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Edited Transcript of VEC.L earnings conference call or presentation 10-Sep-19 8:30am GMT

Half Year 2019 Vectura Group PLC Earnings Call

Wiltshire Sep 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Vectura Group PLC earnings conference call or presentation Tuesday, September 10, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Geraldine Venthoye

Vectura Group plc - EVP of Pharmaceutical Development

* Paul Fry

Vectura Group plc - Interim CEO, CFO & Executive Director

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Conference Call Participants

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* James Daniel Gordon

JP Morgan Chase & Co, Research Division - Senior Analyst

* Julie Simmonds

Panmure Gordon (UK) Limited, Research Division - Equity Research Analyst of Healthcare

* Max Stephen Herrmann

Stifel, Nicolaus & Company, Incorporated, Research Division - Head of European Healthcare Equity Research & MD

* Nick Peter Russell Nieland

Citigroup Inc, Research Division - VP and Analyst

* Stefan John Hamill

Numis Securities Limited, Research Division - Director of Equity Research

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Presentation

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Paul Fry, Vectura Group plc - Interim CEO, CFO & Executive Director [1]

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Good morning, everybody, and thank you for coming along to the presentation today and joining the webcast for the Vectura first half results. My name is Paul Fry, and I'm the Chief Executive -- Chief Financial Officer of Vectura. But since the beginning of July, I'm also taking on the role of interim CEO whilst the search goes on for the new CEO, and I can touch on some of that in Q&A later.

I'll take the usual disclaimers as read and understood. So I'll move on then to talk -- what we're going to talk about today. So today, I am to give you some color on the financial performance for the group in the first half. But today is also an important opportunity for me to talk further about the strategic focus and the R&D priorities for the company, which we trailed somewhat in our announcement in July. And then of course, at the end, we'll close on a Q&A.

But before I start, I just want to make a few important introductions. So today, joining me at the front of the room to help support the Q&A session, we have Geraldine Venthoye, who in her role as EVP for Pharmaceutical Development, really is responsible for much of the core of what we do at Vectura; and Elizabeth Knowles, who many of you know, our excellent Head of Investor Relations and Corporate Finance.

I'd also like to introduce on the front row here-- maybe you want to wave your hand, Paul -- an opportunity to introduce Paul Tierney, who joined us last week as the head of the finance function now in Vectura just to support me with the finance side of the business during this interim period. So welcome, Paul.

Right. So just before I dive into the financials, I just want to pull out a few highlights for you that I think are important to underline about the first half. The first is we've had a strong financial performance in the first half, with double-digit increases in both revenue and adjusted EBITDA. And overall, our partner programs continue to progress very well and 315 Generic Advair has been absolutely no exception to that, progressing as planned and on track, we believe, for resubmission in late 2019.

In the first half, we also received a favorable jury verdict in the U.S. litigation case involving GSK, which obviously we were pleased about. And then post period, which you'll see in our full year numbers, we've also taken a decision to impair the VR647 nebulized budesonide asset in the balance sheet.

And I wanted to deal with this one right out front as this was obviously a difficult decision for us given that partnering discussions are still ongoing. But on balance, just given the status and the timing of those discussions and also just taking a very disciplined view and approach to our R&D priorities, our base case now is that we will not realize the value of that asset in the balance sheet and then we've taken a full impairment. And we think that's the right thing to do, and you'll see that in the second half numbers.

We also announced in July an important shift in the focus of our business model and our R&D priorities. And here I think we've made a number of positive steps that we regard in terms of building, what we regard as an industry-leading inhaled CDMO business, and I'm going to talk about this in much more detail in the second half of the presentation.

And then lastly, we also announced what is the largest capital return in the company's history, GBP 60 million. It's the first dividend in the company's history, and I think it reflects the shift both in the business model and also the confidence we have in the financial outlook for Vectura going forward.

So now just moving to the financials. And here, you can see some of the key financial metrics for the first half. Revenue is up strongly, growing 15%, with flutiform being the major contributor growing 43%. Our R&D's expenditure has continued on the downward trajectory we set out over the last couple of years, falling 10% versus the same period last year.

