Vernalis Plc Vernalis ANNUAL REPORT and ACCOUNTS 2015/16

Vernalis plc Vernalis ANNUAL REPORT AND ACCOUNTS 2015/16

Vernalis plc ANNUAL REPORT AND ACCOUNTS 2015/16 Vernalis plc Annual report and accounts 2015/16 Overview

Who we are Vernalis is a commercial stage Our business model balances risk pharmaceutical company with and innovation, with the aim of three marketed products; Tuzistra® XR creating value through a focused in the US prescription cough cold and disciplined three-tier strategy: market, Moxatag® the only once- daily amoxicillin approved in the Building a profitable and cash- US for tonsillitis and pharyngitis, and generative business by developing and commercialising low development-risk, frovatriptan an acute treatment for late-stage differentiated pharmaceutical migraine. The Company also has products for unmet medical needs. four further prescription cough cold Partnering our NCE drug candidates, products under development with earning milestones and royalties as Tris and a broad pipeline of NCE partners progress them to the market. development programmes and Leveraging our fragment- and structure- based drug discovery expertise and proven research collaborations. record of success to enter into revenue generating collaborations with larger pharmaceutical companies with potential to receive milestone payments and royalties.

Overview Directors’ report Financial statements 01 2015/16 at a glance 26 Board of directors 49 Independent auditors’ report 02 Chairman’s and Chief Executive 28 Directors’ report 51 Consolidated income statement Officer’s statement 51 Consolidated statement of Corporate governance comprehensive income Strategic report 32 Corporate governance 52 Balance sheets 04 Our strategy and business model 37 Remuneration report 53 Statements of changes in equity 06 Business review 48 Statement of directors’ responsibilities 54 Cash flow statements 18 Financial review 55 Notes to the financial statements 22 Principal risks and uncertainties Additional information 91 Shareholder information 92 Glossary of abbreviations/definitions ibc Addresses and advisers

Vernalis plc Annual report and accounts 2015/16 Annual report and accounts 2015/16 Vernalis plc Vernalis plc Annual report and accounts 2015/16 Annual report and accounts 2015/16 Vernalis plc Vernalis plc Annual report and accounts 2015/16 Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Overview Corporate governance Overview Corporate governance Overview Corporate governance Overview Corporate governance Overview Corporate governance 08 Strategic report Financial statements Strategic report Financial statements 09 10 Strategic report Financial statements Strategic report Financial statements 11 12 Strategic report Financial statements Strategic report Financial statements 13 Directors’ report Additional information Directors’ report Additional information Directors’ report Additional information Directors’ report Additional information Directors’ report Additional information Directors’ report Additional information

Business review Business review Business review COMMERCIAL PIPELINE COMMERCIAL PIPELINE COMMERCIAL PIPELINE CONTINUED 2015/16 TUZISTRA® XR LAUNCH GOALS CONTINUED CONTINUED

Recognising that our evolution to a full their prescription fi lled. These programmes commercial stage company would are working well and we continue to trigger signifi cant operational changes monitor the level of benefi t provided to THE FACE THE FACE THE FACE THE FACE to what had been a development stage ensure Tuzistra® XR remains affordable. company, we set ourselves realistic goals Supply • Routine supply from Tris  ® OF VERNALIS OF VERNALIS OF VERNALIS OF VERNALIS for Tuzistra XR’s fi rst year on the market. The fi nal area of focus for 2015/16 was •  Routine 3PL operations ® These include goals across: supply chain; to establish our fi eld sales force and to Sandy Sommer* Jillian Armenti* Dr Louis J Citarelli, MD* Tuzistra XR patient* trade distribution; patient access and begin building awareness of Tuzistra® President and Chief Operating Professional Sales Physician/Internal Medicine, Mary, NJ affordability; and sales force effectiveness. XR with high cough cold prescribing Trade • Wholesaler contracts  physicians. Our expectations for our Offi cer, VTI Representative, Orange, NJ Nutley, NJ distribution •  In supply chain, the 2015/16 focus was fi rst year were very modest, recognising National distribution to establish routine supply from Tris and that the sales representatives were new • Pharmacy stocking Ongoing warehousing and distribution at our 3PL and did not have existing familiarity partner. Both of these were completed or relationships with our target in early summer 2015 and have been physicians. In addition, Tuzistra® XR is • Tier 3 non-restricted coverage Ongoing fully operational for the whole of the a new brand with which neither the Patient year. Our fi rst year commercial goals sales representatives nor physicians access • Patient access coupon  for trade distribution were to establish are familiar. Performance in the fi rst 12 national wholesale distribution and months since launch was modest with widespread pharmacy stocking. Although approximately 12,000 prescriptions fi lled. we achieved our wholesale distribution  SUPPORTED BY PHYSICIAN MARKET goals with 15 customers holding Our goals for the approaching cough Brand • Establish fi eld force RESEARCH FROM CODEINE AND our inventory in over 70 distribution cold season are to secure wider formulary awareness • Field force effectiveness Ongoing centres, achieving pharmacy stocking coverage and pharmacy distribution HYDROCODONE PRESCRIBERS and usage • Build brand awareness Ongoing has been much slower than we had and to build sales force effectiveness INDICATING SIGNIFICANT hoped. This has limited early Tuzistra® XR within our target physician audience • Grow prescriptions Ongoing POTENTIAL USAGE AND MARKET prescriptions because physicians are less whilst maintaining patient affordability. SHARE likely to prescribe until stocking is more We will monitor performance against widespread. We estimate that ~25 per these goals which, if achieved, will cent of prescriptions written by physicians position us favourably for accelerated are abandoned by patients, some of growth in prescription volume in the TUZISTRA® XR US PRESCRIPTION COUGH COLD MARKET which is due to lack of pharmacy stocking. 2016/17 cough cold season. MAT June 2016 ONE DOSE A DAY MAT June MAT June MAT June MAT June MAT June • Our fi rst year patient access and Moxatag® 2011 TRx m 2012 TRx m 2013 TRx m 2014 TRx m 2015 TRx m TRx m % vs 2011 % • INDICATED FOR THE TREATMENT affordability goals focused on establishing The US rights to Moxatag®, a once-daily Narcotics 19.1 17.0 19.0 16.3 16.1 14.1 42 (26) OF TONSILLITIS AND/OR formulary coverage under commercial formulation of amoxicillin, were acquired Codeine 13.3 11.7 13.2 11.4 12.4 11.1 33 (16) PHARYNGITIS SECONDARY TO healthcare insurance plans and in October 2015, to expand our primary +Antihistamines 5.6 4.9 5.3 4.6 4.7 4.3 13 (22) STREPTOCOCCUS PYOGENES providing patients with co-pay assistance care product portfolio and leverage +Expectorants 6.8 6.0 7.1 6.2 7. 2 6.4 19 (5) FOR ADULTS AND PAEDIATRIC programmes to make their out-of-pocket our US commercial infrastructure. +Others 0.9 0.8 0.8 0.6 0.5 0.4 1 (59) • costs affordable. We anticipate that it will PATIENTS (12 YEARS OF AGE take 24 months to achieve our formulary Following the acquisition, we successfully Hydrocodone 5.8 5.3 5.8 4.9 3.7 3.0 9 (48) OR OLDER) coverage goals of unrestricted tier-3 re-established product supply from +Antihistamines 2.7 2.5 2.7 2.3 1.7 1.4 4 (49) coverage on formularies covering 75 per its FDA approved manufacturing +Anticholinergics 2.9 2.5 2.8 2.5 1.9 1.6 5 (44) +Others 0.2 0.3 0.3 0.1 0.1 0.0 0 (96) cent of commercial lives. We made good partner, Suir, in March 2016. ® ® progress in 2015/16 with ~60 per cent of “ As the President and COO of Vernalis Therapeutics, Inc., I am in the privileged “ I am a Sales Representative for VTI and work within the Northeast region in “I recommend Tuzistra XR to my patients when they are suffering with cough “ I was prescribed Tuzistra XR about a month ago. Before that I had tried various Non-narcotics 16.2 12.4 15.2 15.2 18.6 19.4 58 20 ® commercial lives covered with unrestricted In May 2016, Suir entered liquidation and position of leading the US organisation through an exciting period of growth. the Orange, New Jersey territory. I speak to Healthcare Practitioners (HCPs) and cold symptoms because one dose every 12 hours provides extended treatments but nothing stopped my cough. Tuzistra XR made me feel so much access. However, there are notable so activities are underway to establish Dextromethorphan 9.7 6.3 7.3 7.2 8.9 8.9 27 (8) We have a unique portfolio of cough and cold medications that offer patients about prescribing Tuzistra® XR to provide extended-relief to patients suffering cough relief. I have a good working relationship with Jillian Armenti, my local better and it allowed me to fi nally get on with my life without coughing.” gaps which, together with maintaining and qualify an alternative manufacturing +Antihistamines 2.6 2.7 3.5 3.4 4.2 4.4 13 68 a distinct dosing advantage over what is currently available today. With the from cough and symptoms of the common cold or upper respiratory allergies Vernalis Therapeutics representative, whom I fi nd knowledgeable about the coverage already achieved, will be site for ongoing supply of the product. Triple-combinations 7.1 3.6 3.8 3.8 4.7 4.5 13 (36) talented team we have in place, coupled with a rapidly expanding portfolio while ensuring pharmacies have the product on-shelf for patients to get Tuzistra® XR and helpful in addressing any access concerns.” priorities for 2016/17. During 2015/16 ® we have made available two parallel The product will be relaunched into the Benzonatate 5.7 5.9 7.8 7.9 9.4 10.3 31 81 of approved products, we are poised to become one of the leading cough on treatment right away. The response to Tuzistra XR has been extremely co-pay assistance programmes with US market in September/October 2016 Other 0.8 0.2 0.1 0.1 0.3 0.2 0 (80) and cold companies in the United States.” positive and as a valuable partner with my HCPs and their offi ce staff, I am patients able to access either of them in a limited number of regions, until excited to continue positive momentum into this cold and cough season Total 35.3 29.4 34.2 31.5 34.7 33.5 100 (5) depending on their insurance coverage ongoing supply has been re-established. to ensure Tuzistra® XR is their preferred prescription cough treatment for their and the pharmacy in which they have * Source IMS NPA TRx data Vernalis analysis appropriate patients.” Disclaimer: Image shown is of a model to protect patients’ identify

PAGE 8–9 PAGE 10 –11 PAGE 12–13

Cautionary statement This report and accounts has been prepared for, and only for, the members of the Company, as a body, and no other persons. This report and accounts contains certain forward-looking statements with respect to the operations, performance and financial condition of the Group. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this report and accounts, and the Company undertakes no obligation to update these forward-looking statements. Nothing in this report and accounts should be construed as a profit forecast. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 01 Directors’ report Additional information

