SOURCE: Vernalis PLC

September 29, 2015 03:57 ET

Vernalis PLC: Results announcement for 18 months ended 30/06/15

WINNERSH, UK--(Marketwired - Sep 29, 2015) - Vernalis PLC (LSE: VER); (OTC PINK: VNLPY)

29 September 2015

LSE: VER
Vernalis plc

Results Announcement for the 18 months ended 30 June 2015

Tuzistra XR US launch underway, transition to a commercial specialty pharmaceutical company on track

Investment in NCE pipeline complete

Vernalis plc (LSE: VER) today announces its audited results for the 18 month period ended 30 June 2015 and unaudited results for the 12 month period ended 30 June 2015.

The Group changed its accounting reference date from 31 December to 30 June on 18 November 2014 to align the external reporting period with the seasonality of the US cough cold market, which will become a major component of the Group's future commercial business following the approval and launch of Tuzistra™ XR. While the financial highlights and financial review below focus on the 12 months ended 30 June 2015 compared to the 12 months ended 30 June 2014, figures for the audited 18 month period to 30 June 2015 are also presented. The interim performance, for the first 6 months through to June 2014, was published on 5 August 2014.

                 
    (Audited)
18 months
ended
30 June
2015
£000
  (Audited)
12 months
ended
31 Dec
2013
£000
  (Unaudited)
12 months
ended
30 June
2015
£000
  (Unaudited)
12 months
ended
30 June
2014
£000
Revenue   19,882     14,084     13,712     12,693  
R&D expense   (22,563 )   (14,416 )   (15,687 )   (14,805 )
G&A expense (before exceptional items)   (8,635 )   (4,907 )   (6,019 )   (4,950 )
Operating (loss)/profit                        
  Before exceptional items   (12,078 )   (7,303 )   (8,224 )   (8,602 )
  After exceptional items   (11,835 )   (5,695 )   (7,981 )   (7,499 )
Net Finance income/ (expense)   2,576     (579 )   4,252     (6,876 )
Loss before tax                        
  Before exceptional items   (9,502 )   (7,882 )   (3,972 )   (15,478 )
  After exceptional items   (9,259 )   (6,274 )   (3,729 )   (14,375 )
Income tax credit   2,858     2,273     1,946     1,606  
Loss after tax                        
  Before exceptional items   (6,644 )   (5,609 )   (2,026 )   (13,872 )
  After exceptional items   (6,401 )   (4,001 )   (1,783 )   (12,769 )
Cash resources   61,258     76,918     61,258     70,336  
                         

Financial Highlights for the 12 months ended 30 June 2015

  • Financial performance at the top end of market expectations
  • Revenue was £13.7 million (2014: £12.7 million, 18 months: £19.9 million)
    • Research collaboration income was £7.9 million (2014: £6.6 million, 18 months £12.3 million) up £1.3 million or 20% due to an increase in FTE income, with milestone receipts flat at £1.1 million (18 months: £2.2 million). The research organisation remains self-funding
    • $1.0 million (£0.7 million) was received following the out-licensing of V81444
    • Frovatriptan royalty income was down 17% at £4.9 million (2014: £5.9 million 18 month: £6.6 million): 5% due to a decrease in volume of active pharmaceutical ingredient (API) supplied, 4% due to pricing and 8% due to foreign exchange
  • Operating costs before exceptional items were £21.7 million (2014: £19.8 million, 18 month: £31.2 million), up 10% due to preparation costs associated with the launch of Tuzistra™ XR
  • Operating loss for the year before exceptional items was £8.2 million down marginally compared to 2014 (2014: £8.6 million, 18 months: £12.1 million) and £8.0 million on a post exceptional basis (2014: £7.5 million, 18 months £11.8 million)
  • Net finance income for the year was £4.3 million (2014: £6.9 million loss, 18 month: £2.6 million income) driven by an unrealised foreign exchange gain from the retranslation of our US dollar cash into sterling for reporting purposes
  • Pre-exceptional loss for the year was substantially reduced to £2.0 million (2014: £13.9 million, 18 months £6.6 million) and £1.8 million (2014: £12.8 million, 18 months £6.4 million) on a post-exceptional basis due to unrealised foreign exchange movements on our US dollar cash
  • Cash resources including cash and cash equivalents and held to maturity assets reduced by £9.0 million in the year (for 18 months reduced by £15.7 million) and included:
    • $12.0 million (£7.5 million) milestone payments in total to Tris for Tuzistra™ XR filing and approval milestones and POC for CCP-08 (the 18 month period additionally included a $3.0 million milestone for POC of CCP-07)
    • £4.3 million (18 months £2.6 million) unrealised foreign exchange gain on the conversion of cash resources held in US dollars into sterling
  • Balance sheet remains strong with £61.3 million of cash resources and no debt at 30 June 2015

Operational Highlights for the 18 months
Cough Cold Commercial Pipeline:

  • Tuzistra™ XR approved by FDA on 30 April 2015
  • POC achieved for both CCP-07 and CCP-08 triggering milestone payment to Tris in April and July 2014 respectively
  • CCP-07 12 months stability testing commenced in June 2015 with NDA submission now expected in 2016
  • Two further programmes in active development at Tris, and we aim to achieve POC on these remaining programmes by the end of 2016

Frovatriptan (marketed):

  • Underlying Menarini sales for the 12 months to 30 June 2015 down 11% at EUR 25.2 million (2014: EUR 28.4 million)
  • Menarini current outlook foresees three 12.5kg shipments of API for 2015/16 but underlying sales and tablet volumes are likely to be affected by generic entries in 2016

NCE Development Pipeline:

  • Completed in-house investment in studies and successfully out-licenced V81444 (CNS disease) and V2006 (cancer) to partners. Seeking partners for the remaining three un-partnered programmes

Research Collaborations:

  • New collaboration with Taisho announced (April 2015)
  • £2.2 million of milestones earned from successful collaborations with Servier (June and August 2014) and AKP (March 2014 and March 2015)

Post Year End Highlights

  • Tuzistra™ XR, the only 12-hour, extended-release, codeine-based cough cold suspension, launched in the US ahead of the 2015/2016 cough cold season
  • Specialist US primary care sales force now fully recruited, trained and deployed to the field 

Expected 2015/16 Newsflow:

  • CCP-07: pivotal single and multi-dose pharmacokinetic study results and NDA submission (2016)
  • CCP-08: completion of stability batches for stability testing, pivotal single and multi-dose pharmacokinetic study results and NDA submission (2015 and 2016)
  • Proofs-of-concept on two remaining programmes in cough cold pipeline (by end of 2016)
  • Achieve milestones under existing collaborations (undisclosed)
  • Secure new research collaborations (undisclosed)

Ian Garland, Chief Executive Officer, commented, "We have continued to make significant progress in the transition of Vernalis to a commercial specialty pharmaceutical company during the last 18 months and have delivered across all three elements of our strategy. Pivotally, the approval and recent launch of our lead cough cold programme, Tuzistra™ XR has validated our low risk, fast path to market, commercial strategy. There are a further four programmes in active development with Tris that should follow the same approval route. Tuzistra™ XR alone has the potential to be a significant product that will transform Vernalis into a profitable and cash generative business, targeting a market worth over $1.8 billion at current brand pricing, with little competition.