Adjusted EBITDA was up 11% in the first half, and our adjusted EBITDA margin has remained more or less in line with half 1 2018. We generated positive operating cash flow, although cash conversion was impacted by some working capital effects, which I'll explain a bit more about later. And overall, we continue to hold a large cash balance of GBP 106 million, and again, I will talk later about our capital allocation plans in more detail.

So moving then to product supply revenues. Flutiform, as I said, grew very strongly. So just at the product supply level, grew 46% versus last year. And there's a few dynamics which underpin this performance. The first, importantly, is that the first half 2018 is a low comparator, and many of you will remember that stock management activities by one of our distribution partners adversely impacted revenues in the second half of 2017 and into the first half of 2018. That's one reason why that growth rate looks quite so high.

However, when we look at the in-market sales performance from our partners as measured by IQVIA data, we can see some very encouraging growth, with the reported sales volumes up over 15% versus the same period last year. There has been growth across all regions, with a strong performance in Europe despite a declining market value and continued outperformance of the market in Japan.

I think it's also -- it's important to note there are some stock effects in the first half performance with our partners ensuring more local markets throughout the conservative end of their normal stocking ranges. Some of this will unwind in 2020, but we expect that to be gradual and not negating the gains that we've made in 2019.

Briefly on margin, on this slide, you can see the movement in flutiform gross margin. In March, we guided that this would normalize at around 35% for the year as the prior one-offs don't repeat. And indeed, this is what we have seen in the first half with margins coming in at 34.5%, and we expect this level to continue for the rest of the year.

Moving to royalties. Likewise in March, we guided that 2018 will be the last year we would receive a share of EXPAREL revenues, and we also reported that 2018 had benefited from a significant one-off milestone around AirFluSal. And if we exclude those effects, royalties were broadly flat for 2018, declining by 1%.

On the inhaled side, flutiform revenues -- royalties, sorry, have returned to growth, moving in line with Japan revenues only. We only receive royalties from Japan. Ultibro remains the market leader in COPD in Europe. But clearly, as we've seen in the Novartis results, year-on-year growth is slowing and our royalty has reflected that growing 2% and has benefited from a positive currency effect.

And on the noninhaled side, RAYOS has continued this very strong performance in 2019, partially offsetting the steady declines in some of the older products in that portfolio.

Last but not least, on the revenue side, we have development revenues, which were up 27% versus the first half '18. That's mainly due to the early filing in Europe of Novartis' QVM149 triple therapy, where we had the milestone on filing. The cash amount for this has been received in July. Other revenues are being recognized in line with work completed. And as I'll come back to later, this is a key area for growth for the group going forward as we shift our focus to a more specialty CDMO business model.

Moving to R&D spend. Here, as I said earlier, the overall level of spend has reduced by 10% versus the prior period. I think it's also important to point out that the mix has also shifted between partnered R&D, which as the name suggests is funded by our partners and what we, in March, called prepartnered R&D, which is funded by Vectura.

In the first half of 2018, nearly 2/3 of our R&D spend was on prepartnered R&D, much of it on VR475 and VR647. Whereas in the first half 2019, this was down to roughly half.

And this downward trajectory in R&D spend will continue, and as we said in July, our R&D investment priorities going forward will be firmly ongoing. The portfolio of programs funded by partners, meaning the proportion of R&D spend funded by Vectura alone will progressively reduce other than from some core platform technology investments.

So here, on this slide, we're making the bridge between our first half 2018 adjusted EBITDA result to the first half 2019, which shows more clearly we have a loss of EXPAREL revenues and some 2018 one-offs have been compensated by what is a strong performance in product supply and development revenues and then continued disciplined management of our R&D spend. And overall, that's enabled us to grow adjusted EBITDA by 11% to GBP 25 million.

