TIDMBTG
RNS Number : 0424O
BTG PLC
15 May 2018
BTG plc: Final Results
Good underlying financial performance with double-digit growth
in product sales and adjusted operating profit
London, UK, 15 May 2018: BTG plc (LSE: BTG), the global
specialist healthcare company, today announces its final results
for the year ended 31 March 2018.
Louise Makin, BTG's CEO, commented:
"Over the past decade we have been transforming BTG from a
royalties business into a product sales business with diverse,
sustainable revenue streams. We have built the capabilities and
infrastructure that support ongoing growth, by investing our strong
cash flows to develop leading positions in selected Interventional
Medicine markets and to maintain a strong Pharmaceuticals business.
We are well positioned to continue generating around double-digit
product sales growth through the anticipated royalty declines, and
to deliver operating leverage over the medium term. By continuing
to invest in product innovation, clinical data, geographic
expansion and acquisitions, we are developing leading positions in
attractive growth markets and creating significant long-term value
for shareholders."
Financial summary
2017/18 2016/17 Growth Growth at CER(2) (%)
(GBPm) (GBPm) (%)
====================================== ==== ========= ========= ======= =====================
Revenue 620.5 570.5 9 10
Product sales 423.8 387.3 9 10
Licensing revenues 196.7 183.2 7 9
Adjusted operating profit(1) 152.7 129.6 18 20
IFRS operating (loss)/profit (102.8) 57.5 (n/m)
Adjusted basic EPS(1) 32.9p 23.1p 42
IFRS basic EPS 3.9p 8.7p (55)
Free cash flow(1) 109.3 64.7 69
Net cash flow from operating activities 120.7 74.2 63
Cash and cash equivalents at year end 210.0 155.5
============================================ ========= ========= ======= =====================
1. Certain financial measures in this press release, including
adjusted operating profit, adjusted basic EPS and free cash flow,
are not prepared in accordance with IFRS. All adjusted financial
measures are explained on page 19, and are reconciled to the most
directly comparable measure prepared in accordance with IFRS on
pages 20 to 22.
2. Constant Exchange Rate (CER) growth is computed by restating
2017/18 results using 2016/17 foreign exchange rates for the
relevant period.
-- Product sales grew 10% at CER, with Interventional Medicine
sales 14% higher at CER and Pharmaceuticals sales 5% higher at
CER
-- Adjusted operating profit grew 20% at CER. Adjusted basic EPS
was up 42% at actual rates, as growth benefited by comparison to
EPS in 2016/17 which was held back by hedging losses on forward
contracts
-- Free cash flow increased to GBP109.3m; cash and cash
equivalents increased to GBP210.0m at 31 March 2018
-- IFRS operating profit and IFRS EPS were adversely affected by
the previously announced PneumRx impairment charge of GBP144.7m and
the Wellstat litigation provision of GBP57.7m
Operating highlights
Interventional Medicine (2017/18 product sales: GBP242.9m, up
14% at CER)
Oncology (2017/18: GBP156.2m, up 14% at CER)
-- TheraSphere(R) , the radiation treatment for liver cancer,
launched in Taiwan and Israel, and availability expanded in Latin
America; DC Bead LUMI(TM) , the radiopaque bead for treating liver
cancer, launched in the EU
-- Enrolment completed into TheraSphere(R) STOP-HCC trial and
good progress in enrolment into EPOCH trial
-- MRI-compatible cryoablation system launched and first system installed
Vascular (2017/18: GBP73.7m, up 18% at CER)
-- One-year OPTALYSE PE data demonstrated the continued benefit
of EKOS(R) therapy in patients with bilateral pulmonary
embolism
-- KNOCOUT registry study initiated to measure how hospitals are
adopting and benefiting from the new OPTALYSE PE-based treatment
regimen
Early-stage products (2017/18: GBP13.0m, down 2% at CER)
-- Category I CPT reimbursement codes implemented for the
varicose veins treatment Varithena(R) in the US in January 2018,
leading to renewed physician interest
-- Activities to support long-term growth of the PneumRx(R)
Coils as a treatment for severe emphysema focused on the ELEVATE
clinical study and progressing the US Premarket Approval (PMA)
application, reflecting lower sales and slower than expected market
development
Pharmaceuticals (2017/18: GBP180.9m, up 5% at CER)
-- CroFab(R) copperhead snakebite study published in the Annals of Emergency Medicine
-- New consensus guideline published for use of Voraxaze(R) in
treating patients with high-dose methotrexate toxicity
Licensing
-- Continued strong contribution from Zytiga(R) and final
Lemtrada(TM) royalties received including back-royalties
-- As previously outlined, no generic entrant to Zytiga(R) is
expected in the US before October 2018, and no generic entrant to
Zytiga(R) is expected in the EU before September 2021.
For further information contact:
BTG
Andy Burrows, VP Corporate & Investor Relations
+44 (0)20 7575 1741; Mobile: +44 (0)7990 530 605
Stuart Hunt, Investor Relations Manager
+44 (0)20 7575 1582; Mobile: +44 (0)7815 778 536
Chris Sampson, Corporate Communications Director
+44 (0)20 7575 1595; Mobile: +44 (0)7773 251 178
FTI Consulting
Ben Atwell / Simon Conway
+44 (0)20 3727 1000
About BTG
BTG is a global healthcare company focused on Interventional
Medicine. Our innovative medical technology helps physicians treat
their patients through minimally invasive procedures. We have a
growing portfolio of products that advance the treatment of cancer,
vascular conditions and severe emphysema. BTG's Pharmaceuticals
business provides products that help patients overexposed to
certain medications or toxins. To learn more about BTG, please
visit: btgplc.com.
OPERATING REVIEW
BTG has made good progress over the past year, progressing
multiple activities to support sustained growth in our
Interventional Medicine business and to maintain a resilient
Pharmaceuticals business.
Interventional Medicine
Oncology
BTG's Interventional Oncology portfolio comprises differentiated
products across multiple treatment modalities. Sustained growth is
supported by investments in product innovation and in commercial,
geographic and indication expansion. There was good progress in
each of these during 2017/18.
Enrolment was completed into the STOP-HCC Phase III trial of
TheraSphere(R) , the internal radiation treatment, in people with
primary liver cancer. The EPOCH Phase III trial in people with
metastatic colorectal cancer of the liver is now more than
two-thirds enrolled. Both will deliver top-line data in the 2019
calendar year, and both are expected to support subsequent PMA
applications in the US. Geographic expansion of TheraSphere(R)
continued, with launches in Taiwan, Israel and Latin America. DC
Bead LUMI(TM) , the radiopaque chemoembolising bead for treating
liver cancer, was launched in the EU.
Since acquiring the cryoablation company Galil Medical in June
2016, BTG has invested in expanding its capabilities, footprint and
capacity. Galil is now a centre of excellence in ablation and
device engineering for BTG, with a pipeline of new products
expected over the next two years. One is an MRI-compatible
cryoablation system, which is the only system with this capability.
It was launched and delivered to the first customer in early 2018.
There is increasing interest in MRI-guided procedures, which
provide better visualisation of the tumour and ablation zone,
thereby allowing for more precise treatment. Other products under
development include longer needles for patients with deep-seated
tumours and a complementary system for tumour ablation comprising a
new ablation modality.
Enrolment was completed in the MOTION and SOLSTICE studies using
cryoablation for the treatment on bone and lung metastases
respectively. Both are on track to report data in 2018.
BTG continued its collaboration with the Society of
Interventional Oncology, providing funding for five additional
studies exploring the role of interventional oncology alongside
immuno-oncology.
Vascular
One-year follow-up data from the OPTALYSE PE study confirmed the
benefits of EKOS(R) therapy for treating bilateral pulmonary
embolism (PE). Patients experienced a sustained significant
reduction in right-heart strain and improved quality of life, using
shorter treatment durations and lower doses of thrombolytic than in
standard treatment protocols. These data have supported the
continued expansion of EKOS(R) in the US as a treatment for PE. BTG
has initiated a separate registry study, KNOCOUT PE, to measure how
hospitals are adopting and benefiting from this new standard of
care. KNOCOUT PE is expected to include up to 100 centres
internationally and will include cases from before and after the
release of the original OPTALYSE PE study data.
EKOS(R) has continued to strengthen its ex-US business, with
additional sales presence in Europe and an extended distribution
network into other territories.
Following the acquisition of Roxwood Medical in October 2017 and
its specialist crossing devices, BTG is now selling these products
directly in the US.
Early-stage products
New category I CPT reimbursement codes were introduced for
Varithena(R) in the US in January 2018. The switch from interim to
dedicated codes has simplified the claims process and enabled BTG
to scale back market access support, reducing the cost base of
Varithena(R) . The new codes have stimulated renewed interest by
physicians, including those in high-volume vein clinics. BTG is
monitoring the impact of the new codes on physician ordering and
reordering patterns and on insurer coverage and payment practice
across the US, with a better understanding expected by the end of
2018.