In the NCE pipeline we completed our investment in our in-house studies and our partnering model is beginning to deliver.

Additionally our research business secured multiple milestones during the period as well as a new collaboration. Our research business continues to be self-funding.

The outlook for 2015/2016 is very exciting as we begin to commercialise Tuzistra™ XR in the US prescription cough cold market and we continue to look for complementary products to leverage our specialist sales force."

Presentation & Conference Call
Vernalis management will host a presentation at 9.30am (UK) at the offices of FTI Consulting 200 Aldersgate, Aldersgate Street, London, EC1A 4HD. It will also be available via webcast at http://www.vernalis.com/investor-centre/presentations-and-webcasts and www.cantos.com and via conference call, which can be joined by dialling: +44 (0) 20 3003 2666, Passcode 7767597 # Please contact Matthew Moss at FTI consulting +44 (0) 20 3727 1000 for details.

Enquiries:

     
Vernalis plc:    
Ian Garland, Chief Executive Officer   +44 (0) 118 938 0015
David Mackney, Chief Financial Officer    
     
Canaccord Genuity Limited (Nominated Adviser):   +44 (0) 20 7523 8000
Dr Julian Feneley    
Emma Gabriel    
Henry Fitzgerald-O'Connor    
     
Shore Capital (Joint Broker)   +44 (0)20 7408 4090
Bidhi Bhoma    
Toby Gibbs    
     
FTI:   +44 (0) 20 3727 1000
Ben Atwell    
Simon Conway    
Stephanie Cuthbert    
     

Notes to Editors

About Vernalis
Vernalis is a revenue generating, commercial stage pharmaceutical company with significant expertise in drug development. The Group has two approved products; Tuzistra™ XR targeting the US prescription cough cold market and, frovatriptan for the acute treatment of migraine. It has an exclusive licensing agreement to develop and commercialise multiple novel products focussed on the US prescription cough cold market as well as eight programmes in its NCE development pipeline. Vernalis has also significant expertise in fragment and structure based drug discovery which it leverages to enter into collaborations with larger pharmaceutical companies. The Company's technologies, capabilities and products have been endorsed over the last five years by collaborations with leading pharmaceutical companies, including AKP, Biogen Idec, Endo, GSK, Genentech, Lundbeck, Menarini, Novartis, Servier Taisho and Tris.

For further information about Vernalis, please visit www.vernalis.com.

Vernalis Forward-Looking Statement
This news release may contain forward-looking statements that reflect the Company's current expectations regarding future events including the clinical development and regulatory clearance of the Company's products, the Company's ability to find partners for the development and commercialisation of its products, as well as the Company's future capital raising activities. Forward-looking statements involve risks and uncertainties. Actual events could differ materially from those projected herein and depend on a number of factors including the success of the Company's research strategies, the applicability of the discoveries made therein, the successful and timely completion of clinical studies, the uncertainties related to the regulatory process, the ability of the Company to identify and agree beneficial terms with suitable partners for the commercialisation and/or development of its products, as well as the achievement of expected synergies from such transactions, the acceptance of frovatriptan and other products by consumers and medical professionals, the successful integration of completed mergers and acquisitions and achievement of expected synergies from such transactions, and the ability of the Company to identify and consummate suitable strategic and business combination transactions.

Operational Review

In anticipation of the Company launching its first US prescription cough cold product in September 2015, the Board decided that it would be preferable to align the Company's reporting period with the US cough cold season which runs from late September to April each year. Consequently, the Company's year end was moved to 30 June and this reporting period extended to 18 months.

We highlighted in our last annual report to 31 December 2013, the rapid progress being made in our transformational US cough cold business. That progress has continued in the last 18 months with the on-time filing in June 2014 and approval on 30 April 2015 of Tuzistra™ XR our first US NDA. Since the end of that reporting period and ahead of the upcoming 2015/16 cough cold season, we have established our US commercial infrastructure and launched Tuzistra™ XR through a dedicated contract sales force.

Market research undertaken with physicians and healthcare insurers indicates strong support for Tuzistra™ XR, which is a combination of the antitussive codeine and the antihistamine chlorpheniramine. As a narcotic-based cough cold treatment, Tuzistra™ XR's target market comprises around 18 million prescriptions written annually with around 12.4 million written for codeine-based treatments, 5.5 million for treatments based on hydrocodone and with a potential combined annual value of US$1.8 billion. We have targeted our newly established contract sales force to call on physicians currently prescribing either codeine or hydrocodone-based cough cold treatments and have priced Tuzistra™ XR at current cough cold brand pricing which the insurer research indicates should support broad formulary coverage. Peak sales potential for Tuzistra™ XR could be more than double the US$200 million peak achieved in 2008 by Tussionex®, the hydrocodone-based 12-hour narcotic cough cold syrup.

Our key goals for Tuzistra™ XR in its first cough cold season are to achieve widespread formulary coverage and pharmacy distribution, gain operational efficiency in the newly created contract sales team, and establish a supply chain that meets customer demand. Achieving these goals will provide a strong platform to increase market share in the 2016/17 cough cold season.

The remaining four US cough cold programmes under development with Tris have also shown good progress. Both CCP-07 and CCP-08 have achieved POC and NDAs for each are now targeted to be filed in calendar year 2016. Tris continues to work on achieving POC for CCP-05 and CCP-06 and could attain that goal by the end of the 2016 calendar year.

We have seen mixed progress in our NCE programmes, which although a lower priority than cough cold, could provide value for shareholders with future success. In October 2014, we successfully licensed vipadenant (V2006) to Redox, a programme that had ceased development in 2010. Redox are investigating this programme in cancer immunotherapies.

We have completed investment in our two in-house NCE programmes: the Phase II study for V81444 (our A2A antagonist programme for Parkinson's and other CNS diseases) was completed during the first half of 2014 and although the primary endpoint was missed, we were able to partner it in April 2015; the Phase II POC study for V158866 (our FAAH inhibitor for pain) was completed in August 2015 and failed to achieve its primary endpoints. In addition, in late 2014 following results of ongoing clinical studies, Novartis ceased further investment in AUY922 and will return rights to that programme to us.

We do not plan to make further in-house investment in NCEs but will continue to explore how to realise value from unpartnered programmes based on current data.

During the 18 month period ended 30 June 2015, research continued to perform well, both operationally and financially. Revenues of £12.3 million (including £2.2 million of milestone receipts) more than covered costs, including capital expenditure. In addition, we began one new collaboration with Taisho, and the business also received the Queen's Award for Enterprise.

We have maintained a tight control of our finances ahead of establishing our US commercial business. We continue to have a strong financial position with £61.3 million of cash resources, no debt and an 18 month cash burn of only £15.7 million including £9.3 million of milestone payments to Tris. Our cash burn continues to benefit from the success of our revenue-based research strategy, our frovatriptan royalty income received from Menarini and SK Chemicals and careful control of expenses. We expect our cash burn to increase significantly in the year to June 2016 as our frovatriptan royalty income declines following expiry of the core patents at the end of December 2015 and we invest in the US launch of Tuzistra™ XR.