That's the EBITDA, isn't it? That's cash, sorry. I might have just switched too quickly there. But anyway, this is the cash slide here. On this slide, we've made a bridge from our closing cash in December to the cash balance of 30th of June, and cash generation for Vectura is typically lower in the first half versus the second. But as I mentioned earlier, despite a strong performance in adjusted EBITDA, there's some working capital headwinds that have made a particular impact in this half.

This is partly due to the timing of cash receipts with around GBP 7 million due to be collected post 30th of June. QVM was one of those. And obviously, cash up front in previous years are only reflected steadily in revenue in later years. Also cash disbursements relating to the settling of VR475 closed down costs as well as costs associated with the GSK litigation, and U.S. had been a drag on cash generation in the first half. We expect to see a number of these working capital effects unwind in the second half, leading to a more positive cash conversion ratio in half 2.

So then just lastly, in the financial section, we are reconfirming again today the guidance we gave in March for an overall sustained performance in 2019, driven by continued good revenue growth offset by some margin mix effects.

And as we made clear in July, this guidance is now irrespective of the outcomes of VR647 partnering, which has been compensated really by the growth -- the strong growth in flutiform and disciplined cost control.

So now I'd like to move to discussing our strategic focus and R&D priorities, or put another way, I want to set out here who we are as a company, how we think we can grow the company going forward and how we aim to deliver positive returns to shareholders.

And so in simplest form, this is what we do as a company and where the focus will be going forward, and it is to help pharmaceutical companies turn their molecules into inhaled medicines that can be brought to patients. These molecules could be new molecular entities not yet approved or marketed, or could be generic molecules already delivered in inhaled form or perhaps not yet formulated as inhaled therapies.

And how do we do that? By essentially bridging our twin core capabilities or device platforms, dry powders, nebulizers or metered dose inhalers and formulation, which is preparing the drug in a way that can be inhaled and deliver the expected therapeutic benefit.

And we are one of the leaders in the provision of these inhaled solutions. It's due to our expertise in pharmaceutical development, our proprietary technologies and the breadth of our device portfolio, which we believe no other company can match. And this enables us to give any prospective partner the confidence that working with a company like Vectura, we will maximize the probability that their molecule will realize its full commercial and therapeutic potential.

And another reason why we are one of the leaders in this space is because we believe our track record -- I mean Vectura has been built over many years since its beginnings as a spinout from Bath University by acquiring inhaled specialist companies in both the device and formulation fields. And this has enabled us to bring the benefits of our technologies and know-how to some of the best pharmaceutical companies in the world. And we are very proud to be associated with several important inhaled medicines that are marketed today. And in a way, what we talk about as a strategic focus and R&D priorities is in many ways the company is going back to its roots and doubling down on what has been a fundamental strength for the company over many years.

And in terms of the capital, the services and the solutions which we specifically offer, I think we can best think about these by looking at the process of bringing a drug to market, from drug discovery through preclinical and clinical development phases and ultimately to commercial scale, manufacture and launch.

And perhaps, it's best to start with what we don't do. We're not a drug discovery company. But rather, enter the picture when the molecule has already been synthesized and the biological rationale has already been established. Likewise, we will not fund or manage clinical trials where CROs and pharmaceutical companies have their core expertise, and we do not employ sales forces to commercialize products. But what we do provide is a range of services and solutions which span the preclinical, clinical and scale-up phases of an inhaled drug development, including commercial-scale manufacture.

During the preclinical and clinical phases, for example, we can help the partner find the right device, spanning all the main inhaled drug delivery dosage forms and the right formulation through to the supply of product for small and large-scale clinical trials. And we do this by applying our expertise and our know-how, but also using proprietary technologies that we've invested in over time.

And in 2018, we earned around 10% of our revenues from these development activities. And once clinical trials are well advanced, we can support partners in transferring processes and technologies to commercial-scale facilities. Or by using our network of suppliers, we can undertake manufacture of all or parts of the product for the partner as we do today for Mundipharma, for Kyorin, Bayer and Sandoz. And in 2018, we earned around 53% of our revenues from these product supply activities.

