June 15, 2015
BTG plc: Annual Report and Accounts 2015

15 June 2015

In accordance with the Listing Rule 9.6.1, copies of the following documents have been submitted to the UK Listing Authority.

• A copy of the Company's Annual Report and Accounts for 2015
• A Circular to shareholders incorporating the Notice of the 2015 Annual General Meeting
• Form of proxy for the 2015 Annual General Meeting

These documents have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do

The Annual Report and Accounts 2015 and Notice of Annual General Meeting 2015 are available on the Company website at www.btgplc.com.

The Annual General Meeting will be held at 10.30 am on Wednesday, 15 July 2015 at the offices of Stephenson Harwood LLP, 1 Finsbury Circus, London EC2M 7SH

In accordance with DTR 6.3.5, extracted below from the Annual Report and Accounts is a management report in full unedited text which contains a responsibility statement, principal risk factors and details of related party transactions.  References to page numbers and notes in the extract refer to those in the Annual Report and Accounts 2015.  A condensed set of financial statements were appended to BTG plc's preliminary results announcement issued on 19 May 2015.

Name of contact and telephone number for queries:

Andy Burrows                                   020 7575 1741
Vice President, Corporate and Investor Relations
BTG plc

 

UNEDITED EXTRACT FROM ANNUAL REPORT AND ACCOUNTS 2015

The directors include the following statements:

1. Statement of directors’ responsibilities in respect of the annual report and accounts 2015 and the financial statements

The directors are responsible for preparing the Annual Report and Accounts, 2015 and the Group and parent company financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare Group and parent company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and

applicable law and have elected to prepare the parent company financial statements on the same basis.

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of their profit or loss for that period. In preparing each of the

Group and parent company financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with IFRSs as adopted by the EU; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the directors are also responsible for preparing a strategic report, directors’ report, directors’ remuneration report and corporate governance statement that complies with that law and those regulations.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement of the directors in respect of the annual financial report

We confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
• the strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

2. STATEMENT IN THE DIRECTORS’ REPORT IN RESPECT OF THE STRATEGIC REPORT

The Company is required by the Companies Act 2006 to set out a fair and balanced review of the business, including the performance and development of the Company during the year and at the year end and a description of the principal risks it faces. This information is contained within the strategic report on pages 2 to 36 and incorporated into this report by reference:

• The Chairman’s Statement on pages 4 and 5, the Chief Executive’s review on pages 6 and 7 and the ‘At a glance’ section on page 2 provide details of the Group’s principal activities and strategy, its performance during the year and its prospects for future development opportunities
• Details of the principal risks facing the Group are set out on pages 33 to 36
• Information relating to the environment, employees and stakeholders, health and safety, ethical considerations, charitable donations and policies regarding its employees is set out on pages 30 to 32.

This information is prepared solely to assist shareholders to assess the Company’s strategies, the risks inherent in them and the potential for those strategies to succeed. The directors’ report should not be relied on by any other person or for any other purpose. Forward-looking statements contained in this report have been made by the directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the uncertainties, including economic and business risk factors inherent in them.

3. PRINCIPAL RISKS

i. Competition

Impact: The Group operates in competitive markets. The products on which BTG currently earns revenues, or from which it anticipates earning revenues once on the market, face competition from other products that are already approved or in development. Competing products may have superior attributes, including better efficacy or side effect profiles, cost less to produce or be offered at a lower price than BTG’s product. Such competition could materially adversely impact Group revenues.

There are currently no competitive products on the market to the Specialty Pharmaceuticals products CroFab®, DigiFab® or Voraxaze®. However, future competition is possible in some cases and competing products could materially adversely impact BTG’s financial results. Instituto Bioclon obtained US approval for a competitor product to CroFab® in May 2015. During the year we settled a legal action which we had initiated against Instituto Bioclon and as a result, notwithstanding US approval of their product, it is unlikely they can commercially enter the US market until October 2018 at the earliest.

Within Interventional Medicine, the Beads products compete with products from Merit Medical Limited and CeloNova Biosciences, Inc.; TheraSphere® competes globally with a product from Sirtex Medical Limited; Varithena® competes with other treatment modalities including heat ablation, vein stripping and physician-compounded sclerosing foam; EKOS competes with other interventional clot treatment products from US companies like Boston Scientific Corporation. In Licensing, Zytiga® (abiraterone acetate) competes with a number of recently approved treatments for advanced prostate cancer including Xtandi®(enzalutamide). 