2015/16 at a glance

FINANCIAL HIGHLIGHTS FOR 12 MONTHS TO 30 JUNE 2016:

£12.0 million REVENUE £ million Of revenues £84.0 million 2016 £8.0m £2.9m £1.1m £12.0m

Of cash resources and no debt at 30 June 2016* 2015 £8.8m £4.9m £13.7m £38.9 million Collaborations Frovatriptan Tuzistra® XR Equity fundraising (net of expenses) in May 2016 CASH RESOURCES £ million £36.6 million

Operating costs (pre-exceptional items) for the year 2016 £77.0 m £7.0 m £84.0m including the launch costs of Tuzistra® XR £23.6 million 2015 £42.5m £18.8m £61.3m Held-to-maturity ﬁnancial assets Cash and cash equivalents Cash used in operations £14.5 million Loss for the 12 months after exceptional items

OPERATIONAL HIGHLIGHTS: OUR OBJECTIVES AND AIMS FOR THE NEAR TERM INCLUDE: Tuzistra® XR Tuzistra® XR Launched into US prescription market (September 2015) Drive sales growth throughout 2016/17 cough cold season Moxatag® CCP-07 US rights acquired (October 2015) Potential NDA approval (April 2017) CCP-07 CCP-08 Single-dose and multiple-dose bioavailability File NDA with the FDA in 2016 studies completed (December 2015 and April 2016) CCP-05 & CCP-06 CCP-07 NDA Achieve POC for both programmes NDA accepted for review by the FDA. PDUFA date set of (financial year 2016/17) 20 April 2017 (September 2016) Research CCP-08 Secure further research collaborations and receive Single-dose and multiple-close bioavailiability studies milestone payments completed (April 2016 and July 2016) Cash Targeted investment to achieve commercial success

* Cash resources includes cash, cash equivalents and held-to-maturity financial assets. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 02 Strategic report Financial statements Directors’ report Additional information

Chairman’s and Chief Executive Officer’s statement

Vernalis’ transition to a diversified The business has made significant self-sustaining specialty progress over the last 12 months in transitioning towards a self-sustaining pharmaceutical company specialty pharmaceutical company. continues to plan with the launch Critical to this transition was the on-time of Tuzistra® XR, the acquisition of FDA approval of Tuzistra® XR enabling Moxatag®, the filing of CCP-07 NDA its launch in September 2015 ahead and the successful completion of of the 2015/16 cough cold season. This followed hiring our field sales team, CCP-08’s development activities. which was established through the inVentiv contract sales organisation, and establishing supply chain, wholesaler and pharmacy distribution, payer access and full commercial support functions. While the initial season’s prescription performance was modest, we successfully established full US commercial capability and our commercial priorities for the coming season are to continue to build pharmacy distribution, payer access and sales force effectiveness which are key to delivering an acceleration in prescription growth. One year into the launch, we remain extremely excited about the sales potential for Tuzistra® XR.

Our four cough cold pipeline programmes have progressed well under Tris’ guidance. Both CCP-07 and CCP-08 could potentially be approved and launched into the 2017/18 cough cold season and CCP-05 and CCP‑06 could achieve POC during the 2016/17 financial year.

PETER FELLNER CHAIRMAN AND IAN GARLAND CHIEF EXECUTIVE OFFICER Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 03 Directors’ report Additional information

US COMMERCIAL INFRASTRUCTURE Approved by the FDA on 30 April 2015, launched into IN PLACE the US prescription cough cold market in September 2015 COUGH COLD FOCUSED PRIMARY CARE FIELD SALES FORCE ESTABLISHED

In order to leverage our commercial There have been a number of positive As we continue our transition to infrastructure, in October 2015, we developments in our NCE pipeline, most a commercial business, we have ® acquired the rights to Moxatag , the notably our two A2A programmes, which further strengthened our Board and only US approved once-daily amoxicillin are now both being investigated in management team. Dr Ian Gilham to treat tonsillitis and pharyngitis. This immuno-oncology by our development joined on 1 July 2015 as a Non-Executive product is an excellent fit with our US partners. We announced Corvus as Director and Chair of the Remuneration commercial capabilities and, following our partner for V81444 (now known as Committee and Lisa Schoenberg manufacture of launch stocks in Q2 2016, CPI–444) during the year and also that our joined on 1 September 2015 as a Non- will be launched ahead of the 2016/17 vipadenant (V2006) partner, Redox, was Executive Director. Lisa has substantial winter season. In May 2016, we were acquired by Juno, a leading US immuno- US commercial experience from her time informed that our existing supplier had oncology company. Both partners are as a senior member of AstraZeneca’s US gone into liquidation and following the extremely well positioned to progress these commercial operations. On 1 May 2016, liquidator’s inability to find a purchaser programmes and we hope for further we hired Sandy Sommer as President of the Suir business, we will limit our positive news flow over the next 12 months. and Chief Operating Officer of our commercial effort while we continue to Vernalis Therapeutics, Inc. commercial work on re-establishing longer term supply The research business continued its business in the US. Sandy joined us with of the product. We estimate that this strong performance, both operationally 24 years of commercial experience in could take 18–24 months to complete. and financially. Revenues of £8.0 pharmaceutical sales, marketing and million again more than covered costs, general management and is leading Historically, frovatriptan revenues have including capital expenditures. our US commercial business as it subsidised the cost of our development grows rapidly over the coming years. activities, but in December 2015 the core The focus for the Company over the composition of matter patent expired, next few years is to drive significant top We would like to thank the Board resulting in generic competition in line sales growth of our US commercial members and our staff for their several European markets. Sales have products and to move into profitability. contributions during another reduced and we expect to see further We are well positioned to achieve such successful period and our shareholders erosion in terms of both volume and growth, initially through Tuzistra® XR and for their continued support. price as more generics are approved. Moxatag® and in the near to medium term through the potential approval and Following the build out of our US launch of CCP-07 and CCP-08 in 2016/17 commercial infrastructure, our operating and CCP-05 and CCP-06 in 2018/19. costs, as expected, have increased significantly. In May 2016, we further Peter Fellner strengthened our cash resources with Chairman a £38.9 million (net of expenses) equity fundraising and at 30 June 2016, we had £84.0 million of cash resources.

Ian Garland Chief Executive Officer Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 04 Strategic report Financial statements Directors’ report Additional information

Our strategy OUR STRATEGIC PRIORITIES DESCRIPTION and business This component of the strategy has the potential to model ONE create significant shareholder value. We are developing and commercialising low development-risk late-stage DEVELOP AND differentiated pharmaceutical products, providing A FOCUSED COMMERCIALISE barriers to competition. LOW DEVELOPMENT- We have a development and licensing agreement RISK LATE-STAGE with Tris to develop up to six NDAs for novel, extended- AND DISCIPLINED release formulations of short-acting products sold in the PRODUCTS US prescription cough cold market. The combination of THREE-TIER Tris’ proven extended-release technology and the size of the US prescription cough cold market represent a STRATEGY significant commercial opportunity for the Company. Our first product Tuzistra® XR was approved by the FDA on 30 April 2015 and was launched into the 2015/16 Our vision is to build Vernalis cough cold season through our dedicated contract into a high growth diversified sales force. self-sustaining specialty The goal is to leverage the commercial infrastructure pharmaceutical company, as a strategic asset by in-licensing additional products and thereby create value for over time. An example of this strategy is the in‑licensing shareholders. Our strategy to of Moxatag® in October 2015, the only once-daily amoxicillin for the US market. achieve this vision takes the best of what the Company already has and supplements it through We have finished the selective investments in our in-licensing and acquisition. TWO in-house NCE drug pipeline and intend, where possible, We are following a three-tier to partner all of the NCE drug candidates and receive REALISE VALUE milestone payments and royalties as partners progress strategy to achieve these goals. FROM NCE them to market. PIPELINE

OPERATING MODEL We are leveraging our fragment- and structure-based The Group’s US commercial operations THREE drug discovery group’s expertise and track record, to are based in Berwyn, PA and additional enter into collaborations with larger pharmaceutical activities are provided through our out- CONTINUE companies under which we are paid to undertake sourced commercial infrastructure to BALANCED collaborative research with potential to receive take advantage of the scale, knowledge milestone payments and royalties from development and expertise of leading service INVESTMENT and commercialisation. providers (such as 3PL, contract sales IN RESEARCH and market access organisations). The potential value created from this component of our business is lower than from both of the other components as the majority of the risk remains with The Group’s fragment- and structure- our partners. The return that we expect to earn is also based drug discovery team are based spread over a significantly longer period, reflecting the in Cambridge, UK and the head office time during which the partner progresses successful staff are based in Winnersh, UK. drug candidates through development and commercialisation. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 05 Directors’ report Additional information

RISK KEY PERFORMANCE INDICATOR OVERVIEW

Our products in development with Tris are Goals for 2015/16 Progress during 2015/16 Goals for 2016/17 based on existing approved short-acting ĵĵ Successfully launch ĵĵ Tuzistra® XR launched in ĵ ® XR is products. Consequently, their efficacy ĵ Focus for Tuzistra Tuzistra® XR into September 2015 continuing to build: and safety have already been established 2015/16 US cough by both the regulators and prescribing ĵĵ Initial wholesaler and –– Pharmacy stocking cold season pharmacy stocking achieved –– Managed care physicians. Discussions with the FDA have coverage confirmed a bioavailability-based approach ĵĵ Initial managed care coverage achieved –– Patient affordability to file an NDA and thus a faster route to filing –– Sales force and potential approval. It is substantially ĵĵ Sales force recruited, equipped, effectiveness lower risk than developing NCEs. trained and promotion initiated and grow prescriptions ĵĵ Patient affordability and sales ® Tuzistra XR, our first approved product, programmes established ĵĵ Successfully launch now faces commercial risks around sales Moxatag® execution, distribution, formulary coverage, ĵ ĵ ĵ pricing and reimbursement as well as ĵ Achieve NDA filing for ĵ Single-dose and multiple- ĵ Successfully file CCP‑08 CCP-07 and CCP-08 dose bioavailability studies with the FDA during competition. during calendar completed for both CCP-07 and calendar year 2016 year 2016 CCP-08 ĵĵ Achieve FDA approval Two of our approved products on the ĵ ® ® ĵ CCP-07 filing accepted for and launch of CCP-07 market (Tuzistra XR and Moxatag ), have review by the FDA and CCP-08 in calendar single sources of supply. Please refer to year 2017 pages 22 to 25 for the principal risks and ĵ ĵ ĵ uncertainties facing the business. ĵ Achieve POC on ĵ Active ongoing development ĵ Achieve POC on CCP-05 CCP-05 and CCP-06 and CCP-06 during during calendar financial year 2016/17 year 2016