The Company is positioned for significant advancement in 2015/16 primarily in its US commercial business with our first cough cold launch, potential NDA filings for two further cough cold programmes and potential POC in the remaining two programmes. We expect continued steady progress in the research business and there is potential for additional income from partnering or milestone payments in the NCE portfolio.

Following deterioration in his health, Dr Allan Baxter resigned from the Board in early 2015 and subsequently passed away. Allan made a valuable contribution during his time on the Board and was a highly respected expert within the industry who will be sadly missed.

We have made two appointments to the Board since the end of the accounting period. Dr Ian Gilham joined on 1 July 2015 as a Non-Executive Director and will Chair the Remuneration Committee. His depth of experience in the global pharmaceutical industry will be very valuable to the Board. Lisa Schoenberg joined the Board on 1 September 2015 as a Non-Executive Director and comes with substantial US commercial experience from her time as a senior member of AstraZeneca's US commercial operations.

We would like to thank Board members and staff for their contributions during another successful period and our shareholders for their continued support.

Financial Review

Accounting reference date change
The Group changed its accounting reference date from 31 December to 30 June on 18 November 2014, to align the external reporting period with the seasonality of the US cough cold market, which will become a major component of the Company's future commercial business. The financial information within the Report and accounts therefore covers the 18 month period ended 30 June 2015. Thereafter, interim and annual results will be published each year, for the six months ended 31 December and 12 month period ended 30 June. The financial review below includes comparative numbers for the unaudited 12 months ended 30 June 2015, being the 12 months ended 30 June 2014. This provides a more meaningful comparison and reflects the annual 12 month period for the Group going forward. The interim numbers comparing the first six months through to 30 June 2014 were published on 5 August 2014 and are available via our website www.vernalis.com/media-centre.

Total revenues of £13.7 million
On the new 12 month accounting calendar of 1 July to 30 June, revenue for the 12 months ended 30 June 2015 totalled £13.7 million (2014: £12.7 million) an increase of 8 per cent year-on-year. £4.9 million related to the supply of frovatriptan (2014: £5.9 million) and £8.8 million (2014: £6.8 million) in respect of research collaborations, and other collaboration income including the out-licensing of V81444.

Frovatriptan sales
Sales of frovatriptan by Menarini in Europe and Central America were 11 per cent down in euro terms at EUR 25.2 million for the year to 30 June 2015, compared to 2014 (EUR 28.4 million). Volumes of tablet sales in 2015 were also down at 9.8 million compared to 2014 (10.7 million). Vernalis receives 25.25 per cent of Menarini sales via a royalty linked to the supply of API, so the reported royalties do not necessarily track the underlying performance of Menarini in the market.

The reported frovatriptan royalties for the year to 30 June 2015 of £4.9 million were 17 per cent down on 2014 (£5.9 million) and this £1.0 million decrease was due to a 5 per cent decrease in volume, an 8 per cent decrease due to foreign exchange and a 4 per cent price reduction.

In the year to 30 June 2015, we shipped to Menarini three API shipments of 12.5kg each. In the year to 30 June 2014, in addition to these three API shipments, we also shipped one batch of tablets for the Central American market to Menarini and one batch of tablets to SK Chemicals for the South Korean market. Income decreased due to the weakening of the euro during 2015, as shipments to Menarini are invoiced in euros and then converted into sterling for financial reporting purposes. The average sterling:euro exchange rate for the year to 30 June 2015 was 1.3317, down 5 per cent from 1.2718 for the year to 30 June 2014.

Research remained self-financing
Research collaboration income was £7.9 million for the year to 30 June 2015 (2014: £6.6 million), an increase of £1.3 million or 20 per cent. Milestone income was £1.1 million, (2014: £1.1 million) which came from the Servier and AKP collaborations with the increase driven by FTE income. We had six active research collaborations during the year to 30 June 2015 which generated £6.8 million of FTE income (2014: £5.5 million) and, importantly, research activity remained self-financing during 2014/15.

Out-licensing of V81444
In February 2015, we out-licensed V81444 for use in all therapeutic applications to a well-funded, US-based biotechnology company. The transaction included a US$1 million upfront payment (£0.7 million), which was included in collaboration income for the year to 30 June 2015.

Development costs remained focused on V158866
Research and development expenditure before exceptional items increased 6 per cent to £15.7 million for the year to 30 June 2015 (2014: £14.8 million) and comprised £13.2 million (2014: £10.6 million) of internally funded research and development costs and £2.5 million (2014: £4.2 million) of external costs associated with the development pipeline. The increase in the internally funded research and development costs was due to US preparatory costs incurred in advance of the 2015 launch of Tuzistra™ XR. The external development pipeline costs for the year to 30 June 2015 remained focused on the V158866 phase II study, which completed in August 2015, whereas in 2014 costs, we had both V81444 and V158866 in clinical studies. There was also a charge of £0.3 million in the year to 30 June 2015, related to the impairment of AUY922 which was being investigated by Novartis in a range of solid cancer tumours. Novartis informed the Company in December 2014 that it had ceased all further development work and so the asset was fully impaired.

G&A cost control
General and administrative expenditure before exceptional items was £6.0 million for the year to 30 June 2015 (2014: £5.0 million), an increase of £1.0 million for the year. Adjusting for the increase in the National Insurance accrual on the exercise of share options of £0.4 million for 2015, underlying G&A increased by £0.6 million and reflects the anticipated increase in costs related to the US expansion strategy.

The exceptional gain in the year to 30 June 2015 of £0.2 million (2014: £1.1 million) relates to the reassessment of assumptions used to calculate the property provision due to the continuing improvement in the rental market.

Operating loss decreased marginally
The operating loss before exceptional items decreased to £8.2 million for the year to 30 June 2015 (2014: £8.6 million), reflecting the increase in revenues offset by a smaller increase in the overall cost base. The operating loss from continuing operations after the exceptional gain was £8.0 million (2014: £7.5 million).

Finance income increased significantly by strengthening of the US dollar
Interest earned on cash resources was slightly lower at £0.2 million (2014: £0.3 million). With the majority of our cash held in US dollars in order to match our Tris and US commercial financing requirements, the yield on these deposits remained low. Finance income however was significantly affected by the strengthening of the US dollar during the year to 30 June 2015, with a £4.3 million unrealised foreign exchange gain on the conversion of US dollar-denominated cash deposits into sterling at 30 June 2015 for financial reporting purposes. For the year to 30 June 2014, there was an unrealised foreign exchange loss of £6.7 million due to the weakening of the US dollar over this period. At 30 June 2015, the sterling:US dollar rate was 1.5727, compared to 30 June 2014 rate of 1.7099.

R&D tax credits increased through Tris development payments
The tax credit of £1.9 million (2014: £1.6 million) represents recoverable amounts under current legislation on R&D tax credits for small- and medium-sized companies.

Payments made to Tris that relate to development work performed on our behalf, will qualify for R&D tax credits but these do not include the approval milestone payments which acquire the rights to the programmes from Tris.

