Chairman and Chief Executive's report

Overview

Vectura's business has made significant progress during the last year, with NVA237 and QVA149 advancing into Phase III development, triggering a total of $15m in milestones from Novartis; VR315 is progressing well, and three new products are in development.

We continue to explore additional partnering opportunities in all areas, including the asthma/COPD space. VR496, our inhaled heparin treatment, initially targeted at cystic fibrosis, may also be efficacious as an anti-inflammatory for asthma and COPD. We will get an early indication of this when the results of our current Phase II study are released in early 2011.

Our new products include VR506, a steroid monotherapy treatment for asthma; VR461 for lung disease with fungal sensitisation, and VR909, a product for the prevention of chronic rejection following lung transplant.

Vectura's commitment is to build to profitability with careful financial management; minimising both financial and development risk through partnering. We remain focused on the lucrative respiratory market, where annual sales are in excess of $25 billion and are expected to grow by 30% over the next 10 years. With the benefit of our product and development expertise and our range of enabling technologies, including both inhalation devices and formulation technologies, we are in a position to capture value from this large market in a number of ways. The expansion of our product pipeline means that we are now focusing our development activities into three main areas: partnered patented products and technologies; generic/branded generic ("505(b)(2)") opportunities, and specialty products.

Partnered patented products and technologies

For our asthma/COPD development programmes, where a large financial commitment may be required to bring the products to market, we lower the risk of exposure for our shareholders by entering into partnership agreements with larger pharmaceutical companies.

For example, with NVA237, Vectura and our co-development partner, Sosei Group Corporation, licensed rights to Novartis to develop NVA237 as a once-daily monotherapy for COPD. In addition, Novartis is developing a combination of NVA237 with its own once-daily, long-acting beta-agonist (LABA), indacaterol, as the co-formulated product QVA149. Both NVA237 and QVA149 have entered Phase III development and Vectura has now received a total of $30m in upfront and milestone receipts from Novartis. Novartis is now working to produce data for NVA237 and QVA149 which they intend to file with the regulatory authorities in 2011 and 2012 respectively. With royalties on product sales in addition to the potential to earn $157.5m in milestone payments for achievement of regulatory and commercialisation targets, we continue to believe that these programmes will be major contributors to our future growth.

In addition to developing products to out-license, our technologies are also available to third parties to enable the effective delivery of their own development products. For example, our formulation licence to Baxter that allows them to use a Vectura technology in their product ADVATE^® has earned Vectura royalties in excess of $15m in the year to 31 March 2010.

Our device deal with Boehringer Ingelheim, which generated €37.5m in the three years to its conclusion in November 2009, was another example of how value can be derived from Vectura's technologies, know-how and intellectual property. We continue actively to pursue other opportunities where our products, technologies and intellectual property can be partnered to create value for Vectura.

Generic/505(b)(2) opportunities

Having taken control of the US development of VR315 for the US market which provides us with a licensing opportunity, and with a new generic/505(b)(2) product entering our pipeline, we believe that this will be an area from which major value will be created for Vectura. The development of respiratory drug-device combinations carries high barriers to competition owing to the sophisticated engineering and formulation expertise required. The development and manufacture of the drug powder and device must be closely integrated in order to produce a low-cost, efficient product that administers the dose to the lung in the same way as the reference product. The regulatory pathway in Europe for these types of product has been clarified since guidelines were published in 2009. In the US, no formal guidelines have yet been issued, a situation that calls for constant dialogue with the regulator and for expertise, know-how and experience of developing DPI products. In this highly specialised area, we believe Vectura is very well placed to take advantage of a large, rapidly growing market.

Specialty products

Our proprietary specialty pipeline is progressing well, and we expect Phase IIb "at-home" data from our Parkinson's disease product, VR040, towards the end of 2010, as well as Phase II proof-of-concept data from our cystic fibrosis product, VR496, early in 2011. The latter is a product opportunity which we will seek partners in Europe, whilst maintaining the option to retain rights in the US or partner for this territory. We also continue our pursuit of licensing interest for VR040. The addition of two new products, VR461 and VR909, demonstrates the inventiveness of our scientists in testing known molecules in our laboratories and accessing their potential to treat other diseases. This re-purposing of molecules continues to provide low-risk development and partnering opportunities for Vectura.

Outlook

We look forward to additional data and regulatory activity on our partnered programmes, continued progress with VR315 and clinical trial results for both VR496 and VR040. Our licensing activities continue in all areas; products, technologies and intellectual property, from which we expect to provide additional positive news. Overall, we believe that Vectura has the financial resources, the product portfolio, and the technological know-how to become a leading specialty pharmaceutical company that will deliver major value to our shareholders.

Our facilities

Vectura's headquarters and development operations are in Chippenham, Wiltshire, with further laboratories in Nottingham and a device development facility in Cambridge, as well as a recently opened office in Boston, Massachusetts, which has formed the Company's nascent US operations. In April 2009 we opened a new 13,000 sq ft, state-of-the-art facility at our Chippenham site; this is one of only a handful of facilities globally that has been specifically designed to manufacture inhaled products, and it has enabled us to accelerate our development projects. The facility has also provided Vectura with additional space and the ability to produce later-stage clinical trial supplies, resulting in a more efficient business. At all times we ensure that we comply with best practice for pharmaceutical companies and the Company continues to be certificated to ISO 13485, a requirement for design and manufacture of medical devices, as well as adhering to the Medicines and Healthcare products Regulatory Agency's (MHRA's) Guidelines on Good Manufacturing Practice (GMP).

Our people

Our employees remain crucial to the success of Vectura and it is their skill and expertise that have enabled us to achieve our progress to date. This has been recognised at industry conferences where, over the past twelve months, Vectura has presented posters and made presentations at Respiratory Drug Delivery (RDD), Drug Delivery to the Lungs (DDL), Academy of Pharmaceutical Sciences (APS) and Quality by Design (QbD) Management Forum.

We are committed to the development of a motivated and professional workforce in order to build a business that is constantly looking to innovate and evolve. On behalf of the Board, we thank all our staff for their hard work and continued support and commitment.

Back to top