It may be difficult for us to extract value Goals for 2015/16 Progress during 2015/16 Goals for 2016/17 through partnering these drug candidates. ĵĵ CPI-444 – Corvus to ĵĵ Phase l studies commenced ĵĵ CPI-444 Phase I/Ib Those programmes already partnered start Phase I studies by Corvus study updates progress at the partners’ risk and cost. We risk not earning anything from our partners as ĵĵ V2006 – Licensee ĵĵ Redox acquired by Juno ĵĵ V2006 Phase I study start the programmes may fail to achieve clinical Redox to start clinical (July 2016) and/or commercial success. studies ĵĵ RPL554 – Phase II ĵĵ Positive Phase II study results ĵĵ Start RPL554 Phase IIb study results reported (May 2016) ĵĵ Verona successful £45 million fundraising ĵĵ CHR2797 – Phase II ĵĵ Phase II studies ongoing ĵĵ Phase II study results study results ĵĵ S 55746 – Phase I ĵĵ Phase I study ongoing ĵĵ S 55746 Phase I study study updates updates ĵĵ V158866, AUY922 and ĵĵ Partnering activities ongoing ĵĵ Continue partnering V158411 – continue activities partnering activities

We may not be able to secure new Goals for 2015/16 Progress during 2015/16 Goals for 2016/17 and/or maintain existing collaborations ĵ ĵ ĵ or do so profitably, due to competition. ĵ Maintain existing ĵ Maintained five active research ĵ Maintain existing and and secure collaborations secure further research The collaboration may not be successful further research collaborations and we may not receive milestone payments collaborations and/or royalties. ĵĵ Receive further ĵĵ Servier milestone payments ĵĵ Receive further milestone milestone payments received (June 2016) payments Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 06 Strategic report Financial statements Directors’ report Additional information

Business review INTRODUCTION AND COUGH COLD

The following business review The Company’s transformation into Consistent with our strategy, we provides more detail on our a diversified self-sustaining specialty completed in-house development work pharmaceutical company continued on our NCE pipeline in August 2015 progress across the three elements with the launch in September 2015 of with the conclusion of our Phase II POC of our business. Tuzistra® XR, our first extended-release liquid study for the FAAH inhibitor V158866. cough cold product, and the build out No new partners for the NCE pipeline of our initial US commercial infrastructure. were secured in the year but Corvus, our In October 2015, we acquired the US partner for CPI‑444 (previously V81444), approved product, Moxatag®, which is successfully listed on the NASDAQ stock the only once-daily amoxicillin and is exchange in January 2016. Verona, approved to treat tonsillitis and pharyngitis our partner for RPL554, successfully in patients 12 years and older. We completed Phase II studies and raised completed development work on two £45 million to progress the programme of our further four cough cold products further, and in July 2016 a leading US in development with Tris, filed CCP-07 immuno-oncology company, Juno, with the FDA with a PDUFA action date acquired our V2006 partner, Redox. of 20 April 2017, and are on track to file CCP-08 before the end of calendar year Our research business continued to 2016. We anticipate that both CCP-07 perform very well in the period, securing and CCP-08 could be launched into sufficient FTE collaboration income the 2017/18 cough cold season. Tris and receiving milestone payments continues the active development of to again more than cover its costs. the remaining two programmes (CCP-05 and CCP-06) and both could achieve POC during the financial year 2016/17.

COUGH COLD PIPELINE

Product Indication Pre-POC POC In filing Approved Launched Marketing rights Peak sales* Next significant event

Tuzistra® XR Cough cold North America $$ Grow sales

PDUFA date CCP-07 Cough cold North America $-$$ 20 April 2017

Filing in calendar CCP-08 Cough cold North America $-$$ year 2016

POC during financial CCP-05 Cough cold North America $-$$ year 2016/17

POC during financial CCP-06 Cough cold North America $-$$ year 2016/17

Development undertaken by Tris, NDA owned and commercialisation undertaken by Vernalis

* Estimated peak sales: $:

Business review COMMERCIAL PIPELINE

COMMERCIAL PIPELINE Moxatag® is the first and only approved Late-stage low development-risk once-daily formulation of the antibiotic development and commercialisation amoxicillin. Approved by the FDA in This component of our strategy 2008, Moxatag® is a penicillin-class is presently primarily focused on antibacterial indicated for the treatment our development and licensing of tonsillitis and/or pharyngitis secondary agreement with Tris to develop up to to streptococcus pyogenes in adults six NDAs for novel, extended-release and paediatric patients 12 years of age formulations of products sold in the or older. It was approved based on a US prescription cough cold market. Phase III efficacy study and is protected by six Orange book listed patents, the The combination of Tris’ proven extended- last of which expires in 2022. It has not release technology and the size of the been actively promoted since 2010. US prescription cough cold market represent a significant commercial Tuzistra® XR opportunity for the Company. The April 2015 approval of Tuzistra® XR triggered the evolution of VTI’s business Our development and licensing from pre-commercial to full commercial agreement with Tris followed a detailed stage with an immediate focus on evaluation of the commercial opportunity completing the build out of the in the US prescription cough cold commercial activities necessary to launch market and our ability to exploit that Tuzistra® XR ahead of the 2015/16 cough opportunity to create significant value cold season. Preparation for this evolution for our shareholders. That significant has been underway since opening VTI’s opportunity arises from a combination office in Berwyn, PA in October 2014, of a large seasonal prescription cough including hiring key staff and selecting cold market, established patient demand, key external service providers with whom physician support confirmed through Tuzistra® XR was launched. We selected market research, competitive promotion and engaged a leading external CSO at an affordable cost, exclusive access to hire, train, equip, deploy and run a to validated enabling technology at Vernalis dedicated US sales force, as well Tris and a favourable abbreviated as a leading payer and trade group to development and regulatory pathway secure formulary coverage with payers, already agreed with the FDA. and trade distribution with wholesalers and pharmacies. Tris is our contract In October 2015, we expanded our manufacturer and supplies finished commercial pipeline with the acquisition goods which are warehoused and of US rights to Moxatag®, the only distributed from a 3PL partner. We have approved once-daily amoxicillin, which hired additional employees across our we plan to market alongside our commercial and support functions and prescription cough cold products. we continue to work with other external service providers to benefit from their Our approved products expertise and capacity when it would Tuzistra® XR is a 12-hour liquid formulation be less desirable to recruit internally. combining the antitussive codeine and the antihistamine chlorpheniramine which is approved for use in adults 18 years of age and older for the relief of cough and symptoms associated THE ONLY 12-HOUR with upper respiratory allergies or a CODEINE-BASED EXTENDED- common cold. Tuzistra® XR is a DEA RELEASE ORAL SUSPENSION Schedule III controlled substance, IN A NARCOTIC COUGH MARKET is not to be used in patients under 18 years of age and, being a codeine- POTENTIALLY WORTH IN EXCESS OF based treatment, its label includes a US$1 BILLION AT CURRENT COUGH class paediatric Boxed Warning. COLD BRAND PRICING Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 08 Strategic report Financial statements Directors’ report Additional information

Business review COMMERCIAL PIPELINE CONTINUED

2015/16 TUZISTRA® XR LAUNCH GOALS

Supply •• Routine supply from Tris  •• Routine 3PL operations 

Trade •• Wholesaler contracts  distribution •• National distribution  •• Pharmacy stocking Ongoing

Patient •• Tier 3 non-restricted coverage Ongoing access •• Patient access coupon 

Brand •• Establish field force  SUPPORTED BY PHYSICIAN MARKET RESEARCH FROM CODEINE AND awareness •• Field force effectiveness Ongoing and usage HYDROCODONE PRESCRIBERS •• Build brand awareness Ongoing INDICATING SIGNIFICANT •• Grow prescriptions Ongoing POTENTIAL USAGE AND MARKET SHARE

TUZISTRA® XR US PRESCRIPTION COUGH COLD MARKET

MAT June 2016 MAT June MAT June MAT June MAT June MAT June 2011 TRx m 2012 TRx m 2013 TRx m 2014 TRx m 2015 TRx m TRx m % vs 2011 % Narcotics 19.1 17.0 19.0 16.3 16.1 14.1 42 (26) Codeine 13.3 11.7 13.2 11.4 12.4 11.1 33 (16) +Antihistamines 5.6 4.9 5.3 4.6 4.7 4.3 13 (22) +Expectorants 6.8 6.0 7.1 6.2 7. 2 6.4 19 (5) +Others 0.9 0.8 0.8 0.6 0.5 0.4 1 (59) Hydrocodone 5.8 5.3 5.8 4.9 3.7 3.0 9 (48) +Antihistamines 2.7 2.5 2.7 2.3 1.7 1.4 4 (49) +Anticholinergics 2.9 2.5 2.8 2.5 1.9 1.6 5 (44) +Others 0.2 0.3 0.3 0.1 0.1 0.0 0 (96) Non-narcotics 16.2 12.4 15.2 15.2 18.6 19.4 58 20 Dextromethorphan 9.7 6.3 7.3 7.2 8.9 8.9 27 (8) +Antihistamines 2.6 2.7 3.5 3.4 4.2 4.4 13 68 Triple-combinations 7.1 3.6 3.8 3.8 4.7 4.5 13 (36) Benzonatate 5.7 5.9 7.8 7.9 9.4 10.3 31 81 Other 0.8 0.2 0.1 0.1 0.3 0.2 0 (80) Total 35.3 29.4 34.2 31.5 34.7 33.5 100 (5)

* Source IMS NPA TRx data Vernalis analysis Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 10 Strategic report Financial statements Directors’ report Additional information

Business review COMMERCIAL PIPELINE CONTINUED

THE FACE OF VERNALIS Sandy Sommer* President and Chief Operating Officer, VTI

“As the President and COO of Vernalis Therapeutics, Inc., I am in the privileged position of leading the US organisation through an exciting period of growth. We have a unique portfolio of cough and cold medications that offer patients a distinct dosing advantage over what is currently available today. With the talented team we have in place, coupled with a rapidly expanding portfolio of approved products, we are poised to become one of the leading cough and cold companies in the United States.” Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 11 Directors’ report Additional information

THE FACE OF VERNALIS Jillian Armenti* Professional Sales Representative, Orange, NJ

“I am a Sales Representative for VTI and work within the Northeast region in the Orange, New Jersey territory. I speak to Healthcare Practitioners (HCPs) about prescribing Tuzistra® XR to provide extended-relief to patients suffering from cough and symptoms of the common cold or upper respiratory allergies while ensuring pharmacies have the product on-shelf for patients to get on treatment right away. The response to Tuzistra® XR has been extremely positive and as a valuable partner with my HCPs and their office staff, I am excited to continue positive momentum into this cold and cough season to ensure Tuzistra® XR is their preferred prescription cough treatment for their appropriate patients.” Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 12 Strategic report Financial statements Directors’ report Additional information

Business review COMMERCIAL PIPELINE CONTINUED

THE FACE OF VERNALIS Dr Louis J Citarelli, MD* Physician/Internal Medicine, Nutley, NJ

“I recommend Tuzistra® XR to my patients when they are suffering with cough and cold symptoms because one dose every 12 hours provides extended cough relief. I have a good working relationship with Jillian Armenti, my local Vernalis Therapeutics representative, whom I find knowledgeable about Tuzistra® XR and helpful in addressing any access concerns.” Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 13 Directors’ report Additional information

THE FACE OF VERNALIS Tuzistra® XR patient* Mary, NJ

“I was prescribed Tuzistra® XR about a month ago. Before that I had tried various treatments but nothing stopped my cough. Tuzistra® XR made me feel so much better and it allowed me to finally get on with my life without coughing.”

