BTG plc - Perfect Informationfedownload.perfectinfo.com/docroot/pdf/cce7333406... · BTG Share and...
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14OCT200819065643 THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, you are recommended to seek your own personal financial advice as soon as possible from your stockbroker, bank, solicitor, accountant, fund manager or other appropriate independent financial adviser authorised under the Financial Services and Markets Act 2000 (as amended) if you are in the United Kingdom or, if not, from another appropriately authorised independent financial adviser. If you sell or have sold or otherwise transferred all of your BTG Shares or all of your Protherics Shares (as the case may be) please send this document and the accompanying documents as soon as possible to the purchaser or transferee or to the stockbroker, bank or other agent through whom the sale or transfer was effected for delivery to the purchaser or the transferee. However, such documents should not be forwarded or transmitted in or into any jurisdiction in which such act would constitute a violation of the relevant laws in such jurisdiction. If you have sold or otherwise transferred part of your holding in BTG Shares or Protherics Shares (as the case may be), please consult the stockbroker, bank or other agent through whom the sale or transfer was effected. This document has been prepared pursuant to sub-sections 1.2.2(2) and 1.2.3(3) of the Prospectus Rules and contains information which is regarded by the FSA as being equivalent to that of a prospectus. You should read the whole of this document and any documents incorporated herein by reference. In particular, your attention is drawn to the factors described in the ‘‘Risk Factors’’ section of this document. BTG plc (Incorporated under the Companies Act 1985 and registered in England and Wales with Registered No. 02670500) Proposed issue of up to 105,900,000 new ordinary shares in the Company in connection with the proposed acquisition of Protherics plc and application for admission of up to 105,900,000 new ordinary shares in the Company to the Official List and to trading on the London Stock Exchange’s main market for listed securities Application will be made to the FSA for the New BTG Shares proposed to be issued in connection with the Offer to be admitted to the Official List and will also be made to the London Stock Exchange for the New BTG Shares to be admitted to trading on the London Stock Exchange’s main market for listed securities. It is expected that Admission to the Official List and to trading on the London Stock Exchange will become effective, and that dealings in the New BTG Shares will commence, on the Effective Date which, subject to the satisfaction of certain conditions, including the sanction of the Scheme by the Court, is expected to occur on 4 December 2008. Protherics Shareholders should only rely on the information contained in this document and any documents incorporated herein by reference. No person has been authorised to give any information or make any representations other than those contained in this document and, if given or made, such information or representations must not be relied upon as having been so authorised. The Company will comply with its obligation, if any, to publish a supplementary document containing further updated information required by law or by any regulatory authority but assumes no further obligation to publish additional information. This document and any accompanying documents may not be treated as an invitation to subscribe for any New BTG Shares and/or to make elections under the Scheme by any person resident or located in any Restricted Jurisdiction or in any jurisdiction where to do so is unlawful. Any persons (including, without limitation, custodians, nominees and trustees) who have a contractual or other legal obligation to forward this document or any accompanying documents to any Restricted Jurisdiction should seek appropriate advice before taking any action. The New BTG Shares will not be, and are not required to be, registered with the SEC under the Securities Act, in reliance on the exemption from registration provided by Section 3(a)(10) of the Securities Act. NEITHER THE SEC NOR ANY OTHER US FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY HAS APPROVED OR DISAPPROVED THE NEW BTG SHARES OR PASSED AN OPINION ON THE ADEQUACY OR ACCURACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE IN THE UNITED STATES. Protherics Shareholders (whether or not US persons) who are ‘‘affiliates’’ (within the meaning of the Securities Act) of Protherics or BTG prior to, or of BTG after, the Effective Date, will be subject to timing, manner of sale and volume restrictions on the sale of New BTG Shares received in connection with the Scheme under Rule 145(d) of the Securities Act. The New BTG Shares have not been, and will not be, registered under the applicable securities laws of any Restricted Jurisdiction. Accordingly, the New BTG Shares may not be offered, sold, delivered or transferred, directly or indirectly, in or into any Restricted Jurisdiction or any other jurisdiction where to do so would constitute a violation of the laws of such jurisdiction or to or for the account or benefit of any national, resident or citizen of any Restricted Jurisdiction. Apart from the responsibilities and liabilities, if any, which may be imposed on Rothschild by FSMA or the regulatory regime established thereunder, Rothschild accepts no responsibility whatsoever for the contents of this document or for any statement made or purported to be made by it, or on its behalf, in connection with the Company, the New BTG Shares or Admission. Rothschild accordingly disclaims all and any liability whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise have in respect of such document or any such statement. Rothschild is acting exclusively for BTG and no-one else in connection with the Offer and will not be responsible to anyone other than BTG for providing the protections afforded to the clients of Rothschild nor for providing advice in relation to the Offer or any matter referred to herein. Dated: 17 October 2008.
Transcript of BTG plc - Perfect Informationfedownload.perfectinfo.com/docroot/pdf/cce7333406... · BTG Share and...
14OCT200819065643
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the actionyou should take, you are recommended to seek your own personal financial advice as soon as possible from your stockbroker, bank,solicitor, accountant, fund manager or other appropriate independent financial adviser authorised under the Financial Services andMarkets Act 2000 (as amended) if you are in the United Kingdom or, if not, from another appropriately authorised independentfinancial adviser.
If you sell or have sold or otherwise transferred all of your BTG Shares or all of your Protherics Shares (as the case may be) pleasesend this document and the accompanying documents as soon as possible to the purchaser or transferee or to the stockbroker, bankor other agent through whom the sale or transfer was effected for delivery to the purchaser or the transferee. However, suchdocuments should not be forwarded or transmitted in or into any jurisdiction in which such act would constitute a violation of therelevant laws in such jurisdiction. If you have sold or otherwise transferred part of your holding in BTG Shares or Protherics Shares(as the case may be), please consult the stockbroker, bank or other agent through whom the sale or transfer was effected.
This document has been prepared pursuant to sub-sections 1.2.2(2) and 1.2.3(3) of the Prospectus Rules and contains informationwhich is regarded by the FSA as being equivalent to that of a prospectus.
You should read the whole of this document and any documents incorporated herein by reference. In particular, your attention isdrawn to the factors described in the ‘‘Risk Factors’’ section of this document.
BTG plc(Incorporated under the Companies Act 1985 and registered in England and Wales with Registered No. 02670500)
Proposed issue of up to 105,900,000 new ordinary shares in the Company in connection with the proposed acquisition ofProtherics plc and application for admission of up to 105,900,000 new ordinary shares in the Company to the Official List and
to trading on the London Stock Exchange’s main market for listed securities
Application will be made to the FSA for the New BTG Shares proposed to be issued in connection with the Offer to be admitted tothe Official List and will also be made to the London Stock Exchange for the New BTG Shares to be admitted to trading on theLondon Stock Exchange’s main market for listed securities. It is expected that Admission to the Official List and to trading on theLondon Stock Exchange will become effective, and that dealings in the New BTG Shares will commence, on the Effective Datewhich, subject to the satisfaction of certain conditions, including the sanction of the Scheme by the Court, is expected to occur on4 December 2008.
Protherics Shareholders should only rely on the information contained in this document and any documents incorporated herein byreference. No person has been authorised to give any information or make any representations other than those contained in thisdocument and, if given or made, such information or representations must not be relied upon as having been so authorised. TheCompany will comply with its obligation, if any, to publish a supplementary document containing further updated informationrequired by law or by any regulatory authority but assumes no further obligation to publish additional information.
This document and any accompanying documents may not be treated as an invitation to subscribe for any New BTG Shares and/orto make elections under the Scheme by any person resident or located in any Restricted Jurisdiction or in any jurisdiction where todo so is unlawful.
Any persons (including, without limitation, custodians, nominees and trustees) who have a contractual or other legal obligation toforward this document or any accompanying documents to any Restricted Jurisdiction should seek appropriate advice before takingany action.
The New BTG Shares will not be, and are not required to be, registered with the SEC under the Securities Act, in reliance on theexemption from registration provided by Section 3(a)(10) of the Securities Act. NEITHER THE SEC NOR ANY OTHER USFEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY HAS APPROVED OR DISAPPROVEDTHE NEW BTG SHARES OR PASSED AN OPINION ON THE ADEQUACY OR ACCURACY OF THIS DOCUMENT. ANYREPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE IN THE UNITED STATES. Protherics Shareholders(whether or not US persons) who are ‘‘affiliates’’ (within the meaning of the Securities Act) of Protherics or BTG prior to, or ofBTG after, the Effective Date, will be subject to timing, manner of sale and volume restrictions on the sale of New BTG Sharesreceived in connection with the Scheme under Rule 145(d) of the Securities Act.
The New BTG Shares have not been, and will not be, registered under the applicable securities laws of any Restricted Jurisdiction.Accordingly, the New BTG Shares may not be offered, sold, delivered or transferred, directly or indirectly, in or into any RestrictedJurisdiction or any other jurisdiction where to do so would constitute a violation of the laws of such jurisdiction or to or for theaccount or benefit of any national, resident or citizen of any Restricted Jurisdiction.
Apart from the responsibilities and liabilities, if any, which may be imposed on Rothschild by FSMA or the regulatory regimeestablished thereunder, Rothschild accepts no responsibility whatsoever for the contents of this document or for any statement madeor purported to be made by it, or on its behalf, in connection with the Company, the New BTG Shares or Admission. Rothschildaccordingly disclaims all and any liability whether arising in tort, contract or otherwise (save as referred to above) which it mightotherwise have in respect of such document or any such statement.
Rothschild is acting exclusively for BTG and no-one else in connection with the Offer and will not be responsible to anyone otherthan BTG for providing the protections afforded to the clients of Rothschild nor for providing advice in relation to the Offer or anymatter referred to herein.
Dated: 17 October 2008.
THE CONTENTS OF THIS DOCUMENT ARE NOT TO BE CONSTRUED AS LEGAL, FINANCIAL ORTAX ADVICE. EACH PROTHERICS SHAREHOLDER INVESTOR SHOULD CONSULT HIS, HEROR ITS OWN SOLICITOR, INDEPENDENT FINANCIAL ADVISER OR TAX ADVISER FOR LEGAL,FINANCIAL OR TAX ADVICE.
NONE OF THE COMPANY, ROTHSCHILD OR THEIR RESPECTIVE REPRESENTATIVES ISMAKING ANY REPRESENTATION TO ANY OFFEREE OR PURCHASER OF THE NEW BTG SHARESOFFERED HEREBY REGARDING THE LEGALITY OF AN INVESTMENT BY SUCH OFFEREE ORPURCHASER UNDER APPROPRIATE INVESTMENT OR SIMILAR LAWS. EACH PROTHERICSSHAREHOLDER SHOULD CONSULT WITH HIS, HER OR ITS OWN ADVISERS AS TO THE LEGAL,TAX, BUSINESS, FINANCIAL AND RELATED ASPECTS OF PURCHASE OR SUBSCRIPTION OF THENEW BTG SHARES.
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OF, OR THE SOLICITATION OF AN OFFERTO SUBSCRIBE FOR OR BUY, ANY NEW BTG SHARES TO ANY PERSON IN ANY JURISDICTION TOWHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTIONAND IS NOT FOR DISTRIBUTION IN OR INTO ANY RESTRICTED JURISDICTION, EXCEPTAS DETERMINED BY THE COMPANY IN ITS SOLE DISCRETION AND PURSUANT TOAPPLICABLE LAWS.
Notice to New Hampshire residents:
Neither the fact that a registration statement or an application for a licence has been filed underChapter 421-B of the New Hampshire Revised Statutes with the State of New Hampshire nor the fact thata security is effectively registered or a person is licensed in the State of New Hampshire constitutes afinding by the Secretary of State of New Hampshire that any document filed under RSA 421-B is true,complete and not misleading. Neither any such fact nor the fact that an exemption or exception is availablefor a security or a transaction means that the Secretary of State has passed in any way upon the merits orqualifications of, or recommended or given approval to, any person, security or transaction. It is unlawfulto make, or cause to be made to any prospective purchaser, customer or client, any representationinconsistent with the provisions of this paragraph.
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TABLE OF CONTENTS
Page
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Explanatory Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Expected Timetable of Principal Events and Acquisition Statistics . . . . . . . . . . . . . . . . . . . . . . . 20
Directors, Company Secretary, Registered Office and Advisers . . . . . . . . . . . . . . . . . . . . . . . . . 21
Part 1 Information on the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Part 2 Information on BTG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Part 3 Information on Protherics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Part 4 Operating and Financial Review Relating to BTG . . . . . . . . . . . . . . . . . . . . . 51
Part 5 Operating and Financial Review Relating to Protherics . . . . . . . . . . . . . . . . . . 57
Part 6 Historical Financial Information on BTG for the Years Ended 31 March 2008,31 March 2007 and 31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Part 7 Historical Financial Information on Protherics for the Years Ended31 March 2008, 31 March 2007 and 31 March 2006 . . . . . . . . . . . . . . . . . . . . 64
Part 8 Unaudited Pro Forma Statement of Net Assets of the Enlarged Group . . . . . . 218
Part 9 United Kingdom Taxation Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . 222
Part 10 Directors, Responsible Persons, Senior Management, Corporate Governanceand Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
Part 11 Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264
Documentation Incorporated by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
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SUMMARY
THE FOLLOWING SUMMARY SHOULD BE READ AS AN INTRODUCTION TO AND INCONJUNCTION WITH THE FULL TEXT OF THIS DOCUMENT. ANY DECISION TO INVEST IN NEWBTG SHARES SHOULD BE BASED ON A CONSIDERATION OF THIS DOCUMENT AS A WHOLE.
Where a claim relating to information contained in this document is brought before a court, a plaintif investormight, under the national legislation of the EEA States, have to bear the costs of translating this documentbefore legal proceedings are initiated. Civil liability attaches to those persons who are responsible for thissummary, including any translation of this summary, but only if this summary is misleading, inaccurate orinconsistent when read together with the other parts of this document.
1. Introduction
On 18 September 2008, the BTG Board and the Independent Protherics Directors announced that theyhad agreed the terms of a recommended all share offer by BTG to acquire the entire issued and to beissued share capital of Protherics.
2. Summary of the Acquisition
The Acquisition is to be effected by way of a scheme of arrangement under part 26 of the CompaniesAct 2006.
Under the terms of the Scheme, which will be subject to the satisfaction or (where appropriate) waiver ofthe Conditions and the full terms and conditions which are set out in the Scheme Document, SchemeShareholders who are on the register of members of Protherics at the Scheme Record Time will receive:
0.291 New BTG Shares for every 1 Protherics Share
and so in proportion for any other number of Scheme Shares held at the Scheme Record Time.
The terms of the Acquisition have been agreed on the basis of a price of 206 pence for each existingBTG Share and a price of 60 pence for each Protherics Share which values the Protherics Fully DilutedShare Capital at approximately £218.1 million.
Based on the Closing Price of a BTG Share of 129 pence on 15 October 2008 (the latest practicable dateprior to the publication of this document), the terms of the Acquisition value each existing ProthericsShare at 37.54 pence and the Protherics Fully Diluted Share Capital at approximately £134.4 million.
On 12 August 2008, being the last Business Day prior to the announcement by Protherics regardingpotential offers for Protherics, the Closing Price of a Protherics Share was 31.25 pence. Since that date,there has been exceptionally high levels of volatility and significant declines in global equity markets.However, the underlying operational performance and financial trading prospects of both BTG andProtherics remain unchanged. Accordingly BTG and the Independent Protherics Directors believe that therelative intrinsic values of both BTG and Protherics remain the same as they were as at the date of theAcquisition was announced and as such are accurately reflected in its terms.
Assuming no further BTG Shares are issued in the period between the date of this document and theEffective Date, immediately following the Effective Date approximately 40.8 per cent. of the enlargedissued ordinary share capital of BTG will be held by former Protherics Shareholders and approximately59.2 per cent., will be held by BTG Shareholders.(1)
The New BTG Shares will be issued credited as fully paid, and on identical terms to and will rankpari passu with the BTG Shares in issue as at the time the New BTG Shares are issued pursuant to theAcquisition, including the right to receive and retain all dividends and other distributions declared, madeor paid on BTG Shares after the Scheme becomes effective.
Applications will be made to the FSA for the New BTG Shares to be admitted to the Official List and tothe London Stock Exchange for the New BTG Shares to be admitted to trading on the London StockExchange’s main market for listed securities.
(1) The percentage ownership of the Enlarged Group held by former Protherics Shareholders and existing BTG Shareholders isbased on the enlarged issued share capital of BTG following the Acquisition being the aggregate of 151,265,827 BTG Shares inissue on 15 October 2008 (being the latest practicable date prior to the publication of this document) and 104,168,390 New BTGShares to be issued pursuant to the Acquistion.
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3. Information on the BTG Group and the Protherics Group
BTG Group
Listed on the London Stock Exchange since 1995, BTG employs approximately 65 people in London,Philadelphia and Osaka.
BTG in-licenses, develops and commercialises pharmaceuticals, targeting neurological and other disorders.
BTG earns royalties from products marketed by licensees. The major contributors to royalty revenuesare BeneFIX� partnered by Wyeth, the Two-Part Hip Cup and Campath�, partnered by GenzymeCorporation.
BTG’s internal development pipeline comprises six clinical-stage development programmes, targetingneurological and other disorders. BTG also has a further nine clinical-stage development programmespartnered with licensees, has a number of legacy assets that may be sold or licensed and earns significantroyalty revenues from sales of various marketed products.
Protherics Group
Protherics is an international biopharmaceutical company focused on the development, manufacture andmarketing of specialist critical care and cancer products.
Protherics’ critical care products include CroFab�, DigiFab� and ViperaTab�. Protherics also has twomajor development opportunities in its critical care franchise: CytoFab� and Digoxin Immune Fab (DIF).
Protherics’ oncology products include Voraxaze�, as well as development programmes for Prolarix�,OncoGel� and Acadra�.
Protherics employs approximately 300 people across its operations in Europe, North America andAustralasia.
4. Background to, and reasons for, the Offer
Rationale for the combination of BTG and Protherics
BTG has achieved profitability in each of the last three years through following a clear set of strategic aimsleading to strong revenue growth and cost reductions.
BTG’s strategy is to become a sustainably profitable life sciences business, generating revenues from pastand future licensing deals and eventually from direct product sales.
The BTG Directors believe that the Enlarged Group should seek to find opportunities to retain a greatershare of product revenues, including revenues from direct sales. In this regard, the BTG Directors believethat Protherics represents an excellent strategic fit, with good current revenue streams from products soldthrough distribution deals with the opportunity to sell a number of these products directly from 2010onwards at enhanced profit margins.
Strengths of the Enlarged Group
The Enlarged Group will enjoy:
� Significant revenues from royalties from marketed products such as BeneFIX� and Campath�; andfrom sales of critical care products CroFab�, DigiFab� and from cost recovery and sales ofVoraxaze�. The Enlarged Group will benefit from the return in distribution rights to, and theresultant anticipated increase in revenues and gross profits from sales of, CroFab� and DigiFab�,and subject to approvals in the US, Voraxaze�, from 2010 onwards;
� Significant milestone, manufacturing and royalty payments should partnered programmes includingCytoFab�, Campath�, TRX4 and CB7630 achieve development and sales milestones;
� Substantial potential future milestone and royalty payments from out-licensing certain pipeline andlegacy programmes, including Varisolve�, Angiotensin Therapeutic Vaccine (ATV) and DigoxinImmune Fab (DIF);
� Strong existing cash balances; and
� Improved financial margins through achieving direct cost synergies arising on the elimination ofduplicated activities, potential improvements to gross margins on Protherics’ critical care productsfrom planned process improvements and through efficiencies in development and operating activities.
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Positioned for growth and sustained profitability
The BTG Directors intend to utilise the strength of the Enlarged Group to achieve sustainableprofitability through:
� Developing a rationalised pipeline of products that the Enlarged Group can commercialise itself inthe future, while seeking to out-license products where partners are required;
� Establishing a commercial operation in the US to sell its own products; and
� Acquiring additional programmes and products that can be sold through the planned US sales force.
Significant partnered development programmes
The Enlarged Group will have a number of programmes under development by partners which, ifsuccessfully developed and launched, would generate significant milestone and royalty payments, includingCytoFab�, Campath�, TRX4 and CB7630 (abiraterone acetate).
Substantial value in the combined development pipeline
The BTG Directors and the Independent Protherics Directors have a combined development investmenttarget of approximately £20 million per annum from 2010/2011 onwards, as the combined developmentpipeline is rationalised and development investment is focused on key value drivers.
Strong financial resources and capabilities
The Enlarged Group will benefit from further revenues and value from potential licensing deals onpipeline programmes, as well as the increased profitability of marketed products aided by the return ofdistribution rights and the creation of a US sales force.
Significant cost saving potential and operational synergies
The BTG Directors and the Independent Protherics Directors intend to target annualised cost savings andreductions of approximately £20 million by 2010/2011.
Capable and experienced management team
The Enlarged Group will be led by Louise Makin as Chief Executive Officer, Rolf Soderstrom, who willjoin the BTG Board as Chief Financial Officer and Christine Soden, who will move to the role of ChiefOperating Officer. The Executive Directors will be supported by a strong team of non-executive directors,led by John Brown as Chairman. John Brown is the current Chairman of BTG and Senior Non-ExecutiveDirector of Protherics.
5. Further Details Relating to the Acquisition
It is intended that the Acquisition will be implemented by way of a scheme of arrangement betweenProtherics and the Scheme Shareholders under part 26 of the Companies Act 2006 (including a reductionof capital under Section 135 of the Companies Act).
In view of its size, and in order for BTG to obtain the necessary shareholder approvals required inconnection with the issue of the New BTG Shares, the Acquisition is also conditional upon the BTGShareholders passing the BTG Resolutions at the BTG EGM, which is expected to be held on5 November 2008.
Once the Scheme becomes effective, it will be binding on all Protherics Shareholders whether or not theyattended or voted at the Court Meeting or the Protherics EGM.
5.1 Irrevocable Undertakings and Letters of Intent
BTG has received irrevocable undertakings to vote in favour of the resolutions at the Court Meeting andthe Protherics EGM from each of the Independent Protherics Directors in respect of their entire legal andbeneficial holdings of Protherics Shares and those of their connected and related persons amounting, inaggregate, to 10,357,554 Protherics Shares.
BTG and Protherics have received irrevocable undertakings to vote in favour of the BTG Resolutions fromthose BTG Directors who hold BTG Shares in respect of their entire holding of BTG Shares, amounting
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to, in aggregate, 84,769 BTG Shares, representing approximately 0.06 per cent. of the existing issued sharecapital of BTG.
In addition, Invesco Asset Management Limited, which is the largest shareholder in Protherics, hasdelivered non-binding letters to Protherics and BTG dated 16 October 2008 respectively confirming itsintention to vote in favour of the resolutions at the Court Meeting and Protherics EGM (in its capacity as aProtherics Shareholder) and the BTG EGM (in its capacity as a BTG Shareholder). These letters of intentrelate to 36,500,201 Protherics Shares and 44,958,074 BTG Shares respectively representing approximately10.7 per cent. of the existing issued share capital of Protherics and approximately 29.7 per cent. of theexisting issued share capital of BTG, in each case as at 15 October 2008 (the latest practicable date prior tothe posting of this document).
Aviva Investors Global Services Limited, which is the largest shareholder in Protherics, has also delivered anon-binding letter to Protherics and BTG dated 16 October 2008 confirming its intention to vote, orprocure the vote, in favour of the resolutions at the Court Meeting and Protherics EGM in respect of45,971,166 Protherics Shares, representing approximately 13.4 per cent. of the existing issued share capitalof Protherics or at 15 October 2008 (the latest practicable date prior to the posting of this document).
5.2 Inducement Fees
As an inducement to BTG proceeding with the Offer, Protherics has agreed to pay BTG an inducementfee of £2.1 million (inclusive of any VAT) if:
(a) a Competing Proposal in relation to Protherics is announced prior to the Acquisition lapsing or beingwithdrawn and such Competing Proposal subsequently becomes or is declared wholly unconditional oris otherwise completed; or
(b) the Independent Protherics Directors either (i) fail to recommend or (ii) withdraw or adverselymodify, or qualify their recommendation to Protherics Shareholders to vote in favour of the Schemeand the Protherics Resolutions and subsequently the Acquisition lapses or is withdrawn; or
(c) the Independent Protherics Directors recommend any Competing Proposal in relation to Prothericsand subsequently the Acquisition lapses or is withdrawn.
As an inducement to Protherics proceeding with the Offer, BTG has agreed to pay Protherics aninducement fee of £2.1 million (inclusive of any VAT) if:
(a) a Competing Proposal in relation to BTG is announced prior to the Acquisition lapsing or beingwithdrawn and such Competing Proposal subsequently becomes or is declared wholly unconditional oris otherwise completed; or
(b) the BTG Directors either (i) fail to recommend or (ii) withdraw or adversely modify or qualify theirrecommendation to BTG Shareholders to vote in favour of the BTG Resolutions and subsequentlythe Acquisition lapses; or
(c) the BTG Directors recommend any Competing Proposal in relation to BTG and subsequently theAcquisition lapses or is withdrawn.
Neither Protherics nor BTG are obliged to pay amounts which the Panel would determine would not bepermitted by Rule 21.2 of the Code.
5.3 Conditions to the Acquisition
Implementation of the Scheme is subject, amongst other things, to (i) the approval of a majority in numberof the Scheme Shareholders present and voting in person or by proxy at the Court Meeting representingnot less than 75 per cent. in value of the Scheme Shares voted by the Scheme Shareholders and; (ii) thepassing of the Protherics Resolutions, requiring the approval of Protherics Shareholders representing atleast 75 per cent. of the votes cast at the Protherics EGM.
6. Dividend Policy
In respect of each of the BTG Group’s financial years ended 31 March 2006, 2007 and 2008, the BTGBoard did not declare a dividend. Following the Acquisition, the BTG Board will review its dividend policytaking into account the underlying earnings, capital requirements and cashflows of the Enlarged Group.
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7. Current Trading, Trends and Prospects
BTG
For the year ended 31 March 2008, BTG generated revenue (net of revenue sharing) of £42.9 million,including net recurring royalties of £24.9 million. This resulted in a surplus of net recurring royalties overoperating expenses of £8.9 million. Operating profit was £16.6 million before an impairment provision inrespect of a manufacturing development facility of £8.1 million.(2)
Since March of this year, BTG has made significant progress across its business and in particular in itsdevelopment pipeline, with the Varisolve� phase II study completing with encouraging results and twolicensed programmes advanced into phase III studies.
Whilst revenues from one-off transactions are expected to be lower than in the equivalent period last year,BTG continues to operate in line with the BTG Directors’ expectations, and the BTG Directors areconfident of the financial and trading prospects of BTG for the current financial year.
Protherics
For the year ended 31 March 2008, Protherics had trading revenues of £23.5 million, delivering growth of27 per cent over the prior year. The gross margin on trading revenues increased to 47 per cent. R&Dexpenditure in the period was £19.1 million, reflecting planned increased investment in the developmentpipeline, resulting in a loss for the year of £16.7 million.(3)
Since March 2008, Protherics has continued to invest as planned in its development pipeline and has seengood progress across all areas of its business.
Protherics continues to operate in line with the Independent Protherics Directors’ expectations, and theIndependent Protherics Directors are confident of the financial and trading prospects of Protherics for thecurrent financial year.
Enlarged Group
The BTG Directors and the Independent Protherics Directors believe that the combination of BTG andProtherics will create a business with significant revenue streams, a broad and balanced pipeline and astrong financial platform from which to develop the Enlarged Group further.
Accordingly, the BTG Directors and the Independent Protherics Directors view the Enlarged Group’sprospects for the current financial year with confidence.
8. Risk Factors
The material risk factors relating to the Acquisition, the BTG Group, the Protherics Group and theEnlarged Group fall into a number of areas:
Risks relating to the BTG Group
� The development of pharmaceutical products is inherently uncertain with high failure rates.
� The development of pharmaceutical products is subject to obtaining and complying with regulatoryapprovals and failure to do so may adversely affect the development of such pharmaceutical products.
� The commercial success of pharmaceutical products cannot be assured.
� The BTG Group is dependent on the financial success of its principal products.
� A potential inability to obtain adequate intellectual property rights for current potential products mayenable competitors to take advantage of BTG’s research and development efforts.
� The BTG Group is dependent on the successful acquisition and exploitation of new and existingtechnologies.
� The BTG Group is dependent on third party supply, development and manufacturing servicerelationships.
(2) Historic financial information relating to BTG has been extracted without material adjustment from the relevant publishedaudited reports and accounts of BTG.
(3) Historical financial information relating to Protherics has been extracted without material adjustment from the relevantpublished audited reports and accounts of Protherics.
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� No assurance can be given that suitable partners can be identified, that business combinations can beentered into with them or that operations can be successfully integrated with partners.
� The BTG Group is dependent upon the successful development of potential candidate products whichare at an early stage of development.
� BTG competitors may have greater resources for developing superior or less costly products.
� If sufficient revenue is not generated from operations additional financing may be required in thelonger term. Such financing may not be available or may be on terms which dilutes shareholders’interests.
� The BTG Group is dependent on key employees.
� Exposure to foreign exchange rate fluctuations may adversely affect operational results and financialcondition.
� Changes in regulatory environment could result in delays or failures to manufacture or sell products.
� Costs of compliance with environmental and health and safety regulations could materially impactBTG’s financial condition.
� Third party reimbursement and healthcare cost containment initiatives may constrain future revenues.
� Rapid technological change may render some of the BTG Group’s technologies obsolete.
� Product liability and other operational risk may not be capable of being adequately insured.
� Risk of litigation.
� Adverse public opinion may affect market position and share price performance.
Risks relating to the Acquisition
� The Acquisition is subject to a number of conditions which may not be satisfied or waived.
� There may be integration challenges and the Enlarged Group’s management may be diverted fromthe core business activities.
� The Enlarged Group may not achieve its stated objectives.
� Upon the Acquisition becoming effective, existing BTG Shareholders will suffer a reduction in theirproportionate ownership and voting interest in BTG Shares.
Risks relating to investment in BTG Shares
� The market price of BTG Shares could be volatile and subject to significant fluctuations due to avariety of factors.
� The value of an investment in BTG may go down as well as up.
� BTG can give no assurances that it will be able to pay a dividend going forward.
In this paragraph 8, any risk expressed as relating to BTG shall be interpreted as applying also to theBTG Group, the Protherics Group and, unless the context otherwise requires, the Enlarged Group uponcompletion of the Acquisition.
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RISK FACTORS
A number of factors affect the operating results, financial condition and prospects of each of the BTG Group,the Protherics Group and, following the Effective Date, will affect the Enlarged Group. This section describes(in no particular order) the risk factors which are considered by the BTG Directors to be material in relation tothe BTG Group and the Protherics Group as discrete groups and which will, following the Effective Date, applyto the Enlarged Group. However, these should not be regarded as a complete and comprehensive statement ofall potential risks and uncertainties. Additional risks and uncertainties that are not presently known to the BTGDirectors, or which they currently deem immaterial, may also have an adverse effect on the BTG Group’s, and,if the Acquisition becomes effective, the Enlarged Group’s, operating results, financial condition and prospects.
The information given is as of the date of this document and except as required by the FSA, the London StockExchange, the Listing Rules, the Prospectus Rules or any other applicable law, will not be updated. Any forward-looking statements are made subject to the reservations specified under ‘‘Forward-Looking Statements’’ onpage 18 of this document.
You should consider carefully the risks and uncertainties described below, together with all other informationcontained in this document and the information incorporated by reference herein, before making anyinvestment decision and when deciding what action to take in relation to the Offer.
For the purposes of this section, any risk expressed as relating to the BTG Group shall be interpreted as to applyalso to the Protherics Group and therefore unless the context otherwise requires, the Enlarged Group uponthe Scheme becoming effective.
RISKS RELATING TO THE BTG GROUP
The development of pharmaceutical products is inherently uncertain with high failure rates
Due to the inherent risks involved in developing pharmaceuticals, it is probable that not all productcandidates of the BTG Group’s portfolio will be successfully developed, launched and achieveexpected sales.
The development of pharmaceutical products is subject to obtaining and complying with regulatoryapprovals, and the failure to do so may adversely affect the development of such pharmaceutical products
The technologies over which the BTG Group has rights (whether directly or indirectly) are at varyingstages of development and significant further research and development investment will be required on anongoing basis to allow successful commercialisation. Laboratory and, where appropriate, clinical testingand regulatory approvals will be required prior to the approval and sale of products resulting from thesetechnologies. There is a substantial risk of adverse or inconclusive results from testing, preclinical orclinical trials which may substantially delay, or halt entirely, or make uneconomic, any further developmentof technologies over which the BTG Group has rights.
The preclinical and clinical evaluation, manufacture and marketing of pharmaceutical and othertechnologies are subject to a high level of regulation by government and other regulatory agencies in thecountries where the BTG Group or its licensees or collaborators intend to test or market products. Ofparticular importance is the requirement in most countries to obtain and maintain regulatory approval fora product from the relevant regulatory authority to enable it to be marketed in that country. Such approvalrequires the clinical evaluation of data relating to the quality, safety and efficacy of a product for itsproposed use. Many countries, including all members of the EU and the US, have very high standards oftechnical appraisal for life science products and, accordingly, the clinical trial process is, in most cases, verylengthy and therefore very expensive. The time taken to obtain such approval in particular countries varies,but it can frequently significantly exceed five to seven years from the date of application. There is a highfailure rate in the development of pharmaceutical, life science and other technologies and there can be noassurance that any of the technologies over which the BTG Group has rights will successfully complete thedevelopment or clinical trial process or that regulatory approvals to manufacture and market thoseproducts resulting from these technologies will ultimately be obtained.
In addition, each regulatory authority may impose its own requirements (by, for instance, restricting apharmaceutical product’s indicated uses or applicable patient groups or, for high technology products, byapplication of regulatory standards) and may refuse to grant, or may require additional data beforegranting, an approval, even though the relevant product may have been approved by another country’sauthority. If regulatory approval is obtained, the product and its manufacturer are subject to continual
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review and there can be no assurance that such approval will not be withdrawn or restricted to thedetriment of the BTG Group. Ensuring and demonstrating compliance with regulatory standards,including GMP and GCP standards, can be time consuming and expensive.
Failure to comply with applicable regulatory requirements can, among other things, result in fines,suspensions and/or withdrawals of regulatory approval, product recalls, prohibition on manufacture,distribution, sales and/or marketing and, in extreme cases, criminal prosecution of a company and/or itsofficers and employees.
The commercial success of pharmaceutical products cannot be assured
Even where products over which the BTG Group has rights are successfully developed and securemarketing approval from relevant regulatory authorities, there can be no assurance that products willachieve commercial success. Factors which could limit commercial success of a product include but are notlimited to:
� limited market acceptance;
� an inability to access through outsourcing or otherwise a sales force capable of successfully marketingthe product;
� an inability to supply a sufficient amount of the product to meet market demand;
� high cost of manufacture of goods or too high a market price for the product;
� insufficient funding being available to adequately market the product;
� safety concerns arising pre- or post-launch resulting in negative publicity or product withdrawal; and
� the number and relative efficacy, safety or cost of competitive products.
The degree of market acceptance will depend on the BTG Group’s ability to provide acceptable evidenceof safety, efficacy, convenience, ease of administration, benefits in comparison to market alternatives andcost effectiveness. If any of the foregoing were to occur, it could materially and adversely affect theBTG Group’s business, financial condition and results of operations and prospects. Individual technologieswill carry a high degree of risk.
The BTG Group is dependent on principal products
The BTG Group earns significant royalty revenues from principal products already in development and inparticular from principal products marketed by third parties, namely BeneFIX� Two-Part Hip Cup andCampath�. The Protherics Group is largely dependent on sales of CroFab� and DigiFab�.
Any unexpected negative development with respect to these products (for example manufacturing orsupply delays, an unexpected safety or efficacy concern or competition from more effective or less costlynew alternative therapies) or challenges to patent positions that affects sales of these products may have anadverse effect on the financial condition and results of operations of the Enlarged Group.
A potential inability to obtain adequate intellectual property rights for current potential products mayenable competitors to take advantage of BTG’s research and development efforts
The extent of the BTG Group’s success will to a significant degree depend on its own ability and the abilityof those from which it in-licenses and to which it out-licenses its existing and future technologies toestablish and enforce in relevant jurisdictions proprietary rights relating to the development, manufacture,use and sale of those technologies and products and any resulting approved products. For example, in thepharmaceutical industry, companies actively seek patents and defend their patents or other proprietaryrights. The BTG Group has been granted or has in-licensed rights under a number of granted patents(or other proprietary rights), and patent applications are pending, in the United States, Europe, Japan andcertain other jurisdictions. The BTG Group takes all measures it considers commercially appropriate toprotect its proprietary rights. However, no assurance can be given that the BTG Group will develop oracquire further technology or products that are patentable or otherwise protectable, that patents or otherrights will be granted under any pending or future applications, that the claims allowed will be sufficientlybroad to protect the technologies and methods used by the BTG Group, that patents or other rights willnot be revoked or that the BTG Group will not be subject to claims of infringement of patents or theproprietary rights of others.
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Competitors may have filed applications or been granted patents for, or obtained additional patents andproprietary rights that relate to products or processes competitive with those to which the BTG Group hasrights. In addition, there can be no assurance that any of the patents or patent applications or other rightsof the BTG Group or those to which it out-licenses will not become subject to opposition or revocationproceedings by third parties. If such proceedings were initiated, the BTG Group’s defence of itsproprietary rights could involve substantial costs and the outcome could not be predicted and could resultin declarations of invalidity or the narrowing of the scope of those rights. Under the terms of in-licenses orout-licences BTG may not have adequate control over the enforcement or defence of such proprietaryrights which may materially adversely affect its ability to maintain adequate intellectual property rightprotection for its products. An adverse outcome could subject the BTG Group to significant liabilities;require the BTG Group to obtain a licence for the continued use of the affected rights, which may not beavailable on acceptable terms or at all; or require the BTG Group to cease its commercialisation anddevelopment efforts in whole or in part. Where patent protection is not available, there is a risk that theprocedures the BTG Group has in place to ensure confidentiality of its trade secrets and proprietaryknow-how may be breached in a manner which is detrimental to the BTG Group.
Claims of prior interest or ownership of developed or in-licensed technology, such as claims by individualsor organisations involved in the development of the technology, may arise. Any such claims could have amaterial adverse effect on the ability of the BTG Group to market the products, which are the subject ofsuch claims at a competitive price or at all.
If patents are granted to other parties that contain claims having a scope that is interpreted by the relevantauthorities in such a way that any of the BTG Group’s products or any resulting future products infringethose patents, there can be no assurance that the BTG Group will be able to obtain licences to suchpatents at reasonable cost, if at all. Given the competitive nature of the market, such proprietary rights arelikely to be strenuously enforced.
When any of the BTG Group’s patents (or other rights), or those which it has in-licensed, lapse or expire,the ability of the BTG Group to prevent third parties from developing products covered by such patentrights will be significantly reduced or will cease. The marketing of such generic competitive products maysignificantly reduce income to the BTG Group.
There can be no assurance that there will not be some change to national or international patent law, thepractices of national patent offices or the patent authority, or their capability or authority to implementsuch laws and practices that would adversely affect the BTG Group’s ability to obtain appropriate patentor other protection for its business or products.
The BTG Group is dependent on the successful acquisition and exploitation of new and existingtechnologies
The BTG Group is dependent to a large degree upon the generation of revenues in the form of licencefees from third parties or equity returns on investments in corporate vehicles commercialising BTG orthird party sourced technologies. There can be no assurance that such third parties will be successful insuch commercialisation activities. There can be no assurance that licences will be maintained by licenseesor that revenues will be received at the levels and in the timescales envisaged by the BTG Directors. Thelevel of licence fee revenue stream from those third parties depends upon the success of their productsincorporating the BTG Group’s technology and/or of their development and sales efforts in respect ofthese products.
Development by the BTG Group of its existing technologies or development of new technologies may takelonger than anticipated; development delays, defects in technology or new technology proving to beunreliable may all lead to a reduction or the extinction in anticipated revenue generation.
The BTG Group is reliant on licensees reporting revenues and royalties due from products incorporatingits technology; however, there can be no assurance that these amounts will be reported correctly. Therecan be no assurance that future underpayments will be identified or recovered.
Changes in governmental policy or law may result in the reversion of the BTG Group’s interests in atechnology to its source or a third party to the BTG Group’s detriment, the BTG Group’s interest ina technology may be lost or the value of the interest significantly diminished due to human or IT systemerrors such as failing to meet patent filing deadlines.
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The BTG Group is dependent on third party supply, development and manufacturing service relationships
The BTG Group’s business strategy utilises the expertise and resources of third parties in a number ofareas, including for the supply of new technologies and inventions, the conduct of preclinical and clinicaltrials, other product development, manufacture and the protection of the BTG Group’s intellectualproperty rights in various geographical locations. This strategy creates risks to the BTG Group by placingcritical aspects of the BTG Group’s business in the hands of third parties whom the BTG Group may notbe able to manage or control adequately and who may not always act in the best interests of theBTG Group.
Where the BTG Group is dependent upon third parties for the manufacture of certain drug candidates orfuture products, the BTG Group’s ability to procure their manufacture in a manner which complies withregulatory requirements may be constrained, and its ability to develop and deliver such material on atimely and competitive basis may be adversely affected.
The Protherics Group is also reliant on supplies of raw materials from third parties (such as crotalid snakevenom and digoxin) and the provision of certain manufacturing services from external contractors (such asthe filling and freeze drying of products into vials). Regulatory requirements for pharmaceutical productstend to make the substitution of suppliers and contractors costly and time-consuming. The unavailability ofadequate commercial quantities, the inability to develop alternative sources, a reduction or interruption insupply of contracted services could have a material adverse affect on Protherics’ ability to manufacture andmarket its products or to fill orders from its distributors, which in turn would have an adverse impact on itscash flows.
No assurance can be given that suitable partners can be identified, that business combinations can beentered into with them or that operations can be successfully integrated with partners. The futureacquisition of assets may be made for shares, diluting existing shareholdings
Part of the BTG Group business strategy is to acquire businesses and assets specialising in pharmaceuticalresearch and development and related services. No guarantee can be given that definitive agreements maybe reached with any person, or that if definitive agreements are executed, that such agreements will beconsummated. The BTG Group may acquire assets for which it pays wholly or partly in shares of BTG,thereby diluting existing shareholdings.
The BTG Group is dependent upon the successful development of its potential candidate products whichare at an early stage of development
Venture investments made by the BTG Group are likely to be predominantly in companies at an earlystage of development and therefore subject to the high degree of risk associated with early stageinvestments in general, including the risk of product failure in development or regulatory approval and theimpact of competing technologies entering the market with more resources.
There is no certainty that individual venture investments will prove to be successful or generate a return oninvestment for the BTG Group.
The BTG Group’s competitors may have greater resources for developing superior or less costly products
The BTG Group faces increasing competition in a number of areas of its business, but mainly in theacquisition and commercialisation of new technology. Competition for the acquisition of new technology isbased on factors such as revenue sharing terms, acquisition price, reputation of the acquirer and its fundingcapability or technical development expertise. The competitors for new technology include universitytechnology transfer offices, venture capital firms, pharmaceutical and biotech companies. Some of thesecompetitors may have substantially greater financial, technical and human resources than the BTG Groupand may be better able to develop technologies or manufacture and market commercial products. Inaddition, many of the BTG Group’s existing or potential competitors have extensive experience inresearch, product development, preclinical testing and human clinical trials, obtaining regulatoryapprovals, and manufacturing and marketing their products, or are allied with major pharmaceuticalcompanies that can afford them these advantages. If the BTG Group does not maintain and enhance itscompetitive position by offering attractive commercialisation terms and routes to market against currentand future competitors it could affect its ability to retain existing clients and to attract new clients. Thiscould reduce the flow of new technology to the BTG Group and as a result adversely affect its financialcondition and operating results or prospects.
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If sufficient revenue is not generated from operations, additional financing may be required in the longerterm but may not be available at all or, if available, may be on terms which dilutes shareholders interests
The BTG Group will require significant revenue from product sales, collaborative and licensingarrangements and strategic alliances to fund its ongoing operations. If the BTG Group is unsuccessful ingenerating this revenue or this revenue is insufficient to fund proposed projects, then the BTG Group will,in the longer term, require additional financing. Additional financing may not be available to the Companyon favourable terms or at all. If the BTG Group has insufficient funds or is unable to raise additionalfunds, it may be required to delay, reduce or cease certain of its programmes and may be unable tocontinue its operations at its current level, if at all.
Future financings may result in the substantial dilution of shareholders’ interests.
The BTG Group is dependent on key employees
The BTG Group’s success depends largely on its ability to attract and retain qualified management,scientific and technical personnel. The loss of any of these key personnel may have a material adverseeffect on the future of the BTG Group’s business. Competition for qualified employees in the scientificresearch and pharmaceutical industries is intense and there are a limited number of people withknowledge appropriate to, and experience within, such industries. Consequently replacing any keypersonnel who leave the BTG Group could be difficult and time consuming.
Exposure to foreign exchange rate fluctuations may adversely affect operational results and financialcondition
Many of the BTG Group’s revenue and receipts will be denominated in US dollars. To the extent that theBTG Group’s foreign currency assets and liabilities are not matched, fluctuations in exchange ratesincluding between pounds sterling and the US dollar may result in realised or unrealised exchange gainsand losses on translation of the underlying currency into pounds sterling that may increase or decrease theBTG Group’s results of operations and may adversely affect the BTG Group’s financial condition each asstated in pounds sterling. In addition, if the currencies in which the BTG Group earns its revenues and/orholds its cash balances weaken against the currencies in which it incurs its expenses, this could adverselyaffect the BTG Group’s profitability and liquidity.
Changes in regulatory environment could result in delays or failures by the BTG Group to manufacture orsell products
Many of the BTG Group’s ongoing development and commercial activities are subject to regulation bygovernmental and other regulatory authorities in the countries in which the BTG Group wishes to test,develop, manufacture and/or market pharmaceutical, other life science or high tech products.
Changes in applicable legislation and/or regulatory policies may result in delays or failures in bringingproducts to market, additional material costs or the imposition of restrictions on the sale of a product or itsmanufacture, including the possible withdrawal of a product from the market and may have an adverseeffect on the BTG Group’s business or prospects.
Cost of compliance with environmental and health and safety regulations could materially impact BTG’sfinancial condition
The BTG Group’s research work involves or may involve the controlled use of biological waste, chemicals,and hazardous, infectious and radioactive materials. The BTG Group is subject to environmental andhealth and safety laws and regulations, including those governing the use, storage, handling and disposal ofthese materials and other waste products. The cost of compliance with these and future regulations couldbe substantial. Although the BTG Directors believe that the BTG Group’s procedures will comply in allmaterial respects with the standards prescribed by applicable laws and regulations, the risk of accidentalcontamination or injury or damage to property from these materials cannot be eliminated. In the event ofsuch an accident, resulting liabilities could have a material adverse impact on the BTG Group’s business,financial condition and/or results of operations.
Third party reimbursement and healthcare cost containment initiatives may constrain future revenues
The ability of the BTG Group and its partners to commercialise their life science products also depends onthe extent to which reimbursement for the cost of such products and related treatments will be available
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from government health administration authorities (including the United Kingdom National HealthService), private health coverage insurers and other organisations. There is uncertainty as to thereimbursement status of newly approved healthcare products, and there is no assurance that adequatehealth administration or third party coverage will be available to the BTG Group or its partners to obtainsatisfactory price levels. In addition, there is increasing pressure from certain governments to containhealthcare costs by limiting both coverage and the level of reimbursement for new therapeutic products,and by refusing in some cases to provide any coverage for uses of approved products for disease conditionsfor which the relevant regulatory agency has not granted marketing approval. If adequate reimbursementlevels are not provided by the government and other third party payers for the products over which theBTG Group has rights, the market acceptance of these products and therefore the BTG Group’s revenueswould be adversely affected.
Rapid technological change may render some of BTG Group’s technologies obsolete
Products and technologies developed by the BTG Group may not have any (or may have a shorter thananticipated) commercial life due to the invention or development of superior or more successfultechnology or applications by competitors which will render one or more of the BTG Group’s productsobsolete.
The BTG Group’s licensed products rely upon advanced technology. Whilst these products are generallythought to be adequately protected by patents or other registrable rights, there can be no assurance thatnew technology will not emerge to threaten the BTG Group’s position.
Whilst new technologies offer growth opportunities for the BTG Group, changes in those technologiesmay also, over relatively short periods, result in the reduction or elimination of particular markets forcertain of the BTG Group’s technologies.
Product liability and other operational risk may not be capable of being adequately insured
The testing, marketing and sale of the BTG Group’s products involve significant product liability risks. TheBTG Group may be held liable for damages for product failures or adverse reactions resulting fromthe use of the BTG Group’s products. Although the BTG Group maintains product liability coverage, thisinsurance may not provide adequate coverage against all product liability claims. Furthermore, in thefuture, the BTG Group may not be able to obtain insurance on acceptable terms against product liabilityand other operational risk such as property damage and business interruption, and any insurance theBTG Group does obtain may not provide adequate coverage against any asserted claims or other losses.
Risk of litigation
As with any business, the BTG Group will from time to time undertake litigation, threats of litigation orother legal or dispute resolution processes. Commencing discussions with potential infringers or anysubsequent litigation to enforce intellectual property rights may result in actions for declaratory judgmentsas to non-infringement and/or counter claims which seek to invalidate the particular intellectual propertyrights being enforced, either of which if decided against the BTG Group could materially diminish orextinguish the value of the relevant intellectual property rights. The outcome of any litigation or disputeresolution process is by its nature uncertain and a favourable outcome for the BTG Group cannotbe guaranteed.
Adverse public opinion may affect market position and share price performance
The pharmaceutical industry is frequently subject to adverse publicity on many topics, including corporategovernance or accounting issues, product recalls and research and discovery methods, as well as to politicalcontroversy over the impact of novel techniques and therapies on humans, animals and the environment.Adverse publicity about the BTG Group, its collaborators, its products, or any other part of the industrymay hurt the BTG Group’s public image, which could harm its operations, cause its share price to decreaseor impair its ability to gain market acceptance for its products.
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RISKS RELATING TO THE ACQUISITION
The Acquisition is subject to a number of conditions which may not be satisfied or waived
The implementation of the Scheme is subject to the satisfaction (or waiver, where applicable) of a numberof conditions, including but not limited to:
� the passing at the BTG EGM of such resolution or resolutions as are necessary to approve, implementand effect the Acquisition;
� the approval of the Scheme by a majority in number of Scheme Shareholders at the Court Meeting(representing three-fourths or more in value of the Scheme Shares voted by those SchemeShareholders);
� the resolution or resolutions required to implement the Scheme being passed by the requisite majorityat the Protherics EGM; and
� the sanction of the Scheme and the confirmation of the Reduction of Capital by the Courtbeing obtained.
There is no guarantee that these (or other) conditions will be satisfied (or waived, if applicable), in whichcase the Acquisition will not become effective. The Conditions to the Acquisition are set out in more detailin Part 1 of this document.
There may be numerous integration challenges and the Enlarged Group’s management may be divertedaway from the core business activities
The Enlarged Group may encounter numerous integration challenges as a consequence of the Acquisitionincluding challenges which are not currently foreseeable. In addition, the Enlarged Group’s managementand resources may be diverted away from the core business activities due to personnel being required toassist in the integration process. The integration process may take longer than expected, or difficultiesrelating to the integration, of which the BTG Directors and the Proposed Director are not yet aware, mayarise. This could adversely affect the implementation of the Enlarged Group’s plans, and the EnlargedGroup may not be successful in addressing risks or problems encountered in connection with theintegration and failure to do so may adversely affect its business or financial condition.
The Enlarged Group may not achieve its stated objectives
The value of an investment in BTG is dependent upon the Enlarged Group achieving its strategic aims.The estimated cost savings and operational synergies envisaged by the BTG Directors and the IndependentProtherics Directors may not be achieved or achieved to the extent materially different from thoseestimated and the Enlarged Group may not be able to successfully develop its existing and pipelineproducts or to successfully launch its US salesforce. In addition the Enlarged Group may not be able to payfor the commercialisation of its products and such products may not appeal to potential licensees. TheEnlarged Group may also need to commit greater resources than have currently been budgeted for and itis possible, therefore, that the Enlarged Group may have resource constraints on its ability to achieve itsstated objectives.
Ownership Reduction
The Acquisition is such that, when it becomes effective, existing BTG Shareholders will suffer a reductionin their proportionate ownership and voting interest in the ordinary share capital of BTG.
RISKS RELATING TO INVESTMENT IN BTG SHARES
Possible volatility of the price of BTG Shares
The market price of BTG Shares could be volatile and subject to significant fluctuations due to a variety offactors, including changes in sentiment in the market regarding BTG shares (or securities similar to them),any regulatory changes affecting the BTG Group’s operations, variations in the BTG Group’s operatingresults, business developments of BTG or its competitors, the operating and share price performance ofother companies in the industries and markets in which BTG operates, or speculation about theBTG Group’s business in the press, media or the investment community. Stock markets have from time totime experienced significant price and volume fluctuations that have affected the market prices forsecurities and which may be unrelated to the BTG Group’s operating performance or prospects.
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Furthermore, the BTG Group’s operating results and prospects from time to time may be below theexpectations of market analysts and investors. Any of these events could result in a decline in the marketprice of BTG Shares.
Investments in Listed Securities
Prospective investors should be aware that the value of an investment in BTG may go down as well as goup. The market value of the BTG Shares can fluctuate and may not always reflect the underlying net assetvalue or the prospects of the BTG Group.
BTG Shares may not be a suitable investment for all the recipients of this document. Before making a finaldecision, investors are advised to consult an appropriate independent investment adviser authorised underFSMA who specialises in advising on the acquisition of shares and other securities.
Dividend payments
The ability of BTG to pay dividends on BTG Shares depends on its profitability and the extent to which, asa matter of law, it has sufficient distributable reserves out of which any proposed dividend may be paid.BTG’s ability to pay dividends is also dependent upon receipt by it of dividends and other distributionsfrom its subsidiaries. BTG can give no assurances that it will be able to pay a dividend going forward.
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EXPLANATORY NOTES
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document or incorporated by reference into it, including those in theparts headed ‘‘Summary’’, ‘‘Risk Factors’’, ‘‘Information on the Acquisition’’, ‘‘Information on BTG’’,‘‘Information on Protherics’’, ‘‘Operating and Financial Review Relating to BTG’’ and ‘‘Operating andFinancial Review relating to Protherics’’ constitute ‘‘forward-looking statements’’ with respect to thefinancial condition, results of operations and business of BTG and Protherics and certain plans andobjectives of the Board and/or the Protherics Directors with respect thereto. These forward-lookingstatements can be identified by the fact that they do not relate only to historical or current facts. Forwardlooking statements often use words such as ‘‘anticipate’’, ‘‘target’’, ‘‘expect’’, ‘‘estimate’’, ‘‘intend’’, ‘‘plan’’,‘‘goal’’, ‘‘believe’’, ‘‘will’’, ‘‘may’’, ‘‘should’’, ‘‘would’’, ‘‘could’’ or other words of similar meaning. Thesestatements are based on assumptions and assessments made by the Board, the Protherics Directors, and/orthe Independent Protherics Directors in light of their experience and their perception of historical trends,current conditions, expected future developments and other factors they believe appropriate. By theirnature, forward-looking statements involve risk and uncertainty, because they relate to events and dependon circumstances that will occur in the future and the factors described in the context of such forward-looking statements in this document could cause actual results and developments to differ materially fromthose expressed in or implied by such forward-looking statements. Although the BTG Directors, theProtherics Directors and the Independent Protherics Directors believe that the expectations reflected insuch forward-looking statements are reasonable, the Company can give no assurance that suchexpectations will prove to have been correct and assume no obligation to update or correct the informationcontained in this document and the Company therefore cautions you not to place undue reliance on theseforward-looking statements which speak only as at the date of this document.
Nothing in this document is intended to be a profit forecast and no statements in this document should beinterpreted to mean that the earnings per BTG Share for the current or future financial periods willnecessarily be greater than those for the relevant preceding financial period.
These risks, uncertainties and other factors are set out more fully on pages 10 to 17 of this document in thesection headed ‘‘Risk Factors’’ and include, amongst others: risks relating to the speciality pharmaceuticalmarket in general, risks associated with the manufacturing, development and marketing of pharmaceuticalproducts and challenges in integrating the businesses of the BTG Group and the Protherics Group. Theseforward-looking statements speak only as at the date of this document.
Except as required by the FSA, the London Stock Exchange, the Listing Rules, the Prospectus Rules, theDisclosure and Transparency Rules of the FSA or any other applicable law, the Company expresslydisclaims any obligation or undertaking to release publicly any updates or revisions to any forward-lookingstatements contained in this document to reflect any change in the Company’s expectations with regardthereto or any change in events, conditions or circumstances on which any such statement is based.
PRESENTATION OF INFORMATION ON PROTHERICS
This document contains certain information relating to Protherics and the Protherics Group, including theinformation contained in the Parts headed ‘‘Risk Factors’’, ‘‘Information on Protherics’’, ‘‘Operating andFinancial Review relating to Protherics’’, ‘‘Historical Financial Information Relating to Protherics’’ and‘‘Additional Information’’.
UNITED STATES
In the United States, this document is being furnished solely for the purpose of enabling ProthericsShareholders to consider electing to acquire the particular securities described herein. This document ispersonal to each offeree and does not constitute an offer to any other person or to the public generally tosubscribe for or otherwise acquire the New BTG Shares.
Notice to US Investors:
The financial information included in this document has been prepared in accordance with accountingstandards applicable in the United Kingdom that may not be comparable to the financial statements of UScompanies. US generally accepted accounting principles (US GAAP) differ in certain significant respectsfrom each of UK generally accepted accounting principles (UK GAAP) and International Financial
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Reporting Standards (IFRS). None of the financial information in this document has been audited inaccordance with auditing standards generally accepted in the United States or the auditing standards of thePublic Company Accounting Oversight Board (United States).
Enforceability of judgments
BTG is a public limited company incorporated under the laws of England and Wales. All of the BTGDirectors and executive officers are citizens or residents of countries other than the United States. All ofthe assets of such persons are located outside the United States. As a result, it may not be possible forinvestors to effect service of process within the United States upon such persons, or to enforce againstthem judgments of US courts, including judgments predicated upon civil liabilities under the securitieslaws of the United States or any state or territory within the United States. There is substantial doubt as tothe enforceability in the United Kingdom in original actions or in actions for enforcement of judgments ofUS courts, based on the civil liability provisions of US federal securities laws.
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EXPECTED TIMETABLE OF PRINCIPAL EVENTS AND ACQUISITION STATISTICS
BTG EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.00 a.m. on 5 NovemberCourt Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.30 a.m. on 11 November 2008Protherics EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.45 a.m. on 11 November 2008(1)
Court hearing to sanction the Scheme . . . . . . . . . . . . . . . . 1 December 2008Reduction Record Time . . . . . . . . . . . . . . . . . . . . . . . . . . 6.00 p.m. on 2 December 2008Court hearing to sanction the Reduction of Capital . . . . . . 3 December 2008Last day of dealings in and for registration of transfers of,
and disablement in CREST of, Protherics Shares . . . . . . . 5:00 p.m. on 3 December 2008Scheme Record Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.00 p.m. on 3 December 2008Effective Date of the Scheme . . . . . . . . . . . . . . . . . . . . . . 4 December 2008(2)
De-listing of Protherics Shares . . . . . . . . . . . . . . . . . . . . . . 8.00 a.m. on 4 December 2008(2)
Issue of New BTG Shares . . . . . . . . . . . . . . . . . . . . . . . . . 8.00 a.m. on 4 December 2008(2)
Commencement of dealings on the London Stock Exchangein New BTG Shares and crediting of New BTG Shares toCREST accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.00 a.m. on 4 December 2008(2)
Latest date for despatch of share certificates in respect ofNew BTG Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 December 2008(2)
All references in this document to times are to London time unless otherwise stated.
(1) Or as soon thereafter as the Court Meeting shall have concluded or been adjourned.
(2) These dates are indicative only and will depend, among other things, on the date upon which the Court sanctions the Schemeand confirms the associated Reduction of Capital and whether the Conditions are either satisfied or, where applicable, waived.
ACQUISITION STATISTICS
Number of existing BTG Shares in issue as at 15 October 2008 . . . . . . . . . . . . . . . . . . 151,265,827
Maximum number of New BTG Shares to be issued pursuant to the Acquisition(1) . . . . 104,168,390
Number of BTG Shares in issue upon the Acquisition becoming effective(2) . . . . . . . . . 255,434,217
New BTG Shares as a percentage of the enlarged issued share capital of BTG(2) . . . . . 40.8 per cent.
(1) Based on the Protherics Fully Diluted Share Capital.
(2) Based on the number of existing BTG Shares in issue as at 15 October 2008 (being the latest practicable date prior to theposting of this document) and the number of New BTG Shares issued pursuant to the Acquisition being 104,168,390. Assumesno further BTG Shares will be issued between 15 October 2008 and the Effective Date.
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DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS
DIRECTORS John Brown (Group Chairman)
Louise Makin (Chief Executive Officer)
Christine Soden (Chief Financial Officer)
Colin Blakemore (Non-Executive Director)
Peter Chambre (Non-Executive Director)
William Jenkins (Non-Executive Director)
Giles Kerr (Non-Executive Director)
PROPOSED DIRECTOR Rolf Soderstrom
COMPANY SECRETARY Christine Soden
REGISTERED OFFICE 10 Fleet PlaceLimeburner LaneLondonEC4M 7SBTelephone Number: +44 (0)20 7575 0000
SPONSOR AND FINANCIAL ADVISER NM Rothschild & Sons Limited1 King William’s StreetLondonEC4N 7AR
LEGAL ADVISER TO THE COMPANY AS TO Allen & Overy LLPENGLISH LAW One Bishops Square
LondonE1 6AD
REGISTRARS Capita RegistrarsNorthern HouseWoodsome ParkFenay BridgeHuddersfieldWest YorkshireHD8 0LA
AUDITORS AND REPORTING ACCOUNTANTS KPMG Audit Plc8 Salisbury SquareLondonEC4Y 8BB
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PART 1
INFORMATION ON THE ACQUISITION
1. Introduction
On 18 September 2008, the BTG Board and the Independent Protherics Directors announced that theyhad agreed the terms of a recommended all share offer by BTG to acquire the entire issued and to beissued share capital of Protherics.
The Acquisition is to be implemented by way of a scheme of arrangement under part 26 of the CompaniesAct 2006 and, subject to the satisfaction, or (where appropriate), waiver, of the Conditions, it is expectedthat the Acquisition will become effective on 4 December 2008.
The Acquisition has been unanimously recommended by the BTG Board and by the IndependentProtherics Directors.
2. Summary of the Terms of the Acquisition
Under the terms of the Scheme, which will be subject to the satisfaction or (where appropriate) waiver ofthe Conditions and to the full terms and conditions which are set out in the Scheme Document, SchemeShareholders who are on the register of members at the Scheme Record Time will receive:
0.291 New BTG Shares for every 1 Protherics Share
and so in proportion for any other number of Scheme Shares held at the Scheme Record Time.
The terms of the Acquisition have been agreed on the basis of a price of 206 pence for each existing BTGShare and a price of 60 pence for each Protherics Share which values the Protherics Fully Diluted ShareCapital at approximately £218.1 million.
Based on the Closing Price of a BTG Share of 129 pence on 15 October 2008 (the latest practicable dateprior to the posting of this document), the terms of the Acquisition value each existing Protherics Share at37.54 pence and the Protherics Fully Diluted Share Capital at approximately £134.4 million.
On 12 August 2008, the last Business Day prior to the announcement by Protherics regarding potentialoffers for Protherics, the Closing Price of a Protherics Share was 31.25 pence. Since that date, there hasbeen exceptionally high levels of volatility and significant declines in global equity markets. However, theunderlying operational performance and financial trading prospects of both BTG and Protherics remainunchanged. Accordingly BTG and the Independent Protherics Directors believe that the relative intrinsicvalues of both BTG and Protherics remain the same as they were as at the date that the Acquisition wasannounced and as such are accurately reflected in its terms.
Assuming no further BTG Shares are issued in the period between the date of this document and theEffective Date, immediately following the Effective Date approximately 40.8 per cent. of the enlargedissued ordinary share capital of BTG will be held by former Protherics Shareholders and approximately59.2 per cent. will be held by BTG Shareholders.(1)
If the Scheme becomes effective, it will be binding on all Scheme Shareholders irrespective of whether ornot they attended or voted in favour of the resolutions at the Court Meeting or the Protherics EGM.
The New BTG Shares will be issued credited as fully paid, and on identical terms to and will rankpari passu with the BTG Shares in issue at the time the New BTG Shares are issued pursuant to theAcquisition, including the right to receive and retain all dividends and other distributions declared, madeor paid on BTG Shares after the Scheme becomes effective.
Based on the Protherics Fully Diluted Share Capital, the maximum number of New BTG Shares to beissued in connection with the Acquisition will be 104,168,390. Assuming this number of New BTG Shares isissued and that no further BTG Shares are issued in the period between the date of this document and theEffective Date, the issued share capital of BTG will, immediately following the Effective Date, comprise255,434,217 BTG Shares.
(1) The percentage ownership of the Enlarged Group held by former Protherics Shareholders and existing BTG Shareholders isbased on the enlarged issued share capital of BTG following the Acquisition being the aggregate of 151,265,827 BTG Shares inissue on 15 October 2008 (being the latest practicable date prior to the posting of this document) and 104,168,390 New BTGShares to be issued pursuant to the Acquisition.
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Applications will be made to the FSA for the New BTG Shares to be admitted to the Official List and tothe London Stock Exchange for the New BTG Shares to be admitted to trading on the London StockExchange’s main market for listed securities.
3. Information on the BTG Group and the Protherics Group
BTG Group
Listed on the London Stock Exchange since 1995, BTG employs approximately 65 people in London,Philadelphia and Osaka.
BTG in-licenses, develops and commercialises pharmaceuticals, targeting neurological and other disorders.BTG has a substantial and growing revenue stream of royalties from out-licensed products, a broadinternal pipeline of development programmes and a pipeline of licensed programmes.
BTG earns royalties from products marketed by licensees. The major contributors to royalty revenues areBeneFIX� partnered by Wyeth, treating haemophilia B, the Two-Part Hip Cup for use in hip replacementsurgery and Campath�, partnered by Genzyme Corporation, for the treatment of chronic lymphocyticleukaemia.
BTG’s internal development pipeline comprises six clinical-stage development programmes, targetingneurological and other disorders. BTG also has a further nine clinical-stage development programmespartnered with licensees, has a number of legacy assets that may be sold or licensed and earns significantroyalty revenues from sales of various marketed products.
Protherics Group
Protherics is an international biopharmaceutical company focused on the development, manufacture andmarketing of specialist critical care and cancer products.
Protherics’ critical care products are used in emergency rooms or intensive care units, particularly for thetreatment of medical emergencies. These include CroFab� and DigiFab� which are sold in the US andViperaTab� which is sold in Europe on a named patient basis. Protherics also has two major developmentopportunities in its critical care franchise: CytoFab� which is being developed by licensing partnerAstraZeneca as a treatment for severe sepsis and is currently undergoing additional phase II development;and Digoxin Immune Fab for pre-eclampsia for which discussions are ongoing with potential licensingpartners following the recent completion of a phase IIb study.
Protherics’ oncology products include Voraxaze�, for which a rolling biologics licence application is due tocommence in the US in the second half of 2008, and Prolarix�, OncoGel� and Acadra� which are ineither phase I/II or phase II clinical development.
Protherics has a proven track record in drug development, biopharmaceutical manufacturing andregulatory affairs and is currently focusing on building a specialist sales and marketing capability.
Protherics employs approximately 300 people across its operations in Europe, North America andAustralasia.
4. Background to, and reasons for, the Offer
Rationale for the combination of BTG and Protherics
BTG has achieved profitability in each of the last three years through following a clear set of strategic aimsleading to strong revenue growth and cost reductions. The BTG Directors have sought to maximise theoperating surplus before R&D in order to enable sufficient investment in the key value drivers of itsclinical pipeline.
BTG’s strategy is to become a sustainably profitable life sciences business, generating revenues from pastand future licensing deals and eventually from direct product sales. BTG’s current revenue stream isderived largely from licensing arrangements entered into at early stages of product development and thusearning relatively modest royalty rates. Royalties from two major licences fall away in 2011 and, whileother products such as Campath�, TRX4, CB7630 and Varisolve� may have the potential to replace theselost royalties, the expected revenues for Protherics from 2010 will smooth the combined revenue streams ofthe Enlarged Group.
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Moving forward, the BTG Directors believe the Enlarged Group should seek to find opportunities toretain a greater share of product revenues, including revenues from direct sales. In this regard, the BTGDirectors believe that Protherics represents an excellent strategic fit, with good current revenue streamsfrom products sold through distribution deals with the opportunity to sell a number of these productsdirectly from 2010 onwards at enhanced profit margins.
Strengths of the Enlarged Group
The Enlarged Group will enjoy:
� Significant revenues from royalties from marketed products such as BeneFIX� and Campath�;and from sales of Protherics’ critical care products CroFab�, DigiFab� and from cost recovery andsales of Voraxaze�. The Enlarged Group will also benefit from the return in distribution rights to, andthe resultant anticipated increase in revenues and gross profits from sales of, CroFab� and DigiFab�,and subject to approval in the US, Voraxaze�, from 2010 onwards;
� Significant milestone, manufacturing and royalty payments should partnered programmes includingCytoFab�, Campath�, TRX4 and CB7630 achieve development and sales milestones;
� Substantial potential future milestone and royalty payments from out-licensing certain pipeline andlegacy programmes, including Varisolve�, Angiotensin Therapeutic Vaccine (ATV) and DigoxinImmune Fab (DIF);
� Strong existing cash balances; and
� Improved financial margins through achieving direct cost synergies arising on the elimination ofduplicated activities, potential improvements to gross margins on Protherics’ critical care productsfrom planned process improvements and through efficiencies in development and operating activities.
The BTG Board and the Independent Protherics Directors believe that the resultant strength of theEnlarged Group will provide the required resources with which to advance and strengthen the key valuedrivers in the Enlarged Group’s combined development pipeline, to acquire further programmes andproducts and to develop the Enlarged Group’s capabilities to market and distribute its own products.
Positioned for growth and sustained profitability
The BTG Directors intend to utilise the strength of the Enlarged Group to achieve sustainable profitabilitythrough:
� Developing a rationalised pipeline of products that the Enlarged Group can commercialise itself inthe future, while seeking to out-license products where partners are required;
� Establishing a commercial operation in the US to sell its own products; and
� Acquiring additional programmes and products that can be sold through the planned US sales force.
The BTG Directors and the Independent Protherics Directors also believe that there are severalprogrammes which, with the potential to generate substantial revenue streams, are key value drivers:Varisolve� is moving towards phase III development in the US for the treatment of varicose veins;CytoFab� is partnered with AstraZeneca and in phase II development for the treatment of severe sepsis,and the Enlarged Group will have further programmes at or approaching phase II studies.
BTG’s strategy is to achieve sustainable profitability. The focus has been to maximise pre-R&D profits inorder to facilitate the maximum investment in the R&D pipeline whilst operating within existing cashresources. The aim is to acquire or develop later stage products for which BTG can retain an increasingshare of the financial rights, including eventual marketing or co-marketing rights. The all-share acquisitionof Protherics, with its marketed products, development pipeline and cash resources, together with theplanned cost savings and synergies, fit well with this strategy.
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Significant partnered development programme
The Enlarged Group will have a number of programmes under development by partners which, ifsuccessfully developed and launched, would generate significant milestone and royalty payments,including:
� CytoFab�—a polyclonal antibody based product intended to treat severe sepsis, which has shownsignificant promise in a phase IIb trial and is being developed by AstraZeneca;
� Campath�—a treatment for multiple sclerosis, currently in two phase III trials, being developed byGenzyme Corporation;
� TRX4—a monoclonal antibody currently in phase III development for the treatment of type 1diabetes by Tolerx, Inc. who signed a worldwide development and commercialisation agreement withGlaxoSmithKline to develop TRX4 in a range of autoimmune disorders; and
� CB7630 (abiraterone acetate)—in phase III development as a treatment for prostate cancer byCougar Biotechnology, Inc.
Substantial value in the combined development pipeline
The R&D expenditure for each of the BTG Group and the Protherics Group was approximately£10.7 million and £19.1 million respectively for the year ended 31 March 2008(2) . The BTG Directors andthe Independent Protherics Directors have a combined development investment target of approximately£20 million per annum from 2010/11 onwards, as the combined development pipeline is rationalised anddevelopment investment is focused on key value drivers.
The Enlarged Group will have a number of products which may have significant market potential shouldthey be successfully developed and commercialised including:
� Varisolve�—polidocanol endovenous microfoam for the treatment of varicose veins, which hascompleted a phase III trial in the EU and is anticipated to commence pivotal phase III trials in the USin 2009;
� Angiotensin Therapeutic Vaccine—which is in a phase IIa proof of concept study for hypertension;
� Digoxin Immune Fab—which has shown promise in a phase IIa study for the treatment of severepre-eclampsia;
� BGC20-1259—a multifunctional compound that is scheduled to enter a phase II study for thetreatment of Alzheimer’s disease by the end of 2008; and
� BGC20-1531 (targeting migraine) and BGC20-0134 (targeting multiple sclerosis) both of which arenearing the end of phase I studies.
The Enlarged Group will seek to ensure that the maximum value is delivered from key existingdevelopment programmes and also that the pipeline delivers additional products for the Enlarged Groupto sell in the future using its greater resources and capabilities. This will require additional products andprogrammes to be acquired or in-licensed and certain existing products to be developed to proof ofconcept before being partnered whilst partners will be sought at an earlier stage for other programmes.The Enlarged Group will have greater resources and capabilities to develop products to the optimallicensing point.
Strong financial resources and capabilities
As at 31 March 2008, the BTG Group and the Protherics Group had respectively £57 million and£37.7 million in cash and cash equivalent investments(2). This financial position, together with expectedsurpluses from royalty and sales revenues and the implementation of the Enlarged Group’s strategy, willassist in achieving the goal of sustained profitability shared by both BTG and Protherics.
On the basis of the proposed strategy set out in this Part 1 in respect of the Enlarged Group, theAcquisition is expected to be earnings enhancing (on an EBITDA basis) and cash neutral from 2009/2010and significantly earnings enhancing thereafter. This statement should not be interpreted to mean thatearnings per share will necessarily be greater than those for the preceding financial period.
(2) Historical financial information relating to Protherics and BTG has been extracted without material adjustment from therelevant published audited reporting and accounts of Protherics and BTG.
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The Enlarged Group will also benefit from further revenues and value from potential licensing deals onpipeline programmes, as well as the increased profitability of marketed products aided by the return ofdistribution rights and the creation of a US sales force. This will allow the Enlarged Group to makeselective further investments in current and new R&D programmes, as well as additional products for theproposed sales force to market.
Significant cost saving potential and operational synergies
The BTG Directors and the Independent Protherics Directors intend to target annualised cost savings andreductions of approximately £20 million by 2010/2011. The BTG Directors and the Independent ProthericsDirectors:
� consider that there are immediate opportunities, through removal of duplicated corporate overheadcosts and termination of Protherics’ US ADR listing, of achieving cost savings of over £3 millionannually by 2008/09. A further £7 million of annualised cost savings (excluding R&D) are targetedfrom 2009/10 onwards;
� intend to target cost reductions of approximately £10 million through rationalising the EnlargedGroup’s development investment, in order to focus on the most commercially attractiveprogrammes; and
� estimate the cost of achieving the savings and reductions to be an aggregate of £8-10 million arising inthe financial years 2008/09 and 2009/10.
These statements of estimated cost savings and reductions relate to future actions and circumstanceswhich, by their nature, involve risks, uncertainties and other factors. Because of this, the cost savings andreductions referred to may not be achieved, or those achieved could be materially different from thoseestimated.
5. Directors, management and employees
The Enlarged Group’s Board will include John Brown as Chairman, Louise Makin as Chief ExecutiveOfficer and Christine Soden, who will transfer from Chief Financial Officer to Chief Operating Officer.Each of the Protherics directors has agreed to resign from the Protherics Board on the date on which theScheme becomes effective, although Rolf Soderstrom will join the BTG Board as Chief Financial Officer.Details of the expertise of the BTG Directors, Rolf Soderstrom and the Enlarged Group’s current seniortechnical staff are set out in Part 10, paragraph 2.2 of this document. Both BTG and Protherics benefitfrom experienced management teams and the Enlarged Group intends to draw on the expertise that existsacross both companies. The business will further benefit from the legal, patents, business development andpharmaceuticals development skills of staff within each business. It is intended that the services of StuartWallis and Dr Andrew Heath, Chairman and Chief Executive Officer of Protherics respectively, will bemade available to the Enlarged Group on a part time basis for periods of 12 and 6 months respectivelyfollowing the date on which the Scheme becomes effective. Whilst BTG benefits from some highly skilledand effective employees, the BTG Board does not believe the BTG Group’s business is dependent on anyindividual or group of employees.
Further details of the termination arrangements, modification of terms and consultancy arrangements areset out in the Scheme Document. Details of the service contract of Rolf Soderstrom are set out inparagraph 4.3 of Part 10 of this document.
BTG has given assurances that, following the Scheme becoming effective, the existing employment rights,including accrued pension rights, of Protherics’ employees will be fully safeguarded and, save as in the caseof the Protherics’ directors as referred to above, its plans for Protherics do not include any materialchanges in the terms and conditions of employment of Protherics’ employees.
Following the Scheme becoming effective, the Enlarged Group will carry out an integration review processwhich will include seeking ways to achieve the planned cost savings and operational synergies. It isexpected that this integration review process will result in some headcount reductions within the EnlargedGroup and some consolidation of the office operations.
6. BTG Shareholder Approval
The Acquisition constitutes a Class 1 transaction (as defined in the Listing Rules) for BTG. Accordingly,BTG is seeking the approval of its shareholders for the Acquisition at the BTG EGM. BTG is posting to
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BTG Shareholders (on the same date as this document) the BTG Circular summarising the background toand reasons for the Acquisition (which includes a notice convening the BTG EGM). The Acquisition isconditional on, amongst other things, the BTG Resolutions being passed by the BTG Shareholders at theBTG EGM. The BTG EGM is scheduled to be held on 5 November 2008.
7. Irrevocable Undertakings and Letters of Intent
BTG has received irrevocable undertakings to vote in favour of the resolutions at the Court Meeting andthe Protherics EGM (or, if applicable, to accept a Takeover Offer) from each of the IndependentProtherics Directors in respect of their entire legal and beneficial holdings of Protherics Shares and thoseof their connected and related persons amounting, in aggregate, to 10,357,554 Protherics Shares,representing approximately 3.02(3) per cent. of Protherics’ existing issued share capital as at 15 October2008 (the latest practicable date prior to the posting of this document). These undertakings will continue tobe binding even in the event of a higher competing offer being made for Protherics but will cease to bebinding upon the first to occur of:
(i) a Scheme Document or (if, in accordance with the terms of the Implementation Agreement BTGhas elected to implement the offer by way of a takeover offer) an offer document not being issuedprior to 31 October 2008 (or such other date as BTG and Protherics may, with the consent of thePanel, agree);
(ii) a Scheme Document having been issued and the Scheme not having become effective by31 March 2009 (or such later date as BTG and Protherics may, with the consent of the Panel,agree) and prior to that time BTG not having issued an offer document;
(iii) an offer document having been issued prior to 31 March 2009 (or such later date as BTG andProtherics may, with the consent of the Panel, agree) and the offer having lapsed or beenwithdrawn; and
(iv) the Acquisition becoming effective or otherwise completing.
BTG and Protherics have received irrevocable undertakings to vote in favour of the BTG Resolutions atthe BTG EGM from those BTG Directors who hold BTG Shares in respect of their entire holding of BTGShares amounting to, in aggregate, 84,769 BTG Shares, representing approximately 0.06(4) per cent. of theexisting issued share capital of BTG as at 15 October 2008 (the latest practicable date prior to the postingof this document).
In addition, Invesco Asset Management Limited, which holds shares in both Protherics and BTG, hasdelivered non-binding letters to Protherics and BTG dated 16 October 2008 respectively confirming itsintention to vote in favour of the resolutions at the Court Meeting and Protherics EGM (in its capacity as aProtherics Shareholder) and the BTG EGM (in its capacity as a BTG Shareholder). These letters of intentrelate to 36,500,201 Protherics Shares and 44,958,074 BTG Shares respectively representing approximately10.7 per cent. of the existing issued share capital of Protherics and approximately 29.7 per cent. of theexisting issued share capital of BTG, in each case as at 15 October 2008 (the latest practicable date prior tothe publication of this document). Aviva Investors Global Services Limited has also delivered a non-binding letter to Protherics and BTG dated 16 October 2008 confirming its intention to vote, or procurethe vote, in favour of the resolutions at the Court Meeting and Protherics EGM in respect of 45,971,166Protherics Shares, representing approximately 13.4 per cent. of the existing issued share capital ofProtherics as at 15 October 2008 (the latest practicable date prior to the publication of this document).