Loss for the year reduced significantly because of the foreign exchange movements on cash
The reduced pre-exceptional loss for the year to 30 June 2015 was £2.0 million (2014: £13.9 million) predominantly due to the unrealised foreign exchange gain and loss on cash recorded in each period. There was a significant swing in the sterling:US dollar exchange rates between reporting periods resulting in a £11.0 million difference in the reported loss.

Balance sheet remains exceptionally strong
Non-current assets increased to £15.1million (30 June 2014: £9.3 million) due to milestone payments to Tris on achieving NDA acceptance and then approval for Tuzistra™ XR as well a POC payment made to Tris for CCP-08.

Current assets decreased to £71.5 million (2014: £77.4 million) primarily due to the £9.0 million reduction in cash over the year.

Total liabilities increased to £9.5 million (2014: £8.6 million) due to an increase in deferred income from our research collaborations and we remain debt free.

Cash remains key to executing commercial strategy
Cash resources comprising held-to maturity financial assets and cash and cash equivalents at 30 June 2015, totalled £61.3 million (30 June 2014: £70.3 million). A significant proportion of these cash resources are denominated in non-sterling currencies with most of the cash denominated in US dollars.

We continue to manage cash tightly. The £9.0 million cash burn in the year included US$12 million (£7.5 million) payments to Tris for Tuzistra™ XR and CCP-08 as well as a £4.3 million unrealised foreign exchange gain arising from the conversion of our US dollars into sterling for reporting purposes. Excluding these amounts the net burn for the year to 30 June 2015 was £5.8 million.

Underlying cash burn, which excludes milestone income received, Tris milestone payments and foreign exchange on US dollar cash, increased to £8.5 million from £7.5 million, reflecting the additional investment in the US launch activities for Tuzistra™ XR.

Outlook
With the approval of Tuzistra™ XR, the business will be transformed in the next 12 months as we transition into a specialty pharmaceutical company. There will be significant investment made in launching Tuzistra™ XR and we expect to remain loss making for the next 18-24 months and, consequently, the cash burn will increase over this period. However, the overall cash position remains strong and we believe that we have sufficient cash to reach profitability. We are extremely excited about the growth potential of the business as we launch Tuzistra™ XR this year.

Risks and Uncertainties

Principal risks and uncertainties facing the business
Risks
Like all businesses we face risks and uncertainties, many of which are inherent within any pharmaceutical company looking to develop and commercialise products. Below are those principal risks and uncertainties that we consider could have a material impact on our operational results, financial condition and prospects. These risks are not in any particular order of priority and there may be other risks that are either currently unknown or not considered material which could have a similar impact on our business in the future. Our risk management process is explained in the corporate governance report within the Report and accounts for the 18 month period ended 30 June 2015.

Clinical and regulatory risk
There are significant inherent risks in developing drugs for commercialisation due to the long and complex development process. Any drug which we or our partners wish to offer commercially to the public must be put through extensive research, pre-clinical and clinical development all of which takes several years and is extremely costly. We and/or our collaborators may fail to successfully develop a drug candidate because of:

  • The failure of the drug in pre-clinical studies.
  • The inability of clinical trials to demonstrate the drug is safe and effective in humans.
  • The failure of the drug in bioequivalence studies.
  • The failure to develop a viable formulation with differing characteristics from existing drugs with acceptable stability.
  • The failure to find a collaborator to take the drug candidate into expensive later-stage studies.
  • The failure to manufacture three stable batches of product for NDA submission.
  • The failure of the FDA to approve NDA submissions.
  • The failure to comply with GxP.
  • The failure to manufacture the drug substance in sufficient quantities and at commercially acceptable prices.

In addition, the complexity and multijurisdictional nature of the regulatory processes could result in either delays in achieving regulatory approval or non-approval. If a product is approved, the regulators may impose additional requirements, for example, restrictions on the product's indicated uses or the levels of reimbursement receivable, which could impact the commercial viability of the drug.

Once approved, the product and its manufacture will continue to be reviewed by the regulators and may be withdrawn or restricted in the future. The failure to comply with GXP and/or to manufacture the product in sufficient quantities and at commercially acceptable prices could significantly impact the financial results of the Company in the future.

Pricing, reimbursement and competition
Our commercial success depends on the acceptance of our and our collaborators' products by the market, including physicians, third-party payers and patients.

We may be adversely affected by third-party reimbursement and healthcare cost containment initiatives. Third-party payers including government and private health insurers are increasingly seeking to contain healthcare costs through measures that are likely to impact the products we are developing, including:

  • Challenging the prices charged for healthcare products.
  • Limiting both coverage and the amount of reimbursement for new therapeutic products.
  • Refusing to provide coverage when an approved drug is used in a way that has not received regulatory marketing approval.
  • Moving towards a reference pricing model, particularly in Europe where the amount of reimbursement is determined by consideration of reimbursement levels for comparable drugs in other countries, can severely restrict the potential per unit price for many drugs unless there is significant differentiation from existing products.

These or other healthcare reforms that may be adopted in the future could harm our business and, in particular, could have a material adverse effect on the amounts that public and private payers will pay for our or our collaborators' commercialised products. If we and/or our collaborators develop products that are not covered by government or third-party reimbursement schemes, are reimbursed at prices lower than those expected or become subject to legislation controlling treatments or pricing, we and/or our partners may not be able to generate significant revenues or attain profitability for any products which are approved for marketing.

Our business faces intense competition from major pharmaceutical companies and specialised biotechnology companies developing drugs for the same market opportunities. Some factors that may affect the rate and level of market acceptance of any of our or our collaborators' products include:

  • The existence or entry into the market of superior competing products or therapies.
  • Entry to the market of competing products earlier than our or our collaborators' products.
  • The price of our or our collaborators' products compared to competing products.
  • Competition for target physician time from other pharma companies.
  • Public perception and publicity concerning the safety, efficacy and benefits of our or our collaborators' products, compared to competing products and therapies.
  • The ability to market the products and therapies to physicians to generate market share at an affordable cost.
  • The effectiveness of the sale and marketing efforts of our sales force or our collaborators' sales force.
  • Regulatory developments relating to manufacturing or use of our or our collaborators' products.
  • The willingness of physicians to adopt a new treatment regime.
  • The ability to achieve adequate distribution and stocking levels of product at the wholesalers and pharmacies.
  • A competitor's ability to gain approval of a substitutable copy of our or our collaborator's product (i.e. a generic).

Intellectual property
Intellectual property protection remains fundamental to our strategy of developing novel drug candidates. Our ability and that of our collaborators to stop others making a drug, using it or selling the invention or proprietary rights by obtaining and maintaining protection is critical to our success. We and our collaborators own portfolios of patents and patent applications which underpin our and our collaborators' research and development programmes. We invest significantly in maintaining and protecting this intellectual property to reduce the risks over the validity and enforceability of our patents. However, the patent position is always uncertain and often involves complex legal issues. Therefore, there is a risk that intellectual property may become invalid and/or expire before, or soon after, commercialisation of a drug product and we may be blocked by other companies' patents and intellectual property.