Disclaimer: Image shown is of a model to protect patients’ identify Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 14 Strategic report Financial statements Directors’ report Additional information

Business review NCE PIPELINE

The Group has historically NCE PIPELINE Immuno-oncology undertaken in-house discovery Frovatriptan We have two development programmes in immuno-oncology, and development and those The Company’s marketed acute oral treatment for migraine headache and both of which are partnered. activities have resulted in one associated symptoms, frovatriptan, is approved product (frovatriptan) a selective 5-HT1B/1D receptor agonist CPI-444 and eight drug candidates in and one of a number of approved CPI-444 is another adenosine A2A various stages of development. acute migraine treatments in a class receptor antagonist which was partnered known as triptans. It is licensed to with Corvus in February 2015. Menarini for Europe, Central America and certain other territories. Corvus licensed exclusive, worldwide

rights to this adenosine A2A Under our licensing agreements, we programme, including the lead drug receive royalties arising from sales by CPI-444, formerly V81444, for use in Menarini via the supply of API and bulk all therapeutic applications. Corvus drug products. Our royalties in 2015/16 brings a wealth of clinical expertise have declined following the launch and experience with Phase I clinical of generic competitors across Europe. studies expected in 2016/17. We expect this decline to continue in 2016/2017 and future years. Vipadenant (V2006) Vipadenant is a small molecule,

Menarini net sales for the 12 month period adenosine A2A receptor antagonist. ended 30 June 2016 were €20.8 million Redox licensed vipadenant as it has the (12 month period ended 30 June 2015: potential to disrupt an immunosuppressive €25.2 million). mechanism of tumour protection, generating improved efficacy for REALISING VALUE FROM NCE PIPELINE immunotherapies of certain cancers The goal is to partner all of our NCE drug when used in combination with other candidates and realise value for our drugs. Redox was acquired by Juno shareholders through future milestones on 15 July 2016 and Juno will now and royalties. finance the continued development MENARINI of vipadenant. The financial terms of CNS the licence agreement with Redox NET SALES We have one development product in the remain unchanged. Vernalis may CNS therapeutic area which is unpartnered. receive income from achieving €20.8M clinical and regulatory milestones V158866 and royalties on commercial sales. FAAH is the enzyme responsible for the FOR THE 12 MONTH PERIOD breakdown of a number of endogenous ENDED 30 JUNE 2016 cannabinoid neurotransmitters (12 MONTH PERIOD ENDED (endocannabinoids), and its inhibition 30 JUNE 2015: €25.2 MILLION) results in the elevation of endocannabinoid levels in the central and peripheral nervous systems. This programme has been in a number CPI-444 of clinical studies and has shown that it is an effective FAAH inhibitor, and generally CORVUS DISCLOSED AS well tolerated. We are now seeking a partner to take this programme forward in PARTNER, FOCUSED ON a therapeutic area where FAAH inhibition IMMUNO-ONCOLOGY AND can be shown to benefit patients. PHASE I STUDY INITIATED Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 15 Directors’ report Additional information

NCE PIPELINE FOR FURTHER INFORMATION: WWW.VERNALIS.COM

CNS PROGRAMMES

Late Pre- Peak Product Indication research clinical Phase I Phase II Phase III Marketed Marketing rights sales* Next value event

Menarini, Endo, Composition of matter patent Frovatriptan Acute migraine $ SK Chemicals expired December 2015

V158866 Pain Worldwide $$$ Secure a partner

IMMUNO-ONCOLOGY PROGRAMMES

Late Pre- Peak Product Indication research clinical Phase I Phase II Phase III Marketed Marketing rights sales* Next value event

Immuno- CPI-444 Corvus $$ Phase I results oncology

Immuno- V2006 Redox/Juno $$ Partner newsflow oncology

ONCOLOGY PROGRAMMES

Late Pre- Peak Product Indication research clinical Phase I Phase II Phase III Marketed Marketing rights sales* Next value event

AUY922 Cancer Worldwide $$ Secure a partner

Tosedostat Cancer CTI $$ Phase II results

S 55746 Cancer Servier/Novartis $$ Phase I results

V158411 Cancer Worldwide $$ Secure a partner

INFLAMMATION PROGRAMMES

Late Pre- Peak Product Indication research clinical Phase I Phase II Phase III Marketed Marketing rights sales* Next value event

RPL554 COPD Verona $$ Phase IIb study results

Partnered programme No further investment, actively seeking partner

* Estimated peak sales: $:

Business review NCE PIPELINE CONTINUED

Oncology CTI has worldwide rights to tosedostat Inflammation We have four further development which is being evaluated in several The Company has one partnered programmes in cancer, two of Phase II co-operative group-sponsored development programme which which are partnered and two trials and ISTs. These trials are evaluating targets inflammation. are available for partnering. tosedostat in combination with hypomethylating agents in AML and RPL554 AUY922 MDS, which are cancers of the blood RPL554 is a dual PDE3 and PDE4 inhibitor AUY922 is a novel intravenous Hsp90 and bone marrow. Data from these with both bronchodilator and anti- inhibitor arising from a research signal-finding trials can be used to inflammatory properties. In March 2016, collaboration with Novartis. Hsp90 is a determine an appropriate design for Verona announced positive data from member of the heat shock protein family a Phase III trial. Vernalis is entitled to a Phase IIa dose-finding clinical study of molecular chaperones. The expression receive tiered single digit percentage using their new proprietary nebulised of these proteins is increased in tissues royalties on commercial sales. formulation. In May 2016, Verona subjected to a range of stresses and announced positive results from an they ensure the correct conformation of S 55746 “add-on” Phase II trial, where RPL554 proteins that are necessary to maintain Our first collaboration with Servier started produced over 60 per cent additional cell viability. The increased expression in 2007 and has progressed well over the bronchodilation on top of standard of chaperone proteins that is observed last nine years. Bcl-2 is the most advanced of care bronchodilators in COPD in many tumour types reflects the programme from this collaboration, patients. This data will help the trial efforts of malignant cells to survive with S 55746, a selective Bcl-2 inhibitor, design for the Phase IIb study, which is and replicate. In addition to facilitating the first drug candidate arising from expected to commence in early 2017. the survival of tumour cells within their an ongoing collaboration between stressful microenvironments, it is likely that Vernalis and Servier aimed at discovering Vernalis will receive a share of sub- chaperone proteins also allow tumour anticancer drug candidates selective licensing income, a milestone cells to maintain an active conformation for individual Bcl-2 family members. payment on approval of RPL554 and of mutated proteins that drive tumour royalties on commercialisation. growth. Inhibitors of Hsp90 thus have S 55746 entered a Phase I study in June the potential to be potent inhibitors of 2014 and Servier subsequently licensed growth in a broad range of tumours. the development and commercialisation rights to Novartis. Vernalis continues to In December 2014, Novartis ceased all receive fees from Servier for research development work on AUY922, and rights as well as sums for achieving research from the programme will revert to Vernalis. and clinical milestones, together with a potential share of eventual Vernalis is seeking a new partner for commercial sales through royalties. AUY922, with a particular focus on genetic mutations in solid tumours V158411 where there is an ongoing IST at the V158411 is the lead molecule arising from Massachusetts General Hospital. our intravenous Chk1 oncology research programme. It has shown efficacy in both Vernalis, Novartis and the ICR all in vitro and in vivo evaluations in a range share economic rights to AUY922. of different tumour types, in combination with several different cytotoxic agents. Tosedostat Tosedostat is a first-in-class, once-daily, Pre-clinical studies to enable filing of an orally active aminopeptidase inhibitor. It IND or CTA were completed successfully has clinically demonstrated anti-tumour in 2012 and the compound is now ready activity as a single agent in both solid to progress into clinical development. tumours and haematological cancers However, further development of V158411 RPL554 and has been granted orphan drug status is expected to be undertaken with a for AML by both the FDA and the EMA. partner and a partnering process PHASE IIa AND “ADD-ON” continues. PHASE II POSITIVE STUDY RESULTS Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 17 Directors’ report Additional information

Business review RESEARCH COLLABORATIONS

RESEARCH COLLABORATIONS As in recent years, Vernalis research has During the 12 month period, Vernalis achieved sufficient income to cover its successfully continued its collaborative avoidable costs for this 12 month period. strategy with six active drug discovery The team continues actively to seek programmes with collaborators, one each new opportunities for collaborations. with Lundbeck, Taisho and AKP and three with Servier. Each research collaboration is tailored to the needs of the individual research programme and has different financial terms. These usually include funding for scientists, success milestone payments and royalties on sales.

