TIDMBTG
RNS Number : 9705H
BTG PLC
13 June 2017
BTG plc
13 June 2017
ANNUAL REPORT AND ACCOUNTS 2017
In accordance with the Listing Rule 9.6.1, copies of the
following documents have been submitted to the UK Listing Authority
and will shortly be available for inspection via the National
Storage Mechanism at http://www.morningstar.co.uk/uk/NSM
-- A copy of the Company's Annual Report and Accounts for 2017
-- A Circular to shareholders incorporating the Notice of the 2017 Annual General Meeting
-- Form of proxy for the 2017 Annual General Meeting
These documents have also been posted or otherwise made
available to shareholders. The 2016/17 Annual Report and the Notice
of Annual General Meeting 2017 have also been published on the
Company's website at www.btgplc.com.
The Annual General Meeting will be held at 10.30 am on Thursday,
13 July 2017 at the offices of Stephenson Harwood LLP, 1 Finsbury
Circus, London EC2M 7SH
In accordance with DTR 6.3.5, extracted below from the Annual
Report and Accounts is a management report in full unedited text
which contains a responsibility statement, a statement in the
directors' report in respect of the strategic report and details of
related party transactions. References to page numbers and notes in
the extract refer to those in the Annual Report and Accounts 2017.
A condensed set of financial statements were appended to BTG plc's
preliminary results announcement issued on 16 May 2017.
Name of contact and telephone number for queries:
Andy Burrows 020 7575 1741
Vice President, Corporate and Investor Relations
BTG plc
Stuart Hunt 020 7575 1582
Investor Relations Manager
BTG plc
UNEDITED EXTRACT FROM ANNUAL REPORT AND ACCOUNTS 2017
The directors include the following statements:
1. Statement of directors' responsibilities in respect of the
annual report 2017 and the financial statements
The directors are responsible for preparing the Annual Report
2017 and the Group and parent company financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare Group and parent
company financial statements for each financial year. Under that
law they are required to prepare the Group financial statements in
accordance with IFRSs as adopted by the EU and applicable law and
have elected to prepare the parent company financial statements on
the same basis.
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and parent company and of
their profit or loss for that period. In preparing each of the
Group and parent company financial statements, the directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with IFRSs as adopted by the EU; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the parent
company will continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
company's transactions and disclose with reasonable accuracy at any
time the financial position of the parent company and enable them
to ensure that its financial statements comply with the Companies
Act 2006. They have general responsibility for taking such steps as
are reasonably open to them to safeguard the assets of the Group
and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement
that complies with that law and those regulations.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the Group's
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Responsibility statement of the directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Group and the undertakings included in the consolidation
taken as a whole; and
-- the strategic report includes a fair review of the
development and performance of the business and the position of the
issuer and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
2. STATEMENT IN THE DIRECTORS' REPORT IN RESPECT OF THE
STRATEGIC REPORT
The Group is required by the Companies Act 2006 to set out a
fair and balanced review of the business, including the performance
and development of the Group during the year and at the year end
and a description of the principal risks it faces. This information
is contained within the Strategic Report which can be found on
pages 6 to 37 and incorporated into this report by reference:
-- The Chairman's Statement on page 6, the Chief Executive's
review on pages 8 and 9 and the Industry Overview on page 10
provide details of the Group's principal activities and strategy,
its performance during the year and its prospects for future
development opportunities.
-- Details of the principal risks facing the Group are set out on pages 68 to 70.
-- Information relating to the environment, employees and
stakeholders, health and safety, ethical considerations, charitable
donations and policies regarding its employees is set out on pages
26 to 29.
This information is prepared solely to assist shareholders to
assess the Group's overall strategy, the risks inherent in it and
the potential for the strategy to succeed. The directors' report
should not be relied on by any other person or for any other
purpose.
Forward-looking statements contained in this report have been
made by the directors in good faith based on the information
available to them up to the time of their approval of this report
and such statements should be treated with caution due to the
uncertainties, including economic and business risk factors,
inherent in them.
