaler® and Seebri® Breezhaler® are now established products in Europe and Ultibro® continues to be the leading LAMA/LABA combination treatment for COPD ex-US.
Ultibro® and Seebri® performance
Net sales8 | H1 2019 £m | H1 2018 £m | % change |
Ultibro® Breezhaler® | $216m | $222m | (2.7%) |
Seebri® Breezhaler® | $65m | $77m | (15.6%) |
Total in-market sales | $281m | $299m | (6.0%) |
Vectura royalties | H1 2019 £m | H1 2018 £m | % change |
Ultibro® Breezhaler® | 6.6 | 6.5 | 1.5% |
Seebri® Breezhaler® | 1.7 | 2.0 | (15.0%) |
Total royalties | 8.3 | 8.5 | (2.4%) |
Vectura revenues for Ultibro® and Seebri® Breezhaler® are derived from a royalty percentage of net sales reported by Novartis. Royalties from Ultibro® Breezhaler® increased by 1.5% in H1 2019 (-4.5% CER) while royalties from Seebri® Breezhaler® declined by 15.0% (-20.1% CER).
GSK’s Ellipta® products continue to grow and Vectura has recognised the maximum annual royalty of £9.0 million during H1 2019. The technology licensed to GSK is covered by granted patents with an earliest expiry date for one of the granted patent families in major markets of November 2019.
flutiform® royalties for Europe and most of the RoW territories are subject to the terms of the agreement with Mundipharma which limits the aggregate amount of royalties that can be earned by Vectura where royalties and product supply exceed 35% of Mundipharma’s net sales. As a result of this cap, royalties from Mundipharma were nil in H1 2019 (H1 2018: £0.2m).
Strong in-market performance by Kyorin drove value and volume growth in Japan, up 13.9% (CER) and 16.9% respectively2. As a result royalties from Japan grew by 20.0% (CER +14.2%), to £3.0m (H1 2018: £2.5m), offsetting the reduction in Mundipharma royalties.
Non-inhaled royalties comprise royalties earned on oral and other non-inhaled products which benefit from the Group’s historical intellectual property. Many of these products are manufactured at the Group’s production facility in Lyon.
Other royalties
H1 2019 £m | H1 2018 £m | % change | |
RAYOS® / LODOTRA® | 4.9 | 3.9 | 25.6% |
Requip® | 0.8 | 1.1 | (27.3%) |
Solaraze® | 0.9 | 1.0 | (10.0%) |
Other products | 0.7 | 1.6 | (56.3%) |
Total other royalties | 7.3 | 7.6 | (3.9%) |
Total other royalties continued a downward trend as products move towards the end of their lifecycle. This underlying decline was partially offset by strong RAYOS® royalty growth, up 25.6% to £4.9m, due to continued promotional activity. The Licence Agreement for RAYOS®/LODOTRA® was amended with effect from 1 January 2019 and Vectura is now eligible for a minimum $8.0m annual royalty for RAYOS® for the calendar years 2019 to 2022.
The Group did not receive any share of net sales of EXPAREL® revenue in H1 2019, a reduction of £3.4m, following expiry in September 2018 of the last expiring patent listed in the relevant agreement with Pacira. The Group remains eligible to receive a non-patent dependent $32m sales milestone when twelve-month net sales of EXPAREL® reach $500m on a cash received basis. Current analyst consensus estimates are that Pacira will reach $500m annual net sales towards the end of 2022.
Other marketed revenues include a £1.3m milestone received on the anniversary of the first European launch of BreelibTM. Under the terms of its agreement with Bayer, Vectura is eligible to receive a further €2.75m in milestones spread over the next four years, paid annually, and an additional €0.5m following commercial launch in Turkey.
In H1 2018, the Group also recognised revenues of £2.4m during the period as part of an agreement with Sandoz regarding revised territory rights for AirFluSal® Forspiro®.
1.3 Development revenues
The Group also earns revenue from agreements with partners which draw on Vectura’s device, formulation and development capabilities to deliver commercially attractive inhalation products. Under these agreements, during the development phase Vectura typically receives a series of cash flows in consideration for a variety of activities, which may comprise an upfront fee as consideration for the licence to access intellectual property, milestone payments for specific clinical or other development-based outcomes, or fees billed directly for work performed. Together these revenues have been categorised as Development revenues. Revenues are recognised when contractual performance obligations are deemed to have been met, with the profile of these revenues varying by programme and over time.