Sales of the PneumRx(R) Coils have fallen, reflecting that
market development including securing appropriate levels of
reimbursement is taking longer than expected. BTG believes there is
a potentially significant long-term opportunity for the coils in
treating severe emphysema and is focusing resources on key
activities to build long-term value. These include conducting the
ELEVATE clinical study to support market development in the EU and
progressing the Premarket Approval (PMA) application in the US. An
Advisory Committee Panel meeting is expected during the summer with
a decision expected by the end of 2018 from the US Food and Drug
Administration (FDA) on the PMA application. Should the PMA be
approved, market development and accessing reimbursement will also
take time in the US. As a consequence of this and of prioritising
European patients into the ELEVATE study, BTG does not expect
material revenues from this product over the next two years.
Pharmaceuticals
BTG continues to build value in its antidote portfolio. During
the year a study was published in the Annals of Emergency Medicine
showing that treating people who have been bitten by copperhead
snakes with CroFab(R) can aid the recovery of function in their
affected limbs. Treatment with CroFab(R) was also associated with
less opioid use throughout the patient's recovery.
Differentiating CroFab(R) is part of BTG's strategy to maintain
market leadership. A different antivenin could enter the US market
from October 2018. While there is likely to be some impact on
CroFab(R) sales over time, BTG expects this product and the
Pharmaceuticals business overall to continue to provide a strong
financial underpin.
The Oncologist journal published new consensus guidelines for
using Voraxaze(R) to treat patients with high-dose
methotrexate-induced acute kidney injury and delayed methotrexate
clearance. These provide clinicians with practical and specific
guidance on when and how to treat patients with Voraxaze(R) to
optimise the potential benefit.
BTG relinquished all distribution rights to Vistogard(R)
following a court judgement against BTG in its commercial dispute
with the product owner.
Licensing
Although Licensing is no longer a strategic priority, BTG
expects to earn royalties for some years to come. Most relate to
Johnson & Johnson's Zytiga(R) , for which generic competition
is not expected in the US before October 2018 and in the EU before
September 2021.
GROUP FINANCIAL REVIEW
BTG delivered a good underlying financial performance in
2017/18, and the Group has built a product sales business that is
well positioned to deliver sustained profitable growth.
This review includes financial metrics on both an IFRS and
adjusted basis. Information on the Group's adjusted financial
information is set out on pages 20 to 22.
Revenue
2017/18 2016/17 Growth Growth at CER(1) (%)
(GBPm) (GBPm) (%)
Interventional Oncology 156.2 139.0 12 14
Interventional Vascular 73.7 64.0 15 18
Early-stage Interventional Medicine
PneumRx(R) 6.8 9.1 (25) (29)
Varithena(R) 6.2 4.1 51 55
Interventional Medicine 242.9 216.2 12 14
CroFab(R) 100.4 82.4 22 19
DigiFab(R) 51.8 64.1 (19) (18)
Voraxaze(R) 25.5 21.1 21 22
Other 3.2 3.5 (9) (3)
Pharmaceuticals 180.9 171.1 6 5
Product Sales 423.8 387.3 9 10
Zytiga(R) 155.4 123.2 26 30
Lemtrada(TM) 21.8 39.0 (44) (49)
Other 19.5 21.0 (7) (5)
Licensing 196.7 183.2 7 9
Revenues 620.5 570.5 9 10
(1) For the methodology applied to calculate CER growth, refer
to page 19.
Interventional Medicine
Interventional Medicine revenues increased to GBP242.9m
(2016/17: GBP216.2m), up 14% at CER. Interventional Medicine is the
Group's largest and fastest growing business unit.
Interventional Oncology revenues grew 14% at CER to GBP156.2m
(2016/17: GBP139.0m). This primarily reflects increased demand for
TheraSphere(R) from existing and new customers in the US and EU,
and continued growth in the number of cryoablation procedures.
Interventional Vascular revenues were GBP73.7m (2016/17:
GBP64.0m), 18% higher at CER. Positive data from the OPTALYSE PE
study supported continued growth in the use of the EKOS(R) device
to treat pulmonary embolism, and the total number of US hospitals
using EKOS(R) grew. Revenues included the first sales of the
specialty catheters and crossing devices from Roxwood Medical,
which was acquired in October 2017.
Among the earlier-stage products, sales of the PneumRx(R) Coil
treatment for severe emphysema were GBP6.8m (2016/17: GBP9.1m),
down 29% at CER due to a lower number of procedures in Germany, the
largest market. Sales of the varicose veins treatment Varithena(R)
increased to GBP6.2m (2016/17: GBP4.1m), reflecting steady progress
and customers transitioning from interim reimbursement codes in the
US to new category I CPT reimbursement codes in January 2018.
Pharmaceuticals
Pharmaceuticals revenues were GBP180.9m (2016/17: GBP171.1m), up
5% at CER.
Sales of CroFab(R) , the snakebite antivenin, were up 19% at
CER, driven by volume growth and the benefit of single digit price
increases. A different antivenin could enter the US market from
October 2018. While this competition would likely result in some
impact on CroFab(R) sales over time, BTG expects CroFab(R) and the
Pharmaceuticals business overall to continue to provide a strong
financial underpin.
Sales of the digoxin toxicity treatment DigiFab(R) were lower as
expected, down 18% at CER, primarily reflecting the timing of
hospital reorders relating to expired product batches.
Sales of Voraxaze(R) , used for treating high-dose methotrexate
toxicity, were 22% higher at CER. Final sales from Vistogard(R)
were GBP3.2m (2016/17: GBP3.2m) as BTG has relinquished all its
former rights to this product.
Licensing
Licensing revenues increased by 9% at CER to GBP196.7m (2016/17:
GBP183.2m).
Royalties from Zytiga(R) were GBP155.4m (2016/17: GBP123.2m), up
30% at CER, delivering very strong growth following the publication
of new data that supported earlier use in patients with advanced
prostate cancer. As previously outlined, no generic entrant to
Zytiga(R) is expected in the US before October 2018, and no generic
entrant to Zytiga(R) is expected in the EU before September
2021.
Royalties from Lemtrada(TM) declined to GBP21.8m (2016/17:
GBP39.0m) due to the expiration of the US and EU patents in March
and September 2017, respectively. These final royalties included
GBP11.0m of back-royalties.
Gross profit
Adjusted gross profit was GBP435.0m (2016/17: GBP391.6m), at an
adjusted gross margin of 70% (2016/17: 69%). IFRS gross profit was
GBP434.6m (2016/17: GBP390.6m), at a gross margin of 70% (2016/17:
68%).
The Interventional Medicine gross margin of 71% (2016/17: 71%)
continues to be supressed by the fixed manufacturing cost base for
the early-stage products, Varithena(R) and PneumRx(R) . The
Pharmaceuticals gross margin of 90% (2016/17: 90%) reflects the
high efficiency of this business.
The Licensing gross margin improved to 51% (2016/17: 45%) as a
result of increased revenues from higher-margin royalty streams in
2017/18 and the ongoing benefit of being able to offset expenses
incurred by BTG against amounts owed to licensors.
SG&A
Adjusted SG&A grew 4% at CER to GBP185.7m (2016/17:
GBP178.6m), reflecting increased commercial investments in
Interventional Medicine that were partly offset by continued
effective cost management across the Group. Adjusted SG&A was
up 4% at actual exchange rates.
IFRS SG&A of GBP325.5m (2016/17: GBP206.6m) includes a
provision of GBP57.7m in relation to the previously disclosed
Vistogard(R) commercial dispute, and impairment charges relating to
the ex-US intangible assets of PneumRx(R) and Vistogard(R) of
GBP76.6m and GBP5.5m respectively. IFRS SG&A in 2016/17
included a charge of GBP28.0m in relation to the settlement of the
investigation into the historical marketing of LC Bead(R) .
Research and development
Adjusted R&D expenditure was GBP95.3m (2016/17: GBP87.8m),
up 10% at CER, reflecting increased investment primarily in
Interventional Oncology programmes, including the STOP-HCC and
EPOCH TheraSphere(R) trials, as well as support for a number of
ablation development projects. At actual exchange rates, adjusted
R&D was up 9%.
IFRS R&D expenditure was GBP165.5m (2016/17: GBP87.8m) and
includes intangible asset impairment charges of GBP68.7m,
principally in relation to the PneumRx(R) in-process research and
development intangible asset.
Operating profit
Adjusted operating profit was GBP152.7m (2016/17: GBP129.6m), up
20% at CER, reflecting higher revenues offset by targeted
commercial and R&D investments. Adjusted operating margin
improved to 25% (2016/17: 23%).
On an IFRS basis, the Group reported an operating loss of
GBP102.8m (2016/17: profit of GBP57.5m). The loss includes
intangible asset impairment charges of GBP151.1m (principally
charges of GBP143.2m relating to the impairment of PneumRx(R)
intangible assets) and a charge of GBP57.7m in respect of the
Vistogard(R) commercial dispute.
Financial income/expense
Adjusted net financial income was GBP7.3m (2016/17: net
financial expense of GBP26.6m), principally reflecting gains of
GBP8.8m on foreign exchange forward contracts in 2017/18 compared
to losses of GBP25.2m in 2016/17.