Product litigation and corporate compliance
Failure of the Company and/or its collaborators to comply with regulations could damage the Company's reputation, the withdrawal of the product from the market and legal action against the Company. Unanticipated side-effects or unfavourable publicity from complaints concerning any of the Company's products, or those of its competitors, could have an adverse effect on the Company's ability to obtain or maintain regulatory approvals or successfully market its products. Developing, manufacturing, marketing and selling pharmaceutical products involve a risk of product liability claims, product recalls, litigation and associated adverse publicity.

The cost of defending these types of claims is expensive, even when the claims have no merit. A successful product liability claim against the Company could result in the Company paying a substantial monetary award. Although the Company will carry product liability insurance when available, this may not be adequate to fully discharge such an award. Product liability insurance is expensive, sometimes difficult to obtain and may not be available on acceptable terms. If, in the absence of adequate insurance, the Company does not have sufficient financial resources to satisfy a liability resulting from such a claim or to fund the legal defence of such a claim, it could become insolvent. Any adverse judgement in a product liability lawsuit, even if insured, could generate substantial negative publicity about the Company's products and business and inhibit its commercialisation strategy.

Manufacturing risk
For the cough cold portfolio we are reliant on one source of supply for the finished product. If something were to happen to Tris, financial or otherwise, or to its manufacturing facility, or if Tris has insufficient manufacturing capacity, or fails to secure adequate quota of controlled substances from the DEA, or is not able to retain key personnel, the Company may be unable to supply sufficient product to the market, which may then have a material impact on sales, profits and cash liquidity.

The supply of frovatriptan API to Menarini for the EU and Central American markets has historically been a large proportion of our income. With likely generic competition in the coming months its importance may decrease but our ability to manufacture and supply this product on schedule will still be a key focus.

In addition, our ability to successfully scale-up production processes to clinical trial or commercial levels is vital to the commercial viability of any product. Availability of raw materials is extremely important to ensure that manufacturing campaigns are performed on schedule and, therefore, dual sourcing is used where possible.

Product manufacture is subject to continual regulatory control and products must be manufactured in accordance with good manufacturing practice. Any changes to the approved process may require further regulatory approval which may incur substantial cost and delays. These potential issues could adversely impact operations and cash liquidity.

In-licensing complementary products
Our strategy is to augment the low-risk, late-stage Tris portfolio of products by in-licensing complementary products to our commercial pipeline. This is an extremely competitive area, with many large- and mid-sized pharmaceutical companies also following a similar strategy, and consequently this may be difficult to achieve with our current financial resources and infrastructure. A failure to succeed in successfully in-licensing complementary products may affect our ability to grow revenues and attain profitability.

Establishing a US commercial operation
Over the last 12 months, we have established a US infrastructure, in order to commercialise the late-stage Tris portfolio of products in the US. The operational strategy to reduce the execution risk in setting this up has been to minimise the creation of our own infrastructure as far as possible and so we have used a 3PL and a CSO who provide the main operational services to our US business. Any issues in their operation may affect our ability to generate and grow revenues and attain profitability. Maintaining and growing this US infrastructure will require the recruitment and retention of suitably qualified individuals to implement the strategy. If we are unable to attract the talent required to undertake the key roles in the commercial organisation or retain them once recruited, this may also impact our ability to grow revenues and attain profitability.

The promotion, marketing and sale of pharmaceutical products in the US is highly regulated and the operations of those undertaking these activities are closely supervised by regulatory authorities and law enforcement agencies, including the US Department of Health and Human Services, the FDA, the US Department of Justice and the DEA. These authorities and agencies investigate any potential violations of laws relating to the sale, marketing and promotion of pharmaceutical products, including the False Claims Act, the Anti-Kickback Statute and the Foreign Corrupt Practices Act, for alleged improper conduct, including corrupt payments to government officials, improper payments to medical professionals, off-label marketing of pharmaceutical products and medical devices, and the submission of false claims for reimbursement by the federal government. Healthcare companies may also be subject to enforcement actions or prosecution if found guilty of any improper conduct. Any inquiries or investigations into the operations of, or enforcement or other regulatory action against, the Company by such authorities could result in significant defence costs, fines, penalties and injunctive or administrative remedies, distract management to the detriment of the business, result in the exclusion of certain products, or the Company, from government reimbursement programs or subject the Company to regulatory controls or government monitoring of its activities in the future.

Financial risks
Cash flow
We have a history of operating losses which are anticipated to continue in the near term. Following the £65.9 million (net of expenses) equity fundraising announced in February 2012, the Company is well capitalised to execute its transition into a profitable and cash generative pharmaceutical company over time. At 30 June 2015, the Group had £61.3 million of cash resources and no debt. However, the Group may need to seek further capital through equity or debt financings in the future and if this is not successful, the financial condition of the Group may be adversely affected.

Counterparty credit risk
The Company is exposed to credit-related losses on cash deposits in the event of non-performance by counterparties.

With the global economic uncertainty over the last few years, counterparty credit risk remains a key consideration when placing cash funds on deposit. The creditworthiness of counterparties is assessed prior to placing funds on deposit and is monitored to maturity. Under the Company treasury policy there is a maximum amount that can be placed with any single counterparty. If any counterparty were to experience financial difficulties this may impact the Company's liquidity in the future.

Foreign exchange
We record our transactions and prepare our financial statements in sterling but almost all of our revenue is from licensing and collaborative agreements and frovatriptan royalties, which are received in US dollars or euros. An increasing proportion of our expenditure will be incurred in US dollars, relating principally to the Tris agreement and the commercialisation of Tuzistra™ XR in the US. Our cash balances are predominantly held in US dollars, sterling and euros.

Owing to the global economic uncertainty, we minimised our exposure to foreign exchange movements by matching the currency in which our cash is held with our future obligations. Immediately following the equity issue in March 2012, we purchased US$100 million, to match our Tris and US commercial financing requirements. As a consequence of holding these foreign currency deposits, we have a financial reporting foreign exchange exposure on the retranslation of the US dollar cash balances back into sterling at each reporting date, but critically any changes in foreign exchange rates between sterling and the US dollar do not impact our ability to execute the US commercial plan.

To the extent that income and expenditure in currencies other than sterling and US dollars are not matched, fluctuations in exchange rates between sterling and these currencies, principally euros, may result in realised or unrealised foreign exchange gains and losses. Simple derivative contracts have been used to mitigate the risk of fluctuations in exchange rates where there has been certainty over the amount and timing of the income.

Where the timing and/or the amount to be received is uncertain, risk management is more difficult but the Group has used derivatives where possible and will continue to do so. To the extent that derivative instruments are considered too costly, because of the flexibility required or the time over which protection is sought, any fluctuations in foreign exchange movements may have a material adverse impact on the results from operations and our cash liquidity in the future.

Return on investment
As the drug development process is inherently risky and because it is conducted over several years, it can be extremely costly. Many drug candidates fail in development due to the clinical and regulatory risks, and even in those circumstances where drugs are approved, sales levels can be disappointing due to competition, healthcare regulation and/or intellectual property challenges. As a result, the returns achieved may be insufficient to cover the costs incurred. The Group attempts to mitigate the development and commercial risk of its NCE pipeline by partnering drug candidates at an appropriate stage. Such partnering crystallises part of the programme's value, with the goal of retaining an attractive proportion of the commercial benefit through future milestone payments and ongoing royalties from commercial sales.

