This announcement contains inside information
Vectura Group plc
2017 Pre-close Trading Update and Refocussed Investment Strategy
Chippenham, UK - 4 January 2018: Vectura Group plc (LSE: VEC) ("Vectura" or the "Group"), an industry-leading device and formulation business for inhaled airways products, today announces an unaudited 2017 pre-close trading update and a refocus of its investment strategy to drive substantial future value.
Full year 2017 revenue anticipated to be in line with the Board's expectations
- Vectura's key inhaled growth products continue to perform in line with expectations:
- flutiform® product supply revenue in H2 2017 is in line with guidance provided at the time of the Group's 2017 interim results in September 2017;
- flutiform® Q3[1] in-market net sales were €47.8 million[2], up 12% at constant exchange rates (CER) compared to the same period in 2016, with 19% (CER) growth in Japan;
- Ultibro® Q31 net sales of $101 million[3], with 18% growth in Europe year-on-year; and
- Royalties from the GSK Ellipta® products achieved the £9 million annual cap in Q3.
- As previously guided, R&D expenditure for the full year is in line at £60 million - £70 million;
- Strong performance in the second half of the year delivered closing cash and cash equivalents of approximately £104 million net of £1.4 million outflows in respect of the £15 million share buyback programme which commenced on 14 November.
R&D pipeline investment
Following delays in the approval of the Group's US generic Advair programme (VR315 US) alongside positive pipeline developments, including the first launch of the BreelibTM FOX® device, the Group has completed a review of its investment strategy. Based on this, Vectura will increase its focus on relatively lower risk, high value development opportunities with known molecules across its whole non-partnered pipeline. Further investment in relatively higher risk, novel molecule, early stage programmes will cease and opportunities to partner existing programmes of this type will be sought. This reduction in the overall pipeline risk profile will enable further leverage of Vectura's core capabilities to deliver additional value from lower risk projects. Accordingly, the Group will focus on:
- Extending its partnered development of high-potential generic medicines for the US market;
- Taking a selective approach to future novel partnered development programmes and stopping Vectura investment in early stage novel molecule development.
Vectura will seek to partner its early stage novel molecule programme VR588 and, with its co-development partner UCB, will also jointly seek a partner for VR942, the inhaled biologic programme which completed a Phase I trial during 2017.
Mundipharma have also informed the Group of their decision to stop the development of the pMDI triple therapy for asthma and COPD (VR2076), which is currently in an early formulation phase. Given the early stage of this asset, this is not expected to have a material impact on the Group's revenues in 2018. As an acquired programme from the Skyepharma merger, VR2076 is held as an intangible asset net of its associated deferred tax liability and had a value as at 31 December 2017 of approximately £8 million.
The Novartis triple combination programme for asthma, QVM149, continues to progress with its Phase III trial, with first regulatory submissions expected in 2019.
Productivity gains through Operational Excellence
In addition, the Group has undertaken an Operational Excellence review of activities within the R&D function which has identified a number of opportunities to significantly enhance productivity. These productivity initiatives will allow the Group both to free up capacity to support future development opportunities and achieve cost reductions through a combination of lower external programme expenditure and a measured reduction in headcount.
Planned strategic partnering of wholly-owned programmes VR475 (EU) and VR647 (US)
Vectura is on track to complete the VR475 (EU) current Phase III trial in H2 2018. The VR647 (US) Phase II trial has now initiated with the first patient dosed in December 2017 and activities are expected to complete in mid-2018.
As part of the investment review, commercialisation options for these wholly-owned nebulised budesonide programmes have been considered. It has been decided that, in the absence of additional specialist marketed products being acquired through M&A or in-licencing, the Group will initiate partnering discussions for these two assets. This approach reflects the high cost, low financial leverage and opportunity cost associated with the commercialisation of single assets. Partnering of VR475 (EU) and VR647 (US) is anticipated in 2019 following the completion of the current respective Phase III and Phase II activities.
Revised guidance for 2018
Given the in-line performance of the Group's revenue drivers in H2 2017, the Board maintains its local currency revenue growth expectations for 2018. Were current exchange rates to continue through 2018, sterling reported revenues would be reduced by approximately £5.0 million, equating to an impact of approximately £2.5 million at the gross margin level.
Costs to deliver the R&D Operational Excellence initiative are estimated at approximately £1.0 million within exceptional items in 2017 and a further £0.5 million within exceptional items in 2018.
Based on the effects of the investment and operational excellence reviews, Vectura's R&D costs in 2018 are expected to reduce to £55 million - £65 million (previous 2018 guidance: £65 million - £75 million). Assuming VR647 (US) is partnered prior to the start of Phase III in 2019, there is potential for a further reduction of up to £10 million in annual R&D costs to between £45 million - £55 million from 2019 onwards.
James Ward-Lilley, Chief Executive Officer, commented:
"Vectura continues to perform well with strong in market performance of flutiform and Ultibro, and is trading in line with expectations for 2017. Following the 2017 delays to VR315 alongside the positive progress being made with our pipeline, in particular the approval and commercialisation of Breelib, today's announcement is a further demonstration of management discipline in capital allocation. We are adjusting the pipeline mix and reducing the overall level of investment optimising the Group's risk profile and creating headroom to introduce new development programmes leveraging our proven capabilities. With a strong trading outlook alongside our unique integrated capabilities and an optimised R&D investment, we look forward to the future with confidence."
Conference call at 10:00 am GMT today
James Ward-Lilley, Chief Executive Officer, and Andrew Derodra, Chief Financial Officer, will host a conference call at 10.00 GMT today, 4 January 2018, to discuss this announcement. Dial-in details are:
Participant local dial-in: +44 (0)330 336 9105
Participant free phone dial-in: 0800 358 6377
Participant code: 6069766
A live webcast will be available on Vectura's website along with the presentation slides: http://www.vectura.com/investors/presentations-webcasts/. A replay will also be available after the call.
- Ends -
For more information, please contact:
| Vectura Group plc | +44 (0)7471 352 720 |
| Andrew Derodra - Chief Financial Officer | |
| Elizabeth Knowles - Director Investor Relations and Analysis David Ginivan - VP Corporate Communications | |
| Consilium Strategic Communications | +44 (0)20 3709 5700 |
| Mary-Jane Elliott / Chris Welsh / Jessica Hodgson |
About Vectura
Vectura, a FTSE250 company listed on the London Stock Exchange (LSE: VEC), is an industry-leading device and formulation business for inhaled airways products offering a uniquely integrated inhaled drug delivery platform. With our extensive range of device and formulation technologies, integrated capabilities and collaborations, we are a leader in the development of inhalation products, increasing our ability to help patients suffering from respiratory diseases.
Vectura has eight inhaled, three non-inhaled and ten oral products marketed by partners with growing global royalty streams. The Group has a diverse portfolio of drugs in clinical development, including a number of novel and generic programmes which are partnered with several global pharmaceutical and biotechnology companies including Hikma, Novartis, Sandoz, Mundipharma, Kyorin, Baxter, GSK, UCB, Ablynx, Grifols, Bayer, Chiesi, Almirall, Janssen, Dynavax and Tianjin KingYork along with two wholly owned nebulised development programmes.
For further information, please visit Vectura's website at www.vectura.com.
[1] Being the latest quarter for which data is available
[2] Internal calculations using IMS Health ("IMS") data based on sales to pharmacies and excluding certain minor countries not covered by IMS. In-market sales are not the same as sales to wholesalers on which royalties are payable to the Group
[3] As reported by Novartis on 24 October 2017