3. PRINCIPAL RISKS
i. Market Access: Securing adequate reimbursement for BTG's
products
BTG may not be able to sell its products profitably if
reimbursement by third-party payers, including government and
private health insurers, is limited or unavailable. The Group may
be subject to price limits on reimbursement of products that are
outside of its control, reducing sales volume or prices, negatively
impacting Group revenues. This is particularly the case in the US
where a significant proportion of the Group's revenues are derived,
and in light of the potential US healthcare reforms, which may
reduce the number of insured patients and require increased rebates
or discounts to be provided. Third-party payers are increasingly
attempting to contain healthcare costs through measures that are
likely to impact the products that BTG is developing.
General mitigation strategy: Ensuring effective advocacy with
payers based on accurate data and analysis to inform reimbursement
decisions. Ensuring accurate and complete submissions. BTG is
seeking to utilise its expanding expertise across the portfolio,
both within and outside the US. R&D plans increasingly seek to
create the data likely to be required to secure the desired level
of reimbursement for the applicable products after commercial
launch.
Change in 2016/17: The Company continues to strengthen its
global market access (reimbursement) capabilities. While adequate
levels of reimbursement for Varithena(R) can be secured, inadequate
coverage and/or slow payment has slowed adoption and adversely
impacted revenue growth.
Progress continues with the expectation CPT Codes for
Varithena(R) will be secured from January 2018. A residual risk is
the uncertainty regarding the value that will be set for these
codes which will be determined during 2017/18 financial year.
Acceptable progress continues to secure appropriate
reimbursement for other products across the portfolio.
A future focus will be on supporting appropriate reimbursement
levels for the PneumRx(R) Coil both in EU and in US following
approval.
Notwithstanding progress to date, in light of the ongoing
specific challenges relating to Varithena(R) and the generally
challenging external environment in the industry, the overall risk
is assessed to have remained the same as last year.
ii. Obtaining/Maintaining product regulatory approvals
The pharmaceutical and device industries are highly regulated in
relation to the development, approval, manufacturing and sale of
products. The development of healthcare products has a high level
of inherent risk and a high failure rate. An inability to meet
existing or new regulations or regulatory guidance may result in
delays or failures in bringing products to market, additional
material costs of development or the imposition of restrictions on
approval or the sale of a product or its manufacture or
distribution, including the possible withdrawal of a product from
the market.
Such events may adversely impact the Group's revenues and
prospects.
General mitigation strategy: The Company has expert internal
teams dedicated to ensuring compliance in each of these areas,
defining regulatory strategies and supporting product approvals and
maintenance of existing product licences.
The process is supported by the governance systems defined above
and monthly monitoring of performance against goals and of changes
in the regulatory landscape.
Change in 2016/17: In 2016 DC Bead(R) was successfully
reclassified in the EU. A similar application has been made for DC
Bead LUMI(TM), the outcome of which is awaited. This follows the
successful launch of the sister product LC Bead LUMI(TM) in the US
last year.
The PMA submission to seek US approval of the PneumRx(R) Coil,
was made in February 2017.
The overall level of risk is deemed to have modestly reduced
during the year. The regulatory affairs and clinical development
teams were reorganised and strengthened during the year. The
R&D team continues to be developed. The use of external
resources such as contract clinical research organisations (CROs)
are now also being more effectively leveraged.
iii. IP/Legal challenges
BTG may be subject to challenges relating to the validity of
contracts or its patents or alleging infringement by BTG of
intellectual property (IP) rights of others, which might result in
cessation of BTG product sales, litigation and/or settlement costs
and/or loss of earnings. BTG might elect to sue third parties for
their infringement of BTG's IP in order to protect current or
future product revenue streams. Litigation involves significant
costs and uncertainties.
BTG may not be able to secure or maintain the necessary IP in
relation to products sold, acquired or in development, limiting the
potential to generate value from these products and investments.
Patent expiries can adversely impact the Group's revenues due to a
resultant increase in competition and price erosion.
General mitigation strategy: Maintenance of the IP and legal
functions as core capabilities of the Group, supplemented by
external expertise, which monitors third-party patent portfolios
and patent applications and IP rights. Monitoring of BTG's
satisfaction of its obligations under key contracts. Development
and implementation of BTG patent filing, defence and enforcement
strategies, pursuing litigation or settlement strategies where
appropriate. Robust processes are in place to automate patent
renewals; internal controls established to avoid disclosure of
patentable material prior to filing patent applications and to
protect valuable know-how.