Mitigation: BTG focuses on select opportunities addressing specialist segments where there are high barriers to entry, for example, relating to the development and manufacturing processes, or the need to generate significant supportive clinical data to gain approval and commercial acceptance. We seek to differentiate our products by demonstrating, in clinical trials, safety and efficacy benefits, or greater patient acceptance.

Change in 2014/15: We commenced a controlled launch of Varithena® in the US reimbursed sector, following which another non-tumescent product has been cleared for use in the treatment of varicose veins in the US (VenaSealTM). We commenced direct sales of our TheraSphere® and Beads products in certain EU countries; previous US and EUdistributors (AngioDynamics and Terumo respectively) have announced plans to launch embolic beads of their own. In January we completed the acquisition of PneumRx adding the RePneu® Coil to our portfolio. There is an existing competitor in the form of the Pulmonx, Inc. valve. As noted, Bioclon have received US approval for a competitor to CroFab®.

ii. Research and development

Impact: Failure to implement our research and development strategy or failure to achieve the desired safety and efficacy product profiles in our research and development programmes, could result in an inability to deliver new products and new approved indications for existing products, which would have a material detrimental effect on the sustainability of the business and on its medium- to long-term growth prospects. Failure of programmes could result from lack of organisational resource or capability deficiencies, from not aligning R&D programmes with commercial objectives; from changes in the regulatory landscape making it more difficult to conduct the planned R&D programmes or to achieve clinical results and approvals; or from the products not having the clinical benefits or safety profiles that were anticipated.

Mitigation: Capabilities and organisational capacity enhanced through recruitment; monthly monitoring of performance against goals; monitoring of regulatory landscape. The use of external resources such as contract clinical research organisations (CROs) are being more effectively leveraged alongside active development of R&D, regulatory strategies and delivery plans.

Change in 2014/15: The R&D and Innovation groups have been restructured following the appointment of Dr Melanie Lee as Chief Scientific Officer. In addition a portfolio review board has been established to oversee the execution of the Group’s R&D strategy. The acquisition of PneumRx has further increased the number of studies being undertaken by the Group and its reliance on the successful execution and outcome of clinical studies to achieve its 2021 financial targets.

iii. Sales compliance, reimbursement and regulatory affairs

Impact: Changes in the regulatory environment could materially adversely impact the Group’s ability to commercialise or sell existing or new products in one or more geographies (whether due to an inability to obtain or the loss of marketing approvals or narrowing or withdrawal of existing approvals). The regulations and laws to which the Group is subject are complex, leading to an inherent degree of uncertainty and risk. New legislation, changes in existing legislation and/or regulatory guidance or enforcement policies or practice may result in delays or failures in bringing products to market, additional material costs or the imposition of restrictions on approval or the sale of a product or its manufacture, distribution or reimbursement, including the possible withdrawal of a product from the market or narrowing of its approval or indicated uses. Any of these actions could have a material adverse effect on the business or prospects of the Group. This is particularly the case for drug-eluting beads which are deemed by some regulatory authorities as combination products (comprising a drug and a device), in respect of which the regulatory requirements may be less clear in certain territories.

The pharmaceutical and device industries are highly regulated and, in addition to the broad range of regulations relating to the development, approval and manufacturing of its products, the Group must comply with many regulations relating to the marketing of its products.

The regulations and laws, particularly in the US, are complex and often strictly enforced by governmental and regulatory authorities. Defending actual or alleged violations may require significant management time and financial commitment, even if not proven. The incidence of these investigations has risen in the US in recent years. Failure by BTG (or its commercial partners where BTG has a liability) to comply with certain rules, laws and regulations, including the US False Claims Act, Anti-Kickback Statute and the US Foreign and Corrupt Practices Act among others, for alleged improper conduct, including corrupt payments to medical professionals, inaccurate regulatory submissions, off-label marketing of products, or the submission of false claims for reimbursement to the Federal government may result in criminal and civil proceedings against the Group. Resultant financial and other potential sanctions against the Group (or their commercial partners or their respective employees or directors) could materially adversely affect their business, financial position and prospects of the Group, in the loss of product licences or exclusion from sale of certain products.