CONTINUED BALANCED INVESTMENT RESEARCH BUSINESS REMAINS SELF-FINANCING

Target Indication Partner Collaboration term Value to Vernalis

Undisclosed Oncology Servier FTE* funding. Potential milestones and royalties

Undisclosed Oncology Servier Potential milestones and royalties

FTE funding. Potential milestones and royalties LRRK2 Parkinson’s disease Lundbeck during research phase

Undisclosed Oncology Servier FTE funding. Potential milestones and royalties

Undisclosed Rheumatoid arthritis AKP Potential milestones and royalties

Undisclosed Undisclosed Taisho Undisclosed

Completed Remaining term

* FTE = Full-time equivalent Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 18 Strategic report Financial statements Directors’ report Additional information

Financial review

Key highlights for the 12 months Operating loss for the period –– Equity placing completed in ended 30 June 2016 before exceptional items May 2016 raising £38.9 million Revenue £12.0 million for £26.2 million and £23.6 million (net of expenses) the year: on a post-exceptional basis –– £8.0 million foreign ® Net financing income for the exchange gain on the –– Tuzistra XR revenue conversion of cash held in £1.1 million year £8.3 million driven by an unrealised foreign exchange US dollars and euros into –– Research and collaboration sterling income £8.0 million and the gain from the retranslation of our US dollar and euro cash –– £3.7 million paid to acquire research business remains the rights to Moxatag® fully funded into sterling for reporting purposes –– Cash used in operations –– Frovatriptan royalty income increased to £23.6 million £2.9 million Pre-exceptional loss for the Balance sheet remains strong year £17.1 million and £14.5 Operating costs £36.6 million with £84.0 million of cash million on a post-exceptional before exceptional items resources at 30 June 2016 basis including the establishment of and no debt US sales, marketing and Cash resources including cash commercial operations following and cash equivalents and the launch of Tuzistra® XR. held-to-maturity financial Operating costs of £34.0 million assets increased by post-exceptional items £22.8 million for the year and included:

12 months to 12 months to 30 June 2015 18 months to 30 June 2016 (unaudited) 30 June 2015 £’000 £’000 £’000 Revenue 12,034 13,712 19,882 S&M expense (20,428) – – R&D expense (10,932) (15,687) (22,563) G&A expense – pre-exceptional (5,289) (6,019) (8,635) Operating loss: – before exceptional items (26,223) (8,224) (12,078) – after exceptional items (23,572) (7,981) (11,835) Net finance income 8,273 4,252 2,576 Loss before taxation: – before exceptional items (17,950) (3,972) (9,502) – after exceptional items (15,299) (3,729) (9,259) Income tax credit 804 1,946 2,858 Loss after taxation: – before exceptional items (17,146) (2,026) (6,644) – after exceptional items (14,495) (1,783) (6,401) Cash resources 84,018 61,258 61,258

DAVID MACKNEY CHIEF FINANCIAL OFFICER Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 19 Directors’ report Additional information

Accounting reference date change Frovatriptan sales decline following Other collaboration income The financial information within this patent expiry In February 2015, we out-licensed CPI-444 annual report covers the year ended Sales of frovatriptan by Menarini in Europe for use in all therapeutic applications 30 June 2016 and the comparator and Central America were down 18 per to Corvus. The transaction included a period is the 18 months to 30 June 2015. cent in euro terms at €20.8 million for the US$1 million upfront payment (£0.7 million) The Group changed its accounting year to 30 June 2016 (2015: €25.2 million) which was included in collaboration reference date from 31 December to due to expiry of the composition of matter income for the year to 30 June 2015. 30 June on 18 November 2014, to align patents in December 2015. Volumes of the external reporting period with the tablet sales for the year to 30 June 2016 R&D costs reduced following cessation of seasonality of the US cough cold market, were also down at 9.0 million (2015: 9.8 NCE development activity which is a major component of the million). Vernalis receives 25.25 per cent Research and development expenditure Company’s future commercial business. of Menarini sales via a royalty linked to before exceptional items decreased 30 the supply of API, so the reported royalties per cent to £10.9 million for the year to The financial review below includes do not necessarily track the underlying 30 June 2016 (2015: £15.7 million) and unaudited comparative numbers for performance of Menarini in the market. comprised £10.5 million (2015: £13.2 the 12 months ended 30 June 2015. million) of internally funded research and The reported frovatriptan royalties for development costs and £0.4 million (2015: Total revenues of £12.0 million the year to 30 June 2016 were £2.9 £2.5 million) of external costs associated Revenue for the year ended 30 June 2016 million (2015: £4.9 million) and this £2.0 with the development pipeline. The totalled £12.0 million (2015: £13.7 million), million decrease was mostly due to a decrease in both the internally funded a decrease of 12 per cent year-on-year. volume decline with two 12.5kg batches and external research and development This comprised revenue from Tuzistra® XR of API delivered to Menarini during costs was primarily due to the completion of £1.1 million, which was recorded for the the 12 months ended 30 June 2016 of our in-house investment in the NCE first time this year following its launch, £2.9 (2015: three 12.5kg batches of API). In development pipeline, announced in million related to the supply of frovatriptan addition, there was a small decrease August 2015, and the pre-launch costs (2015: £4.9 million) and £8.0 million (2015: due to foreign exchange and a 6 per for Tuzistra® XR included in the prior £8.8 million) from research collaborations, cent price reduction, owing to increased financial year and not in the current and other collaboration income. competition from generic alternatives. financial year. The external development Based on Menarini’s projections, we pipeline costs for the year to 30 June Tuzistra® XR expect to deliver two batches of API 2016 related to the completion of the Following approval by the FDA in April for the 2016/17 financial year. V158866 Phase II study, announced in 2015, Tuzistra® XR was launched into the August 2015, whereas in the year to US prescription cough cold market in Research remained self-financing 30 June 2015 costs included the V158866 September 2015. Tuzistra® XR revenue Research collaboration income was clinical study for the whole of the year. is recognised when title and risk of loss £8.0 million for the year to 30 June 2016 passes to the customer and estimates (2015: £7.9 million), an increase of £0.1 S&M infrastructure established in the US are made for the relevant deductions million. Although milestone income was Following the launch of Tuzistra® XR, and obligations so as to reflect the lower in the year to 30 June 2016 at sales and marketing costs have been complete economic transaction. £0.6 million (2015: £1.1 million), which recorded for the first time and were came from the Servier collaborations, £20.4 million for the year to 30 June Net revenue reflects the gross sales of this was more than offset by an increase 2016. These costs include the set-up product shipped to wholesalers, reduced in FTE income. We had six research and ongoing costs of the contract sales by estimates of rebates, discounts, collaborations during the year to 30 June organisation run by inVentiv together allowances and provision for product 2016, which generated £7.4 million of with the promotional costs associated returns, given or expected to be given, FTE income (2015: £6.8 million). Research with the launch of Tuzistra® XR, and other which vary by product arrangements activity remained self-financing during commercial support costs. The sales and buying groups. These estimates the financial year ended 30 June 2016. representatives were recruited, trained, have been based on actual in-market equipped and deployed into the field in data received pre- and post- the early September 2015. We will expand the end of the accounting period and sales force this year as we continue to have been applied to inventory held build our US commercial infrastructure. at wholesalers and pharmacies. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 20 Strategic report Financial statements Directors’ report Additional information

Financial review CONTINUED

G&A costs decreased Finance income increased significantly Payments made to Tris that relate to General and administrative expenditure by strengthening of the US dollar development work performed on our before exceptional items was £5.3 million Interest earned on cash resources was behalf will qualify for R&D tax credits for the year to 30 June 2016 (2015: £6.0 marginally higher at £0.3 million (2015: but these do not include the approval million), a decrease of £0.7 million for £0.2 million) reflecting the higher average milestone payments which acquire the the year. Adjusting both periods for the cash balance for the year. With the rights to the programmes from Tris. share option charge and associated majority of our cash held in US dollars in national insurance accrual on the order to match our Tris and US commercial Loss for the year increased significantly exercise of share options and foreign financing requirements, the yield on these The pre-exceptional loss for the year to exchange from the retranslation of deposits remained low. Finance income, 30 June 2016 was £17.1 million (2015: £2.0 working capital balances, underlying G&A however, was significantly impacted by the million) predominantly due to the increase decreased by £0.2 million or 4 per cent. strengthening of the US dollar and euro in operating costs, offset by an increased after the 23 June 2016 UK EU referendum unrealised foreign exchange gain on cash Exceptional gain vote, with an £8.0 million unrealised caused by the significant weakening of The exceptional gain in the year to foreign exchange gain on the conversion sterling against the US dollar and euro. 30 June 2016 of £2.7 million is a non- of US dollar- and euro-denominated cash cash item and relates to the successful deposits into sterling at 30 June 2016 for The post-exceptional loss for the year to settlement of an onerous lease obligation. financial reporting purposes. For the year 30 June 2016 was £14.5 million. The exceptional gain in the year to to 30 June 2015 there was an unrealised 30 June 2015 of £0.2 million related to the foreign exchange gain of £4.1 million due Balance sheet remains strong effect of a reassessment of assumptions to the strengthening of the US dollar over Non-current assets increased to £19.9 used to calculate the property this period. At 30 June 2016 the sterling:US million (2015: £15.1 million) due to the provision recognising an improvement dollar rate was 1.3370, compared to acquisition of Moxatag® in October 2015. in the rental market at that time. the 30 June 2015 rate of 1.5727. Current assets increased to £92.5 Operating loss increased significantly R&D tax credits decrease million (2015: £71.5 million) primarily due to establishing our sales and The tax credit of £1.1 million (2015: due to the increase in cash resources marketing capabilities £2.1 million) represents recoverable following the £38.9 million equity placing The operating loss before exceptional amounts under current legislation on in May 2016, offset by cash used in items increased significantly to £26.2 R&D tax credits for small- and medium- operations for the year of £23.6 million. million for the year to 30 June 2016 (2015: sized companies. The reduction in £8.2 million) reflecting the increase in the R&D tax credit is primarily due to Total liabilities increased marginally operating costs following the launch of the tax credits associated with the to £9.8 million (2015: £9.5 million). Tuzistra® XR and the establishment of our POC milestone payment on CCP-08 sales and marketing capabilities focused and the acceptance filing milestone on the US prescription cough cold market. payment for Tuzistra® XR that were The operating loss from continuing made in the year to 30 June 2015. operations after the exceptional gain was £23.6 million (2015: £8.0 million). Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 21 Directors’ report Additional information

Cash resources of £84 million Outlook Cash resources comprising held-to- We have made significant progress in maturity financial assets and cash the last 12 months in establishing our and cash equivalents at 30 June 2016 US sales and marketing infrastructure totalled £84.0 million (30 June 2015: and transforming the business into a £61.3 million). A significant proportion of commercial specialty pharmaceutical these cash resources are denominated company. With a strong balance sheet in non-sterling currencies with most of supporting the US commercialisation the cash denominated in US dollars. of Tuzistra® XR and Moxatag®, the focus for the organisation is on executing our We continue to manage cash tightly. The commercial plans. We remain excited £22.8 million increase in cash resources about the growth potential of these included equity fundraising proceeds products, together with the maturing of £38.9 million (net of expenses), pipeline of further cough cold products. US$5.4 million (£3.7 million) payment to Pragma for the rights to Moxatag® On behalf of the Board. as well as an £8.0 million unrealised foreign exchange gain arising from the conversion of our US dollars and euros into sterling for reporting purposes. Cash used in operations increased to £23.6 million (2015: £7.3 million) due to the David Mackney costs of the US sales and marketing Chief Financial Officer capabilities established in mid-2015. 28 September 2016