Development revenues for new agreements will increasingly be derived from fees billed directly for work performed, rather than milestones payments which are contingent on specific clinical or development-based outcomes. The Group will continue to earn licence fees and royalties where partners have accessed Vectura intellectual property.
Costs to deliver these revenues are reported under Research and Development (R&D) expenditure in the consolidated income statement and tend to be incurred on a more consistent basis over the life of the programme.
These agreements may also include sales-based royalties and commercial milestones post-launch. The economics of each partner agreement is structured differently in terms of the timing and mix of payments.
Development revenues by programme
H1 2019 £m | H1 2018 £m | % change | |
Licensing of intellectual property | |||
QVM149 (Novartis) | 1.9 | - | n/a |
Other inhaled programmes | 0.4 | - | n/a |
Total licensing revenues | 2.3 | - | n/a |
Development services | |||
flutiform® K-Haler® | 0.9 | 1.0 | (10.0%) |
Generic Ellipta® portfolio (Hikma) | 1.6 | - | n/a |
VR2081 (Sandoz) | 0.8 | 0.6 | 33.3% |
VR2076 | - | 1.7 | n/a |
Other inhaled development services | 0.8 | 1.5 | (46.7%) |
Other non-inhaled development services | 0.7 | 0.8 | (12.5%) |
Total development services | 4.8 | 5.6 | (14.3%) |
Total development revenues | 7.1 | 5.6 | 26.8% |
QVM149
In May 2019, Vectura recognised a $2.5m milestone under an exclusive licensing agreement with Novartis AG following EU Regulatory Authorities acceptance of a valid Marketing Authorisation Application (MAA) made by Novartis for its QVM149 product.
Vectura is due to receive a further milestone payment of $5.0 million on European regulatory approval of the product and thereafter royalties on net sales from launch.
Generic Ellipta® portfolio
In November 2018, Vectura signed a global development and commercialisation agreement with Hikma for the development of an AB-rated substitutable drug-device combination of generic versions of the GSK Ellipta® portfolio. Upon signing of the deal, Vectura received an upfront cash payment of $15m (£11.4m). Of this total, £6.6m was recognised in H2 2018. In H1 2019, a further £1.6m of this milestone has been recognised in respect of development services. The remaining income from the upfront payment of £3.2m is expected to be recognised over the next one and a half years.
flutiform® K-haler® development
These revenues relate to fees charged for further development work related to the flutiform® breath-activated k-haler®, launched in September 2018.
VR2081 (Sandoz)
A $5.0m upfront milestone from Sandoz was received in 2017 and a further $1.0m was received in February 2019, relating to the VR2081 programme. The Group deems that these milestones, plus the final contractual development milestone, are highly probable and therefore are being recognised as development work progresses on a percentage completion basis. Revenues recognised from ongoing development work are expected to be in the range of £1.0m - £2.0m in 2019.
Other inhaled development services
Other inhaled development services of £0.8m declined compared to the prior period as a result of milestone revenues received in H1 2018 and lower revenues recognised from other generics programmes partnered with Hikma. The prior period included a £0.3m milestone following approval of VR632 in Europe in May 2018.
Other non-inhaled development services
The Group earned £0.7m in 2019 (H1 2018: £0.8m) from the provision of development services related to products which are or will be manufactured at its oral tablet production facility in Lyon, France. The decrease is the result of timing of work completed, with an improved performance expected in H2 2019.
2. Research and Development (R&D) expenses
The Group’s R&D expenditure has been presented under two distinct categories:
- Partnered – this category represents R&D expenditure funded by partners to progress the agreed contracted programmes. This expenditure is principally funded by Development revenues earned from the partner, which may be contingent upon the achievement of certain future milestones;
- Pre-Partnered – this category of R&D spend reflects investments funded by the Group on programmes yet to be partnered, as well as investments in its own innovative proprietary technology platforms. These investments are the basis for generating future partnering and licencing revenue opportunities.
Total R&D expenditure by category
H1 2019
By: Nasdaq / GlobeNewswire
- 10 Sep 2019
Return to news
Upcoming Life Sciences Events
|