Furthermore, the Group may be subject to price limits on reimbursement of products which are outside of its control, reducing product reimbursement or sales prices, which may have a negative impact on Group revenues. This is particularly the case in the US where a significant proportion of the Group’s revenues are derived, and in light of the ongoing US healthcare reform, requiring increased rebates or discounts to be provided where products are reimbursed or paid for by public payments, including Medicaid and Medicare. Reimbursement and healthcare payment systems vary significantly by country and there can be no assurance that reimbursement approvals will be received or sustained. There can be no assurance that a product, even if approved, will obtain adequate levels of reimbursement to support commercial success. This is the case for Varithena® as a new product class in the varicose vein treatment sector. The Company has a reimbursement strategy and team supporting the commercial launch of Varithena® but ultimately there can be no assurance sufficient reimbursement will be universally adopted to support the full potential of the product in the US or elsewhere.

Mitigation: The Company has expert internal teams dedicated to each of these areas including: a Regulatory Affairs group which was strengthened and restructured during the year. That group works with a network of external advisors in relevant territories to ensure the appropriate regulations are understood and that regulatory strategies are in place and that actions are taken in a timely fashion to meet requirements to effectively support both products in development and those already approved and sold. The Regulatory Affairs group work closely with the wider R&D team to co-ordinate activities and maximise the chances of success.

The Company also has a Healthcare Compliance team which establishes robust processes and a framework intended to provide assurance that applicable sales compliance requirements are met. However, as with other areas of risk management, no assurance can be provided regarding the ability of those systems to totally mitigate compliance risk. As a consequence, ongoing monitoring and auditing is undertaken to seek to ensure any material failures are identified where possible and remediated.

The Company has also strengthened its market access (reimbursement) group over the year with a focus on Varithena® to support the commercial launch in the US.

Changes in 2014/15: The launch of Varithena® in the US in 2014 highlighted the work necessary to establish appropriate reimbursement of new products. Progress on that will continue to be a focus and a critical success factor for that product.

In July 2014, BTG announced that it had received a subpoena from the US Department of Justice, seeking documents in relation to an investigation regarding LC Bead®, covering the period since 2003. BTG continues to cooperate fully with this investigation and at this time is unable to predict its duration or outcome. PneumRx marketing and other activities have been incorporated into BTG’s global compliance programme. Discussions with the UK MHRA and BSi continue with respect to the reclassification of the DC Bead® product in the EU which, if not resolved, could reduce the scope of the indicated uses of the product, adversely impacting the Group.

iv. Intellectual property, know-how, trade secrets

Impact: BTG may be subject to challenges relating to the validity of its patents or alleging infringement by BTG of intellectual property rights of others, which might result in cessation of product sales, litigation and/or settlement costs and/or loss of earnings. BTG might elect to sue third parties for their infringement of its patents or other intellectual property (IP) rights in order to protect current or future product revenue streams. Litigation involves significant costs and uncertainties. Failure by BTG to maintain or renew key patents might lead to loss of earnings and liabilities to licensees or licensors. BTG may not be able to secure or maintain the necessary intellectual property rights in relation to products acquired or in development, limiting the potential to generate value from these products and investments.

Changes in patent laws and other intellectual property regulations in territories where BTG or its licensees conduct business that make it more difficult or time-consuming to obtain or enforce patents, or which reduce the available term of granted patents or periods of market exclusivity protection, could adversely impact the Group’s financial performance.

Patent expiries can adversely impact the Group’s revenues. Currently, BTG earns significant royalties from sales of Johnson & Johnson’s Zytiga® (abiraterone acetate), which may be subject to generic competition in the US from our 2016/17 financial year when the US composition of matter patent expires, and in the EU from our 2020/21 financial year when the ten-year data post-approval exclusivity period ends.

BTG’s patent portfolio is currently subject to several challenges. Enforcement of third-party patents against BTG may prevent BTG selling products or require BTG to pay royalties or other compensation to the patent holder. The landscape is generally more complex in the Interventional Medicine market place rendering IP management more challenging.