And once the commercial launch and sales effort to grow a product is not our core competency, we can still financially participate in the success of a product through earning royalties, reflecting our intellectual property and have that as contributor to bringing the product to market. And in 2018, we earned around 37% of our revenues from this source.

And this is basically the business model of a specialty contract development and manufacturing organization or CDMO, and our flavor of this organization is one where our specialty is inhalation and where when we believe there's significant opportunity for growth initially in the [AD] or development service revenues.

And why do we believe that we can grow those revenues? Well, the global CDMO market is a very large market. It's over $70 billion a year and growing, but clearly we are only playing in a -- in one part of that market, which is the in sales -- inhaled segment. However, based on our analysis and our experience, we see a significant market opportunity for Vectura here.

Firstly, we can continue to see a large number of molecules in the pipelines of pharmaceutical companies for respiratory diseases. But increasingly, we also see companies prioritizing the inhaled route for niche respiratory diseases and nonrespiratory diseases, CNS, oncology or cardiopulmonary, for example. And of the 300 or so molecules listed in global data with inhalation as the primary route to administration, around 33% of those were nonrespiratory diseases.

Secondly, 70% of these inhaled focus pipeline molecules are in pre Phase II and in phases where we think Vectura can add significant value to their development. And then when you look at who is developing these molecules, the nearly 90% are in small and medium companies, which are unlikely to build a device and formulation capability for themselves and where Vectura can maximize their chance of realizing the potential of their R&D investment.

And then finally, overlaying the general pharma market trend towards outsourcing, we do see a significant opportunity for the company. And stepping back from the analytics for a moment, this is what we actually see in the market. And despite not strongly promoting ourselves in this market or as a CDMO player over the last few years, we've had a consistent and material interest from companies who see Vectura as having the right capabilities to help them develop their inhaled products.

And in addition to the market demand for inhaled delivery solutions, we also believe there's a significant opportunity to continue to innovate and consequently differentiate ourselves in the inhaled space. Market trends towards the using the inhaled route outside of the traditional asthma and COPD areas, for example, bring new challenges, such as the need for higher payload devices or much more targeted delivery to specific sites in the lung.

And the growth in biologics and the characteristics of those molecules also bring new challenges for formulation and delivery. And of course, trends towards digital health and sustainability offer a company like Vectura an opportunity to build platform leadership, and this is what we intend to do with our technology strategy rooted in market insight and with the appropriate investment clearly aligned to it.

And on this slide, I have set out our strategy for capturing this opportunity for growth. And I won't go through all of these pillars, but I would like to highlight just 3. The first pillar is clearly on winning new business, and I'm pleased to say we've begun this process. We have 2 new feasibility studies recently started. But let me be clear, these are early steps and we have a lot more to do.

But as we ramp up our business development effort, we hope to build on the number of these studies and the rate of conversion of these to larger deals. And the deals we look for today will encompass new molecular entities, not just generics. And in a broad range of respiratory and nonrespiratory diseases and not just the traditional bastions of aspirin COPD. To give you an example, both of the feasibility studies I mentioned and at least 2/3 of the projects currently under discussion are all for NMEs.

Under the third pillar, we highlight the shift to a development solutions or CDMO model. And among the implications of this focus is the impact on the way we earn development revenues going forward. Historically, we've been more dependent on lumpy milestone payments for our earnings under coinvestment-style agreements. But going forward, our agreements will be less dependent on milestones with a smoother earnings profile over the life cycle of a deal. And it's this model, which allows us to work with new molecular entities without importing that risk into our earnings profile.

And the last pillar focuses on financial discipline and describes what we intend to be disciplined about. This includes reducing R&D but also is ensuring we generate a lower risk R&D profile and that we focus our capital on the priorities we sit at and not elsewhere.

And we believe by applying this disciplined approach, we'll shift the profile of the business to one that continues to be cash-generative and which is -- but with a lower R&D risk profile and which is primarily focused on organic growth as we leverage our core capabilities to capture market share. And it's important to underline there are also a number of future potential events over the next 3 to 4 years, for example, achievement of an EXPAREL sales milestone, each of which could generate a material cash bonus inflow to the company.