Value of intangible assets
Under the development and licensing agreement with Tris, milestone sums payable to Tris for the reimbursement of development costs and for the approval of the NDA for each product, will be capitalised on the balance sheet as intangible assets and then amortised from commercialisation. Under IFRS there is a need to assess annually the carrying value of any asset that is not being amortised, or if there is a triggering event that suggests there may have been a change to its value. If the commercial value is less than the carrying value of the asset, this shortfall in value is reflected in financial statements. The commercial value of an intangible asset could reduce if there is a problem in development, or if the FDA decides not to approve the product, or if there is a commercial concern because of competition or underperformance, and any adjustment to the carrying value may materially impact the financial results of the Company.

Related Parties

Related parties disclosures are given in note 12.

Statement of directors' responsibilities
Each of the directors, whose names and functions are listed in the directors report confirm that, to the best of their knowledge:

  • the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and loss of the Group; and
  • the strategic report in the Report and accounts for the 18 month period ended 30 June 2015 includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

Consolidated income statement
for the 18 months ended 30 June 2015

           
      18 months ended 30 June 2015   12 month ended 21 December 2013
  Note   Pre-
exceptional
items
  Exceptional
items
(note 3)
  Total   Pre-
exceptional
items
  Exceptional
items
(note 3)
  Total
      £000   £000   £000   £000   £000   £000
Revenue 2   19,882     -   19,882     14,084     -     14,084  
Other income     611     -   611     180     -     180  
Cost of sales     (1,373 )   -   (1,373 )   (2,244 )   -     (2,244 )
Research and development expenditure     (22,563 )   -   (22,563 )   (14,416 )   -     (14,416 )
General and administrative expenditure     (8,635 )   243   (8,392 )   (4,907 )   1,608     (3,299 )
Operating (loss)/profit     (12,078 )   243   (11,835 )   (7,303 )   1,608     (5,695 )
Finance income 4   2,733     -   2,733     420     -     420  
Finance expense 4   (157 )   -   (157 )   (999 )   -     (999 )
(Loss)/profit on ordinary activities before taxation     (9,502 )   243   (9,259 )   (7,882 )   (1,608 )   (6,274 )
Income tax credit 5   2,858     -   2,858     2,273     -     2,273  
(Loss)/profit for the period     (6,644 )   243   (6,401 )   (5,609 )   (1,608 )   (4,001 )
Loss per share (basic and diluted) 6   (1.5p )   0.1p   (1.4p )   (1.3p )   0.4p     (0.9p )
                                     

The notes form part of this condensed financial information.

Consolidated statement of comprehensive income
for the 18 month period ended 30 June 2015

         
    18 months ended 30 June 2015   12 months ended 31 December 2013
    Pre-
exceptional
items
  Exceptional
items
(note 3)
  Total   Pre-
exceptional
items
  Exceptional
items
(note 3)
  Total
    £000   £000   £000   £000   £000   £000
(Loss)/profit for the period from continuing operations   (6,644 )   243   (6,401 )   (5,609 )   1,608   (4,001 )
Other comprehensive income:                                
  Exchange (loss)/gain on translation of overseas subsidiaries   (18 )   -   (18 )   2     -   2  
Total comprehensive (expense) income for the period   (6,662 )   243   (6,419 )   (5,607 )   1,608   (3,999 )
                                 

Balance sheet
as at 30 June 2015

             
    Note   30 June
2015
£000
  31 December
2013
£000
Assets            
Property, plant and equipment       1,637     1,438  
Intangible assets   7   12,895     6,292  
Trade and other receivables       534     -  
Non-current assets       15,066     7,730  
Inventories       -     130  
Trade and other receivables       7,017     4,443  
Tax receivable       2,933     1,785  
Derivative financial instruments   9   301     22  
Held-to-maturity financial assets       42,426     48,597  
Cash and cash equivalents       18,832     28,321  
Current assets       71,509     83,298  
Total assets       86,575     91,028  
Liabilities and shareholders' equity                
Liabilities                
Trade and other liabilities       744     156  
Provisions   8   3,510     4,127  
Non-current liabilities       4,254     4,283  
Trade and other liabilities       3,368     3,384  
Deferred income       1,688     962  
Tax payable       5     -  
Provisions   8   154     155  
Current liabilities       5,215     4,501  
Total liabilities       9,469     8,784  
Equity attributable to owners of the parent                
Share capital   10   4,434     4,421  
Share premium       476,392     476,392  
Other reserves   11   253,365     252,416  
Retained deficit       (657,085 )   (650,985 )
Total equity       77,106     82,244  
Total liabilities and equity       86,575     91,028  
                 

Statements of changes in shareholders' equity

                     
    Share
capital
£000
  Share
premium
£000
  Other
reserves
£000
  Retained
deficit
£000
  Total
£000
Balance at 1 January 2013   4,421   476,389   251,629     (646,984 )   85,455  
Loss for the year   -   -   -     (4,001 )   (4,001 )
Other comprehensive income for the year   -   -   2     -     2  
Total comprehensive income/(expense) for the year   -   -   2     (4,001 )   (3,999 )
Transactions with owners:                          
Expenses on issue of share capital   -   3   (3 )   -     -  
Share-based payments charge   -   -   788     -     788  
    -   3   785     -     788  
Balance at 31 December 2013   4,421   476,392   252,416     (650,985 )   82,244  
Loss for the period   -   -   -     (6,401 )   (6,401 )
Other comprehensive income for the period   -   -   (18 )   -     (18 )
Total comprehensive income/(expense) for the period   -   -   (18 )   (6,401 )   (6,419 )
Transactions with owners:                          
Exercise of share options   13   -   (301 )   301     13  
Share-based payments charge   -   -   1,268     -     1,268  
    13   -   967     301     1,281  
Balance at 30 June 2015   4,434   476,392   253,365     (657,085 )   77,106  
                           

Cash flow statement
for the 18 months ended 30 June 2015

             
    Note   18 month
period
ended
30 June
2015
£000
  12 month
period
ended
31 December
2013
£000
             
             
Cash flows from operating activities            
Loss for the period       (6,401 )   (4,001 )
Taxation   5   (2,858 )   (2,273 )
Depreciation       797     426  
Amortisation of intangible fixed assets   7   571     1,349  
Impairment charge on intangible fixed assets   7   300     -  
Movement in provisions   8   (775 )   (1,767 )
Movement in deferred income       726     56  
Share-based payments charge       1,855     876  
Movement in derivative financial instruments       (279 )   (29 )
Finance income   4   (2,733 )   (420 )
Finance expense   4   157     999  
Exchange gain       (239 )   (229 )
        (8,879 )   (5,013 )
Changes in working capital                
Inventories       130     120  
Receivables       (3,373 )   1,143  
Liabilities       (13 )   264  
Cash used in operations       (12,135 )   (3,486 )
                 