Change in 2016/17: Zytiga(R) produces significant licensed
revenues for BTG, and is subject to multiple challenges by
manufacturers of generic versions in the US. The position has not
changed since last year's Annual Report. Generic competition may
enter the market as early as the 2018/19 financial year in the US
and 2020/21 financial year in the EU when the ten-year
post-approval data exclusivity period ends. In each case generic
competition would substantially reduce the value of Zytiga(R) and
the level of royalties received by BTG.
BTG is in a current dispute with Wellstat over the
commercialisation of Vistogard(R). Wellstat are seeking damages and
to terminate the commercialisation agreement under which BTG
obtained rights to sell Vistogard in the US. A trial has been heard
in the Court of Chancery of the State of Delaware but no judgement
has yet been issued. The
Group estimate the likelihood of material outflow of funds or
loss of rights to the asset to be possible, not probable, and
therefore no liability has been recognised. It is currently not
possible to make a reliable estimate of any amount that may be
required to be paid in respect of the dispute.
The overall risk is assessed as unchanged compared with last
year.
iv. Competition
BTG's products may face competition from products that have
superior attributes, including better efficacy or side effect
profiles, cost less to produce or be offered at a lower price than
BTG's products.
There are currently no competitive products to CroFab(R),
DigiFab(R), Voraxaze(R) or Vistogard(R) but Instituto Bioclon may
launch a competitor product to CroFab(R) around
October 2018.
TheraSphere(R) competes with a product from Sirtex Medical
Limited and LC Bead(c) and DC Bead(R) compete with products from
Boston Scientific Corporation, Terumo and Merit Medical.
Varithena(R) competes with other treatment modalities including
heat ablation, vein stripping and physician-compounded sclerosing
foam.
EKOS competes with other interventional clot treatment products
from US companies like Boston Scientific.
There is a competitor to PneumRx in the form of the Pulmonx,
Inc. valve. In Licensing, Zytiga(R) competes with a number of other
treatments for prostate cancer including Xtandi(R) (enzalutamide)
and is at risk of generic competition.
General mitigation strategy: BTG focuses on select opportunities
addressing specialist segments where there are relatively high
barriers to entry, for example, relating to the development and
manufacturing processes, or the need to generate significant
supportive clinical data to gain approval and commercial
acceptance. We seek adequate reimbursement to differentiate our
products by demonstrating, in clinical trials, safety and efficacy
benefits, cost effectiveness or greater patient acceptance.
Change in 2016/17: The competitive environment remains a
challenge particularly within the Interventional Oncology business
but overall the level of risk is unchanged from last year. A key
strategic goal for Interventional Oncology is to offer a wider
range of products within the portfolio. The Galil Medical
acquisition and launch of LUMI(TM) beads are key pillars of this
strategy, which it is hoped will maintain BTG's lead position in
the Interventional Oncology space. Zytiga(R) is at risk of further
competition as noted.
It should be noted that Brexit and evolving healthcare policies
in the US may have an effect on competition in the future, however,
at this stage it is too early to predict any effects with any
meaningful accuracy.
Overall, the risk is assessed as unchanged compared with last
year.
v. Healthcare law compliance
Extensive laws and regulations relate to how BTG markets its
products and interacts with its customers and payers. Failure to
meet applicable requirements may result in criminal or civil
proceedings against the Group, exclusion of sale of products in
certain territories and material financial penalties or other
sanctions against the Group (or their commercial partners, or their
respective employees or directors).
Defending actual or alleged violations may require significant
management time and financial commitment, even if not proven.
General mitigation strategy: A comprehensive compliance
programme is in place as referred to above. Ongoing monitoring and
auditing is undertaken to seek to ensure any material failures are
identified where possible and remediated. The programme is
continually reviewed and improved to reflect ongoing learnings and
changes to the external environment.
The BTG compliance programme is a Company standard which is
introduced to all acquisitions. The programme has been fully
implemented by the latest additions to the BTG Group, PneumRx and
Galil Medical.