8. Conditions to Implementation of the Scheme
The Acquisition will be conditional upon the Scheme becoming unconditional and becoming effective bynot later than 31 March 2009, or such later date (if any) as Protherics and BTG may, with the consent ofthe Panel (if required) agree and the Court may allow.
(3) The signatories to these irrevocable undertakings are Dr. Andrew Heath, Rolf Soderstrom, Stuart Wallis, Gary Wattts, JamesChristie, Jacques Gonella and Saul Komisar.
(4) The signatories to these irrevocable undertakings are Louise Makin, Christine Soden and Peter Chambre.
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In summary, the implementation of the Scheme is conditional upon:
� the passing at the BTG EGM of the resolutions necessary to approve, implement and effect theAcquisition including a resolution to increase the authorised share capital of BTG and to authorisethe allotment of the New BTG Shares;
� the approval of the Scheme by a majority in number of Scheme Shareholders present and votingeither in person or by proxy, at the Court Meeting representing three-fourths or more in value of theScheme Shares voted by those Scheme Shareholders;
� the special resolution required to implement the Scheme being duly passed by the requisite majorityat the Protherics EGM;
� the sanction (with or without modification, on terms reasonably acceptable to BTG and Protherics) ofthe Scheme and the confirmation of the Reduction of Capital by the Court being obtained and officecopies of the Court Orders being filed with, and in the case of the Reduction Court Order registeredby, the Registrar of Companies;
� the Admission of the New BTG Shares;
� no adverse change having occurred in the business, assets, financial or trading position, profits orprospects of any member of the Wider Protherics Group, which is material in the context of the WiderProtherics Group taken as a whole;
� the Acquisition not being rendered impossible or significantly impeded as to the result of legislation,regulation, any decision of a court or any action taken by any governmental authority;
� all authorisations, orders, grants, consents, clearances, licences, permissions and approvals, in anyjurisdiction, deemed reasonably necessary or appropriate by BTG in respect of the Acquisition, beingobtained in terms and in a form satisfactory to BTG (acting reasonably) from all appropriate RelevantAuthorities or from any persons or bodies with whom any member of the Wider BTG Group or theWider Protherics Group has entered into contractual arrangements or which are necessary forProtherics or any member of the Protherics Group to carry on its business;
� appropriate assurances being received, in terms satisfactory to BTG (acting reasonably), from theRelevant Authorities or any party with whom any member of the Wider Protherics Group has anycontractual or other relationship that the interests held by any member of the Wider Protherics Groupunder any material licences, leases, consents, permits and other rights will not be materially andadversely amended or otherwise materially and adversely affected by the Acquisition or the proposedacquisition of Protherics or any matters arising therefrom, that such licences, leases, consents, permitsand other rights are in full force and effect and that there is no intention to revoke or amend any ofthe same; and
� the satisfaction or waiver of the other conditions which are considered to be customary for atransaction of this nature.
BTG reserves the right to waive (amongst other things) in whole or in part the Conditions relating to anyadverse change relating to the Protherics Group, the obtaining of authorisations and appropriateassurances.
The Conditions relating to the passing of the resolution by the BTG Shareholders at the BTG EGM,the approval by the Protherics Shareholders of the resolutions to be proposed at the Scheme Meeting andthe Protherics EGM, the sanction of the Scheme and confirmation of the Capital Reduction are notcapable of being waived in whole or in part.
Furthermore the Acquisition will lapse and the Scheme will not proceed if the European Commissioninitiates proceedings under Article 6(1)(c) of the EC Merger Regulation or the Acquisition is referred tothe Competition Commission before the date of the Court Meeting.
9. Further Details of the Acquisition
9.1 Structure of the Acquisition
It is intended that the Acquisition will be implemented by way of a scheme of arrangement betweenProtherics and the Scheme Shareholders under part 26 of the Companies Act 2006 (including a reductionof capital under section 135 of the Companies Act). The purpose of the Scheme is to allow BTG to become
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the owner of the entire issued share capital of Protherics. The procedure involves an application byProtherics to the Court to sanction the Scheme, the cancellation of the Scheme Shares held by SchemeShareholders, the application of the reserve arising from such cancellation in paying up in full a number ofnew shares in Protherics (which is equal to the number of the Scheme Shares cancelled) and issuing thosenew shares to BTG in consideration for which Scheme Shareholders will receive 0.291 New BTG Sharesfor each Scheme Share. The Scheme also involves the re-registration of Protherics as a private company.
The implementation of the Scheme is subject to satisfaction or (where appropriate) waiver of all theConditions and the further terms set out in the Scheme Document. Implementation of the Scheme issubject, amongst other things, to the approval of a majority in number of the Scheme Shareholders presentand voting in person or by proxy at the Court Meeting representing not less than 75 per cent. in value ofthe Scheme Shares voted by the Scheme Shareholders. Implementation of the Scheme will also require thepassing of the Protherics Resolutions, requiring the approval of Protherics Shareholders representing atleast 75 per cent. of the votes cast at the Protherics EGM. The Court Meeting (subject to the approval ofthe Court) will be held on 11 November 2008. The Protherics EGM will also be convened for11 November 2008, immediately following the Court Meeting.
In view of its size, and in order for BTG to obtain the necessary shareholder approvals required inconnection with the issue of the New BTG Shares, the Acquisition is also conditional upon the BTGShareholders passing the BTG Resolutions at the BTG EGM, which is to be held on 5 November 2008.
Following the Meetings, the Scheme and the Reduction of Capital will only become effective once theCourt sanctions the Scheme and confirms the Reduction of Capital and copies of the Court Orders havebeen delivered to the Registrar of Companies in England and Wales and, in the case of the Reduction ofCapital upon the Reduction Court Order being registered by the Registrar of Companies together with aminute of the Reduction of Capital. The Scheme is also conditional on Admission occurring (or the UKListing Authority agreeing to admit the New BTG Shares to the Official List and the London StockExchange agreeing to admit the New BTG Shares to trading on its market for listed securities). Once theScheme becomes effective, it will be binding on all Protherics Shareholders whether or not they attendedor voted at the Court Meeting or the Protherics EGM.
The Scheme Document setting out full details of the Acquisition and the Scheme, together with notices ofthe Court Meeting and the Protherics EGM, is being posted to Protherics Shareholders other than certainoverseas shareholders at the same time as this document. The results of the Scheme Meeting and theProtherics EGM will be announced shortly after the results of those meetings are known.
The results of the BTG EGM will be announced on or shortly after the date of the meeting.
BTG reserves the right, with the consent of the Panel and the consent (such consent not to beunreasonably withheld or delayed) of Protherics, to elect to implement the Acquisition by way of aTakeover Offer for the entire issued and to be issued share capital of Protherics. In such event, such offerwill be implemented on the same terms (subject to appropriate amendments including (without limitation)an acceptance condition set at 90 per cent. (or such lesser percentage (being more than 50 per cent.) asBTG may decide) of the shares to which such offer relates and of the voting rights carried by those shares)so far as applicable, as those which would apply to the Scheme. The Acquisition by way of a Takeover Offerwould exclude Protherics Shareholders resident in certain overseas jurisdictions.
9.2 Protherics Share Schemes and instruments convertible into Protherics Shares
The Scheme will extend to any Protherics Shares that are unconditionally allotted or issued pursuant to theexercise of options or vesting of awards under the Protherics Share Schemes, or the exercise of conversionrights in relation to instruments convertible into Protherics Shares, in each case on or prior to theReduction Record Time.
Appropriate proposals are being made to participants in the Protherics Share Schemes and to holders ofinstruments convertible into Protherics Shares (other than the Protherics Convertible Loan Notes) at thesame time as the Scheme Document is posted to Scheme Shareholders or as soon as possible thereafter.Details of these proposals are set out in the Scheme Document and, in the case of the Protherics ShareSchemes, in separate letters to be sent to participants in the Protherics Share Schemes.
In the case of the Protherics Convertible Loan Notes, on 19 September 2008 Protherics exercised its rightcompulsorily to convert the Protherics Convertible Loan Notes into Protherics Shares in accordance withtheir terms, with the date of conversion to be 23 October 2008. The Protherics Shares arising on such
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conversion will therefore constitute Scheme Shares and will entitle the holders to participate in theScheme (including the right to vote at the Court Meeting and the Protherics EGM).
9.3 Inducement Fees
Protherics and BTG have entered into an Implementation Agreement in connection with the Offerpursuant to which each of the parties has undertaken, among other things, and as promptly as practicable,to take or cause to be taken all such reasonable steps as are within their respective powers and necessary toimplement the Scheme.
As an inducement to BTG proceeding with the Offer, under the terms of the Implementation AgreementProtherics has agreed to pay BTG an inducement fee of £2.1 million (inclusive of any VAT) if:
(a) a Competing Proposal in relation to Protherics (or any amendment, variation or revision of suchproposal) is announced pursuant to Rule 2.5 of the Code prior to the Acquisition lapsing or beingwithdrawn and such Competing Proposal subsequently becomes or is declared whollyunconditional or is otherwise completed; or
(b) the Independent Protherics Directors either (i) fail to recommend or (ii) withdraw or adverselymodify, or qualify their recommendation to Protherics Shareholders to vote in favour of theScheme and the Protherics Resolutions respectively at the Court Meeting and the ProthericsEGM or (as the case may be) accept a Takeover Offer, and subsequently the Acquisition lapses oris withdrawn; or
(c) the Independent Protherics Directors recommend any Competing Proposal in relation toProtherics and subsequently the Acquisition lapses or is withdrawn.
As an inducement to Protherics proceeding with the Offer under the terms of the ImplementationAgreement, BTG has agreed to pay Protherics an inducement fee of £2.1 million (inclusive of any VAT) if:
(a) a Competing Proposal in relation to BTG (or any amendment, variation or revision of suchproposal) is announced pursuant to Rule 2.5 of the Code prior to the Acquisition lapsing or beingwithdrawn and such Competing Proposal subsequently becomes or is declared whollyunconditional or is otherwise completed; or
(b) the BTG Directors either (i) fail to recommend; or (ii) withdraw or adversely modify or qualifytheir recommendation to BTG Shareholders to vote in favour of the BTG Resolutions at theBTG EGM, and subsequently the Acquisition lapses; or
(c) the BTG Directors recommend any Competing Proposal in relation to BTG and subsequently theAcquisition lapses or is withdrawn.
However, neither Protherics nor BTG are obliged to pay any amount which the Panel would determinewould not be permitted by Rule 21.2 of the Code.
9.4 Accounting policies of the Enlarged Group
The Enlarged Group will adopt BTG’s accounting policies. The BTG Board believes that the impact of thedifferences between the accounting policies of BTG and Protherics will not be significant. There are nomaterial differences between the accounting policies of BTG and Protherics.
9.5 Protherics Shares and BTG Shares
If the Scheme is effected, the new Protherics Shares to be issued pursuant to the Scheme will be acquiredby BTG or its nominees fully paid and free from all liens, charges, equitable interests, encumbrances, rightsof pre-emption and any other interests of any nature whatsoever and together with all rights attachingthereto, including voting rights and the right to receive and retain in full all dividends and otherdistributions (if any) declared, made or paid on or after the effective date of the Scheme. Under the termsof the Acquisition, each Protherics Shareholder will forego all rights to any future dividend or undeclareddividends or other returns of capital of Protherics.
In the event that the Acquisition is implemented pursuant to the Takeover Offer, the Protherics Shares willbe acquired pursuant to the Takeover Offer on the same basis.
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The existing BTG Shares are already admitted to CREST and trade under ISIN GB0001001592. Theexisting BTG Shares can also be held in Certificated Form. The New BTG Shares will be issued inregistered form. The New BTG Shares will trade under the same ISIN number as the existing BTG Shares.
10. The New BTG Shares
The New BTG Shares will be created under the Companies Acts. Further details of the rights attaching tothe New BTG Shares are summarised in subparagraph 3.2 of Part 11 (Additional Information) ofthis document.
Application will be made to the FSA for the New BTG Shares proposed to be issued in connection with theAcquisition to be admitted to the Official List and to the London Stock Exchange for the BTG Shares tobe admitted to trading on the London Stock Exchange’s main market for listed securities. It is expectedthat the New BTG Shares will be issued, and that Admission of the New BTG Shares will become effectiveand that dealings in the New BTG Shares will commence, on the Effective Date (which subject to thesatisfaction of certain conditions including the sanction of the Scheme by the Court, which is expected tooccur on 4 December 2008).
11. Settlement, listing and dealings
Prior to the Scheme becoming effective, Protherics will make an application to the UKLA and to theLondon Stock Exchange for the cancellation of the Protherics Shares from listing on the Official List andtrading on the London Stock Exchange’s main market for listed securities respectively. Accordingly, if theScheme is sanctioned by the Court and the other conditions to the Scheme are waived or satisfied, it isexpected that the Protherics Shares will cease to be listed on the Official List and traded on the LondonStock Exchange’s main market for listed securities on or before 8.00 a.m. on the Effective Date and thatthe last day of dealings in Protherics Shares will be 3 December 2008.
On the Effective Date, share certificates in respect of Protherics Shares will cease to be valid and should, ifso requested by Protherics, be sent to Protherics for cancellation. In addition, on the Effective Dateentitlements to Protherics Shares held within the CREST system will be cancelled. As part of the SchemeProtherics will seek an order of the Court pursuant to section 139 of the Companies Act to re-registerProtherics as a private limited company with effect from the Effective Date.
Settlement of the New BTG Shares to which Protherics Shareholders are entitled is expected to occur assoon as possible after the Effective Date and in any event within 14 days of the Effective Date.
Protherics intends to apply for a cancellation of its Nasdaq ADR Listing. Such cancellation will not beconditional on the Scheme becoming effective. BTG does not intend to register under the Securities Act orlist the BTG Shares on any US stock exchange.
If the Acquisition is effected by way of a Takeover Offer, it is anticipated that cancellation of listing andtrading will take effect no earlier than 20 Business Days after BTG has acquired or agreed to acquire75 per cent. of the voting rights attaching to the Protherics Shares. De-listing would significantly reduce theliquidity and marketability of any Protherics Shares not assented to the takeover at that time. If theAcquisition is effected by way of a Takeover Offer and BTG receives acceptances under the Takeover Offerin respect of, and/or otherwise acquires, 90 per cent. or more of the Protherics Shares and voting rights towhich the takeover offer relates, BTG intends to exercise its rights to acquire compulsorily the remainingProtherics Shares in respect of which the takeover offer has not been accepted.
11.1 General
Fractions of New BTG Shares will not be allotted or issued pursuant to the Offer and fractionalentitlements will be rounded down to the nearest whole number of New BTG Shares.
All documents and remittances sent to Scheme Shareholders in accordance with the Scheme Documentwill be sent at the risk of the person entitled thereto.
In relation to New BTG Shares to be issued in Certificated Form, temporary documents of title will not beissued pending the despatch by post of definitive certificates for such New BTG Shares. Pending the issueof definitive certificates for such New BTG Shares, former Protherics Shareholders wishing to registertransfers of such New BTG Shares may certify their share transfer forms against the register of members ofBTG by contacting BTG’s registrar, Capita Registrars. On the registration of any such transfers, the
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transferee will receive a share certificate in respect of the New BTG Shares the subject of the relevanttransfer.
Save with the consent of the Panel, settlement of the consideration to which any Scheme Shareholder isdue under the Scheme will be implemented in full in accordance with the terms set out in Part Two of theScheme Document free of any lien, charges, equitable interest, encumbrances and other third party rightsand interests of any nature whatsoever.
12. Overseas Shareholders
If the issue of New BTG Shares to any person resident outside the United Kingdom is, in the jurisdictionsin which such persons are resident, either unlawful or would or may require BTG to obtain or observe anygovernmental or other consent or any registration, filing or other formality (including ongoingrequirements) with which BTG is unable to comply or which BTG reasonably regards as unduly onerous,BTG will not dispatch certificates for New BTG Shares to, or credit CREST accounts of, such persons.Instead, such person’s entitlement to New BTG Shares shall either be issued to a nominee appointed byBTG on behalf of such person’s on the terms that the nominee shall sell the New BTG Shares so issuedand remit the cash proceeds of the sale to such person, or be issued to such person and sold on their behalfwith the cash proceeds being remitted to such person.
The implications of the Offer for persons who are resident in, ordinarily resident in or who are citizens of,jurisdictions outside the United Kingdom may be affected by the laws of the relevant jurisdictions. Personswho are not resident in, ordinarily resident in or who are not citizens of, the United Kingdom shouldinform themselves about and observe any applicable requirements. It is the responsibility of each of theshareholders resident in, ordinarily resident in or citizens of, a jurisdiction outside the United Kingdom tosatisfy themselves as to the full observance of the laws of the relevant jurisdiction in connection therewith,including the obtaining of any governmental exchange control or other consents which may be required orcompliance with other necessary formalities which are required to be observed and the payment of anyissue, transfer or other taxes due in such jurisdiction. Any failure to comply with such applicablerequirements may constitute a violation of the securities laws of any such jurisdictions.
This document and the accompanying documents have been prepared for the purpose of complying withEnglish law, the Code, the Prospectus Rules and the Listing Rules and the information disclosed may notbe the same as that which would have been disclosed if this document and/or the accompanying documentshad been prepared in accordance with the laws of jurisdictions outside the United Kingdom.
Neither this document nor the accompanying documents constitute an offer or an invitation to purchase orsubscribe for any securities or a solicitation of an offer to buy any securities pursuant to these documentsor otherwise in any jurisdiction in which such offer or solicitation is unlawful.
The New BTG Shares have not been and will not be registered with the SEC under the Securities Act northe securities laws of any state of the United States, nor have the relevant clearances been, nor will they be,obtained from any body or authority in any Restricted Jurisdiction. Accordingly, unless an exemptionunder relevant securities law is available, the New BTG Shares may not be offered, sold, re-sold ordelivered, directly or indirectly, into or from any Restricted Jurisdiction.
The New BTG Shares will be issued in the United States pursuant to the Scheme in reliance on theexemption from registration provided by section 3(a)(10) of the Securities Act and on available exemptionsfrom state law registration requirements, subject to the restrictions described below. BTG and Prothericswill advise the Court that its sanctioning of the Scheme will be relied upon to establish the availability ofthis exemption.
Any Protherics Shareholder or BTG Shareholder in the United States that is an affiliate of BTG orProtherics prior to the Effective Date and/or is or becomes an affiliate of BTG following the EffectiveDate will be subject to timing, manner of sale and volume restrictions on the sale of New BTG Sharesreceived pursuant to the Scheme pursuant to Rule 145(d) under the Securities Act. For these purposes an‘‘affiliate’’ of any person is a person that directly, or indirectly through one or more intermediaries,controls, or is controlled by, or is under common control with, that person. Protherics Shareholders in theUnited States that believe they are or may be ‘‘affiliates’’ of BTG or Protherics should consult their ownlegal advisers prior to any sale of New BTG Shares received pursuant to the Scheme.
The BTG Shares and the New BTG Shares are not and will not be listed on any US securities exchange orregistered under the Securities Exchange Act. Accordingly, BTG does not currently and will not following
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the Effective Date file any reports with the SEC pursuant to the periodic reporting requirements of theSecurities Exchange Act.
Neither the SEC nor any other US federal or state securities commission or regulatory authority hasapproved or disapproved the issue of the New BTG Shares pursuant to the Scheme, or passed an opinionupon the adequacy or accuracy of this document or any of the accompanying documents. Anyrepresentation to the contrary is a criminal offence in the United States.
Protherics Shareholders or BTG Shareholders who are resident in, ordinarily resident in, or who arecitizens of any jurisdiction outside the UK should consult their independent professional advisers as towhether they require any governmental or other consents or need to observe any other formalities to enablethem to participate in the Offer. If a Protherics Shareholder or BTG Shareholder is in any doubt as to hiseligibility to participate in the Offer, he should contact his independent professional adviser immediately.
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PART 2
INFORMATION ON BTG
The selected historical financial information and other historical financial information in relation to BTG inthis Part 2 has, unless otherwise stated, been extracted without material adjustment from the audited historicalfinancial information of BTG for the financial years ended 31 March 2008, 31 March 2007 and31 March 2006, which have been incorporated by reference into this document.
Investors should read the whole of this document and the documents incorporated herein by reference andshould not solely rely on the financial information set out in this Part 2.
1. Introduction
BTG in-licenses, develops and commercialises pharmaceuticals, targeting neurological and other disorders.
BTG’s core activities are the:
� identification and acquisition of promising new medicines and treatments;
� development of these products to demonstrate safety and efficacy in target disease indications;
� partnering with other biotech and pharmaceutical organisations to complete development and marketthe products in return for milestone payments and royalties; and
� collecting royalties from already marketed products.
BTG’s origins date back to the National Research Development Corporation (NRDC) which was createdin 1948 by the UK government to commercialise innovations resulting from publicly funded research. In1981, the activities of the NRDC and the National Enterprise Board were combined. The twoorganisations subsequently operated under the trade name of British Technology Group although theycontinued to exist as separate statutory entities. The combined entity was privatised in 1992 and thecompany floated on the London Stock Exchange in 1995 as BTG plc.
BTG employs approximately 65 people in London, Philadelphia and Osaka.
2. Business Overview
BTG has a substantial and growing revenue stream of royalties from out-licensed products, a broadinternal pipeline of development programmes and a pipeline of licensed programmes.
BTG earns royalties from products marketed by licensees. BTG does not conduct its own research butinstead licenses or acquires programmes from the biotech, pharmaceutical and research communitiesworldwide. BTG receives milestone payments from licensees that are progressing products through clinicaland other studies, and one-off revenues from licensing pipeline programmes or selling intellectual propertythat is non-core or in which BTG has chosen not to invest further. A proportion of the revenues earned ispaid to the originators from which BTG acquired the products. When commercialising products, BTGseeks to secure upfront and milestone payments plus royalties on future sales. If appropriate, BTG willseek to retain certain rights or will agree to co-develop products to share risk and reward.
The major contributors to royalty revenues are BeneFIX� partnered by Wyeth, treating haemophilia B, theTwo-Part Hip Cup for use in hip replacement surgery and Campath�, partnered by Genzyme Corporation,for the treatment of chronic lymphocytic leukaemia.
Development activities are managed by in-house professionals, supported by external scientific adviserswhere appropriate, and conducted through a network of contract research organisations. The stage towhich each product is taken varies and depends upon factors such as the size, cost and complexity of thepivotal trials required to support product registration, risk profiles, potential market sizes, internalexpertise and investment capacity and interest from potential licensees.
BTG’s internal development pipeline comprises six clinical-stage development programmes, targetingneurological and other disorders. BTG also has a further nine clinical-stage development programmes,partnered with licensees, has a number of legacy assets that may be sold or licensed and earns significantroyalty revenues from various marketed products. In addition, BTG owns a number of assets that eitherrequire no further development before commercialising or which it has determined not to develop furtherand also holds investments in some early stage companies. These assets, including shares in Protez, Inc, (aUS subsidiary sold to Novartis this year and which may generate additional proceeds upon achievement of
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certain milestones) the MLC technology and development programmes such as BGC945 in oncology andKTX101 in nutrition may be sold or licensed in the future and generate further funds for the BTG Group.
3. Marketed products—Patents and Licences
BTG earns royalties from products marketed by licensees. In the year ended 31 March 2008, thecontributors to royalty revenues were:
2007/8Gross
RevenuesProduct Used For Licensee (£m)
BeneFIX� Haemophilia B Wyeth 16.9Two-Part Hip Cup Hip replacement Zimmer, Stryker and others 8.5Campath� Chronic lymphocytic leukaemia Genzyme Corporation 5.0MRC Humanisation IP Various antibodies Medical Research Council 4.1Three-Part Knee Knee replacement Biomet, Corin 2.3Others Various Various 5.6
Total Royalties 42.4Revenue Sharing (17.5)
Net Royalties 24.9
BeneFIX�
BeneFIX�, licensed by Wyeth, is the first recombinant Factor IX therapy approved for the treatment ofhaemophilia B.
Two-Part Hip Cup
The Two-Part Hip Cup is a prosthetic hip joint replacement which allows an improved range of motion thathelps to avoid dislocation. It is licensed to major orthopaedic companies, including Zimmer Holdings Inc,Stryker Corporation, Smith & Nephew Inc and Biomet Inc.
Campath�
Campath�, licensed to Genzyme Corporation, is a humanised anti-lymphocyte antibody approved fortreatment of B-cell chronic lymphocytic leukaemia.
MRC Humanisation IP
BTG receives royalty income from the MRC (Medical Research Council) on patents relating to thehumanisation of monoclonal antibodies.
Three-Part Knee
The Three-Part Knee is a unicompartmental knee joint replacement designed to give more freedom ofmovement similar to that of a natural knee.
In addition to the royalty revenue streams set out above, BTG generates revenues through one-offtransactions, such as the outright sale of rights to development projects. In the year ended 31 March 2008,£32.6 million was generated through such transactions.
4. Research and Development—Internal product pipeline
BTG’s internal development pipeline comprises six clinical-stage development programmes, targetingneurological and other disorders.Product Indication Status
Varisolve� Varicose veins Phase III (Phase II US)BGC20-0166 Obstructive sleep apnoea Phase IIBGC20-0582 Head lice infestation Phase IIBGC20-1259 Alzheimer’s disease Phase IBGC20-1531 Inflammation and migraine pain Phase IBGC20-0134 Multiple sclerosis Phase I
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Varisolve�
Varisolve�, polidocanol endovenous microfoam, is a treatment for varicose veins that has been studied inmore than 600 patients to date and has shown over 85 per cent. efficacy in a phase III trial in the EU. AUS phase II safety study is now complete and has found no cerebral, retinal or cardiac injury in patientstreated to date. A pilot study is validating endpoints to be used in subsequent trials, and Varisolve� isanticipated to commence pivotal phase III trials in the US in the first half of 2009.
BGC20-0166
This combination of two marketed serotoninergic modulating drugs is being developed for the treatmentof obstructive sleep apnoea (OSA). In a clinical proof of concept study in 39 patients,BGC20-0166 reduced the Apnoea Hypopnoea Index by a mean of 40 per cent. in patients with mild tosevere OSA. BGC20-0166 was well tolerated and had no impact on sleep architecture. Non-clinical studiesand proprietary product formulation development are continuing in preparation for a US IND submission.
BGC20-0582
BGC20-0582 is a non-pesticidal product for the treatment of head lice infestation. In a phase II trial, it didnot significantly increase the cure rate at 14 days compared to placebo, although the modified combinedcure/re-infestation measure of efficacy for the 10 per cent. dose of BGC20-0582 (76.5 per cent.) wasstatistically superior to placebo (56.1 per cent.) and was superior to the efficacy rate of a leading over thecounter product in studies of similar design. An ongoing study is investigating resistance advantages.
BGC20-1259
Under development for the treatment of Alzheimer’s disease, BGC20-1259 is a multifunctional compoundcombining inhibition of acetylcholinesterase, serotonin transport and calcium channels to improve bothcognitive and behavioural symptoms. Its neuroprotective properties and ability to stimulate neurogenesissuggest that BGC20-1259 may have the potential to slow disease progression. It is progressing towards aplanned phase II study in patients with Alzheimer’s disease by the end of 2008 upon successful completionof toxicology studies.
BGC20-1531
BGC20-1531 is an orally available EP4 receptor antagonist that inhibits prostaglandin-inducedvasodilatation of cranial blood vessels via selective blockade of EP4 receptors, thereby reducinginflammation and migraine pain. In early 2008, dosing began in a phase I study to assess the safety,tolerability and pharmacokinetic profile of single rising doses of oral BGC20-1531 in healthy volunteers,this phase I study is nearing completion. A phase II study is planned for the first half of 2009.
BGC20-0134
This novel structured lipid is designed to restore the balance between pro-inflammatory (tumour necrosisfactor-�) and anti-inflammatory (transforming growth factor-ß1) cytokines in patients with multiplesclerosis. As an oral therapy, BGC20-0134 could provide a significant advantage over current treatments.A combined single and repeat, rising dose phase I study in healthy male and female subjects completed in2008, and a phase II study is planned for the first half of 2009.
5. Research and Development—Licensed product pipeline
In addition to its own pipeline of development programmes, BTG has nine clinical-stage developmentprogrammes, which are partnered with licensees.
Product Indication Status Partner
Campath� Multiple Sclerosis Phase III Genzyme CorporationCB7630 Prostate cancer Phase III Cougar Biotechnology, Inc.TRX4 Type 1 diabetes Phase III Tolerx, Inc/GSK.Symadex� Metastatic breast cancer Phase II Xanthus Pharmaceuticals Inc.AQ4N Cancer Phase II Novacea, Inc.ABIO-0801 Anxiety disorders Phase II Abiogen Pharma SpAJuvidex� Wound healing Phase II RenovoModafinil comb. Opiate induced sleepiness Phase II Victory Pharmaß-amyloid inhibitors Alzheimer’s disease Preclinical Senexis Ltd.
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Campath�
Licensed to Genzyme Corporation, Campath� is approved for the treatment of chronic lymphocyticleukaemia (CLL) and towards the end of 2007 its label was extended to include first-line treatment ofCLL. Positive final data from a phase II trial in multiple sclerosis (MS) showed that Campath� reduced therisk for relapse by 73 per cent. and the risk for sustained accumulation of disability by 71 per cent.compared with Rebif� in patients with relapsing-remitting MS (RRMS). Two phase III trials in RRMS areunder way, comparing Campath� against Rebif� and targeting treatment-naıve patients and those whohave relapsed while taking other therapies.
CB7630 (abiraterone acetate)
BTG licensee Cougar Biotechnology, Inc. has published encouraging phase I and II data from studies ofCB7630 showing efficacy in the treatment of prostate cancer. In April 2008, Cougar announced the start ofa phase III trial of CB7630 in patients with metastatic, castration-resistant prostate cancer who have faileddocetaxel-based chemotherapy. The start of the study triggered a milestone payment to BTG. A secondphase III study in patients with castration-resistant, chemotherapy-naıve prostate cancer is expected tobegin in the second half of 2008. The phase III programme is expected to enrol over 1100 patients and willhave overall survival as the primary endpoint.
TRX4 (otelixizumab)
TRX4 is a monoclonal antibody licensed to Tolerx, Inc. In a phase II study in type 1 diabetes, TRX4 wasshown to preserve the function of insulin-producing pancreatic cells, significantly reducing the need foradministered insulin in new-onset diabetes patients during the 18-month study. In late 2007 Tolerx signedan agreement with GlaxoSmithKline to develop TRX4 in type 1 diabetes and a range of otherinflammatory conditions. BTG receives half of all the development and sales milestones due to Tolerxunder that agreement. TRX4 is currently in phase III development for the treatment of type 1 diabetes.
Symadex�
Licensed to Xanthus Pharmaceuticals, Inc, Symadex� is an imidazoacridinone and is a potentFLT3 receptor tyrosine kinase inhibitor. Symadex� has been studied in women with metastatic breastcancer, and Xanthus is also exploring its potential in autoimmune diseases such as multiple sclerosis andinflammatory bowel disease. Symadex� acted to reverse clinical signs of disease in preclinical models ofboth acute and chronic multiple sclerosis. In May 2008 Antisoma plc entered into an agreement to acquireXanthus. As a result, development of Symadex� was halted in oncology though Antisoma indicated itintended to continue preclinical work on the FLT3 inhibitor programme in non-oncology indications.
AQ4N
AQ4N is a prodrug that is converted selectively to the active form, AQ4, a potent topoisomerase IIinhibitor, within hypoxic, or oxygen-starved, tumour cells. Hypoxia is an important distinguishingcharacteristic of tumours that limits the effectiveness of radiation and chemotherapy treatments.Novacea, Inc. had been evaluating AQ4N in a phase Ib/IIa clinical trial in patients with glioblastomamultiforme prior to the announcement in September 2008 of a merger between Novacea and TransceptPharmaceuticals, Inc. BTG has been informed that the merged company does not intend to continuedevelopment of AQ4N but will seek a partner to progress development.
ABIO-0801
Licensed to Abiogen Pharma SpA, ABIO-0801 is an isoxazoline under development for anxiety and panicdisorders. In early pharmacological studies it demonstrated anxiolytic and anticonvulsant activities,together with cognition-enhancing properties. Data from a phase I study published in April 2008 supportedthe cognitive-enhancing properties of ABIO-0801. A phase II study in generalised anxiety disorderis underway.
Juvidex�
Juvidex�, which is a formulation of the sugar mannose-6-phosphate (M6P), inhibits the activation ofTGF�1 and TGF�2, which are present at high levels in adult wounds that scar. Its ability to acceleratehealing is being studied by licensee Renovo in a phase II trial. Renovo plans to initiate phase II studies in
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accelerated re-epithelialisation in split thickness skin graft donor sites, and to investigate the reduction ofscarring in tendons and ligaments following trauma or surgery.
Modafinil combination
Victory Pharma is developing proprietary opiate-modafinil combination products where the modafinilcomponent is used to counteract opiate-induced sleepiness (OIS). Victory is completing a proof ofprinciple phase II study in subjects with OIS who are receiving selected opiates for chronic moderate tosevere pain due to non-malignant or malignant causes.
ß-amyloid inhibitors
Senexis Ltd is developing two series of small molecule compounds as potential disease-modifyingtreatments for Alzheimer’s disease. They work by inhibiting the aggregation of or neuroinflammationcaused by amyloid peptides.
6. Principal Markets and Geographical Segments
The BTG Group comprises the following main business segments:
� Life Sciences—focusing on the acquisition, development and commercialisation of pharmaceuticaland other medical technologies; and
� Technology commercialisation—focusing on the commercialisation of technology outside the lifesciences area.
The Company’s life sciences and technology commercialisation business segments are managed on aworldwide basis but operate with customers in four principal geographical areas, being UK, US, Europe(excluding the UK) and Asia.
Set out below is a summary of segment revenue for the BTG Group for each of the last three financialyears ended 31 March showing segment revenue by both business segment (Table 1) and by geographicallocation (Table 2). In relation to the geographical segment, segment revenue is based on the geographicallocations of customers:
Table 1
Technology Year endedLife sciences commercialisation Total Unallocated 31 March
08 07 06 08 07 06 08 07 06 08 07 06 08 07 06£m £m £m £m £m £m £m £m £m £m £m £m £m £m £m
Total revenue . . . 52.2 45.0 46.4 22.8 0.6 3.8 75.0 45.6 50.2 — 0.1 — 75.0 45.7 50.2
Table 2
Europe(excluding Other Year ended
USA UK UK) Asia regions 31 March
08 07 06 08 07 06 08 07 06 08 07 06 08 07 06 08 07 06£m £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m
Revenue from externalcustomers . . . . . . . . . . . . . 38.9 32.8 42.9 11.2 6.8 5.1 1.7 4.8 0.8 22.4 — — 0.8 1.3 1.4 75.0 45.7 50.2
7. Current trading and prospects
For the year ended 31 March 2008, BTG generated revenue (net of revenue sharing) of £42.9 million, withnet recurring royalties of £24.9 million. This resulted in a surplus of net recurring royalties over operatingexpenses of £8.9 million. Operating profit was £16.6 million before an impairment provision in respect of amanufacturing development facility in Wrexham of £8.1 million.(11)
(11) Historical financial information extracted without material adjustment from the relevant published audited reports and accountsof BTG.
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Since March of this year, BTG has made significant progress across all areas of the business and inparticular in its development pipeline, with the Varisolve� phase II study completing with encouragingresults and two licensed programmes advancing into phase III studies. During this period BTG announcedthe receipt of one-off revenues relating to the achievement of milestones in the development of TRX4 andCB7630 and the sale of BTG’s interest in Protez, Inc.
Within BTG’s internal product pipeline six programmes are now in clinical development. All 50 requiredpatients were treated in the Varisolve� phase II safety study, with no adverse MRI results. There werepositive results from a clinical proof of concept study of BGC20-0166 in sleep apnoea. Phase I studies wereinitiated for BGC20-1531 (migraine) and BGC20-0134 (multiple sclerosis). BGC20-1259 is alsoprogressing towards a European phase IIa study in patients with Alzheimer’s disease which is scheduled tostart in the second half of 2008.
There was also good progress with BTG’s licensed product pipeline. Genzyme’s Campath� label wasextended to include 1st-line treatment in chronic lymphocytic leukaemia and two phase III trials ofCampath� were initiated in multiple sclerosis. Encouraging phase I/II data was published on CougarBiotechnology’s CB7630 in prostate cancer and enrolment for phase III trial commenced in April 2008.Tolerx signed an agreement with GlaxoSmithKline to develop TRX4 in type 1 diabetes and otherinflammatory conditions and the initial milestone paid to BTG was US$10m.
Whilst revenues from one-off transactions are expected to be lower than in the equivalent period last year,BTG continues to operate in line with the BTG Directors’ expectations, and the BTG Directors areconfident of the financial and trading prospects of BTG for the current financial year.
8. Intellectual property
BTG’s intellectual property is a fundamental part of its past, present and future success and its ability tomaximise the return on investment made in research and development of medicines requires effectiveintellectual property protection. For this reason BTG has maintained strong intellectual property skills toensure that all inventions made during the course of developing a product are fully protected for themaximum period in all appropriate territories, including the product, its uses and the process by which it ismade. BTG seeks to identify technology opportunities and acquires intellectual property at different stagesof development in respect of new inventions where no patents have yet been filed, inventions where patentapplications have been filed but not yet granted and inventions subject to granted patents and technologieswhich have already been developed to a significant degree. In all cases intellectual property is a significantcomponent of the due diligence conducted by BTG prior to the acquisition of any new programme with theobjective of ensuring that the actual or potential intellectual property is sufficiently robust to meet BTG’scommercial needs.
Once technology is acquired, BTG seeks to ensure that it is adequately protected by patents and/or otherintellectual property rights. Intellectual Property continues to be important through the developmentprocess and when the product is marketed. BTG’s agreements with licensees generally provide for BTG toreceive royalties on sales up to the expiry of the patents. BTG acquires rights in respect of inventions in avariety of ways including full assignment of rights and licensing-in with rights to sub-license. The BTGGroup has a portfolio of patents and patent applications relating to inventions which are at various stagesin their potential revenue-earning lives, including technology which has yet to reach a revenue-generatingstage, or to maximise its commercial potential. The portfolio also covers a broad spread of industrial andgeographical markets. This portfolio approach substantially insulates the Company from the highindividual risks and uncertainties associated with the development of new technologies. The section of thisdocument headed ‘‘Risk Factors’’ sets out risk factors relating to BTG’s intellectual property and its abilityto protect its patents.
9. Selected financial information on BTG
This document incorporates by reference certain sections of the annual report and accounts of BTG forthe three years ended 31 March 2008. Further details are set out in Part 4 of this document. A summary ofthe trading results for BTG as extracted from the audited financial information incorporated by referenceinto this document is set out below. Investors should read the whole of this document and should not justrely on the summary below in Table 3. A summary of the split of revenues for each of the last threefinancial years ended 31 March between recurring royalties and one-off revenues is also set out below inTable 4.
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Table 3
Year ended Year ended Year ended31 March 2006 31 March 2007 31 March 2008
(£m) (£m) (£m)
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50.2 45.7 75.0Revenue sharing . . . . . . . . . . . . . . . . . . . . . . . . . . (20.7) (18.9) (32.1)
Revenue net of revenue sharing . . . . . . . . . . . . . . . 29.5 26.8 42.9
Operating (loss) profit . . . . . . . . . . . . . . . . . . . . . (0.2) 0.9 8.5Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5 2.6 10.7Profit after tax for the year . . . . . . . . . . . . . . . . . . 1.4 2.4 8.8
Table 4
Year ended Year ended Year ended31 March 2006 31 March 2007 31 March 2008
(£m) (£m) (£m)
Recurring royalties . . . . . . . . . . . . . . . . . . . . . . . . 39.5 41.3 42.4One-off revenues . . . . . . . . . . . . . . . . . . . . . . . . . 10.7 4.4 32.6
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50.2 45.7 75.0
BTG had consolidated net assets as at 31 March 2008 of £55.2 million.
10. Trends information
BTG’s performance and prospects (and those of the Enlarged Group) are and will continue to be affectedby the following factors.
Regulation
BTG operates in a highly regulated, changing environment in which substantial evidence of the safety andefficacy of a medicine is required before it is approved for use in patients. These requirements contributeto the long timescales and significant costs involved in developing new pharmaceuticals. BTG uses a virtualresearch and development model, sourcing programmes from third parties and conducting developmentprogrammes through a network of contract research organizations (CROs). However, as the sponsor of anincreasing number of clinical studies, BTG is ultimately responsible for their proper conduct andadherence to all regulations. By employing people with appropriate skills and experience, working withhigh-quality CROs and implementing appropriate quality systems, BTG is well placed to meet theregulatory requirements of the territories in which it operates.
Demand for new medicines
An increasingly health- and appearance-conscious, wealthy and motivated population continues to fueldemand for improved medicines and products to improve quality of life. Lifestyle issues, such as the globalincrease in obesity levels and consequent health issues, and increased longevity, leading to larger numbersof people living with dementia, cancer and painful conditions such as arthritis, are also fuelling demand fornew and improved medicines.
BTG has positioned itself to try to address some of these needs by focusing on medicines for neurologicaldisorders such as dementia and age-related depression and other disorders that present medical needs andquality of life issues such as varicose veins and sleep apnoea.
Price regulation
The increasing demand for new medicines is leading to rising costs for healthcare providers. Mostcountries now control the cost of medicines, and there is increasing pressure to demonstrate value formoney and economic as well as clinical benefits before healthcare providers agree to pay or part-reimbursenew medicines.
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BTG monitors developments in pricing and reimbursement in key markets but it is not possible currentlyto quantify the impact on its business of any future changes.
In- and out-licensing
Product failures and pipeline gaps have led to increased competition among biotechnology andpharmaceutical companies to in-license programmes. There is, however, a steady supply of opportunitiesavailable for in-licensing. These come, for example, from companies that cannot afford to progress all oftheir development programmes but seek to realise value from their assets, and from companies whosestrategy is to find a suitable development partner after showing proof of principle.
BTG’s financial resources, development expertise and commercialisation track record make it an attractivepartner for such companies. BTG is currently building its pipeline and during the year reviewed tens ofclinical stage assets, although none were acquired.
After acquiring programmes BTG invests in development programmes to demonstrate safety and efficacy.The extent of development is decided on a case by case basis and is influenced by the cost, time, risk andskills base required to conduct early, mid and late stage studies in particular patient populations.
Out-licensing of selected programmes will continue to be a key element of BTG’s business model. BTG’schosen therapeutic focus areas, assessment process for acquiring new programmes and ability todemonstrate safety and efficacy through effective development programmes mean the Company is wellplaced to out-license programmes that meet the required technical hurdles.
Products and competition
BTG’s key current royalty-generating products are expected to continue to provide royalty revenues untiltheir patents expire. BeneFIX� is the only approved recombinant Factor IX treatment for the bleedingdisorder haemophilia B. The market has grown steadily since its launch and is expected to continue todeliver a steady growth in royalties until patent expiry in 2011. The Two-Part Hip Cup is now licensed tomanufacturers of hips that fall within the scope of the patents, which run to 2019. Innovations in the hipdesign and replacement field may in future reduce the share of the hip replacement market covered byBTG’s patents, but overall market growth is anticipated to counteract this impact.
Campath�, for which royalties are expected to continue through 2017, received approval to extend its labelfrom third-line treatment for CLL to include first-line treatment. This is expected to increase significantlythe number of patients available for treatment with Campath�. It is also under development in phase IIItrials as a treatment for multiple sclerosis and has shown strong efficacy results in phase II studiescompared with existing treatments.
BTG’s revenues are dominated by royalties on a few licensed products including BeneFIX� sold by Wyeth,Campath� sold by Genzyme, the Two-Part Hip Cup (sold by Zimmer, Stryker, Smith & Nephew andothers) and the Three Part Knee (sold by Biomet and Corin). With the exception of BeneFIX�, each ofthese products faces or might face competition in its marketplace and such competition could adverselyimpact on BTG’s results. In particular in the hip-cup and three-part knee new techniques such asresurfacing products sold by the some of the same companies that market the joint replacement productsmight take market share from full hip or knee replacement operations. Campath� is one of manytreatments for B-cell chronic lymphocytic leukaemia including fludarabine, marketed by Bayer Healthcareand rituximab marketed by Genentech and Biogen Idec.
Growth in BTG’s royalties is depends to a large extent on the performance of the above licensees inmaintaining sales growth.
Products under development have been acquired on the basis of the markets they address, perceivedcompetitive advantages in terms of safety, efficacy or ease of use, development pathway and potentialattractiveness to licensees. All are or will be subject to competition from other products underdevelopment. BTG’s approach is to build a strong pipeline of products addressing unmet needs, to conducthigh-quality development programmes, and to assess the commercial prospects of programmes atappropriate intervals.
BTG’s development programmes are managed through a series of contract research organisations (CROs)although the business is not dependent on any one such CRO. Similarly manufacturing is outsourced to aseries of contract manufacturing organisations although there is no dependence on any one suchcontractor.
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Each of the programmes under development in BTG’s pipeline is likely to face competition oncedeveloped and launched. The success of these products, and the successful licensing and commercialisationof these products will be dependent on the success of their development and the expected safety, efficacyand cost-effectiveness of the product compared to existing treatments. For example, Varisolve� willcompete with ablation techniques and surgical stripping in the treatment of varicose veins.
BTG is well placed to acquire, develop and commercialise new programmes that, if successfully approved,should generate sales or royalty income to replace and potentially exceed current royalty streams.
Currency fluctuations
Many of the BTG Group’s revenue and receipts will be denominated in US dollars. To the extent that theBTG Group’s foreign currency assets and liabilities are not matched, fluctuations in exchange ratesincluding between pounds sterling and the US dollar may result in realised or unrealised exchange gainsand losses on translation of the underlying currency into pounds sterling that may increase or decrease theBTG Group’s results of operations and may adversely affect the BTG Group’s financial condition each asstated in pounds sterling. In addition, if the currencies in which the BTG Group earns its revenues and/orholds its cash balances weaken against the currencies in which it incurs its expenses, this could adverselyaffect the BTG Group’s profitability and liquidity.
11. Capital resources and liquidity
11.1 Net cash
At 31 March (£m)
2006 2007 2008
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51.0 43.0 57.0
The BTG Group uses cash generated from its operating activities to finance its operations. Commentaryon the cash flows of the business in each year has been included in Part 4 of this document. As a holdingcompany, BTG’s principal source of funds is those which may be raised from time to time from the issue ofequity securities as well as loan repayments, management fees or cash dividends received from itssubsidiaries. The ability of BTG to pay external and internal overheads is dependent on its subsidiariesgenerating a positive cash flow from operations. The ability of BTG and its subsidiaries to pay dividends isdependent on the availability of the distributable reserves in each relevant company.
The funds required to fulfil the Company’s forthcoming commitments are expected to be provided fromthe BTG Group’s existing cash resources and operating income. The funds required to fulfil theCompany’s commitments under its leases of the premises detailed in paragraph 10.1 of Part 11 will beprovided in part from the BTG Group’s operating income and in part from the sub-letting arrangementsoutlined in that paragraph.
BTG had no borrowings, no bank overdraft facilities and no bank covenants to satisfy at each of31 March 2006, 31 March 2007 and 31 March 2008.
The BTG Group has two overseas subsidiaries, the revenues and expenses of which are denominated inUS dollars as are certain revenues of the UK subsidiaries. As a result, the BTG Group has some exposureto foreign currency risk. Where possible, anticipated foreign currency operating expenses are matched toforeign currency revenues. The excess exposure over and above this natural hedge, to the extent that cashflows are predictable, is managed using forward contracts. At 31 March 2008 the BTG Group had forwardcontracts to sell US$41.1m in the period to February 2009. The fair value of these forward contracts at31 March 2008 was £0.4m.
11.2 Capitalisation and indebtedness
At 31 August 2008 the BTG Group had cash and cash equivalents of £60.8 m and no borrowings.
The following table sets out the capitalisation of the BTG Group at 31 March 2008:
£m
Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1Share premium account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187.0
Capitalisation(1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202.1
(1) Capitalisation does not include retained earnings and other reserves.
(2) There has been no material change to the BTG Group’s capitalisation since 31 March 2008.
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Statement of capitalisation and indebtedness as at 31 August 2008
The following table sets out the consolidated capitalisation and indebtedness of the BTG Group underIFRS. The capitalisation and indebtedness information is at 31 August 2008. The figures in thecapitalisation and indebtedness tables have been extracted from the management and financial reportingsystems of the BTG Group as at 31 August 2008 and are unaudited.
£’m
Total current debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Total Non-Current debt (excluding current portion of long-term debt) . . . . . . . . . . . . . . . . . . . —
CapitalisationShare capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1Share premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187.3
Capitalisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202.4
Statement of net indebtedness as at 31 August 2008
The following table sets out the net consolidated financial indebtedness of the BTG Group under IFRS at31 August 2008. This statement of net indebtedness is unaudited and has been extracted without materialadjustment from the management and financial reporting systems of the BTG Group.
£’m
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.8
Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.8
Current Financial Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Net current Financial Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.8
Non current Financial Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Gross Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Total Net Financial Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.8
12. Dividend Policy
In respect of each of the BTG Group’s financial years ended 31 March 2006, 2007 and 2008, the BTGBoard did not declare a dividend. Following the Acquisition, the BTG Board will review its dividend policytaking into account its underlying earnings, capital requirements and cashflows.
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PART 3
INFORMATION ON PROTHERICS
The selected historical financial information and other historical information in relation to Protherics in thisPart 3 has, unless otherwise stated, been extracted without material adjustment from the audited historicalfinancial information of Protherics for the financial years ended 31 March 2008, 31 March 2007 and31 March 2006, which have been incorporated by reference into this document.
Investors should read the whole of this document and should not solely rely on the financial information set outin this Part 3.
1. Introduction
Protherics is an international biopharmaceutical company focused on the development, manufacture andmarketing of specialist products for critical care and cancer. With a proven track record of licensing andacquiring products and businesses, Protherics’ strategy has been to in-license and develop additionalcritical care and cancer products for its sales and marketing teams to distribute in the US and Europe.
2. Business Overview
Protherics has a significant revenue stream, a major licensing agreement with AstraZeneca, a broaddevelopment pipeline and the opportunity to sell its own products in the US from 2010. Prothericsgenerates the majority of its revenues from four products, two of which are approved for sales in the US,with additional milestone income derived from the licensing agreement with AstraZeneca.
Protherics’ two leading products are CroFab� and DigiFab�. CroFab� is approved and marketed in the USas a Crotalid snake (which includes rattlesnakes) antivenom and DigiFab� is used in the treatment oflife-threatening digoxin toxicity or overdose. Together, sales of CroFab� and DigiFab� accounted for87 per cent. of Protherics’ total product sales and 79 per cent. of its total revenues for the financial yearended 31 March 2008.
In December 2005, Protherics announced the signing of a licensing agreement with AstraZeneca for theglobal development and commercialisation of product candidate for severe sepsis, CytoFab�. Under theterms of the agreement, AstraZeneca will undertake all clinical development work for the product andProtherics will be primarily responsible for bulk drug manufacturing, including the supply of clinical trialmaterial. On signing, AstraZeneca made an initial payment of £16.3 million to Protherics along with a£7.5 million equity investment in Protherics. The agreement with AstraZeneca has a potential total valueto Protherics, based on up-front and milestone payments alone, of approximately £195 million. Prothericsis also entitled to receive royalties on global product sales of 20 per cent. of net sales, during the period ofthe licence, in addition to payments in return for the commercial supply of bulk drug substances anddrug products.
Protherics has a broad development pipeline focused in three categories: critical care, oncology and othertherapeutics areas. The critical care franchise is derived from a sheep polyclonal antibody fragment (Fab)technology platform. This has led to the development in-house and approval of CroFab� and DigiFab�, theCompany’s marketed products, and CytoFab�, the product under development by AstraZeneca for severesepsis. The oncology pipeline has been gained through company acquisitions and product in-licensing, toprovide products that the Company may be able to distribute in the future. In addition to critical care andcancer, Protherics also has a number of other products in development including a vaccine for thetreatment of hypertension and non-core technologies.
With its corporate headquarters in London, Protherics has 308 employees across its operations in the UK(194), U.S.A (50) and Australia (64). Protherics has manufacturing facilities in Wales, Australia andSalt Lake City, Utah. Protherics also has administrative, clinical development, commercial and regulatoryaffairs facilities in Runcorn, Cheshire in the UK and in Nashville, Tennessee, USA.
Protherics is the result of the September 1999 merger of Proteus International plc and TherapeuticAntibodies Inc. Therapeutic Antibodies Inc. was founded in 1984 with its headquarters in Nashville,Tennessee. Proteus International plc was originally founded in 1987 and was incorporated in Englandand Wales.
In June 2003, Protherics acquired Enact Pharma plc, which provided Protherics with both a potential highmargin late stage product (Voraxaze�) and earlier stage research projects. Several of the non-core researchprojects were subsequently out-licensed. In January 2007, Protherics acquired MacroMed, Inc., a
44
corporation based in Salt Lake City, Utah, in order to access its lead product candidate OncoGel� whichwas undertaking clinical trials and studies in the treatment of oesophageal cancer and pre-clinical studiesin the treatment of brain cancer.
3. Product revenues—Patents and Licences
Product Indication Partner / Licensee
CroFab� Crotalid envenomation Nycomed/Altana (US)Swedish Orphan (Scandinavia and Baltics)
DigiFab� Digoxin toxicity or overdose Nycomed/Altana (US)Beacon (Europe ex-Scandinavia and Germany)Mayne Pharma (Australia/SE Asia)
Voraxaze� Methotrexate toxicity IDIS (Europe)Swedish Orphan (Nordic Region)AAI Pharma (US)McKesson (Canada)
ViperaTAb� Envenomation—Northern Europe Swedish Orphan (Nordic Region)Enfer TSE Kit BSE Licensed to Enfer Scientific/Abbott Labs
CroFab� (Crotalidae Polyvalent Immune Fab (Ovine)) is a polyclonal antibody fragment for themanagement of minimal to moderate envenomations from North American crotalids (pit vipers, whichincludes rattlesnakes, copperheads and water moccasins). It is intended for the treatment of bites early inthe course of poisoning to prevent them from developing into more severe cases. CroFab� was approved bythe U.S. Food and Drug Administration (FDA) in the year 2000 and was launched in the U.S. in the year2001. It is currently distributed by Fougera, a division of Nycomed, and is the only product marketed for pitviper bites in the US.
DigiFab� (Digoxin Immune Fab (Ovine)) is a polyclonal antibody fragment for the treatment oflife-threatening digoxin toxicity or overdose. Digoxin is a widely prescribed drug for the treatment ofcardiac conditions but its effective dose is close to its toxic dose (i.e. it has a narrow therapeutic window).DigiFab� was approved by the FDA in the year 2001 and launched in the US in the year 2002. It isdistributed by Fougera, a division of Nycomed. Approval for marketing of DigiFab� in Canada is expectedto be received in the first half of 2009. DigiFab� is currently being sold on a named patient basis in certainEuropean and other countries following the transfer of the marketing rights for Roche’s Digitalis Antidot�in November 2006.
Voraxaze� (glucarpidase, previously known as carboxypeptidase G2 or CPG2) has been developed as anadjunctive treatment for patients experiencing or at risk of toxicity following administration of high doses(> 1 g/m2) of methotrexate. Methotrexate is an established drug in cancer therapy which can cause seriousand sometimes life-threatening toxicity if its elimination from the body is delayed. Voraxaze� is an enzymewhich rapidly breaks down methotrexate thereby reducing the time that the patient is exposed topotentially toxic concentrations. The FDA has granted Voraxaze� a fast track designation for the rapid andsustained reduction in toxic methotrexate levels in patients with impaired renal function. Protherics plansto start submission of a rolling biologic licence application (BLA) in the second half of 2008, leading to apotential marketing approval in the US in the first half of the year 2010 if priority review is granted bythe FDA.
In May 2007, the FDA granted Protherics permission to supply Voraxaze� in the US under a treatmentprotocol, prior to marketing authorisation being granted, and to charge for its supply, providing forrecovery of some of the costs associated with the development and supply of Voraxaze�. It is anticipatedthat revenues from this cost recovery programme would continue until the approval of the BLA in the US.Voraxaze� is distributed by AAIPharma Inc. in the US. Named patient sales of Voraxaze� commenced inEurope and elsewhere outside the US in January 2004 and are distributed principally by IDIS.
ViperaTAb� is a polyclonal antibody fragment sold on a named patient basis for the treatment ofenvenomations from the European common adder (Vipera berus). It is currently distributed in Sweden,Norway, Finland, Denmark and the Baltic countries by Swedish Orphan AB. Protherics has also suppliedViperaTAb� to the U.S. Department of Defense.
Enfer TSE Assay (BSE Diagnostic Test). There remains a significant public concern in Europe and NorthAmerica with respect to bovine spongiform encephalopathy (BSE), colloquially known as ‘‘mad cowdisease.’’ Protherics licensed its intellectual property in transmissible spongiform encephalopathy (TSE)
45
diagnosis in animals to Enfer Scientific Limited in 1997, which subsequently developed a post-mortem kitto test carcasses for BSE.
4. Research and Development—Product Pipeline
Product Indication Status
CytoFab� Severe Sepsis Phase IIDigoxin Immune Fab Severe Pre-Eclampsia Phase IIAngiotensin Therapeutic Vaccine Hypertension Phase IIOncoGel� Oesophageal Primary Brain Cancer Phase IIb, Phase I/IIProlarix� Primary Liver Cancer Phase I/IIAcadra� Leukemia Phase I/II
CytoFab� is based on the same polyclonal antibody technology as CroFab� and DigiFab� but binds TNF�,a cytokine involved in inflammation. It has been developed to treat sepsis, a condition that affects about750,000 people per year in the US and which has a mortality rate in excess of 30 per cent. There is only oneproduct approved for the treatment of sepsis, Eli Lilly’s Xigris�. However, due to its safety profile, its use isrestricted to a subset of sepsis patients.
In November 2006, following consultations with regulators in the US and EU, AstraZeneca announced itsintention to expand the clinical development plan for CytoFab� in severe sepsis, with the addition of aphase II program consisting of two separate clinical studies. The first study, which is underway, is designedto assess the safety, tolerability, pharmacokinetics and pharmadynamics of CytoFab� produced by the newmanufacturing process. It will enrol up to 70 patients across multiple sites in the US and is expected toreport towards the end of the year 2008 or beginning of the year 2009. Following the completion of thisstudy, if successful, AstraZeneca intends to begin a second study to assess both the safety and efficacy ofCytoFab� in a much larger patient group. Protherics will receive its next milestone payment of £10 millionfrom AstraZeneca upon the start of a phase III study which is anticipated in the year 2010.
Digoxin Immune Fabs, such as Protherics’ DigiFab� and GlaxoSmithKline’s Digibind�, may have potentialin the treatment of pre-eclampsia. Pre-eclampsia is a life-threatening complication that occurs in about5-8 per cent. of pregnancies in the US. Pre-eclampsia is generally characterised by high blood pressure andif left unmanaged, can lead to renal failure, eclampsia and death of the mother. It can also result in earlydelivery of the baby, resulting in developmental abnormalities or death of the baby. It is a major cause ofadmissions to neonatal intensive care units. There are no approved therapies available and few products indevelopment specifically to treat pre-eclampsia.
In April 2008, Protherics reported the headline results from the phase IIb (DEEP) study which investigatedthe use of Digibind� or placebo in 51 patients with severe pre-eclampsia. In this small study, one of the twoprimary endpoints was met when the deterioration in kidney function during the 24-48 hour period oftreatment was found to be significantly less (p<0.05) in patients receiving Digibind� than in patientsreceiving placebos. However, there was no significant difference in this study for the other primaryendpoint, the use of anti-hypertensive drugs. Additional analysis has revealed that babies at greatest riskdue to low birth weight in the DIF group had a better outcome than those in the placebo group for themost serious conditions of prematurity.
Angiotensin Therapeutic Vaccine (ATV) is being developed by Protherics for the treatment of high bloodpressure (hypertension). The vaccine produces antibodies to angiotensin, one of the hormones involved inthe regulation of blood pressure. Protherics began a phase IIa study in June 2008. The goal of this study isto confirm that the new formulation of ATV which includes a promising new adjuvant, CoVaccine HT,increases the anti-angiotensin antibody response sufficiently to cause a reduction in blood pressure inhypertensive patients. Headline blood pressure results from this study are expected in the first half of 2009.Protherics intends to seek an out-licensing partner to complete the development and commercialisation ofthe product should the study produce encouraging results.
OncoGel� is a novel, locally administered, sustained-release injectable formulation of paclitaxel, anestablished chemotherapeutic for the treatment of solid tumours. It is designed for local administration toa tumour, where it is able to deliver high concentrations of paclitaxel for up to six weeks. A phase IIa studyin inoperable oesophageal cancer in which OncoGel� was given with external beam radiation for thetreatment of dysphagia has been completed in Europe and the US. In January 2008, Protherics initiated arandomised multinational phase IIb study to evaluate OncoGel� administered in combination withpre-operative chemo-radiotherapy compared to pre-operative chemo-radiotherapy alone in 124 patients
46
with esophageal cancer. The primary endpoint of the study is a blinded assessment of tumour response,with overall survival a secondary endpoint. The data from the phase IIb study is expected to be available in2010.
OncoGel� has demonstrated encouraging activity in non-clinical models of brain cancer. A phase I/II studyof OncoGel� in recurrent glioblastoma multiforme (GBM), a very aggressive type of brain cancer, isongoing. The aim of the study is to investigate the safety and tolerability of OncoGel� when administeredinto the cavity produced after a tumour is surgically removed. The FDA has requested additionalnon-clinical safety data prior to escalation of the dose beyond that currently being used in the study. Thenon-clinical data is expected to be available in the first half of 2009.
Prolarix� (formerly NQO2) is a small molecule-based chemotherapy involving the coadministration of aprodrug, tretazicar (formerly CB 1954) with a cosubstrate, caricotamide (formerly EP-0152R). The enzymeNQO2 has elevated activity in certain tumours, in particular primary liver cancer (hepatocellularcarcinoma or HCC), offering a potentially selective therapeutic effect. HCC is a devastating cancer whichkills around 500,000 patients each year globally and, despite recent approvals of sorafenib (Nexavar�,Onyx/Bayer), life expectancy for HCC patients remains less than 12 months from diagnosis. Prolarix� mayalso have a role in the treatment of other solid tumours, such as ovarian cancer, providing a wider potentialmarket opportunity for the drug.
Protherics has started a phase II programme to investigate tumour responses in the lead indication ofHCC. This phase II program will comprise an open-label phase IIa study followed by a larger controlledstudy in which Prolarix� will be added to sorafenib and compared to sorafenib alone. The open-label studyshould provide an early indication of potential efficacy in HCC patients and results are expected from thisstudy in the first half of 2010.
Acadra� (Acadesine) is a nucleoside analogue that could be a promising new therapy for the treatment ofB-cell chronic lymphocytic leukemia (B-CLL), a haematological cancer where B-cells accumulate due totheir increased survival. Unlike existing chemotherapies for B-CLL, Acadra� has been shown ex-vivo tokill B-cells selectively, while having only minimal toxicity to T-cells. This selectivity for B-cells means thatAcadra� has the potential to reduce the risk of serious infection and other side effects seen with currentchemotherapies. Acadra has also been shown ex-vivo to kill Ba-cells from patients refractory to othertreatments. B-CLL is the most frequently occurring type of leukemia in the western world and accounts forabout 40 per cent. of all leukaemias in those over 65 years of age.
Acadra� was well tolerated when previously studied in 2,000 patients for an unrelated indication.Protherics and its co-development partner, Advancell, have initiated a phase I/II study of Acadra� inpatients with recurrent or refactory B-CLL. The study is being undertaken in Belgium, France and Spainand will enrol up to 30 B-CLL patients. Part 1 of the study is an open-label assessment of the safety andtolerability of escalating single doses of Acadra� followed, in part 2, by an assessment of up to fiverepeated doses. Part 1 of the study is expected to be completed during 2009.
5. Intellectual Property
Protherics has implemented internal measures to protect its proprietary technology and trade secrets, suchas requiring all employees, consultants and third party collaborators to execute confidentiality agreementsand, where appropriate, assignments of rights to proprietary inventions arising out of the employment orconsulting relationship.
Protherics has optimised the production and purification of polyclonal antibodies and has developedextensive proprietary knowledge in this area, combining scientific, veterinary and large-volume processingskills. Protherics has been granted patents, and has applied for additional patents, in the United States,Europe and other relevant jurisdictions covering several aspects of its process techniques.
6. Selected Financial Information on ProthericsFinancial year ended 31 March
2008 2007 2006
Consolidated Income Statement Information:Revenue (£m) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.1 31.1 17.7Operating (loss) (£m) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19.2) (4.4) (9.5)Net (loss) (£m) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16.7) (3.4) (9.5)Net (loss) per ordinary share (basic and fully diluted) . . . . . . . . . (4.9p) (1.2p) (3.8p)Net (loss) per ADS(1) (basic and fully diluted) . . . . . . . . . . . . . . (49.3p) (11.8p) (38.4p)
47
Financial year ended 31 March
2008 2007 2006
Consolidated Balance Sheet Data:Total assets (fixed assets plus current assets) . . . . . . . . . . . . . . . . 94.8 107.3 60.1Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61.6 76.5 26.4Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5 15.4 17.0Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61.6 76.5 26.4Number of equity shares outstanding (in millions of shares) . . . . 340.3 339.1 259.3
(1) Each American Depositary Share represents ten ordinary shares.
No dividends have been paid by Protherics in the periods illustrated above.
7. Current trading and trend information for Protherics
Protherics
For the year ended 31 March 2008, Protherics had trading revenues of £23.5 million, delivering growth of27 per cent over the prior year. The gross margin on trading revenues increased to 47 per cent. R&Dexpenditure in the period was £19.1 million, reflecting planned increased investment in the developmentpipeline, resulting in a loss for the year of £16.7 million.(1)
Since March 2008, Protherics has continued to invest as planned in its development pipeline and has seengood progress across its pipeline.
Protherics continues to operate in line with the Independent Protherics Directors’ expectations, and theIndependent Protherics Directors are confident of the financial and trading prospects of Protherics for thecurrent financial year.
Following the CytoFab� licence agreement with AstraZeneca, effective in January 2006, Protherics isrecognising the initial £16,300,000 milestone payment received over the period of the earnings process,currently estimated at approximately seven years. Protherics therefore anticipates continuing to recogniseadditional revenue under this agreement during the year 2009. Revenue during the year 2007 included a£10,000,000 milestone earned for the development of the CytoFab� development process, however, receiptof the subsequent milestones that may fall due under this agreement will be dependent upon the furtherprogression of the programme by Protherics’ partner, AstraZeneca.
As previously noted, Protherics’ product revenues are currently largely denominated in US dollars andtherefore revenues from its CroFab�, DigiFab� and ViperaTAb� products are dependent upon thecurrency exchange rates in effect at the date of transaction. Protherics’ US CroFab� and DigiFab�distributor, Nycomed, is required to provide Protherics with product sales forecasts two years beforeanticipated delivery date and these estimates can be revised by +/�25 per cent. until one year prior todelivery, at which point a firm order is placed. A significant proportion of Protherics’ US revenues forthese products are based solely upon Protherics supplying the required product for these orders with thebalance being recognised when Nycomed makes sales into the marketplace.
Advance orders of CroFab� from Nycomed for the year 2009 indicate an increase in the level of shipmentsfrom the year 2008 although Protherics remains dependent upon the ability of its filling and freeze-dryingcontractors to meet scheduled shipment dates.
It is anticipated that the level of DigiFab� shipments to Nycomed during the year 2009 will exceed that ofthe prior year since, during the year 2008, Nycomed satisfied orders principally from its own inventories.During the year 2007, Protherics commenced named patient sales of DigiFab� in Europe. These Europeanrevenues increased in the year 2008, the first full fiscal year in this market, and may increase further in theyear 2009 should the product obtain regulatory approval in Europe. Again, Protherics remains dependentupon the ability of its filling and freeze-drying contractors to meet scheduled shipment dates.
Protherics has a high proportion of its income derived from the US markets, where pricing is in US dollars,although a major proportion of its manufacturing costs are in pounds sterling and Australian dollars.Protherics mitigates its currency exposures by a policy of forward covering expected revenues for up to12 months on a rolling basis. Protherics intends to implement modest selling price increases in US dollarsin order to mitigate the negative effects of the weak dollar, and in the longer term, to make further cost
(1) Historical financial information relating to Protherics has been extracted without material adjustment from the relevantpublished audited reports and accounts of Protherics.
48
reductions in the manufacturing process. However, there can be no assurance that Protherics can fullycompensate for the effects of continued US dollar weakness on its results.
The cost of goods recorded by Protherics increased marginally during the year 2008, and it would beexpected to increase again should product shipments increase in the current fiscal year as anticipated. Inprior years, Protherics has lost batches of CroFab� and DigiFab� due to contamination at Protherics’ thirdparty filling and freeze drying contractors. While Protherics does not expect this to recur during the year2009, it cannot guarantee that similar product losses will not occur.
Protherics has recorded a significant increase in research and development expenditures during the year2008 as it has continued to commit resources to CytoFab� and undertake further work on Voraxaze� insupport of the regulatory filings. In addition, year 2008 was the first full year of increased expenditurearising from the acquisition of MacroMed’s OncoGel� programme in January 2007 and the other productsin-licensed at the same time. With the continuing development pipeline, it is anticipated that significantresearch and development expenditures will be required in forthcoming years.
Following the expansion of Protherics’ activities in the final quarter of the year 2007, general andadministrative expenditures increased in year 2008 as Protherics managed the enlarged business.Protherics intends to increase its pre-marketing initiatives and to build small sales forces in the U.S. inanticipation of a marketing approval for Voraxaze� and in advance of the return of the rights in Protherics’CroFab� and DigiFab� products. Consequently, this will lead to increases in administrative costs duringthe years 2009 and 2010.
The increased research and development and general and administrative expenditures would be funded bythe current cash resources held, and anticipated product revenues, during the year 2009.
8. Statement of capitalisation and indebtedness as at 31 August 2008
The following table sets out the consolidated capitalisation and indebtedness of the Protherics Groupunder IFRS. The figures in the capitalisation and indebtedness tables have been extracted from themanagement and financial reporting systems of the Protherics Group as at 31 August 2008 andare unaudited.
£m
Total current debtSecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0Unsecured/unguaranteed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Total current debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0
Total Non-Current debt (excluding current portion of long-term debt)Secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4Unsecured/unguaranteed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0
Total non-current debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4
Shareholders’ equityShare capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8Share premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188.7Other reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (140.4)
Total Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55.1
49
Statement of net indebtedness as at 31 August 2008
The following table sets out the net consolidated financial indebtedness of the Protherics Group underIFRS at 31 August 2008. This statement of net indebtedness is unaudited and has been extracted withoutmaterial adjustment from the management and financial reporting systems of the Protherics Group.
£m
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.7Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.4Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.1
Current Bank Debt (overdraft) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2Other current financial indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8
Current Financial Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0
Net current financial indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.1Non current bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —Bonds issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —Other non current loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4
Non current Financial Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4
Gross Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4
Total Net Financial Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.7
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PART 4
OPERATING AND FINANCIAL REVIEW RELATING TO BTG
The following operating and financial review should be read in conjunction with Part 6 of this document andthe other financial information included elsewhere in this document. This review contains forward-lookingstatements based on current expectations and assumptions about the BTG Group’s future business. TheBTG Group’s actual results could differ materially from those contained in such forward-looking statements asa result of a number of factors including, but not limited to, those discussed on pages 10 to 17 (inclusive) of thisdocument (under the heading ‘‘Risk Factors’’) and on page 18 of this document (under the heading ‘‘Forward-looking statements’’).
The selected financial information discussed in this Part 4 has been extracted without material adjustment fromthe audited Annual Report and Accounts of the BTG Group as at, and for the three financial years ended,31 March 2006, 2007 and 2008 which has been prepared in accordance with IFRS.
Revenues and gains
Financial year 2007/2008
Net revenues after revenue sharing increased by 60 per cent. to £42.9m (06/07: £26.8m). Total grossrevenues for the year increased by 64 per cent. to £75m (06/07: £45.7m), and revenue sharing averaged43 per cent. (06/07: 41 per cent.). Revenues included recurring royalties from marketed products andmilestone and other one-off transactions such as licensing payments or development milestones.
Gross recurring royalty revenues were slightly higher than in the previous year at £42.4m (06/07: £41.3m).Revenue-sharing payments on royalties averaged 41 per cent. in both years resulting in net recurringrevenues of £24.9m (06/07: £24.2m). Underlying sales growth in a number of products was significant butthe weak US dollar resulted in growth of just 3 per cent. upon translation into our sterling-denominatedresults.
BeneFIX�, the treatment for haemophilia B marketed by Wyeth, performed well and contributed grossrevenues of £16.9m (06/07: £15.8m). The hip-cup continued to deliver steady underlying growth andgenerated £8.5m gross (06/07: £8.6m). Campath�, the label for which was extended to include first-linetreatment of CLL in late 2007, generated £5m (06/07: £4.5m) and gross revenues from the MedicalResearch Counsel (MRC) humanisation patents were £4.1m (06/07: £3.4m).
The successful further licensing of BTG’s patents on semiconductor chip memory capacity for net revenuesafter costs and taxes of £10m was the major factor in the significant increase in non-recurring revenues to£32.6m gross (06/07: £4.4m), which resulted in £18m net revenues after revenue sharing (06/07: £2.6m).Other one-off revenues included a $10m gross milestone payment from Tolerx, Inc. when it signed anagreement with GlaxoSmithKline to develop and commercialise TRX4, £2.7m gross from the MRC inrelation to a paid-up licence it signed, and £1.5m gross from the assignment of AQ4N rights from KuDOSto Novacea, Inc.
Financial year 2006/2007
Gross recurring royalty revenues in 06/07 were £41.3m (05/06: £39.5m). Revenue sharing with inventors onroyalties received was £17.1m (05/06: £16.5m), averaging 41 per cent. of gross royalties, in line with theprevious year. This resulted in net royalties of £24.2m, a 5 per cent. increase over last year (05/06: £23m).This compared with a 29 per cent. increase last year over the prior year, when a major new revenue streamemerged following the settlement with Zimmer Corporation (Zimmer) regarding the hip cup patents.
BeneFIX� was the biggest revenue earner and contributed gross revenues of £15.8m, the same as in theprevious year with an underlying sales growth of 7 per cent. at constant exchange rates. Sales of Campath�increased by 4 per cent. but were adversely impacted by exchange movements resulting in royalties of£4.5m (05/06: £4.6m). The growth in recurring revenues during the year came mainly from hip cuproyalties, where BTG licensees, including Zimmer, achieved sales growth, and from royalties earned frompatents licensed to the MRC.
With the majority of royalties being earned in US dollars, exchange rate movements adversely affectedgross royalties compared to the prior year by approximately £2.2m during the period.
51
One-off transactions during the year included a paid-up licence to Fresenius SE for gross proceeds ofA4.5m (£3m). This was supplemented by a number of other paid-up licence fees, settlements and optionfees. Together these generated £4.4m gross (05/06: £10.7m, including £7.5m from the settlement withZimmer) and £2.6m after revenue-sharing (05/06: £6.5m). Patent and share sales included the reportedsales of the WebNav online navigation tracking patents, the Radio Frequency ID patents and other smalltransactions that generated total proceeds of £5.6m (05/06: £25.3m, including £20m from the sale of theTeleshuttle patents to TwinTech) and a profit on disposal of £2.7m (05/06: £11.6m).
Financial year 2005/2006
Royalty revenues in 05/06 were £39.5m (04/05: £29.2m) an increase of 35 per cent. Revenue sharing,averaged 41 per cent. of royalty income in the year (04/05: 41 per cent.).
Net royalty revenues after revenue sharing increased from £17.8m in 04/05 to £23.0m in the year, anincrease of 29 per cent. This significant increase in the year reflected the fact that Zimmer was payingroyalties on its sales of the artificial hip-cup design over which BTG holds patents, generating new netroyalty income of £1.7m. Without this income, the increase would have been 20 per cent. on a like-for-likebasis. Revenues were also boosted by a particularly strong performance from BeneFIX� where royaltiesincreased by 23 per cent. in the year. Net royalties have increased by an average of around10 per cent.-12 per cent. pa over the previous five years. The royalties received on sales of the two-partartificial hip patents increased with the addition of royalties from sales by Zimmer supplementing thosefrom earlier licensees.
Within one-off licensing deals and settlements, BTG generated revenues of £7.5m from the settlement inMay 2005 with Zimmer with related revenue-sharing costs of £3.4m. Milestone receipts and licencesgranted on other patents generated a further £3.2m gross and £2.4m net. Each of these bore litigation coststhat were included within operating expenses.
During the year BTG concluded the sale of three sets of assets within the physical sciences portfolio.Patents relating to radio-frequency ID tagging were sold to Zebra Technologies Corporation for grossproceeds of £3m and a net gain of £1.6m. QR Sciences Holdings Limited took and exercised an option toacquire rights to an explosives detection technology, Nuclear Quadropole Resonance, of which $2m(£1.1m) has been recognised at this time. The largest transaction completed in the year was the sale ofpatents licensed from Teleshuttle Technologies LLC (Teleshuttle) to Twin Tech EU for gross proceeds of£20m. Costs, being revenue sharing and amounts due to advisers plus writing off the net book value of theassets, resulted in a net gain of £9m. The other main one-off transaction was the sale of shares held in aprivate company, KuDOS, to AstraZeneca for a gain of £0.7m. Overall, one-off transactions in the yeargenerated net revenues and gains of £18.1m with cash of some £20m generated once all liabilitieswere settled.
Operating surplus and operating profit
Financial year 2007/2008
During the year 07/08 BTG generated an operating surplus of net recurring revenues over operatingexpenses of £8.9m (06/07: £5.3m excluding restructuring provisions) further supplemented by net financialincome of £2.2m (06/07: £1.7m). These together funded the increased research and development costs of£10.7m. The one-off revenues further supplemented profits and cash reserves.
This operating surplus is expected to increase in the coming year with operating costs being held steadyand expected increases in net recurring revenues, with growth forecast in all the major royalty-generatingproducts and additional contributions expected from changes in the BeneFIX� revenue sharingarrangements.
Total operating expenses decreased by 11 per cent. to £16m (06/07: £17.9m) and included employmentcosts of £8.3m (06/07: £10.1m). Operating costs were £2.4m (06/07: £2.4m) and included impairment andamortisation costs of £1.7m (06/07: £1.9m).
Financial year 2006/2007
Administrative and operating expenses of £18.9m (05/06: £24.3m) stabilised significantly below the £21mtarget level set for the year. Operating expenses made up £2.4m (05/06: £7.5m) of this total and comprisedamortisation and impairment costs of £1.9m (05/06: £3.9m), patent renewal fees of £0.4m (05/06: £0.7m)
52
and litigation costs of £0.1m (05/06: £2.9m). Staff costs were £10.1m (05/06: £11.5m), reflecting thereduction in headcount. A £0.3m exchange loss compared with an exchange gain last year of £1.5m. TheBTG Group was able to release £1.0m from provisions for onerous leases (05/06: £0.9m) having signedagreements to sublet unused leased space in its London and Philadelphia offices.
Financial year 2005/2006
BTG’s costs in 04/05 were high and included a significant expense relating to reorganising andrestructuring decisions taken during that year. In particular the results included an expense of £6.6m inrespect of uneconomic leases. Further reorganisation costs were incurred during 05/06 following thedecision to stop investing in new technologies in the physical sciences arena and a decision to outsource anumber of administrative and IT functions. Costs relating to the salaries of those declared redundant in thecurrent year were around £4.6m, including certain incentive packages to ensure an orderly winddown ofthe asset realisation. Subletting of certain of the Company’s unoccupied property allowed some £0.9m ofprovisions made in 04/05 to be written back, giving an overall charge of £3.7m for the year. Operatingexpenses, being patent and litigation costs, were at a similar level to 04/05 with patent renewal fees slightlydown, higher litigation costs relating to actions on the Zimmer, WebNav and Teleshuttle deals which havenow settled and a high amortisation charge following a full assessment of the likely values achievable fromthe patents in line with the new strategy. Administrative expenses at £18.3m were £5.1m or 22 per cent.below the levels of the prior year and savings achieved through the reorganisation mean that06/07 operating and administrative expenses fell below £21m, some £3m below 05/06 levels. An exchangegain of £1.5m was achieved in the year on the conversion of certain foreign currency denominated receiptsinto sterling.
Research & Development
Financial year 2007/2008
Group research and development costs of £10.7m (06/07: £9.7m) were lower than originally planned forthe year owing to small delays in the start of a number of non-clinical and clinical studies. However, theseare largely timing issues and many of the costs will roll forward into the current financial year. Varisolve�costs were £4.6m (06/07: £3.5m). Expenditure on other programmes under development was £5.4m (06/07:£5.5m), including costs related to the phase I clinical studies of BGC20-1531 in migraine andBGC20-0134 in multiple sclerosis, and to completion of the sleep apnoea, head lice and BGC20-1259 PETclinical studies. BTG’s share of the results of its associate companies involved in development activities waslosses of £0.7m (06/07: £0.7m). Total R&D expenditure for 08/09 is targeted in the £10m to £15m range.