Taxation received       1,887     1,929  
Taxation paid       (88 )   -  
Net cash used in operating activities       (10,336 )   (1,557 )
Cash flows from investing activities                
Purchase of property, plant and equipment       (1,005 )   (646 )
Purchase of intangible fixed assets       (7.474 )   (1,976 )
Interest received on cash and cash equivalents       79     88  
Interest received on held-to-maturity financial assets       274     358  
Net cash used in from investing activities       (8,126 )   (2,176 )
Cash flows from financing activities                
Movement in held-to-maturity financial assets       7,903     5,913  
Issue of shares       13     -  
Net cash generated from financing activities       7,916     5,913  
                 
Foreign exchange loss on cash and cash equivalents       1,057     (904 )
Movements in cash and cash equivalents in the period       (9,489 )   1,276  
Cash and cash equivalents at the beginning of the period       28,321     27,045  
Cash and cash equivalents at the end of the period       18,832     28,321  
Held-to-maturity financial assets       42,426     48,597  
Total cash, cash equivalents and held-to-maturity financial assets       61,258     76,918  
                 

Notes to the financial statements
1. Accounting policies and basis of preparation

This financial information for the 18 month period ended 30 June 2015 and the year ended 31 December 2013 does not comprise statutory financial statements. This financial information and announcement was approved for issue on 28 September 2015 and has been extracted from the 30 June 2015 audited statutory financial statements that were also approved by the board on the same date and are available on the Company's website www.vernalis.com. These statutory financial statements have not yet been delivered to the registrar of Companies. Statutory financial statements for the year ended 31 December 2013 were approved by the Board of directors on 31 March 2014 and delivered to the Registrar of Companies. The auditors' report on the financial statements for the 18 month period ended 30 June 2015 and the year ended 31 December 2013 were (i) unqualified, (ii) did not included a reference to any matters to which the auditors drew attention by the way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

Basis of preparation
These financial statements have been prepared in accordance with EU endorsed International Financial Reporting Standards (IFRS), IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared on a going concern basis in accordance with the historical cost convention as modified by the revaluation of derivative financial instruments. Whilst the financial information included in this announcement has been prepared in accordance with IFRSs adopted for use in the European Union, this announcement does not itself contain sufficient information to comply with IFRSs.

The accounting policies applied are consistent with those of the audited financial statements for the 18 month period ended 30 June 2015 and the year ended 31 December 2013, as described in those financial statements.

Copies of this announcement are available from the company secretary and the announcement is also on the Company's website at www.vernalis.com. The audited Report and accounts for the 18 month period ended 30 June 2015 and the accounts are available on the investor's section of the Company's website.

2. Segmental information

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Executive Committee.

The Group has only one segment, being the research, development and commercialisation of pharmaceutical products for a range of medical disorders. All costs to acquire property, plant, equipment and intangible assets as well as all related depreciation, impairment and amortisation expense borne by the Group relate to this one segment. In addition, all other non-cash expenses incurred by the Group relate to this one segment.

The Group discloses the following other information, not all of which represents segmental information required by IFRS 8.

Revenue analysis
The revenue analysis in the table below is based on the country of registration of the fee-paying party:
Revenue analysis

         
    18 months
ended
30 June
2015
  12 months
ended
31 December
2013
    £000   £000
United Kingdom   24   20
Rest of Europe   15,379   10,639
North America   1,004   3,051
Rest of the World   3,475   374
    19,882   14,084
         
         
    18 months
ended
30 June
2015
  12 months
ended
31 December
2013
    £000   £000
Product sales   6,648   6,684
Royalties   212   250
Collaborative   13,022   7,150
    19,882   14,084
         

* Frovatriptan royalty linked to the supply of API, received at 25.25 per cent of Menarini sales

3. Exceptional items

Exceptional items represent significant items of income and expense, which, due to their size, nature or the expected infrequency of the events giving rise to them, are presented separately on the face of the income statement to give a better understanding to shareholders of the elements of financial performance in the period, so as to facilitate comparison with prior periods and to better assess trends in financial performance. Exceptional items include, but are not limited to restructuring costs and the provision for vacant leases.

         
    18 months
ended
30 June
2015
  12 months
ended
31 December
2013
    £000   £000
Credit - release of provision for vacant leases   243   1,608
         

4. Finance income/expense

         
    18 months
ended
30 June
2015
  12 months
ended
31 December
2013
    £000   £000
Finance income        
Interest on cash, cash equivalents and held-to-maturity assets   341   420
Exchange gains on cash, cash equivalents and held-to-maturity assets   2,392   -
    2,733   420
Finance expense        
Exchange loss on cash, cash equivalents and held-to-maturity assets   -   904
Unwinding of discount on provision   157   95
    157   999
         

5. Income tax credit

Analysis of current tax credit for the 18 month period ended 30 June 2015:

         
    18 months
ended
30 June
2015
  12 months
ended
31 December
2013
    £000   £000
Research and development tax credits   2,933     1,785  
Corporation tax on Research and Development Expenditure Credit   (129 )   (41 )
Overseas corporation tax   (48 )   -  
Adjustments in respect of prior year   102     529  
    2,858     2,273  
             

6. Loss per share

Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

For diluted loss per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion for all dilutive potential ordinary shares.

For diluted loss per share, all potential ordinary shares including options and deferred shares are antidilutive as they would decrease the loss per share.

         
    18 months
ended
30 June
2015
  12 months
ended
31 December
2013
    £000   £000
Attributable (loss)/profit before exceptional items (£000)   (6,644 )   (5,609 )
Exceptional items (£000)   243     1,608  
Attributable (loss)/profit (£000)   (6,401 )   (4,001 )
Weighted average number of shares (basic and diluted) in issue (000)   442,280     442,115  
(Loss)/profit per ordinary share before exceptional items   (1.5p )   (1.3 )
Exceptional items   0.1p     0.4p  
(Loss)/profit per share (basic and diluted)   (1.4p )   (0.9p )
             

7. Intangible assets

                 
    Goodwill
£000
  Assets
in use
£000
  Assets not
yet in use
£000
  Total
£000
Cost                
At 1 January 2014   8,954     37,408     5,730     52,092  
Additions   -     162     7,312     7,474  
At 30 June 2015   8,954     37,570     13,042     59,566  
Accumulated amortisation and impairment                        
At 1 January 2014   (8,954 )   (36,846 )   -     (45,800 )
Impairment charge   -     -     (300 )   (300 )
Amortisation charge in the period   -     (571 )   -     (571 )
At 30 June 2015   (8,954 )   (37,417 )   (300 )   (46,671 )
Net book value at 30 June 2015   -     153     12,742     12,895  
Cost                        
At 1 January 2013   8,954     37,408     3,754     50,116  
Additions   -     -     1,976     1,976  
At 31 December 2013   8,954     37,408     5,730     52,092  
Accumulated amortisation and impairment                        
At 1 January 2013   (8,954 )   (35,497 )   -     (44,451 )
Amortisation charge in the year   -     (1,349 )   -     (1,349 )
At 31 December 2013   (8,954 )   (36,846 )   -     (45,800 )
Net book value at 31 December 2013   -     562     5,730     6,292  
                         

Useful life and net book value of intangible assets

                 
    30 June
2015
  31 December
2013
  30 June
2015
  31 December
2013
Assets in use   Useful Life   Useful Life   £000   £000
Frova®   to 2014   to 2014   -   562
Finance software   to 2022   -   153   -
                 
            30 June
2015
  31 December
2013
            £000   £000
Assets not yet in use           12,742   5,730
                 

In accordance with IAS 21 "The effects of changes in foreign exchange rates", goodwill and other intangible assets that are created in relation to the acquisition of a foreign subsidiary are maintained in the functional currency of that subsidiary.