And a business with this kind of profile has a reduced need to run a highly conservative balance sheet and accumulate cash. And that is why today, we have announced a substantial capital return but also signaling that capital returns are a logical consequence of this business model and the profile that we're seeking to build.

As I said in the beginning of the presentation, the capital return that we're announcing today is the largest in the company's history. It is the first dividend we ever declared. And in thinking about the right mechanism for this return, we have listened to our major shareholders and reflected their preference to reward existing holders, thus providing some liquidity during which is -- what is clearly an uncertain period for financial markets in general.

We believe we have the right package here, which is also quick and efficient to execute on.

Some extra audience outside the window. You could have come inside.

And lastly, just to close here, underlining again what I think has been a strong first half for an organization which is very clear about where it is going and how it can create value, making good progress towards this and we are making good progress. It's not dependent on the new CEO coming on. We are making good progress and making disciplined decisions as to how it uses its capital.

So on that note, I'd like to invite questions from the folk in the audience, and then we'll turn to the webcast. If you could just state your name, where you're from and try to keep it to one question at a time, that would be great. Thank you very much.

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Questions and Answers

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James Daniel Gordon, JP Morgan Chase & Co, Research Division - Senior Analyst [1]

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James Gordon, JPMorgan. Three questions, I'll do them one at a time. One was just the flutiform Rest of World, I think sales grew 35% last year and then 75% this year. So 74% in the first half, so why the acceleration? Is there something lumpy in that or do we need to be careful, could that unwind a bit in the second half? Yes. That's the first question really.

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Paul Fry, Vectura Group plc - Interim CEO, CFO & Executive Director [2]

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In Rest of World, as you can imagine, there's some steady business in there but there's also a lot of contracts in many markets, some of them quite large contracts with government agencies and so on. So what we -- luckily Mundi has won quite a few of those, and that's helped a bit with supply. And we continue to work with them to make sure that we're competitive and then we can continue to win those and more going forward.

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James Daniel Gordon, JP Morgan Chase & Co, Research Division - Senior Analyst [3]

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The second question is just on R&D. So the CDMO model, what is the implication of how quickly R&D goes down? Is the way to think about it that what was effectively the proprietary R&D, that goes away within 2 or 3 years? How quickly could R&D go down?

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Paul Fry, Vectura Group plc - Interim CEO, CFO & Executive Director [4]

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Yes. I mean we -- as I said earlier, we've progressively reduced that, so it's not going to be an overnight thing and we will give you some guidance as soon as we can as to what the shape of that will be. But you're right, direction of travel will be reducing the nonpartnered R&D. There will remain some which is reflective of the investments we make in our core platforms which really supports future partnering deals. But the bulk of it would then be refocused, redeployed on partnering deals as we sign new deals which will be profitable when you take them into account. But yes, you can expect that to decline. The time line you talked about is not unreasonable.

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James Daniel Gordon, JP Morgan Chase & Co, Research Division - Senior Analyst [5]

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Okay. And then final question, the CDMO model, if I understand correctly, is that you're going to get more royalties and less lumpy milestones. But if the projects you're doing are quite early stage, does that mean there's going to be quite a long way to make some money because the -- you have to wait for the products to get to market and get reasonably big before there's royalty starting up?

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Paul Fry, Vectura Group plc - Interim CEO, CFO & Executive Director [6]

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That's the model we don't want. So essentially, the way we think about this is -- perhaps the way deals with infrastructure in the past and more of our current investment basis -- is that we have taken some milestones from time to time. But actually, the profitability of those contracts during the development phase has not been so good, and we've actually had to wait later for quite large milestones or large milestones. We want to change the balance of that, and that's accept perhaps lower royalty rates later during the life cycle of the product -- of the project when we're working on the development with a partner that we're getting paid a good rate for that with a margin, so we're making profit throughout the life cycle. And that's the only way really we can take on NMEs because obviously the probability of going to market with those are lower than perhaps a generic. And if we were to take all the risk on the late payout, then we'd struggle, I think, to get a positive return. But in this way, we think we will aim to be making money on all projects all of the time and then receive some royalties later if our IP is involved, and when they get to market.