IFRS net financial income was GBP32.2m (2016/17: net financial
expense of GBP25.9m). In addition to foreign exchange forward
contract gains, IFRS net financial income includes a net credit of
GBP24.9m relating to the change in fair value of contingent
consideration liabilities (2016/17: net credit of GBP0.7m),
principally a credit of GBP26.5m relating to the release of the
PneumRx(R) Coil US regulatory approval milestone.
Taxation
The adjusted effective tax rate of 21% (2016/17: 14%) is higher
than the standard rate of UK corporation tax as a significant
portion of the Group's profit arises in the US where there is a
higher US corporate tax rate. This is in part offset by the UK's
patent box deduction on royalty income and the recognition of
deferred tax assets for historical losses and timing
differences.
On an IFRS basis there was a tax credit of GBP83.3m (2016/17:
credit of GBP2.0m). The tax credit in part arises from the one-time
impact of US tax reform, which resulted in a net credit of GBP36.2m
being recorded in 2017/18, principally relating to the revaluation
of net deferred tax liabilities to the lower US federal tax rate.
The overall tax credit also includes the benefit of expected future
tax relief for litigation provisions and deferred tax credits
relating to the amortisation and impairment of acquired intangible
assets.
Earnings per share
Adjusted basic EPS was 32.9p (2016/17: 23.1p), up 42% due to
higher adjusted profit after tax, before non-controlling interests,
of GBP125.7m (2016/17: GBP88.7m). Adjusted profit after tax was
higher in 2017/18 due to growth in adjusted operating profit and
foreign exchange forward contract gains in 2017/18 compared to
losses in 2016/17, partly offset by a higher adjusted effective tax
rate.
IFRS basic EPS was 3.9p (2016/17: 8.7p), down 55% due to lower
profit after tax.
Balance sheet
31 March 31 March
2018 2017
GBPm GBPm
Non-current Assets 754.7 968.8
Current Assets 408.0 342.3
Non-current Liabilities (59.8) (165.7)
Current Liabilities (190.1) (165.5)
Net Assets 912.8 979.9
Non-current assets
Non-current assets decreased by GBP214.1m to GBP754.7m (31 March
2017: GBP968.8m), principally due to lower intangible assets. The
carrying value of intangible assets decreased by GBP215.2m
following the impairments of the PneumRx(R) , Vistogard(R) and
Oncoverse intangible assets, together with the effect of
amortisation and foreign exchange translation. These decreases were
partially offset by intangible assets acquired with Roxwood
Medical.
Current assets
Current assets increased to GBP408.0m (31 March 2017:
GBP342.3m). Cash and cash equivalents were GBP54.5m higher at
GBP210.0m (31 March 2017: GBP155.5m), reflecting continued strong
cash generation.
Inventories increased to GBP61.0m (31 March 2017: GBP58.4m) and
receivables increased to GBP134.0m (31 March 2017: GBP125.7m) as a
result of underlying business growth, partially offset by foreign
exchange retranslation.
Non-current liabilities
Non-current liabilities decreased to GBP59.8m (31 March 2017:
GBP165.7m) principally due to a reduction in deferred tax
liabilities as a result of the effects of US tax reform, foreign
exchange retranslation, and impairments and amortisation of
associated intangible assets.
Current liabilities
Current liabilities increased to GBP190.1m (31 March 2017:
GBP165.5m). Trade and other payables decreased to GBP127.9m (31
March 2017: GBP152.0m) principally due to a reduction in the fair
values of contingent consideration liabilities in relation to the
PneumRx(R) acquisition. Derivative financial instrument liabilities
decreased to GBP0.6m (31 March 2017: GBP7.9m) due to changes in the
fair values of foreign exchange forward contracts in the
period.
These decreases were more than offset by an increase in
provisions, principally due to the recognition of a provision of
GBP53.9m in respect of the Vistogard(R) commercial dispute,
reflecting damages awarded and estimated pre-and post- judgement
interest consistent with the Final Order and Judgement issued in
November 2017. BTG has appealed the quantum of damages and the
appeal is ongoing.
Summary cash flow
2017/18 2016/17
GBPm GBPm
Free Cash Flow 109.3 64.7
Cash paid for Galil Medical,
net of cash acquired - (55.1)
Cash paid for Roxwood Medical, (43.6) -
net of cash acquired
Other investing and financing
activities (2.4) (0.4)
Net Change in Cash 63.3 9.2
Opening Cash and Cash Equivalents 155.5
Effect of foreign exchange
on cash (8.8)
Closing Cash and Cash Equivalents 210.0
The business continues to be highly cash generative. Free cash
flow was GBP109.3m (2016/17: GBP64.7m), up 69%, with growth
benefiting from comparison with free cash flow in 2016/17 which
included the settlement of the DOJ litigation. Excluding this
settlement, free cash flow was up 18% in 2017/18 as very good
growth in adjusted operating profit was converted into cash.
On an IFRS basis, cash flow from operating activities was up 63%
to GBP120.7m (2016/17: GBP74.2m).
Cash and cash equivalents were GBP210.0m at 31 March 2018 (31
March 2017: GBP155.5m).
On 7 November 2017, the Group refinanced its multi-currency
revolving credit facility (RCF) which was otherwise due to expire
in November 2018. Following the refinancing, BTG has a GBP150m
multi-currency RCF, with an option to increase the RCF by a further
GBP150m. The RCF has a three-year term which expires in November
2020, although the Group has the option to extend the term of the
RCF for up to an additional two years. The RCF currently remains
undrawn.
Reporting in US Dollars (USD)
BTG will in future report its results in USD, starting with its
Interim Results for the six months ending 30 September 2018. In
June 2018 BTG will publish selected historical financial results
restated to USD.
Summary and outlook for 2018/19
BTG has delivered a good financial performance this year, with
very good growth in Interventional Medicine contributing to
double-digit growth in product sales and adjusted operating profit,
and strong cash generation.
BTG has the financial resources and capabilities to continue to
make targeted investments in product innovation, clinical data,
geographic expansion and acquisitions. This will enable the
business to develop and sustain leading positions in attractive
growth markets, creating significant long-term value for
shareholders.
BTG's guidance for 2018/19 is as follows:
2018/19 CER guidance(1,2) Comment
Product sales
Interventional Oncology and 13%-15% sales growth Continued very good growth
Interventional Vascular
Pharmaceuticals Flat-to-single digit % sales decline High 2017/18 base (incl. Vistogard(R)
) and potential CroFab(R) competition
from October 2018
Gross margin 70%-72% Product sales gross margin: 76%-78%
Royalties gross margin: 50%
Adjusted SG&A and R&D Flat-to-single digit % decline
Adjusted effective tax rate (ETR) 18%-21% Lower rate following US tax reform
CapEx GBP20m ERP project expenditure
(1) The average USD/GBP rate for the year to 31 March 2018 was
$1.33
(2) Restructuring charge for PneumRx(R) of up to GBP10m will be
excluded from adjusted earnings
Medium-term outlook
Over the medium term as royalty revenues decline the Group will
transition fully into a product sales business that is well
positioned to deliver sustained future growth. The medium-term
outlook for the product sales business is as follows:
2017/18(i) Medium-term product sales outlook
GBPm
Product sales 423.8
Growth at CER +10% Around double-digit product sales growth, driven by IO and IV
Gross Profit 334.7
Gross margin 79% Strong, sustainable product sales gross margin
Adjusted operating costs 282.3 Disciplined commercial investment
R&D GBP70m excluding STOP-HCC and EPOCH
Adjusted operating profit 52.4
Adjusted operating margin 12% Operating leverage over time
(i) A reconciliation of the product sales business income
statement to the group adjusted income statement is included on
page 22.
Following US tax reform, over the medium term our Group adjusted
effective tax rate is expected to be 22-26%.
CONSOLIDATED INCOME STATEMENT
Year Year
ended ended
31 March 31 March
2018 2017
GBPm GBPm
======================================================= ======= =========== ===========
Revenue 620.5 570.5
Cost of sales (185.9) (179.9)
============================================================ ====== =========== ===========
Gross profit 434.6 390.6
Selling, general and administrative
expenses(1) (325.5) (206.6)
Research and development(1) (165.5) (87.8)
Other operating (expense)/income (1.3) 4.4
Amortisation of acquired
intangible assets (43.8) (42.0)
Acquisition and reorganisation
costs (1.3) (1.1)
============================================================ ====== =========== ===========
Operating (loss) / profit (102.8) 57.5
Financial income 41.5 3.3
Financial expense (9.3) (29.2)
============================================================ ====== =========== ===========
(Loss) / profit before
tax (70.6) 31.6
Tax credit 83.3 2.0
============================================================ ====== =========== ===========
Profit for the year 12.7 33.6
============================================================ ====== =========== ===========
Attributable to non-controlling (2.3) -
interests
Attributable to owners
of the parent 15.0 33.6
------------------------------------------------------------ ------ ----------- -----------
Profit for the year 12.7 33.6
============================================================ ====== =========== ===========
Basic earnings per share 3.9p 8.7p
Diluted earnings per share 3.9p 8.6p
============================================================ ====== =========== ===========
(1) Selling, general and administrative expenses
include intangible asset impairment charges
of GBP82.4m (2016/17: GBP0.5m) and Research
and development includes intangible asset impairment
charges of GBP68.7m (2016/17: GBPnil).