Financial year 2006/2007
Group research and development costs were £9.7m compared with £9.1m in the previous year. Theinvestment in Varisolve� was £3.5m, £1m lower than in the previous year when a one-off payment wasmade for profit mark-ups foregone on a secondary manufacturing contract. This year’s costs includedexpenses associated with the US phase II safety study and maintaining the manufacturing supply chain.£5.5m was invested in other programmes under internal development (05/06: £3.6m). BGC20-1259, themultifunctional compound targeting dementia, was the largest investment after Varisolve�.BCG20-1259 completed phase I clinical studies and another study was initiated to determine the optimumdose for phase IIa. Costs relating to BGC945 reflected progression through late preclinical towards anapplication to commence phase I studies. Plevitrexed completed a phase I/II study in patients withadvanced gastric cancer and BTG is currently seeking a development and commercialisation partner.Investment in the migraine treatment BGC20-1531 increased as preclinical studies progressed inpreparation for a planned phase I study this year. Other costs related to the proof of mechanism study ofBGC20-0166 in sleep apnoea, the ex vivo study of BGC20-0582, a novel head lice treatment, and severalearly stage programmes. The balance of the R&D expenses of £0.7m (05/06: £1m) related to BTG’s shareof the losses of certain associate companies in which BTG has an investment.
Financial year 2005/2006
R&D costs for the BTG Group as a whole were £9.1m of which £4.5m related to Varisolve�, £3.3m to BTGdirected projects, and £0.3m and £1m to the operations of BTG’s subsidiary and associate companiesrespectively. This compared to £16.8m in 04/05 (£9.2m Varisolve�, £6.3m BTG directed and £1.3m insubsidiaries and associates). The expenditure of £4.5m on Varisolve� in the year related to costs incurred
53
in securing the manufacturing supply chain, including a one-off payment to the landlords of our Wrexhamsecondary-manufacturing site for profit mark-ups foregone on contract manufacturing. Activities were alsocentred on completing work required by the FDA and preparing for the upcoming phase II safety study.The expenditure of £3.3m on the remaining pipeline was in line with budget and the decrease over04/05 reflected a focusing down into a core portfolio rather than investing small amounts in large numbersof activities.
Impairment Provisions
Financial year 2007/2008
Impairment provision against Wrexham facility—Given the design improvements achieved and proven abilityto outsource the manufacturing process for Varisolve�, the economics of the leasehold manufacturingfacility constructed to facilitate the product’s development were re-assessed. The decision was taken toclose this facility and as a result the overall economics and flexibility of product manufacture are expectedto improve significantly in the period up to launch and beyond without adverse impact on BTG’s ability todevelop or partner the programme. Of the £8.1m charge, £7.5m is a non-cash expense, being the write-offof the net book value of the manufacturing facility carried in fixed assets, and the balance reflects theestimated costs to closure of £0.6m. Development costs of Varisolve� in 08/09 and future years will bereduced as a result of this decision.
Financial year 2006/2007
An impairment charge of £1m was taken following an assessment of the likely realisable value of certaininvestments.
Financial year 2005/2006
Carrying value of investments—Charges of £4.2m arose in the year upon the impairment in value of twoinvestments. The majority of this arose upon the loan creditors of SAMSys Inc calling in their debt. Theassets of that company were being sold but the expectation is that after payment of liabilities there will beno return to shareholders. Accordingly the fair value of this investment of £3.7m was expensed in the year.The balance relates to an investment in a private company, Ignios Limited, in which BTG has decided notto invest further.
Profit for the year and earnings per share
Financial year 2007/2008
The profit before tax was £10.7m (06/07: £2.6m) and the profit after tax was £8.8m (06/07: £2.4m). The taxcharge of £1.9m arose primarily as a result of £1.8m of withholding taxes on the semiconductor technologylicensing deal. BTG expects to utilise certain of its brought forward tax losses against taxable profitsachieved in the year. In respect of the financial year 2007/2008, BTG did not declare a dividend.
Earnings per share based on an average 149.7m (06/07: 149.5m) shares in issue were 5.9p (06/07: 1.6p).
Financial year 2006/2007
The profit after tax for the year of £2.4m (05/06: £1.4m) compared with a loss of £35.0m two years ago.Earnings per share grew to 1.6p from 1.0p last year based on an average 149.5m shares in issue (05/06:146.6m). In respect of the financial year 2006/2007, BTG did not declare a dividend.
Financial year 2005/2006
BTG achieved a profit after tax for the year of £1.4m, an improvement of £36.4m over the previous year’sloss of £35.0m. Reductions in costs, increases in royalty income and gains from licences and sales of assetsin the year combined to generate this turnaround. These profits represented earnings per share of 1.0pcompared to a loss per share in 04/05 of 23.8p based on an average of 146.6m shares in issue(04/05:145.5m). In respect of the financial year 2005/2006, BTG did not declare a dividend.
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Position at year end
Total equity at 31 March 2008 increased during the year by £7.9m to £55.2m. Total equity at 31 March 2007was £47.3m, an increase of £5.1m in the year. At 31 March 2006 BTG’s net assets were £42.2m, animprovement of £3.2m in the year.
Non-current assets
Financial year 2007/2008
Intangible assets at 31 March 2008 were carried at £6.8m, with additions of £2.1m being offset by disposalsand amortisation charges of £2.9m. Most of the intangible assets held are patents, which are written offover their remaining effective life—or their remaining useful economic life if shorter—and are subject toregular impairment reviews.
The net book value of the BTG Group’s property, plant and equipment reduced by £7.9m in the year to£0.8m, largely as a result of the decision to terminate the lease on the Varisolve� manufacturing facility.Additions of £0.6m were offset by charges of £1.0m in respect of depreciation and currency movements.
The value of investments and investments in associates increased by £0.3m in the year to £6.5m followingadditional investments offset by operating losses and impairment charges. During the year, BTG investedan additional £1.9m (06/07: £0.8m), including £0.7m in Senexis Ltd, which is developing small moleculedrugs targeting CNS disorders. Other investments include Xention Discovery Ltd, a drug discoverycompany focused on ion channels, Protez, Inc, which is developing new antibiotics, and holdings in twoventure funds.
Financial year 2006/2007
Intangible assets were £7.6m with additions of £3.0m being offset by disposals of £0.6m and amortisationcharges of £1.9m. The net book value of the BTG Group’s property, plant and equipment reduced by£0.9m to £8.7m through depreciation and currency movements. The major asset held was the Wrexhamsecondary-manufacturing plant for Varisolve�.
The investment in associates reduced from £2.7m to £1.2m, reflecting losses incurred in those companiesplus additions and impairment charges. The associates being private companies engaged in research anddevelopment. In total BTG invested £0.8m in these companies and funds during the year (05/06: £1.9m).Commitments to follow-on funding of the investment portfolio stood at £2.3m as at 31 March 2007.
Financial year 2005/2006
The value of BTG’s non-current assets fell by some £10m in the year to £24.6m. Intangible assets stood at£7.1m with additions of £2.3m being offset by disposals of £2.2m and amortisation charges of £3.9m. Thenet book value of the BTG Group’s fixed assets reduced by £1.1m to £9.6m through depreciation andcurrency movements. The investment in associates reduced from £3.6m to £2.7m, reflecting losses incurredin those companies plus additions and impairment charges. In total BTG invested £1.8m in thesecompanies and funds during the year (04/05: £2.7m). Commitments to follow-on funding of the investmentportfolio stood at £2.9m as at 31 March 2006.
Current assets, current and non-current liabilities
Financial year 2007/2008
Trade and other receivables were £15.2m at 31 March 2008 (06/07: £10.5m), the increase being mainly dueto remaining deferred payments totalling £5.5m due by December 2009 from the licensing of thesemiconductor technology patents. Current liabilities increased from £21.9m at the previous period end to£24.2m at 31 March 2008. The increase relates mainly to revenue sharing payments due, relating torevenues received and expected in respect of the semiconductor technology licences referred to above.
Non-current liabilities moved from £6.8m at the previous year end to £6.9m at 31 March 2008. Theyinclude £4.9m in relation to the BTG defined benefit pension plan and the remaining amounts payableagainst provisions for impairment charges under non-commercial leases.
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Financial year 2006/2007
The trade and other receivables were £10.5m at 31 March 2007, compared to £10.1m at the prior year end.Current liabilities at £21.9m reduced from £30.6m at the previous year end. Significant changes includedthe payment of £7m in respect of unpaid costs on the Teleshuttle deal concluded near the end of theprevious year and a reduction in the provisions for onerous leases and other restructuring items.Non-current liabilities at £6.8m reduced from £12.9m at the previous year end, and included £5.7m inrespect of the net deficit on the Company’s defined benefit pension plan, down from £9.6m at the end oflast year, reflecting actuarial gains and the cash contributions to the scheme made by the Company. Adeficit repair schedule was agreed with the trustees of the pension plan to pay down the deficit over thenext five years. The balance represented provisions largely against future liabilities on onerous leases andtrade and other payables.
Financial year 2005/2006
The trade and other receivables were £10.1m at 31 March 2006 compared to £7.4m at the prior year end,with the increase broadly in line with increased revenues. Current liabilities at £30.6m were in line withthose at the previous year end of £28.9m although trade payables include some £7m in respect of unpaidcosts on the Teleshuttle deal concluded near the year end. Non-current liabilities at £12.9m include £9.6min respect of the net deficit on the Company’s defined benefit pension plan, together with provisionslargely against future lease liabilities on onerous leases.
Cash
Financial year 2007/2008
Net cash and cash equivalents rose by £14m to £57m at 31 March 2008 (31 March 2007: £43.0m). The cashwas generated primarily from the profit after tax of £8.8m which includes non-cash charges of £3.9m fordepreciation, amortisation, share-related incentives and pension adjustments and the £8.1m Wrexhamwrite off charge.
Cash outflows included funding of £2.2m for the deficit repair plan on the defined benefit pension plan,investments of £1.9m and acquisition costs of £1.7m on patents and fixed assets.
Financial year 2006/2007
The net cash and cash equivalents were £43m at 31 March 2007, down from £51m at 31 March 2006. Some£7m of the £51m was paid out at the start of the year in respect of liabilities on the Teleshuttle deal signedat the end of the previous year. The reduction in ‘free cash’ during the year was therefore £1m. The majorreconciling items between the Company’s profit before tax for the year of £2.6m and its cash outflow of£8m were: settlement of prior year Teleshuttle liabilities of £7m, investments in non-current assets of£3.3m, additional contributions to the BTG Group’s pension scheme of £2.2m, payments of leasecommitments already provided for of £1.8m and adverse working capital movements and other paymentsof £1.6m, offset by the impact of non-cash income statement charges of £4.5m and proceeds from the issueof shares of £0.8m.
Financial year 2005/2006
BTG’s net cash and cash equivalents as at 31 March 2006 were £51m. This cash balance was reducedshortly after the year end in settling the £7m of unpaid liabilities on the Teleshuttle deal mentioned above.Accordingly the ‘‘free cash’’ balance was around £44m, up some £9m in the year from £34.5m. TheCompany’s profit for the year of £1.5m included non-cash charges of £3.9m for amortisation, £0.9m fordepreciation, £2m of non-cash charges in reaching the profit on sales of assets, £5.2m in reducing the valueof associates and investments and around £0.8m in respect of charges for share options. £4.3m was alsogenerated from the exercise of share options. The BTG Group invested £2.3m in acquiring intangibleassets and £1.8m in additional investments and spent £2m in reducing the pension scheme deficit andreduced provisions by £3m. These items, with adjustments for working capital changes, accounted for the£9m of cash generation.
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PART 5
OPERATING AND FINANCIAL REVIEW RELATING TO PROTHERICS
The following operating and financial review should be read in conjunction with Part 7 of this document andthe other financial information relating to Protherics included elsewhere in this document. This review containsforward-looking statements based on the current expectations and assumptions about the Protherics Group’sfuture business. The Protherics Group’s actual results could differ materially from those contained in suchforward-looking statements as a result of a number of factors including, but not limited to, those discussed onpages 10 to 17 (inclusive) of this document (under the heading ‘‘Risk Factors’’) and on page 18 of thisdocument under the heading ‘‘Forward-looking statements’’.
The selected financial information discussed in this Part 5 has been extracted without material adjustment fromthe audited annual report and accounts of the Protherics Group as at, and for the three financial years ended,31 March 2006, 2007 and 2008 which have been prepared in accordance with IFRS.
Revenues and gross profit
Financial year 2007/2008
Total revenues decreased in 07/08 by 16 per cent. to £26.1m from £31.1m in 06/07, although 06/07 hadincluded a £10m manufacturing milestone on Protherics’ CytoFab� program outlicensed to AstraZeneca.Excluding this milestone, total revenues increased by £5m (24 per cent.) over 06/07.
The majority of Protherics’ non-CytoFab� revenues were predominantly denominated in U.S. dollars andconsequently, the increasing weakness of the U.S. dollar against sterling has had an unfavourable impacton the revenue as reported in sterling. This was with respect to the two main products, CroFab� andDigiFab�, both of which are distributed through Nycomed. The agreement with Nycomed splits revenueevenly between both parties. 70 per cent. of Protherics’ share of product revenues is earned on shipment ofthe product to Nycomed, with the balance earned once Nycomed sells the product.
CroFab� contributed sales of £15.7m (06/07: £14.1m) whilst DigiFab� contributed sales of £4.8m (06/07:£2.7m). This increase in DigiFab� arose as Nycomed recorded increased sales of DigiFab�. In addition,Nycomed also increased their product requirement to realign their inventory following reduced shipmentsin the prior two years. This underlying growth was only marginally moderated by the increasing weaknessof the US dollar.
Voraxaze� revenues increased to £2.8m (06/07: £1.4m) primarily resulting from revenues earned under theFDA Treatment Protocol approved in May 2007. Previously, Voraxaze� was only available on a namedpatient basis in Europe. ViperaTAb� sales in 06/07 were abnormally high following the release of newproduct for the European bite season that year and therefore, as anticipated, sales in 2008 decreased from£0.3m in 06/07 to £0.2m in 07/08.
Royalty income from Enfer Scientific relating to BSE testing has been declining for several years due toincreased competition and pricing pressures. These pressures have continued during 07/08 with revenuesdown from £0.3m in 06/07 to £0.2m in 07/08.
Other revenues increased from £0.1m in 06/07 to £0.3m in 07/08 as a result of research income fromProtherics Salt Lake City, Inc. (formerly MacroMed, Inc.) acquired in January 2007, contributing for thefull year.
Cost of sales increased by £1.1m from the prior year to £12.5m, an increase of 10 per cent. Although totalrevenues decreased, trading revenues, being those earned by sales of products, increased by £5.0m (27 percent.). This disparity arose from increased volumes of higher margin products and resulted in an improvedgross margin on trading revenues from 39 per cent. in 06/07 to 47 per cent. in 07/08.
Financial Year 2006/2007
Total revenues for 06/07 increased by 76 per cent. to £31.1m (05/06: £17.7m). A substantial element of thisincrease related to CytoFab� where total revenues recognised in the year amounted to £12.2m andincluded the £10m manufacturing milestone receivable in the year, compared to £0.7m in theprevious year.
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The majority of Protherics’ non-CytoFab� revenues were predominantly denominated in US dollars.Therefore the continuing weakness of the US dollar against sterling had an unfavourable impact on therevenue as reported in sterling, particularly with respect to the two main products, CroFab� and DigiFab�.
CroFab� contributed sales of £14.1m (05/06: £11.5m), this increase in sales occuring due to increasedproduct shipments to Nycomed in addition to increased royalties from Nycomed’s sales to its customers.This outweighed the effect of adverse currency exchange rate movements experienced over the year.
DigiFab� contributed sales of £2.7m down from £3.8m in the prior year. Nycomed continued to recordincreased sales of DigiFab�, however Nycomed reduced its orders from Protherics to better align itsinventory holdings with sales levels. Nycomed worked through much of its inventory and, as a result of thestrong sales being recorded over 05/06, increased its orders for delivery in 07/08. In addition to the reducedshipments, the adverse exchange rate movements experienced over 2005/06 also contributed to thereduced sales in 06/07.
Voraxaze� revenues increased to £1.4m (05/06: £0.8m). Voraxaze� was only available on a named patientbasis in Europe, with the increase attributed to a continuing rise in product awareness within the medicalcommunity. ViperaTAb� sales grew to £0.3m (05/06: £0.1m) following release of new product at the startof the European bite season.
Royalty income from Enfer Scientific relating to BSE testing suffered from increased competition andpricing pressures which have continued since 03/04, and was down from £0.5m in 05/06 to £0.3m in 06/07.Other revenues reduced from £0.3m in 05/06 to £0.1m in 06/07 as revenues for fiscal 05/06 reflected therecognition of one-off £0.3m milestone on technology outlicensed many years earlier by a companysubsequently acquired by Protherics.
Cost of sales remained static at £11.3m in 06/07, although 05/06 had included exceptional costs of £1.4marising during the closedown of Protherics’ main manufacturing facility during a major upgrade andexpansion. Excluding these exceptional items, the cost of goods increased by £1.4m or 14 per cent., causedprimarily by increased shipments of CroFab� marginally offset by the reduction in shipments of the lowercost DigiFab� product.
Financial Year 2005/2006
Total revenues for the year 05/06 decreased by 6 per cent. to £17.7m (04/05: £18.8m). Protherics’ revenueswere predominantly denominated in US dollars and therefore suffered from the relative weakness of theUS dollar against sterling. When compared to 04/05, it is evident this has had an unfavourable impact onthe revenue generated by the two main products, CroFab� and DigiFab�.
CroFab� contributed sales of £11.5m, up fractionally from the £11.4m recorded in the previous year. Theeffect of adverse exchange rates outweighing the increased US dollar revenues which arose followingincreased shipments and significantly higher levels of sales by Protherics’ distributor, Nycomed, therebyincreasing the royalties from this product.
DigiFab� contributed reduced sales of £3.8m (04/05: £5.9m) although 04/05 had included a high level ofshipments to Nycomed as they increased their inventory levels. Shipments to Nycomed during 05/06 weresignificantly lower which, along with the weakness of the US dollar, led to reduced sterling revenues.
Voraxaze� revenues increased to £0.8m (04/05: £0.5m); the increase being attributed to an increase inproduct awareness within the medical community. ViperaTab� sales reduced to £0.1m (04/05: £0.2m)primarily as a result of customers reducing their inventory levels.
Royalty income from Enfer Scientific relating to BSE testing suffered increased competition and pricingpressures during fiscal 05/06 when compared to the previous two years. This resulted in a reduction inrevenue from £0.7m in 04/05 to £0.5m in 05/06.
The CytoFab� outlicensing agreement with AstraZeneca was announced in December 2005 and becameeffective after the Hart-Scott-Rodino waiting period expired in January 2006, and, as a result, Prothericsrecognised £0.7m of the initial £16.3m received on entering the arrangement in 05/06, the balance of thesemonies being deferred over the period of delivery under the contract. Other revenues amounted to £0.3m(04/05: £0.1m).
Despite the reduction in revenues, cost of sales increased 30 per cent. to £11.3m in 05/06 from £8.7m in04/05 owing to several factors. Protherics completed a significant site upgrade and expansion at its Welshmanufacturing facility and £1.4m of overhead expenditure was incurred during this period, which, under
58
normal circumstances, would have been absorbed into inventory manufactured during the year. There wasalso a change in the ratio of products shipped, with a higher proportion of CroFab� and a lower proportionof DigiFab�, a significantly higher margin product, than in the previous year. In addition, two batches ofCroFab� were lost due to contamination at Protherics’ third party freeze-drying contractors.
Administrative expenses, operating loss and net loss
Financial year 2007/2008
Total research and development expenses increased, as planned, from £14m in prior year to £19.1m in07/08 as Protherics increased investment in its development pipeline and saw the full year impact of thedevelopment activities arising from Protherics’ acquisitions of Oncogel� and the inlicensing of Acadra�and Digoxin Immune Fab for pre-eclampsia in January 2007. No research and development expenditureswere capitalised in either 06/07 or 07/08.
Administration expenses increased from £10.2m in the prior year to £13.7m in 07/08, this increase being aconsequence of the full year impact of acquisition of MacroMed, Inc. in January 2007 as well as losses onforeign exchange positions and increased costs associated with employee share options.
As a consequence of the increased investment in the product pipeline and the prior year revenue includinga CytoFab� milestone payment of £10m which was not repeated in 07/08, Protherics recorded an operatingloss of £19.2m compared to a loss of £4.4m in 06/07.
Interest income for 07/08 increased by £1.2m to £2.4m as a result of increased cash and short-terminvestments. The main factor was the £36.1m proceeds (net of expenses) of the placing and open offerundertaken in January 2007, thereby leading to higher average cash balances in the year. Interest expensefor 07/08 remained steady at £0.4m.
The tax credit recognised in 07/08, amounting to £0.5m, mainly represented the anticipated receivablefrom the surrender of tax losses following incurrence of qualifying UK research and developmentexpenditure from prior years and a deferred tax credit arising from the recognition of increased tax lossesat Protherics’ Australian operation. This was offset by the full provision against tax prepayments made inthe U.S., as a result of increased research activities offsetting profits generated from product sales leadingto a reassessment of probability of recovery in the forthcoming fiscal year.
Protherics’ net loss for 07/08 was £16.7m compared to a loss of £3.4m for 06/07. Loss per share, based onan average of 339.5m shares in issue (06/07: 285.4m) was 4.9p (06/07: 1.2p).
Financial year 2006/2007
Total research and development expenses increased from £6.7m in 05/06 to £14.0m in 06/07. The mostsignificant factor in this rise was Protherics’ development expenditure on CytoFab� following the licensingagreement with AstraZeneca towards the end of the previous year. In addition, Protherics undertookfurther work on Voraxaze� in support of its marketing authorisation applications. Finally, the fourthquarter of 06/07 began to reflect the effects of increased spending from the acquisition of MacroMed, Inc.in January 2007 and the two other products (Acadra� and Digoxin immune fab for pre-eclampsia)in-licensed at the same time. No research and development expenditures were capitalised in either 05/06or 06/07.
Administration expenses increased by £1m from £9.2m in 05/06 to £10.2m in 06/07. This increase was aconsequence of the increasing size of the business since the CytoFab� agreement with AstraZeneca in thefinal quarter of 05/06 and the acquisition of MacroMed, Inc. in January 2007. This increased expenditurewas offset by gains on foreign currency positions and reduced costs associated with employeeshare options.
As a consequence of the above, in particular the recognition of CytoFab� revenues, Protherics recorded anoperating loss of £4.4m in 06/07, compared to a loss of £9.5m in the prior year.
Interest income in 06/07 increased by £0.8m to £1.2m as a consequence of increased cash and short-terminvestments. The main factor in the increased funds was the January 2006 receipt from AstraZeneca of£23.8 million relating to the CytoFab� project. In addition, proceeds of the £36.1m (net of expenses)placing and open offer undertaken in January 2007 also increased interest income in the final quarterof 06/07.
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Interest expense for 06/07 remained stable at £0.4m as a result of lower levels of interest paid on the 6 percent. unsecured convertible loan notes issued as the main part of the consideration for the Enactacquisition in June 2003. This was offset by increased charges on finance leases entered into as Prothericsexpanded its manufacturing capability as required under the CytoFab� agreement with AstraZeneca.
The tax credit recognised in 06/07 mainly represented the anticipated receivable from the surrender of taxlosses following incurrence of qualifying UK research and development expenditure. This amounted to£0.4m offset by a £0.1m deferred tax charge arising from the utilisation of tax losses at Protherics’Australian operation.
Protherics’ net loss for 06/07 was £3.4m compared to a loss of £9.5m for 05/06. Loss per share, based on anaverage of 285.4m shares in issue (05/06: 246.9m), was 1.2p (05/06: 3.8p).
Financial year 2005/2006
Total research and development expenses increased by £2.1m from £4.6m in 04/05 to £6.7m in 05/06. Themost significant factors in this rise were the continuing high levels of research and development beingperformed on Voraxaze� in preparation for the regulatory submission to the FDA and the submissionmade to the European Medicines Agency during the year. Also the investment in CytoFab�, which led tothe licensing agreement with AstraZeneca and the commencement of development under that agreement,contributed to this rise.
Administration expenses increased by £2.0m from £7.2m in 04/05 to £9.2m in 05/06. This increase is aconsequence of several factors. Firstly, the build-up of Protherics’ sales and marketing capability andVoraxaze� pre sales launch planning; secondly, the increased charges for share-based payments underIFRS 2 and the change in treatment of foreign exchange contracts and other derivative hedginginstruments under IAS 39.
As a result of the above factors, Protherics recorded an operating loss of £9.6m compared to a loss of£1.7m in 04/05.
Interest income increased to £0.4m as a result of increased cash and short term investments, particularlyfollowing receipt of the funds from AstraZeneca relating to the CytoFab� project.
Interest expense for fiscal year 2006 reduced to £0.4m, primarily the result of lower levels of interest paidon the 6 per cent. unsecured convertible loan notes issued as the main part of the consideration for theEnact acquisition in June 2003 following a significant level of conversions in the final quarter 04/05.
The tax credit recognised mainly represents the anticipated receivable from the surrender of tax lossesfollowing incurrence of qualifying UK research and development expenditure, amounting to £0.3m, asimilar level to the previous year, although this is largely offset by the release in the current year of adeferred tax asset in respect of Protherics’ U.S. operations.
Protherics’ net loss for the year was £9.5m compared to a loss of £1.8m for 04/05. Loss per share, based onan average of 246.9m shares in issue (04/05: 224.1m) was 3.8p (04/05: 0.8p).
Position at year end
Total equity at 31 March 2008 amounted to £61.6m, a reduction of £14.9m, largely reflecting the net lossfor the year. Total equity at 31 March 2007 was £76.5m, an increase of £50.1m in the year primarily as aresult of the acquisitions of MacroMed, Inc and two other products along with an associated fundraising,marginally offset by the net loss for the year. Total equity at 31 March 2006 amounted to £26.4m, a £0.4mincrease in the year arising from the equity issued to AstraZeneca as part of the CytoFab� project and theloan note conversions offset by the net loss recorded during the year.
Non-current assets
Financial year 2007/2008
Non-current assets increased to £42.2m at 31 March 2008 from £40.6m at 31 March 2007 due to continuedinvestment in property, plant and equipment which increased from £10m to £11.9m. Intangible assets andgoodwill, relating predominantly to Protherics’ research and development pipeline remained relativelyconstant at £19.1m and £10.9m respectively (06/07: £19.7m and £10.9m respectively). Protherics’ policy isnot to amortise intangible assets whilst in development but such assets are subject to annual impairmentreview.
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Financial year 2006/2007
Non-current assets increased by £22.0m from £18.6m at 31 March 2006 to £40.6m at 31 March 2007. Themajor component of this rise, £18.6m in intangible assets and £1.7m in goodwill, occurred predominantlyfrom the acquisition of MacroMed Inc and its lead product, Oncogel�, along with the two further productacquisitions made at the same time. Property, plant and equipment increased by £1.9m in the year to £10mat 31 March 2007 as Protherics continued to invest in the CytoFab� programme outlicensed toAstraZeneca in the previous year.
Financial year 2005/2006
Non-current assets increased by £0.9m from £17.7m to 18.6m. The key component of this movement wasthe net £1.1m increase in property, plant and equipment as Protherics started to invest in themanufacturing plant and equipment required to honour the development obligations of the CytoFab�programme outlicensed to AstraZeneca towards the end of the year ended 31 March 2006.
Current assets, current and non-current liabilities
Financial year 2007/2008
Trade and other receivables reduced to £4m at 31 March 2008 (31 March 2007 £15.1m). The primary causeof this movement represents the receipt of a £10m milestone from AstraZeneca relating to the CytoFab�programme that was recognised in the results in the prior year. Current liabilities rose from £15.4m at31 March 2007 to £20.8m at 31 March 2008, reflecting the increased down-payments received fromNycomed for the product to be shipped in the forthcoming year. Also, the growth in trade payables andaccruals in line with the increased activity of Protherics, particularly the increased levels of research anddevelopment associated with the enlarged research and development pipeline, contributed to this.
Non-current liabilities reduced from £15.4m at 31 March 2007 to £12.5m at 31 March 2008 as a result ofthe release of deferred income associated with the initial £16.3m receipt from AstraZeneca from theCytoFab� outlicense and a £0.7m reduction in debt levels.
Financial year 2006/2007
Trade and other receivables increased from £4.5m to £15.1m primarily as a consequence of earning a £10mmilestone from AstraZeneca in March 2007. This related to CytoFab� development work undertaken,which, whilst recognised as income in the financial statements for the year ended 31 March 2007, was notreceived until April 2007. Current liabilities reduced from £16.8m at 31 March 2006 to £15.4m at31 March 2007 due to reduction in expenditure at the end of the 06/07 year compared to the same periodin the previous year, resulting in a decrease in working capital. In addition, the majority of Protherics’deferred income is denominated in US dollars and hence, with the weakening of the US dollar during theyear, the sterling equivalent also reduces.
Non-current liabilities reduced from £17m to £15.4m due to a combination of the release of deferredincome associated with the initial £16.3m receipt from AstraZeneca from the CytoFab� outlicense. Thiswas offset by an increase in finance lease liabilities reflecting the investment made in the year to acquireplant associated with the CytoFab� programme.
Financial year 2005/2006
Inventory reduced from £12.8m at 31 March 2005 to £10.9m at 31 March 2006, a reduction of £1.9mmarginally offset by an increase in trade and other receivables of £1.2m, as Protherics increased its productshipments during the year. Current liabilities increased from £9.5m at 31 March 2005 to £16.8m at31 March 2006 due to a rise in development and overhead expenditure towards the end of the yearassociated with the CytoFab� outlicense to AstraZeneca along with the increase in deferred income fromthe initial £16.3m received upon the signing of the agreement with AstraZeneca which will be recognised inthe income statement during the period of development.
Non-current liabilities as at 31 March 2006 increased by £11.1m to £17m (31 March 2005 £5.9m), themajority of which reflects the non-current element of the AstraZeneca payment, being marginally offset bythe reduction in convertible loan notes following increased levels of conversions.
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Cash
Financial year 2007/2008
Cash and cash equivalents reduced by £2.3m from £40m at 31 March 2007 to £37.7m at 31 March 2008.Whilst in the year 07/08 an operating loss of £19.2m was recorded, net cash outflow from operatingactivities was just £0.1m. This differential was due mainly to the receipt of the £10.0m milestone fromAstraZeneca which has been recognised as income in the prior years, £4.1m of non-cash expenditure andan increase in trade payables and accruals reflecting the increased activity, most notably research anddevelopment expenditure. Thus the cash outflow in the period reflects mainly investments in plantand equipment, repayment of debt and net interest income.
Financial year 2006/2007
Cash and cash equivalents were £40m at 31 March 2007, up from £25.4m at 31 March 2006. The operatingloss for the year ended 31 March 2007 amounted to £4.4m. This, along with the recording of the £10mmilestone from AstraZeneca in March 2007, was not received until April 2007, and the reduction inpayables due to the recognition of a portion of the upfront £16.3m, resulted in a net cash outflow fromoperating activities of £15.8m in the year. In addition, Protherics invested £4.1m of cash into thein-licensing of intellectual property in order to expand the research and development pipeline. However,both of these were more than offset by the £36.1m raised from the issue of shares, primarily as part of thefundraising undertaken at the time of the MacroMed acquisition and the investment in intellectualproperty to expand the pipeline.
Financial year 2005/2006
Cash and cash equivalents amounted to £25.4m at 31 March 2006 (31 March 2005: £7.3m). This increase of£18.1m primarily reflects the £16.3m payment received from AstraZeneca in relation to the CytoFabout-license, £8m received from the issue of shares, £7.5m of which was from AstraZeneca, and an increasein trade payables as Protherics commenced the expenditure required under the AstraZeneca agreementoffset by the £9.5m loss recorded for the year.
62
PART 6
HISTORICAL FINANCIAL INFORMATION ON BTG FOR THE YEARS ENDED31 MARCH 2008, 31 MARCH 2007 AND 31 MARCH 2006
This document incorporates by reference certain sections of the annual report and accounts of BTG forthe three financial periods ended 31 March 2006, 31 March 2007 and 31 March 2008 respectively. Theseaccounts and reports have respectively been filed with the FSA and are available, free of charge, from theCompany and on the Company’s website at www.btgplc.com. These sections are:
(a) The auditors’ report relating to the consolidated statements of BTG for the year to 31 March 2006(the 2006 Financial Statements) is on page 39 of the 2006 annual report and accounts of BTG(the 2006 Annual Report). The consolidated profit and loss account in the 2006 Financial Statementsis on page 40 of the 2006 Annual Report. The consolidated balance sheet in the 2006 FinancialStatements is on page 41 of the 2006 Annual Report. The consolidated cash flow statement in the2006 Financial Statements is on page 42 of the 2006 Annual Report. The accounting policies relevantto the 2006 Financial Statements are on pages 44 to 49 of the 2006 Annual Report. The notes to the2006 Financial Statements are on pages 44 to 74 of the 2006 Annual Report. The reconciliation ofmovements in shareholders’ funds in the 2006 Financial Statements is on page 59 of the 2006Annual Report.
(b) The auditors’ report relating to the consolidated statements of BTG for the year to 31 March 2007(the 2007 Financial Statements) is on pages 44 and 45 of the 2007 annual report and accounts of BTG(the 2007 Annual Report). The consolidated income statement in the 2007 Financial Statements is onpage 46 of the 2007 Annual Report. The consolidated balance sheet in the 2007 Financial Statementsis on page 47 of the 2007 Annual Report. The consolidated cash flow statement in the 2007 FinancialStatements is on page 48 of the 2007 Annual Report. The accounting policies relevant to the 2007Financial Statements are on pages 50 to 54 of the 2007 Annual Report. The critical accountingestimates and judgements relevant to the 2007 Financial Statements are on page 78 of the 2007Annual Report. The notes to the 2007 Financial Statements are on pages 50 to 79 of the 2007 AnnualReport. The reconciliation of movements in shareholders’ funds in the 2007 Financial Statements ison page 65 of the 2007 Annual Report.
(c) The audit report relating to the consolidated statements of BTG for the year to 31 March 2008(the 2008 Financial Statements) is on page 46 of the 2008 annual report and accounts of BTG(the 2008 Annual Report). The consolidated income statement in the 2008 Financial Statements is onpage 48 of the 2008 Annual Report. The consolidated balance sheet in the 2008 Financial Statementsis on page 49 of the 2008 Annual Report. The consolidated cash flow statement in the 2008 FinancialStatements is on page 50 of the 2008 Annual Report. The accounting policies relevant to the 2008Financial Statements are on pages 52 to 57 of the 2008 Annual Report. The critical accountingestimates and judgements relevant to the 2008 Financial Statements are on page 83 of the 2008Annual Report. The notes to the 2008 Financial Statements are on pages 52 to 83 of the 2008 AnnualReport. The reconciliation of movements in shareholders’ funds in the 2008 Financial Statements ison page 68 of the 2008 Annual Report.
The 2006 Financial Statements, the 2007 Financial Statements and the 2008 Financial Statements wereprepared in accordance with IFRS. There are no material differences between the accounting policies ofBTG and Protherics.
63
PART 7
HISTORICAL FINANCIAL INFORMATION ON PROTHERICS FOR THE YEARS ENDED31 MARCH 2008, 31 MARCH 2007 AND 31 MARCH 2006
Nature of financial information
The financial information relating to Protherics contained in this Part 7 does not constitute statutoryaccounts for the purposes of section 240 of the Companies Act. The following financial information for thethree years ended 31 March 2008, 31 March 2007 and 31 March 2006 has been extracted without materialadjustments from the audited financial statements of Protherics for those years.
The statutory accounts of Protherics for the three years ended 31 March 2008, 31 March 2007 and31 March 2006 have been delivered to the Registrar of Companies. Audit reports have been issued for eachof the three years ended 31 March 2008, 31 March 2007 and 31 March 2006 under section 235 of theCompanies Act which did not contain a statement under section 237 (2) and (3) of the Companies Act.
Report of the Independent Auditors of Protherics
The audit reports for the three years ended 31 March 2008 have been incorporated by reference frompage 54 of the Protherics 2008 financial statements, page 42 of the Protherics 2007 financial statementsand page 49 of the Protherics 2006 financial statements. The audit report for the year ended31 March 2008 was signed on 2 June 2008 (year ended 31 March 2007–4 June 2007; year ended31 March 2006–7 June 2006). An equivalent audit opinion was provided by KPMG Audit plc on Protherics’financial statements for the year ended 31 March 2007 and by PricewaterhouseCoopers LLP on Protherics’financial statements for the year ended 31 March 2006. KPMG Audit plc have not carried out any furtheraudit work necessary to confirm that no adjustments are required to the financial information for the threeyears ended 31 March 2008 subsequent to the dates the audit reports were signed.
The financial statements for Protherics for the year ended 31 March 2008 on which KPMG Audit plcreported were approved by the directors of Protherics on 2 June 2008. The financial statements for theyear ended 31 March 2007 were approved by the directors of Protherics on 4 June 2007. The financialstatements for the year ended 31 March 2006 were approved by the directors of Protherics on 7 June 2006.
64
Section 1—Protherics’ historical financial information for the year ended 31 March 2008 prepared inaccordance with IFRS
INCOME STATEMENTS
for the year ended 31 March 2008
ProthericsGroup Protherics
Notes 2008 2007 2008 2007
£’000 £’000 £’000 £’000Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 26,067 31,119 2,431 1,576Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,463) (11,334) — —
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,604 19,785 2,431 1,576
Administrative expensesResearch and development . . . . . . . . . . . . . . . . . . . . . (19,138) (13,978) (9) (33)General and administrative . . . . . . . . . . . . . . . . . . . . . (13,684) (10,161) (6,426) (4,297)
Total administrative expenses . . . . . . . . . . . . . . . . . . . . . (32,822) (24,139) (6,435) (4,330)
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 (19,218) (4,354) (4,004) (2,754)
Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2,382 1,155 3,355 783Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 (415) (417) (167) (182)
Loss before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,251) (3,616) (816) (2,153)Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 509 259 — —
Loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 (16,742) (3,357) (816) (2,153)
Pence Pence
Basic and diluted loss per share . . . . . . . . . . . . . . . . . . . 11 (4.9) (1.2)
The results relate to continuing operations.
STATEMENTS OF RECOGNISED INCOME & EXPENSE
for the year ended 31 March 2008
ProthericsGroup Protherics
2008 2007 2008 2007
£’000 £’000 £’000 £’000Exchange differences on translation of foreign operations . . . . . . . . 236 749 — —
Net income recognised directly in equity . . . . . . . . . . . . . . . . . . . . 236 749 — —
Loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,742) (3,357) (816) (2,153)
Total recognised loss since last financial statements . . . . . . . . . . . . (16,506) (2,608) (816) (2,153)
All recognised income and expense is attributable to equity shareholders.
The notes on pages 68 to 117 form part of these financial statements.
65
BALANCE SHEETS
at 31 March 2008
ProthericsGroup Protherics
Notes 2008 2007 2008 2007
£’000 £’000 £’000 £’000Non-current assetsGoodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 10,865 10,878 — —Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 19,119 19,652 — —Property, plant and equipment . . . . . . . . . . . . . . . . . 14 11,884 9,987 722 412Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . 15 — — 62,387 62,387Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . 10 345 99 — —
42,213 40,616 63,109 62,799
Current assetsInventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 10,205 10,707 — —Derivative instruments . . . . . . . . . . . . . . . . . . . . . . . 23 — 114 — 114Tax receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . 763 773 — —Trade and other receivables . . . . . . . . . . . . . . . . . . . 17 3,975 15,066 40,110 39,647Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . 18 37,660 39,989 36,653 38,822
52,603 66,649 76,763 78,583
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,816 107,265 139,872 141,382
Current liabilitiesTrade and other payables . . . . . . . . . . . . . . . . . . . . . 19 19,210 14,037 6,801 9,069Current tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . 370 273 — —Obligations under finance leases . . . . . . . . . . . . . . . 22 966 1,048 26 24Bank overdrafts and loans . . . . . . . . . . . . . . . . . . . . 20 54 46 — —Derivative instruments . . . . . . . . . . . . . . . . . . . . . . . 23 170 — 170 —
20,770 15,404 6,997 9,093
Non-current liabilitiesTrade and other payables . . . . . . . . . . . . . . . . . . . . . 19 8,670 10,844 — —Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 141 157 — —Convertible loan notes . . . . . . . . . . . . . . . . . . . . . . 21 1,971 2,100 1,971 2,100Obligations under finance leases . . . . . . . . . . . . . . . 22 1,712 2,289 5 31
12,494 15,390 1,976 2,131
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,264 30,794 8,973 11,224
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,552 76,471 130,899 130,158
Shareholders’ equityShare capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 6,806 6,783 6,806 6,783Share premium account . . . . . . . . . . . . . . . . . . . . . . 25 136,292 135,951 136,292 135,951Shares to be issued . . . . . . . . . . . . . . . . . . . . . . . . . 26 1,289 1,289 1,289 1,289Merger reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 51,163 51,163 — —Equity reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 203 220 203 220Cumulative translation reserve . . . . . . . . . . . . . . . . . 26 794 558 — —Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 26 (134,995) (119,493) (13,691) (14,085)
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,552 76,471 130,899 130,158
The financial statements were approved by the board of directors of Protherics and authorised for issueon 2 June 2008. They were signed on its behalf by:
R SoderstromDirector
The notes on pages 68 to 117 form part of these financial statements.
66
CASH FLOW STATEMENTS
for the year ended 31 March 2008
ProthericsGroup Protherics
Notes 2008 2007 2008 2007
£’000 £’000 £’000 £’000Cash flows from operating activities
Cash outflow from operations . . . . . . . . . . . . . . . . . . . . . 32 (126) (16,051) (3,897) (6,324)Income tax received . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282 293 — —
Net cash inflow/(outflow) from operating activities . . . . . . 156 (15,758) (3,897) (6,324)
Investing activitiesInterest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,382 1,155 2,283 783Proceeds on disposal of property, plant and equipment . . . 2 2 — —Purchases of property, plant and equipment . . . . . . . . . . . (3,471) (1,242) (451) (147)Purchases of other intangible non-current assets . . . . . . . . — (4,092) — —Acquisition of subsidiary, net of cash acquired . . . . . . . . . — (374) — —Capital grants received . . . . . . . . . . . . . . . . . . . . . . . . . . 9 — — —
Net cash (used in)/from investing activities . . . . . . . . . . . (1,078) (4,551) 1,832 636
Financing activitiesInterest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (160) (170) (129) (144)Interest paid on finance leases . . . . . . . . . . . . . . . . . . . . . (238) (213) (4) (4)Repayment of borrowings . . . . . . . . . . . . . . . . . . . . . . . . (55) (36) — —Repayment of finance leases . . . . . . . . . . . . . . . . . . . . . . (1,063) (837) (24) (20)Proceeds from issue of loan note . . . . . . . . . . . . . . . . . . . — 30 — —Proceeds from issue of shares . . . . . . . . . . . . . . . . . . . . . 53 36,162 53 36,161
Net cash (outflow)/inflow from financing activities . . . . . . (1,463) 34,936 (104) 35,993
Net (decrease)/increase in cash and cash equivalents . . . . (2,385) 14,627 (2,169) 30,305Cash and cash equivalents at the beginning of year . . . . . . 39,989 25,438 38,822 8,517Effect of foreign exchange rate changes . . . . . . . . . . . . . . 12 (76) — —
Cash and cash equivalents at the end of year . . . . . . . . . . 18 37,616 39,989 36,653 38,822
The notes on pages 68 to 117 form part of these financial statements.
67
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS
1 General Information
Protherics PLC is a company incorporated in the United Kingdom under the Companies Act 1985. Thenature of the Protherics Group’s operations and its principal activities are set out in note 5.
These financial statements are presented in Sterling because that is the currency of the primary economicenvironment in which the Protherics Group operates. Foreign operations are included in accordance withthe policies set out in note 2.
Standards effective in the current period
In the current year, the Protherics Group has adopted IFRS 7, Financial Instruments: Disclosures, which iseffective for annual reporting periods beginning on or after 1 January 2007, and consequentialamendments to IAS 1, Presentation of Financial Statements. The impact of the adoption of IFRS 7 and thechanges to IAS 1 has been to expand the disclosures provided in these financial statements regarding theProtherics Group’s financial instruments and management of capital (see note 28). As a disclosure basedstandard there have been no changes in either accounting policy or the primary financial statements.
The following standards and interpretations had no material impact on the Protherics Group’s results,assets or liabilities or were not relevant:
� IFRS 2 (Amendment), Share-Based Payment—Vesting Conditions and Cancellations;
� IFRS 4, Insurance Contracts;
� IAS 1, Amendment on Capital Disclosures;
� IFRIC 7, Applying the Restatement Approach under IAS 29, Financial Reporting inHyperinflationary Economies;
� IFRIC 8, Scope of IFRS 2, Share-Based Payment;
� IFRIC 9, Reassessment of Embedded Derivatives; and
� IFRIC 11, IFRS 2—Protherics Group and Treasury Share Transactions.
Standards in issue not yet adopted
At the date of authorisation of these financial statements the following standards and interpretations werein issue but not yet effective:
� IFRS 8, Operating Segments;
� Amendment to IAS 1, Presentation of Financial Statements;
� Amendment to IAS 23, Borrowing Costs;
� IFRIC 13, Customer Loyalty Programmes; and
� IFRIC 14, IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements andTheir Interaction.
IFRS 8 was endorsed by the EU during 2007 and the Directors anticipate that the adoption of thisstandard may result in additional segment disclosures when it comes into effect for periods commencing onor after 1 January 2009.
All other standards referred to above are yet to be endorsed by the EU and the Directors do not anticipatethat the adoption of these standards will have a significant impact on the Financial Statements of theProtherics Group when they come into effect for periods commencing on or after 1 January 2009.
None of the interpretations have been endorsed by the EU and none are expected to have a significantimpact on adoption.
68
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
2 Accounting Policies
The principal accounting policies adopted in the preparation of these financial statements are set outbelow. These policies have been consistently applied to all years presented unless otherwise stated.
Basis of accounting
Both the parent company and the Protherics Group financial statements have been prepared in accordancewith International Financial and Reporting Standards (IFRS) as adopted by the European Union.
The financial information presented in this Section 1 has been prepared based on IFRS as adopted by theEuropean Union, including International Accounting Standards (IAS) and Interpretations issued by theInternational Accounting Standards Board (IASB) and the International Financial ReportingInterpretations Committee (IFRIC) of the IASB that are relevant to its operation and effective foraccounting periods beginning on 1 April 2007.
The Protherics Group and Protherics financial statements also comply fully with International FinancialReporting Standards as issued by the International Accounting Standards Board.
The financial statements have been prepared under the historical cost convention as modified by therevaluation of certain financial assets and liabilities. A summary of the more important policies are setout below.
The preparation of financial statements in conformity with generally accepted accounting principlesrequires the use of estimates and assumptions that affect the reported amounts of assets and liabilities atthe date of the financial statements and the reported amounts of revenues and expenses during thereporting period. Although these estimates are based on management’s best knowledge of the amount,events or actions, actual results ultimately may differ from those estimates.
Basis of consolidation
The consolidated financial statements of Protherics PLC incorporate the financial statements of Prothericsand all entities over which it can exercise control (its ‘‘subsidiaries’’). Control is achieved by the power togovern the financial and operating policies of the subsidiary so as to obtain benefits from it’s activities, andgenerally accompanies a shareholding of more than one half of the voting rights. The existence and effectof potential voting rights that are currently exercisable or convertible are considered when assessingwhether the Protherics Group controls another entity. Subsidiaries are fully consolidated from the date onwhich control is transferred to the Protherics Group. They are de-consolidated from the date on whichcontrol ceases.
The purchase method is used to account for the acquisition of subsidiaries by the Protherics Group. Thecost of an acquisition is measured as the fair value of the assets given, equity instruments issued andliabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.Identifiable assets acquired and liabilities and contingent liabilities assumed are measured initially at theirfair values on the date of acquisition, irrespective of the extent of any minority interest. The excess of thecost of acquisition over the fair value of the Protherics Group’s share of identifiable net assets, includingintangible assets acquired, is recorded as goodwill. If the cost of acquisition is less than the fair value of theProtherics Group’s share of net assets of the subsidiary acquired, the difference is recognised directly inthe income statement.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring accountingpolicies used into line with those used by the Protherics Group.
On consolidation, all intra-group transactions, balances, income and expenditure are eliminated.
Segment reporting
A business segment is a group of assets, liabilities and operations engaged in providing products or servicesthat are subject to risks and returns that are different from those of other parts of the business. Ageographical business segment is engaged in providing products or services within a particular economic
69
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
2 Accounting Policies (Continued)
environment that is subject to risks and returns that are different from those of segments operating inother economic environments.
Foreign currency translation
Items included in the financial statements of each of the Protherics Group’s entities are measured usingthe functional currency of the primary economic environment in which the entity operates (the ‘‘functionalcurrency’’). The consolidated financial statements are presented in Sterling, which is Protherics’ functionaland presentational currency.
Transactions in foreign currencies are recorded at the rate of exchange ruling at the date of transaction.Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translatedat the rates of exchange prevailing at that date. Gains and losses arising on translation are included in theincome statement.
On consolidation, the results of operations that have a functional currency different from thepresentational currency are translated at the average rate of exchange during the year and their balancesheets at the rates ruling at the date of the balance sheet. Exchange differences arising on translation from1 April 2004 are taken directly to a separate component of equity, the cumulative translation reserve.
Revenue recognition
Revenue represents amounts received or receivable in respect of the sale of goods and services tocustomers during the year, net of trade discounts given and value added tax, and in respect of licenceagreements and research and collaboration agreements.
A description of the various elements of revenue and the associated accounting policies is given below:
� Products
The Protherics Group recognises revenue for product sales when each condition of IAS 18,paragraph 14 is wholly-satisfied. Where sales arrangements specify a second element of revenuecontingent upon a specified event, this revenue is not recognised until this event has occurred and it iscertain that the economic benefit triggered by this event will flow to the Protherics Group. In caseswhere product is sold to a customer with a right of replacement, the Protherics Group views thetransaction as a multi-element arrangement and a portion of the value from the sale is deferred andallocated to the replacement right based on the fair value of the replacement right.
� Upfront and milestone payments
Non-refundable upfront and milestone payments are deferred and recognised as the earnings processis completed. Where the Protherics Group has performance obligations, upfront payments aredeferred over the period in which these obligations are satisfied. In determining the performanceobligations under the contract, consideration is given as to whether elements of the obligations meetthe criteria for separate accounting. The Protherics Group applies the substantive milestone methodin accounting for subsequent milestone payments. Milestone payments that are considered substantiveare recognised into income in the year in which they are received. Milestones that do not satisfy thecriteria to be considered as substantive are amortised over the remaining period in which theProtherics Group expects to fulfil its performance obligations under the agreement. The ProthericsGroup considers the following when assessing whether a milestone is considered substantive:
� Are the milestone payments non-refundable?
� Does the achievement of the milestone involve a degree of risk that was not reasonably assured atthe inception of the arrangement?
� Is substantive effort involved in achieving the milestone?
70
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
2 Accounting Policies (Continued)
� Is the amount of the milestone payment reasonable in relation to the effort expended or the riskassociated with the achievement of the milestone?
� How does the time that passes between the payments compare to the effort required to reachthe milestone?
� Outlicensed product royalties
Royalty income is generated by sales of products incorporating the Protherics Group’s proprietarytechnology. Royalty revenues are recognised once the amounts due can be reliably estimated based onthe sale of underlying products and recoverability is assured. Where there is insufficient historical dataon sales and returns to fulfil these requirements, for example in the case of a new product, the royaltyrevenue will not be recognised until the Protherics Group can reliably estimate the underlying sales.
Research and development expenditure
Research expenditure is recognised as an expense as incurred. Expenditure incurred on developmentprojects (relating to the design and testing of new or improved products) is recognised as intangible assetswhen it is probable that the project will generate future economic benefit, considering factors including itscommercial and technological feasibility, status of regulatory approval, and the ability to measure costsreliably. Other development expenditures are recognised as an expense as incurred. Developmentexpenditure previously recognised as an expense is not recognised as an asset in a subsequent period.Development expenditure that has a finite useful life and which has been capitalised is amortised from thecommencement of the commercial production of the product on a straight line basis over the period of itsexpected benefit.
No development expenditure has been capitalised in either the current or prior year.
Exceptional items
The Protherics Group defines exceptional items as those items which are not expected to occur frequentlyand by their nature or size, would distort the comparability of results from year to year.
Finance income and costs
Finance income comprises of income on funds invested and is recognised as it accrues using the effectiveinterest method.
Finance costs comprise interest expenses on borrowings and are recognised in the Income Statement usingthe effective interest method.
Intangible fixed assets—Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Protherics Group’sshare of the net identifiable assets, including intangible assets, of the acquired subsidiary at the date ofacquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is testedannually for impairment or when events or changes in circumstances indicate the carrying value may beimpaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of asubsidiary include the carrying amount of goodwill relating to the subsidiary sold.
Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previousUK GAAP amount. Goodwill arising on acquisitions in the year ended 31 March 1998 and earlier periodshas been written off to reserves, has not been reinstated in the balance sheet and is not included indetermining any subsequent profit or loss on disposal.
71
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
2 Accounting Policies (Continued)
Intangible fixed assets—Other
Purchased trademarks, licenses and customer lists are recognised at cost on acquisition and are subject toamortisation over their useful life from the point at which the asset is available for use. The amortisationcharge is calculated on a straight-line basis over their estimated useful lives (currently a maximum of10 years).
Property, plant and equipment
Land and buildings comprise mainly factories and offices. All property, plant and equipment is shown atcost less subsequent depreciation and impairment losses, except for land, which is shown at cost lessimpairment. Cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in an asset’s carrying amount only when it is probable that future economicbenefits associated with the asset will flow to the Protherics Group and the cost of the asset can bemeasured reliably.
Depreciation on assets is calculated using the straight-line method to allocate the cost of each asset less itsresidual value over its estimated useful life as follows:
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . 5% to 10% per yearPlant and machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10% to 15% per yearComputer equipment and software . . . . . . . . . . . . . . . . . . . . . . 20% to 33% per yearFixtures, fittings and motor vehicles . . . . . . . . . . . . . . . . . . . . . 20% to 25% per year
Asset residual values and useful lives are reviewed and adjusted as appropriate at each balance sheet date.
Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carryingvalue of the asset may not be recoverable. An asset’s carrying amount is written down immediately to itsrecoverable amount if the carrying amount exceeds the higher of the asset’s fair value less cost to sell andvalue in use. Any impairment charge is recorded in the income statement.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These areincluded in the income statement. Borrowing costs incurred during the construction of assets are expensedas incurred.
Investments
Investments are stated at cost less any provision for impairment.
Impairment of tangible and intangible assets
The Protherics Group reviews the carrying amounts of its tangible assets and intangible assets with finitelives when events or circumstances indicate the carrying value may be impaired, whilst goodwill with anindefinite life is reviewed for impairment on an annual basis. In performing such reviews, the recoverableamount of the asset is estimated in order to determine the extent of the impairment loss (if any). Wherethe asset does not generate cash flows that are independent from other assets, the Protherics Groupestimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangibleasset with an indefinite life is tested for impairment annually and whenever there is an indication that theasset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use,the estimated future cash flows are discounted to their present value using a pre-tax discount rate thatreflects current assessments of the time value of money and the risks specific to the asset for which theestimates of future cash flows have not been adjusted.
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2 Accounting Policies (Continued)
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carryingamount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Animpairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying value of the asset (cash-generating unit) isincreased to the revised estimate of its recoverable amount, provided that the increased carrying amountdoes not exceed the carrying amount that would have been determined had no impairment loss beenrecognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss isrecognised as income immediately.
Inventories
Inventories are valued at the lower of cost and net realisable value. Cost comprises materials, direct labourand a share of production overheads appropriate to the relevant stage of production. Provision is made forobsolete, slow-moving or defective items where appropriate. Net realisable value is determined at thebalance sheet date on commercially saleable products based on estimated selling price less all further coststo completion and all relevant marketing, selling and distribution costs.
Inventories relating to research and development projects are fully written down in the income statementunless the Protherics Group considers it probable to realise economic value from their sale or use. If thecircumstances that previously caused these inventories to be written down below cost subsequently changeand there is clear evidence of an increase in realisable value, the write down is reversed.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit asreported in the income statement because it excludes items of income and expense that are taxable ordeductible in other periods and it further excludes items that are never taxable or deductible. TheProtherics Group’s liability for current tax is calculated using tax rates that have been enacted orsubstantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amountsof assets and liabilities in the financial statements and the corresponding tax bases used in the computationof taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities arerecognised for all taxable temporary differences and deferred tax assets are recognised to the extent that itis probable that taxable profits will be available against which deductible temporary differences can beutilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill orthe initial recognition (other than a business combination) of other assets and liabilities in a transactionthat affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising from investments insubsidiaries and associates, and interests in joint ventures, except where the Protherics Group is able tocontrol the reversal of the temporary difference and it is probable that the temporary difference will notreverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and is reduced to theextent that it is no longer probable that sufficient taxable profits will be available to allow the asset tobe recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settledor the asset is realised based on tax rates that have been enacted or substantively enacted by the balancesheet date. Deferred tax is charged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
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NOTES TO THE FINANCIAL STATEMENTS (Continued)
2 Accounting Policies (Continued)
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risksand rewards of ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are initially recognised as assets of the Protherics Group at their fair valueor, if lower, at the present value of the minimum lease payments, each determined at the inception of thelease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.Lease payments are apportioned between finance charges and reduction of the lease obligation so as toachieve a constant rate of interest on the remaining balance of the liability. Finance charges are chargeddirectly against income. Such assets are depreciated over the shorter of their estimated useful lives or thelength of the lease. Assets purchased under hire purchase agreements are accounted for similarly, exceptthat these assets are depreciated over their estimated useful lives.
Rentals under operating leases are charged to income on a straight-line basis over the term of therelevant lease.
Government grants
Government grants towards staff re-training costs are recognised as income over the periods in which therelated costs are incurred and are deducted in reporting the related expense.
Government grants relating to property, plant and equipment are treated as deferred income and releasedto the income statement over the useful lives of the assets concerned.
Pensions
The Protherics Group operates a defined contribution retirement benefit scheme for all members of staffwho wish to participate. The funds of the scheme are administered by trustees and are independent of theProtherics Group’s finances. The Protherics Group’s contributions are charged in the income statement asthey fall due.
Share-based payments
The Protherics Group has applied the requirements of IFRS 2, Share-Based Payments. In accordance withthe transitional provisions, IFRS 2 has been applied to all grants of equity instruments after7 November 2002 that were unvested at 1 January 2005.
The Protherics Group grants share options to directors and employees. Equity-settled share-basedpayments are measured at fair value at the date of grant and expensed on a straight-line basis over theexpected life of the option, based on the estimate of the number of options that will eventually vest.
The share options granted have varying performance criteria required for the option to vest and these areconsidered in the method of measuring the fair value. Where it is considered appropriate, the fair value ismeasured using the Black-Scholes model. Where complex market performance criteria exist, a simulationmodel has been used, based on the same underlying methodology as the Black-Scholes model, to establishthe fair value on grant.
Financial liabilities and equity instruments issued by the Protherics Group
� Classification as debt or equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance withthe substance of the contractual arrangement.
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2 Accounting Policies (Continued)
� Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity afterdeducting all of its liabilities. Equity instruments issued by the Protherics Group are recorded at theproceeds received, net of direct issue costs.
� Compound instruments
The component parts of compound instruments issued by the Protherics Group are classifiedseparately as financial liabilities and equity in accordance with the substance of the contractualarrangement. At the date of issue, the fair value of the liability component is estimated using theprevailing market interest rate for a similar non-convertible instrument. This amount is recorded as aliability on an amortised cost basis using the effective interest method until extinguished uponconversion or at the instrument’s maturity date. The equity component is determined by deducting theamount of the liability component from the fair value of the compound instrument as a whole. This isrecognised and included in equity, net of income tax effects, and is not subsequently remeasured.
� Financial liabilities
Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.
Financial liabilities are subsequently measured at amortised cost using the effective interest method,with interest expense recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability andof allocating interest expense over the relevant period. The effective interest rate is the rate thatexactly discounts estimated future cash payments through the expected life of the financial liability, or,where appropriate, a shorter period.
� Derecognition of financial liabilities
The Protherics Group derecognises financial liabilities when, and only when, the Protherics Group’sobligations are discharged, cancelled or they expire.
� Derivative financial instruments
The Protherics Group’s activities expose it primarily to the financial risks of changes in foreigncurrency exchange rates. The Protherics Group uses foreign exchange forward contracts and optionsto hedge these exposures. These hedges do not qualify as accounting hedges in accordance withIAS 39. The Protherics Group does not use derivative financial instruments for speculative purposes.The use of financial derivatives is in accordance with the Protherics Group’s policies approved by theBoard of Directors, which is to hedge the foreign currency exposure from the expected US dollar saleson a rolling 12 month basis.
Further details of derivative financial instruments are disclosed in note 28.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into andare subsequently remeasured to their fair value at each balance sheet date. The resulting gain or lossis recognised in the income statement immediately.
A derivative is presented as a non-current asset or a non-current liability if the remaining maturity ofthe instrument is more than 12 months and it is not expected to be realised or settled within12 months. Other derivatives are presented as current assets or current liabilities.
� Embedded derivatives
Derivatives embedded in other financial instruments or other host contracts are treated as separatederivatives when their risks and characteristics are not closely related to those of the host contractsand the host contracts are not measured at fair value with changes in fair value recognised in profitor loss.
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NOTES TO THE FINANCIAL STATEMENTS (Continued)
2 Accounting Policies (Continued)
Convertible loan notes
The convertible loan notes are considered by the Protherics Group to be compound financial instrumentsand are accounted for in accordance with the policy set out above.
Issue costs are apportioned between the liability and equity components of the convertible loan notesbased on their relative carrying amounts at the date of issue. The portion relating to the equity componentis charged directly against equity.
The interest expense on the liability component consists of the coupon rate and the element of the equitycomponent proportionate to the liability component outstanding. This latter part is added to the carryingamount of the convertible loan notes.
Trade receivables
Trade receivables do not carry any interest and are stated at their face value as reduced by appropriateallowances for estimated irrecoverable amounts.
Trade payables
Trade payables are not interest bearing and are stated at their face value.
Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash equivalents includes cash in hand, deposits heldat call with banks, other short-term highly liquid investments with original maturities of three months orless, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on thebalance sheet.
Financial guarantees
Where Protherics enters into financial guarantee contracts to guarantee the indebtedness of othercompanies within the Protherics Group, Protherics considers these to be insurance arrangements, andaccounts for them as such. In this respect, Protherics treats the guarantee contract as a contingent liabilityuntil such time as it becomes probable that Protherics will be required to make a payment underthe guarantee.
Financial risk management
The Protherics Group’s multinational operations expose it to a variety of financial risks that include theeffects of changes in foreign exchange rates, credit risks and liquidity risks. The Protherics Groupundertakes procedures which aim to reduce uncertainty in the financial performance of the ProthericsGroup which are discussed below:
� Foreign exchange risk
A significant element of the Protherics Group’s revenue is denominated in US dollars whilst much ofits cost base in the provision of these products is denominated in Sterling. The Protherics Groupenters into foreign exchange contracts and similar derivatives which typically extend for up to12 months and cover 70 to 100% of anticipated Sterling requirements.
� Credit risk
A significant element of the Protherics Group’s revenue is generated from sales to one customer inthe US. Management are constantly in communication with this customer and monitor both sales toand payments from this customer to minimise the credit risk exposure.
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2 Accounting Policies (Continued)
� Liquidity risk
The Protherics Group maintains a mixture of short and medium term deposits that are designed toensure the Protherics Group has sufficient available funds for operations and planned expansions.
� Interest rate risk
The Protherics Group seeks to mitigate partially against increased interest rates whilst maintaining adegree of flexibility to benefit from decreasing rates of interest by holding a mix of fixed and floatingrate financial liabilities. The Protherics Group seeks to maximise the amount of interest income fromits cash balances by using a variety of short-term, fixed high-interest deposit and money-marketaccounts.
3 Critical Accounting Judgements and Key Sources of Estimation Uncertainty
Critical Accounting Judgements
In the process of applying the Protherics Group’s accounting policies, described in note 2, management hasmade the following judgements that have had the most significant effect on the amounts recognised in thefinancial statements.
Revenue recognition
As described in note 2, it is the Protherics Group’s policy to recognise non-refundable upfront paymentsover the period in which any performance obligations are satisfied. During the year ended 31 March 2006,the Protherics Group received £16,300,000 from AstraZeneca UK Ltd in a Patent and Know How LicenseAgreement for CytoFab. The Protherics Group considers that its obligations under the license agreementconsist of the license, provision of development services, regulatory support and steering committeeparticipation. The Protherics Group considers that the development services and the regulatory support itcan supply will cease with the approval of CytoFab by the FDA and while the steering committee continuesto operate after product approval by the FDA, the Protherics Group has received confirmation that itsparticipation after this date would become voluntary. Based on the clinical development plan to beundertaken by AstraZeneca, the Protherics Group currently estimates that its performance under theagreement will be completed over the period to 31 December 2012 and, therefore, is recognising the£16,300,000 on a straight line basis, over the estimated performance period.
During the year ended 31 March 2007, the Protherics Group earned a £10 million milestone fromAstraZeneca UK Ltd which was recognised as revenue in that year since the Protherics Group consideredthis a substantive milestone for which the earnings process had been completed. This milestone waspayable upon the decision of the Process Manufacturing and Supply Committee to progress the ProcessScience Programme to the manufacture of the first full commercial scale batch of CytoFab, the decisionreflecting AstraZeneca’s acknowledgement that the Protherics Group had successfully developed acommercially viable manufacturing process capable of providing material for clinical trial and alsosubsequent launch. The previous methods applied by the Protherics Group had used alternative processesand techniques that were not commercially viable and had such development failed, no further amountswould have been received under the agreement. The Protherics Group considered the non-refundablenature of the milestone along with risks set out above, the substantial costs and efforts incurred in itsachievement over a fourteen month period, and considered that this satisfied the criteria used todetermine whether a milestone is substantive as set out in its accounting policies.
In determining the revenue recognition period, management considered the detailed criteria for therecognition of revenue per IAS 18, Revenue, and is satisfied that all requirements have been met bythe Protherics Group.
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Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
3 Critical Accounting Judgements and Key Sources of Estimation Uncertainty (Continued)
Acquisitions
Judgements have been made in respect of the identification of intangible assets made on acquisitions in theprior year based on pre-acquisition forecasts, analysis and negotiations. In addition to the judgements andestimates made in establishing the intangible assets acquired and their value, in certain instances, theseassets are in development and are only amortised once the development phase has been completed,although these assets are subjected to impairment review in accordance with the accounting policydescribed in note 2.
Key Sources of Estimation Uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balancesheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assetsand liabilities within the next financial year, are discussed below.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generatingunits to which goodwill has been allocated. The value in use calculation requires the entity to estimate thefuture cash flows expected to arise from the cash-generating unit and a suitable discount rate in order tocalculate present value.
4 Revenue
An analysis of the Protherics Group’s revenue is as follows:
ProthericsGroup
2008 2007
£’000 £’000Sale of products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,495 18,504Revenue in respect of product development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,296 12,213Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 125
25,843 30,842Outlicensed product royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224 277
26,067 31,119Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,382 1,155
28,449 32,274
Protherics’ revenue comprises charges for the provision of services to Protherics Group companies.
5 Segmental Reporting
For management purposes, the Protherics Group is organised into two operating segments, the sale,manufacture and development of pharmaceutical products and royalties arising from outlicensedtechnology. These divisions are the basis on which the Protherics Group reports its primary segmentinformation.
The revenue and costs of each segment are clearly identifiable and allocated to each segment accordingly.There are no inter-segmental revenues.
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NOTES TO THE FINANCIAL STATEMENTS (Continued)
5 Segmental Reporting (Continued)
Business segments
2008 2007
Sale, manufacture Sale, manufactureand development Outlicensed and development Outlicensedof pharmaceutical product Protherics of pharmaceutical product Protherics
products royalties Group products royalties Group
£’000 £’000 £’000 £’000 £’000 £’000Revenue . . . . . . . . . . . . . . . 25,843 224 26,067 30,842 277 31,119
Segment result . . . . . . . . . . . (19,429) 211 (19,218) (4,621) 267 (4,354)Finance income . . . . . . . . . . 2,382 1,155Finance costs . . . . . . . . . . . . (415) (417)
Loss before tax . . . . . . . . . . . (17,251) (3,616)Tax . . . . . . . . . . . . . . . . . . . 509 259
Loss for the year attributableto equity shareholders . . . . (16,742) (3,357)
Segment assets . . . . . . . . . . . 57,005 151 57,156 67,182 94 67,276Unallocated assets . . . . . . . . 37,660 39,989
94,816 107,265Segment liabilities . . . . . . . . . (33,178) (86) (33,264) (30,727) (67) (30,794)
Other segment itemsCapital expenditure
(note 14) . . . . . . . . . . . . 3,874 — 3,874 3,278 — 3,278Depreciation (note 14) . . . . 2,076 — 2,076 1,373 — 1,373Amortisation of intangible
assets (note 13) . . . . . . . 498 — 498 135 — 135Other non-cash expenses . . — — — — — —
Geographical segments
The Protherics Group’s operations are located in the UK, North America and Australia. The UK is thehome country of the parent company, Protherics.
The following table provides an analysis of the Protherics Group’s sales by geographical market,irrespective of the origin of the goods/services, along with the carrying amount of segment assets andcapital expenditure (on both property, plant and equipment and intangible assets):
CapitalRevenue Segment assets expenditure
2008 2007 2008 2007 2008 2007
£’000 £’000 £’000 £’000 £’000 £’000United Kingdom . . . . . . . . . . . . . . . . . . . . . . . 2,536 1,905 61,549 74,551 2,146 2,396United States . . . . . . . . . . . . . . . . . . . . . . . . . . 23,137 29,190 (2,953) (493) 1,190 215Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349 — — — — —Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 24 2,956 2,413 538 667
26,067 31,119 61,552 76,471 3,874 3,278
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Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
6 Operating Loss
Operating loss has been arrived at after charging/(crediting):
ProthericsGroup Protherics
2008 2007 2008 2007
£’000 £’000 £’000 £’000Change in fair value of derivative financial instruments . . . . . . . . . . 284 (250) 284 (250)Other net foreign exchange (gains)/losses . . . . . . . . . . . . . . . . . . . . (439) (504) (22) 9Research and development expenditure . . . . . . . . . . . . . . . . . . . . . 19,138 13,978 9 33Inventories:
Cost of inventories recognised as expense . . . . . . . . . . . . . . . . . . 12,234 11,192 — —Depreciation of property, plant and equipment:
Owned assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,356 870 125 75Assets owned under finance leases . . . . . . . . . . . . . . . . . . . . . . . 720 503 16 15
Amortisation of purchased intangible fixed assets . . . . . . . . . . . . . . 498 135 — —Operating leases—rentals payable:Plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 15 3 1
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 885 529 123 81Loss on disposal of tangible fixed assets . . . . . . . . . . . . . . . . . . . . . 134 634 — —Repairs and maintenance expenditure on property, plant and
equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 745 653 — 1Amortisation of government grants . . . . . . . . . . . . . . . . . . . . . . . . (104) (111) — —Government grants towards training costs . . . . . . . . . . . . . . . . . . . . (17) (25) — —Government grants towards research and development
expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (695) — — —
The analysis of Auditors’ remuneration is as follows:2008 2007
KPMG KPMGAudit Audit PwCPlc Plc LLP Total
£’000 £’000 £’000 £’000Fees payable to Protherics’ auditors for the audit of the Protherics’annual accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 42 62 104
Fees payable to Protherics’ auditors and their associates for theaudit of Protherics’ annual consolidated accounts:The audit of Protherics’ subsidiaries pursuant to legislation . . . . . . 183 100 (2) 98Other services pursuant to legislation . . . . . . . . . . . . . . . . . . . . . . 16 42 (1) 41Tax services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 26 54 80Services relating to corporate finance transactions entered into orproposed to be entered into by or on behalf of Protherics or any ofits associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 239 — 239Other services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 10 — 10
Fees in respect of the audit of the Protherics Group’s definedcontribution pension scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 — 2 2
During the prior year, KPMG Audit Plc replaced PricewaterhouseCoopers LLP as auditors of Protherics.The above table illustrates remuneration earned during the period each party held the position of auditor.In addition to the above, PricewaterhouseCoopers LLP earned £43,000 following their resignation in theprior year from services related to corporate finance transactions.
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NOTES TO THE FINANCIAL STATEMENTS (Continued)
6 Operating Loss (Continued)
Fees payable to Protherics’ respective auditors and their associates for non-audit services provided toProtherics are not required to be disclosed because the consolidated financial statements are required todisclose such fees on a consolidated basis.
Of the fees earned by KPMG Audit Plc in relation to corporate finance transactions in the prior year,£107,000 formed part of the cost of the assets acquired and £132,000 was charged to the share premium.
7 Staff Costs
The average number of persons, including Directors, employed by the Protherics Group and Prothericsduring the year was:
ProthericsGroup Protherics
2008 2007 2008 2007Number Number Number Number
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 38 13 10Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 35 9 11Research and production . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 164 — —
300 237 22 21
Their total remuneration was:£’000 £’000 £’000 £’000
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,536 8,861 2,760 2,198Social security costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 982 749 245 185Pension costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 905 714 251 156
14,423 10,324 3,256 2,539
The Protherics Group operates a defined contribution pension scheme for the benefit of all qualifyingExecutive Directors and employees. The assets of the scheme are held separately from those of theProtherics Group in funds under the control of the trustees. Where there are employees who leave thescheme prior to the contributions fully vesting in the scheme, the contributions paid by the ProthericsGroup are refunded.
Included within salaries above are bonuses of which £416,000 (2007: £536,000) will be paid into theProtherics Group’s defined contribution pension scheme, as disclosed in the Directors RemunerationReport.
Pension contributions of £92,000 (2007: £87,000) were included in accruals at the year end for theProtherics Group. No accruals were included in the Protherics for the current and prior years.
In addition to the wages and salaries analysis above are the effects of the share-based compensation chargeto the Protherics Group during the year of £1,240,000 (2007: £703,000). The charge in respect of theProtherics, net of amounts recharged to Protherics Group companies, was £641,000 (2007: £426,000).
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NOTES TO THE FINANCIAL STATEMENTS (Continued)
7 Staff Costs (Continued)
Key management compensation
ProthericsGroup
2008 2007
£’000 £’000Aggregate emoluments:
Salaries and short-term employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,157 1,846Post employment benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322 258Compensation for loss of office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 —
2,598 2,104
In addition to the above, the charge to income in respect of share options for key management personnelwas £789,000 (2007: £491,000).
The key management figures given above include Directors.
Directors’ emoluments
ProthericsGroup
2008 2007
£’000 £’000Aggregate emoluments:Salaries and short-term employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,620 1,145Post employment benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 165Compensation for loss of office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 —
1,959 1,310
The remuneration of the Executive Directors is decided by the Remuneration Committee. Full details ofthe Directors’ remuneration and details of the Directors’ options, including gains made on the exercise ofshare options, are contained in the Directors’ Remuneration Report.
Transactions with Directors
On 4 January 2007, the Protherics Group completed the acquisition of MacroMed Inc. (subsequentlyrenamed Protherics Salt Lake City Inc.). Dr J Gonella was a Non-Executive Director and shareholder ofMacroMed Inc. In consideration for his interest in MacroMed Inc., Dr Gonella received8,245,815 Protherics PLC 2p ordinary shares, valued at £6,102,000 at the date of the transaction with afurther 916,202 2p ordinary shares, valued at £678,000 at the date of the transaction, to be issued18 months after the date of the transaction.
JG Consulting, a business owned by Dr Gonella, has charged the Protherics Group for the provision ofconsultancy services supplied by employees other than Dr Gonella, a total of $61,000 during the year(2007: $71,000).
During the prior year, the Protherics Group purchased equipment from BCS Global Networks Limited, acompany for which S M Wallis is a Director, at a cost of £28,000. No such purchases were made in 2008.BCS Global Networks Limited provided services amounting to £15,000 in the year (2007: £5,000). Inaddition, the Protherics Group also purchased services at a cost of £3,000 from LGC Promochem Limited,a subsidiary of LGC Holdings Limited, a company for which S M Wallis is Chairman (2007: £1,000).
82
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
7 Staff Costs (Continued)
The Protherics Group rents its Nashville office from C. A. Gardner, a family member of S Komisar.During the year the Protherics Group paid $140,000 in rent to C. A. Gardner (2007: $120,000).
All the transactions are considered by the Board to be at arms-length.
8 Finance Income
ProthericsGroup Protherics
2008 2007 2008 2007
£’000 £’000 £’000 £’000Bank interest and interest on deposits . . . . . . . . . . . . . . . . . . . . . . . 2,382 1,155 2,283 783Interest on loans to Protherics Group companies . . . . . . . . . . . . . . . — — 1,072 —
2,382 1,155 3,355 783
9 Finance Costs
ProthericsGroup Protherics
2008 2007 2008 2007
£’000 £’000 £’000 £’000Interest payable on finance lease and hire purchase borrowings . . . . 238 213 3 4Interest payable on bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . 11 17 — —Interest payable on 6% convertible unsecured loan notes . . . . . . . . . 127 134 127 134Amortisation of 6% convertible unsecured loan notes . . . . . . . . . . . 37 41 37 41Interest payable on notes payable to the South Australian Minister
for Primary Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1 — —Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 11 — 3
415 417 167 182
83
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
10 Tax
An analysis of credit for the year, all relating to continuing operations, is set out below:
ProthericsGroup Protherics
2008 2007 2008 2007
£’000 £’000 £’000 £’000Current taxUK corporation tax credit for the current year . . . . . . . . . . . . . . — 353 — —Adjustment in respect of prior years UK corporation tax . . . . . . . 624 7 — —
624 360 — —Foreign tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (351) 3 — —
Total current taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273 363 — —
Deferred taxationIncrease in estimate of recoverable deferred tax asset . . . . . . . . . 236 — — —Utilisation of losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (104) — —
509 259 — —
Corporation tax in the UK is calculated at 30% (2007: 30%) of the estimated assessable profit for the year.Taxes for other jurisdictions are calculated at the rates prevailing in the respective jurisdictions.
The UK tax credits arising in respect of the prior years were as a result of research and developmentexpenditure claimed under the Finance Act 2000.
The tax for the year is lower (2007: lower) than that arising from applying the standard rate of corporationtax in the UK of 30% (2007: 30%). The differences are explained below:
ProthericsGroup Protherics
2008 2007 2008 2007
£’000 £’000 £’000 £’000Loss before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,251) (3,616) (816) (2,153)
Loss on ordinary activities multiplied by rate of corporation taxin the UK of 30% (2007: 30%) . . . . . . . . . . . . . . . . . . . . . . . (5,175) (1,085) (245) (646)
Adjustments in respect of foreign tax rates . . . . . . . . . . . . . . . . . (463) 778 — —Timing differences between capital allowances and depreciation . 673 520 14 27Other timing differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 3,646 — —Other expenditure not deductible for tax purposes . . . . . . . . . . . 404 692 195 12Additional tax credit for research and development expenditure
incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (126) (449) — —Lower rate of tax on research and development credits
surrendered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 310 — —Addition to/(utilisation of) losses . . . . . . . . . . . . . . . . . . . . . . . . 4,451 (4,661) — —Tax levied on utilisation of overseas losses . . . . . . . . . . . . . . . . . 351 — — —Adjustments to tax in respect of prior years . . . . . . . . . . . . . . . . (624) (10) — —Losses surrendered to Protherics Group companies . . . . . . . . . . — — 36 607
Total taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (509) (259) — —
84
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
10 Tax (Continued)
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of30% (2007: 30%). The movement on the deferred tax account is as shown below:
ProthericsGroup Protherics
2008 2007 2008 2007
£’000 £’000 £’000 £’000Deferred tax asset recognised at 1 April . . . . . . . . . . . . . . . . . . . . . 99 206 — —Income statement credit/(debit) . . . . . . . . . . . . . . . . . . . . . . . . . . . 236 (104) — —Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 (3) — —
Deferred tax asset recognised at 31 March . . . . . . . . . . . . . . . . . . . 345 99 — —
The deferred tax asset, which relates to trading losses incurred in Australia, has been recognised in thefinancial statements following the development of the Protherics Group’s products in prior years and theDirectors are of the opinion, based on recent and forecast trading, that the level of profits in Australia inthe forthcoming years will lead to the realisation of this asset.
In addition to the losses on which the deferred tax asset has been recognised, the Protherics Group hasadditional taxable losses and other timing differences in the United Kingdom and the United States whicharose as a result of the research and development incurred during the start-up of the Protherics Group’sactivities. These losses are available for offset against future taxable profits in these territories. A deferredtax asset has not been recognised in respect of these losses and other temporary differences since theProtherics Group does not anticipate generating sufficient taxable profits to utilise these losses within theimmediate future and consequently the recoverability of the deferred tax asset is uncertain. The totalamount of deferred tax asset not recognised, measured at 28%, the rate of corporation tax in theUnited Kingdom with effect from 1 April 2008 (2007: 30%) is approximately £31 million of which£3 million related to temporary differences and £28 million was in respect of losses (2007: approximately£23 million, of which £1 million related to temporary differences and £22 million was in respect of losses).