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Julie Simmonds, Panmure Gordon (UK) Limited, Research Division - Equity Research Analyst of Healthcare [7]

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Julie Simmonds, Panmure Gordon. Interested first on how much investment you need to put into shifting to the CDMO model. Is there going to have to be a certain amount of CapEx on bringing in new technologies or do you have enough? And on the sort of general expenses, so is there a shift in terms of personnel that's required to move to the new model?

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Paul Fry, Vectura Group plc - Interim CEO, CFO & Executive Director [8]

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Well, first of all, I would say this is a business that we've kind of been in for many, many years, so a lot of the core capabilities of delivering these services we have. Certainly, on the business development side, in terms of ramping up that sort of sales and marketing effort, as I said, it's probably something we've not invested in substantially over time. But we are going to do a lot more of that. So there will be some investment in that area. I think just broadly, we don't see any big reasons or needs to invest lots of CapEx or new expenses right now. We will have a technology strategy focused on what we think are the important technologies to focus on. But I think that's well within the kind of numbers that we're already -- we already have in our R&D bank, if you like. So I don't see an exceptional CapEx or expenses associated with that.

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Nick Peter Russell Nieland, Citigroup Inc, Research Division - VP and Analyst [9]

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It's Nick Nieland from Citi. I've got 3 questions, please. First one, on your IL-13 fragment which you terminated last year, does that now look like it fits in with your new business model. Is that something that you would relook at?

Second question is on your litigation with GSK. What are you expecting? I think we can hear this month's -- a ruling on royalties between -- or from the beginning of '19 onwards. Can you tell us what you're expecting there and how that might look?

And then thirdly, just on 632, which was launched, have you got information that you can share with us on how that launch is progressing?

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Paul Fry, Vectura Group plc - Interim CEO, CFO & Executive Director [10]

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Okay. So if I just deal with the litigation question, there may be a pass to Geraldine for IL-13. And then [Lizzie], if you want to touch on the 632. So just on the litigation, as you know, we have the positive jury verdict in the first half, which awarded us more or less $90 million for the period 2016 to 2018. It's now with the judge on deciding what the award should be for 2019 up to the end of the patent, which is 2021, plus any other damages or whatever involved.

We've made our applications to GSK, [Mendez], he's now considering that. We expect a view from him at any moment, but within September is our expectation. And also we'll let you know as soon as possible. In terms of the size of that, I really don't know. I'd like to think that they apply the same methodology to the second period as the first but really that's down for the judge, and we'll see what comes out of it. I would say once we have that view, clearly, GSK have an opportunity to appeal. And if they do, then that would probably kick it on another year before we can have some certainty about that income. So right now, we have not recognized any asset or income from our financial statements. Geraldine?

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Geraldine Venthoye, Vectura Group plc - EVP of Pharmaceutical Development [11]

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To pick up the point on the IL-13 fragment, that was the UCB partnership that we had, that was a -- the kind of coinvestment and partnership that we're signaling right now, we're not going to be entering into the future. It was a great program for us because it really did establish us as being a company that could work with biologics. We established our ability to do particle engineering and to have devices that we're also able to deliver that kind of product into the lung. But that was a coinvestment that requires quite hefty investment from our side, both in terms of resources but also in terms of investment. And that's obviously a very risky type development and the kind of development we're not going to be investing in, in the future. But what it has done is given us the ability to work with biologics again. And as we move now into more CDMO model, we're going to be relooking at establishing that capability again in-house to be able to accept those kinds of products where we're actually in more of a CDMO model in being reimbursed for that development along the way and not taking on that risk.

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Paul Fry, Vectura Group plc - Interim CEO, CFO & Executive Director [12]

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Still would like to do but different economics, yes.