All activities arose from continuing operations.
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS/INCOME
Year ended Year
31 March ended
31
March
2018 2017
GBPm GBPm
=========================================================== === =============== ===========
Profit for the year 12.7 33.6
Other comprehensive (loss)/income
Items that may be reclassified subsequently
to profit or loss
Foreign exchange translation differences (89.9) 91.7
Items that will not be reclassified subsequently
to profit or loss
Actuarial gain/(loss) on defined
benefit pension scheme 1.9 (5.2)
Deferred tax (charge)/credit on
defined benefit pension scheme
asset (0.4) 4.1
=========================================================== =================== ===========
Other comprehensive (loss)/income
for the year (88.4) 90.6
=========================================================== =================== ===========
Total comprehensive (loss)/income
for the year (75.7) 124.2
=========================================================== =================== ===========
Attributable to non-controlling (2.3) -
interests
Attributable to owners of the
parent (73.4) 124.2
----------------------------------------------------------- ------------------- -----------
Total comprehensive (loss)/income
for the year (75.7) 124.2
=========================================================== =================== ===========
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 March 31 March
2018 2017
GBPm GBPm
================================== ================================ =========
ASSETS
Non-current assets
Goodwill 223.1 225.6
Intangible assets 463.7 678.9
Property, plant and equipment 40.7 40.1
Deferred tax assets 3.6 5.3
Employee benefits 21.9 17.2
Other non-current assets 1.7 1.7
=================================== ================================ =========
754.7 968.8
================================== ================================ =========
Current assets
Inventories 61.0 58.4
Trade and other receivables 134.0 125.7
Other current assets 3.0 2.7
Cash and cash equivalents 210.0 155.5
408.0 342.3
================================== ================================ =========
Total assets 1,162.7 1,311.1
=================================== ================================ =========
EQUITY
Share capital 38.6 38.5
Share premium 437.7 435.4
Merger reserve 317.8 317.8
Other reserves 29.9 119.8
Retained earnings 90.7 68.4
=================================== ================================ =========
Shareholders' equity 914.7 979.9
Non-controlling interests (1.9) -
================================== ================================ =========
Total equity 912.8 979.9
=================================== ================================ =========
LIABILITIES
Non-current liabilities
Trade and other payables 5.1 8.5
Deferred tax liabilities 49.7 157.2
Corporation tax payable 5.0 -
59.8 165.7
================================== ================================ =========
Current liabilities
Trade and other payables 127.9 152.0
Provisions 54.8 0.5
Derivative financial instruments 0.6 7.9
Corporation tax payable 6.8 5.1
190.1 165.5
================================== ================================ =========
Total liabilities 249.9 331.2
=================================== ================================ =========
Total equity and liabilities 1,162.7 1,311.1
=================================== ================================ =========
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended Year ended
31 March 31 March
2018 2017
GBPm GBPm
----------------------------------------------------------------- ----------- -----------
Profit after tax for the year 12.7 33.6
Tax credit (83.3) (2.0)
Financial income (41.5) (3.3)
Financial expense 9.3 29.2
Operating (loss)/profit (102.8) 57.5
Adjustments for:
Amortisation and impairment of intangible assets 198.4 46.7
Depreciation and impairment of property, plant and equipment 9.0 6.6
Share-based payments 6.5 8.5
Pension scheme funding (2.8) (2.9)
Other non-cash items 0.4 0.9
Cash from operations before movements in working capital 108.7 117.3
Increase in inventories (2.6) (9.3)
Increase in trade and other receivables (8.3) (8.5)
(Decrease)/increase in trade and other payables (15.2) 2.1
Increase in provisions 54.4 0.1
Cash generated from operations 137.0 101.7
Settlement of foreign exchange forward contracts (1.3) (17.1)
Corporation tax paid (15.0) (10.4)
------------------------------------------------------------------ ----------- -------------
Net cash inflow from operating activities 120.7 74.2
------------------------------------------------------------------ ----------- -------------
Cash flows from investing activities
Purchases of intangible assets (1.0) (0.6)
Purchases of property, plant and equipment (10.4) (8.9)
Acquisition of businesses net of cash acquired (45.5) (36.2)
Other investing activities 0.5 0.4
Net cash outflow from investing activities (56.4) (45.3)
------------------------------------------------------------------ ----------- -------------
Cash flows from financing activities
Repayment of debt acquired on business combination - (18.9)
Proceeds of share issues 2.4 0.8
Other financing activities (3.4) (1.6)
------------------------------------------------------------------ ----------- -------------
Net cash outflow from financing activities (1.0) (19.7)
------------------------------------------------------------------ ----------- -------------
Increase in cash and cash equivalents 63.3 9.2
Cash and cash equivalents at start of year 155.5 140.4
Effect of exchange rate fluctuations on cash held (8.8) 5.9
------------------------------------------------------------------ ----------- -------------
Cash and cash equivalents at end of year 210.0 155.5
------------------------------------------------------------------ ----------- -------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share Share Merger Other Retained Total
capital premium reserve reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
===================== ========= ========= ========= ========== ========== ========
At 1 April 2016 38.3 434.8 317.8 28.1 28.7 847.7
Profit for the year - - - - 33.6 33.6
Foreign exchange
translation
differences - - - 91.7 - 91.7
Remeasurement of the
net defined benefit
pension scheme
asset - - - - (5.2) (5.2)
Deferred tax on
defined benefit
pension scheme
asset - - - - 4.1 4.1
===================== ========= ========= ========= ========== ========== ========
Total comprehensive
income for the year - - - 91.7 32.5 124.2
Transactions with
owners:
Issue of BTG plc
ordinary shares 0.2 0.6 - - - 0.8
Movement in shares
held by the
Employee Share
Ownership Trust - - - - (1.3) (1.3)
Share-based payments - - - - 8.5 8.5
===================== ========= ========= ========= ========== ========== ========
At 31 March 2017 38.5 435.4 317.8 119.8 68.4 979.9
===================== ========= ========= ========= ========== ========== ========
Share Share Merger Other Retained Attributable Attributable Total
capital premium reserve reserves earnings to owners of to non- equity
the parent controlling
interests
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================= ======== ======== ======== ========= ========= ============= ============= =======
At 1 April 2017 38.5 435.4 317.8 119.8 68.4 979.9 - 979.9
Profit / (loss)
for the year - - - - 15.0 15.0 (2.3) 12.7
Foreign exchange
translation
differences - - - (89.9) - (89.9) - (89.9)
Remeasurement of
the net defined
benefit pension
scheme asset - - - - 1.9 1.9 - 1.9
Deferred tax on
defined benefit
pension scheme
asset - - - - (0.4) (0.4) - (0.4)
================= ======== ======== ======== ========= ========= ============= ============= =======
Total
comprehensive
(loss) / income
for the year - - - (89.9) 16.5 (73.4) (2.3) (75.7)
Transactions
with owners:
Issue of BTG plc
ordinary shares 0.1 2.3 - - - 2.4 - 2.4
Equity
contributions
by
non-controlling
interests - - - - - - 0.4 0.4
Movement in
shares held by
the Employee
Share Ownership
Trust - - - - (0.7) (0.7) - (0.7)
Share-based
payments - - - - 6.5 6.5 - 6.5
================= ======== ======== ======== ========= ========= ============= ============= =======
At 31 March 2018 38.6 437.7 317.8 29.9 90.7 914.7 (1.9) 912.8
================= ======== ======== ======== ========= ========= ============= ============= =======
Notes to the consolidated financial statements
1. General information
In accordance with EU law (IAS Regulation EC 1606/2002), the
final results have been prepared in accordance with International
Financial Reporting Standards ("IFRS") adopted for use in the EU as
at 31 March 2018 ("adopted IFRS"), International Financial
Reporting Interpretations Committee ("IFRIC") interpretations and
those parts of the Companies Act 2006 applicable to companies
reporting under IFRS.
The final statements have been prepared in accordance with the
Group's accounting policies approved by the Board. Details of
principal business risks and uncertainties can be found in Note
9.
BTG's 2018 Annual Report will be posted to shareholders on 15
June 2018. The financial information set out herein does not
constitute the Company's statutory accounts for the years ended 31
March 2018 or 2017 but is derived from those accounts. Statutory
accounts for 2017 have been delivered to the Registrar of
Companies, and those for 2018 will be delivered to the Registrar of
Companies following the Company's Annual General Meeting, which
will be held at 10.30am on 18 July 2018. The auditor has reported
on those accounts; their reports were (i) unqualified (ii) did not
include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006.
Accounting standards adopted in the year
No standards and interpretations issued by the EU adopted in the
year had a significant impact on the Group.