Underlying net cash burn, which excludes milestone income received, milestone payments made, foreign exchange, interest and tax received, increased to £21.8 million (2015: £8.5 million), again reflecting the additional cost of the US commercial operations established to launch and promote Tuzistra® XR and Moxatag®. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 22 Strategic report Financial statements Directors’ report Additional information

Principal risks and uncertainties

CLINICAL AND REGULATORY RISK INTELLECTUAL PROPERTY There are significant inherent risks in Intellectual property protection developing drugs for commercialisation remains fundamental to our strategy due to the long and complex of developing novel drug candidates. PRINCIPAL development process. Any drug which we Our ability and that of our collaborators or our partners wish to offer commercially to stop others making a drug, using it to the public must be put through or selling the invention or proprietary RISKS AND extensive research, pre-clinical and rights by obtaining and maintaining clinical development all of which takes protection is critical to our success. We UNCERTAINTIES several years and is extremely costly. and our collaborators own portfolios of We and/or our collaborators may fail to patents and patent applications which successfully develop a drug candidate underpin our and our collaborators’ FACING THE because of: research and development programmes. We invest significantly in maintaining BUSINESS •• The failure of the drug in pre-clinical and protecting this intellectual property studies. to reduce the risks over the validity and •• The inability of clinical trials to enforceability of our patents. However, RISKS demonstrate the drug is safe and the patent position is always uncertain Like all businesses we face risks and effective in humans. and often involves complex legal •• The failure of the drug in bioequivalence issues. Therefore, there is a risk that uncertainties, many of which are studies. intellectual property may become invalid inherent within any pharmaceutical •• The failure to develop a viable and/or expire before, or soon after, company looking to develop and formulation with differing characteristics commercialisation of a drug product and commercialise products. Below are from existing drugs with acceptable we may be blocked by other companies’ those principal risks and uncertainties stability. patents and intellectual property. that we consider could have a material •• The failure to find a collaborator to take impact on our operational results, the drug candidate into expensive later- financial condition and prospects. These stage studies. • risks are not in any particular order of • The failure to manufacture three stable batches of product for NDA submission. priority and there may be other risks •• The failure of the FDA to approve NDA that are either currently unknown or submissions. not considered material which could •• The failure to comply with GxP. have a similar impact on our business •• The failure to manufacture the drug in the future. Our risk management substance in sufficient quantities and process is explained in the corporate at commercially acceptable prices. governance report on pages 32 to 36. In addition, the complexity and multi- jurisdictional nature of the regulatory IN-LICENSING COMPLEMENTARY processes could result in either delays in achieving regulatory approval or PRODUCTS non-approval. If a product is approved, Our strategy is to augment the low the regulators may impose additional development-risk, late-stage Tris requirements, for example, restrictions portfolio of products by in-licensing on the product’s indicated uses or the complementary products to our levels of reimbursement receivable, which commercial pipeline. This is an could impact the commercial viability of extremely competitive area, with the drug. many pharmaceutical companies also following a similar strategy, and Once approved, the product and its consequently this may be difficult manufacture will continue to be reviewed to achieve with our current financial by the regulators and may be withdrawn resources and infrastructure. A failure or restricted in the future. The failure to to succeed in successfully in-licensing comply with GxP and/or to manufacture complementary products may affect the product in sufficient quantities and at our ability to grow revenues and attain commercially acceptable prices could profitability. significantly impact the financial results of the Company in the future. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 23 Directors’ report Additional information

PRICING, REIMBURSEMENT AND The cost to the patient of the product PRODUCT LITIGATION AND COMPETITION may not be affordable and this may CORPORATE COMPLIANCE Our commercial success depends on the adversely affect our ability to generate Failure of the Company and/or its acceptance of our and our collaborators’ significant revenues or attain profitability. collaborators to comply with regulations products by the market, including could damage the Company’s wholesalers, pharmacies, physicians, Our business faces intense competition reputation, leading to the possible third-party payers and patients. from major pharmaceutical companies withdrawal of the product from the and specialised biotechnology market and legal action against the We may be adversely affected by our companies developing drugs for the Company. Unanticipated side-effects or ability to get product into the targeted same market opportunities. Some factors unfavourable publicity from complaints wholesalers and pharmacies at an that may affect the rate and level of concerning any of the Company’s affordable cost to us and within an market acceptance of any of our, or our products, or those of its competitors, acceptable timeline. collaborators’ products include: could have an adverse effect on the Company’s ability to obtain or maintain We may be adversely affected by third- •• The existence or entry into the market regulatory approvals or successfully party reimbursement and healthcare of superior competing products or market its products. Developing, cost containment initiatives. Third-party therapies. manufacturing, marketing and selling payers, including government and •• Entry to the market of competing pharmaceutical products involves a private health insurers, are increasingly products earlier than our or our risk of product liability claims, product seeking to contain healthcare costs collaborators’ products. recalls, litigation and associated adverse through measures that are likely to •• The price of our or our collaborators’ publicity. impact the products we are developing, products compared to competing including: products. The cost of defending these types of •• Competition for target physician time claims is expensive, even when the •• Challenging the prices charged for from other pharma companies. claims have no merit. A successful healthcare products. •• Public perception and publicity product liability claim against the •• Limiting both coverage and the amount concerning the safety, efficacy, cost Company could result in the Company of reimbursement for new therapeutic or benefits of our or our collaborators’ paying a substantial monetary award. products. products, compared to competing Although the Company will carry product •• Refusing to provide coverage when an products and therapies. liability insurance when available, this approved drug is used in a way that •• The ability to market the products and may not be adequate to fully discharge has not received regulatory marketing therapies to physicians to generate such an award. Product liability insurance approval. market share at an affordable cost. is expensive, sometimes difficult to obtain •• Any reference pricing model •• The effectiveness of the sale and and may not be available on acceptable (particularly in Europe where the marketing efforts of our sales force or terms. If, in the absence of adequate amount of reimbursement is determined our collaborators’ sales force. insurance, the Company does not have by consideration of reimbursement •• Regulatory developments relating to sufficient financial resources to satisfy levels for comparable drugs in other manufacturing or use of our or our a liability resulting from such a claim countries) can severely restrict the collaborators’ products. or to fund the legal defence of such a potential per unit price for many drugs •• The willingness of physicians to adopt a claim, it could become insolvent. Any unless there is significant differentiation new treatment regimen. adverse judgement in a product liability from existing products. •• The ability to achieve adequate lawsuit, even if insured, could generate distribution and stocking levels of substantial negative publicity about the These or other healthcare reforms that product at the wholesalers and Company’s products and business and may be adopted in the future could harm pharmacies. inhibit its commercialisation strategy. our business and, in particular, could •• A competitor’s ability to gain approval have a material adverse effect on the of a substitutable copy of our or our amounts that public and private payers collaborator’s product (i.e. a generic). will pay for our or our collaborators’ commercialised products. If we and/ or our collaborators develop products that are not covered by government or third-party reimbursement schemes, are reimbursed at prices lower than those expected or become subject to legislation controlling treatments or pricing, we and/or our partners may not be able to generate significant revenues or attain profitability for any products which are approved for marketing. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 24 Strategic report Financial statements Directors’ report Additional information

Principal risks and uncertainties CONTINUED MANUFACTURING RISK OPERATING A US COMMERCIAL We are reliant on one source of supply BUSINESS for both Tuzistra® XR and Moxatag®. If Over the last 24 months, we have something were to happen to Tris, our sole established a US infrastructure in order source of supply for Tuzistra® XR, financial to commercialise the late-stage Tris or otherwise, or to its manufacturing portfolio and other products in the US. facility, or if Tris has insufficient The operational strategy to reduce the manufacturing capacity, or fails to secure execution risk in setting this up has been adequate quota of controlled substances to minimise the creation of our own from the DEA, or is not able to retain key infrastructure as far as possible and so personnel, the Company may be unable we have used a 3PL company and a to supply sufficient product to the market, CSO who provide the main operational which may have a material adverse services to our US business. Any issues in effect on sales, profits and cash liquidity. their operation may affect our ability to generate and grow revenues and attain Suir, our sole source of supply for profitability. Maintaining and growing this Moxatag®, has gone into liquidation and US infrastructure will require the recruitment we need to transfer the manufacturing and retention of suitably qualified processes, equipment and capabilities individuals to implement the strategy. If we to an alternative facility. This will take are unable to attract the talent required to time, will cost money and may impact undertake the key roles in the commercial our ability to supply sufficient product into organisation or retain them once recruited, the market in the future, which may then this may also impact our ability to grow have a material adverse effect on sales, revenues and attain profitability. profits and cash liquidity. The promotion, marketing and sale of The qualification of a new supplier is not pharmaceutical products in the US is guaranteed as it may not be possible highly regulated and the operations to transfer the approved process and/ of those undertaking these activities or gain regulatory approval for product are closely supervised by regulatory manufactured by the new supplier. Even authorities and law enforcement if successful, the time taken to receive agencies, including the US Department new supplies from such new supplier of Health and Human Services, the FDA, is uncertain and we may exhaust our the US Department of Justice and the existing inventories and be unable to DEA. These authorities and agencies supply customers continually during the investigate any potential violations of period of site transfer. laws relating to the sale, marketing and promotion of pharmaceutical products, The supply of frovatriptan API to Menarini including the False Claims Act, the Anti- for the EU and Central American markets Kickback Statute and the Foreign Corrupt has historically been a large proportion Practices Act, for alleged improper of our income. Now with generic conduct, including corrupt payments to competition, although its importance government officials, improper payments may decrease, our ability to manufacture to medical professionals, off-label and supply this product on schedule will marketing of pharmaceutical products still be a key focus. and medical devices, and the submission of false claims for reimbursement by In addition, our ability to successfully scale- the federal government. Healthcare up production processes to clinical trial or companies may also be subject to commercial levels is vital to the commercial enforcement actions or prosecution if viability of any product. Availability of raw found guilty of any improper conduct. materials is extremely important to ensure that products are manufactured on Any inquiries or investigations into the schedule and, therefore, dual sourcing is operations of, or enforcement or other used where possible. regulatory action against, the Company by such authorities could result in Product manufacture is subject to significant defence costs, fines, penalties continual regulatory control and products and injunctive or administrative remedies, must be manufactured in accordance distract management to the detriment with good manufacturing practices. Any of the business, result in the exclusion of changes to the approved process may certain products, or the Company, from require further regulatory approval which government reimbursement programmes may incur substantial cost and delays. or subject the Company to regulatory These potential issues could adversely controls or government monitoring of its impact operations and cash flow. activities in the future. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 25 Directors’ report Additional information