The movements in the deferred tax asset and liabilities (prior to the offsetting of balances within the samejurisdiction as permitted by IAS 12, Income Taxes) during the year are as shown below. The deferred taxasset and liabilities are only offset where there is a legally enforceable right of offset and there is anintention to settle the balance net.
Deferred tax asset
Tax losses Total
£’000 £’000At 1 April 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 99Credited to the income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236 236Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10
At 31 March 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345 345
There were no recognised deferred tax liabilities at 31 March 2008 or 31 March 2007.
At 31 March 2008 the Protherics Group had tax losses, subject to the agreement of the TaxationAuthorities, of approximately £94 million (2007: £84 million) available for offset against future taxableprofits of the same trade. Included within these total losses, approximately £25.0 million (2007:£24.7 million) relates to the Protherics Group’s US subsidiaries, and of these, the use of £14.7 million(2007: £21.6 million) is restricted to US$1.9 million per year (2007: US$2.7 million per year).
85
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
10 Tax (Continued)
At the balance sheet date, the aggregate amount of temporary differences associated with undistributedearnings of subsidiaries for which deferred tax liabilities had not been recognised was £nil (2007: £nil). Noliability has been recognised in respect of these differences because the Protherics Group is in a position tocontrol the timing of the reversal of the temporary differences and it is probable that such differences willnot reverse in the foreseeable future.
In March 2007, proposals were announced to change the UK rate of corporation tax from 30% to 28%with effect from 1 April 2008.
11 Loss per Share
Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weightedaverage number of ordinary shares outstanding during the year. For diluted loss per share, the weightedaverage number of ordinary shares in issue would be adjusted to assume conversion of all dilutive potentialordinary shares. Protherics would have three categories of dilutive potential ordinary shares: share options,warrants and the 6% convertible unsecured loan notes.
Protherics has been loss making in both the current and prior year and as such, should Protherics be calledupon to issue shares, the effect would be anti-dilutive.
The calculation of the basic and diluted loss per share is based on the loss of £16,742,000 (2007:£3,357,000) and on 339,541,951 ordinary shares (2007: 285,365,704) being the weighted average number ofordinary shares in issue.
12 Goodwill
£’000
Protherics GroupCostAt 1 April 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,199
Additions (see note 33) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,676Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
At 1 April 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,878
Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13)
At 31 March 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,865
Accumulated impairment lossesAt 1 April 2006, 1 April 2007 and 31 March 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Carrying amount31 March 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,865
31 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,878
31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,199
The goodwill at 31 March 2007 arose on the acquisition of Enact Pharma PLC in June 2003 and theacquisition of MacroMed Inc. in January 2007, each of which is considered to be a separatecash-generating unit.
86
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
12 Goodwill (Continued)
The carrying amount of goodwill has been allocated as follows:2008 2007
£’000 £’000Enact Pharma PLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,199 9,199MacroMed Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,666 1,679
10,865 10,878
The Protherics Group tests goodwill annually for impairment or more frequently if there are indicationsthat goodwill might be impaired. At 31 March 2008 there were no accumulated impairment losses. Therecoverable amount of the cash-generating unit is determined from a value in use calculation.
The key assumptions for the value in use calculation are those regarding the launch dates of productswhich in the cases of Enact Pharma PLC and MacroMed Inc. are principally Voraxaze� and Oncogel�respectively, the expected unit sales, and expected changes to selling prices and direct costs during theyear. Changes are based on expectations of future changes in the market. A discount rate of 13.06%(2007: 14%) has been applied. The calculations are based upon the most recent cash flow forecastscovering the next 10 years in the case of Voraxaze� and 20 years in the case of Oncogel�. These forecastperiods are calculated based on the expected launch date of the products and expectations of futurechanges in the market. These forecasts have been approved by management.
Protherics had no goodwill (2007: £nil).
13 Other Intangible AssetsPatents and Othertrademarks intangibles Total
£’000 £’000 £’000Protherics GroupCostAt 1 April 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 934 615 1,549Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 18,830 18,830Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (108) (55) (163)
At 1 April 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 826 19,390 20,216Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 128 128Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10) (154) (164)
At 31 March 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 816 19,364 20,180
AmortisationAt 1 April 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489 — 489Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 28 135Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (60) — (60)
At 1 April 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 536 28 564
Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 397 498Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) 4 (1)
At 31 March 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 632 429 1,061
Carrying amount31 March 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184 18,935 19,119
31 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290 19,362 19,652
31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445 615 1,060
87
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
13 Other Intangible Assets (Continued)
Patents and trademarks are amortised over their estimated useful lives, which is on average 8 years.
Carrying RemainingValue amortisation£’000 period
Significant other intangible assets:Intangible assets arising from the acquisition of Protherics Salt LakeCity Inc. (formerly MacroMed Inc.) . . . . . . . . . . . . . . . . . . . . . . . . . 12,075 Not amortised(1)
Customer list purchased from F Hoffman La-Roche Limited . . . . . . . 179 6 months(2)
CoVaccine HT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396 9 years(3)
Advanced In Vitro Cell Technologies S.L.—asset in development . . . . 563 Not amortised(1)
Glenveigh Pharmaceuticals LLP—asset in development . . . . . . . . . . . 5,722 Not amortised(1),(4)
(1) Assets in development are not amortised until the development is complete and the asset available for use. Upon completion ofassets under development, the Protherics Group estimates that such assets will have finite useful lives.
(2) Amortisation commenced in the year over a period of 18 months, which was deemed to be the estimated useful life of thecustomer list.
(3) Constitutes a purchased intangible asset.
(4) On 22 April 2008, the Protherics Group announced that in accordance with its license agreement it would make an additional$5 million milestone payment to Glenveigh Pharmaceuticals LLP.
There are no self-generated intangibles.
Protherics had no other intangible assets (2007: £nil).
88
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
14 Property, Plant and Equipment
Furniture,Land & Plant & fixtures &buildings machinery equipment Total
£’000 £’000 £’000 £’000Protherics GroupCostAt 1 April 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,409 9,780 2,258 17,447Reclassification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 11 (11) —Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319 2,290 669 3,278Acquisition of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . 253 342 28 623Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) (1,664) (78) (1,747)Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) (2) (25) (31)
At 1 April 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,972 10,757 2,841 19,570Reclassification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14) 9 5 —Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 575 2,168 1,131 3,874Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (61) (356) (355) (772)Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . 188 245 174 607
At 31 March 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,660 12,823 3,796 23,279
DepreciationAt 1 April 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,354 4,800 1,184 9,338Reclassification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 8 (8) —Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337 666 370 1,373Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (1,042) (66) (1,111)Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . — (3) (14) (17)
At 1 April 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,688 4,429 1,466 9,583
Reclassification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) 2 1 —Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394 1,218 464 2,076Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) (328) (303) (636)Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 170 97 372
At 31 March 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,179 5,491 1,725 11,395
Carrying amount31 March 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,481 7,332 2,071 11,884
31 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,284 6,328 1,375 9,987
31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,055 4,980 1,074 8,109
2008 2007
£’000 £’000Land & buildings comprise:
Freehold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,070 1,213Short leasehold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,411 1,071
2,481 2,284
Plant & machinery includes cost of £426,000 (2007: £498,000) in respect of assets in the course ofconstruction.
89
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
14 Property, Plant and Equipment (Continued)
The net book value of plant & machinery and furniture, fixtures & equipment includes £4,205,000 (2007:£4,740,000) in respect of assets held under finance lease and hire purchase agreements. Depreciation forthe year on those assets was £720,000 (2007: £503,000).
Plant &machinery
£’000ProthericsCostAt 1 April 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222
At 1 April 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 580
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451
At 31 March 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,031
DepreciationAt 1 April 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
At 1 April 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
At 31 March 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309
Carrying amount31 March 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 722
31 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412
31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280
Plant & machinery includes cost of £12,000 (2007: £nil) in respect of assets in the course of construction.
The net book value of plant & machinery includes £51,000 (2007: £67,000) in respect of assets held underfinance lease and hire purchase agreements. Depreciation for the year on those assets was £16,000 (2007:£15,000).
90
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
15 Investments
Fixed asset investments
Long termShares loans Total
£’000 £’000 £’000ProthericsCostAt 1 April 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,929 52,676 62,605Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 — 30
At 1 April 2007 and 31 March 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,959 52,676 62,635
ProvisionAt 1 April 2006, 1 April 2007 and 31 March 2008 . . . . . . . . . . . . . . . . . (119) (129) (248)
Carrying amount31 March 2006, 31 March 2007 and 31 March 2008 . . . . . . . . . . . . . . . . 9,840 52,547 62,387
Details of subsidiary undertakings, all of which are consolidated and registered in England and Wales,unless noted, are as follows:
% ofordinary
shares held Status
Direct holdingsProtherics Medicines Development Limited . . . 100 tradingProtherics Inc. . . . . . . . . . . . . . . . . . . . . . . . . 100 trading (incorporated in Delaware USA)Proteus Biotechnology Limited . . . . . . . . . . . . 100 dormantEnact Pharma Limited . . . . . . . . . . . . . . . . . . 100 tradingGenethics Limited . . . . . . . . . . . . . . . . . . . . . 76 dormant
Indirect holdingsProtherics UK Limited . . . . . . . . . . . . . . . . . . 100 tradingProtherics Australasia Pty Limited . . . . . . . . . . 100 trading (incorporated in Australia)Protherics Utah Inc. . . . . . . . . . . . . . . . . . . . . 100 trading (incorporated in Delaware USA)Protherics Salt Lake City Inc. (formerly
MacroMed Inc.) . . . . . . . . . . . . . . . . . . . . . 100 trading (incorporated in Delaware USA)Enzacta R&D Limited . . . . . . . . . . . . . . . . . . 99.8 dormantEnzacta Limited . . . . . . . . . . . . . . . . . . . . . . 99.8 dormantKymed GB Limited . . . . . . . . . . . . . . . . . . . . 100 dormantDe Montfort Biopharma Limited . . . . . . . . . . 100 dormantTAb (Wales) Limited . . . . . . . . . . . . . . . . . . . 100 dormantTAb (London) Limited . . . . . . . . . . . . . . . . . . 100 dormantPolyclonal Antibodies Limited . . . . . . . . . . . . 100 dormantProtherics Services Pty Limited . . . . . . . . . . . . 100 dormant (incorporated in Australia)
All of the trading subsidiaries are engaged in the research, development, manufacture and sale ofpharmaceutical products and potential drugs for use in the treatment of human diseases.
91
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
16 Inventories
ProthericsGroup
2008 2007
£’000 £’000Raw materials and consumables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,919 2,540Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,964 8,049Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,322 118
10,205 10,707
Protherics had no inventories (2007: £nil).
17 Trade and Other Receivables
ProthericsGroup Protherics
2008 2007 2008 2007
£’000 £’000 £’000 £’000Amounts falling due within one year:
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,418 13,516 28 —Less: Allowance for impairment of receivables . . . . . . . . . . . . . . — — — —
Trade receivables—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,418 13,516 28 —Amounts owed by Protherics Group undertakings . . . . . . . . . . . . — — 39,836 39,389Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415 560 — 14Prepayments and accrued income . . . . . . . . . . . . . . . . . . . . . . . . 1,142 990 246 244
3,975 15,066 40,110 39,647
The average credit period taken on sale of goods is 30 days (2007: 30 days). No interest has been chargedon the trade receivables balance in the current year (2007: £nil), however the Protherics Group reservesthe right to charge interest on overdue invoices on an individual case basis where contractually entitled todo so. The Protherics Group reviews all overdue debts and provides against any debts based on estimatedirrecoverable amounts from the sale of goods, determined by reference to past default experience. Indetermining the recoverability of a trade receivable, the Protherics Group considers any change in thecredit quality of the trade receivable from the date credit was initially granted up to the reporting date. Inthe past 4 years neither the Protherics Group nor Protherics has experienced a bad debt.
Before accepting any new customer, the Protherics Group uses an external credit agency to assess thepotential customer’s credit quality and with reference to these findings and the managements judgementand experience defines each customer a credit limit. Limits attributed to customers are reviewed asnecessary based on credit history and customer requirements.
A significant proportion of the Protherics Group’s revenue is generated by the sale of its CroFab� andDigiFab� products into the US through its distribution agreement with Fougera, a division of Nycomed,which would generally make up the majority of the trade receivables. The carrying value of this and othertrade receivables has been determined by the Protherics Group’s management based on prior experienceand their assessment of the current economic environment. At 31 March 2007, trade receivables includedan amount of £10,000,000 due from AstraZeneca UK Ltd in relation to a milestone due on the CytoFab�licence agreement, an amount which was invoiced in March 2007 and paid in April 2007. The Directorsconsider that the carrying amount of trade and other receivables approximates to their fair value.
92
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
17 Trade and Other Receivables (Continued)
Included in the Protherics Group’s trade receivable balance are debtors with a carrying amount of £93,000(2007: £40,000) which are past due at the reporting date for which the Protherics Group has not providedas there has not been a significant change in credit quality and the amounts are still consideredrecoverable. The Protherics Group does not hold any collateral over these balances. The average age ofthese receivables is 134 days (2007: 167 days).
Ageing of past due but not impaired
2008 2007
£’000 £’000Protherics Group60 to 90 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 —90 to 120 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 19120 days + . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 21
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 40
Protherics has no debtors which are past due (2007: £nil).
18 Cash and Cash Equivalents
ProthericsGroup Protherics
2008 2007 2008 2007
£’000 £’000 £’000 £’000Cash at bank and in hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,439 1,216 6,432 49Short term bank deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,221 38,773 30,221 38,773
37,660 39,989 36,653 38,822Bank overdrafts (note 20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44) — — —
37,616 39,989 36,653 38,822
Cash and cash equivalents comprise current accounts held by the Protherics Group with immediate accessand short-term bank deposits with a maturity of three months or less. Market rates of interest are earnedon such deposits. The credit risk on such funds is limited because the counterparties are banks with highcredit ratings assigned by international credit rating agencies.
93
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
19 Trade and Other Payables
ProthericsGroup Protherics
2008 2007 2008 2007
£’000 £’000 £’000 £’000Current liabilities:Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,447 4,303 562 544Amounts owed to Protherics Group undertakings . . . . . . . . . . . . . . — — 4,719 7,202Other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 454 183 316 252Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,702 2,924 1,204 1,071Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,607 6,627 — —
19,210 14,037 6,801 9,069
Non-current liabilities:Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 120 — —Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,566 10,724 — —
8,670 10,844 — —
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoingcosts. The average credit taken for trade purchases is 49 days (2007: 48 days). No interest has been chargedon the trade payables although certain suppliers have varying terms for payment past due date. TheProtherics Group has policies in place to manage payments in line with agreements made with eachindividual supplier.
Included within deferred income are the following capital grants:
ProthericsGroup
2008 2007
£’000 £’000Deferred income—falling due in less than one year . . . . . . . . . . . . . . . . . . . . . . . . . . 104 102Deferred income—falling due after more than one year . . . . . . . . . . . . . . . . . . . . . . 563 660
667 762
During the year, capital grants of £9,000 (2007: £nil) were received and £104,000 (2007: £111,000) wasreleased to the income statement. As a result of these grants, the Welsh Development Agency has a legalcharge over certain buildings, plant and equipment securing grants received amounting to £33,000 (2007:£33,000) and the Protherics Group is required to maintain certain employment levels at its Welshmanufacturing facility.
Protherics had no deferred income (2007: £nil).
The Directors consider that the carrying amount of trade payables approximates to their fair value.
94
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
20 Borrowings
ProthericsGroup
2008 2007
£’000 £’000Bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 —Bank loans
Secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 157
187 157Notes payable to South Australian Minister for Primary Industries . . . . . . . . . . . . . . . 8 46
195 203
The borrowings are repayable as follows:On demand or within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 46In the second year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 14In the third to fifth years inclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 143After five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —
195 203
Amounts due for settlement within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 46Amounts due for settlement after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 157
195 203
Protherics had no borrowings (2007: £nil).
Analysis of borrowings by currency:
AustralianSterling US dollars dollars Total
£’000 £’000 £’000 £’000Protherics GroupAt 31 March 2008
Bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 44 44Bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 143 — 143Notes payable to South Australian Minister for Primary
Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 8 8
— 143 52 195
At 31 March 2007Bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 148 — 157Notes payable to South Australian Minister for Primary
Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 46 46
9 148 46 203
95
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
20 Borrowings (Continued)
The effective interest rates at the balance sheet dates were as follows:
2008 2007
% %Australian dollar bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.5 —Sterling bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 8.0US dollar bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6 5.6Notes payable to South Australian Minister for Primary Industries . . . . . . . . . . . . . . . . . 6.3 6.5
The Directors estimate the fair value of the Protherics Group’s borrowings, by discounting the future cashflows at the market rate set out below, to be as follows:
2008 2007
£’000 % £’000 %Australian dollar bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 13.5 — —Sterling bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 9 9.2US dollar bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 6.4 137 9.4Notes payable to South Australian Minister for Primary Industries . . . . . . 8 6.3 42 6.5
194 188
The Protherics Group had no undrawn committed borrowing facilities available at 31 March 2008(31 March 2007: £nil).
The other principal features of the Protherics Group’s borrowings are as follows:
� The Protherics Group’s Sterling loan was obtained upon the acquisition of Enact Pharma PLC inJune 2003. The loan was taken out by Enact Pharma PLC in June 2002. Repayments commenced inMarch 2003 and continued until August 2007 when the loan was fully repaid. The loan was securedover the assets of that company and its immediate subsidiaries. The loan carried a fixed interest rateof 8% per annum.
� The Protherics Group’s US dollar denominated loan was taken out in August 2004. Repaymentscommenced in September 2004 and will continue until August 2009, when substantially all of theprincipal received on inception will become repayable. The loan is secured by a charge over certain ofthe Protherics Group’s assets and carries an interest rate of 5.625%.
� The notes payable to the South Australian Minister for Primary Industries (the ‘‘Minister’’) aresecured on buildings and equipment of Protherics Australasia Pty Limited. Repayment is in equalannual instalments, with the final instalment due in the year to 31 March 2009. The interest rate isvariable at the discretion of the Minister and is payable annually. The rate is currently in line withmarket interest rates at 6.25% (2007: 6.5%).
21 6% Convertible Unsecured Loan Notes
The 6% convertible unsecured loan notes, denominated in Sterling, were issued on 19 June 2003 as part ofthe consideration to acquire Enact Pharma PLC. Interest on the loan notes is payable twice annually inarrears. If not previously repaid, converted or repurchased, the loan notes will be repaid at par on19 June 2010. The loan notes are convertible at 25p per ordinary share, at the holder’s option, from theearlier of 19 December 2004, or such date that Protherics has received FDA marketing approval forVoraxaze� but in any event no earlier than 19 June 2004. Protherics can enforce conversion should theprincipal amount of the loan notes outstanding be equal to 20% or less of the total notes issued at anytime, or if the middle market quotation of an ordinary share at the close of a consecutive five business dayperiod after 19 June 2006 is greater or equal to 32.5p. The terms of the loan notes permit Protherics to
96
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
21 6% Convertible Unsecured Loan Notes (Continued)
repurchase the loan notes at any time by tender (available to all holders alike) or by privately negotiatedtransactions with individual holders at any price.
Upon adoption of IAS 32, Financial Instruments: Disclosure and Information, and IAS 39, FinancialInstruments: Recognition and Measurement, at 1 April 2005, the net proceeds received from the issue ofthe 6% convertible unsecured loan notes have been split between the liability element and an equitycomponent, representing the fair value of the embedded option to convert the liability into the equity ofthe Protherics Group, as follows:
£’000
Protherics Group and ProthericsNominal value of convertible loan notes issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,196Equity component at date of issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (711)
Liability component at date of issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,485
2008 2007
£’000 £’000Protherics Group and ProthericsLiability component at 1 April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,100 2,469Interest charged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 41Liability converted to equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (166) (410)
Liability component at 31 March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,971 2,100
The Directors estimate that the fair value of the liability component at 31 March 2008 to be approximately£1,965,000 (2007: £2,047,000) using an interest rate to discount estimated future cash flows of 9.8%(2007: 9.8%).
During the prior year, an additional loan note amounting to £17,000, with identical terms to the originalloan notes above, was issued following the exercise of warrants in Enact Pharma Limited (see note 24).The note was considered to be wholly equity and was converted in its entirety shortly after issue.
In addition, a non-interest bearing loan note, repayable at par on 31 March 2026, was issued toCoVaccine BV as consideration for the in-license of the CoVaccine HT adjuvant. The A350,000 loan notecould be converted into 295,413 Protherics PLC ordinary 2p shares.
Net proceeds received from the issue of this loan note was split between the liability element and theequity component, representing the fair value of the embedded option to convert the liability into theequity of the Protherics Group as follows:
2007
£’000Protherics Group and ProthericsNominal value of convertible loan notes issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242Equity component at date of issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (169)
Liability component at date of issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
The entire loan note was converted during the prior year.
A further non-interest bearing note, repayable at par on 31 March 2026, was issued to CoVaccine BV asconsideration for the in-licence of the CoVaccine HT adjuvant in the current year. The A300,000 loan notewas converted to 253,211 Protherics PLC ordinary 2p shares on 29 November 2007 and has beenaccounted for entirely as an equity instrument (see note 24).
97
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
22 Obligations under Finance Leases
Present valueMinimum lease of minimum
payments lease payments
2008 2007 2008 2007
£’000 £’000 £’000 £’000Protherics GroupAmounts payable under finance leases:
Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,136 1,392 966 1,048In the second to fifth years inclusive . . . . . . . . . . . . . . . . . . . . . 1,897 3,084 1,712 2,289
3,033 4,476 2,678 3,337Less: future finance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (355) (1,139)
Present value of lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . 2,678 3,337 2,678 3,337
Less: Amounts due for settlement within one year (shown withincurrent liabilities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (966) (1,048)
Amount due for settlement after one year . . . . . . . . . . . . . . . . . . . 1,712 2,289
ProthericsAmounts payable under finance leases:
Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 27 26 24In the second to fifth years inclusive . . . . . . . . . . . . . . . . . . . . . 5 32 5 31
32 59 31 55Less: future finance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (4)
Present value of lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . 31 55 31 55
Less: Amounts due for settlement within one year (shown withincurrent liabilities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26) (24)
Amount due for settlement after one year . . . . . . . . . . . . . . . . . . . 5 31
It is the Protherics Group’s policy to lease certain of it plant and equipment under finance leases. Theaverage lease term on inception is three to five years with an option to purchase equipment for a nominalamount at the conclusion of the lease agreement.
For the year ended 31 March 2008, the average effective borrowing rate for the Protherics Group was 8.5%(2007: 8.1%) and for Protherics was 6.8% (2007: 6.8%). Interest rates are fixed at the contract date. Allleases are on a fixed repayment basis and no arrangements have been entered into for contingent rentalpayments.
The fair value of the Protherics Group and Protherics’s lease obligations approximates to their carryingamount.
98
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
22 Obligations under Finance Leases (Continued)
The denomination of the Protherics Group and Protherics’s lease obligations were as follows:
ProthericsGroup Protherics
2008 2007 2008 2007
£’000 £’000 £’000 £’000Sterling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,527 3,078 31 55US dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 82 — —Australian dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 177 — —
2,678 3,337 31 55
The obligations under hire purchase agreements for both the Protherics Group and Protherics are securedby a charge over the leased assets.
23 Derivative Financial Instruments
The Protherics Group utilises currency derivatives to hedge significant future transactions and cash flows.The Protherics Group is party to a variety of foreign currency forward contracts and options in themanagement of its exchange rate exposures. The instruments purchased are primarily denominated in USdollars, the currency of the Protherics Group’s principal market.
At the balance sheet date, the fair market value of the derivative financial instruments were:
ProthericsGroup Protherics
2008 2007 2008 2007
£’000 £’000 £’000 £’000Contracts with positive fair values:
Forward foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . — 114 — 114
Derivative instrument assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 114 — 114
Contracts with negative fair values:Forward foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . 170 — 170 —
Derivative instrument liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 — 170 —
Changes in fair market value are recognised in the income statement as they arise. The charge for theProtherics Group and Protherics for the year ended 31 March 2008 was £284,000 (2007: creditof £250,000).
All the contracts mature within one year of the balance sheet date.
99
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
24 Share Capital
Protherics Protherics2008 2007
No. Shares £’000 No. Shares £’000
AuthorisedOrdinary shares of 2p each . . . . . . . . . . . . . . . . . . . . . . . 485,000,000 9,700 475,000,000 9,500
Allotted, called-up and fully paidOrdinary shares of 2p each
At 1 April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339,128,755 6,783 259,287,068 5,186Allotted under share option schemes . . . . . . . . . . . . . . . . 238,751 4 231,321 5Cash placing and open offer . . . . . . . . . . . . . . . . . . . . . . — — 58,715,544 1,174Issued in consideration of GlenveighPharmaceuticals LLP in-licence agreement . . . . . . . . . . . — — 3,093,638 62Issued as consideration for acquisition of MacroMed Inc. . — — 15,677,199 314Conversion of 6% convertible unsecured loan notes . . . . . 698,892 14 1,828,572 36Conversion of CoVaccine convertible loan note (note 21) . 253,211 5 295,413 6
At 31 March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340,319,609 6,806 339,128,755 6,783
Share warrants
At 31 March 2008 there are unexercised warrants for 100,000 ordinary shares (2007: 100,000 ordinaryshares) in Enact Pharma Limited, a company acquired in June 2003, which expire 9 July 2012 and areexercisable at 30p per share. Should these be exercised, Protherics is entitled to repurchase these shares byissuing £17.05 of 6% convertible unsecured loan notes per 100 Enact Pharma Limited ordinary shares. Theterms of these loan notes are disclosed in note 21 to the accounts.
Share options
Details of outstanding share options are as follows:
AtAt 1 April Cancelled 31 March Exercise
2007 Granted Exercised or expired 2008 price (p)
Date exercisable
Individual unapproved22 Dec 2002 to 21 Dec 2009 . . . . . . . . 600,000 — — — 600,000 39.009 July 2002 to 8 July 2010 . . . . . . . . . . 25,000 — — — 25,000 40.009 July 2002 to 8 July 2010 . . . . . . . . . . 15,000 — — — 15,000 25.009 July 2002 to 31 May 2007 . . . . . . . . . 3,850 — — 3,850 — US$ 6.0012 Dec 2007 to 11 Dec 2009 . . . . . . . . 40,000 — — — 40,000 86.0012 June 2008 to 11 Jun 2010 . . . . . . . . 40,000 — — — 40,000 86.00
Approved28 Jan 2003 to 27 Jan 2010 . . . . . . . . . 46,924 — 5,461 1,856 39,607 37.5028 Feb 2004 to 27 Feb 2011 . . . . . . . . 264,000 — 35,000 6,000 223,000 43.5016 Feb 2009 to 15 Feb 2016 . . . . . . . . 25,401 — — 25,401 — 93.50
Unapproved22 June 2001 to 21 June 2008 . . . . . . . 65,000 — — — 65,000 46.0022 Dec 2002 to 21 Dec 2009 . . . . . . . . 385,000 — — — 385,000 39.0027 Jan 2003 to 26 Jan 2010 . . . . . . . . . 87,097 — — 814 86,283 37.502 Aug 2003 to 1 Aug 2010 . . . . . . . . . . 2,908 — — — 2,908 28.5022 Feb 2004 to 21 Feb 2011 . . . . . . . . 1,145,000 — — — 1,145,000 43.5016 Jan 2005 to 15 Jan 2012 . . . . . . . . . 2,177,000 — 25,000 127,000 2,025,000 39.50
100
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
24 Share Capital (Continued)
AtAt 1 April Cancelled 31 March Exercise
2007 Granted Exercised or expired 2008 price (p)
9 July 2005 to 8 July 2012 . . . . . . . . . . 350,000 — — — 350,000 25.0020 Jun 2006 to 19 Jun 2013 . . . . . . . . . 900,000 — — — 900,000 23.2524 Jun 2006 to 23 Jun 2013 . . . . . . . . . 30,000 — — 5,000 25,000 23.001 Mar 2007 to 28 Feb 2014 . . . . . . . . . 735,660 — 40,870 — 694,790 58.501 Mar 2009 to 28 Feb 2014 . . . . . . . . . 325,000 — — — 325,000 58.5027 Sep 2007 to 26 Sep 2014 . . . . . . . . . 310,000 — — 201,035 108,965 49.5028 Feb 2008 to 27 Feb 2015*(1) . . . . . . 716,475 — 132,420 584,055 — 2.0019 Jul 2008 to 18 Jul 2015*(2) . . . . . . . 113,785 — — — 113,785 2.007 Sep 2008 to 6 Sep 2015 . . . . . . . . . . 115,000 — — — 115,000 60.5021 Dec 2008 to 20 Dec 2015*(3) . . . . . . 763,665 — — 11,607 752,058 2.0021 Dec 2008 to 20 Dec 2015 . . . . . . . . 85,000 — — — 85,000 78.5012 June 2009 to 11 June 2016*(4) . . . . . 944,359 — — 52,434 891,925 2.0012 June 2008 to 11 June 2016+(1) . . . . . 109,806 — — 5,331 104,475 2.0012 June 2008 to 11 June 2016 . . . . . . . 10,000 — — — 10,000 86.0011 July 2009 to 10 July 2016 . . . . . . . . 50,000 — — — 50,000 86.0022 Aug 2009 to 21 Aug 2016*(5) . . . . . . 6,383 — — — 6,383 2.0015 Dec 2009 to 14 Dec 2016*(6) . . . . . . 970,615 — — 60,779 909,836 2.0015 Dec 2009 to 14 Dec 2016 . . . . . . . . 50,000 — — — 50,000 73.755 Jan 2010 to 4 Jan 2017 . . . . . . . . . . 630,000 — — 50,000 580,000 72.2511 June 2009 to 10 June 2017+(2) . . . . . — 184,317 — — 184,317 2.0011 June 2010 to 10 June 2017*(7) . . . . . — 1,620,901 — 86,832 1,534,069 2.0011 June 2010 to 10 June 2017 . . . . . . . — 50,000 — — 50,000 58.7517 July 2010 to 16 July 2017*(7) . . . . . . — 8,510 — — 8,510 2.0031 July 2010 to 30 July 2017*(8) . . . . . . — 19,633 — — 19,633 2.0010 Aug 2010 to 9 Aug 2017*(9) . . . . . . . — 423,076 — — 423,076 2.0028 Sep 2010 to 27 Sep 2017*(10) . . . . . . — 17,346 — — 17,346 2.0023 Nov 2010 to 22 Nov 2017*(11) . . . . . — 1,594,962 — — 1,594,962 2.004 Dec 2010 to 3 Dec 2017*(12) . . . . . . . — 13,302 — — 13,302 2.00
Savings related options1 Feb 2009 to 31 July 2009 . . . . . . . . . 245,954 — — 78,820 167,134 65.001 Feb 2011 to 31 July 2011 . . . . . . . . . 381,924 — — 246,694 135,230 65.001 Feb 2010 to 31 July 2010 . . . . . . . . . 68,424 — — 13,033 55,391 58.001 Feb 2012 to 31 July 2012 . . . . . . . . . 115,749 — — 61,545 54,204 58.001 Jan 2010 to 30 June 2010 . . . . . . . . . — 285,759 — — 285,759 43.001 Jan 2012 to 30 June 2012 . . . . . . . . . — 379,746 — — 379,746 43.00
Protherics PLC option plan forTherapeutic Antibodies Inc.employees
27 Jan 2000 to 29 June 2008 . . . . . . . . 162,238 — — 45,938 116,300 175.0to 312.0
13,112,217 4,597,552 238,751 1,668,024 15,802,994
* Options issued under the long term incentive plan, approved by the shareholders on 27 January 2005. The price of a share at thedate of grant was (1) 54.75p, (2) 57.00p, (3) 78.50p, (4) 85.00p, (5) 79.25p, (6) 73.75p, (7) 58.75p, (8) 47.75p, (9) 52.00p,(10) 49.00p, (11) 53.75p and (12) 54.75p.
+ Options issued under the deferred bonus plan, approved by the shareholders on 27 January 2005. The price of a share at thedate of grant was (1) 85.00p and (2) 58.75p.
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NOTES TO THE FINANCIAL STATEMENTS (Continued)
25 Share Premium Account
Protherics
2008 2007
£’000 £’000At 1 April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,951 86,770Premium arising on issue of equity shares:
Allotted under share option schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 94Cash placing and open offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 36,991Issued in consideration of Glenveigh Pharmaceuticals LLP in-licence agreement . — 2,227Issued as consideration for acquisition of MacroMed Inc. . . . . . . . . . . . . . . . . . . — 11,288Conversion of 6% convertible unsecured loan notes . . . . . . . . . . . . . . . . . . . . . . 292 683
Expenses on issue of equity shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (2,102)
At 31 March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136,292 135,951
26 Statement of Changes in Equity
Shares CumulativeShare Share to be Merger Equity translation Retainedcapital premium issued reserve reserve reserve earnings Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000Protherics GroupBalance at 1 April 2006 . . . . . . . . . 5,186 86,770 — 51,163 263 (191) (116,839) 26,352
Currency translation adjustments . . . — — — — — 749 — 749
Net income recognised directly inequity . . . . . . . . . . . . . . . . . . . . — — — — — 749 — 749
Loss for the year . . . . . . . . . . . . . . — — — — — — (3,357) (3,357)
Total recognised profit/(loss) for theyear . . . . . . . . . . . . . . . . . . . . . — — — — — 749 (3,357) (2,608)
New share capital subscribed . . . . . . 1,560 48,499 — — — — — 50,059Shares to be issued . . . . . . . . . . . . — — 1,289 — — — — 1,289New loan notes issued . . . . . . . . . . — — — — 186 — — 186Conversion of convertible loan notes 37 682 — — (229) — — 490Employee share option scheme . . . . — — — — — — 703 703
Balance at 31 March 2007 . . . . . . . 6,783 135,951 1,289 51,163 220 558 (119,493) 76,471
Currency translation adjustments . . . — — — — — 236 — 236
Net income recognised directly inequity . . . . . . . . . . . . . . . . . . . . — — — — — 236 — 236
Loss for the year . . . . . . . . . . . . . . — — — — — — (16,742) (16,742)
Total recognised profit/(loss) for theyear . . . . . . . . . . . . . . . . . . . . . — — — — — 236 (16,742) (16,506)
New share capital subscribed . . . . . . 4 49 — — — — — 53Conversion of convertible loan notes 19 292 — — (17) — — 294Employee share option scheme . . . . — — — — — — 1,240 1,240
Balance at 31 March 2008 . . . . . . . 6,806 136,292 1,289 51,163 203 794 (134,995) 61,552
The merger reserve arose upon a merger involving the Protherics Group in September 1999. The equityreserve arises from the 6% convertible unsecured loan notes (see note 21).
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NOTES TO THE FINANCIAL STATEMENTS (Continued)
26 Statement of Changes in Equity (Continued)
Goodwill on acquisition written off in prior years amounts to £1,909,000 (2007: £1,909,000).
SharesShare Share to be Equity Retainedcapital premium issued reserve earnings Total
£’000 £’000 £’000 £’000 £’000 £’000ProthericsBalance at 1 April 2006 . . . . . . . . . . . . . . . . . . . . . 5,186 86,770 — 263 (12,645) 79,574
Loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . — — — — (2,153) (2,153)
Total recognised loss for the year . . . . . . . . . . . . . . — — — — (2,153) (2,153)
New share capital subscribed . . . . . . . . . . . . . . . . . 1,560 48,499 — — — 50,059Shares to be issued . . . . . . . . . . . . . . . . . . . . . . . . — — 1,289 — — 1,289Conversion of convertible loan notes . . . . . . . . . . . . 37 682 — (43) — 676Employee share option scheme . . . . . . . . . . . . . . . . — — — — 713 713
Balance at 31 March 2007 . . . . . . . . . . . . . . . . . . . 6,783 135,951 1,289 220 (14,085) 130,158
Loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . — — — — (816) (816)
Total recognised loss for the year . . . . . . . . . . . . . . — — — — (816) (816)
New share capital subscribed . . . . . . . . . . . . . . . . . 4 49 — — — 53Conversion of convertible loan notes . . . . . . . . . . . . 19 292 — (17) — 294Employee share option scheme . . . . . . . . . . . . . . . . — — — — 1,210 1,210
Balance at 31 March 2008 . . . . . . . . . . . . . . . . . . . 6,806 136,292 1,289 203 (13,691) 130,899
The equity reserve arises from the 6% convertible unsecured loan notes (see note 21).
27 Operating Lease Commitments
ProthericsGroup Protherics
2008 2007 2008 2007
£’000 £’000 £’000 £’000Minimum lease payments under operating leases recognised in
income for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 896 544 126 82
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NOTES TO THE FINANCIAL STATEMENTS (Continued)
27 Operating Lease Commitments (Continued)
At the balance sheet date, the outstanding commitments for future minimum lease payments undernon-cancellable operating leases fell due as follows:
2008 2007Vehicles, Vehicles,
plant and plant andProperty equipment Property Equipment
£’000 £’000 £’000 £’000Protherics Group
Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 926 3 535 14In the second to fifth years inclusive . . . . . . . . . . . . . 3,166 10 510 18After five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — —
4,092 13 1,045 32
ProthericsWithin one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 — 61 —In the second to fifth years inclusive . . . . . . . . . . . . . 808 — — —After five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — —
1,026 — 61 —
Operating lease payments represent rentals payable for certain of its office properties, plant andequipment under non-cancellable operating lease agreements. Vehicle, plant and equipment leases havelease terms between 1 and 5 years with no option to extend nor purchase at expiry of the lease period.
The Protherics Group leases property in Salt Lake City, Nashville, Utah, London, Runcorn and Australia.These leases have lease terms between 1 and 5 years. The leases in Nashville, Salt Lake City and Australiacontain options to extend for a further 3, 3 and 5 years respectively. In event of renewal the lease contractscontain market review clauses. None of the property leases provide the Protherics Group with an option topurchase the leased asset at the expiry of the lease period.
28 Financial Instruments
Capital risk management
The Protherics Group manages its capital to ensure that entities in the Protherics Group will be able tocontinue as a going concern while maximising the return to stakeholders through the optimisation of thedebt and equity balance. The Protherics Group’s overall strategy remains unchanged from 2007.
The capital structure of the Protherics Group consists of debt, which includes the borrowings disclosed innote 20 and 6% convertible unsecured loan notes disclosed in note 21 and equity attributable to theshareholders, comprising issued capital, reserves and retained earnings as disclosed in notes 24, 25 and 26.
Gearing ratio
Due to the nature and risk associated with the Protherics Group’s operations, the Protherics Group isrestricted in its ability to increase its gearing ratio as determined by the proportion of net debt to equity.The Protherics Group therefore envisages that this ratio would remain as a relatively low level althoughthe Board of Directors continues to monitor both the position of the Protherics Group’s operations andthe capital markets to assess the most appropriate structure for the Protherics Group.
Significant accounting policies
Details of the significant accounting policies and methods adopted, including criteria for recognition, thebasis of measurement and the basis on which income and expenses are recognised, in respect of each classof financial asset, financial liability and equity instrument are disclosed in note 2 to the financialstatements.
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NOTES TO THE FINANCIAL STATEMENTS (Continued)
28 Financial Instruments (Continued)
Categories of financial assets and financial liabilities
Loansand Amortised Financial
receivables cost instruments Total
£’000 £’000 £’000 £’000Protherics Group2008Trade and other receivables . . . . . . . . . . . . . . . . . . . . 3,975 — — 3,975Derivative financial instruments . . . . . . . . . . . . . . . . . — — (170) (170)Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . 37,660 — — 37,660Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (195) — (195)Trade and other payables . . . . . . . . . . . . . . . . . . . . . . — (32,899) — (32,899)
41,635 (33,094) (170) 8,371
2007Trade and other receivables . . . . . . . . . . . . . . . . . . . . 15,066 — — 15,066Derivative financial instruments . . . . . . . . . . . . . . . . . — — 114 114Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . 39,989 — — 39,989Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (203) — (203)Trade and other payables . . . . . . . . . . . . . . . . . . . . . . — (30,591) — (30,591)
55,055 (30,794) 114 24,375
Loansand Amortised Financial
receivables cost instruments Total
£’000 £’000 £’000 £’000Protherics2008Trade and other receivables . . . . . . . . . . . . . . . . . . . . 40,110 — — 40,110Derivative financial instruments . . . . . . . . . . . . . . . . . — — (170) (170)Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . 36,653 — — 36,653Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — —Trade and other payables . . . . . . . . . . . . . . . . . . . . . . — (8,803) — (8,803)
76,763 (8,803) (170) 67,790
2007Trade and other receivables . . . . . . . . . . . . . . . . . . . . 39,647 — — 39,647Derivative financial instruments . . . . . . . . . . . . . . . . . — — 114 114Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . 38,822 — — 38,822Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — —Trade and other payables . . . . . . . . . . . . . . . . . . . . . . — (11,224) — (11,224)
78,469 (11,224) 114 67,359
Financial risk management objectives
The Protherics Group’s treasury function provides services to the business, co-ordinates access to thedomestic and international financial markets, monitors and manages the financial risks relating to theoperations of the Protherics Group through internal risk reports which analyse exposures by degree and
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NOTES TO THE FINANCIAL STATEMENTS (Continued)
28 Financial Instruments (Continued)
magnitude of risks. These risks include market risk (including currency risk, fair value interest rate risk andprice risk), credit risk, liquidity risk and cash flow interest rate risk.
The Protherics Group seeks to minimise the effects of these risks by using derivative financial instrumentsto hedge these risk exposures. The use of financial derivatives is governed by the Protherics Group’spolicies approved by the Board of Directors. The Protherics Group does not enter into or trade financialinstruments, including derivative financial instruments, for speculative purposes.
Market risk
Market risk is the risk that changes in the market prices, such as foreign exchange rates, interest rates andequity prices will affect the Protherics Group’s income or the value of its holding of financial instruments.
The Protherics Group’s activities expose it primarily to the financial risks of changes in foreign currencyexchange rates, which is covered in more detail below. The Protherics Group enters into derivativefinancial instruments to manage its exposure foreign currency risk, in the form of forward foreign exchangecontracts to hedge the exchange rate risk arising from the expected US dollar sales on a rolling twelvemonth basis.
There has been no change to the Protherics Group’s exposure to market risks or the manner in which itmanages and measures the risk.
Foreign currency risk management
The Protherics Group undertakes certain transactions denominated in foreign currencies. Hence, exposureto exchange rate fluctuations arises. Exchange rate exposures are managed within approved policyparameters utilising forward foreign exchange contracts.
The carrying amounts of the Protherics Group’s foreign currency denominated monetary assets andmonetary liabilities at the reporting date are as follows:
Liabilities Assets
2008 2007 2008 2007
£’000 £’000 £’000 £’000Protherics GroupUS dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,692) (14,613) 8,789 4,404Australian dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,041) (661) 446 345
(14,733) (15,274) 9,235 4,749
ProthericsUS dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 6,273 17Australian dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 9 12
— — 6,282 29
Foreign currency sensitivity analysis
The Protherics Group is mainly exposed to the US and Australian dollar currency.
The following table details the Protherics Group’s sensitivity to a 10% increase and decrease in Sterlingagainst the US and Australian dollar. 10% is the sensitivity rate used when reporting foreign currency riskinternally to key management personnel and represents management’s assessment of the reasonablypossible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreigncurrency denominated monetary items and adjusts their translation at the period end for a 10% change inforeign currency rates. The sensitivity analysis includes external loans as well as loans to foreign operationswithin the Protherics Group where the denomination of the loan is in a currency other than the currency of
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NOTES TO THE FINANCIAL STATEMENTS (Continued)
28 Financial Instruments (Continued)
the lender or the borrower. A positive number below indicates an increase in profit and other equity whereSterling strengthens 10% against the US and Australian dollar. For a 10% weakening of Sterling againstthe US and Australian dollar, there would be an equal and opposite impact on the profit or loss and otherequity, and the balances below would be negative.
AustralianUS dollar dollar
2008 2007 2008 2007
£’000 £’000 £’000 £’000Protherics GroupProfit or loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (570) (2) (1) (1)Other equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 674 930 55 30
104 928 54 29
ProthericsProfit or loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (570) (2) (1) (1)Other equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — —
(570) (2) (1) (1)
The Protherics Group’s sensitivity to foreign currency has decreased during the current year mainly due toa significant amount of US denominated cash being held in the parent company, Protherics, which hasoffset the US denominated liabilities held in the US Protherics Group entities.
Forward foreign exchange contracts
It is the policy of the Protherics Group to enter into forward foreign exchange contracts to cover specificforeign currency receipts within 70 to 100% of the exposure generated. The Protherics Group also entersinto forward foreign exchange contracts to manage the risk associated with anticipated sales and purchasetransactions out to 12 months within 70 to 100% of the exposure generated.
The following table details the forward foreign currency contracts (FCC) outstanding as at reporting date:
Average ForeignExchange Rate Currency Contract value Fair value
2008 2007 2008 2007 2008 2007 2008 2007
’000s ’000s £’000 £’000 £’000 £’000Protherics Group and Protherics
FCCBuy Australian dollar
Less than 3 months . . . . . . . . . . . . . . — 2.4560 — 1,000 — 407 — 412
Sell US dollarLess than 3 months . . . . . . . . . . . . . . 2.0467 1.8730 4,000 8,000 (1,954) (4,271) (2,025) (4,169)3 to 6 months . . . . . . . . . . . . . . . . . 2.0399 1.8730 5,000 600 (2,451) (320) (2,550) (313)6 to 9 months . . . . . . . . . . . . . . . . . — — — — — — — —9 to 12 months . . . . . . . . . . . . . . . . . — — — — — — — —
(4,405) (4,184) (4,575) (4,070)
Changes in fair market value are recognised in the income statement as they arise. The loss for the yearended 31 March 2008 was £284,000 (2007: profit of £250,000).
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NOTES TO THE FINANCIAL STATEMENTS (Continued)
28 Financial Instruments (Continued)
Interest rate risk management
The Protherics Group is not exposed to significant interest rate risk as the Protherics Group does not havesignificant floating rate borrowings although the Protherics Group does carry significant cash balances onwhich it seeks to maximise interest return by using a variety of short-term, fixed high-interest deposit andmoney-market accounts. The Protherics Group’s exposure to interest rates on financial assets and financialliabilities are detailed in the liquidity risk management section of this note.
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting infinancial loss to the Protherics Group. The Protherics Group has adopted a policy of only dealing withcreditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigatingthe risk of financial loss from defaults. The Protherics Group only transacts with entities that are rated theequivalent of investment grade and above. This information is supplied by independent rating agencieswhere available and, if not available, the Protherics Group uses other publicly available financialinformation and its own trading records and judgement to rate its major customers.
A significant element of the Protherics Group’s revenue and trade receivables balance is generated fromsales to one customer in the US. Management are constantly in communication with this customer andmonitor both sales and payments from this customer to minimise the credit risk exposure.
The carrying amount of financial assets recorded in the financial statements, which is net of impairmentlosses, represents the Protherics Group’s maximum exposure to credit risk without taking account of thevalue of any collateral obtained.
Liquidity risk management
Liquidity risk is the risk that the Protherics Group will not be able to meet its financial obligations as theyfall due.
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built anappropriate liquidity risk management framework for the management of the Protherics Group’s short,medium and long-term funding and liquidity requirements. The Protherics Group manages liquidity risk bymaintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuouslymonitoring forecast and actual cash flows and matching the maturity profiles of financial assets andliabilities.
Liquidity and interest risk tables
The following tables detail the Protherics Group and Protherics’s remaining contractual maturity for theirnon-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of
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NOTES TO THE FINANCIAL STATEMENTS (Continued)
28 Financial Instruments (Continued)
financial liabilities based on the earliest date on which the Protherics Group and Protherics can berequired to pay. The table includes both interest and principal cash flows.
Weightedaverageeffective Less than 1 to 3 months 1 to
interest rate 1 month 3 months to 1 year 5 years 5 + years Total
% £’000 £’000 £’000 £’000 £’000 £’000Protherics Group2008Non interest bearing . . . — 4,554 8,201 6,825 8,670 — 28,250Finance lease liability . . 8.50 95 189 852 1,897 — 3,033Variable interest rate
instruments . . . . . . . . 6.25 8 — — — — 8Fixed interest rate
instruments . . . . . . . . 6.13 44 67 69 2,390 — 2,570
4,701 8,457 7,746 12,957 — 33,861
2007Non interest bearing . . . — 3,144 5,923 5,243 9,344 1,500 25,154Finance lease liability . . 8.06 116 232 1,044 3,084 — 4,476Variable interest rate
instruments . . . . . . . . 6.50 — 6 29 11 — 46Fixed interest rate
instruments . . . . . . . . 5.98 — 67 78 2,528 — 2,673
3,260 6,228 6,394 14,967 1,500 32,349
Weightedaverageeffective Less than 1 to 3 months 1 to
interest rate 1 month 3 months to 1 year 5 years 5 + years Total
% £’000 £’000 £’000 £’000 £’000 £’000Protherics2008Non interest bearing . . . — 905 1,177 — 4,719 — 6,801Finance lease liability . . 6.79 2 5 20 5 — 32Fixed interest rate
instruments . . . . . . . . 6.00 — 67 67 2,249 — 2,383
907 1,249 87 6,973 — 9,216
2007Non interest bearing . . . — 790 1,077 — 2,483 4,719 9,069Finance lease liability . . 6.79 2 5 20 32 — 59Fixed interest rate
instruments . . . . . . . . 6.00 — 67 67 2,382 — 2,516
792 1,149 87 4,897 4,719 11,644
The following table details the Protherics Group and Protherics’s liquidity analysis for their derivativefinancial instruments. The table has been drawn up based on the undiscounted gross inflows and (outflows)on those derivatives that require gross settlement. When the amount payable or receivable is not fixed, the
109
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
28 Financial Instruments (Continued)
amount disclosed has been determined by reference to the projected interest rates as illustrated by theyield curves existing at the reporting date.
Lessthan 1 to 3 months 1 to
1 month 3 months to 1 year 5 years 5 + years Total
£’000 £’000 £’000 £’000 £’000 £’000Protherics Group and Protherics2008Gross settled:
Foreign exchange forward contracts . . — 1,955 2,451 — — 4,406
2007Gross settled:
Foreign exchange forward contracts . . 661 3,203 320 — — 4,184
29 Capital and Other Financial Commitments
ProthericsGroup Protherics
2008 2007 2008 2007
£’000 £’000 £’000 £’000Contracts placed for future capital expenditure not provided in the
financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 581 13 —
30 Share-Based Payments
The Protherics Group has elected to apply IFRS 2, Share-Based Payments to all share-based awards andoptions granted post 7 November 2002 that had not vested by 1 January 2005. These options have beenissued under the Unapproved Share Option Plan, individual option arrangements, the Executive ShareOption Plan (ESOP), the Long-term Incentive Plan (LTIP), Savings Related Share Option Plan and theDeferred Bonus Plan.
Under the Unapproved Share Option Plan and the ESOP, the Remuneration Committee can grant optionsover shares in Protherics to employees of the Protherics Group. Options are granted with a fixed exerciseprice equal to the market price of the shares under option at the date of the grant. The vesting period isgenerally three years and subject to performance criteria. If the options remain unexercised after a periodof ten years from the date of grant, the options expire. Furthermore, except in defined circumstances,options are forfeited if the employee leaves the Protherics Group before the option vests.
Under the LTIP, the Remuneration Committee can grant equity-settled options over shares in Prothericsbut these awards are generally reserved for Directors and employees at Senior Manager level. The optionsare granted at a fixed exercise price which is generally equal to the nominal value of the shares under theaward. As with the above plans, the vesting period is generally three years, subject to performance criteriaand, if the options remain unexercised after a period of ten years from the date of grant, the optionsexpire. Furthermore, except in defined circumstances, options are forfeited if the employee leaves theProtherics Group before the option vests.
Awards under the Savings Related Share Option Plan are made available to all employees who have beenwith the Protherics Group for more than six months. Options under this plan are awarded at a discount ofup to 20% of the market price of the shares under option at the date of the invitation to enter the plan.The vesting period is either three or five years with a six month period to exercise after the vesting period.There are no performance criteria attached to these options. The options are forfeited if the employeeleaves the Protherics Group during the vesting period.
110
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
30 Share-Based Payments (Continued)
Under the Deferred Bonus Plan, the Remuneration Committee can grant options over shares in Prothericsbut these awards are generally reserved for Directors and employees at Senior Manager level. The optionsare granted at a fixed price which is generally equal to the nominal value of the shares under the award.The vesting period is generally two years, with no performance criteria. If the options remain unexercisedafter a period of ten years from the date of grant, the options expire. Furthermore, except in definedcircumstances, options are forfeited if the employee leaves the Protherics Group before the option vests.
The share options granted have varying performance criteria required for the option to vest and these areconsidered in the method of measuring the fair value. Where it is considered appropriate, the fair value ismeasured using the Black-Scholes model. Where complex market performance criteria exist, a simulationmodel has been used, based on the same underlying methodology as the Black-Scholes model, to establishthe fair value on grant.
The fair values of the options granted, performance criteria, and the assumptions used in the calculation offair value are as follows:
Awards under ESOP and unapproved share option plan
20 Jun 24 Jun 1 Mar 1 Mar 27 Sep 7 SepGrant date 2003 2003 2004 2004 2004 2005
Share price at grant date (p) . . . . . . . . . 23.25 23.00 58.50 58.50 49.50 60.50Exercise price (p) . . . . . . . . . . . . . . . . . 23.25 23.00 58.50 58.50 49.50 60.50Number of employees . . . . . . . . . . . . . 10 2 15 1 3 2Shares under option . . . . . . . . . . . . . . . 1,250,000 30,000 1,240,000 325,000 310,000 115,000Fair value (p) . . . . . . . . . . . . . . . . . . . . 9.45 9.45 25.57 33.77 19.31 19.98Dividends yield . . . . . . . . . . . . . . . . . . — — — — — —Vesting period (years) . . . . . . . . . . . . . 3 3 3 5 3 3Expected volatility . . . . . . . . . . . . . . . . 46.2% 46.2% 47.0% 47.0% 45.3% 38.5%Option life (years) . . . . . . . . . . . . . . . . 10 10 10 10 10 10Expected life (years) . . . . . . . . . . . . . . 5 5 5 5 5 5Risk free rate . . . . . . . . . . . . . . . . . . . 3.75% 3.75% 4.64% 4.64% 4.74% 4.12%Performance criteria . . . . . . . . . . . . . . . (1) (1) (2) (3) (2) (4)
21 Dec 16 Feb 12 Jun 11 July 15 Dec 5 JanGrant date 2005 2006 2006 2006 2006 2007
Share price at grant date (p) . . . . . . . . . . . . . 78.50 93.50 85.00 78.50 73.75 72.25Exercise price (p) . . . . . . . . . . . . . . . . . . . . . 78.50 93.50 85.00 78.50 73.75 72.25Number of employees . . . . . . . . . . . . . . . . . . 5 1 1 1 1 35Shares under option . . . . . . . . . . . . . . . . . . . 85,000 25,401 10,000 50,000 50,000 740,000Fair value (p) . . . . . . . . . . . . . . . . . . . . . . . . 31.38 45.41 31.54 31.50 31.76 35.85Dividends yield . . . . . . . . . . . . . . . . . . . . . . . — — — — — —Vesting period (years) . . . . . . . . . . . . . . . . . . 3 3 3 3 3 3Expected volatility . . . . . . . . . . . . . . . . . . . . . 41.0% 41.2% 41.2% 41.2% 41.5% 41.6%Option life (years) . . . . . . . . . . . . . . . . . . . . . 10 10 10 10 10 10Expected life (years) . . . . . . . . . . . . . . . . . . . 5 5 5 5 5 5Risk free rate . . . . . . . . . . . . . . . . . . . . . . . . 4.68% 4.68% 4.59% 4.68% 4.63% 4.68%Performance criteria . . . . . . . . . . . . . . . . . . . (4) (4) (4) None None (4)
111
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
30 Share-Based Payments (Continued)
LTIP awards
28 Feb 19 Jul 21 Dec 12 Jun 1 Aug 22 Aug 15 DecGrant date 2005 2005 2005 2006 2006 2006 2006
Share price at grant date (p) . . . . 54.75 57.00 78.50 85.00 80.00 79.25 73.75Exercise price (p) . . . . . . . . . . . . 2.00 2.00 2.00 2.00 2.00 2.00 2.00Number of employees . . . . . . . . . 22 2 16 34 1 1 16Shares under option . . . . . . . . . . 741,669 113,785 775,887 953,820 9,284 6,383 970,615Fair value (p) . . . . . . . . . . . . . . . 33.71 38.22 60.86 52.89 53.94 52.66 55.65Dividends yield . . . . . . . . . . . . . . — — — — — — —Vesting period (years) . . . . . . . . . 3 3 3 3 3 3 3Expected volatility . . . . . . . . . . . . 41.8% 39.0% 41.0% 41.2% 40.9% 40.9% 41.5%Option life (years) . . . . . . . . . . . . 10 10 10 10 10 10 10Expected life (years) . . . . . . . . . . 5 5 5 5 5 5 5Risk free rate . . . . . . . . . . . . . . . 4.68% 4.18% 4.68% 4.59% 4.68% 4.68% 4.63%Performance criteria . . . . . . . . . . (4) (4) (4) (4) (4) (4) (4)
11 Jun 17 July 31 July 10 Aug 28 Sep 23 Nov 3 DecGrant date 2007 2007 2007 2007 2007 2007 2007
Share price at grant date (p) . . . 58.75 58.75 47.75 52.00 49.00 53.75 54.75Exercise price (p) . . . . . . . . . . . 2.00 2.00 2.00 2.00 2.00 2.00 2.00Number of employees . . . . . . . . 43 1 1 1 1 23 1Shares under option . . . . . . . . . 1,620,901 8,510 19,633 423,076 17,346 1,594,962 13,302Fair value (p) . . . . . . . . . . . . . . 57.24 36.22 25.76 30.38 29.31 37.32 38.37Dividends yield . . . . . . . . . . . . . — — — — — — —Vesting period (years) . . . . . . . . 3 3 3 3 3 3 3Expected volatility . . . . . . . . . . . 42.2% 42.5% 42.5% 42.5% 42.1% 41.4% 41.0%Option life (years) . . . . . . . . . . 10 10 10 10 10 10 10Expected life (years) . . . . . . . . . 5 5 5 5 5 5 5Risk free rate . . . . . . . . . . . . . . 5.56% 5.65% 5.35% 5.35% 5.04% 5.18% 5.18%Performance criteria . . . . . . . . . (4) (4) (4) (4) (4) (4) (4)
Other awards
11 Jan 11 Jan 12 Jan 12 Jan 19 Dec 19 Dec2006 2006 2007 2007 2007 2007
Share- Share- Share- Share- Share- Share-Grant date save save save save save save
Share price at grant date (p) . . . . . . . . . . . 86.00 86.00 75.50 75.50 50.25 50.25Exercise price (p) . . . . . . . . . . . . . . . . . . . 65.00 65.00 58.00 58.00 43.00 43.00Number of employees . . . . . . . . . . . . . . . . 38 35 14 9 29 16Shares under option . . . . . . . . . . . . . . . . . 270,118 401,738 68,424 115,749 285,759 379,746Fair value (p) . . . . . . . . . . . . . . . . . . . . . . 37.20 44.09 32.59 39.81 21.26 25.43Dividends yield . . . . . . . . . . . . . . . . . . . . . — — — — — —Vesting period (years) . . . . . . . . . . . . . . . . 3 5 3 5 3 5Expected volatility . . . . . . . . . . . . . . . . . . . 41.2% 40.9% 39.6% 41.8% 42.5% 40.5%Option life (years) . . . . . . . . . . . . . . . . . . . 3.5 5.5 3.5 5.5 3.5 5.5Expected life (years) . . . . . . . . . . . . . . . . . 3.0 5.0 3.0 5.0 3.0 5.0Risk free rate . . . . . . . . . . . . . . . . . . . . . . 4.10% 4.10% 5.18% 5.04% 4.52% 4.61%Performance criteria . . . . . . . . . . . . . . . . . None None None None None None
112
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
30 Share-Based Payments (Continued)
12 Jun 2006 11 Jun 2007Deferred Deferred 12 Jun 2006 12 Jun 2006
Grant date Bonus Bonus Individual Individual
Share price at grant date (p) . . . . . . . . . . . . 85.00 58.75 85.00 85.00Exercise price (p) . . . . . . . . . . . . . . . . . . . . 2.00 2.00 85.00 85.00Number of employees . . . . . . . . . . . . . . . . . 8 7 (5) (5)Shares under option . . . . . . . . . . . . . . . . . . . 109,806 184,317 40,000 40,000Fair value (p) . . . . . . . . . . . . . . . . . . . . . . . 83.18 57.24 26.16 28.8Dividends yield . . . . . . . . . . . . . . . . . . . . . . — — — —Vesting period (years) . . . . . . . . . . . . . . . . . 2.0 2.0 1.5 2.0Expected volatility . . . . . . . . . . . . . . . . . . . . 42.7% 42.2% 42.7% 42.7%Option life (years) . . . . . . . . . . . . . . . . . . . . 2.0 2.0 2.5 3.0Expected life (years) . . . . . . . . . . . . . . . . . . 5.0 5.0 2.5 3.0Risk free rate . . . . . . . . . . . . . . . . . . . . . . . 4.59% 5.56% 4.59% 4.59%Performance criteria . . . . . . . . . . . . . . . . . . . None None None None
(1) To vest, Protherics’s share price is required to outperform the average price of shares in the FTSE All Share Pharmaceuticaland Biotech Index in any three year period commencing on or after the date of grant of the option.
(2) Performance will be measured once only after three years from the date of grant of the option. If the Total Shareholder Returnof Protherics reaches the median of the FTSE All Share Pharmaceutical and Biotech Index, one third of the shares underoption become exercisable, rising on a sliding scale such that all the shares under option become exercisable if Protherics’sperformance is at or above the upper quartile. The Remuneration Committee must also be satisfied that there has been animprovement in Protherics’s underlying financial performance over the period.
(3) As (2) except that performance measured after five years.
(4) Provided the Remuneration Committee is satisfied that Protherics has achieved sound underlying performance, awards will vestbased on Protherics’s Total Shareholder Return (TSR). Performance will be measured after three years from grant bymeasuring the TSR of Protherics against a comparator group consisting of the primary listed components of the FTSE AllShare Pharmaceutical and Biotech Index but excluding those companies in the FTSE 100 (currently AstraZeneca PLC,GlaxoSmithKline PLC and Shire plc). TSR will normally be averaged across a period of three months before the date of thereward and three months before the date on which the performance period ends, although the Committee may determine that adifferent averaging period is appropriate and properly reflective of management performance but in any event this will not bemore than six months or less than one month. No award will vest if Protherics’s TSR is below the median of the comparatorgroup, 30% will vest if Protherics’s TSR is at the median position, 80% if Protherics’s TSR is at the upper quartile and 100% ifat the upper decile. Awards will vest on a sliding scale between each step.
(5) Granted to non-employee.
The expected volatility is based on historical volatility over the expected life, being the average expectedperiod to exercise, of the option as at the date of grant. The risk free rate of return is the yield onzero-coupon UK government bonds of a term consistent with the expected life at the date of grant.
A reconciliation of the option movements over the year to 31 March 2008 is shown below:
2008 2007
Weighted average Weighted Averageoption price option price
Number pence Number pence
Outstanding at 1 April . . . . . . . . . . . . 13,112,217 36.17 10,912,449 57.53Granted . . . . . . . . . . . . . . . . . . . . . . . 4,597,552 8.55 3,164,081 26.39Exercised . . . . . . . . . . . . . . . . . . . . . . (238,751) 22.49 (231,321) 42.63Cancelled or expired . . . . . . . . . . . . . . (1,668,024) 38.74 (732,992) 309.93
Outstanding at 31 March . . . . . . . . . . . 15,802,994 28.07 13,112,217 36.17
Exercisable at 31 March . . . . . . . . . . . 6,846,853 41.93 6,994,677 43.54
113
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
30 Share-Based Payments (Continued)
2008 2007
Weighted WeightedWeighted average Weighted averageaverage average
remaining life remaining lifeoption optionRange of price Number of Expected Contractual price Number of Expected Contractualexercise prices pence shares years years pence shares years years
Below 20p . . . 2.0 6,579,008 3.9 9.0 2.0 3,625,088 4.0 9.020p – 40p . . . 34.7 4,428,798 0.1 3.6 34.9 4,593,929 0.3 4.640p – 60p . . . 48.8 3,411,855 1.0 4.1 50.2 3,053,833 0.9 5.060p – 80p . . . 69.9 1,182,364 3.0 6.9 68.9 1,557,878 3.9 7.080p – 100p . . 85.0 84,669 2.0 2.3 86.9 115,401 3.3 4.8Above 100p . . 175.0 116,300 — 0.3 216.8 166,088 — 1.2
The weighted average share price for options exercised over the year was 53.2p (2007: 83.7p). The totalcharge for the year relating to employee share-based payment plans was £1,208,000 (2007: £713,000), all ofwhich related to equity-settled share-based payment transactions.
31 Retirement Benefit Schemes
The Protherics Group operates a defined contribution retirement benefit scheme for all qualifying UKbased employees. The assets of the scheme are held separately from those of the Protherics Group in fundsunder the control of the trustees. Where there are employees who leave the scheme prior to thecontributions made by the Protherics Group fully vesting, the contributions payable by the ProthericsGroup are reduced by the amount of the forfeited contributions.
Eligible employees of the Protherics Group’s overseas subsidiaries are members of externally operateddefined contribution schemes. The only obligation of the Protherics Group with respect to these schemes isto make the specified contributions.
114
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
32 Notes to the Consolidated Cash Flow Statements
Reconciliation of loss for the year to net cash flow from operating activities:
Protherics Group Protherics
2008 2007 2008 2007
£’000 £’000 £’000 £’000Loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,742) (3,357) (816) (2,153)Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (509) (259) — —Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415 417 167 182Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,382) (1,155) (3,355) (783)
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,218) (4,354) (4,004) (2,754)
Adjustments for:Change in fair value of derivatives . . . . . . . . . . . . . . . . . . . . . . 284 (250) 284 (250)Deferred grant income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (104) (111) — —Share-based payment costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,240 703 641 426Depreciation of property, plant and equipment . . . . . . . . . . . . . 2,076 1,373 141 90Amortisation of intangible fixed assets . . . . . . . . . . . . . . . . . . . 498 135 — —Loss on disposal of property, plant and equipment . . . . . . . . . . 134 634 — —
Operating cash flows before movements in working capital . . . . . . (15,090) (1,870) (2,938) (2,488)
Decrease in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 686 131 — —Decrease/(increase) in receivables . . . . . . . . . . . . . . . . . . . . . . . . 11,054 (10,575) 234 (8,029)Increase/(decrease) in payables . . . . . . . . . . . . . . . . . . . . . . . . . . 3,224 (3,737) (1,193) 4,193
Net cash outflow from operating activities . . . . . . . . . . . . . . . . . . (126) (16,051) (3,897) (6,324)
The decrease in receivables for the year ended 31 March 2008 is primarily a result of the receipt of the£10 million milestone payment from AstraZeneca UK Ltd in April 2007.
Additions to Protherics Group plant and equipment during the year amounting to £403,000 (2007:£2,252,000) were financed by new finance leases. Additions to Protherics plant and equipment during theyear amounting to £nil (2007: £74,000) were financed by new finance leases.
Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet)comprise cash at bank and other short-term highly liquid investments with a maturity of three monthsor less.
33 Acquisition of Business Operations
On 4 January 2007, Protherics acquired 100% of the issued share capital of MacroMed Inc. (subsequentlyrenamed Protherics Salt Lake City Inc.), a private US Protherics, in order to access its lead productOncogel�, a novel sustained release formulation of Paclitaxel for local administration in oesophageal andbrain cancers. Prior to the acquisition, Protherics had loaned $1 million to MacroMed Inc.
The goodwill arising on acquisition resulted from assets which could not be recognised separately includingearly stage pipeline products and a highly skilled workforce.
115
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
33 Acquisition of Business Operations (Continued)
Protherics Salt Lake City Inc. contributed revenue of £26,000 and a loss of £637,000 in the period fromacquisition to 31 March 2007.
Book Fair value Fairvalue adjustment value
£’000 £’000 £’000Non-current assets:
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 12,051 12,208Property, plant & equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 623 — 623
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432 — 432Current liabilities(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,680) 178 (1,502)Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (241) 194 (47)
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (709) 12,423 11,714Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,676 1,676
Total consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (709) 14,099 13,390Settled by equity (issued at market value on date of acquisition) . . . . . . (11,602)Deferred consideration, to be paid in equity . . . . . . . . . . . . . . . . . . . . (1,289)
Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 499Cash and cash equivalents included in undertaking acquired . . . . . . . . . (125)
Net cash consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374
(1) Included £509,000 advanced to MacroMed Inc. by Protherics prior to its acquisition.
Total consideration included £499,000 of directly attributable costs.
Deferred tax liabilities that arose on the recognition of in process research and development were offset bydeferred tax assets relating to trading losses.
Notes disclosing the revenue and loss for the Protherics Group had the acquisition been completed on thefirst day of the financial year have not been provided as the Board of Directors believe disclosure of thisinformation would be impracticable since, for the period to acquisition, MacroMed Inc.’s ongoingoperations had been substantially reduced due to financial constraints which affected its financialstructure, financing costs, operations and activity levels, most notably its expenditure on research anddevelopment. For the period after the acquisition to 31 March 2007, the operations, expenditure andfinancial structure of MacroMed Inc. differed significantly.
34 Contingent Liabilities
Protherics has guaranteed certain operating leases, finance leases and hire purchase agreements enteredinto by subsidiary companies.
35 Related Party Transactions
Protherics Group
Transactions between Protherics and its subsidiaries, which are related parties, have been eliminated onconsolidation and are not disclosed in this note. Details of transactions between the Protherics Group andother related parties are disclosed below.
Details of consultancy fees earned by Directors during the year and fees paid to third parties for Directors’consultancy services are included within the Directors’ Remuneration Report. No amounts wereoutstanding at 31 March 2008 (2007: £nil). Other transactions with Directors are disclosed in note 7.
116
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
35 Related Party Transactions (Continued)
Protherics
On 31 March 2007, Protherics provided a loan to Protherics Inc. to fund the acquisition of MacroMed Inc.Interest on this loan is charged at the US Prime rate plus 2%. The balance of the loan at 31 March 2008was £8,116,000 (2007: £13,950,000) and the interest charged for the year was £1,072,000 (2007: £nil). Allother loans Protherics provides to subsidiary companies do not accrue interest since the Directors considerthat such loans are equivalent to equity. In addition, Protherics made management charges on itssubsidiaries amounting to £2,431,000 (2007: £1,574,000) and levied charges for options granted toemployees of subsidiaries of £567,000 (2007: £288,000). The outstanding balances due from/to subsidiarycompanies are disclosed in notes 17 and 19 respectively.
117
Section 2—Protherics’ historical financial information for the year ended 31 March 2007 prepared inaccordance with IFRS
INCOME STATEMENTS
for the year ended 31 March 2007
ProthericsGroup Protherics
Notes 2007 2006 2007 2006
£’000 £’000 £’000 £’000Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 31,119 17,709 1,576 1,302Cost of salesCost of sales excluding exceptional closedown costs . (11,334) (9,930) — —Exceptional closedown costs . . . . . . . . . . . . . . . . . . 6 — (1,362) — —
Total cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . (11,334) (11,292) — —
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,785 6,417 1,576 1,302
Administrative expensesResearch and development . . . . . . . . . . . . . . . . . (13,978) (6,747) (33) (33)General & administrative . . . . . . . . . . . . . . . . . . (10,161) (9,203) (4,297) (4,557)
Total administrative expenses . . . . . . . . . . . . . . . . . (24,139) (15,950) (4,330) (4,590)
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 (4,354) (9,533) (2,754) (3,288)
Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1,155 401 783 226Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 (417) (431) (182) (253)
Loss before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,616) (9,563) (2,153) (3,315)Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 259 75 — —
Loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . . 26 (3,357) (9,488) (2,153) (3,315)
Pence Pence
Basic and diluted loss per share . . . . . . . . . . . . . . . 11 (1.2) (3.8)
The results relate to continuing operations.
STATEMENTS OF RECOGNISED INCOME & EXPENSE
for the year ended 31 March 2007
ProthericsGroup Protherics
2007 2006 2007 2006
£’000 £’000 £’000 £’000Exchange differences on translation of foreign operations . . . . . . . . 749 (158) — —
Net income/(expense) recognised directly in equity . . . . . . . . . . . . . 749 (158) — —Loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,357) (9,488) (2,153) (3,315)
Total recognised loss since last financial statements . . . . . . . . . . . . . (2,608) (9,646) (2,153) (3,315)
All recognised income and expense is attributable to equity shareholders.
The notes on pages 121 to 161 form part of these financial statements.
118
BALANCE SHEETS
at 31 March 2007
ProthericsGroup Protherics
Notes 2007 2006 2007 2006
£’000 £’000 £’000 £’000Non-current assetsGoodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 10,878 9,199 — —Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 19,652 1,060 — —Property, plant and equipment . . . . . . . . . . . . . . . . . 14 9,987 8,109 412 280Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . 15 — — 62,387 62,357Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . 10 99 206 — —
40,616 18,574 62,799 62,637
Current assetsInventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 10,707 10,887 — —Financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 114 — 114 —Tax receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . 773 717 — —Trade and other receivables . . . . . . . . . . . . . . . . . . . 17 15,066 4,520 39,647 17,198Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . 18 39,989 25,438 38,822 8,517
66,649 41,562 78,583 25,715Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,265 60,136 141,382 88,352
Current liabilitiesTrade and other payables . . . . . . . . . . . . . . . . . . . . . 19 14,037 15,722 9,069 6,172Current tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . 273 278 — —Financial liabilities
Obligations under finance leases . . . . . . . . . . . . . . 22 1,048 623 24 1Bank overdrafts and loans . . . . . . . . . . . . . . . . . . 20 46 37 — —Derivative instruments . . . . . . . . . . . . . . . . . . . . . 23 — 136 — 136
15,404 16,796 9,093 6,309
Non-current liabilitiesTrade and other payables . . . . . . . . . . . . . . . . . . . . . 19 10,844 13,081 — —Financial liabilities
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 157 222 — —Convertible loan notes . . . . . . . . . . . . . . . . . . . . . 21 2,100 2,469 2,100 2,469Obligations under finance leases . . . . . . . . . . . . . . 22 2,289 1,216 31 —
15,390 16,988 2,131 2,469Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,794 33,784 11,224 8,778Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,471 26,352 130,158 79,574
Shareholders’ equityShare capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 6,783 5,186 6,783 5,186Share premium account . . . . . . . . . . . . . . . . . . . . . . 25 135,951 86,770 135,951 86,770Shares to be issued . . . . . . . . . . . . . . . . . . . . . . . . . 26 1,289 — 1,289 —Merger reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 51,163 51,163 — —Equity reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 220 263 220 263Cumulative translation reserve . . . . . . . . . . . . . . . . . 26 558 (191) — —Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 26 (119,493) (116,839) (14,085) (12,645)Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,471 26,352 130,158 79,574
The financial statements were approved by the Protherics board of directors and authorised for issue on5 June 2007. They were signed on its behalf by:
B M RileyDirector
The notes on pages 121 to 161 form part of these financial statements.
119
CASH FLOW STATEMENTS
for the year ended 31 March 2007
ProthericsGroup Protherics
Notes 2007 2006 2007 2006
£’000 £’000 £’000 £’000Cash flows from operating activities
Cash (outflow)/inflow from operations . . . . . . . . . . . . . . . 32 (16,051) 12,609 (6,324) (6,278)Income tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (50) — —Income tax received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293 5 — —
Net cash (outflow)/inflow from operating activities . . . . . . (15,758) 12,564 (6,324) (6,278)
Investing activitiesInterest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,155 401 783 226Proceeds on disposal of property, plant and equipment . . . 2 52 — 45Purchases of property, plant and equipment . . . . . . . . . . . (1,242) (1,989) (147) (142)Purchases of other intangible non-current assets . . . . . . . . (4,092) — — —Acquisition of subsidiary, net of cash acquired . . . . . . . . . (374) — — —Capital grants received . . . . . . . . . . . . . . . . . . . . . . . . . . — 250 — —
Net cash (used in)/from investing activities . . . . . . . . . . . . (4,551) (1,286) 636 129
Financing activitiesInterest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (170) (257) (144) (204)Interest paid on finance leases . . . . . . . . . . . . . . . . . . . . . (213) (133) (4) (1)Repayment of borrowings . . . . . . . . . . . . . . . . . . . . . . . . (36) (171) — —Repayments of finance leases . . . . . . . . . . . . . . . . . . . . . . (837) (582) (20) (30)Proceeds from issue of loan note . . . . . . . . . . . . . . . . . . . 30 — — —Proceeds from issue of shares . . . . . . . . . . . . . . . . . . . . . 36,162 8,049 36,161 8,049
Net cash inflow from financing activities . . . . . . . . . . . . . 34,936 6,906 35,993 7,814
Net increase in cash and cash equivalents . . . . . . . . . . . . 14,627 18,184 30,305 1,665Cash and cash equivalents at the beginning of year . . . . . . 25,438 7,242 8,517 6,852Effect of foreign exchange rate changes . . . . . . . . . . . . . . (76) 12 — —
Cash and cash equivalents at the end of year . . . . . . . . . . 18 39,989 25,438 38,822 8,517
The notes on pages 121 to 161 form part of these financial statements.
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Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS
1 General Information
Protherics PLC is a company incorporated in the United Kingdom under the Companies Act 1985. Thenature of the Protherics Group’s operations and its principal activities are set out in note 5 and in theBusiness Review.
These financial statements are presented in Sterling because that is the currency of the primary economicenvironment in which the Protherics Group operates. Foreign operations are included in accordance withthe policies set out in note 2.
These financial statements were approved for issue by the board of directors on 5 June 2007. At the date ofauthorisation of these financial statements, the following Standards and Interpretations, which have not yetbeen applied in these financial statements, were in issue but not yet effective:
� IFRS 7, Financial Instruments: Disclosures; and the related amendment to IAS 1, Presentation ofFinancial Statements on Capital Disclosures.
� IFRS 8, Operating Segments.
The Directors anticipate that the adoption of these Standards and Interpretations in future years will haveno material impact on the financial statements of the Protherics Group except for additional disclosures oncapital and financial instruments when the relevant Standards come into effect for periods commencing onor after 1 April 2007.
2 Accounting Policies
The principal accounting policies adopted in the preparation of these financial statements are set outbelow. These policies have been consistently applied to all years presented unless otherwise stated.
Basis of accounting
The Protherics Group financial statements have been prepared in accordance with International Financialand Reporting Standards (IFRS) as adopted by the European Union.
The financial information presented in this section 2 has been prepared based on IFRS as adopted by theEuropean Union, including International Accounting Standards (IAS) and Interpretations issued by theInternational Accounting Standards Board (IASB) and the International Financial ReportingInterpretations Committee (IFRIC) of the IASB that are relevant to its operation and effective foraccounting periods beginning on 1 April 2006.
As applied to Protherics’s financial statements, there are no material differences between IFRS as adoptedby the European Union and IFRS as published by the IASB.
The financial statements have been prepared under the historical cost convention as modified by therevaluation of certain financial assets and liabilities. A summary of the more important policies are setout below.
The preparation of financial statements in conformity with generally accepted accounting principlesrequires the use of estimates and assumptions that affect the reported amounts of assets and liabilities atthe date of the financial statements and the reported amounts of revenues and expenses during thereporting period. Although these estimates are based on management’s best knowledge of the amount,events or actions, actual results ultimately may differ from those estimates.
Basis of consolidation
The consolidated financial statements of Protherics PLC incorporate the financial statements of Prothericsand all entities over which it can exercise control (its ‘‘subsidiaries’’). Control is achieved by the power togovern the financial and operating policies of the subsidiary so as to obtain benefits from it’s activities, andgenerally accompanies a shareholding of more than one half of the voting rights. The existence and effectof potential voting rights that are currently exercisable or convertible are considered when assessingwhether the Protherics Group controls another entity. Subsidiaries are fully consolidated from the date on
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NOTES TO THE FINANCIAL STATEMENTS (Continued)
2 Accounting Policies (Continued)
which control is transferred to the Protherics Group. They are de-consolidated from the date on whichcontrol ceases.
The purchase method is used to account for the acquisition of subsidiaries by the Protherics Group. Thecost of an acquisition is measured as the fair value of the assets given, equity instruments issued andliabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.Identifiable assets acquired and liabilities and contingent liabilities assumed are measured initially at theirfair values on the date of acquisition, irrespective of the extent of any minority interest. The excess of thecost of acquisition over the fair value of the Protherics Group’s share of identifiable net assets, includingintangible assets acquired, is recorded as goodwill. If the cost of acquisition is less than the fair value of theProtherics Group’s share of net assets of the subsidiary acquired, the difference is recognised directly inthe income statement.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring accountingpolicies used into line with those used by the Protherics Group.
On consolidation, all intra-group transactions, balances, income and expenditure are eliminated.
Segment reporting
A business segment is a group of assets, liabilities and operations engaged in providing products or servicesthat are subject to risks and returns that are different from those of other parts of the business. Ageographical business segment is engaged in providing products or services within a particular economicenvironment that is subject to risks and returns that are different from those of segments operating inother economic environments.