Accounting standards issued but not yet effective
IFRS 15, 'Revenue from contracts with customers', was issued by
the IASB in May 2014 and has been implemented by the Group from 1
April 2018. IFRS 15 establishes a comprehensive framework for
determining whether, how much and when revenue is recognised, and
also contains new requirements related to presentation and
disclosures. The core principle in that framework is that revenue
should be recognised dependent on the transfer of promised goods or
services to the customer for an amount that reflects the
consideration which should be received in exchange for those goods
or services. The objective of the standard is to provide a
five-step approach to revenue recognition that includes identifying
contracts with customers, identifying performance obligations,
determining transaction prices, allocating transaction prices to
performance obligations, and recognising revenue when or as
performance obligations are satisfied. The new standard replaces
IAS 18 Revenues and related interpretations. The new standard is
not expected to have a material impact on the amount or timing of
recognition of reported revenue. In its financial statements for
the year ending 31 March 2019, the Group will adopt IFRS 15
applying the retrospective approach, with a cumulative adjustment
to decrease equity at 1 April 2018 which will be immaterial. As
permitted by IFRS 15 prior year results will not be restated under
the retrospective approach.
IFRS 9 'Financial instruments' was issued in its final form in
July 2014 and has been implemented by the Group from 1 April 2018.
The standard replaces the majority of IAS 39 and covers the
classification, measurement and de-recognition of financial assets
and financial liabilities, introduces a new impairment model for
financial assets based on expected losses rather than incurred
losses. The new standard is not expected to have a material impact
on reported results. In its financial statements for the year
ending 31 March 2019, the Group will adopt IFRS 9 retrospectively,
but with certain permitted exceptions. Accordingly, prior year
results will not be restated, but there will be an immaterial
cumulative adjustment to equity at 1 April 2018.
IFRS 16 'Leases' is effective for accounting periods beginning
on or after 1 January 2019 and will replace IAS 17 'Leases'. It
will eliminate the classification of leases as either operating
leases or finance leases and, instead, introduce a single lessee
accounting model. The standard was endorsed by the EU on 31 October
2017. The adoption of IFRS 16 will result in the Group recognising
lease liabilities, and corresponding 'right to use' assets, for
agreements that are currently classified as operating leases. The
Group is currently assessing the full impact of IFRS 16 on the
Group's consolidated financial statements.
IFRIC 23 'Uncertainty over income tax treatments' was issued in
June 2017 and will be implemented by the Group from 1 April 2019.
The Interpretation clarifies that if it is considered probable that
a tax authority will accept an uncertain tax treatment, the tax
charge should be calculated on that basis. If it is not considered
probable, the effect of the uncertainty should be estimated and
reflected in the tax charge. In assessing the uncertainty, it is
assumed that the tax authority will have full knowledge of all
information related to the matter. The Group is currently assessing
the impact of the new Interpretation on the Group's consolidated
financial statements.
Going concern basis
After making enquiries, the directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the next 12 months. Accordingly, they
continue to adopt the going concern basis in preparing the Annual
Report and Accounts.
This conclusion has been reached having considered the effect of
liquidity risk on the Group's ability to operate effectively.
Currently, liquidity risk is not considered a significant business
risk to the Group given its level of net cash and cash equivalents,
together with its cash flow projections. The Group does not
currently require significant levels of debt financing to operate
its business. The key liquidity risks faced by the Group are
considered to be the failure of banks where funds are deposited and
the failure of key licensees, distribution partners, wholesalers or
insurers.
In addition to the liquidity risks considered above, the
directors have also considered the following factors when reaching
the conclusion to continue to adopt the going concern basis:
-- A significant proportion of the Group's sales are from
products which are life-saving in nature, providing some protection
against an uncertain economic outlook;
-- The Group's principal licensees are global industry leaders in their respective fields; and
-- On 7 November 2017, the Group refinanced its multi-currency
revolving credit facility (RCF) which was otherwise due to expire
in November 2018. Following the refinancing, BTG has a GBP150m
multi-currency RCF, with an option to increase the RCF by a further
GBP150m. The RCF has a three-year term, which expires in November
2020, although the Group has the option to extend the term of the
RCF for up to an additional two years. The RCF currently remains
undrawn.
2. Operating segments
Operating segments are determined based on the financial
information provided to the Group's chief operating decision-making
body, being the Leadership Team. The Group has three reportable
segments, being Interventional Medicine, Pharmaceuticals and
Licensing.
In assessing performance and making resource allocation
decisions, the Leadership Team reviews contribution by segment.
Contribution is defined as being gross profit less directly
attributable selling, general and administrative ('SG&A')
expenses. The Licensing operating segment includes SG&A
relating to the Group's centrally managed support functions and
corporate overheads. The Group's reportable segments reflects the
management structure and stewardship of the business. No allocation
of central overheads is made across the Pharmaceuticals or
Interventional Medicine operating segments. Research and
development continues to be managed on a global basis, with
investment decisions being made by the Leadership Team as a whole.
Research and development is not managed by reference to the Group's
operating segments, though each programme within the pipeline would
ultimately provide revenues for one of the operating segments if
successful.
There are no inter-segment transactions that are required to be
eliminated on consolidation.
Year ended 31 March 2018
Interventional Pharmaceuticals Licensing
Medicine Total
GBPm GBPm GBPm GBPm
=================================== ================ ================== ========== ========
Revenue 242.9 180.9 196.7 620.5
Cost of sales(1) (71.6) (17.9) (96.4) (185.9)
----------------------------------- ---------------- ------------------ ---------- --------
Gross profit 171.3 163.0 100.3 434.6
Selling, general and
administrative expenses(2) (204.7) (95.5) (25.3) (325.5)
===================================
Contribution (33.4) 67.5 75.0 109.1
===================================
Research and development (165.5)
Other operating expense (1.3)
Amortisation of acquired
intangible assets (43.8)
Acquisition and reorganisation
costs (1.3)
----------------------------------- ---------------- ------------------ ---------- --------
Operating loss (102.8)
Financial income 41.5
Financial expense (9.3)
----------------------------------- ---------------- ------------------ ---------- --------
Loss before tax (70.6)
Tax credit 83.3
Profit for the year 12.7
----------------------------------- ---------------- ------------------ ---------- --------
Total assets(3) 1,162.7
----------------------------------- ---------------- ------------------ ---------- --------
(1) Cost of sales in the Interventional Medicine segment
includes a GBP0.2m release of a fair value adjustment to PP&E
acquired with Galil Medical in June 2016 and a GBP0.2m release of a
fair value adjustment to inventory acquired with Roxwood Medical in
October 2017. The release represents the reversal of a fair value
uplift applied to inventory purchased on acquisition recognised
through the income statement as the product is sold and incremental
depreciation related to acquired PP&E.
(2) SG&A expenses within Pharmaceuticals includes a charge
of GBP57.7m reflecting amounts provided in respect of the
litigation with Wellstat and an impairment charge of GBP5.5m
relating to the Vistogard(R) intangible asset. SG&A expenses
within Interventional Medicine includes a charge of GBP76.6m
reflecting an impairment charge relating to the PneumRx(R)
developed technology intangible asset.
(3) The Group does not allocate assets to operating segments
with the exception of Goodwill.
Year ended 31
March 2017
Interventional Pharmaceuticals Licensing
Medicine Total
GBPm GBPm GBPm GBPm
=============================== ========================== ========================== ================ ==============
Revenue 216.2 171.1 183.2 570.5
Cost of sales(1) (61.9) (16.7) (101.3) (179.9)
------------------------------- -------------------------- -------------------------- ---------------- --------------
Gross profit 154.3 154.4 81.9 390.6
Selling, general and
administrative expenses(2) (119.5) (33.3) (53.8) (206.6)
===============================
Contribution 34.8 121.1 28.1 184.0
===============================
Research and development (87.8)
Other operating income 4.4
Amortisation of acquired
intangible assets (42.0)
Acquisition and reorganisation
costs (1.1)
------------------------------- -------------------------- -------------------------- ---------------- --------------
Operating profit 57.5
Financial income 3.3
Financial expense (29.2)
------------------------------- -------------------------- -------------------------- ---------------- --------------
Profit before tax 31.6
Tax credit 2.0
Profit for the year 33.6
------------------------------- -------------------------- -------------------------- ---------------- --------------
Total assets(3) 1,311.1
------------------------------- -------------------------- -------------------------- ---------------- --------------
(1) Cost of sales in the Interventional Medicine segment
includes a GBP1.0m release of a fair value adjustment
to inventory and PP&E acquired with Galil Medical in
June 2016. The release represents the reversal of a
fair value uplift applied to inventory purchased on
acquisition recognised through the income statement
as the product is sold and incremental depreciation
related to acquired PP&E.
(2) SG&A expenses within Licensing includes a charge
of GBP28.0m relating to the Group's settlement with
the US government in relation to the Department of
Justice investigation into the historic marketing of
LC Bead(R) .
(3) The Group does not allocate assets to operating
segments with the exception of Goodwill.