Change in 2016/17: During 2016 BTG reached agreement with the US
Department of Justice (DOJ) regarding actions by Biocompatibles and
their associated distributors prior to acquisition dating back to
2003. The successful resolution of this action without the
imposition by the DOJ of additional compliance controls is seen as
evidence of the appropriateness of the BTG compliance programme. As
a result the risk in this area has decreased somewhat.
Compliance however remains a key area of vigilance for BTG and
complacency is not tolerated. Monitoring continues and all issues
are thoroughly investigated and corrective actions tracked through
to completion.
There can be no guarantee however that other investigations will
not be instigated by the DOJ or other agencies in future. It is
expected that legislative burdens in this area will increase in
most jurisdictions and therefore programmes will need to be
continually improved.
vi. Supply chain/continuity of supply
There are inherent risks to the BTG supply chain as the
Company's products are typically high value, low volume
manufacture. Diversifying the supply chain of such products (for
example by establishing dual sources of supply) is not cost
effective. BTG therefore relies on the following single sources of
supply.
Wales for supply of manufactured antibodies and a single site in
Farnham, UK, for the manufacture of the Beads and Varithena(R).
Consequently there is the possibility of disruption to, or loss of
supplies resulting from, technical issues, contamination or
regulatory actions. BTG polyclonal antibody products rely on serum
produced from our sheep flocks in Australia, which could be subject
to disease outbreaks or fire.
BTG manufactures its EKOS products at a single site in Seattle,
Washington, USA and the PneumRx(R) Coil at a single site in Santa
Clara, California, USA, with the consequent possibilities from
disruption to or loss of supply.
Galil Medical consumable items are manufactured at a site in
Israel, with the control units manufactured at a site located in
Arden Hills, Minnesota, USA.
For other products, namely Voraxaze(R) and TheraSphere(R), we
continue to rely on third-party contractors for the supply of many
key materials and services. These processes inherently carry risks
of failure and loss of product are risks over which the Company has
a lower degree of control.
General mitigation strategy: BTG has extensive quality, risk and
business continuity management systems to ensure resilience of the
supply chain. These management systems are applied equally to both
the internal and external elements of supply chain.
Each supply chain is thoroughly assessed and stocks of raw
materials, in process materials and finished products are
maintained as a result of that risk assessment. Risk assessments
are reviewed annually or when business predictions change.
Adherence to the agreed stock levels are reviewed monthly through
regular business review meetings.
The final mitigation is business interruption insurance, which
is maintained at a level for each business to cover at least two
years loss of business as result of catastrophic loss of
supply.
Change in 2016/17: BTG sites and supply chain partners underwent
seventeen inspections by external bodies such as FDA, MHRA and BSI
within the 2017 financial year. No major or critical findings were
received and corrective actions for all observations were completed
or are on track to the timetables agreed with the authorities.
BTG changed its business interruption insurance provider in
October 2016, as a result all key sites received an audit from the
new provider. All corrective actions have been mutually agreed with
the insurance provider, and are being implemented.
As a result of the acquisition of the Galil Medical business in
June 2016, BTG purchased additional war and terrorism business
interruption insurance specifically for the Israel site.
Standard business interruption insurance remains at two years
for most key sites and business but has been maintained at three
years for the Wales and Farnham sites.
Overall, the supply chain risk is considered to remain unchanged
in comparison with last year.
4. RELATED PARTY TRANSACTIONS
The Company has a related-party relationship with its subsidiary
undertakings and its directors.
In relation to the related party relationship identified on page
56 concerning Giles Kerr, payments made by BTG to Oxford University
and Isis Innovations Ltd under the relevant licence agreements were
GBP19,000 for the year ended 31 March 2017 (GBP24,000 during the
year ended 31 March 2016). There are no amounts still outstanding
and payable by BTG under these agreements as at 31 March 2017
(2017: nil).
Key management personnel are considered to be the directors and
their remuneration is disclosed within the Remuneration Report on
pages 72 to 97.
-ends-
This information is provided by RNS
The company news service from the London Stock Exchange
END
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