Foreign currency translation
Items included in the financial statements of each of the Protherics Group’s entities are measured usingthe functional currency of the primary economic environment in which the entity operates (the ‘‘functionalcurrency’’). The consolidated financial statements are presented in Sterling, which is Protherics’ functionaland presentational currency.
Transactions in foreign currencies are recorded at the rate of exchange ruling at the date of transaction.Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translatedat the rates of exchange prevailing at that date. Gains and losses arising on translation are included in theincome statement.
On consolidation, the results of operations that have a functional currency different from thepresentational currency are translated at the average rate of exchange during the year and their balancesheets at the rates ruling at the date of the balance sheet. Exchange differences arising on translation from1 April 2004 are taken directly to a separate component of equity, the cumulative translation reserve.
Revenue recognition
Revenue represents amounts received or receivable in respect of the sale of goods and services, licenceagreements and intellectual property to customers during the year, net of trade discounts given and valueadded tax.
A description of the various elements of revenue and the associated accounting policies is given below:
� Products
Revenue is partly recognised upon the shipment of products to the distributor, the significant risks andrewards having been transferred to the distributor, with further amounts being recognised inaccordance with the contractual terms upon shipment to the end user.
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NOTES TO THE FINANCIAL STATEMENTS (Continued)
2 Accounting Policies (Continued)
� Upfront and milestone payments
Non-refundable upfront and milestone payments are recognised over the period of the earningsprocess (see note 3).
� Outlicensed product royalties
Royalty income is generated by sales of products incorporating the Protherics Group’s proprietarytechnology. Royalty revenues are recognised once the amounts due can be reliably estimated based onthe sale of underlying products and collectibility is assured. Where there is insufficient historical dataon sales and returns to fulfil these requirements, for example in the case of a new product, the royaltyrevenue will not be recognised until the Protherics Group can reliably estimate the underlying sales.
Research and development expenditure
Research expenditure is recognised as an expense as incurred. Expenditure incurred on developmentprojects (relating to the design and testing of new or improved products) is recognised as intangible assetswhen it is probable that the project will generate future economic benefit, considering factors including itscommercial and technological feasibility, status of regulatory approval, and the ability to measure costsreliably. Other development expenditures are recognised as an expense as incurred. Developmentexpenditure previously recognised as an expense is not recognised as an asset in a subsequent period.Development expenditure that has a finite useful life and which has been capitalised is amortised from thecommencement of the commercial production of the product on a straight line basis over the period of itsexpected benefit.
No development expenditure has been capitalised in either the current or prior year.
Exceptional items
The Protherics Group defines exceptional items as those items which are not expected to occur frequentlyand by their nature or size, would distort the comparability of results from year to year.
Finance income and costs
Finance income comprises of income on funds invested and is recognised as it accrues using the effectiveinterest method.
Finance costs comprise interest expenses on borrowings and are recognised in the Income Statement usingthe effective interest method.
Intangible fixed assets—Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Protherics Group’sshare of the net identifiable assets, including intangible assets, of the acquired subsidiary at the date ofacquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is testedannually for impairment or when events or changes in circumstances indicate the carrying value may beimpaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of asubsidiary include the carrying amount of goodwill relating to the subsidiary sold.
Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previousUK GAAP amount. Goodwill arising on acquisitions in the year ended 31 March 1998 and earlier periodshas been written off to reserves, has not been reinstated in the balance sheet and is not included indetermining any subsequent profit or loss on disposal.
Intangible fixed assets—Other
Purchased trademarks, licenses and customer lists are recognised at cost on acquisition and are subject toamortisation over their useful life from the point at which the asset is available for use. The amortisation
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Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
2 Accounting Policies (Continued)
charge is calculated on a straight-line basis over their estimated useful lives (currently a maximum of10 years).
Property, plant and equipment
Land and buildings comprise mainly factories and offices. All property, plant and equipment is shown atcost less subsequent depreciation and impairment losses, except for land, which is shown at cost lessimpairment. Cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in an asset’s carrying amount only when it is probable that future economicbenefits associated with the asset will flow to the Protherics Group and the cost of the asset can bemeasured reliably.
Depreciation on assets is calculated using the straight-line method to allocate the cost of each asset less itsresidual value over its estimated useful life as follows:
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . 5% to 10% per yearPlant and machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10% to 15% per yearComputer equipment and software . . . . . . . . . . . . . . . . . . . . . . 20% to 33% per yearFixtures, fittings and motor vehicles . . . . . . . . . . . . . . . . . . . . . 20% to 25% per year
The assets residual values and useful lives are reviewed and adjusted as appropriate at each balancesheet date.
Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carryingvalue of the asset may not be recoverable. An asset’s carrying amount is written down immediately to itsrecoverable amount if the carrying amount exceeds the higher of the assets’ fair value less cost to sell andvalue in use. Any impairment charge is recorded in the income statement.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These areincluded in the income statement. Borrowing costs incurred during the construction of assets are expensedas incurred.
Investments
Investments are stated at cost less any provision for impairment.
Impairment of tangible and intangible assets
The Protherics Group reviews the carrying amounts of its tangible assets and intangible assets with finitelives when events or circumstances indicate the carrying value may be impaired, whilst goodwill with anindefinite life is reviewed for impairment on an annual basis. In performing such reviews, the recoverableamount of the asset is estimated in order to determine the extent of the impairment loss (if any). Wherethe asset does not generate cash flows that are independent from other assets, the Protherics Groupestimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangibleasset with an indefinite life is tested for impairment annually and whenever there is an indication that theasset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use,the estimated future cash flows are discounted to their present value using a pre-tax discount rate thatreflects current assessments of the time value of money and the risks specific to the asset for which theestimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carryingamount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Animpairment loss is recognised as an expense immediately.
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Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
2 Accounting Policies (Continued)
Where an impairment loss subsequently reverses, the carrying value of the asset (cash-generating unit) isincreased to the revised estimate of its recoverable amount, provided that the increased carrying amountdoes not exceed the carrying amount that would have been determined had no impairment loss beenrecognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss isrecognised as income immediately.
Inventories
Inventories are valued at the lower of cost and net realisable value. Cost comprises materials, direct labourand a share of production overheads appropriate to the relevant stage of production. Provision is made forobsolete, slow-moving or defective items where appropriate. Net realisable value is determined at thebalance sheet date on commercially saleable products based on estimated selling price less all further coststo completion and all relevant marketing, selling and distribution costs. Research and developmentinventories are fully provided for in the income statement for the year, and are reinstated as appropriate ifthe related products are brought into commercial use.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit asreported in the income statement because it excludes items of income and expense that are taxable ordeductible in other periods and it further excludes items that are never taxable or deductible. TheProtherics Group’s liability for current tax is calculated using tax rates that have been enacted orsubstantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amountsof assets and liabilities in the financial statements and the corresponding tax bases used in the computationof taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities arerecognised for all taxable temporary differences and deferred tax assets are recognised to the extent that itis probable that taxable profits will be available against which deductible temporary differences can beutilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill orthe initial recognition (other than a business combination) of other assets and liabilities in a transactionthat affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising from investments insubsidiaries and associates, and interests in joint ventures, except where the Protherics Group is able tocontrol the reversal of the temporary difference and it is probable that the temporary difference will notreverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date is reduced to the extentthat it is no longer probable that sufficient taxable profits will be available to allow the asset tobe recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settledor the asset is realised. Deferred tax is charged or credited in the income statement, except when it relatesto items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risksand rewards of ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Protherics Group at their fair value or, iflower, at the present value of the minimum lease payments, each determined at the inception of the lease.The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.Lease payments are apportioned between finance charges and reduction of the lease obligation so as to
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Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
2 Accounting Policies (Continued)
achieve a constant rate of interest on the remaining balance of the liability. Finance charges are chargeddirectly against income. Such assets are depreciated over the shorter of their estimated useful lives or thelength of the lease. Assets purchased under hire purchase agreements are accounted for similarly, exceptthat these assets are depreciated over their estimated useful lives.
Rentals under operating leases are charged to income on a straight-line basis over the term of therelevant lease.
Government grants
Government grants towards staff re-training costs are recognised as income over the periods in which therelated costs are incurred and are deducted in reporting the related expense.
Government grants relating to property, plant and equipment are treated as deferred income and releasedto the income statement over the useful lives of the assets concerned.
Pensions
The Protherics Group operates a defined contribution retirement benefit scheme for all members of staffwho wish to participate. The funds of the scheme are administered by trustees and are independent of theProtherics Group’s finances. The Protherics Group’s contributions are charged in the income statement asthey fall due.
Share-based payments
The Protherics Group has applied the requirements of IFRS 2, Share-Based Payments. In accordance withthe transitional provisions, IFRS 2 has been applied to all grants of equity instruments after7 November 2002 that were unvested at 1 January 2005.
The Protherics Group grants share options to directors and employees. Equity-settled share-basedpayments are measured at fair value at the date of grant and expensed on a straight-line basis over theexpected life of the option, based on the estimate of the number of options that will eventually vest.
The share options granted have varying performance criteria required for the option to vest and these areconsidered in the method of measuring the fair value. Where it is considered appropriate, the fair value ismeasured using the Black-Scholes model. Where complex market performance criteria exist, a simulationmodel has been used, based on the same underlying methodology as the Black-Scholes model, to establishthe fair value on grant.
Convertible loan notes
Following adoption of IAS 39, Financial Instruments: Recognition and Measurement, by the ProthericsGroup on 1 April 2005, convertible loan notes are regarded as compound financial instruments, consistingof a liability component and an equity component. At the date of issue, the fair value of the liabilitycomponent is established by using an estimate for a similar non-convertible debt. The difference betweenthe proceeds of issue of the convertible loan notes and the fair value assigned to the liability component,representing the embedded option to convert the liability into equity of the Protherics Group, is includedin equity.
Issue costs are apportioned between the liability and equity components of the convertible loan notesbased on their relative carrying amounts at the date of issue. The portion relating to the equity componentis charged directly against equity.
The interest expense on the liability component consists of the coupon rate and the element of the equitycomponent proportionate to the liability component outstanding. This latter part is added to the carryingamount of the convertible loan notes.
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Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
2 Accounting Policies (Continued)
Trade receivables
Trade receivables do not carry any interest and are stated at their face value as reduced by appropriateallowances for estimated irrecoverable amounts.
Trade payables
Trade payables are not interest bearing and are stated at their face value.
Derivative financial instruments
The Protherics Group’s activities expose it primarily to the financial risks of changes in foreign currencyexchange rates. The Protherics Group uses foreign exchange forward contracts and options to hedge theseexposures. The Protherics Group does not use derivative financial instruments for speculative purposes.The use of financial derivatives is in accordance with the Protherics Group’s policies approved by theBoard of Directors, which is to hedge the foreign currency exposure from the expected US dollar sales on arolling 12 month basis.
Prior to the adoption of IAS 32, Financial Instruments: Disclosure and Presentation, and IAS 39, FinancialInstruments: Recognition and Measurement, on 1 April 2005, where a derivative instrument was used tohedge an asset denominated in a foreign currency, the effect of the instrument, being the differencebetween the closing and hedged rate of exchange for these assets, was carried separately on the balancesheet as a financial asset.
Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash equivalents includes cash in hand, deposits heldat call with banks, other short-term highly liquid investments with original maturities of three months orless, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on thebalance sheet.
Financial guarantees
Where Protherics enters into financial guarantee contracts to guarantee the indebtedness of othercompanies within its group, Protherics considers these to be insurance arrangements, and accounts forthem as such. In this respect, Protherics treats the guarantee contract as a contingent liability until suchtime as it becomes probable that Protherics will be required to make a payment under the guarantee.
Financial risk management
The Protherics Group’s multinational operations expose it to a variety of financial risks that include theeffects of changes in foreign exchange rates, credit risks and liquidity risks. The Protherics Groupundertakes procedures which aim to reduce uncertainty in the financial performance of the ProthericsGroup which are discussed below:
� Foreign exchange risk
A significant element of the Protherics Group’s revenue is denominated in US dollars whilst much ofits cost base in the provision of these products is denominated in Sterling. The Protherics Groupenters into foreign exchange contracts and similar derivatives which typically extend for up to12 months and cover 70 to 100% of anticipated Sterling requirements.
� Credit risk
A significant element of the Protherics Group’s revenue is generated from sales to one customer inthe US. Management are constantly in communication with this customer and monitor both sales andpayments from this customer to minimise the credit risk exposure.
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NOTES TO THE FINANCIAL STATEMENTS (Continued)
2 Accounting Policies (Continued)
� Liquidity risk
The Protherics Group maintains a mixture of short and medium term deposits that are designed toensure the Protherics Group has sufficient available funds for operations and planned expansions.
� Interest rate risk
The Protherics Group seeks to mitigate partially against increased interest rates whilst maintaining adegree of flexibility to benefit from decreasing rates of interest by holding a mix of fixed and floatingrate financial liabilities.
3 Critical Accounting Judgement
In the process of applying Protherics’ accounting policies, described in note 2, the management has madethe following judgements that have had the most significant effect on the amounts recognised in thefinancial statements.
Revenue recognition
As described in note 2, it is the Protherics Group’s policy to recognise non-refundable upfront paymentsover the period of the earnings process. During the prior year, the Protherics Group received£16,300,000 from AstraZeneca UK Ltd in a Patent and License Know How agreement. These monies arenon-refundable and are being recognised as revenue as the varying obligations within the contract arebeing satisfied, estimated to be over a period of 7 years. During the current year, the Protherics Groupearned a £10,000,000 milestone from AstraZeneca UK Limited which has been recognised as revenue inthe year since the earnings process for the milestone had been completed.
In determining the revenue recognition period, management considered the detailed criteria for therecognition of revenue per IAS 18, Revenue, and is satisfied that all requirements have been met bythe Protherics Group.
Acquisitions
Judgements have been made in respect of the identification of intangible assets based on pre-acquisitionforecasts, analysis and negotiations. In addition to the judgements and estimates made in establishing theintangible assets acquired and their value, in certain instances, these assets are in development and areonly amortised once the development phase has been completed, although these assets are subjected toimpairment review in accordance with the accounting policy described in note 2.
128
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
4 Revenue
An analysis of the Protherics Group’s revenue is as follows:
ProthericsGroup
2007 2006
£’000 £’000Sale of products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,504 16,221Revenue in respect of product development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,213 976Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 72
30,842 17,269Outlicensed product royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277 440
31,119 17,709Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,155 401
32,274 18,110
Protherics’ revenue comprises charges for the provision of services to group companies.
5 Segmental Reporting
For management purposes, the Protherics Group is organised into two operating segments, the sale,manufacture and development of pharmaceutical products and royalties arising from outlicensedtechnology. These divisions are the basis on which the Protherics Group reports its primary segmentinformation.
The revenue and costs of each segment are clearly identifiable and allocated to each segment accordingly.There are no inter-segmental revenues. The exceptional item shown within cost of sales for the prior yearis included within the sale, manufacture and development of pharmaceutical products operating segment.
129
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
5 Segmental Reporting (Continued)
Business segments
2007 2006
Sale manufacture Sale manufactureand development Outlicensed and development Outlicensedof pharmaceutical product Protherics of pharmaceutical product Protherics
products royalties Group products royalties Group
£’000 £’000 £’000 £’000 £’000 £’000Continuing operationsRevenue . . . . . . . . . . . . . . . . 30,842 277 31,119 17,269 440 17,709
Segment result . . . . . . . . . . . (4,621) 267 (4,354) (9,961) 428 (9,533)Finance income . . . . . . . . . . 1,155 401Finance costs . . . . . . . . . . . . (417) (431)
Loss before tax . . . . . . . . . . . (3,616) (9,563)Tax . . . . . . . . . . . . . . . . . . . 259 75
Loss for the year attributableto equity shareholders . . . . (3,357) (9,488)
Segment assets . . . . . . . . . . . 67,182 94 67,276 34,566 132 34,698Unallocated assets . . . . . . . . . 39,989 25,438
107,265 60,136Segment liabilities . . . . . . . . . (30,727) (67) (30,794) (33,709) (75) (33,784)
Other segment itemsCapital expenditure
(note 14) . . . . . . . . . . . . 3,278 — 3,278 2,629 — 2,629Depreciation (note 14) . . . . 1,373 — 1,373 1,391 — 1,391Amortisation of intangible
assets (note 13) . . . . . . . 135 — 135 114 — 114Other non-cash expenses . . . — — — — — —
Geographical segments
The Protherics Group’s operations are located in the UK, North America and Australia. The UK is thehome country of the parent.
The following table provides an analysis of the Protherics Group’s sales by geographical market,irrespective of the origin of the goods/services, along with the carrying amount of segment assets andcapital expenditure (on both property, plant and equipment and intangible assets):
CapitalRevenue Segment assets expenditure
2007 2006 2007 2006 2007 2006
£’000 £’000 £’000 £’000 £’000 £’000Continuing operations:United Kingdom . . . . . . . . . . . . . . . . . . . . . . . 1,905 1,562 74,551 27,905 2,396 2,194United States . . . . . . . . . . . . . . . . . . . . . . . . . . 29,190 16,087 (493) (5,015) 215 17Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 60 2,413 3,462 667 418
31,119 17,709 76,471 26,352 3,278 2,629
130
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
6 Operating Loss
Operating loss has been arrived at after charging/(crediting):
ProthericsGroup Protherics
2007 2006 2007 2006
£’000 £’000 £’000 £’000Net foreign exchange (gains)/losses . . . . . . . . . . . . . . . . . . . . . . . . (754) 454 9 602Research and development expenditure . . . . . . . . . . . . . . . . . . . . . 13,978 6,747 33 33Inventories:
Cost of inventories recognised as expense . . . . . . . . . . . . . . . . . . 11,192 11,193 — —Depreciation of property, plant and equipment:
Owned assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 870 1,154 75 35Assets owned under finance leases . . . . . . . . . . . . . . . . . . . . . . . 503 237 15 14
Amortisation of purchased intangible fixed assets . . . . . . . . . . . . . . 135 114 — —Operating leases—rentals payable:
Plant & equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 25 1 1Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 529 463 81 30
Loss on disposal of tangible fixed assets . . . . . . . . . . . . . . . . . . . . . 634 108 — 9Repairs and maintenance expenditure on property, plant &
equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 653 595 1 —Amortisation of government grants . . . . . . . . . . . . . . . . . . . . . . . . (111) (78) — —Government grants towards training costs . . . . . . . . . . . . . . . . . . . . (25) (11) — —Exceptional closedown costs (within cost of sales)(1) . . . . . . . . . . . . — 1,362 — —
(1) During the year ended 31 March 2006, the Protherics Group completed a major upgrade and expansion of its manufacturingfacility in Wales. During this phase of the work, the facility was shutdown for a substantial part of the year incurring £1,362,000of expenditure which, under normal circumstances would have been absorbed into stock manufactured during the year. Thesecosts had no effect on the tax credit for the period.
131
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
The analysis of Auditors’ remuneration is as follows:
2007 2006
KPMGAudit PwC PwCPlc LLP Total LLP
£’000 £’000 £’000 £’000Fees payable to Protherics’ auditors for the audit of Protherics’sannual accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 62 104 21Fees payable to Protherics’ auditors and their associates for theaudit of Protherics’ annual consolidated accountsThe audit of Protherics’ subsidiaries pursuant to legislation . . . . . . . 100 (2) 98 56Other services pursuant to legislation . . . . . . . . . . . . . . . . . . . . . . . 42 (1) 41 24Tax services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 54 80 117Services relating to corporate finance transactions entered into orproposed to be entered into by or on behalf of Protherics or any ofits associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239 — 239 —Other services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 — 10 34Fees in respect of the audit of Protherics Group’s definedcontribution pension scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2 2 2
During the year, KPMG Audit Plc replaced PricewaterhouseCoopers LLP as auditors of Protherics. Theabove table illustrates remuneration earned during the period each party held the position of auditor. Inaddition to the above, PricewaterhouseCoopers LLP earned £43,000 following their resignation fromservices related to corporate finance transactions.
Fees payable to Protherics’ respective auditors and their associates for non-audit services provided toProtherics are not required to be disclosed because the consolidated financial statements are required todisclose such fees on a consolidated basis.
Of the fees earned by KPMG Audit Plc in relation to corporate finance transactions, £107,000 form part ofthe cost of the assets acquired and £132,000 has been charged to the share premium.
7 Staff Costs
The average number of persons, including Directors, employed by the Protherics Group and Prothericsduring the year was:
ProthericsGroup Protherics
2007 2006 2007 2006Number Number Number Number
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 35 10 11Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 27 11 8Research and production . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 135 — —
237 197 21 19
132
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
7 Staff Costs (Continued)
Their total remuneration was:
£’000 £’000 £’000 £’000
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,861 6,849 2,198 1,621Social security costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 749 649 185 172Pension costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 714 629 156 209
10,324 8,127 2,539 2,002
The Protherics Group operates a defined contribution pension scheme for the benefit of all qualifyingexecutive directors and employees. The assets of the scheme are held separately from those of theProtherics Group in funds under the control of the trustees. Where there are employees who leave thescheme prior to the contributions fully vesting in the scheme, the contributions paid by the ProthericsGroup are refunded.
Included within salaries above are bonuses of which £536,000 (2006: £397,000) will be paid into theProtherics Group’s defined contribution pension scheme, as disclosed in the Directors RemunerationReport.
Pension contributions of £87,000 (2006: £74,000) were included in accruals at the year end for theProtherics Group. No accruals were included in Protherics for the current and prior years.
In addition to the wages and salaries analysis above are the effects of the share-based compensation chargeto the Protherics Group during the year of £703,000 (2006: £311,000). The charge in respect of Prothericsnet of amounts recharged to group companies was £426,000 (2006: £217,000).
Key management compensation
ProthericsGroup
2007 2006
£’000 £’000Aggregate emoluments:Salaries and short-term employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,846 1,577Post employment benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258 256Compensation for loss of office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 50
2,104 1,883
In addition to the above, the charge to income in respect of share options for key management personnelwas £491,000 (2006: £232,000).
The key management figures given above include Directors.
133
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
7 Staff Costs (Continued)
Directors emoluments
ProthericsGroup
2007 2006
£’000 £’000Aggregate emoluments:Salaries and short-term employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,145 942Post employment benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 202Compensation for loss of office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 50
1,310 1,194
The remuneration of the Executive Directors is decided by the Remuneration Committee. Full details ofthe Directors’ remuneration and details of the Directors’ options, including gains made on the exercise ofshare options, are contained in the Directors’ Remuneration Report.
Transactions with directors
On 3 January 2007, the Protherics Group completed the acquisition of MacroMed Inc. (subsequentlyrenamed Protherics Salt Lake City Inc.). Dr J Gonella was a Non-Executive Director and shareholder ofMacroMed Inc. In consideration for his interest in MacroMed Inc., Dr Gonella received8,245,815 Protherics PLC 2p ordinary shares, valued at £6,102,000 at the date of the transaction with afurther 916,202 2p ordinary shares, valued at £678,000 at the date of the transaction, to be issued18 months after the date of the transaction.
JG Consulting, a business owned by Dr Gonella, has charged the Protherics Group for the provision ofconsultancy services supplied by employees other than Dr Gonella, a total of $71,000 during the year.
During the year, Protherics purchased equipment from BCS Global Networks Limited, a company forwhich S M Wallis is a Director, at a cost of £28,000. BCS Global Networks Limited also provided servicesamounting to £5,000 in the year. In addition, Protherics also purchased services at a cost of £1,000 fromLCG Limited, a company for which S M Wallis is Chairman.
All the transactions are considered by the Board to be at arms-length.
8 Finance Income
ProthericsGroup Protherics
2007 2006 2007 2006
£’000 £’000 £’000 £’000Bank interest and interest on deposits . . . . . . . . . . . . . . . . . . . . 1,155 401 783 226
134
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
9 Finance Costs
ProthericsGroup Protherics
2007 2006 2007 2006
£’000 £’000 £’000 £’000Interest payable on finance lease and hire purchase borrowings . . . . 213 133 4 1Interest payable on bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . 17 22 — —Interest payable on 6% convertible unsecured loan notes . . . . . . . . . 134 193 134 193Amortisation of 6% convertible unsecured loan notes . . . . . . . . . . . 41 57 41 57Interest payable on notes payable to the South Australian Minister
for Primary Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 7 — —Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 19 3 2
417 431 182 253
10 Tax
An analysis of credit for the year, all relating to continuing operations, is set out below:
ProthericsGroup Protherics
2007 2006 2007 2006
£’000 £’000 £’000 £’000Current taxUK Corporation tax credit for the current year . . . . . . . . . . . . . 353 325 — —Adjustment in respect of prior years UK Corporation tax . . . . . . 7 — — —
360 325 — —Foreign tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 (3) — —
Total current taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363 322 — —
Deferred taxationReduction in estimate of recoverable deferred tax asset . . . . . . . — (247) — —Utilisation of losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (104) — — —
259 75 — —
Corporation tax in the UK is calculated at 30% (2006: 30%) of the estimated assessable profit for the year.Taxes for other jurisdictions are calculated at the rates prevailing in the respective jurisdictions.
The UK tax credits arising in the current and prior years were as a result of research and developmentexpenditure claimed under the Finance Act 2000.
135
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
10 Tax (Continued)
The tax for the year is lower (2006: lower) than the standard rate of corporation tax in the UK (30%). Thedifferences are explained below:
ProthericsGroup Protherics
2007 2006 2007 2006
£’000 £’000 £’000 £’000Loss before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,616) (9,563) (2,153) (3,315)
Loss on ordinary activities multiplied by rate of corporation taxin the UK of 30% (2006: 30%) . . . . . . . . . . . . . . . . . . . . . . . (1,085) (2,869) (646) (995)
Adjustments in respect of foreign tax rates . . . . . . . . . . . . . . . . . 778 386 — —Timing differences between capital allowances and depreciation . 520 509 27 23Other timing differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,646 4,041 — —Other expenditure not deductible for tax purposes . . . . . . . . . . . 692 (302) 12 322Additional tax credit for research and development expenditure
incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (449) (349) — —Lower rate of tax on research and development credits
surrendered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310 284 — —Utilisation of losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,661) (1,775) — —Adjustments to tax in respect of prior years . . . . . . . . . . . . . . . . (10) — — —Losses surrendered to group companies . . . . . . . . . . . . . . . . . . . — — 607 650
Total taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (259) (75) — —
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of30% (2006: 30%). The movement on the deferred tax account is as shown below:
ProthericsGroup Protherics
2007 2006 2007 2006
£’000 £’000 £’000 £’000Deferred tax asset recognised at 1 April . . . . . . . . . . . . . . . . . . . 206 432 — —Income statement credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (104) (247) — —Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) 21 — —
Deferred tax asset recognised at 31 March . . . . . . . . . . . . . . . . . 99 206 — —
The deferred tax asset, which relates to trading losses incurred in Australia, has been recognised in thefinancial statements following the development of the Protherics Group’s products in prior years and theDirectors are of the opinion, based on recent and forecast trading, that the level of profits in Australia inthe forthcoming years will lead to the realisation of this asset.
In addition to the losses on which the deferred tax asset has been recognised, the Protherics Group hasadditional taxable losses and other timing differences in the United Kingdom and the United States whicharose as a result of the research and development incurred during the start-up of the Protherics Group’sactivities. These losses are available for offset against future taxable profits in these territories. A deferredtax asset has not been recognised in respect of these losses and other temporary differences since theProtherics Group does not anticipate generating sufficient taxable profits to utilise these losses within theimmediate future and consequently the recoverability of the deferred tax asset is uncertain. The totalamount of deferred tax asset not recognised, measured at 30%, the rate of corporation tax in theUnited Kingdom (2006: 30%) is approximately £23 million of which £1 million related to temporary
136
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
10 Tax (Continued)
differences and £22 million was in respect of losses (2006: approximately £27 million, of which £4 millionrelated to temporary differences and £23 million was in respect of losses).
The movements in the deferred tax asset and liabilities (prior to the offsetting of balances within the samejurisdiction as permitted by IAS 12, Income Taxes) during the year are as shown below. The deferred taxasset and liabilities are only offset where there is a legally enforceable right of offset and there is anintention to settle the balance net.
Deferred tax asset
Tax losses Total
£’000 £’000At 1 April 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206 206Credited to the income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (104) (104)Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (3)
At 31 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 99
There were no recognised deferred tax liabilities at 31 March 2007 or 31 March 2006.
At 31 March 2007 the Protherics Group had tax losses, subject to the agreement of the TaxationAuthorities, of approximately £84 million (2006: £72 million) available for offset against future taxableprofits of the same trade. Included within these total losses, approximately £24.7 million (2006:£18.6 million) relates to Protherics Inc., and of these, the use of £21.6 million is restricted toUS$2.7 million per year.
At the balance sheet date, the aggregate amount of temporary differences associated with undistributedearnings of subsidiaries for which deferred tax liabilities had not been recognised was £nil (2006: £nil). Noliability has been recognised in respect of these differences because the Protherics Group is in a position tocontrol the timing of the reversal of the temporary differences and it is probable that such differences willnot reverse in the foreseeable future.
In March 2007, proposals were announced to change the UK rate of corporation tax from 30% to 28%with effect from 1 April 2008. This will reduce the deferred tax asset available in future periods.
11 Loss per Share
Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weightedaverage number of ordinary shares outstanding during the year. For diluted loss per share, the weightedaverage number of ordinary shares in issue would be adjusted to assume conversion of all dilutive potentialordinary shares. The company would have three categories of dilutive potential ordinary shares: shareoptions, warrants and the 6% unsecured convertible loan notes.
Protherics has been loss making in both the current and prior year and as such, should Protherics be calledupon to issue shares, the effect would be anti-dilutive.
The calculation of the basic and diluted loss per share is based on the loss of £3,357,000 (2006: £9,488,000)and on 285,365,704 ordinary shares (2006: 246,854,698) being the weighted average number of ordinaryshares in issue. The weighted average number of shares in issue for the year ended 31 March 2006 has beenadjusted for the cash placing and open offer during the current year. This had no effect on the loss pershare previously reported.
137
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
12 Goodwill
£’000
Protherics GroupCostAt 1 April 2005 and 1 April 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,199Additions (see note 28) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,676Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
At 31 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,878
Accumulated impairment lossesAt 1 April 2005, 1 April 2006 and 31 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Carrying amount31 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,878
31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,199
The goodwill at 31 March 2006 arose on the acquisition of Enact Pharma PLC in June 2003 with theaddition in the current year arising from the acquisition of MacroMed Inc, each of which is considered tobe a separate cash-generating unit.
The Protherics Group tests goodwill annually for impairment, or more frequently if there are indicationsthat goodwill might be impaired. At 31 March 2007 there were no accumulated impairment losses. Therecoverable amount of the cash-generating unit is determined from a value in use calculation.
The key assumptions for the value in use calculation are those regarding the launch dates of productswhich in the cases of Enact Pharma PLC and MacroMed Inc. are principally Voraxaze� and Oncogel�respectively, the expected unit sales, and expected changes to selling prices and direct costs during theyear. Changes are based on expectations of future changes in the market. A discount rate of 14% has beenapplied. The calculations are based upon the most recent cash flow forecasts covering the next 10 years inthe case of Voraxaze� and twelve years in the case of Oncogel�. These forecasts have been approvedby management.
Protherics had no goodwill.
138
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
13 Other Intangible Assets
Patentsand Other
trademarks intangibles Total
£’000 £’000 £’000Protherics GroupCostAt 1 April 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 858 565 1,423Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 50 126
At 1 April 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 934 615 1,549
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 18,830 18,830Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (108) (55) (163)
At 31 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 826 19,390 20,216
AmortisationAt 1 April 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342 — 342Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 — 114Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 — 33
At 1 April 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489 — 489
Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 28 135Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (60) — (60)
At 31 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 536 28 564
Carrying amount31 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290 19,362 19,652
31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445 615 1,060
Patents and trademarks are amortised over their estimated useful lives, which is on average 8 years.
Carrying RemainingValue amortisation£’000 period
Significant other intangible assets:Intangible assts arising from the acquisition of Protherics Salt Lake
City Inc. (formerly MacroMed Inc.) . . . . . . . . . . . . . . . . . . . . . . . . . . 12,223 Not amortised(1)
Customer list purchased from F Hoffman La-Roche Limited . . . . . . . . . 545 Not amortised(2)
CoVaccine HT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309 10 yearsAdvanced In Vitro Cell Technologies S.L.—asset in development . . . . . . 563 Not amortised(1)
Glenveigh Pharmaceuticals LLP—asset in development . . . . . . . . . . . . . 5,722 Not amortised(1)
(1) Assets in development are not amortised.
(2) To be amortised, commencing after receipt of European marketing approvals for DigiFab�.
There are no self-generated intangibles.
Protherics had no other intangible assets.
139
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
14 Property, Plant and Equipment
Furniture,Land & Plant & fixtures &buildings machinery equipment Total
£’000 £’000 £’000 £’000Protherics GroupCostAt 1 April 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,331 7,861 2,435 15,627Reclassification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 21 (21) —Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 2,218 300 2,629Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44) (328) (484) (856)Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 8 28 47
At 1 April 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,409 9,780 2,258 17,447
Reclassification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 11 (11) —Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319 2,290 669 3,278Acquisition of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . 253 342 28 623Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) (1,664) (78) (1,747)Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) (2) (25) (31)
At 31 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,972 10,757 2,841 19,570
DepreciationAt 1 April 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,008 4,312 1,308 8,628Reclassification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 92 (92) —Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390 652 349 1,391Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44) (261) (391) (696)Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . — 5 10 15
At 1 April 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,354 4,800 1,184 9,338
Reclassification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 8 (8) —Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337 666 370 1,373Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (1,042) (66) (1,111)Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . — (3) (14) (17)
At 31 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,688 4,429 1,466 9,583
Carrying amount31 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,284 6,328 1,375 9,987
31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,055 4,980 1,074 8,109
2007 2006
£’000 £’000Land & buildings comprise:
Freehold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,213 1,318Short leasehold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,071 737
2,284 2,055
Plant & machinery includes cost of £498,000 (2006: £1,638,000) in respect of assets in the course ofconstruction.
140
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
14 Property, Plant and Equipment (Continued)
The net book value of plant and machinery, and furniture, fixtures and equipment includes £4,740,000(2006: £2,752,000) in respect of assets held under finance lease and hire purchase agreements.Depreciation for the year on those assets was £503,000 (2006: £237,000).
Land & Plant &buildings machinery Total
£’000 £’000 £’000ProthericsCostAt 1 April 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 323 365
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 141 141Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (42) (106) (148)
At 1 April 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 358 358
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 222 222
At 31 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 580 580
DepreciationAt 1 April 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 81 123Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 49 49Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (42) (52) (94)
At 1 April 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 78 78Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 90 90
At 31 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 168 168
Carrying amount31 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 412 412
31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 280 280
Plant & machinery includes cost of £nil (2006: £132,000) in respect of assets in the course of construction.
The net book value of plant and machinery includes £67,000 (2006: £2,000) in respect of assets held underfinance lease and hire purchase agreements. Depreciation for the year on those assets was £15,000 (2006:£14,000).
141
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
15 Investments
Fixed asset investments
Long termShares loans Total
£’000 £’000 £’000ProthericsCostAt 1 April 2005 and 1 April 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,929 52,676 62,605Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 — 30
At 31 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,959 52,676 62,635
Provision at 1 April 2005, 1 April 2006 and 31 March 2007 . . . . . . . . . . (119) (129) (248)
Carrying amount31 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,840 52,547 62,387
31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,810 52,547 62,357
Details of subsidiary undertakings, all of which are consolidated and registered in England and Wales,unless noted, are as follows:
% ofordinary
shares held Status
Direct holdingsProtherics Medicines Development Limited
(formerly Protherics Molecular DesignLimited) . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 trading
Protherics Inc. (formerly TherapeuticAntibodies Inc.) . . . . . . . . . . . . . . . . . . . . . 100 trading (incorporated in Delaware USA)
Proteus Biotechnology Limited . . . . . . . . . . . . 100 dormantEnact Pharma Limited . . . . . . . . . . . . . . . . . . 100 tradingGenethics Limited . . . . . . . . . . . . . . . . . . . . . 76 dormant
Indirect holdingsProtherics UK Limited . . . . . . . . . . . . . . . . . . 100 tradingProtherics Australasia Pty Limited . . . . . . . . . . 100 trading (incorporated in Australia)Protherics Utah Inc. . . . . . . . . . . . . . . . . . . . . 100 trading (incorporated in Delaware USA)Protherics Salt Lake City Inc. (formerly
MacroMed Inc.) . . . . . . . . . . . . . . . . . . . . . 100 trading (incorporated in Delaware USA)Enzacta R&D Limited . . . . . . . . . . . . . . . . . . 99.8 dormantEnzacta Limited . . . . . . . . . . . . . . . . . . . . . . 99.8 dormantKymed GB Limited . . . . . . . . . . . . . . . . . . . . 100 dormantDe Montfort Biopharma Limited . . . . . . . . . . 100 dormantTAb (Wales) Limited . . . . . . . . . . . . . . . . . . . 100 dormantTAb (London) Limited . . . . . . . . . . . . . . . . . . 100 dormantPolyclonal Antibodies Limited . . . . . . . . . . . . 100 dormantProtherics Services Pty Limited . . . . . . . . . . . . 100 dormant (incorporated in Australia)
All of the trading subsidiaries are engaged in the research, development, manufacture and sale ofpharmaceutical products and potential drugs for use in the treatment of human diseases.
142
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
16 Inventories
ProthericsGroup
2007 2006
£’000 £’000Raw materials and consumables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,540 1,455Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,049 9,382Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 50
10,707 10,887
Protherics had no inventories.
17 Trade and Other Receivables
ProthericsGroup Protherics
2007 2006 2007 2006
£’000 £’000 £’000 £’000Amounts falling due within one year:
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,516 2,926 — —Less: Allowance for impairment of receivables . . . . . . . . . . . . . . — — — —
Trade receivables—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,516 2,926 — —Amounts owed by Protherics Group undertakings . . . . . . . . . . . . — — 39,389 16,848Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 560 845 14 146Prepayments and accrued income . . . . . . . . . . . . . . . . . . . . . . . . 990 749 244 204
15,066 4,520 39,647 17,198
A significant proportion of the Protherics Group’s revenue is generated by the sale of its CroFab� andDigiFab� products into the US through its distribution agreement with Fougera, a division of Altana Inc.,which would generally make up the majority of the trade receivables. The carrying value of this and othertrade receivables has been determined by the Protherics Group’s management based on prior experienceand their assessment of the current economic environment. The average credit period taken on sales ofgoods is 30 days. At 31 March 2007, trade receivables included an amount of £10,000,000 due fromAstraZeneca UK Ltd in relation to a milestone due on the CytoFab� licence agreement, an amount whichwas invoiced in March 2007 and paid in April 2007. The Directors consider that the carrying amount oftrade and other receivables approximates to their fair value.
143
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
18 Cash and Cash Equivalents
ProthericsGroup Protherics
2007 2006 2007 2006
£’000 £’000 £’000 £’000Cash at bank and in hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,216 934 49 222Short term bank deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,773 24,504 38,773 8,295
39,989 25,438 38,822 8,517Bank overdrafts (note 20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — —
39,989 25,438 38,822 8,517
Cash and cash equivalents comprise current accounts held by the Protherics Group with immediate accessand short-term bank deposits with a maturity of three months or less. Market rates of interest are earnedon such deposits. The credit risk on such funds is limited because the counterparties are banks with highcredit ratings assigned by international credit rating agencies.
19 Trade and Other Payables
ProthericsGroup Protherics
2007 2006 2007 2006
£’000 £’000 £’000 £’000Current liabilities:Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,303 5,227 544 738Amounts owed to Protherics Group undertakings . . . . . . . . . . . . . . — — 7,202 4,423Other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 673 252 —Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,924 2,223 1,071 1,011Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,627 7,599 — —
14,037 15,722 9,069 6,172
Non-current liabilities:Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 — — —Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,724 13,081 — —
10,844 13,081 — —
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoingcosts. The average credit taken for trade purchases is 48 days.
Included within deferred income are the following capital grants:
ProthericsGroup
2007 2006
£’000 £’000Deferred income—falling due in less than one year . . . . . . . . . . . . . . . . . . . . . . . . . . 102 111Deferred income—falling due after more than one year . . . . . . . . . . . . . . . . . . . . . . 660 762
762 873
144
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
19 Trade and Other Payables (Continued)
During the year, capital grants of £nil (2006: £250,000) were received and £111,000 (2006: £78,000) wasreleased to the income statement. As a result of these grants, the Welsh Development Agency has a legalcharge over certain buildings, plant and equipment securing grants received amounting to £33,000 and theProtherics Group is required to maintain certain employment levels at its Welsh manufacturing facility.
Protherics had no deferred income.
The directors consider that the carrying amount of trade payables approximates to their fair value.
20 Borrowings
ProthericsGroup
2007 2006
£’000 £’000Bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —Bank loans
Secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 201
157 201Notes payable to South Australian Minister for Primary Industries . . . . . . . . . . . . . . . 46 58
203 259
The borrowings are repayable as follows:On demand or within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 37In the second year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 25In the third to fifth years inclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 197After five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —
203 259
Amounts due for settlement within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 37Amounts due for settlement after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 222
203 259
Protherics has no borrowings.
145
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
20 Borrowings (Continued)
Analysis of borrowings by currency:
AustralianSterling US dollars dollars Total
£’000 £’000 £’000 £’000Protherics GroupAt 31 March 2007
Bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 148 — 157Notes payable to South Australian Minister for Primary
Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 46 46
9 148 46 203
At 31 March 2006Bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 169 — 201Notes payable to South Australian Minister for Primary
Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 58 58
32 169 58 259
The effective interest rates at the balance sheet dates were as follows:
2007 2006
% %Bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —Sterling bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.0 8.0US dollar bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6 5.6Notes payable to South Australian Minister for Primary Industries . . . . . . . . . . . . . . . . . 6.5 6.5
The directors estimate the fair value of the Protherics Group’s borrowings, by discounting the future cashflows at the market rate set out below, to be as follows:
2007 2006
£’000 % £’000 %Sterling bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 9.2 34 8.5US dollar bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 9.4 155 8.9Notes payable to South Australian Minister for Primary Industries . . . . . . . 42 6.5 51 6.5
188 240
The Protherics Group had no undrawn committed borrowing facilities available at 31 March 2007(31 March 2006: £nil).
The other principal features of the Protherics Group’s borrowings are as follows:
� The Protherics Group’s Sterling loan was obtained upon the acquisition of Enact Pharma PLC inJune 2003. The loan was taken out by Enact Pharma PLC in June 2002. Repayments commenced inMarch 2003 and will continue until August 2007. The loan is secured over the assets of that companyand its immediate subsidiaries. The loan carries a fixed interest rate of 8% per annum.
� The Protherics Group’s US dollar denominated loan was taken out in August 2004. Repaymentscommenced in September 2004 and will continue until August 2009, when substantially all of the
146
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
20 Borrowings (Continued)
principal received on inception will become repayable. The loan is secured by a charge over certain ofthe Protherics Group’s assets and carries an interest rate of 5.625%.
� The notes payable to the South Australian Minister for Primary Industries (the ‘‘Minister’’) aresecured on buildings and equipment of Protherics Australasia Pty Limited. Repayment is in equalannual installments, with the final installment due in August 2007. The interest rate is variable at thediscretion of the Minister and is payable annually. The rate is currently in line with marketinterest rates.
21 6% Convertible Unsecured Loan Notes
The 6% convertible unsecured loan notes, denominated in Sterling, were issued on 19 June 2003 as part ofthe consideration to acquire Enact Pharma PLC. Interest on the loan notes is payable twice annually inarrears. If not previously repaid, converted or repurchased, the loan notes will be repaid at par on19 June 2010. The loan notes are convertible at 25p per ordinary share, at the holder’s option, from theearlier of 19 December 2004, or such date that Protherics has received FDA marketing approval forVoraxaze� but in any event no earlier than 19 June 2004. Protherics can enforce conversion should theprincipal amount of the loan notes outstanding be equal to 20% or less of the total notes issued at anytime, or if the middle market quotation of an ordinary share at the close of a consecutive five business dayperiod after 19 June 2006 is greater or equal to 32.5p. The terms of the loan notes permit Protherics torepurchase the loan notes at any time by tender (available to all holders alike) or by privately negotiatedtransactions with individual holders at any price.
Upon adoption of IAS 32, Financial Instruments: Disclosure and Information, and IAS 39, FinancialInstruments: Recognition and Measurement,at 1 April 2005, the net proceeds received from the issue ofthe 6% convertible unsecured loan notes have been split between the liability element and an equitycomponent, representing the fair value of the embedded option to convert the liability into the equity ofthe Protherics Group, as follows:
£’000
Protherics Group and ProthericsNominal value of convertible loan notes issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,196Equity component at date of issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (711)
Liability component at date of issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,485
2007 2006
£’000 £’000Protherics Group and ProthericsLiability component at 1 April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,469 3,480Interest charged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 57Liability converted to equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (410) (1,068)
Liability component at 31 March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,100 2,469
The Directors estimate that the fair value of the liability component at 31 March 2007 to be approximately£2,047,000 (2006: £2,424,000) using an interest rate to discount estimated future cash flows of 9.8%(2006: 9%).
During the current year, an additional loan note amounting to £17,000, with identical terms to the originalloan notes above, was issued following the exercise of warrants in Enact Pharma Limited (see note 24).The note was considered to be wholly equity and was converted in its entirety shortly after issue.
147
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
21 6% Convertible Unsecured Loan Notes (Continued)
In addition, a non-interest bearing loan note, repayable at par on 31 March 2026, was issued toCoVaccine BV as consideration for the in-license of the CoVaccine HT adjuvant. The A350,000 loan notecould be converted into 295,413 Protherics PLC ordinary 2p shares.
Net proceeds received from the issue of this loan note was split between the liability element and theequity component, representing the fair value of the embedded option to convert the liability into theequity of the Protherics Group as follows:
£’000
Protherics Group and ProthericsNominal value of convertible loan notes issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242Equity component at date of issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (169)
Liability component at date of issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
The entire loan note was converted during the year.
22 Obligations under Finance Leases
Present valueMinimum lease of minimum
payments lease payments
2007 2006 2007 2006
£’000 £’000 £’000 £’000Protherics GroupAmounts payable under finance leases:
Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,392 733 1,048 623In the second to fifth years inclusive . . . . . . . . . . . . . . . . . . . . . 3,084 1,392 2,289 1,216
4,476 2,125 3,337 1,839Less: future finance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,139) (286)
Present value of lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . 3,337 1,839 3,337 1,839
Less: Amounts due for settlement within one year (shown withincurrent liabilities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,048) (623)
Amount due for settlement after one year . . . . . . . . . . . . . . . . . . . 2,289 1,216
ProthericsAmounts payable under finance leases:
Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 1 24 1In the second to fifth years inclusive . . . . . . . . . . . . . . . . . . . . . 32 — 31 —
59 1 55 1Less: future finance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) —
Present value of lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . 55 1 55 1
Less: Amounts due for settlement within one year (shown withincurrent liabilities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24) (1)
Amount due for settlement after one year . . . . . . . . . . . . . . . . . . . 31 —
It is the Protherics Group’s policy to lease certain of it plant and equipment under finance leases. Theaverage lease term on inception is three to five years. For the year ended 31 March 2007, the averageeffective borrowing rate for the Protherics Group was 8.1% (2006: 7.6%) and for Protherics was 6.8%
148
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
22 Obligations under Finance Leases (Continued)
(2006: 15.9%). Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and noarrangements have been entered into for contingent rental payments.
The fair value of the Protherics Group and Protherics’ lease obligations approximates to their carryingamount.
The denomination of the Protherics Group and Protherics’ lease obligations were as follows:
ProthericsGroup Protherics
2007 2006 2007 2006
£’000 £’000 £’000 £’000Sterling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,078 1,754 55 1US dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 — — —Australian dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 85 — —
3,337 1,839 55 1
The obligations under hire purchase agreements for both the Protherics Group and Protherics are securedby a charge over the leased assets.
23 Derivative Financial Instruments
The Protherics Group utilises currency derivatives to hedge significant future transactions and cash flows.The Protherics Group is a party to a variety of foreign currency forward contracts and options in themanagement of its exchange rate exposures. The instruments purchased are primarily denominated in USdollars, the currency of the Protherics Group’s principal market.
At the balance sheet date, the fair market value of the derivative financial instruments were:
ProthericsGroup Protherics
2007 2006 2007 2006
£’000 £’000 £’000 £’000Contracts with positive fair values:
Forward foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . 114 — 114 —
Total financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 — 114 —
Contracts with negative fair values:Foreign exchange options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 136 — 136
Derivative instrument liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . — 136 — 136
Changes in fair market value are recognised in the income statement as they arise. The credit for the yearended 31 March 2007 was £250,000 (2006: charge of £531,000).
All the contracts mature within one year of the balance sheet date.
149
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
24 Share Capital
Protherics Protherics2007 2006
No. Shares £’000 No. Shares £’000
AuthorisedOrdinary shares of 2p each . . . . . . . . . . . . . . . . . . . . . . . 475,000,000 9,500 350,000,000 7,000
Allotted, called-up and fully paidOrdinary shares of 2p each
At 1 April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259,287,068 5,186 242,204,390 4,844Allotted under share option schemes . . . . . . . . . . . . . . . . 231,321 5 1,441,097 29Cash placing and open offer . . . . . . . . . . . . . . . . . . . . . . 58,715,544 1,174 — —Issued to AstraZeneca UK Ltd under CytoFab�
outlicence agreement . . . . . . . . . . . . . . . . . . . . . . . . . . — — 10,990,621 220Issued in consideration of Glenveigh
Pharmaceuticals LLP in-licence agreement . . . . . . . . . . 3,093,638 62 — —Issued as consideration for acquisition of MacroMed Inc. . 15,677,199 314 — —Conversion of 6% unsecured convertible loan notes . . . . . 1,828,572 36 4,650,960 93Conversion of CoVaccine convertible loan note (note 21) . 295,413 6 — —
At 31 March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339,128,755 6,783 259,287,068 5,186
Share warrants
At 31 March 2007 there are unexercised warrants for 100,000 ordinary shares (2006: 200,000 ordinaryshares) in Enact Pharma Limited, a company acquired in June 2003, which expire 9 July 2012 and areexercisable at 30p per share. Should these be exercised, Protherics is entitled to repurchase these shares byissuing £17.05 6% convertible unsecured loan notes per 100 Enact Pharma Limited ordinary shares. Theterms of these loan notes are disclosed in note 21 to the accounts.
At 31 March 2006, there were also unexercised warrants for 12,500 ordinary shares in Enact PharmaLimited exercisable at 60p per share which expired unexercised on 12 March 2007.
Share options
Details of outstanding share options are as follows:
At At31 March Cancelled 31 March Exercise
2006 Granted Exercised or expired 2007 price (p)
Date exercisable
Individual unapproved22 Dec 2002 to 21 Dec 2009 . . . . . . . . 600,000 — — — 600,000 39.009 July 2002 to 8 July 2010 . . . . . . . . . . 25,000 — — — 25,000 40.009 July 2002 to 8 July 2010 . . . . . . . . . . 15,000 — — — 15,000 25.009 July 2002 to 31 May 2007 . . . . . . . . . 3,850 — — — 3,850 US$ 6.0012 Dec 2007 to 11 Dec 2009 . . . . . . . . — 40,000 — — 40,000 85.0012 June 2008 to 11 Jun 2010 . . . . . . . . — 40,000 — — 40,000 85.00
Approved28 Jan 2003 to 27 Jan 2010 . . . . . . . . . 49,245 — 2,321 — 46,924 37.5028 Feb 2004 to 27 Feb 2011 . . . . . . . . 292,000 — 24,000 4,000 264,000 43.5016 Feb 2009 to 15 Feb 2016 . . . . . . . . 25,401 — — — 25,401 93.50
150
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
24 Share Capital (Continued)
At At31 March Cancelled 31 March Exercise
2006 Granted Exercised or expired 2007 price (p)
Unapproved22 June 2001 to 21 June 2008 . . . . . . . 170,000 — 105,000 — 65,000 46.0022 Dec 2002 to 21 Dec 2009 . . . . . . . . 485,000 — 100,000 — 385,000 39.0027 Jan 2003 to 26 Jan 2010 . . . . . . . . . 87,097 — — — 87,097 37.502 Aug 2003 to 1 Aug 2010 . . . . . . . . . . 2,908 — — — 2,908 28.5022 Feb 2004 to 21 Feb 2011 . . . . . . . . 1,145,000 — — — 1,145,000 43.5016 Jan 2005 to 15 Jan 2012 . . . . . . . . . 2,177,000 — — — 2,177,000 39.509 July 2005 to 8 July 2012 . . . . . . . . . . 350,000 — — — 350,000 25.0020 Jun 2006 to 19 Jun 2013 . . . . . . . . . 900,000 — — — 900,000 23.2524 Jun 2006 to 23 Jun 2013 . . . . . . . . . 30,000 — — — 30,000 23.001 Mar 2007 to 28 Feb 2014 . . . . . . . . . 900,000 — — 164,340 735,660 58.501 Mar 2009 to 28 Feb 2014 . . . . . . . . . 325,000 — — — 325,000 58.5027 Sep 2007 to 26 Sep 2014 . . . . . . . . . 310,000 — — — 310,000 49.5028 Feb 2008 to 27 Feb 2015*(1) . . . . . . 716,475 — — — 716,475 2.0019 Jul 2008 to 18 Jul 2015*(2) . . . . . . . 113,785 — — — 113,785 2.007 Sep 2008 to 6 Sep 2015 . . . . . . . . . . 115,000 — — — 115,000 60.5021 Dec 2008 to 20 Dec 2015*(3) . . . . . . 763,665 — — — 763,665 2.0021 Dec 2008 to 20 Dec 2015 . . . . . . . . 85,000 — — — 85,000 78.5012 June 2009 to 11 June 2016*(4) . . . . . — 953,820 — 9,461 944,359 2.0012 June 2008 to 11 June 2016+ . . . . . . — 109,806 — — 109,806 2.0012 June 2008 to 11 June 2016 . . . . . . . — 10,000 — — 10,000 85.0011 July 2009 to 10 July 2016 . . . . . . . . — 50,000 — — 50,000 78.501 Aug 2009 to 31 July 2016*(5) . . . . . . . — 9,284 — 9,284 — 2.0022 Aug 2009 to 21 Aug 2016*(6) . . . . . . — 6,383 — — 6,383 2.0015 Dec 2009 to 14 Dec 2016*(7) . . . . . . — 970,615 — — 970,615 2.0015 Dec 2009 to 14 Dec 2016 . . . . . . . . — 50,000 — — 50,000 73.755 Jan 2010 to 4 Jan 2017 . . . . . . . . . . — 740,000 — 110,000 630,000 72.25
Savings related options1 Feb 2009 to 31 July 2009 . . . . . . . . . 270,118 — — 24,164 245,954 65.001 Feb 2011 to 31 July 2011 . . . . . . . . . 401,738 — — 19,814 381,924 65.001 Feb 2010 to 31 July 2010 . . . . . . . . . — 68,424 — — 68,424 58.001 Feb 2012 to 31 July 2012 . . . . . . . . . — 115,749 — — 115,749 58.00
Protherics PLC option plan forTherapeutic Antibodies Inc.employees
27 Jan 2000 to 29 June 2008 . . . . . . . . 162,238 — — — 162,238 175.0to 312.0
10,520,520 3,164,081 231,321 341,063 13,112,217
* Options issued under the long term incentive plan, approved by the shareholders on 27 January 2005. The price of a share at thedate of grant was (1) 54.75p, (2) 57.00p, (3) 78.50p, (4) 85.00p, (5) 80.00p, (6) 79.25p, and (7) 73.75p.
+ Options issued under the deferred bonus plan, approved by the shareholders on 27 January 2005. The price of a share at thedate of grant was 85.00p.
Therapeutic Antibodies former employees and consultants
At 31 March 2006, options over 391,929 shares held under the Therapeutic Antibodies 1990 Plan couldhave been granted upon request by Therapeutic Antibodies former employees and consultants under theterms of the Merger Agreement dated 20 May 1999. Option prices ranged from $5.16 to $6.99 per share.During the current year, all remaining options expired unexercised.
151
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
25 Share Premium Account
Protherics
2007 2006
£’000 £’000
At 1 April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,770 77,881Premium arising on issue of equity shares:
Allotted under share option schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 520Cash placing and open offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,991 —Issued to AstraZeneca UK Ltd under CytoFab� outlicense agreement . . . . . . . . . — 7,280Issued in consideration of Glenveigh Pharmaceuticals LLP in-licence agreement . . 2,227 —Issued as consideration for acquisition of MacroMed Inc. . . . . . . . . . . . . . . . . . . 11,288 —Conversion of unsecured convertible loan notes . . . . . . . . . . . . . . . . . . . . . . . . . 683 1,089
Expenses on issue of equity shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,102) —
At 31 March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,951 86,770
26 Statement of Changes in Equity
Shares CumulativeShare Share to be Merger Equity translation Retainedcapital premium issued reserve reserve reserve earnings Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000Protherics GroupBalance at 1 April 2005 . . . . . . . . . . 4,844 77,881 — 51,163 378 (33) (107,662) 26,571Currency translation adjustments . . . — — — — — (158) — (158)
Net expense recognised directly inequity . . . . . . . . . . . . . . . . . . . . — — — — — (158) — (158)
Loss for the year . . . . . . . . . . . . . . — — — — — — (9,488) (9,488)
Total recognised loss for the year . . . — — — — — (158) (9,488) (9,646)
New share capital subscribed . . . . . . 249 7,800 — — — — — 8,049Conversion of convertible loan notes . 93 1,089 — — (115) — — 1,067Employee share option scheme:
value of services provided . . . . . . . — — — — — — 311 311
Balance at 31 March 2006 . . . . . . . . 5,186 86,770 — 51,163 263 (191) (116,839) 26,352
Currency translation adjustments . . . — — — — — 749 — 749
Net expense recognised directly inequity . . . . . . . . . . . . . . . . . . . . — — — — — 749 — 749
Loss for the year . . . . . . . . . . . . . . — — — — — — (3,357) (3,357)
Total recognised profit/(loss) for theyear . . . . . . . . . . . . . . . . . . . . . . — — — — — 749 (3,357) (2,608)
New share capital subscribed . . . . . . 1,560 48,499 — — — — — 50,059Shares to be issued (see note 28) . . . — — 1,289 — — — — 1,289New loan notes issued (see note 21) . — — — — 186 — — 186Conversion of convertible loan notes . 37 682 — — (229) — — 490Employee share option scheme:
value of services provided . . . . . . . — — — — — — 703 703
Balance at 31 March 2007 . . . . . . . . 6,783 135,951 1,289 51,163 220 558 (119,493) 76,471
The merger reserve arose upon a merger involving the Protherics Group in September 1999. The equityreserve arises from the 6% convertible unsecured loan notes (see note 21).
152
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
26 Statement of Changes in Equity (Continued)
Goodwill on acquisition written off in prior years amounts to £1,909,000.
SharesShare Share to be Equity Retainedcapital premium issued reserve earnings Total
£’000 £’000 £’000 £’000 £’000 £’000ProthericsBalance at 1 April 2005 . . . . . . . . . . . . . . . . . . . . . 4,844 77,881 — 378 (9,641) 73,462Loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . — — — — (3,315) (3,315)
Total recognised loss for the year . . . . . . . . . . . . . . — — — — (3,315) (3,315)
New share capital subscribed . . . . . . . . . . . . . . . . . 249 7,800 — — — 8,049Conversion of convertible loan notes . . . . . . . . . . . . 93 1,089 — (115) — 1,067Employee share option scheme:
value of services provided . . . . . . . . . . . . . . . . . . — — — — 311 311
Balance at 31 March 2006 . . . . . . . . . . . . . . . . . . . 5,186 86,770 — 263 (12,645) 79,574Loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . — — — — (2,153) (2,153)
Total recognised loss for the year . . . . . . . . . . . . . . — — — — (2,153) (2,153)
New share capital subscribed . . . . . . . . . . . . . . . . . 1,560 48,499 — — — 50,059Shares to be issued (see note 28) . . . . . . . . . . . . . . — — 1,289 — — 1,289Conversion of convertible loan notes . . . . . . . . . . . . 37 682 — (43) — 676Employee share option scheme:
value of services provided . . . . . . . . . . . . . . . . . . — — — — 713 713
Balance at 31 March 2007 . . . . . . . . . . . . . . . . . . . 6,783 135,951 1,289 220 (14,085) 130,158
The equity reserve arises from the 6% convertible unsecured loan notes (see note 21).
27 Operating Lease Commitments
ProthericsGroup Protherics
2007 2006 2007 2006
£’000 £’000 £’000 £’000Minimum lease payments under operating leases recognised in
income for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 544 488 82 31
153
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
27 Operating Lease Commitments (Continued)
At the balance sheet date, the outstanding commitments for future minimum lease payments undernon-cancellable operating leases fell due as follows:
2007 2006Vehicles, Vehicles,
plant and plant andProperty equipment Property Equipment
£’000 £’000 £’000 £’000Protherics Group
Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535 14 431 16In the second to fifth years inclusive . . . . . . . . . . . . . 510 18 600 16After five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 39 —
1,045 32 1,070 32
ProthericsWithin one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 — 45 —In the second to fifth years inclusive . . . . . . . . . . . . . — — 34 —After five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — —
61 — 79 —
Operating lease payments represent rentals payable for certain of its office properties, plant andequipment under non-cancellable operating lease agreements. The leases have various terms andrenewal rights.
28 Acquisition of Business Operations
On 3 January 2007, Protherics acquired 100% of the issued share capital of MacroMed Inc. (subsequentlyrenamed Protherics Salt Lake City Inc.), a private US company, in order to access its lead productOncogel�, a novel sustained release formulation of Paclitaxel for local administration in oespphageal andbrain cancers. Prior to the acquisition, the Protherics Group had loaned $1,000,000 to MacroMed Inc.
The goodwill arising on acquisition results from assets which cannot be recognised separately andmeasured reliably including early stage pipeline products and a highly skilled workforce.
154
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
28 Acquisition of Business Operations (Continued)
Protherics Salt Lake City Inc. contributed revenue of £26,000 and a loss of £637,000 in the period sinceacquisition.
Book Fair value Fairvalue adjustment value
£’000 £’000 £’000Non-current assets
Intangible assets—in process research and development . . . . . . . . . . — 12,208 12,208Intangible assets—other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 (157) —Property, plant & equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 623 — 623
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432 — 432Current liabilities(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,680) 178 (1,502)Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (241) 194 (47)
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (709) 12,423 11,714Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,676 1,676
Total consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (709) 14,099 13,390Settled by equity (issued at market value on date of acquisition) . . . . . . (11,602)Deferred consideration, to be paid in equity . . . . . . . . . . . . . . . . . . . . (1,289)
Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 499Cash and cash equivalents included in undertaking acquired . . . . . . . . . (125)
Net cash consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374
(1) Includes £509,000 advanced to MacroMed Inc. by Protherics prior to its acquisition.
Total consideration includes £499,000 of directly attributable costs.
Deferred tax liabilities that arise on the recognition of in process research and development have beenoffset by deferred tax assets relating to trading losses.
29 Capital and Other Financial Commitments
ProthericsGroup Protherics
2007 2006 2007 2006
£’000 £’000 £’000 £’000Contracts placed for future capital expenditure not provided in the
financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 581 1,348 — 68
30 Share-Based Payments
The Protherics Group has elected to apply IFRS 2, Share-Based Payments to all share-based awards andoptions granted post 7 November 2002 that had not vested by 1 January 2005. These options have beenissued under the Unapproved Share Option Plan, individual option arrangements, the Executive ShareOption Plan (ESOP), the Long-term Incentive Plan (LTIP), Savings Related Share Option Plan and theDeferred Bonus Plan.
Under the Unapproved Share Option Plan and the ESOP, the Remuneration Committee can grant optionsover shares in Protherics to employees of the Protherics Group. Options are granted with a fixed exerciseprice equal to the market price of the shares under option at the date of the grant. The vesting period isgenerally three years and subject to performance criteria. If the options remain unexercised after a period
155
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
30 Share-Based Payments (Continued)
of ten years from the date of grant, the options expire. Furthermore, except in defined circumstances,options are forfeited if the employee leaves the Protherics Group before the option vests.
Under the LTIP, the Remuneration Committee can grant equity-settled options over shares in Prothericsbut these awards are generally reserved for Directors and employees at Senior Manager level. The optionsare granted at a fixed exercise price which is generally equal to the nominal value of the shares under theaward. As with the above plans, the vesting period is generally three years, subject to performance criteriaand, if the options remain unexercised after a period of ten years from the date of grant, the optionsexpire. Furthermore, except in defined circumstances, options are forfeited if the employee leaves theProtherics Group before the option vests.
Awards under the Savings Related Share Option Plan are made available to all employees who have beenwith Protherics for more than six months. Options under this plan are awarded at a discount of up to 20%of the market price of the shares under option at the date of the invitation to enter the plan. The vestingperiod is either three or five years with a six month period to exercise after the vesting period. There are noperformance criteria attached to these options. The options are forfeited if the employee leaves theProtherics Group during the vesting period.
Under the Deferred Bonus Plan, the Remuneration Committee can grant options over shares in Prothericsbut these awards are generally reserved for Directors and employees at Senior Manager level. The optionsare granted at a fixed price which is generally equal to the nominal value of the shares under the award.The vesting period is generally two years, with no performance criteria. If the options remain unexercisedafter a period of ten years from the date of grant, the options expire. Furthermore, except in definedcircumstances, options are forfeited if the employee leaves the Protherics Group before the option vests.
The share options granted have varying performance criteria required for the option to vest and these areconsidered in the method of measuring the fair value. Where it is considered appropriate, the fair value ismeasured using the Black-Scholes model. Where complex market performance criteria exist, a simulationmodel has been used, based on the same underlying methodology as the Black-Scholes model, to establishthe fair value on grant.
The fair values of the options granted, performance criteria, and the assumptions used in the calculation offair value are as follows:
Awards under ESOP and unapproved share option plan
20 Jun 24 Jun 1 Mar 1 Mar 27 Sep 7 SepGrant date 2003 2003 2004 2004 2004 2005
Share price at grant date (p) . . . . . . . . . 23.25 23.00 58.50 58.50 49.50 60.50Exercise price (p) . . . . . . . . . . . . . . . . . 23.25 23.00 58.50 58.50 49.50 60.50Number of employees . . . . . . . . . . . . . 10 2 15 1 3 2Shares under option . . . . . . . . . . . . . . . 1,250,000 30,000 1,240,000 325,000 310,000 115,000Fair value (p) . . . . . . . . . . . . . . . . . . . . 9.45 9.45 25.57 33.77 19.31 19.98Dividends yield . . . . . . . . . . . . . . . . . . — — — — — —Vesting period (years) . . . . . . . . . . . . . 3 3 3 5 3 3Expected volatility . . . . . . . . . . . . . . . . 46.2% 46.2% 47.0% 47.0% 45.3% 38.5%Option life (years) . . . . . . . . . . . . . . . . 10 10 10 10 10 10Expected life (years) . . . . . . . . . . . . . . 5 5 5 5 5 5Risk free rate . . . . . . . . . . . . . . . . . . . 3.75% 3.75% 4.64% 4.64% 4.74% 4.12%Performance criteria . . . . . . . . . . . . . . . (1) (1) (2) (3) (2) (4)
156
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
30 Share-Based Payments (Continued)
21 Dec 16 Feb 12 Jun 11 July 15 Dec 5 JanGrant date 2005 2006 2006 2006 2006 2007
Share price at grant date (p) . . . . . . . . . . . . . 78.50 93.50 85.00 78.50 73.75 72.25Exercise price (p) . . . . . . . . . . . . . . . . . . . . . 78.50 93.50 85.00 78.50 73.75 72.25Number of employees . . . . . . . . . . . . . . . . . . 5 1 1 1 1 35Shares under option . . . . . . . . . . . . . . . . . . . 85,000 25,401 10,000 50,000 50,000 740,000Fair value (p) . . . . . . . . . . . . . . . . . . . . . . . . 31.38 45.41 31.54 31.50 31.76 35.85Dividends yield . . . . . . . . . . . . . . . . . . . . . . . — — — — — —Vesting period (years) . . . . . . . . . . . . . . . . . . 3 3 3 3 3 3Expected volatility . . . . . . . . . . . . . . . . . . . . . 41.0% 41.2% 41.2% 41.2% 41.5% 41.6%Option life (years) . . . . . . . . . . . . . . . . . . . . . 10 10 10 10 10 10Expected life (years) . . . . . . . . . . . . . . . . . . . 5 5 5 5 5 5Risk free rate . . . . . . . . . . . . . . . . . . . . . . . . 4.68% 4.68% 4.59% 4.68% 4.63% 4.68%Performance criteria . . . . . . . . . . . . . . . . . . . (4) (4) (4) None None (4)
LTIP awards
28 Feb 19 Jul 21 Dec 12 Jun 1 Aug 22 Aug 15 DecGrant date 2005 2005 2005 2006 2006 2006 2006
Share price at grant date (p) . . . . . 54.75 57.00 78.50 85.00 80.00 79.25 73.75Exercise price (p) . . . . . . . . . . . . . 2.00 2.00 2.00 2.00 2.00 2.00 2.00Number of employees . . . . . . . . . . 22 2 16 34 1 1 16Shares under option . . . . . . . . . . . 741,669 113,785 775,887 953,820 9,284 6,383 970,615Fair value (p) . . . . . . . . . . . . . . . . 33.71 38.22 60.86 58.29 53.94 52.66 55.65Dividends yield . . . . . . . . . . . . . . — — — — — — —Vesting period (years) . . . . . . . . . . 3 3 3 3 3 3 3Expected volatility . . . . . . . . . . . . 41.8% 39.0% 41.0% 41.2% 40.9% 40.9% 41.5%Option life (years) . . . . . . . . . . . . 10 10 10 10 10 10 10Expected life (years) . . . . . . . . . . . 5 5 5 5 5 5 5Risk free rate . . . . . . . . . . . . . . . . 4.68% 4.18% 4.68% 4.59% 4.68% 4.68% 4.63%Performance criteria . . . . . . . . . . . (4) (4) (4) (4) (4) (4) (4)
157
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
30 Share-Based Payments (Continued)
Other awards
11 Jan 11 Jan 12 Jan 12 Jan 12 Jun2006 2006 2007 2007 2006 12 Jun 12 Jun
Share- Share- Share- Share- Deferred 2006 2006Grant date save save save save Bonus Individual Individual
Share price at grantdate (p) . . . . . . . . . . 86.00 86.00 75.50 75.50 85.00 85.00 85.00
Exercise price (p) . . . . . 65.00 65.00 58.00 58.00 2.00 85.00 85.00Number of employees . . 38 35 14 9 8 (5) (5)Shares under option . . . 270,118 401,738 68,424 115,749 109,806 40,000 40,000Fair value (p) . . . . . . . . 37.20 44.09 32.59 39.81 83.18 26.16 28.8Dividends yield . . . . . . — — — — — — —Vesting period (years) . . 3 5 3 5 2 1.5 2.0Expected volatility . . . . 41.2% 40.9% 39.6% 41.8% 42.7% 42.7% 42.7%Option life (years) . . . . 3.5 5.5 3.5 5.5 1.0 2.5 3.0Expected life (years) . . . 3 5 3 5 5 2.5 3Risk free rate . . . . . . . . 4.10% 4.10% 5.18% 5.04% 4.59% 4.59% 4.59%Performance criteria . . . None None None None None None None
(1) To vest, Protherics’ share price is required to outperform the average price of shares in the FTSE All Share Pharmaceutical andBiotech Index in any three year period commencing on or after the date of grant of the option.
(2) Performance will be measured once only after three years from the date of grant of the option. If the Total Shareholder Returnof Protherics reaches the median of the FTSE All Share Pharmaceutical and Biotech Index, one third of the shares underoption become exercisable, rising on a sliding scale such that all the shares under option become exercisable if Protherics’performance is at or above the upper quartile. The Remuneration Committee must also be satisfied that there has been animprovement in the Protherics’ underlying financial performance over the period.
(3) As (2) except that performance measured after five years.
(4) Provided the Remuneration Committee is satisfied that Protherics has achieved sound underlying performance, awards will vestbased on the Protherics’ Total Shareholder Return (TSR). Performance will be measured after three years from grant bymeasuring the TSR of Protherics against a comparator group consisting of the primary listed components of the FTSE AllShare Pharmaceutical and Biotech Index but excluding those companies in the FTSE 100 (currently AstraZeneca PLC,GlaxoSmithKline PLC and Shire plc). TSR will normally be averaged across a period of three months before the date of thereward and three months before the date on which the performance period ends, although the Committee may determine that adifferent averaging period is appropriate and properly reflective of management performance but in any event this will not bemore than six months or less than one month. No award will vest if Protherics’ TSR is below the median of the comparatorgroup, 30% will vest if Protherics’ TSR is at the median position, 80% if Protherics’ TSR is at the upper quartile and 100% if atthe upper decile. Awards will vest on a sliding scale between each step.
(5) Granted to non-employee.
The expected volatility is based on historical volatility over the expected life, being the average expectedperiod to exercise, of the option as at the date of grant. The risk free rate of return is the yield onzero-coupon UK government bonds of a term consistent with the expected life at the date of grant.
158
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
30 Share-Based Payments (Continued)
A reconciliation of the option movements over the year to 31 March 2007 is shown below:
2007 2006
Weighted average Weighted averageoption price option price
Number pence Number pence
Outstanding at 1 April . . . . . . . . . . . . . 10,912,449 57.53 10,866,664 60.96Granted . . . . . . . . . . . . . . . . . . . . . . . 3,164,081 26.39 1,786,929 34.30Exercised . . . . . . . . . . . . . . . . . . . . . . (231,321) 42.63 (1,441,097) 38.05Cancelled or expired . . . . . . . . . . . . . . (732,992) 309.93 (300,047) 137.01
Outstanding at 31 March . . . . . . . . . . . 13,112,217 36.17 10,912,449 57.53
Exercisable at 31 March . . . . . . . . . . . 6,994,677 43.54 5,956,267 76.64
2007 2006
Weighted WeightedWeighted average Weighted averageaverage average
remaining life remaining lifeoption optionRange of price Number Expected Contractual price Number of Expected Contractualexercise prices pence of shares Years Years pence shares Years Years
Below 20p . . . 2.0 3,625,088 4.0 9.0 2.0 1,593,925 4.3 9.320p – 40p . . . . 34.9 4,593,929 0.3 4.6 35.0 4,696,250 0.9 5.640p – 60p . . . . 50.2 3,053,833 0.9 5.0 50.0 3,167,000 1.5 6.360p – 80p . . . . 68.9 1,557,878 3.9 7.0 65.5 871,856 4.1 5.680p – 100p . . . 86.9 115,401 3.3 4.8 93.5 25,401 4.9 9.9Above 100p . . 216.8 166,088 — 1.2 434.7 558,017 — 0.7
The weighted average share price for options exercised over the year was 83.7p (2006: 81.1p). The totalcharge for the year relating to employee share-based payment plans was £713,000 (2006: £311,000), all ofwhich related to equity-settled share-based payment transactions.
31 Retirement Benefit Schemes
The Protherics Group operates a defined contribution retirement benefit scheme for all qualifying UKbased employees. The assets of the scheme are held separately from those of the Protherics Group in fundsunder the control of the trustees. Where there are employees who leave the scheme prior to thecontributions made by the Protherics Group fully vesting, the contributions payable by the ProthericsGroup are reduced by the amount of the forfeited contributions.
Eligible employees of the Protherics Group’s overseas subsidiaries are members of externally operateddefined contribution schemes. The only obligation of the Protherics Group with respect to these schemes isto make the specified contributions.
159
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
32 Notes to the Consolidated Cash Flow Statements
Reconciliation of loss for the year to net cash flow from operating activities:
ProthericsGroup Protherics
2007 2006 2007 2006
£’000 £’000 £’000 £’000Loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,357) (9,488) (2,153) (3,315)Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (259) (75) — —Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417 431 182 253Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,155) (401) (783) (226)
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,354) (9,533) (2,754) (3,288)Adjustments for:
Change in fair value of derivatives . . . . . . . . . . . . . . . . . . . . . . (250) 531 (250) 531Deferred grant income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (111) (78) — —Share-based payment costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703 311 426 217Depreciation of property, plant and equipment . . . . . . . . . . . . . 1,373 1,391 90 49Amortisation of intangible fixed assets . . . . . . . . . . . . . . . . . . . . 135 114 — —Loss on disposal of property, plant and equipment . . . . . . . . . . . 634 108 — 9
Operating cash flows before movements in working capital . . . . . . (1,870) (7,156) (2,488) (2,482)Decrease in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 1,903 — —(Increase) in receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,575) (1,135) (8,029) (3,880)Decrease/(increase) in payables . . . . . . . . . . . . . . . . . . . . . . . . . . (3,737) 18,997 4,193 84
Net cash (outflow)/inflow from operating activities . . . . . . . . . . . . (16,051) 12,609 (6,324) (6,278)
The increase in payables for the year ended 31 March 2006 is primarily a result of the increase in deferredincome arising from the deferral of non-refundable up-front fees received under the Patent and LicenseKnow How agreement with AstraZeneca UK Ltd (see note 3). The increase in receivables for the yearended 31 March 2007 is primarily a result of the amount of £10,000,000 due under the same agreementwhich was invoiced in March 2007 and paid in April 2007.
Additions to Protherics Group plant and equipment during the year amounting to £2,252,000 (2006:£572,000) were financed by new finance leases. Additions to Protherics plant and equipment during theyear amounting to £74,000 (2006: £nil) were financed by new finance leases.
Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet)comprise cash at bank and other short-term highly liquid investments with a maturity of three monthsor less.
33 Contingent Liabilities
Protherics has guaranteed certain operating leases, finance leases and hire purchase agreements enteredinto by subsidiary companies.
34 Related Party Transactions
Protherics Group
Transactions between Protherics and its subsidiaries, which are related parties, have been eliminated onconsolidation and are not disclosed in this note.
Details of consultancy fees earned by Directors during the year and fees paid to third parties for Directors’consultancy services are included within the Directors’ Remuneration Report. No amounts wereoutstanding at 31 March 2007 (2006: £nil).
160
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
34 Related Party Transactions (Continued)
Protherics
During the year, Protherics provided loans to subsidiary companies on which interest is not charged sincethe Directors consider that such loans are equivalent to equity. In addition, Protherics made managementcharges on its subsidiaries amounting to £1,574,000 (2006: £1,302,000) and levied charges for optionsgranted to employees of subsidiaries of £288,000 (2006: £94,000). The outstanding balances due from/tosubsidiary companies are disclosed in notes 17 and 19 respectively.
161
Section 3—Protherics’ historical financial information for the year ended 31 March 2006 prepared inaccordance with IFRS
INCOME STATEMENTS
for the year ended 31 March 2006
ProthericsGroup Protherics
Notes 2006 2005 2006 2005
£’000 £’000 £’000 £’000Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 17,709 18,839 1,302 1,017Cost of salesCost of sales excluding exceptional closedown costs . . . . . (9,930) (8,744) — —Exceptional closedown costs . . . . . . . . . . . . . . . . . . . . . . 6 (1,362) — — —
Total cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,292) (8,744) — —
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,417 10,095 1,302 1,017
Administrative expensesResearch and development . . . . . . . . . . . . . . . . . . . . . (6,747) (4,575) (33) (17)General & administrative . . . . . . . . . . . . . . . . . . . . . . (9,203) (7,178) (4,557) (2,865)
Total administrative expenses . . . . . . . . . . . . . . . . . . . . . (15,950) (11,753) (4,590) (2,882)
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 (9,533) (1,658) (3,288) (1,865)
Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 401 236 226 188Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 (431) (655) (253) (468)
Loss before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,563) (2,077) (3,315) (2,145)Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 75 296 — —
Loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 (9,488) (1,781) (3,315) (2,145)
Pence Pence
Basic and diluted loss per share . . . . . . . . . . . . . . . . . . . 11 (3.8) (0.8)
The results relate to continuing operations.
STATEMENTS OF RECOGNISED INCOME & EXPENSE
for the year ended 31 March 2006
ProthericsGroup Protherics
Notes 2006 2005 2006 2005
£’000 £’000 £’000 £’000Exchange differences on translation of foreign operations . (158) (33) — —
Net expense recognised directly in equity . . . . . . . . . . . . (158) (33) — —Loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,488) (1,781) (3,315) (2,145)
Total recognised expense for the year . . . . . . . . . . . . . . . (9,646) (1,814) (3,315) (2,145)Adjustments arising on first time adoption of IAS 32 andIAS 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 211 — 285 —
Total losses recognised since last financial statements . . . . (9,435) (1,814) (3,030) (2,145)
All recognised income and expense is attributable to equity shareholders.
The notes on pages 165 to 217 form part of these financial statements.