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Geraldine Venthoye, Vectura Group plc - EVP of Pharmaceutical Development [13]

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So in terms of 632, that product has now launched and in terms of how that launch is going, I guess that's a question that Sandoz might be able to advise on. And in terms of what that means for [VG], obviously it's a great combination of our device technology. But there are no material impacts in our half 1 numbers from that launch.

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Stefan John Hamill, Numis Securities Limited, Research Division - Director of Equity Research [14]

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Stefan Hamill from Numis. I've also got 3, one at a time. Looking at Slides 10 and 11 in the pack, the development revenues you've earned are essentially GBP 7 million. The breakdown of R&D is very, very helpful and the partnered R&D is GBP 12 million. So we're at minus GBP 5 million on our net R&D if we think about the ramp is going to remain long-term. So I guess I'm interested in how that will evolve and how long it would take.

So just focusing on partnered R&D at the moment, I would presume that there's an overhead component there and we need a certain critical mass of projects to sort of cover that. How long do you think it might take to get into sort of net profitability on that activity? Are we talking 2 years or longer?

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Paul Fry, Vectura Group plc - Interim CEO, CFO & Executive Director [15]

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As you expect, I'm not going to give you a date on that. But we are working very hard, and we'll move as fast and as is sensible to achieve that. I mean clearly, you can't remove all costs overnight. Similarly, we don't want to remove costs that the next year we're going to need because we've signed a deal with [Equirus]. We've got to be quite thoughtful about how we do that, and we'll do it at the right pace. But it is an important priority for us. We think that trajectory needs to be done. We think it needs to be allocated in the right way, and we're going to move as fast as we can to achieve that.

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Stefan John Hamill, Numis Securities Limited, Research Division - Director of Equity Research [16]

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You think it will come to the prelims in March? You'll have a sort of decent view of what it might look like at least on the 1-year view?

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Paul Fry, Vectura Group plc - Interim CEO, CFO & Executive Director [17]

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I'd like to think that we could give you a much more informed view as to how it will evolve.

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Stefan John Hamill, Numis Securities Limited, Research Division - Director of Equity Research [18]

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Okay. And then I guess looking at the other chunk of R&D, the anticipation there is that that's obviously coming down quite materially. But I guess it has to remain if we're going to continue to invest in our formulation and device capabilities. So what proportion of -- firstly, is there an intention to keep renewing formulation and device platform? And was the proportion of that overall is necessary...

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Paul Fry, Vectura Group plc - Interim CEO, CFO & Executive Director [19]

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So I'm not going to give you a number on that. Again, when we're ready, we'll let you know. It's not a huge number, or I would say, and it's a mix of OpEx but also of CapEx but not massive. But yes, we firmly intend to continue to invest in our device platforms and our formulation technologies. And we think we're differentiated on those now, as I said in the presentation, I think we're in the market of going to the sorts of business that we get approached for and we think we can win. There's an opportunity for us to invest in technology to continue to lead the market and to be differentiated, and to create some intellectual properties still along the way. So definitely, we'll be allocating investment to that. It's not going to be huge, but it will be there.

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Stefan John Hamill, Numis Securities Limited, Research Division - Director of Equity Research [20]

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And just the last one on the nebulized platform. So obviously you've taken a decision on 647 and it's clear that the 3 other assets that you've been working on, you're looking for partners but not going to invest materially in those. But just beyond that, there's also a potential in the CDMO model. There is a lot of interest in using nebulized for some more complex delivery. So there's still the intention to keep that within the group, that capability.

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Paul Fry, Vectura Group plc - Interim CEO, CFO & Executive Director [21]

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Capability, absolutely. The nebulized platform is -- we think is a very competitive differentiated platform. Again, it's one of the things that drives a lot of interest towards us from partners. So absolutely that is a platform that's critical and strategic for us. In terms of those kind of ideas, which are taking good device platforms, combining them perhaps with molecules that are either not been inhaled before or have been using different settings, I think those are great ideas and we'd be delighted to work with people on those. And we do get that kind of incoming as well. I think what we're saying today really is in terms of our capital allocation, if we continued with those assets ourselves, we would have been entering clinical phases, it was going to get very expensive. And we think we're best allocating our capital to what we think is a very significant growth opportunity for the business in more of that contract space. If we can realize some value on those assets, we will. But the real focus for capital is on the CDMO piece.

