Chairman and Chief Executive’s report


‘Continuing the drive to increase revenues and reduce losses, Vectura has delivered another set of robust results, ending the financial year with cash of over £74m. Following the R&D restructuring undertaken in the year, we have focused our pipeline on key respiratory products and consolidated our formulation activities at our Chippenham facility, resulting in annual cost-savings of nearly £6m per annum. Over the course of the last 12 months, we and our partners have reported important clinical data, including the recent positive NVA237 Phase III data, underlining our confidence in our broad late-stage pipeline. With a reduced risk profile, strong balance sheet and multiple key catalysts expected in the short-term, Vectura continues to be innovative while moving closer to becoming a self-sustaining cash-generative company.’

Overview

Vectura specialises in developing inhaled therapies, principally for the treatment of respiratory diseases, bringing together key aspects of inhaled product development: technologies, clinical and regulatory operations, and manufacturing for clinical trials. Our platform technology has yielded consistently robust data and we now have a broad late-stage pipeline addressing major market opportunities. The collaborations and licence agreements we have with major players, including the recent deal with GSK, in the $25 billion asthma/COPD market demonstrates the value of our respiratory expertise. We now have programmes in late-stage development for novel once-daily branded medicines as well as the increasingly lucrative generic/branded generic respiratory market.

Our late-stage pipeline of branded medicines is progressing well and we have announced some important clinical data. In April 2011 Novartis announced positive Phase III results showing NVA237 (glycopyrronium bromide) significantly improved lung function while demonstrating a good safety profile in patients with moderate-to-severe COPD, and re-affirmed they expect to launch the product in 2012. This will be a significant value-driving event for Vectura as it will yield both milestones and royalties on future sales.

Novartis is also developing NVA237 in a co-formulation with their own long-acting beta2-agonist (LABA) indacaterol, a combination known as QVA149. Indacaterol is now approved in more than 50 countries and available in more than 20 under the brand-name Onbrez® Breezhaler®, with US approval dependent on a Food and Drug Administration (FDA) decision expected in July 2011. Novartis commenced Phase III studies with QVA149 in May 2010, triggering a $7.5m milestone payment to Vectura. These studies are ongoing and Novartis expects the first product launches in 2013.

We continue to advance our respiratory generic/branded generic opportunities. VR315, our inhaled combination therapy for asthma and COPD, is progressing well in Europe. The US and Rest of World (RoW) markets offer significant opportunities for us and we are in active discussions with potential licensing partners for these territories. In October 2010, we received our penultimate development milestone payment for VR632, the second generic combination product we licensed to Sandoz for Europe. In early 2011, we began the clinical phase of the development of VR506, an inhaled corticosteroid (ICS) in development for the treatment of asthma.

We are very proud of our team at Vectura and our respiratory expertise and intellectual property received significant endorsement in August 2010 when GSK, one of the leading developers of innovative respiratory medicines, signed a licensing agreement with us. This worldwide, non-exclusive licence for some of our dry powder drug formulation patents relates to two of GSK’s late-stage respiratory development products.

As well as our core respiratory pipeline, we have some exciting out-licensing opportunities, two of which have recently generated positive Phase II data.

In March 2011, data from a proof-ofconcept study with VR496 demonstrated that our inhaled heparin treatment for cystic fibrosis (CF) was safe and well-tolerated with evidence of anti-inflammatory and mucolytic activity. These qualities indicate VR496 could also play a part in the treatment of other diseases such as COPD.

In November 2010, we announced the successful completion of a Phase II study that demonstrated VR040, our Parkinson’s disease (PD) product, improves the control of movement in patients with fluctuating PD. The data showed a clinically relevant and statistically significant improvement of the Unified Parkinson’s Disease Rating Scale Part III (UPDRS III) compared with placebo (p=0.023).

We have achieved another solid set of financial results, delivering an increase in revenues; a positive EBITDA of £0.5m and finishing the financial year with a strong cash position of £74.4m.

Outlook

The team is committed to building Vectura into a sustainably profitable company with strong growth prospects. Through careful financial management as well as a number of lucrative partnerships, we are keeping financial and development risk to a minimum whilst having significant opportunities in some very large markets. We anticipate several major catalysts in the near future. We expect Novartis to release further NVA237 Phase III data and file for regulatory approval in 2011, with launches expected in 2012. The QVA149 Phase III trials are ongoing and Novartis expects the first product launches in 2013. We also anticipate further progress on VR315 in Europe. Licensing activities will continue across all our areas including products, technologies and our broader intellectual property portfolio.

We believe Vectura has the financial resources, the product portfolio and the technological know-how to become a leading inhaled product company that will deliver significant value and benefit both to our shareholders and to patients.

Jack Cashman Chris Blackwell
Chairman Chief Executive
22 May 2011
Chris Blackwell, Chief Executive

Chris Blackwell Chief Executive