Additions of £7.5 million were made during the 18 months ending 30 June 2015.These additions relate primarily to Tris milestones payments made under the collaboration agreement. $6.0 million related to Tuzistra™ XR paid in two milestones, the first for the FDA accepting the NDA filing and the second for the purchase of the NDA from Tris after FDA approval. This second milestone was $6.0 million but $3.0 million has been treated as a royalty prepayment. Two POC milestones, each of $3.0 million for CCP-07 and CCP-08 were also paid during the period. Additions of £2.0 million were made in the year ending 31 December 2013 relating to US$3.0 million milestone paid to Tris, in consideration for development and in recognition of the achievement of POC for the first collaboration programme, Tuzistra™ XR.

During the 18 months ended 30 June 2015 an impairment charge of £0.3 million was made in relation to AUY922. This program was out licenced in 2004 to Novartis. In December 2014 Novartis ceased all development work on AUY922 and rights will revert back to Vernalis. An impairment charge of £0.3 million was made to reflect the current fair value of nil.

8. Provisions

     
    Property
£000
At 1 January 2014   4,282  
Charge during the period   253  
Credit - provision revered during the period   (496 )
Utilised during the period   (532 )
Unwinding of discount   157  
At 30 June 2015   3,664  
       
       
Provisions have been analysed between current and non-current as follows:      
    2015  
    £000  
Current   154  
Non-current   3,510  
    3,664  
       

Property provisions
Where leasehold properties become vacant the Group provides for all costs, net of anticipated income, to the end of the lease or the anticipated date of the disposal or sublease. This provision relates to properties in Cambridge and is expected to be utilised over the life of the related leases to 2019 and 2023 and has been discounted to fair value at the balance sheet date. Discount rates are based on Bank of England risk-free rates over the period of each lease. Included in the onerous lease provision is a dilapidation provision which principally relates to costs associated with the Group's obligation to reinstate leased buildings to their original state. The provision included a net £243,000 exceptional credit relating to the ending of the contractual obligations associated with the property in Oxfordshire.

9. Derivative financial instruments

         
    30 June
2015
£000
  31 December
2013
£000
Financial assets carried at fair value through profit or loss        
Held for trading derivatives that are not designated in hedge accounting relationships        
Foreign currency forward contracts   301   22
         

The fair value of all option contracts are based on year-end prices in an active market

10. Share capital

                     
    Number
issued
'000
  Number
authorised
'000
 
Price
  Issued
£000
  Authorised
£000
Ordinary                    
1 January 2014   442,126   Unlimited   £0.01   4,421   Unlimited
Issue of shares   1,316   -   £0.01   13   -
30 June 2015   443,442   Unlimited   £0.01   4,434   Unlimited
                     
Ordinary                    
1 January 2013   442,113   Unlimited   £0.01   4,421   Unlimited
Issue of shares   13   -   £0.01   -   -
31 December 2013   442,126   Unlimited   £0.01   4,421   Unlimited
                     

Issue of shares - 18 month period ended 30 June 2015
During 18 month period ended 30 June 2015, shares were issued following the exercise of options under the Long Term Incentive Plan and Sharesave schemes.

Issue of shares - 12 month period ended 31 December 2013
During 12 month period ended 31 December 2013, shares were issued following the exercise of an option under the Long Term Incentive Plan.

11. Other reserves

                           
  Merger
reserve
£000
  Other
reserve
£000
  Options
reserve
£000
  Warrant
reserve
£000
  Translation
reserve
£000
  Capital
redemption
reserve
£000
  Total
£000
At 1 January 2013 101,985   78,125   9,144     1,155   3,554   57,666   251,629  
Share-based payments charge -   -   788     -   -   -   788  
Exercise of Share Options -   -   (3 )   -   -   -   (3 )
Exchange gain on translation of overseas subsidiaries -   -   -     -   2   -   2  
At 31 December 2013 101,985   78,125   9,929     1,155   3,556   57,666   252,416  
                               
                           
  Merger
reserve
£000
  Other
reserve
£000
  Options
reserve
£000
  Warrant
reserve
£000
  Translation
reserve
£000
  Capital
redemption
reserve
£000
  Total
£000
At 1 January 2014 101,985   78,125   9,929     1,155   3,556     57,666   252,416  
Share-based payments charge -   -   1,268     -   -     -   1,268  
Exercise of share option -   -   (301 )   -   -     -   (301 )
Exchange loss on translation of overseas subsidiaries -   -   -     -   (18 )   -   (18 )
At 30 June 2015 101,985   78,125   10,896     1,155   3,538     57,666   253,365  
                                 

12. Related party transactions

Identity of related parties
The Group consists of a parent, Vernalis plc, and principally three wholly owned trading subsidiaries. The main trading companies are Vernalis (R&D) Limited and the US registered Vernalis Therapeutics, Inc.

The parent company is responsible for financing and setting Group strategy. Vernalis (R&D) Limited carries out the Group research and development strategy, employs all the UK staff including the directors, and owns and manages all of the Group's intellectual property including Tuzistra™ XR (but excluding Vernalis®, Frova® and Migard® trademarks and any frovatriptan-related patents, all of which are owned by Vernalis Development Limited).The proceeds of the issue of shares by the parent are passed from Vernalis plc to Vernalis (R&D) Limited as a loan, and Vernalis (R&D) Limited manages Group funds and makes payments, including the expenses of the parent company. Vernalis Therapeutics Inc. was registered in 2011 and began trading in 2014, employs all US staff and is the Group's sales and distribution company through which the future commercial products are to be sold in the US market.

Group
At 30 June 2015, an amount of £7,921 (31 December 2013: £12,629) was due from Dr Fellner and companies where Dr Fellner is a board member, in respect of certain travel costs. Of the amount due at 30 June 2015, £4,764 had been repaid at 31 August 2015. The amount due at 31 December 2013 was repaid in full by 28 February 2014.

13. Seasonality

The Group's financial results have not historically been subject to significant seasonal trends. However the revenue recognised in relation to royalties received for the supply of product to Menarini is dependent upon the timing of shipments made. In addition milestone revenue is dependent upon progression of the related clinical trial and research collaborations.

14. Post-balance sheet events

On 20 August, 2015, the Group announced the results from a Phase II POC study of V158866 which represented the completion of investment in its NCE pipeline.

On 8th September 2015, following approval by FDA in April 2015, the Company announced the launch of Tuzistra™ XR in the US prescription cough cold market.

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