162
BALANCE SHEETS
at 31 March 2006
ProthericsGroup Protherics
Notes 2006 2005 2006 2005
£’000 £’000 £’000 £’000Non-current assetsGoodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 9,199 9,199 — —Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1,060 1,081 — —Property, plant and equipment . . . . . . . . . . . . . . . . . . . . 14 8,109 6,999 280 242Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 15 — — 62,357 62,357Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 206 432 — —
18,574 17,711 62,637 62,599
Current assetsInventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 10,887 12,752 — —Financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 — 75 — —Tax receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 717 344 — —Trade and other receivables . . . . . . . . . . . . . . . . . . . . . . 17 4,520 3,200 17,198 13,224Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . 18 25,438 7,270 8,517 6,852
41,562 23,641 25,715 20,076
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,136 41,352 88,352 82,675
Current liabilitiesTrade and other payables . . . . . . . . . . . . . . . . . . . . . . . . 19 15,722 8,551 6,172 5,932Current tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 278 209 — 164Financial liabilities
Obligations under finance leases . . . . . . . . . . . . . . . . . 22 623 534 1 28Bank overdrafts and loans . . . . . . . . . . . . . . . . . . . . . 20 37 193 — —Derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . 23 136 — 136 —
16,796 9,487 6,309 6,124
Non-current liabilitiesTrade and other payables . . . . . . . . . . . . . . . . . . . . . . . . 19 13,081 638 — —Financial liabilities
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 222 250 — —Convertible loan notes . . . . . . . . . . . . . . . . . . . . . . . . 21 2,469 3,762 2,469 3,762Obligations under finance leases . . . . . . . . . . . . . . . . . 22 1,216 1,246 — 3
16,988 5,896 2,469 3,765
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,784 15,383 8,778 9,889
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,352 25,969 79,574 72,786
Shareholders’ equityShare capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 5,186 4,844 5,186 4,844Share premium account . . . . . . . . . . . . . . . . . . . . . . . . . 25 86,770 77,868 86,770 77,868Merger reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 51,163 51,163 — —Equity reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 263 — 263 —Cumulative translation reserve . . . . . . . . . . . . . . . . . . . . 26 (191) (33) — —Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 (116,839) (107,873) (12,645) (9,926)
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,352 25,969 79,574 72,786
The financial statements were approved by the board of directors and authorised for issue on 7 June 2006.They were signed on its behalf by:
B M RileyDirector
The notes on pages 165 to 217 form part of these financial statements.
163
CASH FLOW STATEMENTS
for the year ended 31 March 2006
ProthericsGroup Protherics
Notes 2006 2005 2006 2005
£’000 £’000 £’000 £’000Cash flows from operating activities
Cash inflow/(outflow) from operations . . . . . . . . . . . . . . . . 31 12,609 (3,054) (6,278) (2,047)Income tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (50) (79) — —Income tax received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 332 — —
Net cash inflow/(outflow) from operating activities . . . . . . . 12,564 (2,801) (6,278) (2,047)
Investing activitiesInterest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401 236 226 188Proceeds on disposal of property, plant and equipment . . . . 52 35 45 1Purchases of property, plant and equipment . . . . . . . . . . . . (1,989) (1,001) (142) (22)Purchases of other intangible non-current assets . . . . . . . . . — (191) — —Capital grants received . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 10 — —
Net cash (used in)/from investing activities . . . . . . . . . . . . . (1,286) (911) 129 169
Financing activitiesInterest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (257) (494) (204) (393)Interest paid on finance leases . . . . . . . . . . . . . . . . . . . . . . (133) (131) (1) (4)Repayment of borrowings . . . . . . . . . . . . . . . . . . . . . . . . . (171) (336) — —Repayments of finance leases . . . . . . . . . . . . . . . . . . . . . . . (582) (490) (30) (25)Issue of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,049 9,161 8,049 9,161
Net cash from financing activities . . . . . . . . . . . . . . . . . . . 6,906 7,710 7,814 8,739
Net increase in cash and cash equivalents . . . . . . . . . . . . . 18,184 3,998 1,665 6,861Cash and cash equivalents at the beginning of year . . . . . . . 7,242 3,253 6,852 (9)Effect of foreign exchange rate changes . . . . . . . . . . . . . . . 12 (9) — —
Cash and cash equivalents at the end of year . . . . . . . . . . . 25,438 7,242 8,517 6,852
The notes on pages 165 to 217 form part of these financial statements.
164
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS
1 General Information
Protherics PLC is a company incorporated in the United Kingdom under the Companies Act 1985. Thenature of the Protherics Group’s operations and its principal activities are set out in note 5 and in theoperating and financial review.
These financial statements are presented in Sterling because that is the currency of the primary economicenvironment in which the group operates. Foreign operations are included in accordance with the policiesset out in note 2.
These financial statements were approved for issue by the board of directors on 7 June 2006. At the date ofauthorisation of these financial statements, the following Standards and Interpretations, which have not yetbeen applied in these financial statements, were in issue but not yet effective:
� IFRS 7, Financial Instruments: Disclosures; and the related amendment to IAS 1, Presentation ofFinancial Statements on capital disclosures.
� IFRIC 4, Determining Whether an Arrangement Contains a Lease.
The directors anticipate that the adoption of these Standards and Interpretations in future years will haveno material impact on the financial statements of the Protherics Group except for additional disclosures oncapital and financial instruments when the relevant Standards come into effect for periods commencing onor after 1 April 2007.
2 Accounting Policies
The principal accounting policies adopted in the preparation of these financial statements are set outbelow. These policies have been consistently applied to all years presented unless otherwise stated.
Adoption of International Financial Reporting Standards (‘‘IFRS’’)
This is the first set of financial statements prepared in accordance with IFRS adopted for use in theEuropean Union.
The Protherics Group financial statements were prepared in accordance with United Kingdom GenerallyAccepted Accounting Practice (‘‘UK GAAP’’) until 31 March 2005. In preparing the financial statementsfor 31 March 2006, management has amended certain accounting, valuation and consolidation methodsapplied in the UK GAAP financial statements to comply with the recognition and measurement criteria ofIFRS. The comparative figures in respect of 31 March 2005 are restated to reflect these adjustments.
The Protherics Group has adopted Standards and Interpretations issued by the International AccountingStandards Board (‘‘IASB’’) and the International Reporting Interpretations Committee (‘‘IFRIC’’) of theIASB that are relevant to its operation and effective for accounting periods beginning on 1 April 2005.
First-time adoption of IFRS
For the year ended 31 March 2006, the Protherics Group has applied the principles set out in IFRS 1,First-time Adoption of International Reporting Standards, which has been applied in preparing thesefinancial statements.
IFRS 1 sets out the procedures to be followed when adopting IFRS for the first time as the basis forpreparing the Protherics Group’s financial statements. The Protherics Group is required to establish itsIFRS accounting policies as at 31 March 2006, and, in general, apply these retrospectively to determine theIFRS opening balance sheet at the date of transition. IFRS 1 provides a number of optional exemptions tothis general principle. The most significant of these are set out below, together with a description, in eachcase, of the exemption adopted by the Protherics Group:
� Business Combinations—IFRS 3, Business Combinations
The Protherics Group has elected not to restate business combinations recognised before the dateof transition.
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� Financial Instruments—IAS 32, Financial Instruments: Disclosure and Presentation and IAS 39,Financial Instruments: Recognition and Measurement
The Protherics Group has elected to adopt IAS 32 and IAS 39 from 1 April 2005. Therefore thecomparative financial information in respect of financial instruments is presented in accordance withUK GAAP.
� Share-Based Payments—IFRS 2, Share-Based Payments
The Protherics Group has elected to apply IFRS 2 to all share-based awards and options granted post7 November 2002 that had not vested by 1 April 2005.
� Previously accumulated translation differences have been set to zero as at 1 April 2004.
The disclosures required by IFRS 1 concerning the transition from UK GAAP to IFRS are given innote 34.
Basis of accounting
These financial statements have been prepared in accordance with IFRS and IFRIC interpretationsadopted for use in European Union and with those requirements of the Companies Act 1985 applicable tocompanies reporting under IFRS. The financial statements have been prepared under the historical costconvention as modified by the revaluation of certain financial assets and liabilities. A summary of the moreimportant policies are set out below, together with an explanation of where changes have been made toprevious policies in the adoption of new standards in the year.
The preparation of financial statements in conformity with generally accepted accounting principlesrequires the use of estimates and assumptions that effect the reported amounts of assets and liabilities atthe date of the financial statements and the reported amounts of revenues and expenses during thereporting period. Although these estimates are based on management’s best knowledge of the amount,events or actions, actual results ultimately may differ from those estimates.
Basis of consolidation
The consolidated financial statements of Protherics PLC incorporate the financial statements of Prothericsand all entities over which it can exercise control (its ‘‘subsidiaries’’). Control is achieved by the power togovern the financial and operating policies of the subsidiary generally accompanying a shareholding ofmore than one half of the voting rights. The existence and effect of potential voting rights that arecurrently exercisable or convertible are considered when assessing whether the Protherics Group controlsanother entity. Subsidiaries are fully consolidated from the date on which control is transferred to theProtherics Group. They are de-consolidated from the date on which control ceases.
The purchase method is used to account for the acquisition of subsidiaries by the Protherics Group. Thecost of an acquisition is measured as the fair value of the assets given, equity instruments issued andliabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.Identifiable assets acquired and liabilities and contingent liabilities assumed are measured initially at theirfair values on the date of acquisition, irrespective of the extent of any minority interest. The excess of thecost of acquisition over the fair value of the Protherics Group’s share of identifiable net assets, includingintangible assets acquired, is recorded as goodwill. If the cost of acquisition is less than the fair value of theProtherics Group’s share of net assets of the subsidiary acquired, the difference is recognised directly inthe income statement.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring accountingpolicies used into line with those used by the Protherics Group.
On consolidation, all intra-group transactions, balances, income and expenditure are eliminated.
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Segment reporting
A business segment is a group of assets, liabilities and operations engaged in providing products or servicesthat are subject to risks and returns that are different from those of other business segments. Ageographical business segment is engaged in providing products or services within a particular economicenvironment that is subject to risks and returns that are different from those of segments operating inother economic environments.
Foreign currency translation
Items included in the financial statements of each of the Protherics Group’s entities are measured usingthe functional currency of the primary economic environment in which the entity operates (the ‘‘functionalcurrency’’). The consolidated financial statements are presented in Sterling, which is Protherics functionaland presentational currency.
Transactions in foreign currencies are recorded at the rate of exchange ruling at the date of transaction.Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translatedat the rates of exchange prevailing at that date. Gains and losses arising on translation are included in theincome statement.
On consolidation, the results of operations that have a functional currency different from thepresentational currency are translated at the average rate of exchange during the year and their balancesheets at the rates ruling at the date of the balance sheet. Exchange differences arising on translation from1 April 2004 are taken directly to a separate component of equity, the cumulative translation reserve.
Revenue recognition
Revenue represents amounts receivable in respect of the sale of goods and services, licence agreementsand intellectual property to customers during the year, net of trade discounts given and value added tax.
A description of the various elements of turnover and their accounting policies is given below:
Products Revenue is partly recognised upon the shipment of products to the distributor, thesignificant risks and rewards having been transferred to the distributor, with further amounts beingrecognised in accordance with the contractual terms upon shipment to the end user.
Up-front payments Non-refundable up-front payments received by the Protherics Group are deferredand recognised over the period of the earnings process.
Royalties Royalty income is generated by sales of products incorporating the Protherics Group’sproprietary technology. Royalty revenues are recognised once the amounts due can be reliablyestimated based on the sale of underlying products and collectibility is assured. Where there isinsufficient historical data on sales and returns to fulfil these requirements, for example in the case ofa new product, the royalty revenue will not be recognised until the Protherics Group can reliablyestimate the underlying sales.
Research and development expenditure
Research expenditure is recognised as an expense as incurred. Expenditure incurred on developmentprojects (relating to the design and testing of new or improved products) are recognised as intangibleassets when it is probable that the project will be a success, considering factors including its commercialand technological feasibility, status of regulatory approval, and the ability to measure costs reliably. Otherdevelopment expenditures are recognised as an expense as incurred. Development expenditure previouslyrecognised as an expense are not recognised as an asset in a subsequent period. Development expenditurethat have a finite useful life and that have been capitalised are amortised from the commencement of thecommercial production of the product on a straight line basis over the period of its expected benefit.
No development expenditure has been capitalised in either the current or prior year.
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Exceptional items
The group defines exceptional items as those items which, by their nature or size, would distort thecomparability of results from year to year.
Intangible fixed assets—Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Protherics Group’sshare of the net identifiable assets, including intangible assets, of the acquired subsidiary at the date ofacquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is testedannually for impairment and carried at cost less accumulated impairment losses. Gains and losses on thedisposal of an subsidiary include the carrying amount of goodwill relating to the subsidiary sold.
Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previousUK GAAP amount. Goodwill arising on acquisitions in the year ended 31 March 1998 and earlier periodshas been written off to reserves, has not been reinstated in the balance sheet and is not included indetermining any subsequent profit or loss on disposal.
Intangible fixed assets—Other
Purchased trademarks, licenses and customer lists are recognised at cost on acquisition and are subject toamortisation over their useful life which is defined as a definite period or series of events. The amortisationcharge is calculated on a straight-line basis over their estimated useful lives (currently a maximum of8 years).
Property, plant and equipment
Land and buildings comprise mainly factories and offices. All property, plant and equipment is shown atcost less subsequent depreciation and impairment, except for land, which is shown at cost less impairment.Cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the assets carrying amount only when it is probable that future economicbenefits associated with the asset will flow to the Protherics Group and the cost of the asset can bemeasured reliably.
Depreciation on assets is calculated using the straight-line method to allocate the cost of each asset to itsresidual value over its estimated useful life as follows:
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . 5% to 10% per yearPlant and machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10% to 15% per yearComputer equipment and software . . . . . . . . . . . . . . . . . . . . . . 20% to 33% per yearFixtures, fittings and motor vehicles . . . . . . . . . . . . . . . . . . . . . 20% to 25% per year
The assets residual values and useful lives are reviewed and adjusted as appropriate at each balancesheet date.
Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carryingvalue of the asset may not be recoverable. An assets carrying amount is written down immediately to itsrecoverable amount if the carrying amount exceeds the higher of the assets fair value less cost to sell andvalue in use. Any impairment charge is recorded in the income statement.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These areincluded in the income statement. Borrowing costs incurred during the construction of assets are expensedas incurred.
Investments
Investments are stated at cost less any provision for impairment.
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Impairment of tangible and intangible assets
The Protherics Group reviews the carrying amounts of its tangible assets and intangible assets with finitelives when events or circumstances indicate the carrying value may be impaired whilst goodwill is reviewedfor impairment on an annual basis. In performing such reviews, the recoverable amount of the asset isestimated in order to determine the extent of the impairment loss (if any). Where the asset does notgenerate cash flows that are independent from other assets, the Protherics Group estimates therecoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with anindefinite life is tested for impairment annually and whenever there is an indication that the asset maybe impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use,the estimated future cash flows are discounted to their present value using a pre-tax discount rate thatreflects current assessments of the time value of money and the risks specific to the asset for which theestimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carryingamount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Animpairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying value of the asset (cash-generating unit) isincreased to the revised estimate of its recoverable amount, provided that the increased carrying amountdoes not exceed the carrying amount that would have been determined had no impairment loss beenrecognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss isrecognised as income immediately.
Inventories
Inventories are valued at the lower of cost and net realisable value. Cost comprises materials, direct labourand a share of production overheads appropriate to the relevant stage of production. Provision is made forobsolete, slow-moving or defective items where appropriate. Net realisable value is determined at thebalance sheet date on commercially saleable products based on estimated selling price less all further coststo completion and all relevant marketing, selling and distribution costs. Research and developmentinventories are fully provided for in the income statement for the year, and are reinstated as appropriate ifthe related products are brought into commercial use.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit asreported in the income statement because it excludes items of income and expense that are taxable ordeductible in other periods and it further excludes items that are never taxable or deductible. TheProtherics Group’s liability for current tax is calculated using tax rates have been enacted or substantivelyenacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amountsof assets and liabilities in the financial statements and the corresponding tax bases used in the computationof taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities aregenerally recognised for all taxable temporary differences and deferred tax assets are recognised to theextent that it is probable that taxable profits will be available against which deductible temporarydifferences can be utilised. Such assets and liabilities are not recognised if the temporary difference arisesfrom goodwill or the initial recognition (other than a business combination) of other assets and liabilities ina transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising from investments insubsidiaries and associates, and interests in joint ventures, except where the Protherics Group is able to
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control the reversal of the temporary difference and it is probable that the temporary difference will notreverse in the foreseeable future.
The carrying amount of deferred tax asset is reviewed at each balance sheet date and reduced to the extentthat it is no longer probable that sufficient taxable profits will be available to allow all or part of the assetto be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settledor the asset is realised. Deferred tax is charged or credited in the income statement, except when it relatesto items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risksand rewards of ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Protherics Group at their fair value or, iflower, at the present value of the minimum lease payments, each determined at the inception of the lease.The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.Lease payments are apportioned between finance charges and reduction of the lease obligation so as toachieve a constant rate of interest on the remaining balance of the liability. Finance charges are chargeddirectly against income. Such assets are depreciated over the shorter of their estimated useful lives or thelength of the lease. Assets purchased under hire purchase agreements are accounted for similarly, exceptthat these assets are depreciated over their estimated useful lives.
Rentals under operating leases are charged to income on a straight-line basis over the term of therelevant lease.
Grants
Grants towards staff re-training costs are recognised as income over the periods necessary to match themwith the related costs and are deducted in reporting the related expense.
Grants relating to property, plant and equipment are treated as deferred income and released to theincome statement over the useful lives of the assets concerned.
Pensions
The Protherics Group operates a defined contribution pension scheme for all members of staff who wish toparticipate. The funds of the scheme are administered by trustees and are independent of the ProthericsGroup’s finances. The Protherics Group’s contributions are charged in the income statement as theyfall due.
Share-based payments
The Protherics Group has applied the requirements of IFRS 2, Share-Based Payments. In accordance withthe transitional provisions, IFRS 2 has been applied to all grants of equity instruments after7 November 2002 that were unvested at 1 April 2005.
The Protherics Group grants share options to directors and employees. Equity-settled share-basedpayments are measured at fair value at the date of grant and expensed on a straight-line basis over theexpected life of the option, based on the estimate of the number of options that will eventually vest.
The share options granted have varying performance criteria required for the option to vest and these areconsidered in the method of measuring the fair value. Where it is considered appropriate, the fair value ismeasured using the Black-Scholes model. Where complex market performance criteria exist, a simulationmodel has been used, based on the same underlying methodology as the Black-Scholes model, to establishthe fair value on grant.
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Convertible loan notes
Following adoption of IAS 39, Financial Instruments: Recognition and Measurement, by the ProthericsGroup on 1 April 2005, convertible loan notes are regarded as compound financial instruments, consistingof a liability component and an equity component. At the date of issue, the fair value of the liabilitycomponent is established by using an estimate for a similar non-convertible debt. The difference betweenthe proceeds of issue of the convertible loan notes and the fair value assigned to the liability component,representing the embedded option to convert the liability into equity of the Protherics Group, is includedin equity.
Issue costs are apportioned between the liability and equity components of the convertible loan notesbased on their relative carrying amounts at the date of issue. The portion relating to the equity componentis charged directly against equity.
The interest expense on the liability component consists of the coupon rate and the element of the equitycomponent consistent with the liability component outstanding. This latter part is added to the carryingamount of the convertible loan notes.
Prior to 1 April 2005, the convertible loan notes were recognised initially at fair value, net of transactioncosts incurred with the difference between the proceeds (net of transaction costs) and the redemptionvalue being recognised in the income statement over the period of the borrowings.
Trade receivables
Trade receivables do not carry any interest and are stated at their face value as reduced by appropriateallowances for estimated irrecoverable amounts.
Trade payables
Trade payables are not interest bearing and are stated at their face value.
Derivative financial instruments
The Protherics Group’s activities exposes it primarily to the financial risks of changes in foreign currencyexchange rates. The Protherics Group uses foreign exchange forward contracts and options to hedge theseexposures. The Protherics Group does not use derivative financial instruments for speculative purposes.The use of financial derivatives is in accordance with the Protherics Group’s policies approved by theBoard of Directors, which is to hedge the foreign currency exposure from the expected US dollar sales on arolling 12 month basis.
Prior to the adoption of IAS 32, Financial Instruments: Disclosure and Presentation, and IAS 39, FinancialInstruments: Recognition and Measurement, on 1 April 2005, where a derivative instrument was used tohedge an asset denominated in a foreign currency, the effect of the instrument, being the differencebetween the closing and hedged rate of exchange for these assets, was carried separately on the balancesheet as a financial asset.
Following the adoption of IAS 32 and IAS 39 on 1 April 2005, these derivatives do not qualify for hedgeaccounting in accordance with IFRS since the exposure is primarily on intra-group transactions betweensubsidiary companies which are eliminated on consolidation. As a consequence, these derivatives areinitially recognised and measured at fair value on the date the derivative contracts are entered into andsubsequently measured at fair value. The change in fair value of these derivative financial instruments arerecognised in the income statement as they arise.
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents includes cash in hand, deposits heldat call with banks, other short-term highly liquid investments with original maturities of three months or
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less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on thebalance sheet.
Financial guarantees
Protherics has not adopted amendments to IAS 39, Financial Instruments: Recognition and Measurement,and IFRS 4, Insurance Contracts, in relation to financial guarantee contracts which will apply for periodscommencing on or after 1 January 2006.
Where Protherics enters into financial guarantee contracts to guarantee the indebtedness of othercompanies within its group, Protherics considers these to be insurance arrangements, and accounts forthem as such. In this respect, Protherics treats the guarantee contract as a contingent liability until suchtime as it becomes probable that Protherics will be required to make a payment under the guarantee.
Protherics does not expect the amendments to have any impact on the financial statements for the yearcommencing 1 April 2006.
Financial risk management
The Protherics Group’s multinational operations expose it to a variety of financial risks that include theeffects of changes in foreign exchange rates, credit risks and liquidity risks. The Protherics Groupundertakes procedures which aim to reduce uncertainty in the financial performance of the ProthericsGroup which are discussed below:
� Foreign exchange risk
A significant element of the Protherics Group’s revenue is denominated in US dollars whilst much ofits cost base in the provision of these products is denominated in Sterling. The Protherics Groupenters into cash flow hedges in the form of foreign exchange contracts and similar derivatives whichtypically extend for 12 months and cover 70 to 100% of anticipated requirements.
� Credit risk
A significant element of the Protherics Group’s revenue is generated from sales to one customer inthe US. Management are constantly in communication with this customer and monitor both sales andpayments from this customer to minimise the credit risk exposure.
� Liquidity risk
The group maintains a mixture of short and medium term facilities that are designed to ensure theProtherics Group has sufficient available funds for operations and planned expansions.
3 Critical Accounting Judgement
As described in note 2, it is the Protherics Group’s policy to recognise revenue in full on non-refundablelicense fees where the earnings process is complete. During the year, the Protherics Group received£16,300,000 from Astrazeneca Limited in a Patent and License Know How agreement. These monies arenon-refundable and are being recognised as revenue as the varying obligations within the contract arebeing satisfied, estimated to be over a period of 5 years. In determining the revenue recognition period,management considered the detailed criteria for the recognition of revenue per IAS 18, Revenue, and issatisfied that all requirements have been met by the Protherics Group.
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4 Revenue
An analysis of the Protherics Group’s revenue is as follows:
ProthericsGroup
2006 2005
£’000 £’000Sale of goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,221 17,945Revenue in respect of product development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 976 —
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 182
17,269 18,127Outlicensed product royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 440 712
17,709 18,839Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401 236
18,110 19,075
Protherics’s revenue comprises of charges for the provision of services.
5 Segmental Reporting
For management purposes, the Protherics Group is organised into two operating segments, the sale,manufacture and development of pharmaceutical products and royalties arising from outlicensedtechnology. These divisions are the basis on which the Protherics Group reports its primary segmentinformation.
The revenue and costs of each segment are clearly identifiable and allocated to each segment accordingly.There are no inter-segmental revenues. The exceptional item shown within cost of sales is included withinthe sale, manufacture and development of pharmaceutical products operating segment.
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5 Segmental Reporting (Continued)
Business segments
2006 2005
Sale manufacture Sale manufactureand development Outlicensed and development Outlicensedof pharmaceutical product Protherics of pharmaceutical product Protherics
products royalties Group products royalties Group
£’000 £’000 £’000 £’000 £’000 £’000Continuing operationsRevenue . . . . . . . . . . . . . . . . 17,269 440 17,709 18,127 712 18,839
Segment result . . . . . . . . . . . (9,961) 428 (9,533) (2,345) 687 (1,658)Interest expense . . . . . . . . . . 401 236Interest income . . . . . . . . . . . (431) (655)
Loss before tax . . . . . . . . . . . (9,563) (2,077)Tax . . . . . . . . . . . . . . . . . . . 75 296
Loss for the year attributableto equity shareholders . . . . (9,488) (1,781)
Segment assets . . . . . . . . . . . 34,566 132 34,698 32,631 204 32,835Unallocated assets . . . . . . . . . 25,438 8,517
60,136 41,352Segment liabilities . . . . . . . . . (33,709) (75) (33,784) (15,121) (262) (15,383)
Other segment itemsCapital expenditure . . . . . . 2,629 — 2,629 1,937 — 1,937Depreciation (note 14) . . . . 1,391 — 1,391 1,464 — 1,.464Amortisation of intangible
assets (note 13) . . . . . . . 114 — 114 111 — 111Other non-cash expenses . . . — — — — — —
Geographical segments
The Protherics Group’s operations are located in the UK, North America and Australia. The UK is thehome country of the parent.
The following table provides an analysis of the Protherics Group’s sales by geographical market,irrespective of the origin of the goods/services, along with the carrying amount of segment assets andcapital expenditure (on both property, plant and equipment and intangible assets):
CapitalRevenue Segment assets expenditure
Continuing operations: 2006 2005 2006 2005 2006 2005
£’000 £’000 £’000 £’000 £’000 £’000United Kingdom . . . . . . . . . . . . . . . . . . . . . . . 1,562 1,322 27,905 24,998 2,194 973United States . . . . . . . . . . . . . . . . . . . . . . . . . . 16,087 17,466 (5,015) (3,198) 17 652Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 51 3,462 4,169 418 312
17,709 18,839 26,352 25,969 2,629 1,937
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6 Operating loss
Operating loss has been arrived at after charging/(crediting):
ProthericsGroup Protherics
2006 2005 2006 2005
£’000 £’000 £’000 £’000Net foreign exchange losses/(gains) . . . . . . . . . . . . . . . . . . . . . . . . . 454 (128) 602 (96)Research and development expenditure . . . . . . . . . . . . . . . . . . . . . 6,747 4,575 33 17Inventories
Cost of inventories recognised as expense . . . . . . . . . . . . . . . . . . 11,193 8,732 — —Reversal of part of inventory write-down . . . . . . . . . . . . . . . . . . . — — — —
Depreciation of property, plant and equipmentOwned assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,154 1,294 35 32Assets owned under finance leases . . . . . . . . . . . . . . . . . . . . . . . 237 170 14 16
Amortisation of purchased intangible fixed assets . . . . . . . . . . . . . . 114 111 — —Amortisation of internally generated intangible assets included in
other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — —Staff costs (see note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,127 7,454 2,002 1,501Auditors’ remuneration
Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 71 21 19Other services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 192 70 152
Operating leases—rentals payable: Plant & equipment . . . . . . . . . . . 25 24 1 3Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 463 547 30 32
Loss on disposal of tangible fixed assets . . . . . . . . . . . . . . . . . . . . . 108 162 9 —Repairs and maintenance expenditure on property, plant &
equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595 406 — —Amortisation of government grants . . . . . . . . . . . . . . . . . . . . . . . . . (78) (48) — —Government grants towards training costs . . . . . . . . . . . . . . . . . . . . (11) (3) — —Exceptional closedown costs (within cost of sales)(1) . . . . . . . . . . . . . 1,362 — — —
(1) During the year ended 31 March 2006, the Protherics Group completed a major upgrade and expansion of its manufacturingfacility in Wales. During this phase of the work, the facility was shutdown for a substantial part of the year therefore incurring£1,362,000 of expenditure which, under normal circumstances would have been absorbed into stock manufactured during theyear. These costs had no effect on the tax credit for the period.
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6 Operating loss (Continued)
A more detailed analysis of auditors’ remuneration on a worldwide basis is provided below:
ProthericsGroup Protherics
2006 2005 2006 2005
£’000 % £’000 % £’000 % £’000 %Services as auditors
Statutory accounts . . . . . . . . . . . . 77 30.3 71 27.0 21 23.1 19 11.1US regulatory . . . . . . . . . . . . . . . 24 9.5 30 11.4 24 26.3 30 17.5
101 39.8 101 38.4 45 49.4 49 28.6
Further assurance servicesTax compliance . . . . . . . . . . . . . . 56 22.0 42 16.0 6 6.6 34 19.9Other . . . . . . . . . . . . . . . . . . . . . 15 5.9 10 3.8 13 14.3 8 4.7
71 27.9 52 19.8 19 20.9 42 24.6Tax advisory services . . . . . . . . . . . . 61 24.0 10 3.8 6 6.6 — —
Other non-audit servicesAccounting advisory services . . . . . 21 8.3 20 7.6 21 23.1 — —Accounting and taxation reviews . . — — 80 30.4 — — 80 46.8
21 8.3 100 38.0 21 23.1 80 46.8
254 100.0 263 100.0 91 100.0 171 100.0
The audit of the Protherics Group’s defined contribution pension scheme is performed by the ProthericsGroup’s auditors, the fee for which is borne by the Protherics Group and represents £2,000 (2005: £1,000)of the amount shown above.
A description of the work of the Audit Committee is set out in the Corporate Governance Statementand includes an explanation of how auditor objectivity and independence is safeguarded when non-auditservices are provided by the auditors.
7 Staff Costs
The average number of persons, including directors, employed by the Protherics Group during theyear was:
ProthericsGroup Protherics
2006 2005 2006 2005Number Number Number Number
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 34 11 11Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 25 8 6Research and production . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 153 — —
197 212 19 17
Their total remuneration was:£’000 £’000 £’000 £’000
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,849 6,298 1,621 1,169Social security costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 649 553 172 123Pension costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 629 603 209 209
8,127 7,454 2,002 1,501
176
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
7 Staff Costs (Continued)
The Protherics Group operates a defined contribution pension scheme for the benefit of all qualifyingexecutive directors and employees. The assets of the scheme are held separately from those of theProtherics Group in funds under the control of the trustees. Where there are employees who leave thescheme prior to the contributions fully vesting in the scheme, the contributions paid by the ProthericsGroup are refunded.
Pension contributions of £74,000 (2005: £66,000) were included in accruals at the year end for theProtherics Group. No accruals were included in Protherics for the current and prior years.
In addition to the wages and salaries analysis above are the effects of the share-based compensation chargeto the Protherics Group during the year of £311,000 (2005: £237,000). The charge in respect of Prothericswas £217,000 (2005: £122,000).
Key management compensation
ProthericsGroup
2006 2005
£’000 £’000Salaries and short-term employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,627 1,382Post employment benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256 196
1,883 1,578
The charge to income in the year in respect of share options for key management personnel was £232,000(2005: £123,000).
The key management figures given above include directors.
Directors emoluments
ProthericsGroup
2006 2005
£’000 £’000Aggregate emoluments:Fees and salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613 674Compensation for loss of office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 7Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 36Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 155Pensions contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202 149
1,194 1,021
The remuneration of the Executive Directors is decided by the Remuneration Committee. Full details ofthe directors’ remuneration and details of the directors’ options, including gains made on the exercise ofshare options, are contained in the Directors’ Remuneration report.
Transactions with directors
Protherics also rented office accommodation from, and had administration services provided byChimaeron Limited, a company in which A Atkinson has a controlling interest. This arrangement wasterminated upon his resignation as an executive director of Protherics in April 2004. Rent charged and
177
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
7 Staff Costs (Continued)
other services provided in the year to 31 March 2006 amounted to £Nil (2005: £7,125) and £Nil (2005:£1,457) respectively. At 31 March 2006, Protherics owed Chimaeron Limited £Nil (2005: £7,655).
On 22 September 2004, Protherics assigned intellectual property and transferred certain Protherics assetsand staff members to Morvus Technology Limited, a company in which A Atkinson is a director and is aposition to exercise significant influence. Protherics received a small equity stake in Morvus TechnologyLimited, valued at the time of transfer at £150,000. £40,000 related to the value of the assets transferredwhilst £110,000 related to certain expenses incurred by Protherics in relation to the facilities and staff beingtransferred. Protherics has retained a right of first refusal to license certain products that may bedeveloped by Morvus Technology Limited. The directors of Protherics PLC had assigned no value to thesetechnologies. During the year ended 31 March 2006, Morvus Technology Limited has recharged Protherics£40,000 (2005: £46,000) for consultancy services provided whilst Protherics has charged MorvusTechnology Limited £26,000 (2005: £62,000) for reimbursement of costs incurred on their behalf. At31 March 2006, Protherics owed Morvus Technology Limited £3,000 (2005: £4,000). The directors considerall transactions with Morvus Technology Limited to be at an arms length valuation.
8 Finance Income
ProthericsGroup Protherics
2006 2005 2006 2005
£’000 £’000 £’000 £’000Bank interest and interest on deposits . . . . . . . . . . . . . . . . . . . . 401 236 226 188
9 Finance Costs
ProthericsGroup Protherics
2006 2005 2006 2005
£’000 £’000 £’000 £’000Interest payable on finance lease and hire purchase borrowings . . 133 131 1 4Interest payable on bank borrowings . . . . . . . . . . . . . . . . . . . . . 22 24 — —Interest payable on 6% convertible unsecured loan notes . . . . . . 193 381 193 381Amortisation of 6% convertible unsecured loan notes . . . . . . . . . 57 81 57 81Notes payable to the South Australian Minister for Primary
Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 17 — —Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 21 2 2
431 655 253 468
178
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
10 Tax
An analysis of credit for the year, all relating to continuing operations, is set out below:
ProthericsGroup Protherics
2006 2005 2006 2005
£’000 £’000 £’000 £’000Current taxUK Corporation tax credit for the current year . . . . . . . . . . . . . . . . 325 290 — —Adjustment in respect of prior years UK Corporation tax . . . . . . . . . — 15 — —
325 305 — —Foreign tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (9) — —
Total current taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322 296 — —
Deferred taxationIncrease in estimate of recoverable deferred tax asset . . . . . . . . . . . (247) — — —
75 296 — —
Corporation tax in the UK is calculated at 30% (2005: 30%) of the estimated assessable profit for the year.Taxations for other jurisdictions are calculated at the rates prevailing in the respective jurisdictions.
The UK tax credit arising in the current and prior years were as a result of research and developmentexpenditure claimed under the Finance Act 2000.
The tax for the year is lower (2005: lower) than the standard rate of corporation tax in the UK (30%). Thedifferences are explained below:
ProthericsGroup Protherics
2006 2005 2006 2005
£’000 £’000 £’000 £’000Loss before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,563) (2,077) (3,315) (2,145)
Profit on ordinary activities multiplied by rate of corporation tax inthe UK of 30% (2005: 30%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,869) (623) (995) (644)
Adjustments to tax in respect of prior years . . . . . . . . . . . . . . . . . . — — — —Adjustments in respect of foreign tax rates . . . . . . . . . . . . . . . . . . . 386 — — —Timing differences between capital allowances and depreciation . . . . 509 254 23 14Other timing differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,041 — — 6Other expenditure not deductible for tax purposes . . . . . . . . . . . . . . (302) 193 322 45Additional tax credit for research and development expenditure
incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (349) (333) — —Lower rate of tax on research and development credits surrendered . 284 263 — —Addition to / (utilisation of) losses carried forward . . . . . . . . . . . . . (1,775) 36 — 5Losses surrendered to group companies . . . . . . . . . . . . . . . . . . . . . — — 650 574
Total taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (75) (296) — —
179
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
10 Tax (Continued)
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of30% (2005: 30%). The movement on the deferred tax account is as shown below:
ProthericsGroup Protherics
2006 2005 2006 2005
£’000 £’000 £’000 £’000Deferred tax asset recognised at 1 April . . . . . . . . . . . . . . . . . . . . . 432 444 — —Income statement charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (247) — — —Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 (12) — —
Deferred tax asset recognised at 31 March . . . . . . . . . . . . . . . . . . . 206 432 — —
The deferred tax asset, which relates to trading losses incurred in Australia, has been recognised in thefinancial statements following the development of the Protherics Group’s products during the past yearand the directors are of the opinion, based on recent and forecast trading, that the level of profits inAustralia in the forthcoming years will lead to the realisation of this asset.
In addition to the losses on which the deferred tax asset has been recognised, the Protherics Group hasadditional taxable losses and other timing differences in the United Kingdom, Australia and theUnited States which arose as a result of the research and development incurred during the start-up of theProtherics Group’s activities. These losses are available for offset against future taxable profits in theseterritories. A deferred tax asset has not been recognised in respect of these losses and other temporarydifferences since the Protherics Group does not anticipate generating sufficient taxable profits to utilisethese losses within the immediate future and consequently the recoverability of the deferred tax asset isuncertain. The total amount of deferred tax asset not recognised, measured at 30%, the rate of corporationtax in the United Kingdom (2005: 30%) is approximately £28 million (2005: approximately £24 million).
The movements in the deferred tax asset and liabilities (prior to the offsetting of balances within the samejurisdiction as permitted by IAS 12, Income Taxes) during the year are as shown below. The deferred taxasset and liabilities are only offset where there is a legally enforceable right of offset and there is anintention to settle the balance net.
Tax losses Total
£’000 £’000At 1 April 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432 432Credited to the income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (247) (247)Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 21
At 31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206 206
Deferreddevelopment
costs TotalDeferred tax liabilitiesAt 1 April 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —Charged / credited to the income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —
At 31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —
Net deferred tax assetAt 31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206 206
At 31 March 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432 432
180
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
10 Tax (Continued)
At 31 March 2006 the Protherics Group had tax losses, subject to the agreement of the TaxationAuthorities, of approximately £72 million (2005: £73 million) available for offset against future taxableprofits of the same trade. Included within these total losses, approximately £18.6 million (2005:£20 million) relates to Protherics Inc., and of these, the use of £11.5 million is restricted to US$1.5 millionper year.
At the balance sheet date, the aggregate amount of temporary differences associated with undistributedearnings of subsidiaries for which deferred tax liabilities had not been recognised was £Nil (2005: £Nil). Noliability has been recognised in respect of these differences because the Protherics Group is in a position tocontrol the timing of the reversal of the temporary differences and it is probable that such differences willnot reverse in the foreseeable future.
11 Loss per Share
Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weightedaverage number of ordinary shares outstanding during the year. For diluted loss per share, the weightedaverage number of ordinary shares in issue would be adjusted to assume conversion of all dilutive potentialordinary shares. The company would have three categories of dilutive potential ordinary shares: shareoptions, warrants and the 6% unsecured convertible loan notes.
Protherics has been loss making in both the current and prior year and as such, should Protherics be calledupon to issue shares, the effect would be anti-dilutive.
The calculation of the basic and diluted loss per share is based on the loss of £9,488,000 (2005: £1,781,000)and on 246,854,698 ordinary shares (2005: 224,145,177) being the weighted average number of ordinaryshares in issue.
12 Goodwill
£’000
Protherics GroupCostAt 1 April 2004, 1 April 2005 and 31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,199
Accumulated impairment lossesAt 1 April 2004, 1 April 2005 and 31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Carrying amount31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,199
31 March 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,199
The goodwill arose on the acquisition of Enact Pharma PLC in June 2003. The Protherics Group testsgoodwill annually for impairment, or more frequently if there are indications that goodwill might beimpaired. At 31 March 2006 there were no accumulated impairment losses.
The recoverable amount of the cash-generating unit is determined from a value in use calculation. The keyassumptions for the value in use calculation are those regarding the launch dates of products, principallyVoraxaze�, the expected unit sales, and expected changes to selling prices and direct costs during the year.Changes are based on expectations of future changes in the market. A discount rate of 14% has beenapplied. The calculations are based upon the most recent cash flow forecasts covering the next 10 yearswhich have been approved by management.
Protherics had no goodwill.
181
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
13 Other Intangible Assets
Patentsand Other
trademarks intangibles Total
£’000 £’000 £’000Protherics GroupCostAt 1 April 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 879 — 879Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 580 580Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21) (15) (36)
At 1 April 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 858 565 1,423
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 50 126
At 31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 934 615 1,549
AmortisationAt 1 April 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240 — 240Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 — 111Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9) — (9)
At 1 April 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342 — 342
Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 — 114Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 — 33
At 31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489 — 489
Net book value31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445 615 1,060
31 March 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 516 565 1,081
Patents and trademarks are amortised over their estimated useful lives, which is on average 8 years. Theother intangibles have yet to commence their useful lives. There are no self-generated intangibles.
Protherics had no other intangible assets.
182
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
14 Property, Plant and Equipment
Furniture,Land & Plant & fixtures &buildings machinery equipment Total
£’000 £’000 £’000 £’000Protherics GroupCostAt 1 April 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,825 7,503 2,343 14,671Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522 543 292 1,357Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (161) (178) (339)Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . (16) (24) (22) (62)
At 1 April 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,331 7,861 2,435 15,627
Reclassification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 21 (21) —Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 2,218 300 2,629Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44) (328) (484) (856)Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 8 28 47
At 31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,409 9,780 2,258 17,447
DepreciationAt 1 April 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,653 3,551 1,075 7,279Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359 777 328 1,464Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (14) (88) (102)Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) (2) (7) (13)
At 1 April 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,008 4,312 1,308 8,628
Reclassification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 92 (92) —Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390 652 349 1,391Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44) (261) (391) (696)Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . — 5 10 15
At 31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,354 4800 1,184 9,338
Net book value31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,055 4,980 1,074 8,109
31 March 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,323 3,549 1,127 6,999
2006 2005
£’000 £’000Land & buildings comprise:
Freehold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,318 1,521Short leasehold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 737 802
2,055 2,323
Plant and machinery includes cost of £1,638,000 (2005: £2,167,000) in respect of assets in the course ofconstruction.
183
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
14 Property, Plant and Equipment (Continued)
The net book value of plant & machinery, and furniture, fixtures & equipment includes £2,752,000 (2005:£2,370,000) in respect of assets held under finance lease and hire purchase agreements. Depreciation forthe year on those assets was £237,000 (2005: £170,000).
Land & Plant &buildings machinery Total
£’000 £’000 £’000ProthericsCostAt 1 April 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 303 345Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 22 22Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (2) (2)
At 1 April 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 323 365
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 141 141Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (42) (106) (148)
At 31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 358 358
DepreciationAt 1 April 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 34 76Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 48 48Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (1) (1)
At 1 April 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 81 123
Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 49 49Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (42) (52) (94)
At 31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 78 78
Net book value31 March 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 280 280
31 March 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 242 242
Plant and machinery includes cost of £132,000 (2005: £Nil) in respect of assets in the course ofconstruction.
The net book value of plant & machinery includes £2,000 (2005: £47,000) in respect of assets held underfinance lease and hire purchase agreements. Depreciation for the year on those assets was £14,000 (2005:£16,000).
184
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
15 Investments
Long termFixed asset investments Shares loans Total
£’000 £’000 £’000ProthericsCostAt 1 April 2004, 1 April 2005 and 31 March 2006 . . . . . . . . . . . . . . . . . 9,929 52,676 62,605
Provision at 1 April 2004, 1 April 2005 and 31 March 2006 . . . . . . . . . . (119) (129) (248)
Carrying amount31 March 2006 and 31 March 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,810 52,547 62,357
Details of subsidiary undertakings, all of which are consolidated and registered in England and Wales,unless noted, are as follows:
% ofordinary
shares held Status
Direct holdingsProtherics Medicines Developments Limited
(formerly Protherics Molecular DesignLimited) . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 trading
Protherics Inc. (formerly TherapeuticAntibodies Inc.) . . . . . . . . . . . . . . . . . . . . . 100 trading (incorporated in Delaware USA)
Proteus Biotechnology Limited . . . . . . . . . . . . 100 dormantEnact Pharma PLC . . . . . . . . . . . . . . . . . . . . 100 tradingGenethics Limited . . . . . . . . . . . . . . . . . . . . . 76 dormant
Indirect holdingsProtherics UK Limited . . . . . . . . . . . . . . . . . . 100 tradingProtherics Australasia Pty Limited . . . . . . . . . . 100 trading (incorporated in Australia)Protherics Utah Inc. . . . . . . . . . . . . . . . . . . . . 100 trading (incorporated in Delaware USA)Enzacta R&D Limited . . . . . . . . . . . . . . . . . . 98.8 dormantEnzacta Limited . . . . . . . . . . . . . . . . . . . . . . 98.8 dormantKymed GB Limited . . . . . . . . . . . . . . . . . . . . 100 dormantDe Montfort Biopharma Limited . . . . . . . . . . 100 dormantTAb (Wales) Limited . . . . . . . . . . . . . . . . . . . 100 dormantTAb (London) Limited . . . . . . . . . . . . . . . . . . 100 dormantPolyclonal Antibodies Limited . . . . . . . . . . . . 100 dormantProtherics Services Pty Limited . . . . . . . . . . . . 100 dormant
All of the trading subsidiaries are engaged in the research, development, manufacture and sale ofpharmaceutical products and potential drugs for use in the treatment of human diseases.
185
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
16 Inventories
ProthericsGroup
2006 2005
£’000 £’000Raw materials and consumables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,455 1,488Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,382 11,152Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 112
10,887 12,752
Protherics had no inventories
17 Trade and Other Receivables
ProthericsGroup Protherics
2006 2005 2006 2005
£’000 £’000 £’000 £’000Amounts falling due within one year:
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,926 2,289 — —Less: Provision for impairment of receivables . . . . . . . . . . . . . . . — — — —
Trade receivables—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,926 2,289 — —Amounts owed by Protherics Group undertakings . . . . . . . . . . . . — — 16,848 12,944Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 845 304 146 —Prepayments and accrued income . . . . . . . . . . . . . . . . . . . . . . . . 749 607 204 280
4,520 3,200 17,198 13,224
A significant proportion of the Protherics Group’s revenue is generated by the sale of its CroFab� andDigiFab� products into the U.S. through its distribution agreement with Fougera, a division of Altana Inc.,who make up the majority of the trade receivables. The carrying value of this and other trade receivableshas been determined by the Protherics Group’s management based on prior experience and theirassessment of the current economic environment. The average credit period taken on sales of goods is30 days. The directors consider that the carrying amount of trade and other receivables approximates totheir fair value.
18 Cash and Cash Equivalents
ProthericsGroup Protherics
2006 2005 2006 2005
£’000 £’000 £’000 £’000Cash at bank and in hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 934 879 222 461Short term bank deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,504 6,391 8,295 6,391
25,438 7,270 8,517 6,852Bank overdrafts (note 20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (28) — —
25,438 7,242 8,517 6,852
186
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
18 Cash and Cash Equivalents (Continued)
Cash and cash equivalents comprise current accounts held by the Protherics Group with immediate accessand short-term bank deposits with a maturity of three months or less. Market rates of interest are earnedon such deposits. The credit risk on such funds is limited because the counterparties are banks with highcredit ratings assigned by international credit rating agencies.
19 Trade and Other Payables
ProthericsGroup Protherics
2006 2005 2006 2005
£’000 £’000 £’000 £’000Current liabilities:Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,227 2,675 738 770Amounts owed to Protherics Group undertakings . . . . . . . . . . . . . . — — 4,423 4,550Other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673 642 — 2Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,223 2,193 1,011 610Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,599 3,041 — —
15,722 8,551 6,172 5,932
Non-current liabilities:Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,081 638 — —
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoingcosts. The average credit taken for trade purchases is 49 days.
Included within deferred income are the following capital grants:
ProthericsGroup
2006 2005
£’000 £’000Deferred income—falling due in less than one year . . . . . . . . . . . . . . . . . . . . . . . . . . 111 63Deferred income—falling due after more than one year . . . . . . . . . . . . . . . . . . . . . . 762 638
873 701
During the year, capital grants of £250,000 (2005: £10,000) were received and £78,000 (2005: £48,000) wasreleased to the income statement. As a result of these grants, the Welsh Development Agency has a legalcharge over certain buildings, plant and equipment securing grants received amounting to £33,000 and theProtherics Group is required to maintain certain employment levels at its Welsh manufacturing facility.
The directors consider that the carrying amount of trade payables approximates to their fair value.
187
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
20 Borrowings
ProthericsGroup
2006 2005
£’000 £’000Bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 29Bank loans
Secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201 210Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —
201 239Notes payable to South Australian Minister for Primary Industries . . . . . . . . . . . . . . . 58 204
259 443
The borrowings are repayable as follows:On demand or within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 193In the second year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 56In the third to fifth years inclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 162After five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 32
259 443
Amounts due for settlement within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 193Amounts due for settlement after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222 250
259 443
Protherics has no borrowings.
Analysis of borrowings by currency:
AustralianSterling US dollars dollars Total
£’000 £’000 £’000 £’000Protherics Group:At 31 March 2006
Bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — —Bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 169 — 201Note payable to South Australian Minister for Primary
Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 58 58
32 169 58 259
At 31 March 2005Bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 29 29Bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 157 — 210Note payable to South Australian Minister for Primary
Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 204 204
53 157 233 443
188
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
20 Borrowings (Continued)
The effective interest rates at the balance sheet dates were as follows:
2006 2005
% %Bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 11.0%Sterling bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.0% 8.0%US dollar bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6% 5.6%Notes payable to South Australian Minister for Primary Industries . . . . . . . . . . . . . . . 6.5% 8.7%
The directors estimate the fair value of the Protherics Group’s borrowings, by discounting the future cashflows at the market rate, to be as follows:
2006 2005
£’000 £’000Bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 29Sterling bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 53US dollar bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 152Notes payable to South Australian Minister for Primary Industries . . . . . . . . . . . . . . . 51 193
240 427
The Protherics Group had no undrawn committed borrowing facilities available at 31 March 2006 (2005:£2,000,000 expiring within one year and all conditions precedent had been met at that date).
The other principal features of the Protherics Group’s borrowings are as follows:
� Bank overdrafts are repayable on demand. The overdrafts at 31 March 2005 are unsecured.
� The Protherics Group’s Sterling loan was obtained upon the acquisition of Enact Pharma PLC inJune 2003. The loan was taken out by Enact Pharma PLC in June 2002. Repayments commenced inMarch 2003 and will continue until August 2007. The loan is secured over the assets of that companyand its immediate subsidiaries. The loan carries a fixed interest rate of 8% per annum.
� The Protherics Group’s US dollar denominated loan was taken out in August 2004. Repaymentscommenced in September 2004 and will continue until August 2009, when substantially all of theprincipal received on inception will become repayable. The loan is secured by a charge over certain ofthe Protherics Group’s assets and carries an interest rate of 5.625%.
� The notes payable to the South Australian Minister for Primary Industries (the ‘‘Minister’’) aresecured on buildings and equipment of Protherics Australasia Pty Limited. Repayment is in equalannual installments, with the final installment due in August 2007. The interest rate is variable at thediscretion of the Minister and is payable annually. The rate is currently in line with marketinterest rates.
21 6% Convertible Unsecured Loan Notes
The 6% convertible unsecured loan notes, denominated in Sterling, were issued on 19 June 2003 as part ofthe consideration to acquire Enact Pharma PLC. Interest on the 6% convertible unsecured loan notes ispayable twice annually in arrears. If not previously repaid, converted or repurchased, the loan notes will berepaid at par on 19 June 2010. The loan notes are convertible at 25p per ordinary share, at the holdersoption, from the earlier of 19 December 2004, or such date that Protherics has received FDA marketingapproval for Voraxaze� but in any event no earlier than June 19, 2004. The terms of the loan notes permitProtherics to repurchase the loan notes at any time by tender (available to all holders alike) or by privatelynegotiated transactions with individual holders at any price.
189
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
21 6% Convertible Unsecured Loan Notes (Continued)
In accordance with IFRS 1, First Time Adoption of International Financial Reporting Standards, theDirectors have elected not to restate comparative information for the impact of IAS 32, FinancialInstruments: Disclosure and Information, and IAS 39, Financial Instruments: Recognition andMeasurement, but have only adopted these standard to apply from 1 April 2005. Accordingly, the 6%convertible unsecured loan notes are carried at their nominal value at 31 March 2005.
Upon adoption of IAS 32 and IAS 39 at 1 April 2005, the net proceeds received from the issue of the 6%convertible unsecured loan notes have been split between the liability element and an equity component,representing the fair value of the embedded option to convert the liability into the equity of the ProthericsGroup, as follows:
£’000
Protherics Group and ProthericsNominal value of convertible loan notes issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,196Equity component at date of issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (711)
Liability component at date of issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,485
2006 2005
£’000 £’000Protherics Group and ProthericsLiability component at 1 April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,762 7,050Adoption of IAS 32 and IAS 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (282) —
3,480 7,050Interest charged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 81Liability converted to equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,068) (3,369)
Liability component at 31 March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,469 3,762
The directors estimate that the fair value of the liability component at 31 March 2006 to be approximately£2,424,000 (2005: £3,406,000).
190
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
22 Obligations under Finance Leases
Present valueMinimum of minimum
lease payments lease payments
2006 2005 2006 2005
£’000 £’000 £’000 £’000Protherics GroupAmounts payable under finance leases:
Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 733 641 623 534In the second to fifth years inclusive . . . . . . . . . . . . . . . . . . . . . . 1,392 1,425 1,216 1,246
2,125 2,066 1,839 1,780Less: future finance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (286) (286)
Present value of lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 1,839 1,780 1,839 1,780Less: Amounts due for settlement within one year (shown within
current liabilities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (623) (534)
Amount due for settlement after one year . . . . . . . . . . . . . . . . . . . . 1,216 1,246
ProthericsAmounts payable under finance leases:
Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 30 1 28In the second to fifth years inclusive . . . . . . . . . . . . . . . . . . . . . . — 4 — 3
1 34 1 31Less: future finance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (3)
Present value of lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 1 31 1 31Less: Amounts due for settlement within one year (shown within
current liabilities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (28)
Amount due for settlement after one year . . . . . . . . . . . . . . . . . . . . — 3
It is the Protherics Group’s policy to lease certain of it plant and equipment under finance leases. Theaverage lease term on inception is 3 to 5 years. For the year ended 31 March 2006, the average effectiveborrowing rate for the Protherics Group was 7.6% (2005: 7.8%) and for Protherics was 15.9% (2005:8.8%). Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and noarrangements have been entered into for contingent rental payments.
The fair value of the Protherics Group and Protherics’ lease obligations approximates to their carryingamount.
The denomination of the Protherics Group and Protherics’ lease obligations were as follows:
ProthericsGroup Protherics
2006 2005 2006 2005
£’000 £’000 £’000 £’000Sterling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,754 1,631 1 31Australian dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 149 — —
1,839 1,780 1 31
The obligations under finance lease for both the Protherics Group and Protherics are secured by thelessors’ charge over the leased assets.
191
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
23 Derivative Financial Instruments
The Protherics Group utilises currency derivatives to hedge significant future transactions and cash flows.The Protherics Group is a party to a variety of foreign currency forward contracts and options in themanagement of its exchange rate exposures. The instruments purchased are primarily denominated in theUS dollars, the currency of the Protherics Group’s principal market.
In accordance with IFRS 1, First Time Adoption of International Financial Reporting Standards, thedirectors have elected not to restate comparative information for the impact of IAS 32, FinancialInstruments: Disclosure and Information, and IAS 39, Financial Instruments: Recognition andMeasurement, but have only adopted these standard to apply from 1 April 2005.
At the balance sheet date, the fair market value of the derivative financial instruments, which do notqualify as cash flow hedges, were:
ProthericsGroup Protherics
2006 2005 2006 2005
£’000 £’000 £’000 £’000Contracts with positive fair values:
Forward foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . — 75 — —
Total financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 75 — —
Contracts with negative fair values:Foreign exchange options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 — 136 —
Derivative instrument liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 — 136 —
Changes in fair market value are recognised in the income statement as they arise. The charge for the yearended 31 March 2006 was £531,000.
All the contracts mature within one year of the balance sheet date.
24 Share Capital
Protherics Group Protherics Groupand Protherics and Protherics
2006 2005
No. Shares £’000 No. Shares £’000AuthorisedOrdinary shares of 2p each . . . . . . . . . . . . . . . . . . . . . . . 350,000,000 7,000 317,100,000 6,342
Allotted, called-up and fully paidOrdinary shares of 2p eachAt 1 April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242,204,390 4,844 207,750,086 4,155Allotted under share option schemes . . . . . . . . . . . . . . . . 1,441,097 29 123,835 2Cash placing and open offer . . . . . . . . . . . . . . . . . . . . . . — — 20,773,088 415Issued to Aztrazeneca UK Limited under CytoFab�
outlicense agreement . . . . . . . . . . . . . . . . . . . . . . . . . 10,990,621 220 — —Settlement to former employees . . . . . . . . . . . . . . . . . . . — — 81,205 2Conversion of 6% unsecured convertible loan notes . . . . . 4,650,960 93 13,476,176 270
At 31 March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259,287,068 5,186 242,204,390 4,844
192
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
24 Share Capital (Continued)
Share warrants
At 31 March 2006 there are unexercised warrants for 212,500 ordinary shares (2005: 212,500 ordinaryshares) in Enact Pharma PLC, a company acquired in June 2003, which expire between 12 March 2007 and9 July 2012 and are exercisable at prices between 30p and 60p per share. Should these be exercised,Protherics is entitled to repurchase these shares by issuing £17.05 6% convertible unsecured loan notes per100 Enact Pharma PLC ordinary shares. The terms of these loan notes are disclosed in note 21to the accounts.
Share options
Details of outstanding share options are as follows:
At At1 April Cancelled 31 March Exercise2005 Granted Exercised or expired 2006 price (p)
Date exercisable
Individual unapproved22 Dec 2002 to 21 Dec 2009 . . . . . . . . 600,000 — — — 600,000 39.009 July 2002 to 8 July 2010 . . . . . . . . . . 25,000 — — — 25,000 40.009 July 2002 to 8 July 2010 . . . . . . . . . . 15,000 — — — 15,000 25.009 July 2002 to 31 May 2007 . . . . . . . . 3,850 — — — 3,850 US$ 6.001 Mar 2004 to 1 Jan 2006 . . . . . . . . . . 70,000 — 70,000 — — 58.508 Oct 2004 to 1 Jan 2006 . . . . . . . . . . 100,000 — 100,000 — — 23.25
Approved25 July 1998 to 24 July 2005 . . . . . . . . 52,955 — — 52,955 — 68.8328 Jan 2003 to 27 Jan 2010 . . . . . . . . . 59,712 — 10,467 — 49,245 37.5028 Feb 2004 to 27 Feb 2011 . . . . . . . . 328,000 — 15,625 20,375 292,000 43.5016 Feb 2009 to 15 Feb 2016 . . . . . . . . — 25,401 — — 25,401 93.50
Unapproved22 June 2001 to 21 June 2008 . . . . . . . 275,000 — 105,000 — 170,000 46.0023 Dec 2001 to 22 Dec 2005 . . . . . . . . 5,305 — 5,305 — — 45.0022 Dec 2002 to 21 Dec 2009 . . . . . . . . 525,000 — 40,000 — 485,000 39.0027 Jan 2003 to 26 Jan 2010 . . . . . . . . . 87,909 — — 812 87,097 37.502 Aug 2003 to 1 Aug 2010 . . . . . . . . . 2,908 — — — 2,908 28.5022 Feb 2004 to 21 Feb 2011 . . . . . . . . 1,370,000 — 225,000 — 1,145,000 43.5016 Jan 2005 to 15 Jan 2012 . . . . . . . . . 2,293,000 — 106,000 10,000 2,177,000 39.509 July 2005 to 8 July 2012 . . . . . . . . . . 500,000 — 150,000 — 350,000 25.0014 Jan 2006 to 13 Jan 2013 . . . . . . . . . 100,000 — 100,000 — — 21.0020 Jun 2006 to 19 Jun 2013 . . . . . . . . 1,110,000 — 210,000 — 900,000 23.2524 Jun 2006 to 23 Jun 2013 . . . . . . . . 30,000 — — — 30,000 23.001 Mar 2007 to 28 Feb 2014 . . . . . . . . . 1,170,000 — 220,000 50,000 900,000 58.501 Mar 2009 to 28 Feb 2014 . . . . . . . . . 325,000 — — — 325,000 58.5027 Sep 2007 to 26 Sep 2014 . . . . . . . . 310,000 — — — 310,000 49.5028 Feb 2008 to 27 Feb 2015*(1) . . . . . . 741,669 — — 25,194 716,475 2.0019 Jul 2008 to 18 Jul 2015*(2) . . . . . . . — 113,785 — — 113,785 2.007 Sep 2008 to 6 Sep 2015 . . . . . . . . . . — 115,000 — — 115,000 60.5021 Dec 2008 to 20 Dec 2015*(3) . . . . . . — 775,887 — 12,222 763,665 2.0021 Dec 2008 to 20 Dec 2015 . . . . . . . . — 85,000 — — 85,000 76.50
193
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
24 Share Capital (Continued)
At At1 April Cancelled 31 March Exercise2005 Granted Exercised or expired 2006 price (p)
Savings related options1 Apr 2005 to 31 Oct 2005 . . . . . . . . . 96,300 — 83,700 12,600 — 37.501 Jan 2009 to 30 Jun 2009 . . . . . . . . . — 270,118 — — 270,118 65.001 Jan 2011 to 30 Jun 2011 . . . . . . . . . — 401,738 — — 401,738 65.00
Protherics PLC option plan forTherapeutic Antibodies employees
27 Jan 2000 to 29 June 2008 . . . . . . . . 162,238 — — — 162,238 175.0to 312.0
10,358,846 1,786,929 1,441,097 184,158 10,520,520
* Options issued under the long term incentive plan, approved by the shareholders on 27 January 2005. The price of a share at thedate of grant was (1) 54.75p, (2) 57.00p, and (3) 78.50p.
Therapeutic Antibodies former employees and consultants
In addition to the above, options over up to 391,929 shares (2005: 507,818) previously held under theTherapeutic Antibodies 1990 Plan may be granted upon request by Therapeutic Antibodies formeremployees and consultants under the terms of the Merger Agreement dated 20 May 1999. Option pricesrange from $5.16 to $6.99 per share and may be exercised at various dates from 26 April 2006 to 15 Dec2006. During the current year, options over 115,889 ordinary shares expired unexercised.
25 Share Premium Account
ProthericsGroup andProtherics
2006 2005
£’000 £’000At 1 April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,868 66,027Adoption of IAS 32 and IAS 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 —
77,881 66,027Premium arising on issue of equity shares
Allotted under share option schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520 49Cash placing and open offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 9,556Issued to Aztrazeneca UK Limited under CytoFab� outlicense agreement . . . . . . . 7,280 —Settlement to former employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 37Conversion of 6% unsecured convertible loan notes . . . . . . . . . . . . . . . . . . . . . . . 1,089 3,100
Expenses on issue of equity shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (901)
At 31 March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,770 77,868
194
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
26 Statement of Changes in Equity
CumulativeShare Share Merger Equity translation Retainedcapital premium reserve reserve reserve earnings Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000Protherics GroupBalance at 1 April 2004 . . . . . . . . . . . . . . . . . . 4,155 66,027 51,163 — — (106,329) 15,016Currency translation adjustments . . . . . . . . . . . . — — — — (33) — (33)
Net expense recognised directly in equity . . . . . . — — — — (33) — (33)Loss for the year . . . . . . . . . . . . . . . . . . . . . . . — — — — — (1,781) (1,781)
Total recognised loss for the year . . . . . . . . . . . . — — — — (33) (1,781) (1,814)
New share capital subscribed . . . . . . . . . . . . . . . 419 9,642 — — — — 10,061Conversion of convertible loan notes . . . . . . . . . 270 3,100 — — — — 3,370Expenses on issue of equity shares . . . . . . . . . . . — (901) — — — — (901)Employee share option scheme:
value of services provided . . . . . . . . . . . . . . . — — — — — 237 237
Balance at 31 March 2005 . . . . . . . . . . . . . . . . 4,844 77,868 51,163 — (33) (107,873) 25,969Adoption of IAS 32 and IAS 39 . . . . . . . . . . . . . — 13 — 378 — 211 602
Balance at 1 April 2005 . . . . . . . . . . . . . . . . . . 4,844 77,881 51,163 378 (33) (107,662) 26,571Currency translation adjustments . . . . . . . . . . . . — — — — (158) — (158)
Net expense recognised directly in equity . . . . . . — — — — (158) — (158)Loss for the year . . . . . . . . . . . . . . . . . . . . . . . — — — — — (9,488) (9,488)
Total recognised loss for the year . . . . . . . . . . . . — — — — (158) (9,488) (9,646)
New share capital subscribed . . . . . . . . . . . . . . . 249 7,800 — — — — 8,049Conversion of convertible loan notes . . . . . . . . . 93 1,089 — (115) — — 1,067Employee share option scheme:
value of services provided . . . . . . . . . . . . . . . — — — — — 311 311
Balance at 31 March 2006 . . . . . . . . . . . . . . . . 5,186 86,770 51,163 263 (191) (116,839) 26,352
The merger reserve arose upon a merger involving the Protherics Group in September 1999. The equityreserve arises from the 6% convertible unsecured loan notes (see note 21).
195
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
26 Statement of Changes in Equity (Continued)
Goodwill on acquisition written off in prior years amounts to £l,909,000.
CumulativeShare Share Merger Equity translation Retainedcapital premium reserve reserve reserve earnings Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000ProthericsBalance at 1 April 2004 . . . . . . . . . . . . 4,155 66,027 — — — (8,018) 62,164Loss for the year . . . . . . . . . . . . . . . . — — — — — (2,145) (2,145)
Total recognised loss for the year . . . . . — — — — — (2,145) (2,145)
New share capital subscribed . . . . . . . . 419 9,642 — — — — 10,061Conversion of convertible loan notes . . . 270 3,100 — — — — 3,370Expenses on issue of equity shares . . . . . — (901) — — — — (901)Employee share option scheme:
value of services provided . . . . . . . . . — — — — — 237 237
Balance at 31 March 2005 . . . . . . . . . . 4,844 77,868 — — — (9,926) 72,786Adoption of IAS 32 and IAS 39 . . . . . . — 13 — 378 — 285 676
Balance at 1 April 2005 . . . . . . . . . . . . 4,844 77,881 — 378 — (9,641) 73,462Loss for the year . . . . . . . . . . . . . . . . — — — — — (3,315) (3,315)
Total recognised loss for the year . . . . . — — — — — (3,315) (3,315)
New share capital subscribed . . . . . . . . 249 7,800 — — — — 8,049Conversion of convertible loan notes . . . 93 1,089 — (115) — — 1,067Employee share option scheme:
value of services provided . . . . . . . . . — — — — — 311 311
Balance at 31 March 2006 . . . . . . . . . . 5,186 86,770 — 263 — (12,645) 79,574
The equity reserve arises from the 6% convertible unsecured loan notes (see note 21).
27 Operating Lease Commitments
ProthericsGroup Protherics
2006 2005 2006 2005
£’000 £’000 £’000 £’000Minimum lease payments under operating leases recognised inincome for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 488 571 31 35
196
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
27 Operating Lease Commitments (Continued)
At the balance sheet date, the outstanding commitments for future minimum lease payments undernon-cancellable operating leases fell due as follows:
2006 2005Vehicles, Vehicles,
plant and plant andProperty equipment Property Equipment
£’000 £’000 £’000 £’000Protherics Group
Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431 16 462 10In the second to fifth years inclusive . . . . . . . . . . . . . 600 16 995 8After five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 — 48 —
1,070 32 1,505 18
ProthericsWithin one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 — 45 1In the second to fifth years inclusive . . . . . . . . . . . . . 34 — 79 —After five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — —
79 — 124 1
Operating lease payments represent rentals payable for certain of its office properties, plant andequipment under non-cancelable operating lease agreements. The leases have various terms andrenewal rights.
28 Capital and Other Financial Commitments
ProthericsGroup Protherics
2006 2005 2006 2005
£’000 £’000 £’000 £’000Contracts placed for future capital expenditure not provided in the
financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,348 534 68 —
29 Share-Based Payments
The Protherics Group has elected to apply IFRS 2, Share-Based Payments to all share-based awards andoptions granted post 7 November 2002 that had not vested by 1 April 2005. These options have been issuedunder the Executive Share Option Plan (‘‘ESOP’’), the Long-term Incentive Plan (‘‘LTIP’’) and the ShareSave Plan.
Under the ESOP, the remuneration committee can grant options over shares in Protherics to employees ofthe Protherics Group. Options are granted with a fixed exercise price equal to the market price of theshares under option at the date of the grant. The vesting period is generally 3 years and subject toperformance criteria. If the options remain unexercised after a period of 10 years from the date of grant,the options expire. Furthermore, options are forfeited if the employee leaves the Protherics Group beforethe option vests.
Under the LTIP, the remuneration committee can grant equity-settled options over shares in Protherics butthese awards are generally reserved for directors and employees at senior manager level. The options aregranted at a fixed exercise price which is generally equally to the nominal value of the shares under theaward. As with the ESOP, the vesting period is generally 3 years, subject to performance criteria and, if theoptions remain unexercised after a period of 10 years from the date of grant, the options expire.Furthermore, options are forfeited if the employee leaves the Protherics Group before the option vests.
197
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
29 Share-Based Payments (Continued)
Awards under the Share Save Plan are made available to all employees who have been with Protherics formore than 6 months. Options under this plan are awarded at a discount of up to 20% of the market priceof the shares under option at the date of the invitation to enter the plan. The vesting period is either 3 or5 years with a 6 month period to exercise after the vesting period. There are no performance criteriaattached to these options. The options are forfeited if the employee leaves the Protherics Group during thevesting period.
The share options granted have varying performance criteria required for the option to vest and these areconsidered in the method of measuring the fair value. Where it is considered appropriate, the fair value ismeasured using the Black-Scholes model. Where complex market performance criteria exist, a simulationmodel has been used, based on the same underlying methodology as the Black-Scholes model, to establishthe fair value on grant.
The fair values of the options granted, performance criteria, and the assumptions used in the calculation offair value are as follows:
Awards under ESOP
14 Jan 20 Jun 24 Jun 1 Mar 1 Mar 27 Sep 7 Sep 21 Dec 16 FebGrant date 2003 2003 2003 2004 2004 2004 2005 2005 2006
Share price at grant date (p) 21.00 23.25 23.00 58.50 58.50 49.50 60.50 76.50 93.50Exercise price (p) . . . . . . . 21.00 23.25 23.00 58.50 58.50 49.50 60.50 76.50 93.50Number of employees . . . . 1 10 2 16 3 2 3 5 1Shares under option . . . . . . 100,000 1,280,000 30,000 1,565,000 310,000 115,000 310,000 85,000 25,401Value (p) . . . . . . . . . . . . . 9.02 9.45 9.45 25.57 33.77 19.31 19.98 31.38 36.13Vesting period (years) . . . . 3 3 3 3 5 3 3 3 3Expected volatility . . . . . . . 48.9% 46.2% 46.2% 47.0% 47.0% 45.3% 38.5% 41.0% 41.2%Option life (years) . . . . . . . 10 10 10 10 10 10 10 10 10Expected life (years) . . . . . 5 5 5 5 5 5 5 5 5Risk free rate . . . . . . . . . . 4.21% 3.75% 3.75% 4.64% 4.64% 4.74% 4.12% 4.68% 4.68%Performance criteria . . . . . . (1) (1) (1) (2) (3) (2) (4) (4) (4)
Other awards
28 Feb 2005 19 Jul 2005 21 Dec 2005 11 Jan 2006 11 Jan 2006Grant date LTIP LTIP LTIP Share-save Share-save
Share price at grant date (p) 54.75 57.00 78.50 86.00 86.00Exercise price (p) . . . . . . . . 2.00 2.00 2.00 65.00 65.00Number of employees . . . . . 22 2 16 38 35Shares under option . . . . . . . 741,669 113,785 775,887 270,118 401,738Value (p) . . . . . . . . . . . . . . . 33.71 38.22 60.86 37.20 44.09Vesting period (years) . . . . . 3 3 3 3 5Expected volatility . . . . . . . . 41.8% 39.0% 41.0% 41.2% 40.9%Option life (years) . . . . . . . . 10 10 10 10 10Expected life (years) . . . . . . 5 5 5 3 5Risk free rate . . . . . . . . . . . 4.68% 4.18% 4.68% 4.10% 4.10%Performance criteria . . . . . . . (4) (4) (4) None None
(1) To vest, Protherics’ share price is required to outperform the average price of shares in the FTSE All Share Pharmaceutical andBiotech Index in any three year period commencing on or after the date of grant of the option.
(2) Performance will be measured once only after three years from the date of grant of the option. If the total shareholder return ofProtherics reaches the median of the FTSE All Share Pharmaceuticals and Biotech Index, one third of the shares under optionbecome exercisable, rising on a sliding scale such that all the shares under option become exercisable if Protherics’ performanceis at or above the upper quartile. The Renuneration Committee must also be satisfied that there has been an improvement inProtherics’ underlying financial performance over the period.
198
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
29 Share-Based Payments (Continued)
(3) As (2) except that performance measured after five years.
(4) Provided the Remuneration Committee is satisfied that Protherics has achieved sound underlying performance, awards will vestbased on Protherics’ Total Shareholder Return (‘‘TSR’’). Performance will be measured after three years from grant bymeasuring the TSR of Protherics against a comparator group consisting of the primary listed components of the FTSE AllShare Pharmaceutical and Biotech Index but excluding those companies in the FTSE 100 (currently Alliance Unichem plc,Astra Zeneca plc, Glaxosmithkline plc and Shire Pharmaceuticals plc). TSR will normally be averaged across a period of threemonths before the date of the reward and three months before the date on which the performance period ends, although theCommittee may determine that a different averaging period is appropriate and properly reflective of management performancebut in any event this will not be more than six months or less than one month. No award will vest if Protherics’ TSR is below themedian of the comparator group, 30% will vest if Protherics’ TSR is at the median position, 80% if Protherics’ TSR is at theupper quartile and 100% if at the upper decile. Awards will vest on a sliding scale between each step.
The expected volatility is based on historical volatility over the expected life, being the average expectedperiod to exercise, of the option as at the date of grant. The risk free rate of return is the yield onzero-coupon UK government bonds of a term consistent with the expected life at the date of grant.
A reconciliation of the option movements over the year to 31 March 2006 is shown below:
2006 2005
Weighted average Weighted Averageoption price option price
Number pence Number pence
Outstanding at 1 April . . . . . . . . . . . . 10,866,664 60.96 10,245,846 71.37Granted . . . . . . . . . . . . . . . . . . . . . . . 1,786,929 34.30 1,221,669 19.03Exercised . . . . . . . . . . . . . . . . . . . . . . (1,441,097) 38.05 (123,835) 41.48Cancelled or expired . . . . . . . . . . . . . . (300,047) 137.01 (477,016) 182.39
Outstanding at 31 March . . . . . . . . . . . 10,912,449 57.53 10,866,664 60.96
Exercisable at 31 March . . . . . . . . . . . 5,956,267 76.64 6,483,695 79.18
2006 2005
Weighted WeightedWeighted average Weighted averageaverage average
remaining life remaining lifeoption optionRange of exercise price Number Expected Contractual price Number Expected Contractualprices pence of shares Years Years pence of shares Years Years
Below 20p . . . . 2.0 1,593,925 4.3 9.3 2.0 741,669 4.9 9.920p – 40p . . . . . 35.0 4,696,250 0.9 5.6 34.0 5,519,829 1.7 6.540p – 60p . . . . . 50.0 3,167,000 1.5 6.3 50.1 3,933,546 2.3 7.060p – 80p . . . . . 65.5 871,856 4.1 5.6 68.8 52,955 — 0.380p – 100p . . . . 93.5 25,401 4.9 9.9 — — — —Above 100p . . . 434.7 558,017 — 0.7 441.0 618,665 — 1.6
The weighted average share price for options exercised over the year was 81.1p (2005: 55.5p). The totalcharge for the year relating to employee share-based payment plans was £311,000 (2005: £211,000), all ofwhich was related to equity-settled share-based payment transactions.
30 Retirement Benefit Schemes
The Protherics Group operates a defined contribution retirement benefit scheme for all qualifying UKbased employees. The assets of the scheme are held separately from those of the Protherics Group in fundsunder the control of the trustees. Where there are employees who leave the schemes prior to thecontributions made by the Protherics Group fully vesting, the contributions payable by the ProthericsGroup are reduced by the amount of the forfeited contributions.
199
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
30 Retirement Benefit Schemes (Continued)
Eligible employees of the Protherics Group’s overseas subsidiaries are members of externally operateddefined contribution schemes. The only obligation of the Protherics Group with respect to these schemes isto make the specified contributions.
31 Notes to the Consolidated Cash Flow Statements
Reconciliation of operating loss to net cash flow from operating activities:
ProthericsGroup Protherics
2006 2005 2006 2005
£’000 £’000 £’000 £’000Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,533) (1,658) (3,288) (1,865)
Adjustments for:Change in fair value of derivatives . . . . . . . . . . . . . . . . . . . . . . . 531 248 531 —Deferred grant income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (78) (48) — —Non cash expenses/(revenues) . . . . . . . . . . . . . . . . . . . . . . . . . . . — (110) — —Share-based payment costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 237 217 122Depreciation of property, plant and equipment . . . . . . . . . . . . . . 1,391 1,464 49 48Amortisation of intangible fixed assets . . . . . . . . . . . . . . . . . . . . 114 111 — —Loss on disposal of property, plant and equipment . . . . . . . . . . . . 108 162 9 —
Operating cash flows before movements in working capital . . . . . . . (7,156) 406 (2,482) (1,695)
Decrease/(increase) in inventories . . . . . . . . . . . . . . . . . . . . . . . . . 1,903 (3,032) — —(Increase)/decrease in receivables . . . . . . . . . . . . . . . . . . . . . . . . . . (1,135) 44 (3,880) (423)Increase/(decrease) in payables . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,997 (472) 84 71
Net cash flow from operating activities . . . . . . . . . . . . . . . . . . . . . . 12,609 (3,054) (6,278) (2,047)
The increase in payable for the year ended 31 March 2006 is primarily a result of the increase in deferredincome arising from the deferral of non-refundable up-front fees received under the Patent and LicenseKnow How agreement with Astrazeneca Limited (see note 3).
Additions to Protherics Group plant and equipment during the year amounting to £582,000, were financedby new finance leases. No finance leases were entered into by Protherics in the year.
Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet)comprise cash at bank and other short-term highly liquid investments with a maturity of three monthsor less.
32 Contingent Liabilities
Protherics has guaranteed certain operating leases, finance leases and hire purchase agreements enteredinto by subsidiary companies.
33 Related Party Transactions
Protherics Group
Transactions between Protherics and its subsidiaries, which are related parties, have been eliminated onconsolidation and are not disclosed in this note.
Details of consultancy fees earned by directors during the year and fees paid to third parties for directors’consultancy services are included within the Directors’ Remuneration note. No amounts were outstandingat 31 March 2006 (2005: nil).
200
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
33 Related Party Transactions (Continued)
Protherics
During the year, Protherics provided loans to subsidiary companies on which interest is not charged sincethe directors consider that such loans are equivalent to equity. In addition, Protherics made managementcharges on its subsidiaries amounting to £1,302,000 (2005: £1,016,000) and levied charges for optionsgranted to employees of subsidiaries of £94,000 (2005: £115,000). The outstanding balances due to/fromsubsidiary companies are disclosed in notes 17 and 19.
34 Explanation of Transition to IFRS
This is the first year that the Protherics Group and Protherics has presented its financial statements underIFRS. The following disclosures are required in the year of transition. The last financial statements underUK GAAP were for the year ended 31 March 2005 and the date of transition to IFRS’s was therefore1 April 2004.
Differences between IFRS and UK GAAP impacting on Protherics PLC
The principal effects of IFRS on the financial statements of the Protherics Group are as follows:
� Presentation—IAS 1, Presentation of Financial Statements
The presentation format of IFRS is different from UK GAAP and the illustrative financialinformation herein is designed to assist the reader to understand these changes.
� Employee option and performance share schemes—IFRS 2, Share-based Payments
All transactions within the scope of IFRS 2 are valued based on the fair value of the option or awardat grant date and expensed to the income statement over the vesting period of the scheme.
� Goodwill arising on acquisitions—IFRS 3, Business Combinations
IFRS 3 requires that goodwill arising upon acquisition of businesses is not amortised but is subject toimpairment reviews. As noted in section 3, the Protherics Group has applied the exemption not torestate business combinations prior to the date of transition, and as a result, amortisation previouslycharged under U.K. GAAP has been reversed from 1 April 2004 onwards.
� Financial instruments—IAS 32, Financial Instruments: Disclosure and Presentation and IAS 39,Financial Instruments: Recognition and Measurement
IAS 39 determines that the instruments held to hedge the Protherics Group’s US dollar receivablesare required to be valued at each period end, with the movement in the fair value being reflected as anincome or expense for the period, since these instruments do not qualify for hedge accounting inaccordance with IFRS. In addition, Protherics is unable to recognise the effect of the hedginginstruments within turnover as was allowed under UK GAAP. As noted in section 2, the ProthericsGroup has elected to adopt IAS 39 from 1 April 2005. Therefore the comparative financialinformation in respect of financial instruments is presented in accordance with UK GAAP.