Revenue analysis
Analysis of revenue, based on the geographical location
of customers and the source of revenue is provided
below:
Geographical analysis Year ended Year
ended
31 March 31 March
2018 2017
GBPm GBPm
=============== =========== =========
USA 557.5 513.7
Europe 45.1 41.1
Other regions 17.9 15.7
=============== =========== =========
620.5 570.5
=============== =========== =========
Revenue from major products and services Year ended Year
ended
31 March 31 March
2018 2017
GBPm GBPm
=============== =========== =========
Product sales 423.8 387.3
Royalties 196.7 183.2
=============== =========== =========
620.5 570.5
=============== =========== =========
Major customers
The Group's products are sold both directly and through
distribution agreements in the USA, Europe and Asia
Pacific region. No individual customer generated income
in excess of 10% of the Group revenue during the year
ended 31 March 2018 or 31 March 2017.
Products that utilise the Group's intellectual property
rights are sold by licensees. Royalty income is derived
from over 35 licences. One licence individually generated
royalty income in excess of 10% of Group revenue of
GBP155.4m (2017: one license individually generated
GBP123.2m).
3. Financial income and expense
Year ended Year ended
31 March 31 March
2018 2017
GBPm GBPm
===================================== =========== ===========
Interest receivable on money-market
and bank deposits 0.5 0.3
Fair value movements and realised 14.5 -
gains from foreign exchange
forward contracts
Fair value movements on contingent
consideration liabilities 26.5 3.0
===================================== =========== ===========
Financial income 41.5 3.3
===================================== =========== ===========
Fair value movements and realised
losses from foreign exchange
forward contracts 5.7 25.2
Fair value movements on contingent
consideration liabilities 1.6 2.3
Other financial expense 2.0 1.7
===================================== =========== ===========
Financial expense 9.3 29.2
===================================== =========== ===========
In the year to 31 March 2018, the Group recognised a fair value
credit of GBP26.5m (2016/17: GBP3.0m credit) related to the
contingent consideration from the PneumRx acquisition and a fair
value charge of GBP1.6m (2016/17: GBP2.3m charge) related to the
contingent consideration from the Galil Medical acquisition.
Realised gains and gains on the remeasurement of the fair value
of the Group's forward foreign exchange contracts totalled GBP14.5m
for the year to 31 March 2018 and are recorded within Financial
income. Realised losses and losses on the remeasurement of the fair
value of the Group's forward foreign exchange contracts totalled
GBP5.7m and are recorded within Financial expense.
The change in fair value and realised losses on the Group's
forward foreign exchange contracts of GBP25.2m for the year to
31 March 2017 is recorded within Financial expense. The loss of
GBP25.2m included realised losses of GBP17.1m on settlement of
forward contracts and unrealised losses of GBP8.1m on remeasurement
of the Group's outstanding forward contracts to their fair
value.
4. Tax
An analysis of the tax credit in the income statement for the
year, all relating to current operations, is as follows:
Year ended Year ended
31 March 31 March
2018 2017
GBPm GBPm
================================= ===================================================== ===========
Current tax
UK corporation tax charge 6.9 -
Overseas corporate tax charge 14.6 11.8
Adjustments in respect of prior
years 3.1 (1.7)
================================= ===================================================== ===========
Total current taxation 24.6 10.1
Deferred taxation
Deferred tax credit (105.9) (13.0)
Adjustment to tax rates (2.0) 0.9
================================= ===================================================== ===========
Total deferred taxation (107.9) (12.1)
================================= ===================================================== ===========
Total tax credit for the year (83.3) (2.0)
================================= ===================================================== ===========
The deferred tax credit in the year arises principally as a
result of the effects of US tax reform and impairments and
amortisation of intangible assets.
5. Earnings per share
The calculation of the basic and diluted earnings per share is
as follows:
Year ended Year ended
31 March 31 March
2018 2017
=================================== =========== ===========
Profit for the year attributable
to owners of the parent (GBPm) 15.0 33.6
Earnings per share (p)
Basic 3.9 8.7
Diluted 3.9 8.6
=================================== =========== ===========
Number of shares (m)
Weighted average number of shares
- basic 386.1 384.4
Effect of share options in issue 3.1 5.6
=================================== =========== ===========
Weighted average number of shares
- diluted 389.2 390.0
=================================== =========== ===========
6. Intangible assets
Impairment of PneumRx(R) Coils intangible assets
Impairment charges in the year were GBP151.1m, of which
GBP143.2m relates to impairment of the PneumRx(R) Coils intangible
assets. The PneumRx(R) Coils impairment charges are split between
Developed technology (GBP76.6m) and IPR&D intangible assets
(GBP66.6m), and have been recorded within SG&A and R&D
expenses, respectively. Following these impairment charges, the
carrying amount of the PneumRx(R) Coils intangible assets is
GBP34.9m, of which GBP15.2m relates to Developed technology and
GBP19.7m relates to IPR&D assets.
While management have concluded that there continues to be a
significant long-term opportunity for the PneumRx(R) Coils, current
sales are lower than originally anticipated, reflecting that market
development, including securing appropriate levels of
reimbursement, is taking longer than expected. Third-party market
research and feedback from payers received in the second half of
the year has corroborated that there is a need for more clinical
data in order to expand reimbursement and support market adoption
both in Europe and the US. As a result, resources have been focused
on key activities to build long-term value. As a consequence of
this, and of prioritising European patients for the ELEVATE study,
we do not expect material revenues from this product over the next
two years. Accordingly the recoverability of the PneumRx(R) Coils
Developed technology and IPR&D assets was re-assessed in the
year ended 31 March 2018.
The recoverable amount of the PneumRx(R) Coils intangible assets
has been determined under a fair value less cost to sell approach,
which utilises risk-adjusted discounted cash flows over a ten-year
period and a terminal decline in growth thereafter. The key
assumptions on which fair value less costs to sell has been
determined, and the sensitivity of the valuation to changes in
these key assumptions are as follows:
Key Assumption Utilised in Sensitivity Reduction Reduction
valuation factor in recoverable in recoverable
value of value of
the Developed the IPR&D
technology asset
asset
Discount rate 13% 1% increase GBP2.7m GBP2.9m
Sales forecasts Management 5% decrease GBP6.5m GBP3.8m
projections in sales
of market price GBP4.5m GBP3.5m
penetration 5% decrease
and pricing in peak
penetration(1)
Terminal growth (15%) 5% faster GBP2.7m GBP2.3m
rate decline
================ ============= ================ ================ ================
(1) Penetration represents the percentage of total addressable
patient population which management estimates will be treated by
PneumRx(R) Coils.
In addition to the above assumptions:
-- the recoverable value of the IPR&D asset reflects the
probability of approval by the FDA. If approval is not granted, the
recoverable value of the IPR&D asset would likely be fully
impaired, conversely if FDA approval is granted a reversal of some
or all of the previously recorded impairment charge is likely.
-- the recoverable value of both the Developed technology and
IPR&D assets reflects the probability of success of the ELEVATE
trial. Depending on the outcome of the ELEVATE trial, the
recoverable value of both assets may be increased or further
reduced.
7. Business combinations
Acquisitions during the year ended 31 March 2018
Roxwood Medical, Inc. ('Roxwood Medical') acquisition
On 5 October 2017 BTG completed the acquisition of 100% of
Roxwood Medical for an aggregate cash consideration of $64.9m,
subject to customary closing adjustments, and contingent
consideration of up to $15m which may be payable based on the
achievement of specified sales based milestones.
The total consideration for the acquisition of Roxwood Medical
was GBP44.7m ($58.9m), representing the upfront cash consideration
paid after customary closing adjustments. The acquisition date fair
value of the contingent consideration payable was assessed as
GBPnil.
Roxwood Medical's results of operations have been consolidated
from 5 October 2017, and the preliminary fair value of assets
acquired and liabilities assumed have been determined as of that
date. The final determination of these fair values will be
completed as soon as possible but no later than one year from
acquisition date.
Roxwood Medical is an innovative provider of advanced
cardiovascular specialty catheters used in the treatment of
patients with severe coronary and peripheral artery disease. The
acquisition continues to build BTG's strength in the vascular
space, further expanding BTG's portfolio of differentiated
minimally invasive vascular technologies.
Intangible assets of GBP45.6m relate to Roxwood's Developed
technology. An estimated useful life of 12 years has been assigned
to this Developed technology, and associated amortisation expense
will be recorded on a straight-line basis. Goodwill arising of
GBP14.9m ($19.6m), which is not deductible for tax purposes, has
been assigned to the Interventional Medicine operating segment.
Goodwill represents the value of Roxwood's workforce which has not
been reflected as separate intangible assets, together with the
recognition for accounting purposes of a deferred tax liability of
GBP17.3m ($22.9m) relating to the Developed technology.