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Max Stephen Herrmann, Stifel, Nicolaus & Company, Incorporated, Research Division - Head of European Healthcare Equity Research & MD [22]

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It's Max Herrmann from Stifel. Just one question. Just conceptually, I mean if you look at obviously your kind of collaborations with Hikma that you've created over the years and looking at the Ellipta generic programs, I mean a lot of that -- you're taking proactive decisions on how you want to build your programs. I think what you're saying now is you're going to be reactive to the market rather than proactive. And conceptually, how -- that would mean a lot of these opportunities that you've ended up in, in the business currently will not happen going forward.

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Paul Fry, Vectura Group plc - Interim CEO, CFO & Executive Director [23]

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I don't know if that's a reasonable assumption to make, actually. We've got a lot of smart people who spend a long time in this space. And we have ideas, some of them we were executing ourselves. We have a lot of others. And I think we aim to be a good partner and people that can bring thoughts and proposals and ideas to people and not just react to them. So I think to say that we're moving to a more reactive stance, I'm not sure is fully the case. We'd expect to have good relationships with -- as we do today, very well networked within the pharma space and be able to bring thoughts and ideas and proposals to them as well as react to people's pipelines and the opportunities they bring to us.

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Max Stephen Herrmann, Stifel, Nicolaus & Company, Incorporated, Research Division - Head of European Healthcare Equity Research & MD [24]

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Yes. Just to follow up on obviously the nebulized products, I mean I know you guys have been talking about -- ever since they were acquired about doing more partnering deals with those, and we've seen really nothing on that. So I know there's been lots of interest, but all we've heard this -- the historical deals that were done by -- I think it was by [Eric Ryan], were never commercially viable.

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Paul Fry, Vectura Group plc - Interim CEO, CFO & Executive Director [25]

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I think the issue has been more that our focus or the company set out that its focus would be clearly on generics and investing in our own nebulized pipeline. We've turned business away or not deliberately focused on trying to sign nebulized deals for NMEs or anything else. So I would say, it's not that we've been unsuccessful in trying to partner those things. It's just that we haven't really focused on trying to generate new business in that way. And we think, again, given just what we've got in hand today that, that is a significant opportunity for us.

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Unidentified Analyst, [26]

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A very similar question really, but specifically on the Hikma agreement for the development of the -- codevelopment of a number of Ellipta generics, could you -- I mean does this now fall within your strategic priorities? Presumably, it doesn't, really. And then -- and if so could you remind us of your commitments, please?

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Paul Fry, Vectura Group plc - Interim CEO, CFO & Executive Director [27]

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That's a huge deal for us. And notwithstanding where we see the growth opportunity for the company going forward, we are absolutely committed to those Hikma programs, and Hikma is the same. They're hugely valuable for us. We think we have a strong leadership position in that. They're going extremely well. We think the opportunity is high. You're right in terms of that the economics of those, they're much more of a codevelopment-type agreement. And I think going forward, we want to transition away from those sort of agreements. But for this one, this is incredibly important and we're very committed to it.

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Unidentified Analyst, [28]

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Just one follow-up, please, on 315 and what news flow we can expect for that. So are we going to see data from the clinical trial or will we just get a press release when you resubmit it? And I, you know, think what the -- what sort of review time we can expect.

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Paul Fry, Vectura Group plc - Interim CEO, CFO & Executive Director [29]

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I mean we -- obviously, we're expecting filing by the end of the year. In terms of the review time, we'd hope that, that would then fall within 2020 in terms of the ability to launch. In terms of what we say, when we say it, we will be working with Hikma on that for what's appropriate to say and when we should say it, so kind of watch that space.

Good. So if we have no more questions in the room, then I'll just check if there are any questions on the webcast. No questions? All right.

Well, look, thanks again for coming along today. I really appreciate your attendance, and we'll close it here. Thank you.