� Convertible loan notes—IAS 39, Financial Instruments: Recognition and Measurement
The 6% unsecured convertible loan notes are defined as compound financial instruments underIAS 39 and therefore, the instrument is required to be split between its equity and debt componentsupon issue. In subsequent periods, the finance charge of Protherics will be increased to reflect theperceived discount on issue of the debt instrument. As noted in section 2, the Protherics Group haselected to adopt IAS 32 and IAS 39 from 1 April 2005. Therefore the comparative financialinformation in respect of financial instruments is presented in accordance with UK GAAP.
� Capitalised interest—IAS 23, Borrowing costs
IAS 23 provides the option of capitalising or expensing borrowing cost incurred on assets in the courseof construction and the option chosen should be adopted consistently. The company has adopted a
201
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
34 Explanation of Transition to IFRS (Continued)
policy to expense such costs as incurred and as a result, all interest capitalised under U.K. GAAP hasbeen expensed.
� Hedging instruments—IAS 21, The Effects of Changes in Foreign Exchange Rates
IAS 21 determines that the balance sheet of a foreign operation should be translated at the closingexchange rate of the foreign operation’s functional currency. Prior to the adoption of IAS 32 andIAS 39, on 1 April 2005, the Protherics Group used forward foreign exchange contracts to hedgeagainst specific US dollar denominated assets and such assets were retranslated at the hedged rate.Compliance with IAS 21 has required the effects of the hedging instrument, being the differencebetween the closing and hedged rate of exchange for these items, to be carried separately as afinancial asset on the balance sheets of 31 March 2004 and 31 March 2005.
202
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
34 Explanation of Transition to IFRS (Continued)
Reconciliation of Consolidated UK GAAP balance sheet to the Consolidated IFRS balance sheet as at1 April 2004
Effect ofUK GAAP in transition to
Notes IFRS format IFRS IFRS
£’000 £’000 £’000Non-current assetsGoodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,199 — 9,199Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . 639 — 639Property, plant and equipment . . . . . . . . . . . . . . . . . . (a) 7,473 (81) 7,392Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . 444 — 444
17,755 (81) 17,674
Current assetsInventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,745 — 9,745Financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (b) — 323 323Tax receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307 — 307Trade and other receivables . . . . . . . . . . . . . . . . . . . . (c) 3,432 (269) 3,163Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . (d) 3,307 (54) 3,253
16,791 — 16,791
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,546 (81) 34,465
Current liabilitiesTrade and other payables . . . . . . . . . . . . . . . . . . . . . . (e) 8,721 196 8,917Current tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 127 — 127Financial liabilities
Obligations under finance leases . . . . . . . . . . . . . . . 456 — 456Bank overdrafts, loans and other borrowings . . . . . . 500 — 500
9,804 196 10,000
Non-current liabilitiesFinancial liabilities
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262 — 262Convertible loan notes . . . . . . . . . . . . . . . . . . . . . . 7,050 — 7,050Obligations under finance leases . . . . . . . . . . . . . . . 1,459 — 1,459
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . 678 — 678
9,449 — 9,449
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,253 196 19,449
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,293 (277) 15,016
EquityShare capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,155 — 4,155Share premium account . . . . . . . . . . . . . . . . . . . . . . . 66,027 — 66,027Merger reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,163 — 51,163Equity reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —Cumulative translation reserve . . . . . . . . . . . . . . . . . . (f) — — —Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . (106,052) (277) (106,329)
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,293 (277) 15,016
203
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
34 Explanation of Transition to IFRS (Continued)
Reconciliation of Consolidated UK GAAP balance sheet to the Consolidated IFRS balance sheet at31 March 2005
Effect ofUK GAAP in transition to
Notes IFRS format IFRS IFRS
£’000 £’000 £’000Non-current assetsGoodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (j) 8,201 998 9,199Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . 1,081 — 1,081Property, plant and equipment . . . . . . . . . . . . . . . . . . (a) 7,034 (35) 6,999Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . 432 — 432
16,748 963 17,711
Current assetsInventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,752 — 12,752Financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (b) — 75 75Tax receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344 — 344Trade and other receivables . . . . . . . . . . . . . . . . . . . . (c) 3,270 (70) 3,200Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . (d) 7,275 (5) 7,270
23,641 — 23,641
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,389 963 41,352
Current liabilitiesTrade and other payables . . . . . . . . . . . . . . . . . . . . . . (e) 8,329 222 8,551Current tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 209 — 209Financial liabilities
Obligations under finance leases . . . . . . . . . . . . . . . 534 — 534Bank overdrafts, loans and other borrowings . . . . . . 193 — 193
9,265 222 9,487
Non-current liabilitiesFinancial liabilities
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 — 250Convertible loan notes . . . . . . . . . . . . . . . . . . . . . . 3,762 — 3,762Obligations under finance leases . . . . . . . . . . . . . . . 1,246 — 1,246
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . 638 — 638
5,896 — 5,896
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,161 222 15,383
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,228 741 25,969
EquityShare capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,844 — 4,844Share premium account . . . . . . . . . . . . . . . . . . . . . . . 77,868 — 77,868Merger reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,163 — 51,163Equity reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —Cumulative translation reserve . . . . . . . . . . . . . . . . . . (f) — (33) (33)Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . (108,647) 774 (107,873)
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,228 741 25,969
204
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
34 Explanation of Transition to IFRS (Continued)
Reconciliation of the Consolidated UK GAAP profit and loss account to the Consolidated IFRS incomestatement for the year ended 31 March 2005
Effect ofUK GAAP in transition to
Notes IFRS format IFRS IFRS
£’000 £’000 £’000Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,839 — 18,839Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (g) (8,801) 57 (8,744)
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,038 57 10,095Administrative expenses
Research and development . . . . . . . . . . . . . . . . . . . (h) (4,533) (42) (4,575)General & administrative . . . . . . . . . . . . . . . . . . . . . (i) (7,969) 791 (7,178)
Total administrative expenses . . . . . . . . . . . . . . . . . . . . (12,502) 749 (11,753)
Operating (loss) / profit . . . . . . . . . . . . . . . . . . . . . . . (2,464) 806 (1,658)Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (419) — (419)
(Loss) / profit before tax . . . . . . . . . . . . . . . . . . . . . . . (2,883) 806 (2,077)Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296 — 296
(Loss) / profit for the year . . . . . . . . . . . . . . . . . . . . . (2,587) 806 (1,781)
205
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
34 Explanation of Transition to IFRS (Continued)
Reconciliation of Protherics’ UK GAAP balance sheet to Protherics’ IFRS balance sheet as at1 April 2004
Effect ofUK GAAP in transition to
Notes IFRS format IFRS IFRS
£’000 £’000 £’000Non-current assetsProperty, plant and equipment . . . . . . . . . . . . . . . . . . . 269 — 269Investments in subsidiaries . . . . . . . . . . . . . . . . . . . . . . 62,357 — 62,357
62,626 — 62,626
Current assetsTrade and other receivables . . . . . . . . . . . . . . . . . . . . . (c) 12,674 13 12,687
12,674 13 12,687
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,300 13 75,313
Current liabilitiesTrade and other payables . . . . . . . . . . . . . . . . . . . . . . . (e) 5,811 77 5,888Current tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 147 — 147Financial liabilities
Obligations under finance leases . . . . . . . . . . . . . . . . 25 — 25Bank overdrafts, loans and other borrowings . . . . . . . 9 — 9
5,992 77 6,069
Non-current liabilitiesFinancial liabilities
Convertible loan notes . . . . . . . . . . . . . . . . . . . . . . . 7,050 — 7,050Obligations under finance leases . . . . . . . . . . . . . . . . 31 — 31
7,081 — 7,081Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,073 77 13,150
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,227 (64) 62,163
EquityShare capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,155 — 4,155Share premium account . . . . . . . . . . . . . . . . . . . . . . . . 66,027 — 66,027Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,955) (64) (8,019)
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,227 (64) 62,163
206
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
34 Explanation of Transition to IFRS (Continued)
Reconciliation of Protherics’ UK GAAP balance sheet to Protherics’ IFRS balance sheet at31 March 2005
Effect ofUK GAAP in transition to
Notes IFRS format IFRS IFRS
£’000 £’000 £’000Non-current assetsProperty, plant and equipment . . . . . . . . . . . . . . . . . . . 242 — 242Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 62,357 — 62,357
62,599 — 62,599
Current assetsTrade and other receivables . . . . . . . . . . . . . . . . . . . . . (c) 13,140 84 13,224Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . 6,852 — 6,852
19,992 84 20,076
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,591 84 82,675
Current liabilitiesTrade and other payables . . . . . . . . . . . . . . . . . . . . . . . (e) 5,868 64 5,932Current tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 164 — 164Financial liabilities
Obligations under finance leases . . . . . . . . . . . . . . . . 28 — 28
6,060 64 6,124
Non-current liabilitiesFinancial liabilities
Convertible loan notes . . . . . . . . . . . . . . . . . . . . . . . 3,762 — 3,762Obligations under finance leases . . . . . . . . . . . . . . . . 3 — 3
3,765 — 3,765Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,825 64 9,889
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,766 20 72,786
EquityShare capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,844 4,844Share premium account . . . . . . . . . . . . . . . . . . . . . . . . 77,868 77,868Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,946) 20 (9,926)
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,766 20 72,786
207
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
34 Explanation of Transition to IFRS (Continued)
Reconciliation of Protherics’ UK GAAP profit and loss account to Protherics’ IFRS income statementfor the year ended 31 March 2005
Effect ofUK GAAP in transition to
Notes IFRS format IFRS IFRS
£’000 £’000 £’000Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,017 — 1,017Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,017 — 1,017Administrative expenses
Research and development . . . . . . . . . . . . . . . . . . . . (17) — (17)General & administrative . . . . . . . . . . . . . . . . . . . . . (i) (2,711) (154) (2,865)
Total administrative expenses . . . . . . . . . . . . . . . . . . . . (2,728) (154) (2,882)
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,711) (154) (1,865)Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (280) — (280)
Loss before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,991) (154) (2,145)Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —
Loss profit for the year . . . . . . . . . . . . . . . . . . . . . . . . (1,991) (154) (2,145)
(a) Property, plant and equipment
ProthericsGroup Protherics
31 March 31 March 31 March 31 March2004 2005 2004 2005
£’000 £’000 £’000 £’000IAS 23—Borrowing costs . . . . . . . . . . . . . . . . . . . (81) (35) — —
Total decrease in property, plant and equipment . . (81) (35) — —
(b) Financial assets
ProthericsGroup Protherics
31 March 31 March 31 March 31 March2004 2005 2004 2005
£’000 £’000 £’000 £’000IAS 21—The effects of changes in foreign
exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . 323 75 — —
Total increase in financial assets . . . . . . . . . . . . . 323 75 — —
208
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
34 Explanation of Transition to IFRS (Continued)
(c) Trade and other receivables
ProthericsGroup Protherics
31 March 31 March 31 March 31 March2004 2005 2004 2005
£’000 £’000 £’000 £’000IAS 21—The effects of changes in foreign
exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . (269) (70) — —IFRS 2—Share-based payments . . . . . . . . . . . . . . — — 13 84
Total (decrease)/increase in trade and otherreceivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . (269) (70) 13 84
(d) Cash and cash equivalents
ProthericsGroup Protherics
31 March 31 March 31 March 31 March2004 2005 2004 2005
£’000 £’000 £’000 £’000IAS 21—The effects of changes in foreign
exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . (54) (5) — —
Total decrease in cash and cash equivalents . . . . . (54) (5) — —
(e) Trade and other payables
ProthericsGroup Protherics
31 March 31 March 31 March 31 March2004 2005 2004 2005
£’000 £’000 £’000 £’000IFRS 2—Share-based payments . . . . . . . . . . . . . . 85 105 67 38Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 117 10 26
Total increase in trade and other payables . . . . . . 196 222 77 64
(f) Cumulative translation reserve
ProthericsGroup Protherics
31 March 31 March 31 March 31 March2004 2005 2004 2005
£’000 £’000 £’000 £’000Cumulative translation reserve . . . . . . . . . . . . . . . — (33) — —
209
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
34 Explanation of Transition to IFRS (Continued)
(g) Cost of sales
ProthericsGroup Protherics
Year ended Year ended31 March 31 March
2005 2005
£’000 £’000IFRS 2—Share-based payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) —IAS 23—Borrowing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 —Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 —
Total decrease in cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 —
(h) Research and development
ProthericsGroup Protherics
Year ended Year ended31 March 31 March
2005 2005
£’000 £’000IFRS 2—Share-based payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (41) —Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) —
Total increase in research and development . . . . . . . . . . . . . . . . . . . . . (42) —
(i) General & administrative
ProthericsGroup Protherics
Year ended Year ended31 March 31 March
2005 2005
£’000 £’000IFRS 2—Share-based payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (189) (138)IAS 23—Borrowing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 —IFRS 3—Business combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 998 —Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21) (16)
Total decrease in general & administrative . . . . . . . . . . . . . . . . . . . . . . 791 (154)
210
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
34 Explanation of Transition to IFRS (Continued)
(j) Goodwill
ProthericsGroup Protherics
31 March 31 March 31 March 31 March2004 2005 2004 2005
£’000 £’000 £’000 £’000IFRS 3—Business combinations . . . . . . . . . . . . . . — 998 — —
Total increase in goodwill . . . . . . . . . . . . . . . . . . . — 998 — —
211
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
34 Explanation of Transition to IFRS (Continued)
Reconciliation of Consolidated UK GAAP and Consolidated IFRS cash flows for the year ended31 March 2005
UK GAAP aspreviously IFRSreported Adjustment as restated
£’000 £’000 £’000Cash flows from operating activitiesCash generated from operations . . . . . . . . . . . . . . . . . . . . . . (3,103) 49 (3,054)Income tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (79) — (79)Income tax received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332 — 332
Net cash (used in)/from operating activities . . . . . . . . . . . . . (2,850) 49 (2,801)
Investing activitiesInterest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236 — 236Proceeds on disposal of property, plant and equipment . . . . . 35 — 35Purchases of property, plant and equipment . . . . . . . . . . . . . (1,001) — (1,001)Purchases of other intangible non-current assets . . . . . . . . . . (191) — (191)Capital grants received . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 — 10
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . (911) — (911)
Financing activitiesInterest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (494) — (494)Interest paid on finance leases . . . . . . . . . . . . . . . . . . . . . . . (131) — (131)Repayment of borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . (336) — (336)Repayments of finance leases . . . . . . . . . . . . . . . . . . . . . . . . (490) — (490)Issue of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,161 — 9,161Increase in bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . 28 — 28
Net cash from financing activities . . . . . . . . . . . . . . . . . . . . . 7,738 — 7,738
Net increase in cash and cash equivalents . . . . . . . . . . . . . . 3,977 49 4,026Cash and cash equivalents at the beginning of year . . . . . . . . 3,307 (54) 3,253Effect of foreign exchange rate changes . . . . . . . . . . . . . . . . (9) — (9)
Cash and cash equivalents at the end of year . . . . . . . . . . . . 7,275 (5) 7,270
Operating (loss)/profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,464) 806 (1,658)Adjustments for:
Change in fair value of derivatives . . . . . . . . . . . . . . . . . . — 248 248Deferred grant income . . . . . . . . . . . . . . . . . . . . . . . . . . . (48) — (48)Non-cash revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (110) — (110)Share-based payment costs . . . . . . . . . . . . . . . . . . . . . . . . — 237 237Depreciation of property, plant and equipment . . . . . . . . . 1,510 (46) 1,464Amortisation of intangible fixed assets . . . . . . . . . . . . . . . 1,109 (998) 111Loss on disposal of property, plant and equipment . . . . . . 162 — 162
Operating cash flows before movements in working capital . . 159 247 406Increase in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,032) — (3,032)Decrease/(increase) in receivables . . . . . . . . . . . . . . . . . . . . 267 (223) 44(Decrease)/increase in payables . . . . . . . . . . . . . . . . . . . . . . (497) 25 (472)
Net cash flows (used in)/from operating activities . . . . . . . . . (3,103) 49 (3,054)
212
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
34 Explanation of Transition to IFRS (Continued)
Under IAS 21, The Effects of Changes in Foreign Exchange Rates, cash balances denominated innon-reporting currencies have been retranslated at the exchange rate ruling at the balance sheet datewhereas these were retranslated at hedged rates where appropriate under UK GAAP.
UK GAAP cash and cash equivalents includes overdrafts of £nil and £28,000 at 1 April 2004 and31 March 2005 respectively. IFRS does not classify overdrafts within cash and cash equivalents.
Reconciliation of the Consolidated and Protherics IFRS balance sheets at 1 April 2005
The Protherics Group and Protherics took the exemption not to restate its comparative information forIAS 32, Financial Instruments: Disclosure and Presentation, and IAS 39, Financial Instruments:Recognition and Measurement. It therefore adopted IAS 32 and IAS 39 at 1 April 2005. The followingnote explains the adjustments made at 1 April 2005 to the Protherics Group’s balance sheet at31 March 2005 to reflect the adoption of IAS 32 and IAS 39.
213
Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
34 Explanation of Transition to IFRS (Continued)
Effect ofadoption of
IFRS IAS 32 IFRS31 March and 1 April
2005 IAS 39 2005
£’000 £’000 £’000Protherics Group
Non-current assetsGoodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,199 — 9,199Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,081 — 1,081Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,999 — 6,999Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432 — 432
17,711 — 17,711
Current assetsInventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,752 — 12,752Financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 320 395Tax receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344 — 344Trade and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,200 — 3,200Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,270 — 7,270
23,641 320 23,961
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,352 320 41,672
Current liabilitiesTrade and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,551 — 8,551Current tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 — 209Financial liabilities
Obligations under finance leases . . . . . . . . . . . . . . . . . . . . . . . . 534 — 534Bank overdrafts, loans and other borrowings . . . . . . . . . . . . . . . 193 — 193
9,487 — 9,487
Non-current liabilitiesFinancial liabilities
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 — 250Convertible loan notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,762 (282) 3,480Obligations under finance leases . . . . . . . . . . . . . . . . . . . . . . . . 1,246 — 1,246
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 638 — 638
5,896 (282) 5,614
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,383 (282) 15,101
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,969 602 26,571
EquityShare capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,844 — 4,844Share premium account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,868 13 77,881Merger reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,163 — 51,163Equity reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 378 378Cumulative translation reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . (33) — (33)Other reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278 — 278Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (108,151) 211 (107,940)
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,969 602 26,571
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Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
34 Explanation of Transition to IFRS (Continued)
ShareFinancial Convertible premium Equity Retained
assets loan notes account reserve earnings
£’000 £’000 £’000 £’000 £’000Protherics GroupIFRS at 31 March 2005 . . . . . . . . . . . . . . . . . 75 3,762 77,868 — (108,151)Recognition at fair value of previously
derecognised receivables . . . . . . . . . . . . . . . 320 — — — 320Compound financial instruments . . . . . . . . . . . — (282) 13 378 (109)
IFRS at 1 April 2005 . . . . . . . . . . . . . . . . . . . 395 3,480 77,881 378 (107,940)
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Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
34 Explanation of Transition to IFRS (Continued)
Effect ofadoption of
IFRS IAS 32 IFRS31 March and 1 April
2005 IAS 39 2005
£’000 £’000 £’000Protherics
Non-current assetsProperty, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242 — 242Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,357 — 62,357
62,599 — 62,599
Current assetsFinancial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 394 394Trade and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,224 — 13,224Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,852 — 6,852
20,076 394 20,470
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,675 394 83,069
Current liabilitiesTrade and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,932 — 5,932Current tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 — 164Financial liabilities
Obligations under finance leases . . . . . . . . . . . . . . . . . . . . . . . . . 28 — 28
6,124 — 6,124
Non-current liabilitiesFinancial liabilities
Convertible loan notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,762 (282) 3,480Obligations under finance leases . . . . . . . . . . . . . . . . . . . . . . . . . 3 — 3
3,765 (282) 3,483
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,889 (282) 9,607
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,786 676 73,462
EquityShare capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,844 — 4,844Share premium account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,868 13 77,881Equity reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 378 378Other reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278 — 278Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,204) 285 (9,919)
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,786 676 73,462
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Protherics PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
34 Explanation of Transition to IFRS (Continued)
ShareFinancial Convertible premium Equity Retained
assets loan notes account reserve earnings
£’000 £’000 £’000 £’000 £’000ProthericsIFRS at 31 March 2005 . . . . . . . . . . . . . . . . . — 3,762 77,868 — (10,204)Recognition at fair value of previously
derecognised receivables . . . . . . . . . . . . . . . 394 — — — 394Compound financial instruments . . . . . . . . . . . — (282) 13 378 (109)
IFRS at 1 April 2005 . . . . . . . . . . . . . . . . . . . 394 3,480 77,881 378 (9,919)
There are no material adjustments to the cash flow statement for the year ended 31 March 2005.
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PART 8
UNAUDITED PRO FORMA STATEMENT OF NET ASSETS OF THE ENLARGED GROUP
The unaudited pro forma statement of net assets of the Enlarged Group in this Part 8 is based on the netassets of the BTG Group as at 31 March 2008 as set out in the audited accounts of the BTG Group for theyear ended on that date and has been prepared on the basis of the notes set out below to illustrate theeffect on the consolidated net assets of the BTG Group as if the Acquisition had been completed on31 March 2008. The unaudited pro forma statement of net assets has been prepared for illustrativepurposes only and, because of its nature, addresses a hypothetical situation and does not, therefore,represent the BTG Group’s or the Enlarged Group’s actual financial position or results. The pro formafinancial information has been prepared under IFRS and on the basis set out in the notes below and inaccordance with Annex I and Annex II to the Prospectus Directive Regulation. The pro forma financialinformation is stated on the basis of the accounting policies of the BTG Group.
Unaudited Pro forma Statement of Net Assets
Adjustments
GoodwillBTG— Protherics— and Proforma
31 March 31 March intangible Enlarged£m 2008(2) 2008(3) assets(4) Group
Non current assetsGoodwill and intangible assets . . . . . . . . . . . . . . . . . 6.8 30.0 80.4 117.2Property, plant and equipment . . . . . . . . . . . . . . . . . 0.8 11.9 — 12.7Investments in associates . . . . . . . . . . . . . . . . . . . . . 0.7 — — 0.7Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8 — — 5.8Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . — 0.3 — 0.3
14.1 42.2 80.4 136.7
Current assetsTrade and other receivables . . . . . . . . . . . . . . . . . . . 15.2 4.7 — 19.9Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 10.2 — 10.2Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . 57.0 37.7 (7.5) 87.2
72.2 52.6 (7.5) 117.3
Current liabilitiesTrade and other payables . . . . . . . . . . . . . . . . . . . . . (22.6) (19.4) — (42.0)Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.5) (0.4) — (0.9)Obligations under finance leases . . . . . . . . . . . . . . . . — (0.9) — (0.9)Bank overdrafts and loans . . . . . . . . . . . . . . . . . . . . — (0.1) — (0.1)Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.1) — — (1.1)
(24.2) (20.8) — (45.0)
Net current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 48.0 31.8 (7.5) 72.3
Non Current liabilitiesTrade and other payables . . . . . . . . . . . . . . . . . . . . . (1.8) (8.7) — (10.5)Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (0.1) — (0.1)Convertible loan notes . . . . . . . . . . . . . . . . . . . . . . . — (2.0) — (2.0)Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . (4.9) — — (4.9)Obligations under finance leases . . . . . . . . . . . . . . . . — (1.7) — (1.7)Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.2) — — (0.2)
(6.9) (12.5) — (19.4)
Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55.2 61.5 72.9 189.6
Notes
(1) No account has been taken of trading of the BTG Group or the Protherics Group since 31 March 2008
(2) Extracted without material adjustment from the BTG plc Annual Report and Accounts 2008 which are incorporated byreference into this document
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(3) Extracted without material adjustment from the Protherics Annual Report and Accounts 2008 which are set out in Part 7 of thisdocument
(4) Adjustment to the unaudited pro forma statement of net assets:
a The adjustment in respect of goodwill and intangible assets arising on the acquisition of Protherics has been calculated asfollows:
£m
Consideration (including £7.5m of estimated acquisition expenses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141.9Less: Net assets of Protherics at 31 March 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (61.5)
Goodwill and intangible assets arising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80.4
The value of the consideration is based on 104,168,390 New BTG shares at a price of 129 pence per share, being the closingshare price of BTG shares on 15 October 2008, the latest practicable date prior to the publication of this document.
b The adjustment to cash and cash equivalents comprises the payment of £7.5m in estimated expenses of the Acquisition.
(5) No account has been taken of any fair value adjustments which may arise on the acquisition of Protherics as any such fair valueadjustments cannot be accurately and reliably estimated at this time.
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21JUL200414412105
The following is a copy of a letter from KPMG Audit Plc in connection with the unaudited pro formastatement of net assets:
KPMG Audit plc Tel +44 (0) 20 7311 10008 Salisbury Square Fax +44 (0) 20 7311 8783London EC4Y 8BBUnited Kingdom
The DirectorsBTG plc10 Fleet PlaceLimeburner LaneLondonEC4M 7SB
17 October 2008
Dear Sirs
BTG plc (‘Company’)
We report on the pro forma financial information (the ‘Pro forma financial information’) set out in Part 8of the Prospectus dated 17 October 2008, which has been prepared on the basis described in the notes tothis part, for illustrative purposes only, to provide information about how the transaction might haveaffected the financial information presented on the basis of the accounting policies adopted by BTG plc inpreparing the financial statements for the period ended 31 March 2008. This report is required byparagraph 20.2 of Annex 1 of the Prospectus Directive Regulation and is given for the purpose ofcomplying with that paragraph and for no other purpose.
Responsibilities
It is the responsibility of the directors of BTG plc to prepare the Pro forma financial information inaccordance with paragraph 20.2 of Annex 1 of the Prospectus Directive Regulation.
It is our responsibility to form an opinion, as required by paragraph 7 of Annex II of the ProspectusDirective Regulation, as to the proper compilation of the Pro forma financial information and to reportthat opinion to you.
In providing this opinion we are not updating or refreshing any reports or opinions previously made by uson any financial information used in the compilation of the Pro forma financial information, nor do weaccept responsibility for such reports or opinions beyond that owed to those to whom those reports oropinions were addressed by us at the dates of their issue.
Save for any responsibility arising under Prospectus Rule 5.5.3R (2)(f) to any person as and to the extentthere provided, to the fullest extent permitted by law we do not assume any responsibility and will notaccept any liability to any other person for any loss suffered by any such other person as a result of, arisingout of, or in connection with this report or our statement, required by and given solely for the purposes ofcomplying with paragraph 23.1 of Annex I of the Prospectus Directive Regulation consenting to itsinclusion in the Prospectus.
Basis of opinion
We conducted our work in accordance with the Standards for Investment Reporting issued by the AuditingPractices Board in the United Kingdom. The work that we performed for the purpose of making thisreport, which involved no independent examination of any of the underlying financial information,consisted primarily of comparing the unadjusted financial information with the source documents,considering the evidence supporting the adjustments and discussing the Pro forma financial informationwith the directors of BTG plc.
KPMG Audit Plc, a UK public limited company, is a subsidiary of KPMGEurope LLP and a member firm of the KPMG network of independent Registered in England No 3110745member firms affiliated with KPMG International, a Swiss cooperative. Registered office: 8 Salisbury Square, London EC4Y 8BB
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We planned and performed our work so as to obtain the information and explanations we considerednecessary in order to provide us with reasonable assurance that the Pro forma financial information hasbeen properly compiled on the basis stated and that such basis is consistent with the accounting policies ofBTG plc.
Our work has not been carried out in accordance with auditing or other standards and practices generallyaccepted in the United States of America or other jurisdictions and accordingly should not be relied uponas if it had been carried out in accordance with those standards and practices.
Opinion
In our opinion:
� the Pro forma financial information has been properly compiled on the basis stated; and
� such basis is consistent with the accounting policies of BTG plc.
Declaration
For the purposes of Prospectus Rule 5.5.3R (2)(f) we are responsible for this report as part of theprospectus and declare that we have taken all reasonable care to ensure that the information contained inthis report is, to the best of our knowledge, in accordance with the facts and contains no omission likely toaffect its import. This declaration is included in the prospectus in compliance with paragraph 1.2 ofAnnex I of the Prospectus Directive Regulation.
Yours faithfully
KPMG Audit Plc
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PART 9
UNITED KINGDOM TAXATION CONSIDERATIONS
UK Taxation
The comments set out below summarise certain limited aspects of the UK taxation based on current lawand on what is understood to be current published practice of HMRC, both of which are subject to change,possibly with retrospective effect.
This is intended as a general guide only and applies to holders of BTG Shares resident (or, if individuals,ordinarily resident) for tax purposes in the UK who hold their BTG Shares as an investment (and not asemployment-related securities or securities to be realised in the course of a trade) and who are theabsolute beneficial owners thereof. The comments below may not apply to certain classes of persons suchas principal traders, brokers, dealers, intermediaries and persons connected with depositary arrangementsor clearance services, insurance companies, collective investment schemes, persons holding BTG Shares ina Personal Equity Plan or Individual Savings Account, or trustees. Persons who are in any doubt abouttheir taxation position regarding the acquisition, ownership or disposition of BTG Shares, or who areresident or otherwise subject to taxation in a jurisdiction outside the UK, should consult their ownprofessional advisers immediately.
The comments below do not address the UK tax consequences for a UK resident (or, if individuals,ordinary resident) shareholder with a registered address outside the UK.
Shareholders who are Scheme Shareholders are referred to the Taxation section at Appendix IV of theScheme Document in respect of certain UK taxation consequences of the Scheme.
(a) Taxation of chargeable gains
Liability to UK taxation on chargeable gains will depend on the individual circumstances of eachholder of New BTG Shares.
A disposal of BTG Shares by a shareholder who is either resident or ordinarily resident in the UK fortax purposes, or is not UK resident but carries on a trade, profession or vocation in the UK through apermanent establishment, branch or agency and has used, held or acquired the BTG Shares for thepurposes of such trade, profession or vocation or such permanent establishment, branch or agency,may, depending on the shareholder’s circumstances and subject to any available exemptions andreliefs, give rise to a chargeable gain or an allowable loss for the purposes of the taxation of capitalgains. Taper relief is no longer available to individual shareholders on disposals of capital assets.
Any chargeable gain or allowable loss on disposal of the New BTG Shares by a Scheme Shareholdershould be calculated taking into account the acquisition cost to that person of acquiring the relevantScheme Shares. For Scheme Shareholders within the charge to corporation tax, indexation allowanceon that cost should be available (when calculating a chargeable gain but not an allowable loss) inrespect of the whole period of ownership of that person’s Scheme Shares and New BTG Shares.
A shareholder who is an individual and who has ceased to be resident or ordinarily resident in the UKfor tax purposes for a period of less than five complete tax years and who disposes of BTG Sharesduring that period may also be liable on his return to the UK to tax on any capital gain realised(subject to any available exemption or relief). This rule also applies to individuals who have not ceasedto be resident or ordinarily resident in the UK but who, on or after 16 March 2005, have becomenon-UK resident pursuant to the application of a double taxation treaty.
(b) Taxation of dividends
(i) Shareholders who are individuals
An individual shareholder who is resident in the UK for tax purposes and who receives dividends onthe BTG Shares will be entitled to a tax credit equal to one-ninth of the dividend. Such ashareholder’s liability to income tax will be calculated on the aggregate of the dividend received andthe associated tax credit (the gross dividend) which will be regarded as the top slice of thatindividual’s income.
Generally, a UK resident individual shareholder who is not liable to income tax in respect of the grossdividend will not be entitled to reclaim any part of the tax credit. A UK resident shareholder who is
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liable to income tax at the basic rate will be subject to income tax on dividends at the ordinary rate of10 per cent. of the gross dividend with the result that the tax credit will satisfy in full suchshareholder’s liability to income tax on the dividends received.
A UK resident individual shareholder liable to income tax at the higher rate will be subject to incometax on the gross dividend at 32.5 per cent. After taking into account the tax credit, such shareholderwill have to account for additional tax equal to 22.5 per cent. of the gross dividend (an effective taxrate of 25 per cent. of the net cash dividend received).
(ii) Shareholders who are UK corporation tax payers
A corporate shareholder resident in the UK for tax purposes will generally not normally be subject tocorporation tax on dividends received from the Company. Such corporate shareholders will not beable to claim repayment of the tax credit attaching to any dividend.
(iii) Pension Funds
UK pension funds will not be entitled to reclaim the tax credit attaching to any dividend paid on theBTG Shares.
(iv) Non-residents
Subject to certain exceptions for individuals who are Commonwealth citizens, residents of the Isle ofMan or the Channel Islands, nationals of States which are part of the European Economic Area andcertain others, the right of a shareholder who is not resident in the United Kingdom (for tax purposes)to a tax credit on dividends will depend upon the existence and terms of any double tax treaty betweenthe United Kingdom and the country in which that person is resident. Such shareholders should note,however, that in practice most shareholders will not be able to claim repayment in respect of taxcredits or will be entitled to only a minimal repayment.
Persons who are not solely resident in the United Kingdom should consult their own tax advisersconcerning their tax liabilities (in the United Kingdom and any other country) on dividends received,whether they are entitled to claim any part of the tax credit and, if so, the procedure for doing so, andwhether any double taxation relief is due in any country in which they are subject to tax.
(c) Stamp duty and stamp duty reserve tax
In relation to the New BTG Shares being issued by the Company, except as described below, noliability to stamp duty or stamp duty reserve tax (SDRT) will arise on the issue of, or on the issue ofdefinitive share certificates in respect of, such shares by the Company.
Subject to an exemption for certain low value transactions, the conveyance or transfer on sale of BTGShares outside the CREST system will generally be subject to ad valorem stamp duty on theinstrument of transfer at the rate of 0.5 per cent. of the amount or value of the consideration given(rounded up to the nearest £5). Stamp duty is normally the liability of the purchaser or transferee ofthe BTG Shares. An unconditional agreement to transfer BTG Shares will normally give rise to acharge to SDRT at the rate of 0.5 per cent. of the amount or value of the consideration for the BTGShares. However, where within six years of the date of the agreement, an instrument of transfer isexecuted and duly stamped, the SDRT liability will be cancelled and any SDRT which has been paidwill be repaid. SDRT is normally the liability of the purchaser or transferee of the BTG Shares.
Where BTG Shares are issued or transferred (i) to, or to a nominee for, a person whose business is orincludes the provision of clearance services or (ii) to, or to a nominee or agent for, a person whosebusiness is or includes issuing depositary receipts, stamp duty (in the case of a transfer only to suchpersons) or SDRT may be payable at a rate of 1.5 per cent. of the amount or value of theconsideration payable or, in certain circumstances, the value of the BTG Shares or, in the case of anissue to such persons, the issue price of the BTG Shares. Clearance service providers may opt, undercertain circumstances, for the normal rates of stamp duty and SDRT to apply to an issue or transfer ofBTG Shares into, and to transactions within, the service instead of the higher rate applying to an issueor transfer of the BTG Shares into the clearance system and the exemption for dealings in the BTGShares whilst in the system.
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Under the CREST system for paperless share transfers, deposits of BTG Shares into CREST willgenerally not be subject to stamp duty or SDRT unless such a transfer is made for a consideration inmoney or money’s worth, in which case a liability to SDRT will arise usually at the rate of 0.5 per cent.of the amount of value of the consideration. Paperless transfers of BTG Shares within CREST aregenerally liable to SDRT, rather than stamp duty, at the rate of 0.5 per cent. of the amount of value ofthe consideration. CREST is obliged to collect SDRT from the purchaser of the BTG Shares onrelevant transactions settled within the system.
The above statements are intended as a general guide to the current position. Certain categories ofperson, including intermediaries, brokers, dealers and persons connected with depositaryarrangements and clearance services, may not be liable to stamp duty or SDRT or may be liable at ahigher rate or may, although not primarily liable for tax, be required to notify and account for it underthe Stamp Duty Reserve Tax Regulations 1986.
THE ABOVE DESCRIPTION OF TAXATION IS GENERAL IN CHARACTER. IF YOU ARE IN ANYDOUBT AS TO YOUR TAX POSITION OR YOU ARE SUBJECT TO TAX IN A JURISDICTION OTHERTHAN THE UNITED KINGDOM, YOU SHOULD CONSULT AN APPROPRIATE INDEPENDENTPROFESSIONAL ADVISER WITHOUT DELAY.
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PART 10
DIRECTORS, RESPONSIBLE PERSONS, SENIOR MANAGEMENT,CORPORATE GOVERNANCE AND EMPLOYEES
1. Persons Responsible
BTG whose registered office appears on page 21, and the BTG Directors, whose names and functionsappear on pages 225-227 and the Proposed Director, whose name and function appears onpages 226-227, accept responsibility for the information contained in this document. To the best of theknowledge and belief of BTG, the BTG Directors and the Proposed Director (each of whom hastaken all reasonable care to ensure that such is the case) the information contained in this documentis in accordance with the facts and contains no omission likely to affect the import of suchinformation.
2. Directors and Senior Management
2.1 The following table sets out information relating to each of the BTG Directors and the ProposedDirector:
Name Age Current position in respect of BTG
Executive Directors:Louise Makin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Chief Executive OfficerChristine Soden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Chief Financial Officer
Non-executive Directors:John Brown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Non-executive ChairmanColin Blakemore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Non-executivePeter Chambre . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Non-executiveWilliam Jenkins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Non-executiveGiles Kerr . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Non-executive
Proposed DirectorRolf Soderstrom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 N/A
The business address of each of the BTG Directors is 10 Fleet Place, Limeburner Lane, LondonEC4M 7SB. The business address of the Proposed Director is The Heath Business & Technical Park,Runcorn, Cheshire WA7 4QX.
2.2 Brief biographical details on each of the BTG Directors and the Proposed Director are setout below:
(a) John Brown, Non-executive Chairman
John Brown, PhD, MBA, FRSE, joined the board of BTG in January 2008 and was appointedChairman in March 2008. He is a non-executive director of a number of public and privatecompanies, including Protherics plc, Vectura Group plc and Onyvax Ltd. He chairs the RoslinFoundation and is chairman of Scottish Biomedical Ltd., CXR Biosciences Ltd and SingVaxPte Ltd. Until the end of 2003 he was Chief Executive of Acambis plc. He holds a PhD inneuropharmacology.
(b) Louise Makin, Chief Executive Officer
Louise Makin joined BTG as Chief Executive Officer in October 2004. From 2001, she wasPresident, Biopharmaceuticals Europe of Baxter Healthcare, where she was responsible forEurope, Africa and the Middle East. Louise joined Baxter Healthcare in 2000 as Vice President,Strategy and Business Development Europe. Before joining Baxter, she was Director of GlobalCeramics at English China Clay and prior to that she held a variety of roles at ICI between 1985and 1998. She joined Premier Foods plc as a Non-executive Director in October 2006.
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Louise holds an MA in Natural Sciences and a PhD in Metallurgy from the University ofCambridge, and an MBA.
(c) Christine Soden, Chief Financial Officer
Christine Soden became Chief Financial Officer and Company Secretary of BTG in July 2005.Before joining BTG she was Chief Financial Officer of Oxagen Limited, a privately owned drugdiscovery company, where she was responsible for the finance, IT, legal and operations functions.From 1996 until 1999, Christine was Finance Director of Chiroscience Group plc then ChiefFinancial Officer of Celltech Chiroscience plc following the merger of the two companies. Priorto this, Christine spent over four years as Group Financial Controller and Head of Tax andTreasury at Medeva plc. Christine has a BSc in mathematics from Durham and is a qualifiedChartered Accountant. Upon the Acquisition becoming effective, Christine Soden shall transferto her new role of Chief Operating Officer of the Company.
(d) Colin Blakemore, Non-executive Director
Colin Blakemore, FMedSci, Hon FIBiol, Hon FRCP, FRS, joined BTG as a Non-executiveDirector in October 2007. He has been a Professor in the Medical School at Oxford Universitysince 1979. He was Chief Executive Officer of the Medical Research Council from 2003 to 2007,and from 1996-2003 he was Director of the MRC Centre for Cognitive Neuroscience at Oxford.He is a past President of the British Neuroscience Association, the Physiological Society, theBiosciences Federation and the British Association for the Advancement of Science. Colinstudied Medical Sciences at Cambridge and completed a PhD at the University of Californiain Berkeley.
(e) Peter Chambre, Non-executive Director
Peter Chambre was appointed as a Non-executive Director in September 2006. He is chairman ofAxellia Pharmaceuticals AS, a private supplier of antibiotic active ingredients and finishedproducts based in Norway, of ApaTech Ltd., a private medical device company in the field ofbone graft materials based in the UK and of 7TM Pharma A/S, a private Danish biotechnologycompany. He is also a non-executive director of Spectris plc, the UK listed precisioninstrumentation and controls company.
Peter Chambre was Chief Executive Officer of Cambridge Antibody Technology plc from 2002until its acquisition by AstraZeneca in July 2006. Previously, Peter was Chief Operating Officer atCelera Genomics Group and, before that, was CEO at Bespak plc.
(f) William Jenkins, Non-executive Director
William Jenkins was previously Head of Clinical Development and Regulatory Affairs forNovartis Pharma AG having held the same position pre-merger from 1992 with CIBA-Geigy AG.Prior to that he was Head of Global Clinical Research at Glaxo from 1988. Since 1999 he hasbeen a consultant to pharmaceutical companies and to investment companies in the life sciencessector. He is a member of the Boards of Eurand Pharmaceutical Holdings B.V., VaximmHoldings AG and Monogram Biosciences, Inc. He gained MA and MD degrees from theUniversity of Cambridge and his earlier career was in medical research at the Royal PostgraduateMedical School and later as a Senior Lecturer at the Royal Free Hospital, London University. Hejoined BTG as a Non-executive Director in 2002 and became Chairman of the RemunerationCommittee of the Company in July 2008.
(g) Giles Kerr, Non-executive Director
Giles Kerr, FCA joined BTG as a Non-executive Director in October 2007. He chairs BTG’sAudit Committee and was appointed Senior Independent Director in July 2008. He is theDirector of Finance with the University of Oxford. He is also a director of Victrex plc and of IsisInnovation Ltd and Elan corporation plc. Previously, Giles was the Group Finance Director andCFO of Amersham plc before its acquisition by GE Healthcare in 2004. Formerly, he was apartner with Arthur Andersen. He has a degree from the University of York and is a fellow of theInstitute of Chartered Accountants in England and Wales.
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(h) Rolf Soderstrom, proposed Chief Financial Officer
Rolf Soderstrom is proposed to join BTG as the Chief Financial Officer, upon the Schemebecoming effective. He is currently the Finance Director of Protherics, having joined the board ofProtherics in August 2007. After qualifying as a Chartered Accountant, he worked in theCorporate Recovery and Corporate Finance department of PricewaterhouseCoopers. In 2000 hejoined Cable & Wireless plc as a Director of Corporate Finance where he managed M&A andfunding opportunities, and was responsible for a range of listed investments. In 2004 he joinedCobham plc as a Divisional Finance Director managing a portfolio of businesses across Europeand the USA.
2.3 Senior Management
Biographies of the current senior technical staff of BTG and Protherics are set out below.
(a) Dr Steven Myint, Chief Medical Officer, BTG
Steven Myint graduated in medicine in 1980. His career has spanned NHS, academia andindustry, covering teaching, research and management. His experience has included some time atthe University of Leicester as Professor & Head of Microbiology, at SmithKline BeechamPharmaceuticals as Medical Director, and at GSK as Group Medical Director. After a period ofvoluntary work following the tsunami, Steven spent 18 months as the Dean and Professor ofMedicine of the University of Surrey Medical School and joined BTG in February 2007 as ChiefMedical Officer.
(b) Dr Russell Hagan, Head of Research & Development, BTG
Russell Hagan joined BTG in 2002 and heads its research and development team. Russell has25 years of pharmaceutical industry experience in a variety of roles spanning the value chain fromnew target discovery to Phase IV marketing. A neuropharmacologist by training he has lednumerous drug discovery and development programmes and held senior positions in GlaxoWellcome’s Neurology and Psychiatry Commercial Development team in North Carolina, USA.Most recently he was Director of Strategy for one of GlaxoSmithKline’s Centres of Excellence inDrug Discovery (CEDD) based in Italy.
(c) Dr Janet Rush, Head of Medical & Regulatory Affairs, US, BTG
Janet Rush joined BTG in 2002 as head of US medical and regulatory affairs, initially responsiblefor Varisolve� and subsequently for other BTG projects also. She has 25 years of experience inpharmaceutical clinical research and regulatory affairs spanning Phases I-IV. Prior to joiningBTG, she was Worldwide VP Cardiovascular Clinical Research at Aventis (8 years) and spent12 years at Merck (Executive Director US Clinical Development and Senior DirectorCardiovascular Clinical Research). In these positions Janet was responsible for worldwideapprovals and market launches in US and Europe of five new drugs and 11 major efficacysupplements for new indications. Janet obtained her medical degree from Ohio State Universityand medical residency from Boston University Hospital. She is Board Certified in InternalMedicine and a Certified Physician Investigator.
(d) Dr Paul McCubbin, Head of Business Development, BTG
Paul McCubbin joined BTG in 2001, working initially in the Ventures unit and becoming head ofthat team in 2004. Since then, his responsibilities have grown to include management of themedical technologies portfolio and more recently heading up the business development group.Prior to joining BTG, Paul was the finance director of a private equity-backed healthcarecompany. Previously, he worked in the life sciences group at Ernst & Young. Paul is a charteredaccountant who gained his degree and doctorate in biological sciences from the University ofOxford and worked as a post-doctoral researcher at Manchester University.
(e) James Christie, BSc, MBA, Protherics Operations Director
James Christie joined the biopharmaceutical industry in 1980 and has worked with GSK, Celltechand Centocor BV, before joining Therapeutic Antibodies Inc. in 1998. He was appointed to theProtherics Board in September 1999. He has management responsibility for manufacturing,quality, process development and technical support operations in Australia, the UK and SaltLake City. Mr Christie played a major part in the negotiations with AstraZeneca, leading to the
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licensing agreement in December 2005 and more recently in establishing the manufacturingoperation for OncoGel� after the MacroMed acquisition in January 2007.
(f) Saul Komisar, BS, MBA, President Protherics Inc.
Saul Komisar joined Therapeutic Antibodies Inc. in December 1996 prior to its merger withProteus International plc to form Protherics PLC, having spent the previous six years working incorporate finance and banking, specialising in the healthcare industry. He has served as Presidentof Protherics Inc. since November 2000 and was appointed to the Board of Protherics PLC inApril 2007. Mr Komisar has responsibility for Protherics’ US operations. He holds a MBA fromthe Owen Graduate School of Management at Vanderbilt University and is a Non-executiveDirector of Franklin Synergy Bank, a US commercial retail bank. Mr Komisar has also served onthe Boards of several non-profit and volunteer organisations.
(g) Ian Scoular, PhD, Director of Business Development Protherics
Ian Scoular has more than 20 years business development expertise in the pharmaceuticalindustry through positions in Nycomed, Schering Plough and Reckitt & Colman. Dr Scoularjoined Protherics PLC in July 2002 where he is responsible for seeking commercial partners forProtherics’ development products and intellectual property portfolio.
(h) Nick Staples, PhD, Director of Corporate Affairs Protherics
Nick Staples joined Protherics in November 2003 and is responsible for corporate developmentand investor relations. He was previously a biotechnology analyst at WestLB Panmure and spentfour years as a management consultant in the Life Sciences Practice at PA Consulting Group,gaining experience in strategic planning, business analysis and due diligence. He holds a PhD inBiochemistry from the University of Cambridge.
(i) Sally Waterman, PhD, Director of Research & Development Protherics
Sally Waterman has over 25 years experience within the pharmaceutical industry. She previouslyserved as Director of Development Operations at Xenova Group plc, following its acquisition ofKS Biomedix Holdings plc, where she was Vice President of Research and Development. Prior tothis, Dr Waterman held various senior positions within Vanguard Medica plc (now Vernalis plc),including Vice President of Non-Clinical Development.
(j) David Briscoe, Director of Marketing and Sales—Europe Protherics
David Briscoe joined Protherics in November 2004 to build Protherics’ commercial activitieswithin the EU. He joins the company after spending over 25 years in sales and operational roles,mainly in oncology, with companies such as Chiron, Bristol Myers, Schering Plough and Incyte.
2.4 The following table sets out the names of all companies and partnerships outside the BTG Groupof which any BTG Director or the Proposed Director is or has been a member of theadministrative, management or supervisory body or partner at any time in the previous five years(excluding subsidiaries of any company of which the BTG Director in question or the ProposedDirector is also a member of an administrative, management or supervisory body):
Current directorships / Previous directorships /Name partnerships partnerships
John Brown, . . . . . . . . . . . . . Roslin Foundation Acambis plcNon-executive Chairman Onyvax Limited Acambis Research Limited
Protherics plc Acambis (UK) LimitedScottish Biomedical Limited Smallpox Biosecurity LimitedVectura Group plc Asterand plcCXR Biosciences Limited Oxxon Therapeutics LimitedSingVax pte Ltd Cambridge AntibodyArdana plc(1) Technology Group plc
Medimmune Limited
Louise Makin, . . . . . . . . . . . . Premier Foods plcChief Executive Officer
(1) In administration.
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Current directorships / Previous directorships /Name partnerships partnerships
Christine Helen Soden, . . . . . . Celltech Chiroscience plcChief Financial Officer (formerly Chiroscience
Group plc)Oxagen LimitedProvalis plcOxagen Australia Limited(14)
Peter Alan Chambre, . . . . . . . Axellia Pharmaceuticals AS Cambridge AntibodyNon-executive Director Spectris plc Technology Group plc
Apatech Limited Cambridge Antibody7TM Pharma A/S Technology Limited
Celera Genomics GroupBespak plcCDL Realisations Limited
William John Jenkins, . . . . . . . Eurand Pharmaceutical ViroLogic, Inc.Non-executive Director Holdings B.V.
Monogram Business Restoragen Inc.(15)
Sciences Inc. Glycart AGVaximm Holdings AG Esbatech AG
Nicholas Piramal India LtdStrakan Group LtdTanox, Inc.Acambis plcEvotec OAI AG
Giles Kerr, . . . . . . . . . . . . . . . ISIS Innovation Limited Amersham plcNon-executive director Victrex plc
Oxford Mutual LimitedOxford University AssetManagement LimitedISIS Angels NetworkIsis Innovation LtdElan Corporation plc
Colin Blakemore, . . . . . . . . . . The Harkness Fellows and The Physiological SocietyNon-executive director Association and Transatlantic Sane
Trust The Biosciences Federation
Rolf Soderstrom . . . . . . . . . . . Protherics Plc Aerospace Systems GroupLimited(16)
Eaton Aerospace LimitedWallop Defence SystemsLimitedCobham Fluid Systems LimitedFlight Refuelling LimitedGreat EasternCommunications Limited(Cayman Islands)MobileOne Limited(Singapore)Sargent Fletcher Inc. (US)Stanley Aviation Inc. (US)
(14) Dissolved.
(15) William Jenkins ceased to be a director of Restoragen, Inc on 18 June 2003 following Restoragen, Inc’s court-approvedemergence from Chapter 11 bankruptcy proceedings in the US, which proceedings commenced on 19 December 2002.Dr Jenkins did not perform any executive functions at Restoragen, Inc.
(16) Dissolved.
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2.5 At the date of this document none of the BTG Directors nor the Proposed Director:
(a) (save in respect of those BTG Directors set out in paragraph 2.4 and the Proposed Director), isdirector or has been a member of the administrative, management or supervisory body of anycompany or partner of any partnerships outside the BTG Group at any time in the previous fiveyears; or
(b) has any convictions in relation to fraudulent offences at any time in the previous five years; or
(c) has been bankrupt, been the subject of or entered into an individual voluntary arrangement; or
(d) (save in respect of those BTG Directors set out in paragraph 2.4 and the Proposed Director), hasat any time in the previous five years been a member of any administrative, management orsupervisory body of any company that has been subject to any receivership, compulsoryliquidation, creditors voluntary liquidation, administration, company voluntary arrangement orany composition or arrangement with that company’s creditors generally or with any class of itscreditors; or
(e) has at any time in the previous five years been a partner in a partnership at the time of anycompulsory liquidation, administration or partnership voluntary arrangement of suchpartnership; or
(f) has at any time in the previous five years had any of his or her assets the subject of anyreceivership or has been a partner of a partnership at the time of any assets thereof being thesubject of a receivership; or
(g) has at any time in the previous five years been subject to any official public criticism,incrimination and/or sanction by any statutory or regulatory authority (including any designatedprofessional body) nor has ever been disqualified by a court from acting as a member of theadministrative, management or supervisory bodies of any company or from acting in themanagement or conducting the affairs of any company.
3. Interests of the BTG Directors
3.1 As at 15 October 2008 (being the latest practicable date prior to the posting of this document), theinterests of the BTG Directors or their immediate families in the share capital of BTG required tobe (a) notified to BTG pursuant to the Disclosure and Transparency Rules or (b) being interests ofa person connected (within the meaning of Disclosure and Transparency Rules) with a BTGDirector which would, if such connected person were a BTG Director, be required to be disclosedunder (a) above and the existence of which was known to or could, with reasonable diligence, beascertained by the BTG Directors as at 15 October 2008 (the latest practicable date prior to thepublication of this document), together with the interests which are expected to subsistimmediately following Admission are set out in the following table:
Interests as at Interests immediately15 October 2008 following Admission
Percentage ofPercentage of enlargedissued share Number of issued share
Number of capital of BTG capital ofBTG Director BTG Shares BTG Shares(1) BTG(2)
Louise Makin . . . . . . . . . . . . . . . . . . 58,337 0.039 58,337 0.023Christine Soden . . . . . . . . . . . . . . . . 23,432 0.015 23,432 0.009Peter Chambre . . . . . . . . . . . . . . . . . 3,000 0.002 3,000 0.001
(1) On the basis that no further BTG Shares are issued in the period 15 October 2008 (being the latest practicable date priorto the posting of this document) and the Effective Date.
(2) On the basis of there being 255,434,217 BTG Shares in issue immediately following Admission.
3.2 By virtue of being potential beneficiaries of the BTG Employee Share Trust, Louise Makin andChristine Soden have an interest in the 650,724 existing BTG Shares held on behalf of all BTGemployees by the trustee of the BTG Employee Share Trust, none of which have been allocatedunder the various BTG Share Option Schemes.
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The following options over existing BTG Shares have been granted to the BTG Directors under theBTG Share Option Schemes, such options being exercisable at the price and between the datesshown below:
No. of ExistingBTG Sharesunder Option Exercisable
as at Exercisable within sixDate of Exercise 15 October within seven months BTG Share
Director Grant price (p) 2008 years from from Scheme
Louise Makin . . . . . . 11 Nov 2004 92.00 75,000 11 Nov 2007 — SOP22 Aug 2006 143.50 236,270 22 Aug 2009 — SOP26 July 2006 107.87 3,467 — 1 Sep 2009 Sharesave
Scheme30 July 2007 93.74 4,032 — 1 Sep 2010 Sharesave
scheme15 July 2008 129.20 1,455 1 Sep 2011 — Sharesave
Scheme
Christine Soden . . . . . 22 Aug 2006 143.50 144,250 22 Aug 2009 — SOP26 July 2006 107.87 3,467 — 1 Sep 2009 Sharesave
Scheme30 July 2007 93.74 4,032 — 1 Sep 2010 Sharesave
scheme15 July 2008 129.20 1,455 — 1 Sep 2011 Sharesave
scheme
Awards have been made to the following BTG Directors under the BTG Performance Share Plan andthe BTG Deferred Share Bonus Plan. In relation to the awards made under the BTG Deferred ShareBonus Plan, these are purchased with 50 per cent. of the relevant BTG Director’s bonuses at the timeof award and are held for three years by the Employee Share Trust. At the end of the three yearperiod they are released to the relevant BTG Director as long as they are still employed by theBTG Group and they are pro rated if the BTG Director leaves early. In relation to the awards madeunder the BTG Performance Share Plan, these are awards made at nil cost to the relevant BTGDirector and vest on the date shown below assuming performance conditions are achieved. If theperformance conditions are not achieved the awards will lapse.
No. of ExistingBTG Shares
Date of awarded as of Vesting Date ofDirector Grant 15 October 2008 Award BTG Share Scheme
Louise Makin . . . . . . . . . 23-Aug-06 152,323 23-Aug-09 BTG PerformanceShare Plan
15-Jun-07 285,975 15-Jun-10 BTG PerformanceShare Plan
28-May-08 316,824 28-May-11 BTG PerformanceShare Plan
15-Jun-07 98,991 15-Jun-10 BTG Deferred ShareBonus Plan
28-May-08 85,185 28-May-11 BTG Deferred ShareBonus Plan
Christine Soden . . . . . . . . 23-Aug-06 92,998 23-Aug-09 BTG PerformanceShare Plan
15-Jun-07 174,598 15-Jun-10 BTG PerformanceShare Plan
28-May-08 193,180 28-May-11 BTG PerformanceShare Plan
15-Jun-07 63,795 15-Jun-10 BTG Deferred ShareBonus Plan
28-May-08 52,008 28-May-11 BTG Deferred ShareBonus Plan
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3.3 The interests of the BTG Directors together represent approximately 0.06 per cent. of the issuedshare capital of the Company as at 15 October 2008 (being the latest practicable date prior topublication of this document) and are expected to represent 0.03 per cent. of the issued share capitalof the Company immediately following Admission assuming the Scheme becomes effective.
3.4 Save as set out above, none of the BTG Directors nor any person connected with them (within themeaning of the Disclosure and Transparency Rules) nor the Proposed Director has any interest in theshare capital of BTG or any of its subsidiaries.
3.5 John Brown is a director of Protherics as well as chairman of BTG and as such is not participating inProtherics’ consideration of the Offer and in the recommendation of the Independent ProthericsDirectors in relation to the Offer. Save as set out above, no BTG Director, nor the Proposed Directorhas any actual or potential conflicts of interest between their duties to the Company and their privateinterests or their duty to third parties, either in respect of the Acquisition or otherwise. Save asdisclosed in this document, there are no interests, including conflicting ones, that are material to theAcquisition.
3.6 No BTG Director nor the Proposed Director has a material interest in any significant contract withthe Company or any of its subsidiaries.
3.7 No BTG Director nor the Proposed Director was selected to be a director of BTG pursuant to anyarrangement or understanding with any major customer, supplier or other person having a businessconnection with the BTG Group.
3.8 No restrictions have been agreed by any BTG Director on the disposal within a certain period of timeof his holding in BTG Shares. The Proposed Director has agreed with BTG that he will not, at anytime for a period of six months following the effective date of the Acquisition, dispose of any of theBTG Shares acquired by him pursuant to the Acquisition, except through BTG’s brokers (providedthat BTG’s brokers provide a competitive price for such BTG Shares).
3.9 There are no family relationships between any of the BTG Directors.
4. BTG Directors’ service agreements and emoluments
4.1 Executive Directors
BTG has entered into service contracts with each of the executive BTG Directors, the particulars ofwhich as at 15 October 2008 are as set out below:
Appointment date /Date of service Basic annual
Name agreement if different salary Notice period
Louise Makin . . . . . . . . . . . . . . 19 Oct 2004 (appointment date)/15 Sep 2004 (contract date) £367,200 12 months
Christine Soden . . . . . . . . . . . . 1 July 2005 (appointment date)/25 May 2005 (contract date) £223,896 12 months
All directors’ service contracts are terminable by BTG on one year’s notice. The Company mayterminate the contracts of the executive directors with immediate effect by making a payment in lieuof notice. No directors’ service contracts provide for predetermined compensation in the event oftermination or provision for enhanced payments in the event of a takeover of the Company. Anypayments made would be determined by reference to normal contractual principles, with mitigationbeing applied as wherever relevant or appropriate.
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4.2 Non-executive Directors
The Non-executive Directors do not have service contracts, but have letters of appointment for aninitial period of three years, which may be renewed by mutual agreement, normally for a furtherthree-year term. The terms of appointment do not contain any contractual provisions regarding anotice period or the right to receive compensation in the event of early termination, with theexception of the Chairman whose appointment is on six months’ notice other than if he is notre-elected at an annual general meeting of the Company.
4.3 Proposed Director
Rolf Soderstrom will join the BTG Board on the date on which the Scheme becomes effective. Theterms of his employment will be substantially similar to the terms of his current employment byProtherics, which entitle him to a basic annual salary of £232,000 and to participate in any annualbonus scheme. His current service contract is terminable by Protherics on one year’s notice. Hiscurrent contract can be terminated by Protherics with immediate effect by making a payment in lieu ofnotice. There is no provision for predetermined compensation in the event of termination or provisionfor enhanced payment in the event of a takeover of Protherics.
4.4 Analysis of BTG Directors’ Emoluments
An analysis of emoluments of the BTG Directors relating to their salary and fees, bonus, pension andother benefits (other than share options) for the year to 31 March 2008 is shown below:
2008 2008 2008Total Share Pension
Salary/fees Bonus Benefits emoluments release contributions
£000 £000 £000 £000 £000 £000Executive DirectorsLouise Makin(1) . . . . . . . . . . 353 99 9 461 55 48Christine Soden(2) . . . . . . . . 215 60 9 284 — 20
Non-executive DirectorsJohn Brown(3) . . . . . . . . . . . 12 — — 12 — —Colin Blakemore(4) . . . . . . . . 17 — — 17 — —Consuelo Brooke(5) . . . . . . . 41 — — 41 — —Peter Chambre . . . . . . . . . . 35 — — 35 — —William Jenkins . . . . . . . . . . 35 — — 35 — —Giles Kerr(6) . . . . . . . . . . . . 20 — — 20 — —Alison Wood(7) . . . . . . . . . . . 35 — — 35 — —
Ex-directorsSir Brian Fender(8) . . . . . . . . 102 — — 102 — —Fred Weiss(9) . . . . . . . . . . . . 25 — — 25 — —
890 159 18 1,067 55 68
(1) Pension contributions shown for Louise Makin represent amounts paid to an Executive Pension Plan for her benefit.
(2) Pension contributions shown for Christine Soden represent amounts paid into a SIPP for her benefit.
(3) Fees were paid to John Brown for the period from the date of his appointment on 1 January 2008.
(4) Fees were paid to Colin Blakemore for the period from the date of his appointment on 1 October 2007.
(5) Consuelo Brooke retired from the Board at the annual general meeting of the Company held on 16 July 2008.
(6) Fees were paid to Giles Kerr for the period from the date of his appointment on 1 October 2007. He received asupplemental fee as from 6 November 2007 following his appointment as Chairman of the Audit Committee.
(7) Alison Wood retired from the Board at the annual general meeting of the Company held on 16 July 2008.
(8) Fees were paid to Sir Brian Fender for the period to his retirement from the Board on 3 March 2008. Included in his feesfor 07/08 was an additional sum of £29.790 in lieu of notice.
(9) Fees were paid to Fred Weiss for the period to his retirement from the Board on 6 November 2007.
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On 9 November 2007, 50,000 shares awarded to Louise Makin at the time she joined the Companyvested with a value of £54,562.
Bonuses due to the executive directors are payable 50 per cent. in cash and 50 per cent. in sharesdeferred for three years under the DSBP. Louise Makin was awarded a total bonus of £197,460 andChristine Soden was awarded a total bonus of £120,556. Only the cash element is shown in thetable above.
Benefits shown above for Louise Makin and Christine Soden relate principally to the provision of acar allowance and medical benefits.
4.5 For the financial year ended 31 March 2008, the aggregate remuneration (including salaries, fees,pension contributions, bonus payments and benefits-in-kind) granted to the BTG Directors of theCompany by the BTG Group was £1,067,343.
4.6 There are no outstanding loans or guarantees granted or provided by any member of the BTG Groupto, or for the benefit of, any of the BTG Directors.
5. Corporate governance
5.1 The BTG Board is firmly committed to high standards of corporate governance. As at the date of thisdocument the Company is in compliance with the provisions set out in section 1 of the CombinedCode on Corporate Governance (July 2006). The Company’s position is described in the followingsection.
5.2 The Board
Details of: (i) the composition of the BTG Board; (ii) the roles of BTG Board members; (iii) mattersreserved for a decision of the BTG Board; (iv) the BTG Group’s Corporate Governance framework;(v) the BTG Group’s reporting lines; (vi) the BTG Group’s social responsibility policy and practices;and (vii) the independence and appointment of non-executive directors are set out on pages 22-23 ofthe ‘‘Performance’’ section and on pages 24-39 of the ‘‘Directors and Governance’’ section of theCompany’s 2008 Annual Report and Accounts which is incorporated by reference into this document.
As previously announced, upon the Scheme becoming effective Rolf Soderstrom will join the BTGBoard as Chief Financial Officer. As Mr Soderstrom will be joining the BTG Board, he is acceptingresponsibility for the information contained in this document, as described in paragraph 1 of thisPart 10.
5.3 BTG Audit Committee
(a) The current members of the Audit Committee are Giles Kerr, William Jenkins and Colin Blakemore.Following the Effective Date, it is not currently intended that the composition of the EnlargedGroup’s Audit Committee will alter.
(b) The Audit Committee operates under defined terms of reference and its principal responsibilitiesinclude:
� to review, and challenge where necessary, the actions and judgements of management, in relationto the Company’s financial statements, operating and financial review, interim reports,preliminary announcements and related formal statements before submission to the auditorsand Board;
� to monitor the integrity of the Company’s internal financial controls;
� to assess the scope and effectiveness of the systems established by management to identify, assess,manage and monitor financial and non financial risks, to advise the Board at regular intervals andto consider other topics, as defined by the Board;
� to consider, and make recommendations on the appointment, reappointment and removal of theexternal auditor and to approve the terms of engagement and the remuneration to be paid to theexternal auditor in respect of audit services provided;
� to devise procedures to help ensure the independence and objectivity of the external auditorannually, taking into consideration relevant professional and regulatory requirements;
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� to review with the external auditors, the findings of their work, including, any major issues thatarose during the course of the audit and have subsequently been resolved and those issues thathave been left unresolved; key accounting and audit judgements; levels of errors identified duringthe audit, obtaining explanations from management and, where necessary, the external auditors,as to why certain errors might remain unadjusted; and
� to review internal audit plans and programmes to help ensure that the internal audit function orreview function is adequately resourced and has appropriate standing within the Company.
5.4 BTG Remuneration Committee
(a) The current members of the Remuneration Committee are William Jenkins, Peter Chambre andColin Blakemore. Following the Effective Date, it is not currently intended that the composition ofthe Enlarged Group’s Remuneration Committee will alter.
(b) The Remuneration Committee operates under defined terms of reference and its principalresponsibilities include:
� to make recommendations to the Board on the Company’s overall policy for executive directorremuneration, its alignment to performance and its cost;
� to review market data from time to time and consider its implications for the executive directors’remuneration policy;
� to determine, and recommend to the Board, specific remuneration packages for each of theexecutive directors, based upon an annual performance appraisal;
� to review at least annually, the service contracts and the obligations therein of the executivedirectors to ensure that such contracts meet the needs of the business, encourage performance,and comply with regulatory requirements and good practice;
� to operate the Company’s share option schemes/other incentives schemes (if any) as they applyto, and determine grants of options to be made to, executive directors; and
� to review the assessment made by the Company’s share option plan administrator as to whetherthe performance conditions associated with share option plans or restricted share awards havebeen met or fall within the scope of re-testing.
5.5 BTG Nomination Committee
(a) The current members of the Nomination Committee are John Brown, Peter Chambre, and Giles Kerr.Following the Effective Date, it is not currently intended that the composition of the EnlargedGroup’s Nomination Committee will alter.
(b) The Nomination Committee operates under defined terms of reference and its principalresponsibilities include:
� to regularly review the structure, size and composition of the Board, including the skills,knowledge and experience required, and make recommendations to the Board with regard toany changes;
� to keep under review the leadership needs of the organisation, both executive and non-executive,with a view to enabling the continued ability of the Company to compete effectively in themarketplace;
� to recommend to the Board the number of executive directors, the position descriptions of eachrole and the capabilities required to fulfil each role;
� to recommend to the Board the number of non-executive directors, the position descriptions ofeach role and the capabilities required to fulfil each role;
� to be responsible for identifying, and recommending for the approval of the Board, candidates tofill board directors vacancies as and when they arise;
� to ensure that systems and processes to support succession planning are in place and effective forboth executive and non-executive directors; and
� to review the management development programmes in place to support developmentand succession.
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6. Employees
6.1 BTG Group
The average number of staff employed by the BTG Group for the three years ended 31 March 2008,31 March 2007 and 31 March 2006 is set out below:
2008 2007 2006
Executive Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 2Life Sciences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 23 20Technology Commercialisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 4 12Patent, Legal Services and Licensing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 10 15Other functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 35 46Average staff numbers (excluding subcontractors) . . . . . . . . . . . . . . . . . . . . 67 74 95
As at 15 October 2008, BTG employed 59 persons (excluding the BTG Directors).
6.2 Protherics Group
The average number of staff employed by the Protherics Group for the three years ended31 March 2008, 31 March 2007 and 31 March 2006 is set out below:
2008 2007 2006
UK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190 172 146Rest of Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 1US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 26 15Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 37 35Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300 237 197
As at 15 October 2008, Protherics employed 309 persons (excluding the Protherics Directors).
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PART 11
ADDITIONAL INFORMATION
1. Company
The Company was incorporated and registered in England and Wales on 12 December 1991 withregistered number 2670500 as a private company limited by shares with the name Alnery No. 1157Limited. On 1 April 1992, the Company was re-registered as a public company limited by shares andthe name of the Company was changed to British Technology Group International plc. On22 March 1995 the name of the Company was changed to BTG plc.
The principal legislation under which the Company operates, and pursuant to which the New BTGShares will be created, is the Companies Act and the Companies Act 2006 and regulations madethereunder.
The Company is domiciled in England and Wales and its registered and head office is at 10 FleetPlace, Limeburner Lane, London EC4M 7SB (telephone number: +44 (0)20 7575 0000).
The BTG Shares are listed on the Official List of the London Stock Exchange. The ISIN Code of theBTG Shares is GB0001001592. The New BTG Shares will be in registered form.
The auditors of BTG are, and have been throughout the period covered by the financial informationin this document, KPMG Audit Plc.
2. Share Capital
2.1 Based on the Protherics Fully Diluted Share Capital, the Acquisition will result in the issue of up to104,168,390 New BTG Shares, leading to an increase in BTG’s issued ordinary share capital ofapproximately 69 percent. The following table shows the authorised and issued share capital of BTGas at 15 October 2008 (being the latest practicable date prior to the publication of this document), andas it will be immediately following the Effective Date (assuming the issue of 104,168,390 BTG Sharespursuant to the Scheme and no further issue of BTG Shares in the period between the date of thisdocument and the Effective Date):
Issued andAuthorised fully paid
Number £ Number £
(a) As at 14 October 2008 . . . . . . . . . . . 205,100,000 20,510,000 151,265,827 15,126,583(b) After the Effective Date . . . . . . . . . . 311,000,000 31,100,000 255,434,217 25,543,422
2.2 On 1 April 2005 (being the date of commencement of the period for which historical financialinformation on BTG has been provided in this document), the authorised share capital of theCompany was £20,510,000 divided into 205,100,000 ordinary shares of 10 pence, of which147,578,230 were issued, fully paid. Since that date the following changes have been made to theauthorised and issued share capital of the Company:
(a) between 3 June 2005 and 23 June 2005, 185,092 BTG Shares were allotted;
(b) between 1 July 2005 to 18 July 2005, 4,913 BTG Shares were allotted;
(c) between 1 July 2005 and 30 September 2005, 324,022 BTG Shares were allotted;
(d) on 19 August 2005, 3,452 BTG Shares were allotted;
(e) between 5 October 2005 and 31 December 2005, 508,233 BTG Shares were allotted;
(f) On 21 November 2005, 542 BTG Shares were allotted;
(g) on 21 December 2005, 946 BTG Shares were allotted;
(h) between 1 January 2006 and 31 March 2006 1,740,935 BTG Shares were allotted;
(i) on 5 January 2006, 646 BTG Shares were allotted;
(j) between 12 January 2006 and 24 March 2006, 4,951 BTG Shares were allotted;
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(k) between 1 April 2006 and 30 June 2006, 542,772 BTG Shares were allotted;
(l) between 26 July 2006 and 16 October 2006, 43,814 BTG Shares were allotted;
(m) between 30 October 2006 and 1 December 2006, 23,830 BTG Shares were allotted;
(n) between 3 January 2007 and 23 February 2007, 35,847 BTG Shares were allotted;
(o) between 18 April 2007 and 8 June 2007, 8,466 BTG Shares were allotted;
(p) between 1 September 2007 and 28 September 2007, 3,987 BTG Shares were allotted;
(q) between 28 September 2007 and 31 October 2007, 4,430 BTG Shares were allotted;
(r) between 1 November 2007 and 30 November 2007, 4,430 BTG Shares were allotted;
(s) between 20 February 2008 and 29 February 2008, 37,736 BTG Shares were allotted;
(t) between 1 March 2008 and 31 March 2008, 2,215 BTG Shares were allotted;
(u) between 1 May 2008 and 30 May 2008, 3,170 BTG Shares were allotted;
(v) between 1 June 2008 and 30 June 2008, 4,363 BTG Shares were allotted;
(w) between 1 July 2008 and 31 July 2008, 110,195 BTG Shares were allotted;
(x) between 1 August 2008 and 29 August 2008, 42,816 BTG Shares were allotted; and
(y) between 1 September 2008 and 30 September 2008, 45,794 BTG Shares were allotted.
2.3 If BTG Shareholders vote in favour of the BTG Resolutions set out in the notice of the BTG EGMand if the BTG Resolutions become unconditional:
(a) the Acquisition will be approved and the BTG Directors will be authorised to implement theAcquisition;
(b) the authorised share capital of the Company will be increased from £20,510,000 to £31,100,000 bythe creation of 105,900,000 BTG Shares. This number of BTG Shares represents an increase ofapproximately 52 per cent. of the authorised share capital of BTG as at 15 October 2008, thelatest practicable date prior to posting of this document, and approximately 34 per cent. of theenlarged authorised share capital of BTG. The purpose of this authority is to enable theCompany to allot the New BTG Shares in connection with the Acquisition and to retain sufficientheadroom for its purposes generally. If this resolution is passed, and the Acquisition proceeds, onthe Effective Date there will be 55,565,783 authorised but unissued BTG Shares (assuming that:(1) 104,168,390 New BTG Shares are issued pursuant to the Acquisition; and (2) no further BTGShares are issued in the period from posting to the Effective Date);
(c) the BTG Directors will be authorised to allot BTG Shares in connection with the Acquisition upto an aggregate nominal amount of £10,590,000 (representing, in aggregate, 105.9 millionNew BTG Shares). This authority will expire on the fifth anniversary of the passing of theResolution and is in addition to any subsisting authorities to allot shares in BTG. TheseNew BTG Shares represent approximately 70 per cent. of the issued share capital of theCompany as at 15 October 2008, the latest practicable date before the posting of this document,and approximately 41.5 per cent. of the enlarged issued share capital of the Companyimmediately following the Effective Date (assuming in each case that: (1) 104,168,390 New BTGShares are issued pursuant to the Acquisition; and (2) no further BTG Shares are issued in theperiod from posting to the Effective Date); and
(d) The BTG Directors will have the power, in certain limited circumstances, to allot shares for cashwithout first being required to offer such shares to the existing BTG Shareholders in proportionto their existing holdings. The £1,277,170 nominal amount of equity securities to which thisauthority relates represents 5 per cent. of the issued ordinary share capital of the Company(assuming completion of the Acquisition occurs) (and 8.4 per cent. of the existing issued ordinaryshare capital of the Company as at 15 October 2008, the latest practicable date prior to theposting of this document), although it is not intended, without prior consultation with theInvestment Committees of the Association of British Insurers and the National Association ofPension Funds, to issue or transfer in this way more than 7.5 per cent. of the share capital in anyrolling three year period. The authority will expire at the conclusion of the next annual general
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meeting of the Company or, if earlier, the date which is 15 months from the date of theresolution. It is the BTG Directors’ intention to seek renewal of this authority at the next annualgeneral meeting of the Company and is a standard resolution for most UK companies each year.
2.4 Save as disclosed in paragraph 3.2 of Part 10 and paragraphs 2.13 of this Part 11, neither BTG nor anyof its subsidiaries has granted any options over its share or loan capital which remain outstanding orhas agreed, conditionally or unconditionally, to grant any such options.
2.5 The existing BTG Shares currently in issue are, and the New BTG Shares will be, in registered formand capable of being held in Uncertificated Form in CREST. Where BTG Shares are held in certifiedform, share certificates will be sent to the registered member.
2.6 When admitted to trading, the New BTG Shares will be registered with the International SecurityIdentification Number (ISIN GB0001001592). The current ISIN number for existing BTG Shares isGB0001001592.
2.7 The New BTG Shares will be issued credited as fully paid and on identical terms to and will rankpari passu with the existing BTG Shares, including the right to receive and retain all dividends andother distributions declared, paid or made on BTG Shares after the Scheme becomes effective.
2.8 Save in consequence of the Acquisition, none of the New BTG Shares have been or will be marketedor made available to the public in whole or in part in conjunction with the application for listing ofthose securities.
2.9 Other than as provided by Part 28 of the Companies Act 2006 and the Code, there are no rules orprovisions relating to mandatory bids and/or squeeze-out and sell-out rules in relation to the BTGShares. Under Rule 9 of the Code, when: (a) a person acquires shares which, when taken togetherwith shares already held by him or persons acting in concert with him, carry 30 per cent. or more ofthe voting rights of a company subject to the Code; or (b) any person who, together with personsacting in concert with him, holds not less than 30 per cent. but not more than 50 per cent. of the votingrights of the company subject to the Code, and such person, or any person acting in concert with him,acquires additional shares which increases his percentage of the voting rights, then in either case thatperson together with the persons acting in concert with him is normally required to make a generaloffer in cash, at the highest price paid by him, or any person acting in concert with him, for shares inthe company within the preceding 12 months, for all the remaining equity share capital of thecompany. Under section 979 of the Companies Act 2006, where an offeror makes a takeover offer(as defined in section 974 of the Companies Act 2006) and receives valid acceptances in respect of, oracquires, 90 per cent. or more of the shares to which the offer relates, that offeror is entitled toacquire compulsorily those shares not assented to the offer.
2.10 There have been no public takeover bids by third parties in respect of the share capital of theCompany in the last or current financial year.
2.11 Of the balance of the authorised but unissued ordinary share capital of the Company immediatelyfollowing Admission, assuming the Scheme becomes effective, amounting to 55,565,783 New BTGShares, 1,346,894 BTG Shares are available for issue on exercise of the outstanding share optionsgranted to certain BTG Directors and employees of the BTG Group under the BTG Share Schemesdetailed at paragraph 5 of this Part 11, leaving a balance of 54,218,889 BTG Shares authorisedbut unissued.
2.12 The provisions of section 89(1) of the Companies Act and the Listing Rules confer on BTGShareholders rights of pre-emption in respect of the allotment of equity securities (as defined for thepurposes of section 89 of Companies Act) which are to be paid up in cash and apply to the authorisedbut unissued share capital of the Company, except to the extent disapplied by resolutions of theCompany including the BTG Resolutions.
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2.13 As at 15 October 2008 (the latest practicable date prior to the publication of this document) thefollowing share options granted to certain BTG Directors and employees of the BTG Group underthe BTG Share Schemes were outstanding:
Date Subscription Number ofoptions price per BTG Shares
Name of scheme granted share (p) Exercisable from Expiry date under option
BTG Executive Share Option Scheme . . . 2-Nov-98 270.65 2 November 1998 1 November 2008 9,213BTG Executive Share Option Echeme . . . 30-Sep-99 307.69 30 September 2002 29 September 2009 1,841BTG Executive Share Option Scheme . . . 3-Apr-01 776.48 3 April 2004 2 April 2011 1,791BTG Employee Share Option Plan . . . . . 20-Dec-02 90.00 20 December 2005 19 December 2012 100,002BTG Employee Share Option Plan . . . . . 24-Jun-04 106.25 24 June 2007 30 November 2008 2,910BTG Employee Share Option Plan . . . . . 24-Jun-04 106.25 24 June 2007 30 May 2009 11,270BTG Employee Share Option Plan . . . . . 24-Jun-04 106.25 24 June 2007 23 June 2014 165,108BTG Employee Share Option Plan . . . . . 24-Sep-04 126.75 24 September 2007 23 September 2014 6,848BTG Employee Share Option Plan . . . . . 11-Nov-04 92.00 11 November 2007 10 November 2014 75,000BTG Employee Share Option Plan . . . . . 1-Jul-05 174.50 1 July 2008 31 December 2008 78,416BTG Employee Share Option Plan . . . . . 1-Jul-05 174.50 1 July 2008 31 January 2009 4,213BTG Employee Share Option Plan . . . . . 1-Jul-05 174.50 1 July 2008 30 May 2009 14,569BTG Employee Share Option Plan . . . . . 23-Aug-06 143.50 23 August 2009 22 August 2019 513,807BTG Employee Share Option Plan . . . . . 15-Jun-07 123.25 15 June 2010 14 June 2017 90,000BTG Sharesave Scheme . . . . . . . . . . . . 26-Jul-05 132.27 1 September 2008 1 March 2009 2,864BTG Sharesave Scheme . . . . . . . . . . . . 26-Jul-06 107.87 1 September 2009 1 March 2010 88,109BTG Sharesave Scheme . . . . . . . . . . . . 30-Jul-07 93.74 1 September 2010 1 March 2011 88,910BTG Sharesave Scheme . . . . . . . . . . . . 15-Jul-08 129.20 1 September 2011 1 March 2012 47,994BTG Stock Purchase Plan . . . . . . . . . . . 1-Sep-06 127.71 1 September 2008 1 December 2008 9,384BTG Stock Purchase Plan . . . . . . . . . . . 1-Sep-07 77.57 1 September 2009 1 December 2009 23,250BTG Stock Purchase Plan . . . . . . . . . . . 1-Sep-08 183.60 1 September 2010 1 December 2010 11,395
Total . . . . . . . . . . . . . . . . . . . . . . . . 1,346,894
All of the above options were granted for nil consideration.