Book value Fair value adjustment Fair value
GBPm GBPm GBPm
============================================================= =========== ======================== ===========
ASSETS
Non-current assets
Deferred tax asset - 4.2 4.2
Intangible assets - 45.6 45.6
Goodwill - 14.9 14.9
Property, plant and equipment 0.1 - 0.1
Current assets
Inventories 0.7 0.2 0.9
Trade and other receivables 1.2 - 1.2
Cash and cash equivalents 1.1 - 1.1
LIABILITIES
Non-current liabilities
Deferred tax liabilities - (17.3) (17.3)
Current liabilities
Trade and other payables (6.0) - (6.0)
Book value and fair value of assets and liabilities acquired (2.9) 47.6 44.7
============================================================== =========== ======================== =============
Cash consideration 44.7
Total consideration 44.7
============================================================== =========== ======================== =============
During the period ended 31 March 2018, sales of Roxwood Medical
products totalled GBP0.8m and an operating loss (including acquired
intangible asset amortisation of GBP1.8m) of GBP3.8m has been
recognised in the period since acquisition.
Oncoverse LLC ('Oncoverse') acquisition
On 20 April 2017, BTG acquired a 55% equity stake in Oncoverse,
a US company, for cash consideration of GBP1.9m ($2.5m). Oncoverse
is developing a digital health platform designed to allow cancer
patients' care teams to collaborate and allow clinicians across all
disciplines to work together to determine the most effective
treatment plan for their patients. Oncoverse's results of
operations have been consolidated from 20 April 2017, with that
portion attributable to the 45% of Oncoverse equity not owned by
BTG recorded within 'Non-controlling interests'.
The impact of Oncoverse's operations on the Group's income
statement is immaterial. The fair values of assets acquired and
liabilities assumed have also been determined as of 20 April 2017.
As at 31 March 2018 the Group and the non-controlling interest have
agreed to cease commercialisation of the Oncoverse technology and
are assessing the future of the business. Accordingly an impairment
charge of GBP2.1m has been recorded within 'Research and
development expenses' within the income statement.
Consolidation of Vetex Medical Limited ('Vetex')
On 17 July 2017 BTG provided Vetex, a development-stage medical
device company based in Ireland, with GBP2.0m ($2.7m) cash in
exchange for a convertible loan note and a call option over 100% of
Vetex's share capital. As a result of these transactions, it is
deemed that BTG has the current ability (irrespective of intent) to
exercise power over Vetex's primary value generating activities.
Accordingly, the results of Vetex have been consolidated from 17
July 2017, with that portion attributable to the 100% of Vetex
equity not owned by BTG recorded within 'Non-controlling
interests'.
The impact of Vetex on the Group's income statement is
immaterial. The fair values of assets acquired and liabilities
assumed have also been determined as of 17 July 2017. The final
determination of these fair values will be completed as soon as
possible but no later than one year from the date of
acquisition.
8. Provisions
On 2 November 2017 a Final Order and Judgment was issued by the
Court of Chancery of Delaware ruling against BTG in its litigation
with Wellstat Therapeutics Corporation concerning the
commercialisation of Vistogard(R) . The Court found that BTG has
breached the distribution agreement and that Wellstat is entitled
to damages plus interest and costs, and requiring that BTG return
the US distribution rights for Vistogard(R) to Wellstat, which took
place in February 2018 after a transition period.
In the year to 31 March 2018, BTG has recorded a provision for
GBP57.7m expensed within SG&A, with the amount of this
provision based on the damages awarded and pre- and post-Judgment
interest calculated pursuant to the Final Order. At 31 March 2018,
after foreign exchange translation, the amount provided in the
Group's balance sheet was GBP53.9m. BTG has appealed the quantum of
damages. While the appeal is ongoing, BTG has entered into a
supersedeas bond which guarantees the payment of damages plus
interest and costs as per the Final Order issued.
9. Principal risks and uncertainties
BTG's performance and prospects may be affected by risks and
uncertainties relating to our business and operating environment.
Our internal controls include a risk management process to identify
key risks and, where possible, manage the risks through systems and
processes and by implementing specific mitigation strategies. These
include but are not limited to: market access, obtaining/
maintaining product regulatory approvals, IP/legal challenges,
competition, healthcare law compliance, merger and acquisition
activity and supply chain/continuity of supply.
10. Related parties
In relation to the related-party relationship concerning Giles
Kerr, payments made by BTG to Oxford University and Oxford
University Innovation Ltd under the relevant licence agreements
were GBP18,000 for the year ended 31 March 2018 (GBP19,000 for the
year ended 31 March 2017). There are no amounts still outstanding
and payable by BTG under these agreements as at 31 March 2018
(2017: nil).
Information on adjusted financial information
The financial review includes financial information prepared in
accordance with International Financial Reporting Standards and the
Group's accounting policies, as well as financial information
presented on an adjusted basis.
Financial information on an adjusted basis excludes certain cash
and non-cash items which management believe are not reflective of
the underlying financial performance of the business and is
consistent with how management reviews the business for the purpose
of making operating decisions.
Metrics presented on an adjusted basis include Constant Exchange
Rate (CER) growth, Adjusted Gross Profit, Adjusted SG&A,
Adjusted R&D, Adjusted Operating Profit, Adjusted Net Financial
Income / Expense, Adjusted Effective Tax Rate, Adjusted Basic EPS
and Free Cash Flow. A reconciliation between IFRS and adjusted
financial information is included on pages 20 to 22.
These metrics are further discussed below:
-- CER growth: CER growth is calculated by restating 2017/18
performance using 2016/17 exchange rates for the relevant period.
CER growth allows management to focus on underlying performance
without the impact of foreign exchange, which it cannot
control.
-- Adjusted Operating Profit: Adjusted Operating Profit reflects
the IFRS operating profit of the Group excluding the impact of
certain adjustments, which have been separately outlined below.
Adjusted Operating Profit allows management to assess operational
performance without the impact of certain items which are not
reflective of underlying financial performance.
-- Adjusted Basic EPS: Adjusted Basic EPS reflects Basic EPS
excluding the after tax impact of certain adjustments, which have
been outlined below. Adjusted Basic EPS allows management to assess
EPS without the impact of certain items which are not reflective of
underlying financial performance.
-- Free Cash Flow: Reflects the cash generated from operating
activities after recurring capital expenditure, being a measure of
cash flow available for discretionary investing or financing
activities. The reconciliation of Free Cash Flow to Net Cash Flows
from operating activities is shown on page 22.
Adjusted Gross Profit, Adjusted SG&A, Adjusted R&D,
Adjusted Finance Income / Expense and Adjusted Effective Tax Rate
are stated after excluding the effect of those items outlined
below.
Management apply a consistent policy in determining its adjusted
financial measures. In determining this policy, outlined below,
management assess the nature and materiality of individual or
groups of items, and have deemed it appropriate to adjust for those
items including their tax effect, which (i) occur outside the
normal course of business and (ii) relate to corporate
acquisitions. These adjustments allow better comparability with
historic performance and identify year-on-year trends in the
underlying performance of the business.
Items excluded from adjusted financial measures in 2016/17,
2017/18 and from our outlook for 2018/19 are:
(a) Acquisition related adjustments
-- The release of the fair value uplift of acquired inventory or PP&E
-- Amortisation of acquired intangible assets and impairment
charges relating to acquired or in-licensed intangible assets or
goodwill
-- Fair value adjustments relating to contingent consideration liabilities
-- Transaction costs incurred in relation to corporate acquisitions
(b) Other adjustments
-- Net costs relating to the settlement of litigation, disputes and government investigations
-- Reorganisation costs, including redundancy programmes,
property costs, and asset impairments arising from significant
restructuring
-- The impact of US tax reform on current and deferred tax
Reconciliation between IFRS and Adjusted Income Statement
For the year ended 31 March 2018
IFRS Release Amortisation PneumRx(R) Acquisition Fair Litigationand US Adjusted
Total of and impairment costs(4) value other(6) Tax Total
the impairments charges(3) adjustments Reform(7)
fair of to contingent
value intangible consideration
uplift assets liabilities(5)
on (ex.