BTG may rely upon know-how and trade secrets to protect its products and maintain a competitive advantage. BTG may have to sue third parties to protect its know-how and trade secrets. Trade secrets may be inadvertently disclosed leading to loss of competitive advantage and loss of earnings.

Mitigation: Dedicated internal resource, supplemented by external expertise, monitors third-party patent portfolios and patent applications and intellectual property rights; development and implementation of BTG patent filing, defence and enforcement strategies; robust processes are in place to automate patent renewals; internal controls established to avoid disclosure of patentable material prior to filing patent applications and to protect know-how

Change in 2014/15: IP management has been made more complex by the acquisition of PneumRx. BTG settled its patent litigation against a potential competitor to CroFab®. The commercial launch of Varithena® may lead to further IP challenges or competition requiring the Group to initiate litigation. The innovation and development of new products may result in IP challenges by third parties.

v. External supply chain

Impact: We rely on third-party contractors for the supply of many key materials and services. These processes inherently carry risks of failure and loss of product and are risks over which the Company has a lower degree of control. Problems at contractors’ facilities, such as technical issues, contamination and regulatory actions may lead to delays and disruptions or loss of supply or available capacity. Some materials and services may only be available from one source and regulatory requirements may make substitution costly, time-consuming or commercially unviable.

Mitigation: Rigorous monitoring of suppliers; maintenance of adequate product and component inventories; dual sourcing implemented or being investigated where practicable. In accordance with the risk rating the Company will continue to focus on this area to ensure market demand for products can continue to be met (as has historically been the case).

Change in 2014/15: The launch of Varithena® results in increased reliance on third parties for key components.

vi. Internal supply chain

Impact: BTG relies on its single site in Wales for supply of manufactured antibodies and a single site in Farnham, UK, for the manufacture of the Beads and Varithena® with the consequent possibilities for disruption to, or loss of supplies resulting from, technical issues, contamination or regulatory actions. BTG’s polyclonal antibody products rely on serum produced from our sheep flocks in Australia, which could be subject to disease outbreaks or fire. BTG manufactures its EKOS products at a single site in Seattle, Washington, USA, and its RePneu® Coil at a single site in Mountain View, California, USA, with the consequent possibilities for disruption to or loss of supply.

Mitigation: Dual sourcing is being investigated; inventories are being monitored; production changes implemented to ensure continued product supply; rigorous quality control procedures in place; regular checks made on sheep flock health; disaster recovery plans under regular review. In accordance with the risk rating the Company will continue to focus on this area to ensure market demand for products can continue to be met (as has historically been the case).

Changes in 2014/15: The acquisition of PneumRx and the launch of Varithena® has increased BTG’s reliance on single manufacturing sites.

vii. Quality and regulatory process documentation

Impact: Our quality systems and regulatory processes and documentation (including those relating to Good Manufacturing Practice and Good Clinical Practice) are regularly audited by regulators such as the US FDA. Any inadequacies identified can result in observations, major findings and/or warnings, which would need to be addressed through remedial actions but if not addressed adequately, could lead to regulatory action such as cessation of product development, public censure, product recalls, an inability to release manufactured product, loss of manufacturing or product licences or forced temporary or permanent shutdown of facilities and the consequential disruption to product supply.

Mitigation: We have invested in upgrading our processes, capabilities and people capacity to ensure appropriate resources are available to support all required control measures. A Global Quality System has been established and implementation across the Group is nearing completion.

Change in 2014/15: PneumRx was acquired during the year and continuing improvements are being made to the applicable quality systems to bring them into full conformation with the Company’s Global Quality Pharmacovigilance and other systems which will be fully implemented during the 2015/16 year.

4. RELATED PARTY TRANSACTIONS

The Company has a related-party relationship with its subsidiary undertakings and its Directors.

In relation to the related party relationship identified on page 48 concerning Giles Kerr, payments made by BTG to Oxford University and Isis Innovations Ltd under the relevant licence agreements were £5,000 for the year ended 31 March 2015 (nil during the year ended 31 March 2014). There are no amounts still outstanding and payable by BTG under these agreements as at 31 March 2015 (2014: nil).

Key management personnel are considered to be the directors and their remuneration is disclosed within the Remuneration report on pages 56 to 75.