2.14 During the period 1 April 2005 to 31 March 2008, being the period for which historical financialinformation on BTG has been provided in this document, less than 10 per cent. of the Company’sshare capital has been issued for non-cash consideration.
3. Memorandum and Articles of Association
The following is a summary of BTG’s memorandum and articles of association, which areincorporated by reference into this document and which are available for inspection as set out inparagraph 17 of this Part 11.
3.1 Memorandum of Association
The Company’s objects are set out in full in clause 4(1) to (41) of its memorandum of associationwhich is available for inspection as provided for in paragraph 17 of this Part 11. The objects of theCompany are widely drawn and include carrying on business as a general commercial company andoperating as a holding company.
3.2 Articles of Association
(a) Rights attaching to the existing BTG Shares
The following is a summary of the rights and provisions in the articles of association of the Companyrelating to the existing BTG Shares generally:
(i) Dividends and unclaimed dividends
BTG may, by ordinary resolution, declare a dividend to be paid to members in accordance withthe respective rights and interests of the members and may fix the time for payment of suchdividend provided that no dividend shall exceed the amount recommended by the Board.
The Board may pay interim dividends if it appears to the Board to be justified by the financialposition of BTG. The Board may also pay fixed rate dividends at intervals settled by the Boardwhenever the financial position of BTG, in the opinion of the Board, justifies the payment.
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Provided if the Board acts in good faith, none of the BTG Directors shall incur any liability to theholders of shares conferring preferred rights for any loss they may suffer in consequence of thepayment of an interim dividend on any shares having deferred or non-preferred rights.
Except insofar as the rights attached to or the terms of issue of any existing BTG Shares, alldividends shall be declared and paid according to the amounts paid up on such shares in respectof which the dividend is paid, but no amount paid upon a share in advance of calls shall betreated for the purposes of this article as paid upon the share. All dividends shall be apportionedand paid pro rata according to the amounts paid up on the shares during any portion or portionsof the period in respect of which the dividend is paid. Dividends may be declared or paid inany currency.
The Board may agree with any member that dividends which may at any time or from time totime be declared or become due on his shares in one currency shall be paid or satisfied inanother, and may agree the basis of conversion to be applied and how and when the amount to bepaid in the other currency shall be calculated and paid and for the Company or any other personto bear any costs involved.
With the authority of an ordinary resolution of the Company and, on the recommendation of theBoard, payment of any dividend may be satisfied in whole or in part by the distribution of specificassets and in particular of paid up shares or debentures of any other corporate.
The Board may, with the authority of an ordinary resolution of the Company, offer any holders ofany particular class of shares the right to receive further shares, whether or not of that class,credited as fully paid, instead of cash in respect of all or some part of any dividend specified bythe ordinary resolution in accordance with the provisions of the Company’s articles of association.
No dividend or other moneys payable by BTG on or in respect of a share shall bear interestagainst BTG unless otherwise provided by the rights attached to the share.
Any dividend which has remained unclaimed for 12 years from the date when it was declared/became due for payment shall be forfeited and shall cease to remain owing by BTG.
BTG shall not be obliged to send any dividends or other sums payable in respect of a share to amember until such member notifies BTG of an address or where the payment is to be made by afunds transfer system, details of the account to be used for the purpose if: (a) a payment for adividend or other sum payable in respect of a share sent by BTG to a member is left uncashed bythat member or is returned to BTG and, after reasonable enquiries, BTG is unable to establishany new address or, with respect to a payment made by funds transfer system, a new account forthat person; or (b) such payment is left uncashed or returned to BTG on two consecutiveoccasions.
(ii) Voting rights
Subject to any special rights or restrictions as to voting for the time being attached to any class ofshare in the Company, on a show of hands every member who (being an individual) is present inperson or by proxy or (being a corporation) is present by a duly authorised representative, notbeing himself a member, shall have one vote and on a poll every member present in person or byproxy shall have one vote for every share of which he is the holder. In the case of joint holders,the vote of the person whose name stands first in the register of members and who tenders a voteis accepted to the exclusion of any votes tendered by any other joint holders. No member shall beentitled to vote at any general meeting of the Company, either in person or by proxy, in respect ofany share held by him unless all calls and other sums presently payable by him in respect of thatshare have been paid.
(iii) Disclosure of interests in shares
If, at any time, the Board is satisfied that any member or other person appearing to be interestedin shares of BTG has been duly served with a notice under section 793 of the Companies Act2006 and is in default for 14 days after the section 793 notice has been given in supplying to BTGthe information thereby required, then the Board may direct that, in respect of the shares inrelation to which the default occurred:
(A) if the default shares in which any one person is interested or appears to BTG to be interestedrepresent less than 0.25 per cent. of the issued shares of the class, the holders of the defaultshares shall not be entitled, in respect of those shares, to attend or vote either personally orby proxy at any general meeting of BTG;
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(B) if the default shares in which any one person is interested or appears to BTG to be interestedrepresent at least 0.25 per cent. of the issued shares of the class, the holders of the defaultshares shall not be entitled, in respect of those shares: (i) to attend or vote either personallyor by proxy at any general meeting of BTG; or (ii) to receive any dividend or otherdistribution; or (iii) to transfer or agree to transfer any of those shares or any rights in them.
These restrictions shall continue for the period specified by the Board, being not more thanseven days after the earlier of:
(C) the Company being notified that the default shares have been sold pursuant to an exempttransfer; or
(D) due compliance, to the satisfaction of the Board, with the section 793 notice.
The restrictions in (A) and (B) above shall not prejudice the rights of either the member holdingthe default shares or, if different, any person having a power of sale over those shares to sell oragree to sell those shares under an exempt transfer, being any of the following:
I. a sale of the share on a recognised investment exchange in the United Kingdom or on anystock exchange outside the United Kingdom on which shares of that class are listed ornormally traded; or
II. a sale of the whole beneficial interest in the share to a person whom the Board is satisfied isunconnected with the existing holder or with any other person appearing to be interested inthe share; or
III. acceptance of a takeover offer (as defined for the purposes Part 28 of the CompaniesAct 2006).
(iv) Transfer of shares
The instrument of transfer of a certificated share may be in any usual form or in any other formapproved by the Board. An instrument of transfer shall be signed by or on behalf of the transferorand, unless the share is fully paid, by or on behalf of the transferee. The Board may, in itsabsolute discretion and without giving any reason, refuse to register any instrument of transfer ofa certificated share on which BTG has a lien or which is not fully paid, provided that, in the caseof a class of shares which has been admitted to official listing by the UKLA, the refusal does notprevent dealings in shares from taking place on an open and proper basis. The Board may alsorefuse to register any instrument of transfer of a certificated share unless the instrument oftransfer is left at the office or at such other place as the Board may decide, for registration,accompanied by the certificate for the shares to be transferred and such other evidence as theBoard may reasonably require to prove the right of the title of the intended transferor or his rightto transfer the shares.
In addition the Board may refuse to register any transfer unless it is made:
(A) in respect of only one class of shares; and
(B) is in favour of not more than four transferees.
In addition, the Board may, in its absolute discretion and without giving any reason for itsdecision, refuse to register any transfer of an uncertificated share where permitted bythe Statutes.
(v) Changes in share capital
Subject to the Statutes and to the rights conferred on the holders of any other shares, any sharemay be issued with, or have attached to it, such rights or restrictions as BTG may by ordinaryresolution determine or, if no such resolution is in effect or so far as the resolution does not makespecific provision, as the Board shall determine. Subject to the Statutes, any share may be issuedon terms that it is to be redeemed or, at the option of BTG or the holder, is liable to beredeemed. Subject to the provisions of the Statutes, any resolution by BTG and the provisions inBTG’s articles of association, the Board may offer, allot (with or without conferring a right ofrenunciation), grant options over or otherwise deal with or dispose of any unissued shares(whether forming part of the original or any increased capital) to such persons, at such times andgenerally on such terms as the Board may decide.
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BTG may by ordinary resolution increase, consolidate, divide or sub-divide its share capital. BTGmay, by ordinary resolution, also cancel any shares which have not been taken or agreed to betaken by any person and diminish the amount of its share capital by the amount of the shares socancelled. Subject to the provisions of the Statutes and any rights conferred on the holders of anyclass of shares, BTG may by special resolution reduce its share capital, any capital redemptionreserve and any share premium account in any way. Subject to and in accordance with theprovisions of the Statutes and any rights conferred on the holders of any class of shares, BTG maypurchase all or any of its own shares of any class, including any redeemable shares.
Subject to the Statutes, any share may be issued on terms that it is to be redeemed or is liable tobe redeemed at the option of the Company or the holder.
(vi) Variation of rights
Whenever the capital of BTG is divided into different classes of shares, all or any of the rightsattached to any class of shares in issue may from time to time whether or not BTG is being woundup be varied in such manner as those rights may provide, or (if no such provision is made) either:
(A) with the written consent of the holders of three-quarters in nominal value of the issuedshares of that class; or
(B) with the authority of a special resolution passed at a separate general meeting of holders ofthose shares.
The rights attaching to any class of shares are not, unless otherwise expressly provided, deemedto be varied by the creation or issue of further shares ranking pari passu with them or by thepurchase or redemption by BTG of any of its own shares.
(vii) Lien and forfeiture
BTG shall have a first and paramount lien on every share (not being a fully paid share) for allamounts payable (whether or not due) in respect of that share. The Board may either generally orin any particular case declare any shares to be wholly or in part exempt from such lien. Unlessotherwise agreed, the registration of a transfer of a share shall operate as a waiver of theCompany’s lien (if any) on that share. BTG may sell any share subject to a lien, in such manner asthe Board may decide, if the sum payable is due and is not paid within 14 clear days after noticehas been given to the shareholder or the person entitled by transmission to the share demandingpayment of that amount and giving notice of intention to sell in default. Subject to the terms ofallotment, the Board may make calls on the members in respect of any moneys unpaid on theirshares (whether in respect of nominal amount or premium). If a payment is not made when due,the Board may give not less than 14 clear days’ notice requiring payment of the amount unpaidtogether with any interest which may have accrued. If that notice is not complied with, any sharein respect of which it was given may, at any time before the payment required by the notice hasbeen made, be forfeited by a resolution of the Board. The forfeiture shall include all dividends orother moneys payable in respect of the forfeited shares which have not been paid beforethe forfeiture.
(viii)Untraced shareholders
BTG shall be entitled to sell, in such manner as the Board may decide and at the best price itconsiders reasonably obtainable at that time, the shares of a member or the shares to which aperson is entitled by transmission provided that:
(A) during a period of 12 years at least three cash dividends have become payable in respect ofthe share to be sold and have been sent by BTG in accordance with its articles of association;
(B) during that period of 12 years no cash dividend payable in respect of the share has beenclaimed, no cheque, warrant, order or other payment for a dividend has been cashed, nodividend sent by means of a funds transfer system has been paid and no communication hasbeen received by BTG from the member or the person entitled by transmission to the share;
(C) on or after the expiry of that period of 12 years BTG has published advertisements both in anational newspaper and in a newspaper circulating in the area in which the last knownaddress of the member or person entitled by transmission to the share or the address at
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which notices may be given in accordance with the articles of association of the Company islocated, in each case giving notice of its intention to sell the share; and
(D) during the period of three months following the publication of those advertisements andafter that period until the exercise of the power to sell the share, BTG has not received anycommunication from the member or the person entitled by transmission to the share.
BTG shall be obliged to account to the person entitled to the shares at the date of sale for anamount equal to the net proceeds and shall be deemed to be his debtor and not a trustee for him,in respect of them.
(ix) Members resident abroad
Members with registered addresses outside the United Kingdom are not entitled to receivenotices or other documents from BTG unless they have given BTG an address within theUnited Kingdom (not being an electronic address) at which such notices or other documents maybe served.
(x) Convening of annual general meeting and general meetings
The Board shall convene and the Company shall hold annual general meetings in accordancewith the Statutes.
The Board may convene an extraordinary general meeting whenever it thinks fit.
An annual general meeting and all other general meetings of the Company shall be called by atleast such minimum period of notice as is prescribed under the Statutes. The notice shall specifythe place, day and time of the meeting, and the general nature of the business to be transacted.Notice of every general meeting shall be given to all members so entitled and also to the auditors(or, if more than one, each of them) and to each direct.
(xi) Pre-emption rights
Subject to the Board being generally authorised to allot relevant securities in accordance withsection 80 of the Companies Act, the Company may from time to time to resolve by specialresolution that the Board be given power to allot equity securities (as such term is defined insection 94 of the Companies Act) for cash and, upon the passing of the resolution, the Boardshall have the power to allot (pursuant to that authority) equity securities for cash as ifsection 89(1) of the Companies Act did not apply to the allotment. However, that power shall belimited to the allotment of equity securities in connection with a rights issue and to the allotment(other than in connection with a rights issue) of equity securities having a nominal amount notexceeding in aggregate the sum specified in the special resolution. Unless previously revoked,that power shall expire on the date specified in the special resolution of the Company but theCompany may before the power expires make an offer or agreement which would or mightrequire equity securities to be allotted after it expires.
(xii) Directors
Number of directors
The directors shall be not less than five and not more than eleven in number. The Company mayby ordinary resolution vary the minimum and/or maximum number of directors.
Directors’ shareholding qualification
A director shall not be required to hold any shares in the Company.
Appointment of directors
Directors may be appointed by the Company by ordinary resolution or by the Board.
Executive directors
The Board may appoint one or more directors to hold any executive office under the Companyfor such period (subject to the Statutes) and on such terms as it may decide and may revoke orterminate any appointment so made without prejudice to any claim for damages for breach of anycontract of service between the director and the Company. The remuneration of a directorappointed to any executive office shall be fixed by the Board and may be by way of salary,
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commission, participation in profits or otherwise and either in addition to or inclusive of hisremuneration as a director.
A director appointed as executive chairman, chief executive or managing director shallautomatically cease to hold that office if he ceases to be a director but without prejudice to anyclaim for damages for breach of any contract of service between him and the Company.
Retirement of directors
At every annual general meeting of the Company, any director then in office who has beenappointed by the Board since the previous annual general meeting, or at the date of the noticeconvening the annual general meeting had held office for more than 30 months since he wasappointed or last re-appointed by the Company in general meeting, shall retire from office butshall be eligible for re-appointment.
If the Company, at any meeting at which a director retires in accordance with the Company’sarticles of association, does not fill the office vacated by such director, the retiring director, ifwilling to act, shall be deemed to be re-appointed, unless at the meeting a resolution is passed notto fill the vacancy or to appoint another person in his place or unless the resolution to re-appointhim is put to the meeting and lost.
Removal of directors
The Company may by extraordinary resolution, or by ordinary resolution of which special noticehas been given in accordance with the Statutes, remove any director before the expiration of hisperiod of office notwithstanding anything in the Company’s articles of association or in anyagreement between him and the Company.
A director may also be removed from office by giving him notice to that effect signed by or onbehalf of all the other directors (or their alternates).
Vacation of office
The office of a director shall be vacated if:
(A) he gives the Company notice of his wish to resign;
(B) he is or may be suffering from a mental disorder and in relation to that disorder either he isadmitted to hospital for treatment or an order is made by a court (whether in theUnited Kingdom or elsewhere) for his detention or for the appointment of some person toexercise powers with respect to his property or affairs and, in either case, the Board resolvesthat his office be vacated;
(C) for more than 12 months both he and any alternate director appointed by him are absentwithout special leave of absence from the Board, from Board meetings held during thatperiod and the Board resolves that his office be vacated;
(D) he becomes bankrupt or makes any arrangement or composition with his creditors generally;
(E) he is prohibited by a law from being a director;
(F) he is removed from office pursuant to the Company’s articles.
Alternate director
Each director may appoint another director or any person to be his alternate and may removesuch an alternate director. If the alternate director is not already a director, the appointmentshall be subject to the approval of a majority of the directors or a resolution of the Board.
Every person acting as an alternate director shall have one vote for each director for whom heacts as alternate, in addition to his own vote if he is also a director, but he shall count as only onefor the purpose of determining whether a quorum is present.
Every appointment or removal of an alternate director shall be made by notice in writing andshall be effective (subject to the approval of the Board in the case of an alternate who is not adirector) on receipt by the secretary of the notice.
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Proceedings of the Board
The Board may meet for the despatch of business, adjourn and otherwise regulate its meetings asit thinks fit. Notice of a board meeting may be given to a director personally or by word of mouthor given in writing or by electronic means to him at such address as he may from time to timespecify for this purpose. The quorum necessary for the transaction of the business of the Boardmay be fixed by the Board and, unless so fixed at any other number, shall be two. A meeting ofthe board at which a quorum is present shall be competent to exercise all the powers, authoritiesand discretions vested in or exercisable by the Board.
The Board may appoint a director to be the chairman or one or more deputy chairmen and mayat any time remove him from that office. Questions arising at any meeting of the Board shall bedetermined by a majority of votes. In the case of an equality of votes the chairman of the meetingshall have a second or casting vote.
A Board meeting may consist of a conference between directors some or all of whom are indifferent places provided that each director may participate in the business of the meetingwhether directly, by telephone or by other electronic means which enables him to hear each ofthe other participating directors addressing the meeting and if he so wishes, to address all of theother participating directors simultaneously. A person so participating shall be deemed to bepresent at the meeting and shall be entitled to vote and to be counted in the quorum.
A resolution which is signed or approved by all the directors entitled to vote on that resolutionshall be as valid and effectual as if it had been passed at a board meeting duly called andconstituted.
The Board may delegate any of its powers, authorities and discretions (with power tosub-delegate) to any committee, consisting of such person or persons (whether or not directors)as it thinks fit, provided that the majority of persons on any committee are directors. Theproceedings of any committee consisting of two or more members shall be governed by theregulations imposed on it by the Board and by the articles of the Company regulating theproceedings of the Board so far as the same are capable of applying.
The Board may entrust to and confer upon any director any of its powers, authorities anddiscretions (with power to sub-delegate) on such terms and conditions as it thinks fit and mayrevoke or vary all or any of them, but no person dealing in good faith shall be affected by anyrevocation or variation.
The Board may establish any local or divisional board or agency for managing any of the affairs ofthe Company whether in the United Kingdom or elsewhere and may appoint any persons to bemembers of a local or divisional board, or to be managers or agents, and may fix theirremuneration.
Remuneration of directors
The directors (other than any director who for the time being holds an executive office oremployment with the Company or any of its subsidiaries) shall be paid out of the funds of theCompany by way of remuneration for their services as directors such fees not exceeding inaggregate £500,000 per annum (or such larger sum as the Company may decide by ordinaryresolution) as the directors may decide to be divided among them in such proportion and manneras they may agree or, failing agreement, equally. In addition, the Board may grant specialremuneration to any director who performs any special or extra services to or at the request ofthe Company. Each director shall be paid his travelling, hotel and other expenses properlyincurred by him in and about the discharge of his duties, including his expenses of travelling toand from board meetings, committee meetings and general meetings. Subject to any guidelinesand procedures established from time to time by the Board, a director may also be paid out of thefunds of the Company all expenses incurred by him in obtaining professional advice in connectionwith the affairs of the Company or the discharge of his duties as a director.
Pensions and other benefits
The Board may exercise all the powers of the Company to pay, provide or procure the grant ofpensions or other retirement or superannuation benefits and death, disability or other benefits,allowances or gratuities to any person who is or has been at any time a director of the Company
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or in the employment or service of the Company or of any company which is or was a subsidiaryof or associated with the Company or of the predecessors in business of the Company or any suchsubsidiary or associated company or the relatives or dependants of any such person. For thatpurpose the Board may procure the establishment and maintenance of, or participate in, orcontribute to, any non-contributory or contributory pension or superannuation fund, scheme orarrangement and pay any insurance premiums.
Permitted interests of directors
Subject to the provisions of the Statutes, and provided he has declared the nature of his interestto the Board as required by the Statutes, a director is not disqualified by his office fromcontracting with the Company in any manner, nor is any contract in which he is interested liableto be avoided, and any director who is so interested is not liable to account to the Company forany benefit resulting from the contract by reason of the director holding that office or of thefiduciary relationship thereby established.
A director may hold any other office or place of profit with the Company (except that of auditor)in conjunction with his office of director for such period (subject to the Statutes) and upon suchterms as the Board may decide and may be paid such extra remuneration for so doing as theBoard may decide, either in addition to or in lieu of any remuneration provided for by theCompany’s articles of association. A director may also be or become a director or member orother officer of, or otherwise interested in, any other company in which the Company may beinterested and shall not be liable to account to the Company for any benefit received by him.
Subject to declaring the nature of his interest to the Board, a director may act by himself or hisfirm in a professional capacity for the Company (otherwise than as auditor) and he or his firmshall be entitled to remuneration for professional services as if he were not a director.
Restrictions on voting
No director may vote (or be counted in the quorum) in relation to any resolution of the Boardconcerning his own appointment (including fixing or varying of its terms), or the termination ofhis own appointment, as the holder of any office or place of profit with the Company or any othercompany in which the Company is interested. However, where proposals are under considerationconcerning the appointment (including the fixing or varying of its terms) or the termination of theappointment, of two or more directors to offices or places of profit with the Company or anyother company in which the Company is interested, those proposals may be divided and aseparate resolution may be put in relation to each director and in that case each of the directorsconcerned shall be entitled to vote in respect of each resolution unless it concerns his ownappointment or the termination of his own appointment.
Except as mentioned below, no director may vote on, or be counted in a quorum in relation to,any resolution relating to any contract or arrangement or other proposal in which he (togetherwith any interest of any connected person of his) has to his knowledge a material interest whichmay reasonably be regarded as likely to give rise to a conflict of interest and, if he does so, hisvote shall not be counted. These prohibitions do not apply to a director in relation to:
(A) the giving to him of any guarantee, indemnity or security in respect of money lent orobligations incurred by him or any other person at the request of or for the benefit of theCompany or any of its subsidiary undertakings;
(B) the giving of any guarantee, indemnity or security in respect of a debt or obligation of theCompany or any of its subsidiary undertakings which he has himself assumed responsibilityin whole or in part under a guarantee, indemnity or by the giving of security;
(C) any issue or offer of shares, debentures or other securities of the Company or any of itssubsidiary undertakings in respect of which he is or may be entitled to participate in hiscapacity as a holder of any such securities or as an underwriter or sub-underwriter;
(D) any contract in which he is interested by virtue of his interest in shares or debentures orother securities of the Company or otherwise in or through the Company;
(E) any contract concerning any other company in which he and any connected persons do not tohis knowledge hold an interest in shares (within the meaning of Part 22 of the Companies
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Act 2006) representing one per cent. or more of any class of the equity share capital of thatcompany or of the voting rights available to members of that company;
(F) any arrangement for the benefit of employees of the Company or any of its subsidiaryundertakings which does not accord to him any privilege or benefit not generally accorded toemployees to whom the arrangement relates;
(G) the purchase or maintenance of any insurance for the benefit of directors or for the benefitof persons including directors; and
(H) any proposal concerning the funding of expenditure by one or more directors on defendingproceedings against him or them or doing anything to enable such directors incurring suchexpenditure.
The Company may by ordinary resolution suspend or relax the above provisions to any extent orratify any contract not duly authorised by reason of a contravention of such provisions.
Borrowing and other powers
The business of the Company shall be managed by the Board which may exercise all the powersof the Company, subject to the Statutes, the memorandum, the articles and any ordinaryresolution of the Company. The Board may exercise all the powers of the Company to borrowmoney and to mortgage or charge all or any part of its undertaking, property and assets (bothpresent and future) and uncalled capital and to issue debentures and other securities, whetheroutright or as collateral security for any debt, liability or obligation of the Company or of anythird party.
The Board shall restrict the borrowings of the Company and exercise all voting and other rightsor powers of control exercisable by the Company in relation to its subsidiary undertakings (if any)so as to secure that the aggregate principal amount outstanding at any time in respect of allborrowings by the BTG Group (exclusive of any borrowings which are owed by one BTG GroupCompany to another BTG Group Company) after deducting the amount of cash deposited willnot, without the previous sanction of the Company in general meeting, exceed an amount equalto two times adjusted capital and reserves, or any higher limit fixed by ordinary resolution of theCompany which is applicable at the relevant time.
4. Major Shareholders
4.1 So far as is known to the Company, as at 15 October 2008 (being the latest practicable date prior tothe publication of this document), the name of each person, other than a BTG Director, who, directlyor indirectly, is interested in 3 per cent., or more of the Company’s issued share capital, and theamount of such person’s interest is as follows:
PercentageNo. of Existing of existing Percentage of
Name BTG Shares share capital Enlarged Group
Invesco Asset Management . . . . . . . . . . . . . . . 44,958,074 29.7 17.6Schroder Investment Management (UK) Ltd . . 12,858,501 8.50 5.0Legal & General Investment Management
(UK) Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,710,756 4.44 2.63Hargreave Hale & Co . . . . . . . . . . . . . . . . . . . 5,590,885 3.70 2.19
4.2 Save as disclosed above, the BTG Directors are not aware of any person who at 15 October 2008(being the latest practicable date prior to the publication of this document), directly or indirectly, hasan interest in the total voting rights attaching to 3 per cent. or more of BTG’s issued ordinaryshare capital.
4.3 BTG is not aware, as at 15 October 2008 (being the latest practicable date prior to the publication ofthis document): (a) of any persons who, directly or indirectly, jointly or severally, exercise, or couldexercise, control over BTG; or (b) of any arrangements (other than as disclosed in paragraph 2.9 ofthis Part 11), the operation of which may at a subsequent time result in a change of control of BTG.
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4.4 The voting rights of BTG’s major shareholders (as detailed at paragraph 4.1 of this Part 11) do notdiffer from the voting rights enjoyed by any other holder of existing BTG Shares.
4.5 As at 15 October 2008 (being the latest practicable date prior to the publication of this document),and in so far as is known to the Company, the following persons will, be interested directly orindirectly in, or in the total voting rights attaching to, 3 per cent. or more of the issued share capital ofthe Company when the Acquisition becomes effective and based on the assumptions that, save asfollows, the holdings of such persons in BTG and Protherics as at 15 October 2008 do not change, theNew BTG Shares to be issued in connection with the Acquisition are 105,900,000 and that no otherissues of BTG Shares occur between the date of this document and the Effective Date:
PercentageNo. of Existing of existing Percentage of
Name BTG Shares share capital Enlarged Group
Invesco Asset Management . . . . . . . . . . . . . . . . 44,958,074 29.7 17.6Schroder Investment Management (UK) Ltd . . . 12,858,501 8.50 5.0Legal & General Investment Management
(UK) Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,710,756 4.44 2.63Hargreave Hale & Co . . . . . . . . . . . . . . . . . . . 5,590,885 3.70 2.19
5. BTG Share Schemes
5.1 The BTG Employees’ Share Option Plan (the SOP)
Eligibility
All employees and directors of the BTG Group (who in the case of directors devote at least 25 hours aweek to the business of the BTG Group) are eligible to participate in the SOP.
Grant of options
Options (which may be over new and/or existing BTG Shares) may be granted within six weeks afterthe announcement by the Company of its results for any period and at other times in circumstancesconsidered to be exceptional. No options may be granted under the SOP after 22 July 2008.
No payment is required for the grant of an option. Options are not transferable, except on death.HMRC approved options (over BTG Shares with an aggregate market value up to £30,000 per person,determined at the date of grant), unapproved options and, in the case of US employees, incentivestock options (over up to US$100,000 worth of BTG Shares per person, determined at the date ofgrant) can be granted under the SOP.
No option may be granted to an individual if the aggregate market value of BTG Shares over whichoptions have been granted in that year to the individual under the SOP and all other executive shareoption schemes adopted by the Company would exceed three times the individual’s annual earnings(excluding benefits in kind).
Acquisition price
The price per BTG Share payable on the exercise of an option will not be less than the higher of:
(a) the middle-market quotation for a BTG Share on the London Stock Exchange on the day optionsare granted (or a different day if agreed with the HMRC); and
(b) the nominal value of a BTG Share (unless the option is over existing BTG Shares only).
Limits on the issue of BTG Shares
No options may be granted under the SOP which would cause the number of BTG Shares issued orissuable in pursuance of options granted during the preceding 10 years, or issued during that periodotherwise than pursuant to options, under the SOP or any other employees’ share scheme adopted bythe Company, to exceed 10 per cent. of the Company’s issued ordinary share capital from timeto time.
Exercise of options and performance conditions
An option will normally be exercisable between three and ten years following its grant, but only if theperformance conditions to which it is subject (set by the Remuneration Committee) have beensatisfied. The performance conditions may be varied in certain circumstances following the grant of anoption so as to achieve its original purpose.
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The Board may determine, on exercise of an unapproved option, to pay the participant a cash sumequal to the amount that the participant would have received by selling the BTG Shares acquired onexercise immediately, rather than delivering BTG Shares.
An option may be exercised early if a participant ceases to be a director or employee of a member ofthe BTG Group by reason of death, injury, disability, redundancy, severance under a compromiseagreement (but not related to the participant’s performance), retirement at any age with theagreement of the Remuneration Committee, or the sale or transfer of the participant’s employingcompany or business out of the BTG Group. Options will also become exercisable early in the event ofa takeover, scheme of arrangement or winding-up of the Company.
If a participant ceases to be a director or employee of a member of the BTG Group for any otherreason his options may not be exercised unless the Board permits exercise.
For options granted after 1 June 2005, if an option becomes exercisable before the third anniversary ofits date of grant it will be exercisable pro rata to the extent that the three year period has elapsed(unless the Remuneration Committee decides that reduction of the extent of exercise on this basis isinappropriate) and for options granted after 8 August 2006 the performance condition hasbeen satisfied.
Options may also be exchanged for equivalent options over shares in an acquiring company, and withthe consent of that company, on a takeover or reconstruction.
Rights attaching to BTG Shares
BTG Shares allotted under the SOP will rank equally with all other BTG Shares for the time being inissue (except for rights arising by reference to a record date before the date of allotment).
Adjustment of options
If the share capital of the Company is varied (or on a demerger, payment of a capital dividend orother events similarly affecting options), appropriate adjustments may be made to the number of BTGShares subject to options and the price payable on their exercise.
Alterations
The SOP may at any time be altered in any respect, provided that the prior approval of the Companyin general meeting is obtained for alterations to the advantage of participants to the rules governingeligibility, limits on participation, terms of exercise and adjustment of options, except for minoramendments to benefit the administration of the SOP, to take account of a change in legislation or toobtain or maintain favourable tax, exchange control or regulatory treatment for participants or groupcompanies (but this does not inhibit the ability to adjust performance conditions as mentioned above).Any alteration relating to approved options can only be made if HMRC has approved the alteration.
5.2 The BTG Sharesave Scheme (the Sharesave Scheme)
Eligibility
UK resident employees of the Company and participating subsidiaries (including directors who arerequired to work at least 25 hours per week) having six months’ service at the end of the previousfinancial year are eligible to participate in the Sharesave Scheme. The BTG Directors may amend theeligibility conditions (within the limits set by the relevant legislation), and can allow other employeesto participate.
Grant of options
Invitations to apply for options (which may be over new and/or existing BTG Shares) may be madewithin six weeks after the announcement by the Company of its results for any period and at othertimes in circumstances considered to be exceptional. No invitations may be issued after 22 July 2008.Options may only be granted to employees who enter into HMRC approved savings contracts, underwhich monthly savings are made over a period of three or five years.
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The number of BTG Shares over which an option is granted is such that the total amount payable onits exercise will be equal, as nearly as possible, to the proceeds due on maturity of the related savingscontract. Options are not transferable, except on death.
Individual participation
Monthly savings by an employee under all savings contracts linked to options granted under anysavings related share option scheme may not exceed the UK statutory maximum (currently £250).
Acquisition price
The price per BTG Share payable on the exercise of options will not be less than the higher of:
(a) 80 per cent. of the average middle-market quotation of a BTG Share on the London StockExchange for the three dealing days immediately before the issue of invitations (but not falling onany day prior to an announcement of results). In limited circumstances the quotation on a laterday up to the date of grant may be used; and
(b) the nominal value of a BTG Share (unless the option is over existing BTG Shares only).
Limits on the issue of BTG Shares
No options may be granted under the Sharesave Scheme which would cause the number of BTGShares issued or issuable under all employees’ share options granted during the preceding 10 years, orissued during that period otherwise than pursuant to options, under the Sharesave Scheme or anyother employees’ share scheme adopted by the Company, to exceed 10 per cent. of the Company’sissued ordinary share capital from time to time.
Exercise of options
An option will normally be exercisable only for six months from completion of the related savingscontracts (normally at the third, fifth or seventh anniversary of its commencement). Earlier exercise ispermitted following cessation of employment due to the participant’s death, injury, disability orredundancy, if the employee reaches age 60 or retires at any other age at which he is bound to retireor the sale or transfer of the participant’s employing company or business out of the BTG Group.Options will lapse on cessation of employment in any other circumstances. Early exercise is alsopermitted in the event of a takeover, reconstruction or winding-up of the Company. If an option isexercised before maturity of the related savings contract it will only be exercisable using the proceedsof that contract at the date of exercise.
Options may also be exchanged for equivalent options over shares in an acquiring company, and withthe consent of that company, on a takeover or reconstruction.
Rights attaching to BTG Shares
BTG Shares allotted under the Sharesave Scheme will rank equally with all other BTG Shares for thetime being in issue (except for rights arising by reference to a record date before the dateof allotment).
Adjustment of options
If the share capital of the Company is varied, appropriate adjustments may be made to the number ofBTG Shares subject to options and the price payable on their exercise, subject to HMRC approval.
Alterations
The Sharesave Scheme may at any time be altered provided that the prior approval of the Company ingeneral meeting is obtained for alterations to the advantage of participants to the rules governingeligibility, limits on participation, terms of exercise and adjustment of options, except for minoramendments to benefit the administration of the Sharesave Scheme, to take account of a change inlegislation or to obtain or maintain favourable tax, exchange control or regulatory treatment forparticipants or group companies. Amendments to the Sharesave Scheme also require approvalof HMRC.
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5.3 The BTG US Stock Purchase Plan (the Stock Purchase Plan)
Eligibility
US resident employees of the Company and participating subsidiaries (including directors who arerequired to work at least 25 hours per week) having six months’ service at the end of the previousfinancial year are eligible to participate in the Stock Purchase Plan. The BTG Directors may amendthe eligibility conditions (within the limits set by the relevant legislation), and can allow otheremployees to participate.
Grant of options
Invitations to apply for options (which may be over new and/or existing BTG Shares) may be madewithin six weeks after the announcement by the Company of its results for any period and at othertimes in circumstances considered to be exceptional. No invitations may be issued after 24 July 2011.Options may only be granted to employees who enter into Internal Revenue Service approved savingscontracts, under which monthly savings are made over a period of two years.
The number of BTG Shares over which an option is granted is such that the total amount payable onits exercise will be equal, as nearly as possible, to the proceeds due on maturity of the related savingscontract. Options are not transferable, except on death.
Individual participation
Monthly savings by an employee under all savings contracts linked to options granted under anysavings related share option scheme established by the Company (including the Stock Purchase Planand the Sharesave Scheme) may not exceed the maximum amount as from time to time determined bythe Board (currently £250).
Acquisition price
The price per BTG Share payable on the exercise of options will not be less than the higher of:
(a) 85 per cent. of the average middle-market quotation of an BTG Share on the London StockExchange on the date of grant; and
(b) the nominal value of a BTG Share (unless the option is over existing BTG Shares only).
Limits on the issue of BTG Shares
No options may be granted under the Stock Purchase Plan which would cause the number of BTGShares issued or issuable under all employees’ share options granted during the preceding 10 years, orissued during that period otherwise than pursuant to options, under the Stock Purchase Plan or anyother employees’ share scheme adopted by the Company, to exceed 10 per cent. of the Company’sissued ordinary share capital from time to time.
Exercise of options
An option will normally be exercisable only for three months from completion of the related savingscontracts (normally at the second anniversary of its commencement). Earlier exercise is permittedfollowing cessation of employment due to the participant’s death, injury, disability or redundancy, ifthe employee reaches age 60 or retires at any other age at which he is bound to retire or the sale ortransfer of the participant’s employing company or business out of the BTG Group. Options will lapseon cessation of employment in any other circumstances. Early exercise is also permitted in the eventof a takeover, reconstruction or winding-up of the Company. If an option is exercised before maturityof the related savings contract it will only be exercisable using the proceeds of that contract at the dateof exercise.
Rights attaching to BTG Shares
BTG Shares allotted under the Stock Purchase Plan will rank equally with all other BTG Shares forthe time being in issue (except for rights arising by reference to a record date before the dateof allotment).
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Adjustment of options
If the share capital of the Company is varied, appropriate adjustments may be made to the number ofBTG Shares subject to options and the price payable on their exercise.
Alterations
The Stock Purchase Plan may at any time be altered in any respect, provided that the prior approvalof the Company in general meeting is obtained for alterations to the advantage of participants to therules governing eligibility, limits on participation, terms of exercise and adjustment of options, exceptfor minor amendments to benefit the administration of the Stock Purchase Plan, to take account of achange in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatmentfor participants or group companies.
5.4 The BTG Restricted Share Scheme (the RSS)
Eligibility
Employees of the Company and any of its subsidiaries (other than BTG Directors) are eligible toparticipate in the RSS at the discretion of the Board.
Grant of awards
An award may be granted under the RSS either as a conditional allocation (an Allocation) of existingBTG Shares or as an option (an Option) to acquire existing BTG Shares.
Awards are not transferable, except on death.
Availability of Shares
The RSS may only be operated over BTG Shares purchased in the market. No BTG Shares can beissued to satisfy awards under the RSS.
Vesting of awards
An award will normally vest on the date specified at the date of grant, subject to the satisfaction of anyapplicable performance conditions and provided the participant remains a director or employeewithin the BTG Group. On vesting, an award made as an Option may be exercised until the date itlapses (which may not be more than ten years after its date of grant) and the BTG Shares subject to anaward made as an Allocation will be transferred to the participant as soon as reasonably practical. Onexercise of an Option or vesting of an Allocation, the Board may, with the agreement of the relevantparticipant, determine to pay the cash equivalent rather than delivering BTG Shares.
Leaving employment
If a participant ceases to be a director or employee by reason of disability, injury, retirement (beforereaching the age at which he is bound to retire in accordance with his contract of employment),redundancy, severance under a compromise agreement (but not related to the participant’sperformance) or the sale or transfer of his employing company or business out of the Company’sgroup, then an award will vest on or shortly following the date of cessation subject to the Board’sdiscretion to apply a pro-rata reduction to the number of BTG Shares subject to the vested award,having regard to the proportion of the vesting period during which the participant was employed, if itdeems this to be appropriate.
If a participant ceases to be a director or employee by reason of retirement on or after reaching an ageat which he is bound to retire in accordance with his contract of employment his Option may beexercised and/or Allocation vest to the extent that any performance condition has been satisfied atthat time and subject to the Board’s discretion to apply a pro-rata reduction to the number ofBTG Shares subject to the vested award, having regard to the proportion of the vesting period duringwhich the participant was employed, if it deems this to be appropriate.
If a participant ceases to be a director or employee within the BTG Group by reason of death, theaward will vest in full at that time. An Option may be exercised by the participant’s personalrepresentative within 12 months of the date of death.
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If a participant ceases employment for any other reason his award will lapse unless the Board permitsvesting to the extent and at the time it determines.
Corporate events
In the event of a takeover, scheme of arrangement or winding up of the Company all awards will vestearly to the extent that any performance conditions have, in the opinion of the RemunerationCommittee, been satisfied at that time.
Participants’ rights
The grant of awards will not confer any shareholder rights on participants until the awards have vestedand the participants have received their BTG Shares.
Variation of capital
In the event of any variation of share capital or in the event of a demerger, payment of a specialdividend or similar event which materially affects the market price of the BTG Shares, the Board maymake any adjustment it considers appropriate to the number of BTG Shares subject to an award and/or to the exercise price payable (if any).
Alterations to the RSS
The Board may, at any time, amend the provisions of the RSS in any respect, provided that noamendment to the disadvantage of participants may be made without their prior approval.
5.5 The BTG Performance Share Plan 2006 (the PSP)
General
The Remuneration Committee of the Board of the Company supervises the operation of the PSP.
Eligibility
Any employee (including an executive director) of the Company or any of its subsidiaries is eligible toparticipate in the PSP at the discretion of the Remuneration Committee.
Grant of awards
The Remuneration Committee may grant an award under the PSP either as a conditional allocation ofBTG Shares, a nil (or nominal) cost option with a short exercise window or as forfeitable BTG Shares.The Committee may also decide to grant cash-based awards of an equivalent value to share-basedawards or to satisfy share-based awards in cash.
The Remuneration Committee may grant awards within six weeks of the Company’s announcement ofits results for any period or at any time when it considers that there are exceptional circumstanceswhich justify the grant of awards.
No awards may be granted under the PSP after 26 July 2016.
Awards are not transferable, except on death. Awards are not pensionable.
Performance conditions
Awards may be granted subject to performance conditions set by the Remuneration Committee.
The Remuneration Committee may vary the performance conditions applying to existing awards totake account of events that the Remuneration Committee considers to be exceptional, includingtechnical events such as changes in accounting standards and treatment and the de-listing of acomparator group company, provided the Remuneration Committee considers the varied condition isfair and reasonable and not materially less challenging than the original condition would have beenbut for the event in question.
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Individual limit
An individual may not normally receive awards in any financial year over BTG Shares having a marketvalue in excess of 100 per cent. of his or her annual base salary in that financial year. In exceptionalcircumstances, such as a senior executive recruitment or retention, the limit will be 150 per cent. ofthat individual’s annual base salary.
Overall Limits on BTG Shares
The PSP may use new issue BTG Shares, treasury shares or BTG Shares purchased in the market.
In any ten calendar year period not more than:
(a) 10 per cent. of the issued ordinary share capital of the Company may be issued or issuable underthe PSP and any other employees’ share scheme adopted by the Company; and
(b) 5 per cent. of the issued ordinary share capital of the Company may be issued or issuable underthe PSP and any other discretionary executive share plan adopted by the Company.
Treasury shares will count as new issue BTG Shares for the purposes of these limits unless institutionalinvestor bodies decide otherwise.
Vesting of awards
Awards will normally vest on or following the third anniversary of their grant, subject to theRemuneration Committee determining the extent to which the applicable performance conditionshave been satisfied (if at all) and provided the participant remains a director or employee within theBTG Group.
Leaving employment
If a participant ceases to be a director or employee by reason of disability, ill-health, injury,retirement, redundancy or the sale or transfer of his employing company or business out of theBTG Group or in other circumstances at the discretion of the Remuneration Committee, then anaward will normally vest on or shortly following the date of cessation. The extent to which an awardwill vest in these situations will depend upon the extent to which the performance conditions have, inthe opinion of the Remuneration Committee, been satisfied at that time, taking into account theshorter performance period. The award will normally then be pro-rated to reflect the period of timethat the participant was a director or employee during the period commencing on the grant date andending on the date of cessation (rounded up to the nearest half-year) relative to a period of threeyears. The Remuneration Committee may decide not to pro-rate an award if it regards it asinappropriate to do so in the particular circumstances.
Alternatively the Remuneration Committee may decide that an award will continue to the time whenvesting would have occurred if the participant had remained a director or employee. In thesecircumstances, an award will vest to the extent that the performance conditions have been satisfiedover the full three-year performance period. The award may then be pro-rated as described above.
If a participant ceases to be a director or employee within the BTG Group by reason of death, theparticipant’s award will vest in full at that time.
If a participant ceases to be a director or employee within the BTG Group in any other circumstances,the participant’s award will normally lapse.
Corporate events
In the event of a takeover, scheme of arrangement or winding up of the Company (not being aninternal corporate reorganisation) all awards will vest early to the extent that any performanceconditions have, in the opinion of the Remuneration Committee, been satisfied at that time, takinginto account the shorter performance period. The awards will then be pro-rated to reflect the reducedperiod of time between the grant of the awards and the time of vesting, although the RemunerationCommittee may decide not to pro-rate awards if it regards it as inappropriate to do so in the particularcircumstances.
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In the event of an internal corporate reorganisation, awards will be replaced by equivalent new awardsover shares in a new holding company unless the Remuneration Committee decides that awardsshould vest on the basis which would apply in the case of a takeover.
If a demerger, special dividend or other similar event is proposed which, in the opinion of theRemuneration Committee, would affect the market price of BTG Shares subject to outstandingawards to a material extent, then the Remuneration Committee may determine that awards will veston the basis that would apply in the case of a takeover.
Participants’ rights
The grant of an award will not confer any shareholder rights on a participant until the award vests andthe participant has received the BTG Shares subject to it.
Rights attaching to BTG Shares
Any BTG Shares allotted when an award vests or is exercised will rank equally with BTG Shares thenin issue (except for rights arising by reference to a record date prior to their allotment).
Variation of capital
In the event of any variation of share capital or in the event of a demerger, payment of a specialdividend or similar event which materially affects the market price of the BTG Shares, theRemuneration Committee may make the adjustment it considers appropriate to the number of BTGShares subject to an award and/or to the exercise price payable (if any).
Alterations to the Plan
The Remuneration Committee may, at any time, amend the provisions of the PSP in any respect,provided that the prior approval of shareholders is obtained for any amendments that are to theadvantage of participants in respect of the rules governing eligibility, limits on participation, theoverall limits on the issue of BTG Shares or the transfer of treasury shares, the basis for determining aparticipant’s entitlement to, and the terms of, the BTG Shares or cash to be acquired and theadjustment of awards.
The requirement to obtain the prior approval of shareholders will not, however, apply to anyalteration to the performance conditions (see above) or any minor alteration made to benefit theadministration of the PSP, to take account of a change in legislation or to obtain or maintainfavourable tax, exchange control or regulatory treatment for participants or for any company in theBTG Group.
5.6 The BTG Executive Directors’ Deferred Share Bonus Plan (the DSBP)
General
The Remuneration Committee supervises the operation of the DSBP.
Eligibility
Any individual who is an employee and an executive director of the Company is eligible to participatein the DSBP at the discretion of the Remuneration Committee.
Grant of awards
The Remuneration Committee may grant an award of BTG Shares at any time under the DSBP.
Awards are not transferable, except on death. Awards are not pensionable.
Performance conditions
Awards are not subject to performance conditions.
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Individual limit
An individual may not normally receive awards in any financial year over BTG Shares having a marketvalue in excess of 100 per cent. of his or her relevant cash bonus in that financial year.
Overall Limits on BTG Shares
The DSBP may only be satisfied by the transfer of BTG Shares (other than the transfer of treasuryshares).
Vesting of awards
Awards will normally vest on or following the third anniversary of their grant provided the participantremains a director or employee within the BTG Group.
Leaving employment
If a participant ceases to be a director or employee by reason of disability, injury, retirement with theagreement of the Remuneration Committee, redundancy or the sale or transfer of his employingcompany or business out of the BTG Group or in other circumstances at the discretion of theRemuneration Committee, then an award will vest on or shortly following the date of cessation. Theaward will vest in full under these circumstances unless the Remuneration Committee, in itsdiscretion, decides to pro-rate the award to reflect the period of time that the participant was adirector or employee during the period commencing on the grant date and ending on the date ofcessation (rounded up to the nearest half-year) relative to a period of three years.
If a participant ceases to be a director or employee within the BTG Group by reason of death, theparticipant’s award will vest in full at that time.
If a participant ceases to be a director or employee within the BTG Group in any other circumstances,not mentioned above the participant’s award will normally lapse.
Corporate events
In the event of a takeover, scheme of arrangement or winding up of the Company (not being aninternal corporate reorganisation) all awards will vest in full, subject to the RemunerationCommittee’s discretion to apply a pro-rata reduction to the number of BTG Shares subject to thevested awards, having regard to the duration of the vesting period that has elapsed at the date of therelevant corporate event (rounded up to six months), if it deems this to be appropriate.
In the event of an internal corporate reorganisation, awards may be replaced by equivalent newawards over shares in a new holding company unless the Remuneration Committee decides thatawards should vest on the basis which would apply in the case of a takeover.
If a demerger, special dividend or other similar event is proposed which, in the opinion of theRemuneration Committee, would affect the market price of BTG Shares subject to outstandingawards to a material extent, then the Remuneration Committee may determine that awards will vestand may be subject to pro-ration at the discretion of the Remuneration Committee.
Participants’ rights
The grant of an award will not confer any shareholder rights on a participant until the award vests andthe participant has received the BTG Shares subject to it.
Rights attaching to BTG Shares
Any BTG Shares allotted when an award vests or is exercised will rank equally with BTG Shares thenin issue (except for rights arising by reference to a record date prior to their allotment).
Variation of capital
In the event of any variation of share capital or in the event of a demerger, payment of a specialdividend or similar event which materially affects the market price of the BTG Shares, theRemuneration Committee may make the adjustment it considers appropriate to the number of BTGShares subject to an award and/or to the exercise price payable (if any).
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Alterations to the Plan
The Remuneration Committee may, at any time, amend the provisions of the DSBP in any respect,provided that the prior approval of the majority participants is obtained for any amendments that areto the disadvantage of participants.
6. Related Party Transactions
6.1 BTG Group
Save as disclosed in the financial information set out in the related party transactions note to theaccounts in the financial statements for the years ended 31 March 2008, 31 March 2007 and31 March 2006 incorporated by reference into this document, for each of the financial years ended31 March 2008, 31 March 2007 and 31 March 2006 and during the period between 31 March 2008 and14 October 2008 (being the latest practicable date prior to the publication of this document), BTGentered into no material transactions with related parties. In relation to the related party relationshipbetween BTG and Oxford University and its subsidiary Isis Innovations Ltd, described more fully inthe related party transactions note to the annual audited accounts of BTG for the year ended31 March 2008, for the period between 31 March 2008 and 14 October 2008 (being the last practicabledate prior to the date of this document) BTG made payments of £0.1 million under the relevantlicence agreements. As at 14 October 2008 £1.7 million was outstanding and payable by BTG underthese agreements.
6.2 Protherics Group
Save as disclosed in the financial information set out in the related party transactions note to theaccounts in the financial statements for the years ended 31 March 2008, 31 March 2007 and31 March 2006 incorporated by reference into this document, for each of the financial years ended31 March 2008, 31 March 2007 and 31 March 2006 and during the period between 31 March 2008 and14 October 2008 (being the latest practicable date prior to the publication of this document),Protherics entered into no material transactions with related parties.
7. Material Contracts
7.1 BTG Group
No member of the BTG Group has entered into (a) any contracts (not being contracts entered into inthe ordinary course of business) within the period from 13 August 2006 (being the date two years priorto the commencement of the Offer Period); or (b) any contracts (not being contracts entered into inthe ordinary course of business) at any time which contain provisions under which any member of theBTG Group has an obligation or entitlement which is or may be material to the BTG Group as at thedate of this document.
7.2 Protherics Material Contracts
The following contracts are all: (a) the material contracts (not being contracts entered into in theordinary course of business) which have been entered into within the two years prior to the date ofthis document by members of the Protherics Group; and (b) the contracts (not being contracts enteredinto in the ordinary course of business) entered into at any time by members of the Protherics Groupwhich contain provisions under which any member of the Protherics Group has an obligation orentitlement which is or may be material to the Protherics Group as at the date of this document:
(a) An in-license and co-development agreement between Protherics and Advance In Vitro CellTechnologies S.L. (Advancell) in December 2006, with respect to intellectual property rights forthe use of Acadra� (formerly Acadesine) in the treatment of B-cell chronic lymphocyticleukaemia (B-CLL). Under this agreement, Protherics has paid Advancell an initial £500,000 cashconsideration, as well as a total of up to £17.9 million in development and commercializationmilestones. Advancell will also receive a 12.8 per cent. royalty on net sales.
(b) A licence agreement dated 7 December 2006 between Protherics Medicines DevelopmentLimited (PMDL) and Glenveigh Pharmaceuticals LLC and certain affiliated parties (collectively,Glenveigh) whereby Glenveigh agreed to grant certain exclusive rights and licences regardingdigoxin immune Fab and to licence related intellectual property rights to PMDL. Under theGlenveigh licence, PMDL paid Glenveigh £2.5 million cash at closing, assumed £.08 million inbank debt and issued 3,093,638 ordinary shares in Protherics. Glenveigh will be entitled to a
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further cash payment of £2.5 million if one or both primary end points in the on going phase IIbstudy in relation to the use of Digibind in severe pre-eclampsia are met or upon thecommencement of a phase III study. Glenveigh will also receive a royalty of up to 5 per cent. onnet sales. The licence will terminate on the later of expiration of the last to expire patent and thetenth anniversary of the first commercial sale of a product in a relevant territory.
(c) An acquisition agreement dated 7 December 2006 between Protherics and MacroMed Inc(MacroMed), a private US company, pursuant to which Protherics made an all-share acquisitionof MacroMed to access its lead product, OncoGel�, a novel sustained release formulation ofpaclitaxel for local administration in oesophageal and brain cancers, for a consideration of$25 million.
(d) A placing agreement dated 6 December 2007 between Protherics, Nomura Code Securities andPiper Jaffray, pursuant to which Nomura Code Securities and Piper Jaffray agreed to place29,029,550 new ordinary shares in Protherics to be allotted pursuant to a cash placing and32,685,994 new ordinary shares in Protherics to be allotted pursuant to a placing and open offer,at an issue price of 65 pence per share with UK and European institutional investors subject tothe right of shareholders to clawback new ordinary shares under the terms of the open offer.Under this agreement, Protherics paid Nomura Code Securities and Piper Jaffray commissions(plus applicable value added tax) of 4 per cent. of the aggregate value of the Issue Price of all ofthe 58,715,544 new ordinary shares divided equally between them, a pre-determined percentageamount of sub-underwriting commission, a corporate finance advisory fee of £200,000 to NomuraCode Securities and a corporate finance advisory fee of £100,000 to Piper Jaffray.
(e) An agreement dated 6 June 2006 between CoVaccine BV, Protherics Medicines DevelopmentLimited and Protherics under which Protherics agreed to pay CoVaccine BV up to A 1,050,000.This was satisfied by Protherics by granting CoVaccine BV the right to receive 295,413 ordinaryshares in Protherics following the signing of the agreement, and a further 590,826 ordinary sharesin Protherics upon satisfaction of two development related milestones. In addition to theseshares, CoVaccine BV is entitled to a low single digit royalty on net sales of products containingthe CoVaccine adjuvant. Under this agreement, a further 337,614 ordinary shares in Prothericsremain issuable.
(f) An equity agreement dated 7 December 2005 between Protherics and AstraZeneca Irelandoperations (a branch in Ireland of AstraZeneca UK Limited) (AZ UK) whereby AZ Irelandagreed to subscribe for 10,990,621 ordinary shares of Protherics at a price of 68.2p perordinary share.
(g) An agreement dated 7 December 2005 between Protherics and AZ UK under which Prothericsreceived an initial payment of £16.3 million for the development and commercialisation ofCytoFab�, as a treatment for the initial indication of severe sepsis. Under the agreement,Protherics could receive up to £171 million on the achievement of further milestones (of which£10 million has already been received) and will also receive royalties on global product sales of20 per cent. of net sales for a minimum of 10 years in each country in which CytoFab� is soldalong with payments in return for the commercial supply of bulk drug substance and drugproduct. AZ UK is responsible for clinical development and sales and marketing of CytoFab� andProtherics is primarily responsible for drug product manufacturing including clinical trialmaterial.
(h) A distribution agreement with Altana, Inc. (subsequently acquired by Nycomed) in October 1997,which provides Nycomed with exclusive US distribution rights for CroFab� and DigiFab�. Underthis agreement Protherics is entitled to receive certain milestone, product sales and royaltypayments. In November 2005, Nycomed exercised its nil-cost option to renew the agreement for afurther five years, with the agreement due to expire in 2010.
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8. Significant Subsidiaries
8.1 The Company is the holding company of the BTG Group. The following table gives details of BTG’ssignificant subsidiaries:
Country of Class of Per cent.Name Incorporation share capital owned Principal activity
BTG International(Holdings) Limited . . . . . . . . . . . England & Wales Ordinary 100 Investment in IPR management
companies
Provensis Limited . . . . . . . . . . . . England & Wales Ordinary 100 Development & commercialisationof IPR
BTG International Limited . . . . . . England & Wales Ordinary 100 Development, management andcommercialisation of IPR
BTG Employee ShareSchemes Limited . . . . . . . . . . . . Guernsey Ordinary 100 Trustee company
BTG Investment(Holdings) Limited . . . . . . . . . . . England & Wales Ordinary 100 Investment in IPR management
companies
BTG International Inc . . . . . . . . . Delaware, USA Common stock 100 Development, management andand paid in commercialisation of IPRcapital
British Technology Group Inter-Corporate Licensing Limited . . . . . England & Wales Ordinary 100 Development, management and
commercialisation of IPR
8.2 Details of Protherics’ significant subsidiaries are as follows:
Country of Class of Per cent.Name Incorporation share capital owned Principal activity
Protherics Medicines DevelopmentLimited . . . . . . . . . . . . . . . . . . England & Wales Ordinary 100 Research, development,
manufacture and sale ofpharmaceutical products andpotential drugs for use in thetreatment of human diseases
Protherics Inc. . . . . . . . . . . . . . . Delaware, USA Ordinary 100 Research, development,manufacture and sale ofpharmaceutical products andpotential drugs for use in thetreatment of human diseases
Proteus Biotechnology Limited . . . England & Wales Ordinary 100 Dormant
Enact Pharma Limited . . . . . . . . England & Wales Ordinary 100 Research, development,manufacture and sale ofpharmaceutical products andpotential drugs for use in thetreatment of human diseases
Genethics Limited . . . . . . . . . . . England & Wales Ordinary 76 Dormant
Protherics UK Limited . . . . . . . . England & Wales Ordinary 100 Research, development,manufacture and sale ofpharmaceutical products andpotential drugs for use in thetreatment of human diseases
Protherics Australasia Pty Limited . Australia Ordinary 100 Research, development,manufacture and sale ofpharmaceutical products andpotential drugs for use in thetreatment of human diseases
Protherics Utah Inc. . . . . . . . . . . Delaware, USA Ordinary 100 Research, development,manufacture and sale ofpharmaceutical products andpotential drugs for use in thetreatment of human diseases
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Country of Class of Per cent.Name Incorporation share capital owned Principal activity
Prothercis Salt Lake City Inc.(formerly Macromed Inc.) . . . . . . Delaware, USA Ordinary 100 Research, development,
manufacture and sale ofpharmaceutical products andpotential drugs for use in thetreatment of human diseases
Enzacta R&D Limited . . . . . . . . . England & Wales Ordinary 99.8 Dormant
Enzacta Limited . . . . . . . . . . . . . England & Wales Ordinary 99.8 Dormant
Kymed GB Limited . . . . . . . . . . England & Wales Ordinary 100 Dormant
De Montfort Biopharma Limited . . England & Wales Ordinary 100 Dormant
TAb (Wales) Limited . . . . . . . . . England & Wales Ordinary 100 Dormant
TAb (London) Limited . . . . . . . . England & Wales Ordinary 100 Dormant
Polyconal Antibodies Limited . . . . England & Wales Ordinary 100 Dormant
Protherics Services Pty Limited . . . Australia Ordinary 100 Dormant
9. Principal associates
9.1 Details of the undertakings in which the BTG Group’s investments represent a holding greater than20 per cent. are set out below.
Country of Class of Per cent.Name Incorporation share capital owned Principal activity
Mesophotonics Limited . . . . . . . Great Britain Ordinary 29.3 Research & development relatingto trace level detection solutionsfor various applications. Inmembers’ voluntary liquidation.
Senexis Limited . . . . . . . . . . . . Great Britain Ordinary 48.0 Research & development relatingto medicines for the treatment ofageing-related diseases.
10. Principal establishments and property plant and equipment
10.1 The following information contains information regarding the principal establishments occupied byBTG and/or its subsidiaries and also the existing or planned material tangible fixed assets owned orleased by members of the BTG Group:
Real Estate Assets:Tenure and Lease rate per
Location expiry date Principal use annum (£)
10 Fleet Place, . . . . . . . . . . . . . Leasehold to 2017 Offices £ 1,760,000Limeburner Lane, (break inLondon EC4M 7SB, April 2009*)UK (the UK Lease)
Five Tower Bridge, . . . . . . . . . . . Leasehold to 2011 Offices US$984,131300 Barr Harbor Drive, Suite 800,West Conshohocken, PA19428-2998, USA (the US Lease)
Provensis Building, . . . . . . . . . . . Leasehold to Manufacturing Site. Notice served £ 700,000Bryn Lane, 31 October 2008* on lease as no commercial valueWrexham Industrial Estate, assessedWrexham, LL13 9UF,UK (the Wrexham Lease)
* Notice has been served to terminate the UK Lease at the break point in April 2009. Notice has been served toterminate the Wrexham lease in October 2008.
10.2 BTG has entered into sub-leasing agreements with third parties in relation to the UK Lease and theUS Lease. BTG signed a sublease in relation to the UK Lease in March 2007 pursuant to which BTGhas agreed to provide a managed office to its subtenant. The expiry of the sublease coincides with thebreak in the UK Lease in 2009. In relation to the US Lease, BTG’s subtenant took occupancy of the
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space in June 2006, with minimal fit-out expenditure incurred by BTG. The expiry of this subleasecoincides with the expiry of the US Lease in 2011. The total future minimum lease paymentsexpected to be received after 1 April 2008 over the respective terms of the sub-leases is £2.3m.
10.3 The funds required to fulfil the Company’s commitments under its leases of the premises detailedabove will be provided in part from the BTG Group’s operating income and in part from thesub-letting arrangements outlined above.
10.4 To the best of the Company’s knowledge, as at 15 October 2008 (being the last practicable date priorto the publication of this document), the Company is unaware of any environmental issues that mayaffect the Company’s utilisation of its tangible fixed assets.
11. Working Capital Statement
In the opinion of the Company, taking into account the facilities available to it, the working capitalavailable to the BTG Group is sufficient for its present requirements, that is for at least the next12 months following the date of publication of this document.
12. Litigation
12.1 There are no governmental, legal or arbitration proceedings (including any such proceedings whichare pending or threatened of which BTG is aware) during the year preceding the date of thisdocument which may have, or have had in the recent past, significant effects on the financial positionor profitability of the BTG Group.
12.2 There are no governmental, legal or arbitration proceedings (including any such proceedings whichare pending or threatened of which BTG is aware) during the year preceding the date of thisdocument which may have, or have had in the recent past, significant effects on the financial positionor profitability of the Protherics Group.
13. General
13.1 BTG’s registrars are Capita Registrars, Northern House, Woodsome Park, Fenay Bridge,Huddersfield, West Yorkshire, HD8 0LA.
13.2 BTG’s accounts for the three financial periods ended 31 March 2008, 31 March 2007 and31 March 2006, upon which unqualified reports have been given, were audited by KPMG Audit Plc,chartered accountants and registered auditors, of 8 Salisbury Square, London EC4Y 8BB. KPMGAudit Plc is a member of the Institute of Chartered Accountants in England and Wales.
13.3 The financial information contained in this document which relates to BTG and the financialinformation contained in this document which relates to Protherics does not constitute full statutoryaccounts as referred to in section 240 of the Companies Act. Statutory consolidated audited accountsof the Company and of Protherics, on which the auditors have given unqualified reports and whichcontained no statement under section 237(2) or (3) of the Companies Act, have been delivered to theRegistrar of Companies in respect of the three financial years ended 31 March 2006, 31 March 2007and 31 March 2008 for each of the Company and Protherics.
13.4 In presenting the financial information on the Enlarged Group, no material adjustment has beenrequired or made to the accounting policies of either the BTG Group or the Protherics Group.
13.5 The total expenses payable by BTG in connection with the Acquisition and the Scheme (includingthe listing fees of the FSA, professional fees and expenses and the costs of printing and distributionof documents) are expected to amount to approximately £7.5m, excluding VAT.
14. Sources and Bases of Selected Financial Information
Save as otherwise stated, the following constitute the bases and sources of certain informationreferred to in this document:
(a) Historic financial information relating to Protherics has been extracted without materialadjustment from the relevant published audited reports and accounts of Protherics.
(b) Historic financial information relating to BTG has been extracted without material adjustmentfrom the relevant published audited reports and accounts of BTG.
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(c) Reference to the Protherics Fully Diluted Share Capital assumes:
(i) 342,560,165 Protherics Shares in issue; and
(ii) Protherics Convertible Loan Notes with an aggregate nominal value of £1,966,829(carrying conversion rights over 7,867,316 Protherics Shares in aggregate)outstanding; and
(iii) the vesting of all awards and exercise of all options (where such options have an exerciseprice of not more than 60 pence) issued and outstanding over Protherics Shares,representing 7,539,498 Protherics Shares in aggregate,
in each case as at 15 October 2008 (being the latest practicable date prior to the posting of thisdocument).
(d) Unless otherwise stated, all prices quoted for shares are Closing Prices.
(e) The percentage ownership of the Enlarged Group held by former Protherics Shareholders andexisting BTG Shareholders is based on the enlarged issued share capital of BTG following theAcquisition, being the aggregate of 151,265,827 BTG Shares in issue on 15 October 2008(source: BTG registrar) and 104,168,390 New BTG Shares to be issued pursuant tothe Acquisition.
(f) The combined cash and liquid investments of BTG and Protherics are an aggregate of the cashand liquid investments of each company as extracted from the BTG audited financial statementsfor the financial year ended 31 March 2008 and the Protherics audited financial statements forthe financial year ended 31 March 2008 (before taking into account any Acquisition costs).
15. Significant Change
15.1 There has been no significant change in the trading or financial position of the BTG Group since31 March 2008, the date to which BTG’s last audited financial information was prepared.
15.2 There has been no significant change in the trading or financial position of the Protherics Groupsince 31 March 2008, the date to which Protherics’ last audited financial information was prepared.
16. Consents
16.1 KPMG Audit Plc has given and has not withdrawn its written consent to the inclusion in thisdocument of its report set out in Part 8 in the form and context in which it appears and hasauthorised the contents of its report for the purposes of Prospectus Rule 5.5.3R(2)(f).
16.2 NM Rothschild & Sons Ltd is registered in England and Wales (with number 00925279) and has itsregistered office at New Court, St Swithin’s Lane, London, EC4P 4DU. Rothschild has given and hasnot withdrawn its written consent to the inclusion of its name and references to it in the form andcontext in which they are included in this document.
17. Documents Available for Inspection
Copies of the following documents are available for inspection during usual business hours on anyweekday (Saturdays, Sundays and public holidays excepted) at the offices of Allen & Overy LLP, OneBishops Square, London E1 6AD and at the Company’s registered office at 10 Fleet Place,Limeburner Lane, London EC4M 7SB until the date of Admission:
(a) the memorandum and articles of association of the Company;
(b) the consolidated audited accounts of the BTG Group for the three financial years ended31 March 2008, 31 March 2007 and 31 March 2006;
(c) the consolidated audited accounts of the Protherics Group for the three financial years ended31 March 2008, 31 March 2007 and 31 March 2006;
(d) the irrevocable undertakings and letters of intent referred to in paragraph 7 of Part 1;
(e) the consent letters referred to in paragraphs 16.1 and 16.2 in this Part 11;
(f) the report from KPMG Audit Plc set out in Part 8 of this document;
(g) service contract for Rolf Soderstrom;
(h) the BTG Circular;
(i) the Scheme Document; and
(j) this document.
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DEFINITIONS
The following definitions apply throughout this document unless the context requires otherwise:
Acquisition means the recommended acquisition of the entire issued, and tobe issued share capital of Protherics by BTG to be implementedby way of the Scheme (or, should BTG elect, with the consent ofProtherics, by means of a Takeover Offer) on the terms andsubject to the Conditions set out in the Scheme Document andany subsequent revision, variation, extension or renewal thereof(such agreed terms and Conditions also being set out in theScheme Document).
Admission means the admission of the New BTG Shares (i) to the OfficialList and (ii) to trading on the London Stock Exchange’s marketfor listed securities in accordance with the Admission andDisclosure Standards.
Admission and Disclosure Standards means the requirements contained in the publication ‘‘Admissionand Disclosure Standards’’ (as amended from time to time)containing, among other things, the admission requirements tobe observed by companies seeking admission to trading on theLondon Stock Exchange’s market for listed securities.
Announcement means the announcement of the Offer made by the BTGDirectors and the Independent Protherics Directors dated18 September 2008.
BTG or Company means BTG plc, registered in England and Wales (registerednumber 2670500).
BTG Circular means the circular to be sent to BTG Shareholders conveningthe BTG EGM.
BTG Directors means the directors of BTG and BTG Director means any oneof them.
BTG EGM means the extraordinary general meeting of BTG to be held on3 November 2008 in connection with the Acquisition, includingany adjournment thereof.
BTG Group means BTG and its subsidiaries and, where the context requires,each one of them.
BTG Resolutions means the resolutions to be proposed at the BTG EGM for thepurposes of approving and implementing the Acquisition.
BTG Share Option Schemes means the BTG Employees’ Share Option Plan, the BTGSharesave Scheme, the BTG Restricted Share Scheme, theBTG Executive Directors’ Deferred Share Bonus Plan, the BTGPerformance Share Plan 2006, and BTG US Stock PurchasePlan (each a BTG Share Option Scheme).
BTG Shareholders means holders of BTG Shares.
BTG Shares means ordinary shares of 10 pence each in the capital of BTG(including, if the context so requires, the New BTG Shares).
Board or BTG Board means the board of directors of BTG.
Business Day means a day (excluding Saturdays and Sundays or publicholidays in England and Wales) on which banks generally areopen for business in London for the transaction of normalbanking business.
Capital Reduction means the proposed reduction of capital under section 135 ofthe Companies Act associated with the Scheme.
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Certificated or in Certificated Form in relation to a share that is not in uncertificated form inCREST.
Closing Price means the closing middle market quotation of a share at theclose of business on a particular trading day as derived from theOfficial List published for that day.
Code means The City Code on Takeovers and Mergers.
Combined Code means the Combined Code on Corporate Governance datedJuly 2006 issued by the Financial Reporting Council.
Companies Act means the Companies Act 1985 (as amended).
Companies Act 2006 mean the Companies Act 2006 (as amended).
Companies Acts means Companies Act and Companies Act 2006.
Competing Proposal means a proposed offer, tender offer, merger, acquisition,scheme of arrangement, recapitalisation or other combination(including a transaction involving a dual listed companystructure) whether or not subject to any pre-conditions andhowsoever implemented relating to any direct or indirectacquisition or purchase of 50 per cent. or more of ProthericsShares or (as the case may be) BTG Shares or all or substantiallyall of the business and assets of Protherics or (as the case maybe) BTG and their respective subsidiaries proposed by any thirdparty.
Conditions means the conditions to the implementation of the Acquisition(including the Scheme) which are set out in summary in Part 1to this document and in full in the Scheme Document.
Court means the High Court of Justice in England and Wales.
Court Meeting means the meeting (and any adjournment thereof) of theholders of Scheme Shares convened by the Court undersection 896 of the Companies Act 2006 to consider and, ifthought fit, approve the Scheme.
Court Orders means the Reduction Court Order and the Scheme CourtOrder.
CREST means the relevant system, as defined in the CRESTRegulations (in respect of which Euroclear UK & IrelandLimited is operator as defined in the CREST Regulations).
CREST Payment means shall have the meaning given in the CREST Manualissued by CRESTCo.
CREST Regulations means the Uncertificated Securities Regulations 1995 (SI 1995No. 93/3272), as amended.
CRESTCo means CrestCo Limited, the operator of CREST.
Daily Official List means the Daily Official List of the London Stock Exchange.
Effective Date means the date on which the Scheme becomes effective inaccordance with its terms.
Enlarged Group means the BTG Group, including Protherics and its subsidiariesfollowing the Acquisition becoming effective.
Financial Services Authority or FSA means The Financial Services Authority.
FSMA means the Financial Services and Markets Act 2000(as amended).
GCP means Good Clinical Practice.
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GMP means Good Manufacturing Practice.
HMRC means Her Majesty’s Revenue & Customs.
IFRS means International Financial Reporting Standards.
Implementation Agreement means the implementation agreement between BTG andProtherics dated 18 September 2008.
Independent Protherics Directors means all of the directors of Protherics as at the date of thisdocument except John Brown.
Listing Rules means the listing rules made by the UK Listing Authority for thepurposes of Part VI of FSMA.
London Stock Exchange means London Stock Exchange plc.
Meetings means the Court Meeting, the Protherics EGM and the BTGEGM.
New BTG Shares means the BTG Shares proposed to be issued and credited asfully paid to Scheme Shareholders pursuant to the Acquisition.
Offer means the Acquisition, the Scheme and the Reduction ofCapital.
Offer Period means the period commencing on 13 August 2008 and ending onthe Effective Date.
Official List means the Official List of the UK Listing Authority.
Panel means the Panel on Takeovers and Mergers.
Protherics means Protherics plc, registered in England and Wales(registered number 2459087).
Protherics Board means the board of directors of Protherics.
Protherics Convertible Loan Notes means the six per cent. unsecured convertible loan notes 2010 ofProtherics.
Protherics Directors means the directors of Protherics as at the date of thisdocument.
Protherics EGM means the general meeting of Protherics convened for thepurpose of passing the Protherics Resolutions, including anyadjournment thereof.
Protherics Fully Diluted Share has the meaning set out in paragraph 14(c) of Part 11.Capital
Protherics Group means Protherics and its subsidiaries and, where the contextrequires, each one of them.
Protherics Resolutions means the resolution(s) to be proposed at the Protherics EGMfor the purposes of approving the Reduction of Capital andcertain amendments to the articles of association of Protherics,together with such other matters as may be agreed betweenProtherics and BTG as necessary or desirable for the purposesof implementing the Acquisition.
Protherics Shareholders mean the holders of Protherics Shares.
Protherics Shares means ordinary shares of 2 pence each in the capital ofProtherics.
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Protherics Share Schemes means the Protherics Approved Executive Share OptionScheme, the Protherics Unapproved Share Option Scheme, theProtherics 2005 Executive Share Option Plan, the ProthericsSavings Related Share Option Scheme, the Protherics 2005Long Term Incentive Plan, the Protherics 2005 Deferred BonusPlan and the various individual option arrangements underwhich options have been granted over Protherics Shares toemployees.
pounds or £ means the UK pounds sterling, the lawful currency of theUnited Kingdom.
Proposed Director means Rolf Soderstrom.
Prospectus Rules means the rules of the FSA in relation to offers of securities tothe public and admission of securities to trading on a regulatedmarket.
Reduction Court Hearing the hearing at which the Reduction Court Order will be sought.
Reduction Court Order means the order of the Court confirming the Reduction ofCapital and the associated re-registration of Protherics as aprivate limited company.
Reduction of Capital means the proposed reduction of capital under section 135 ofthe Companies Act associated with the Scheme.
Reduction Record Time means 6.00 p.m. on the last Business Day before the date of thehearing at which the Reduction Court Order will be sought.
Relevant Authorities means any central bank, government or governmental, quasi-governmental, supranational, statutory or regulatory body, orany court, institution, investigative body, association, tradeagency or professional or environmental body or (withoutprejudice to the generality of the foregoing) any other person orbody having statutory or regulatory competence in anyjurisdiction.
Restricted Jurisdiction means Australia, South Africa, Canada and Japan and any otherjurisdiction where the New BTG Shares cannot be madeavailable to Scheme Shareholders without breaching anyapplicable securities laws.
Rothschild means NM Rothschild & Sons Limited.
Scheme means the scheme of arrangement under part 26 of theCompanies Act 2006 to be proposed by Protherics to theProtherics Shareholders with or subject to any modification,addition or condition approved or imposed by the Court andagreed by Protherics and BTG.
Scheme Court Order means the order of the Court, granted at the Court hearing tosanction the Scheme, sanctioning the Scheme under section 899of the Companies Act 2006.
Scheme Document or Scheme means the document to be dispatched by Protherics to, amongstDocumentation others, Protherics Shareholders containing, amongst other
things, the terms and conditions of the Acquisition, the Scheme,the explanatory statement required by section 897 of theCompanies Act 2006, and the notices of the Meetings (otherthan the BTG EGM).
Scheme Record Time means 6.00 p.m. on the Business Day immediately prior to theEffective Date.
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Scheme Shares means the Protherics Shares:
(a) in issue at the date of the Scheme Document;
(b) any issued after the date of the Scheme Document andbefore the Voting Record Time; and
(c) any issued on or after the Voting Record Time but on orbefore the Reduction Record Time either on terms that theoriginal or subsequent holders thereof shall be bound by theScheme or in respect of which the holder thereof shall haveagreed in writing to be bound by the Scheme.
Scheme Shareholders means the holders of Scheme Shares.
SEC means The US Securities and Exchange Commission.
Securities Act means The United States Securities Act of 1933, as amended.
Statutes means the Companies Act, the Companies Act 2006, FSMA andevery other statute, statutory instrument, regulation or order forthe time being in force concerning companies registered underthe Companies Act or Companies Act 2006.
subsidiary or subsidiaries to be construed in accordance with the Companies Act 2006.
Takeover Offer a takeover offer governed by the Code to implement theacquisition of Protherics as BTG may elect to make inaccordance with the terms of the Implementation Agreement.
Uncertificated or in Uncertificated means in relation to a share title to which is recorded in theForm relevant register of the share concerned as being held in
uncertificated form in CREST, and title to which, by virtue ofthe CREST Regulations, may be transferred by means ofCREST.
UK Listing Authority or UKLA means the Financial Services Authority acting in its capacity asthe competent authority for the purposes of Part VI of FSMA.
United Kingdom or UK means the United Kingdom of Great Britain and NorthernIreland.
UK GAAP means generally accepted accounting principles in the UK.
US GAAP means generally accepted accounting principles in the US.
US, USA or United States means the United States of America, its territories andpossessions, any state of the United States of America and theDistrict of Columbia.
Voting Record Time 6.00 p.m. on the day which is two days before the date of theCourt Meeting or, if the Court Meeting is adjourned, 6.00 p.m.on the day which is two days before the date of such adjournedmeeting.
Wider BTG Group means BTG Group and its subsidiary undertakings, associatedundertakings and any other body corporate, partnership, jointventure or person in which the BTG Group and suchundertakings (aggregating their interests) have an interest ofmore than 20 per cent. of the voting or equity capital or theequivalent.
Wider Protherics Group means Protherics Group and its subsidiary undertakings,associated undertakings and any other body corporate,partnership, joint venture or person in which the ProthericsGroup and such undertakings (aggregating their interests) havean interest of more than 20 per cent. of the voting or equitycapital or the equivalent.
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DOCUMENTATION INCORPORATED BY REFERENCE
The following documentation, which was sent to BTG Shareholders or Protherics Shareholders(as applicable) at the relevant time and/or is available for inspection in accordance with paragraph 17 ofPart 11, contains information which is relevant to the Acquisition. Information that is itself incorporated byreference into the documents set out below is not incorporated by reference into this document.
18. BTG’s Annual Report and Accounts for the Three Financial Years Ended 31 March 2008,31 March 2007 and 31 March 2006
These reports and accounts contain the audited consolidated historical financial statements of theCompany for the financial years ended 31 March 2008, 31 March 2007 and 31 March 2006 and theauditors’ reports in respect of each such year.
19. BTG Information Incorporated by Reference
The table below sets out the documents which are incorporated by reference into this document, toensure that Protherics Shareholders and others are aware of all information which, according to theparticular nature of the Company and of the New BTG Shares, is necessary to enable ProthericsShareholders and others to make an informed assessment of the assets and liabilities, financialposition, profit and losses and prospects of the Company and of the rights attaching to theNew BTG Shares.
Pagenumber
Information incorporated by reference into this in thisdocument Location of Incorporation in this document document
BTG’s Annual Report and Accounts 2008 Part 6 (Historical Financial Information relating 63including Consolidated Financial Statements for to BTG)BTG for the year ended 31 March 2008, the notesand the auditors’ report thereon.
BTG’s Annual Report and Accounts 2007 Part 6 (Historical Financial Information relating 63including Consolidated Financial Statements for to BTG)BTG for the year ended 31 March 2007, the notesand the auditors’ report thereon.
BTG’s Annual Report and Accounts 2006 Part 6 (Historical Financial Information relating 63including Consolidated Financial Statements for to BTG)BTG for the year ended 31 March 2006, the notesand the auditors’ report thereon.
BTG’s Memorandum and Articles of Association. Part 11 (Additional Information) 240-248
20. Protherics Information Incorporated by Reference
Protherics’ auditors’ report included in its Annual Part 7 (Historical Financial Information relating 64Report and Accounts 2008. to Protherics)
Protherics’ auditor’s report included in its Annual Part 7 (Historical Financial Information relating 64Report and Accounts 2007. to Protherics)
Protherics’ auditor’s report included in its Annual Part 7 (Historical Financial Information relating 64Report and Accounts 2006. to Protherics)
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Merrill Corporation Ltd, London08ZDC42901