acquired PneumRx(R)
inventory )(2)
and
PPE(1)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================== ======== ========== ============= =========== ============ =============== ============== ========== =========
Revenue 620.5 - - - - - - - 620.5
Cost of sales (185.9) 0.4 - - - - - - (185.5)
================== ======== ========== ============= =========== ============ =============== ============== ========== =========
Gross profit 434.6 0.4 - - - - - - 435.0
SG&A expenses (325.5) - 5.5 76.6 - - 57.7 - (185.7)
Research
and development (165.5) - 2.1 68.1 - - - - (95.3)
Other operating
expense (1.3) - - - - - - - (1.3)
Amortisation
of acquired
intangible
assets (43.8) - 43.8 - - - - - -
Acquisition
and
reorganisation
costs (1.3) - - - 1.3 - - - -
Operating
(loss)/profit (102.8) 0.4 51.4 144.7 1.3 - 57.7 - 152.7
Financial
income 41.5 - - - - (26.5) - - 15.0
Financial
expense (9.3) - - - - 1.6 - - (7.7)
================== ======== ========== ============= =========== ============ =============== ============== ========== =========
(Loss)/profit
before tax (70.6) 0.4 51.4 144.7 1.3 (24.9) 57.7 - 160.0
Tax
credit/(charge) 83.3 (0.1) (17.7) (49.3) - - (14.3) (36.2) (34.3)
================== ======== ========== ============= =========== ============ =============== ============== ========== =========
Profit for
the year 12.7 0.3 33.7 95.4 1.3 (24.9) 43.4 (36.2) 125.7
------------------ -------- ---------- ------------- ----------- ------------ --------------- -------------- ---------- ---------
Attributable
to
non-controlling
interests (2.3) - 0.9 - - - - - (1.4)
Attributable
to owners
of the parent 15.0 0.3 32.8 95.4 1.3 (24.9) 43.4 (36.2) 127.1
------------------ -------- ---------- ------------- ----------- ------------ --------------- -------------- ---------- ---------
Profit for
the year 12.7 0.3 33.7 95.4 1.3 (24.9) 43.4 (36.2) 125.7
================== ======== ========== ============= =========== ============ =============== ============== ========== =========
Weighted
average number
of shares
- basic 386.1 386.1
------------------ -------- ---------- ------------- ----------- ------------ --------------- -------------- ---------- ---------
Weighted
average number
of shares
- diluted 389.2 389.2
------------------ -------- ---------- ------------- ----------- ------------ --------------- -------------- ---------- ---------
Basic earnings
per share 3.9 0.1 8.5 24.7 0.3 (6.4) 11.2 (9.4) 32.9
================== ======== ========== ============= =========== ============ =============== ============== ========== =========
Diluted earnings
per share 3.9 0.1 8.4 24.5 0.3 (6.4) 11.2 (9.3) 32.7
================== ======== ========== ============= =========== ============ =============== ============== ========== =========
1. The release of the fair value uplift relating to property,
plant and equipment (PPE) acquired with Galil Medical in June 2016
of GBP0.2m and inventory acquired with Roxwood Medical in October
2017 of GBP0.2m.
2. Amortisation charges relating to intangible assets acquired
through corporate acquisitions of GBP43.8m and impairment charges
relating to the Vistogard(R) and Oncoverse intangible assets of
GBP5.5m and GBP2.1m respectively.
3. Impairment charges relating to PneumRx(R) inventory and
PP&E (GBP1.5m), in-process research and development (GBP66.6m)
and developed technology (GBP76.6m) intangible assets.
4. Costs related to the acquisition of Roxwood Medical in October 2017 (GBP1.3m).
5. Fair value adjustments to contingent consideration
liabilities relating to the PneumRx(R) acquisition (credit of
GBP26.5m) and the Galil Medical acquisition (charge of
GBP1.6m).
6. Litigation costs (GBP57.7m) reflect amounts provided based on
the Final Order issued by the Court of Chancery of Delaware ruling
against BTG in respect of the previously announced litigation with
Wellstat Therapeutics Corporation concerning the commercialisation
of Vistogard(R) . The Court has found that BTG has breached the
distribution agreement and that Wellstat is entitled to damages of
$55.8m plus interest and costs. BTG has appealed the quantum of
damages and the appeal is ongoing.
7. The US tax reform net credit of GBP36.2m, comprising a net
GBP41.8m credit from revaluation of net deferred tax liabilities
and current tax charge of GBP5.6m.
Reconciliation between IFRS and Adjusted Income Statement
For the year ended 31 March 2017
IFRS Release Amortisation Acquisition Fair value Litigation Adjusted
Total of the of acquired costs(3) adjustments and Total
fair intangible to contingent other(5)
value assets(2) consideration
uplift liabilities(4)
on acquired
inventory
and
PPE(1)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================= ================ ==================== ============================== ============ =============== =========== ==============
Revenue 570.5 - - - - - 570.5
Cost of
sales (179.9) 1.0 - - - - (178.9)
================== ================ ==================== =============== =========================== =============== =========== ==============
Gross profit 390.6 1.0 - - - - 391.6
Selling,
general
and
administrative
expenses (206.6) - - - - 28.0 (178.6)
Research
and development (87.8) - - - - - (87.8)
Other operating
income 4.4 - - - - - 4.4
Amortisation
of acquired
intangible
assets (42.0) - 42.0 - - - -
Acquisition
and
reorganisation
costs (1.1) - - 1.1 - - -
================== ================ ==================== =============== ============= ============ ============================ ================
Operating
profit 57.5 1.0 42.0 1.1 - 28.0 129.6
Financial
income 3.3 - - - (3.0) - 0.3
Financial
expense (29.2) - - - 2.3 - (26.9)
================== ================ ==================== =============== =========================== =============== =========== ==============
Profit before
tax 31.6 1.0 42.0 1.1 (0.7) 28.0 103.0
Tax
credit/(charge) 2.0 (0.3) (13.1) - - (2.9) (14.3)
================== ================ ==================== =============== =========================== =============== =========== ==============
Profit for
the year 33.6 0.7 28.9 1.1 (0.7) 25.1 88.7
================== ================ ==================== =============== =========================== =============== =========== ==============
Weighted
average
number of
shares -
basic 384.4 384.4
------------------ ---------------- -------------------- --------------- --------------------------- --------------- ----------- --------------
Weighted
average
number of
shares -
diluted 390.0 390.0
------------------ ---------------- -------------------- --------------- --------------------------- --------------- ----------- --------------
Basic earnings
per share 8.7p 0.2p 7.6p 0.3p (0.2p) 6.5p 23.1p
================== ================ ==================== =============== =========================== =============== =========== ==============
Diluted
earnings
per share 8.6p 0.2p 7.4p 0.3p (0.2p) 6.4p 22.7p
================== ================ ==================== =============== =========================== =============== =========== ==============
1. The release of the fair value uplift relating to inventory
and property, plant and equipment (PPE) acquired with Galil Medical
in June 2016 of GBP1.0m.
2. Amortisation charges relating to intangible assets acquired
through corporate acquisitions of GBP42.0m.
3. Acquisitions and reorganisation costs are directly
attributable costs related to the acquisition of Galil Medical in
June 2016, including costs incurred with professional advisers in
relation to the corporate acquisition of GBP1.1m.
4. Fair value adjustments to contingent consideration
liabilities relating to the PneumRx(R) acquisition (credit of
GBP3.0m) and the Galil Medical acquisition (charge of GBP2.3m)
5. Settlement with the US government in relation to the
Department of Justice's investigation of the historic marketing
of
LC Bead(R) of GBP28.0m.
Reconciliation between IFRS and Adjusted financial information -
Free Cash Flow
For the year ended 31 March 2018
Net cash inflow Purchase of Purchase of property, Free cash
from operating intangible plant and equipment flow
activities assets
GBPm GBPm GBPm GBPm
================ ============ ====================== ==========
120.7 (1.0) (10.4) 109.3
For the year ended 31 March 2017
Net cash inflow Purchase of Purchase of property, Free cash
from operating intangible plant and equipment flow
activities assets
GBPm GBPm GBPm GBPm
================ ============ ====================== ==========
74.2 (0.6) (8.9) 64.7
---------------- ------------ ---------------------- ----------
Reconciliation between Adjusted Operating Profit and Product
Sales Operating Profit
Adjusted Licensing Product
Operating Operating Sales
Profit Profit Operating
Profit
GBPm GBPm GBPm
========================== =========== =========== ===========
Revenue 620.5 196.7 423.8
Cost of sales (185.5) (96.4) (89.1)
========================== =========== =========== ===========
Gross profit 435.0 100.3 334.7
Selling, general and
administrative expenses (185.7) - (185.7)
Research and development (95.3) - (95.3)
Other operating expense (1.3) - (1.3)
Operating profit 152.7 100.3 52.4
========================== =========== =========== ===========
(c) 2018 BTG International Ltd. All rights reserved. BTG and the
BTG roundel logo are registered trademarks of BTG International
Ltd. DC Bead LUMI and LC Bead are trademarks and/or registered
trademarks of Biocompatibles UK Ltd. EKOS is a trademark and/or
registered trademark of EKOS Corporation. Galil is a trademark
and/or registered trademark of Galil Medical Ltd. PneumRx is a
trademark and/or registered trademark of PneumRx, Inc. TheraSphere
is a trademark and/or registered trademark of Theragenics
Corporation used under license by Biocompatibles UK Ltd. Varithena
is a trademark and/or registered trademark of Provensis Ltd. CroFab
and DigiFab are trademarks and/or registered trademarks of BTG
International Inc. Voraxaze is a trademark and/or registered
trademark of Protherics Medicines Development Ltd. Lemtrada is a
trademark and/or registered trademark of Genzyme Corporation.
Zytiga is a trademark and/or registered trademark of Johnson &
Johnson. Vistogard is a trademark and/or registered trademark of
Wellstat Therapeutics Corporation. Oncoverse is a trademark of
Oncoverse LLC. Biocompatibles UK Ltd, EKOS Corporation, Galil
Medical Ltd, PneumRx, Inc., Protherics Medicines Development Ltd
and Provensis Ltd are all BTG International group companies.
This information is provided by RNS
The company news service from the London Stock Exchange
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