FINANCIAL RISKS

LIQUIDITY RISK FOREIGN EXCHANGE RETURN ON INVESTMENT Our history of operating losses is We record our transactions and prepare As the drug development process anticipated to continue in the near our financial statements in sterling is inherently risky and because it term. Following the £38.9 million (net of but almost all of our revenue is from is conducted over several years, it expenses) equity fundraising in May 2016, licensing and collaborative agreements can be extremely costly. Many drug the Company is well capitalised to execute and frovatriptan royalties and product candidates fail in development due to its transition into a profitable and cash- sales, which are received in US dollars the clinical and regulatory risks, and generative pharmaceutical company or euros. A significant proportion of our even in those circumstances where over time. As at 30 June 2016, the Group expenditure will be incurred in US dollars, drugs are approved, sales levels can had £84.0 million of cash resources and relating principally to the Tris agreement be disappointing due to competition, no debt. However, the Group may need to and the commercialisation of Tuzistra® healthcare regulation and/or intellectual seek further capital through equity or debt XR and Moxatag® in the US. Our cash property challenges. As a result, the financings in the future and if this is not balances are predominantly held in US returns achieved may be insufficient successful, the financial condition of the dollars, sterling and euros. to cover the costs incurred. The Group Group may be adversely affected. attempts to mitigate the development Owing to the global economic and commercial risk of its NCE pipeline uncertainty, we minimised our exposure by partnering drug candidates at an to foreign exchange movements by appropriate stage. Such partnering matching the currency in which our crystallises part of the programme’s cash is held with our future obligations. value, with the goal of retaining an Immediately following our two most attractive proportion of the commercial recent equity issues in March 2012 and benefit through future milestone May 2016, we converted the majority payments and royalties from commercial of our cash into US dollars, to match sales. our Tris and US commercial financing requirements. As a consequence of holding these foreign currency deposits, we have a financial reporting foreign exchange exposure on the retranslation VALUE OF INTANGIBLE ASSETS of the US dollar cash balances back Under the development and licensing into sterling at each reporting date, agreement with Tris, milestone sums but critically any changes in foreign payable to Tris for the reimbursement of exchange rates between sterling and COUNTERPARTY CREDIT RISK development costs, and for the approval the US dollar do not impact our ability to of the NDA for each product, will be The Company is exposed to credit-related execute the US commercial plan. losses on cash deposits in the event of capitalised on the balance sheet as non-performance by counterparties. intangible assets and then amortised To the extent that income and from commercialisation. Under IFRS there expenditure in currencies are not is a need to assess annually the carrying With the global economic uncertainty matched, fluctuations in exchange rates over the last few years, counterparty value of any asset that is not being between sterling and these currencies, amortised, or if there is a triggering event credit risk remains a key consideration principally US dollars, may result in when placing cash funds on deposit. that suggests there may have been a realised or unrealised foreign exchange change to its value. If the commercial The creditworthiness of counterparties gains and losses. Simple derivative is assessed prior to placing funds on value is less than the carrying value contracts have been used to mitigate of the asset, this shortfall in value is deposit and is monitored to maturity. the risk of fluctuations in exchange rates Under the Company treasury policy reflected in the financial statements. where there has been certainty over the The commercial value of an intangible there is a maximum amount that can amount and timing of the income. be placed with any single counterparty. asset could reduce if there is a problem in development, or if the FDA decides If any counterparty were to experience Where the timing and/or the amount financial difficulties this may adversely not to approve the product, or if there to be received is uncertain, risk is a commercial concern because of impact the Company’s liquidity in the management is more difficult but the future. competition or underperformance, and Group has used derivatives where any adjustment to the carrying value may possible and will continue to do so. To materially impact the financial results of the extent that derivative instruments are the Company. considered too costly, because of the flexibility required or the time over which On behalf of the Board protection is sought, any fluctuations in foreign exchange movements may have a material adverse impact on the results from operations and our cash flow in the future.

David Mackney Chief Financial Officer 28 September 2016 Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 26 Strategic report Financial statements Directors’ report Additional information

Board of directors

PETER FELLNER IAN GARLAND DAVID MACKNEY CAROL FERGUSON Non-Executive Chairman – 72‡ Chief Executive Officer – 51‡ Chief Financial Officer – 48 Non-Executive Director – 70*†‡ Peter Fellner was appointed as Chairman Ian Garland was appointed as Chief David Mackney was appointed as Chief Carol Ferguson was appointed as a in April 2003. Peter was Chairman of Executive Officer on 29 December 2008. Financial Officer on 2 February 2009. Prior Non-Executive Director on 1 September Celltech Group plc until its acquisition From May 2007 until September 2008, to joining Vernalis, David worked with Ian 2003, having joined the Board of Vernalis in mid-2004, having previously served Ian was CEO of Acambis plc. During this as Interim CFO at Acambis plc, working Group plc as a Non-Executive Director as its Chief Executive Officer from 1990 period Ian oversaw a series of important to successfully secure the US biodefence in May 2002. Vernalis Group plc was to 2003. Before Celltech, Peter was Chief advances culminating in Acambis’ contract, the secondary financing and acquired by Vernalis plc (then called Executive Officer of Roche UK, from 1986 acquisition by Sanofi-Aventis in September the acquisition of Acambis by Sanofi- British Biotech plc) in September 2003. to 1990. Peter is also Chairman of the 2008 for £280 million. From 2004 to 2007, Aventis. Prior to Acambis, David was CFO Carol was appointed Chairman of the medical technology company Consort Ian served as CFO of Arrow Therapeutics for a private equity-backed technology Audit Committee on 21 January 2004 Medical plc and of the biotechnology Ltd, a privately held company engaged company and served as Group Financial and Senior Independent Director of company, Ablynx nv. In addition, he is in the discovery and development of Controller at Shire plc. From 1996 to 2001, the Company on 21 July 2011. Carol is Chairman of Mereo BioPharma Group new anti-viral agents until its acquisition David worked as a senior manager in a former partner and lead oil analyst plc, which was listed on AIM in June by AstraZeneca plc for US$150 million audit and then in transaction services at stockbrokers Wood Mackenzie, was 2016. He was Chairman of Optos plc in February 2007. Prior to this Ian was at Arthur Andersen. He is a Chartered Finance Director of a textiles company from 2010 to 2015, until its acquisition President and Chief Operating Officer Accountant. and was a Non-Executive Director of by Nikon Corporation, and served as of Celltech Pharmaceuticals Inc., which Monks Investment Trust. Carol is currently Chairman of Biotie Therapies Corp from had a turnover of around US$300 million Non-Executive Chairman of BlackRock 2010 to 2014. He was a Director of the encompassing the US operations of Greater Europe Investment Trust plc and global biopharmaceutical company, Celltech Group plc. From 1988 to 1995, Invesco Asia Trust plc and is a Non- UCB SA from 2005 to 2014, and was also Ian worked at KPMG, specialising in Executive Director of Standard Life UK a member of the UCB Science Advisory the pharmaceutical sector, following Smaller Companies Trust plc. Carol is a Board. He was also a member of the qualification as a Chartered Accountant. graduate of St Andrew’s University and Novo A/S Advisory Group from 2010 to a member of the Institute of Chartered 2016. Peter was previously Chairman of Accountants of Scotland. Acambis plc and of Premier Research Group plc, until each was acquired during 2008 and was Vice Chairman of Astex Pharmaceuticals Inc. until its sale in October 2013. Peter served as a Director of Evotec AG, from 2005 to 2011, and QinetiQ Group plc from 2004 to 2009. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 27 Directors’ report Additional information

* Audit Committee † Remuneration Committee ‡ Nominations and Corporate Governance Committee

IAN GILHAM NIGEL SHEAIL LISA SCHOENBERG KEVIN KISSANE Non-Executive Director – 56*†‡ Non-Executive Director – 51*†‡ Non-Executive Director – 50*†‡ Company Secretary – 61 Ian Gilham was appointed as a Non- Nigel Sheail was appointed as a Non- Lisa Schoenberg was appointed by Kevin Kissane joined Vernalis in November Executive Director and Chairman of Executive Director on 3 August 2011. the Board at its meeting on 23 July 2010 as General Counsel and Company the Remuneration Committee on 1 July Nigel is Head of Business Development 2015 as a Non-Executive Director with Secretary. From July 2007 until May 2010, 2015. Ian has international experience and Licensing for Novartis. Prior to this effect from 1 September 2015. Lisa has Kevin was Company Secretary and Group in the research, development and he was Head of Business Development extensive marketing experience of Legal Adviser of Antisoma plc. Prior to commercialisation of diagnostic and and Licensing at Bayer Healthcare and pharmaceutical products in both primary this, he was Interim Associate General pharmaceutical products. Ian is Non- before that Head of Group M&A at Roche and secondary care in the US. She is a Counsel at UCB Celltech. Between 1990 Executive Chairman of a number of UK and Head of Licensing for their Pharma pharmaceutical marketing consultant. and 2005, he held various posts within the and European companies including division. Nigel has been responsible for From 1993 until 2013 Lisa worked for legal department of Amersham plc (now Epistem Holdings Limited, Horizon a broad range of deals from research AstraZeneca Pharmaceuticals (US) in a part of GE Healthcare), the last being Discovery Group plc, Multiplicom NV, and technology collaborations through number of senior marketing and general General Counsel, Amersham Health. and Biosurfit SA. Ian was formerly CEO to commercial product opportunities. management positions, culminating as Following admission as a solicitor in 1979, of Axis-Shield plc, a FTSE listed global Academically trained as a molecular VP Sales & Marketing, Growth Brands Kevin worked until 1990 in private practice diagnostics company which was sold to biologist, Nigel is a Chartered Accountant USA. Lisa graduated from the University in the City. Alere Inc for £260 million in 2011 and was and has held a number of positions within of Michigan in 1988 and completed an Non-Executive Chairman of Concepta the pharmaceutical industry with Bayer, MBA at The Wharton School, University of Diagnostics Limited. Ian also previously Roche and GSK. Nigel has also worked Pennsylvania, specialising in Healthcare CHANGES IN COMPOSITION worked at GSK as Vice President – as the Global Controller for Research and Management and Marketing, before OF THE BOARD Pharmacogenetics and before that held was Finance Director responsible for the joining AstraMerck in 1993. Ian Gilham was appointed as a international general management, establishment of Roche’s operations in Non-Executive Director on 1 July 2015. marketing business development and China which included five joint venture Lisa Schoenberg was appointed as a R&D positions with Abbott Laboratories, operating companies and a holding Non-Executive Director with effect from Celltech and Amersham. Ian holds a Life company. Nigel was the founding 1 September 2015. There were no other Sciences PhD from the University of Bath. treasurer of the Swiss Pharma Licensing changes to the Board during the 12 Group. month period under review. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 28 Strategic report Financial statements Directors’ report Additional information

Directors’ report

The directors present their report on The forward-looking statements reflect • In October 2015, the Company the affairs of the Group, together with knowledge, judgements and information acquired US rights to Moxatag®. the audited consolidated financial available at the date of preparation of • Also in October 2015, the Company statements, for the 12 month period this report and the Group undertakes announced Tris had successfully ended 30 June 2016. The remuneration no obligation to update these forward- manufactured three registration report can be found on pages 37 to looking statements. Nothing in this report batches of CCP-08 and that the 47 and the corporate governance should be construed as a profit forecast. material would now start 12 month report, including the corporate registration stability testing. social responsibility statement, can PRINCIPAL ACTIVITIES • In December 2015, the Company be found on pages 32 to 36. Vernalis is a revenue-generating, announced successful completion commercial stage pharmaceutical of the CCP-07 pivotal single-dose GENERAL INFORMATION company with significant expertise in comparative bioavailability study. Vernalis plc (the Company) is a company drug development. The Group has three • In January 2016, the Company incorporated and domiciled in the UK and approved products; Tuzistra® XR targeting announced Corvus as its worldwide which trades on the LSE AIM. The registered the US prescription cough cold market, licensee for its adenosine antagonist office of the Company is: 100 Berkshire Moxatag®, a once-daily amoxicillin for programme. Place, Wharfedale Road, Winnersh, the US market and, frovatriptan for the • In April 2016, the Company announced Berkshire, RG41 5RD, UK. The Company’s acute treatment of migraine. It has an successful completion of the CCP-08 principal subsidiaries are: Vernalis exclusive licensing agreement with pivotal single-dose comparative (R&D) Limited, Vernalis Development Tris to develop and commercialise bioavailability study. Limited and Vernalis Therapeutics, Inc. multiple novel products focused on the • Also in April 2016, the Company US prescription cough cold market as announced successful completion STRATEGIC REPORT well as eight programmes in its NCE of the CCP-07 pivotal multiple-dose A review of the development and development pipeline. Vernalis has also comparative bioavailability study. performance of the Group including significant expertise in fragment- and • Also in April 2016, the Company important events, progress and financial structure-based drug discovery which announced the appointment of performance during the 12 month period it leverages to enter into collaborations Mr Sandy Sommer as President & Chief ended 30 June 2016 and likely future with larger pharmaceutical companies. Operating Officer of VTI. developments, can be found in the Vernalis’ strategy is to transform its • Also in April 2016, the Company Chairman’s and Chief Executive Officer’s business over time from a research announced its intention to raise £40 statement and the Strategic report on and development stage company million (before expenses) through the pages 2 to 25 which include our strategy into a significant, diversified, profitable issue of 80 million Ordinary Shares on and business model, the business review and self-sustaining pharmaceutical a non pre-emptive basis to institutional and the financial review. The principal risks company. The licensing agreement investors and certain Directors at a and uncertainties facing the business with Tris should provide the technology Placing Price of 50 pence per share. can be found on pages 22 to 25 and key platform and products to facilitate this On 12 May 2016, following the General performance indicators relating to the transition. The principal activities of Meeting, the Company announced performance of the Group can be found Vernalis plc are as a holding company. that Admission of these shares would on page 5, all of which are incorporated take place on 13 May 2016. in the directors’ report by reference. KEY EVENTS • In May 2016, the Company announced Key events during the 12 month period it had been informed that Suir, the sole This report and accounts for the 12 under review include the following: supplier of Moxatag®, had been month period ended 30 June 2016 placed in provisional liquidation. has been prepared for the members • In August 2015, the Company • In July 2016, the Company announced of the Company, as a body, and no announced the appointment of the achievement of a new milestone other persons. The Group, its directors, Ms Lisa Schoenberg as Non-Executive in its first oncology drug discovery employees, agents or advisers, do not Director with effect from 1 September collaboration with Servier, which accept or assume responsibility to any 2015. resulted in the Company receiving a person to whom this document is shown • Also in August 2015, the Company payment of €500k which is included or into whose hands it may come and any announced completion of investments in revenue for the 12 months ended such responsibility or liability is expressly in its NCE development pipeline 30 June 2016. disclaimed. By their nature, the risks facing following V158866 Phase II study results the Group in this report involve uncertainty failing to achieve the primary since future events and circumstances endpoints. can cause results and developments to • In September 2015, the Company differ materially from those anticipated. announced the launch of Tuzistra® XR. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 29 Directors’ report Additional information

Number of % of issued Shareholders having a major interest shares held shares 1. Invesco Asset Management 194,441,770 36.95

2. Woodford Investment Management 157,309,929 29.90

3. GAM London Ltd 47,861,787 9.10

4. Legal & General Investment Management 30,642,580 5.82

5. Aviva Investors 27,012,325 5.13

RESULTS AND DIVIDENDS SUBSTANTIAL SHAREHOLDINGS AUTHORITY TO ISSUE SHARES The revenue of the Group during the 12 At 20 September 2016, the Company Each year at the AGM, the directors month period ended 30 June 2016 was had received notification from the seek authority to allot shares for the £12,034,000 (18 month period ended above financial institutions of their and following year. At the last AGM held 30 June 2015: £19,882,000). The loss for their clients’ interests in disclosable on 2 December 2015, shareholders the 12 month period ended 30 June 2016 holdings, which represent 3 per cent or authorised the directors to allot relevant amounted to £14,495,000 (18 month more of the voting rights of the issued securities up to an aggregate nominal period ended 30 June 2015: £6,401,000). share capital of the Company, and value of £1,483,720.15 representing are disclosed in the table above, in one-third of the issued share capital and The directors do not recommend the accordance with the DTRs of the FCA. to further allot equity securities up to an payment of a dividend for the 12 month additional aggregate nominal value of period ended 30 June 2016 (18 month STRUCTURE OF THE COMPANY’S £1,483,720.15 in connection with an offer period ended 30 June 2015: nil). CAPITAL by way of a rights issue, in accordance The Company’s share capital, traded with ABI guidance, and to allot for cash IMPORTANT EVENTS SINCE THE on the LSE AIM, comprises a single equity securities having a nominal YEAR END class of ordinary shares of 1 pence value not exceeding in aggregate • In July 2016, the Company announced each in nominal value, each carrying £222,558.02 (being 5 per cent of the successful completion of the CCP-08 one vote and all ranking equally. issued share capital) and to further allot pivotal multiple-dose comparative equity securities for cash otherwise than bioavailability study. Holders of ordinary shares are entitled pursuant to the above of £222,558.02 • Also in July 2016, the Company to receive all shareholder documents, (in addition to the above) in connection announced the acquisition by Juno of to attend, speak and exercise voting with an acquisition or specified capital Redox, the Company’s exclusive rights, either in person or by proxy, on investment. These authorities will expire worldwide licensee to vipadenant resolutions proposed at General Meetings at the conclusion of the next AGM of (V2006). and participate in any distribution the Company or, if earlier, at the close • In September 2016, the Company of income or capital. There are no of business 15 months after the date announced that the FDA had restrictions on the transfer of shares in of the passing of this resolution. At the accepted the CCP-07 NDA for full the Company or in respect of voting forthcoming AGM, similar authorities review with a PDUFA date of 20 April rights attached to the shares. None of will be sought from shareholders. 2017. the shares carry any special rights with regard to the control of the Company. SIGNIFICANT AGREEMENTS FUTURE DEVELOPMENTS The Company is not party to any The future developments of the Group are Movements in the Company’s issued significant agreement which takes described in the Chairman’s and Chief share capital during the 12 month period effect, alters or terminates upon a Executive Officer’s statement and under review are set out in Note 20 (Share change of control of the Company strategic report. capital) to the financial statements. other than the directors’ service contracts, details of which are set The issued share capital as at 30 June out in the remuneration report. 2016 was £5,261,962.04 comprising 526,196,204 ordinary shares of 1 pence each in nominal value. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 30 Strategic report Financial statements Directors’ report Additional information

Directors’ report CONTINUED

DIRECTORS The directors of the Company who served during the 12 month period ended 30 June 2016 and up to the date of this report were:

Director’s name Capacity Date of appointment Dr P J Fellner Non-Executive Chairman 1 November 2009 (Executive Chairman from 23 April 2003) Mr I R Garland Chief Executive Officer 29 December 2008 Mr D Mackney Chief Financial Officer 2 February 2009 Ms C C Ferguson Non-Executive 1 September 2003 Mr N Sheail Non-Executive 3 August 2011 Dr I Gilham Non-Executive 1 July 2015 Ms L Schoenberg Non-Executive 1 September 2015

Biographical details of the directors are set out on pages 26 and 27.

RE-ELECTION OF DIRECTORS considers that they continue to make DIRECTORS’ INTERESTS Shareholder approval was given at the a valuable contribution to the Group’s Details of the interests of the directors AGM held on 1 June 2010 to adopt new performance and carry out their duties and their families in the ordinary share Articles of Association to reflect changes as non-executive directors in an effective, capital of the Company are given in introduced by the Shareholders’ Rights independent and constructive manner. the remuneration report. During the 12 Regulations, the Companies Act 2006 month period under review, Dr Fellner, and amendments to the Uncertificated The service contracts of the executive Mr Garland, Mr Mackney, Ms Ferguson Securities Regulations 2001. Article 88 directors and the Non-Executive and Mr Sheail all purchased shares was amended to delete the requirement Chairman and letters of appointment in the Company, details of which are for one-third of directors to retire at for the non-executive directors included in the remuneration report. every AGM and it was replaced with a are available for inspection at the There were no changes in the directors’ provision that each director stand for re- registered office of the Company. shareholdings between 30 June election at least once every three years. 2016 and the date of this report. In accordance with section 992 of the In accordance with the Company’s Companies Act 2006, the directors Following authorisation by shareholders Articles of Association and the disclose that the rules regarding the to provide for the authorisation by provisions of the QCA Code, Dr Fellner, appointment and replacement of directors of directors’ situational conflicts, Ms Ferguson and Mr Mackney will retire directors are contained in the Company’s the Board has followed the agreed at the next AGM and, being eligible, Articles of Association, which may procedures set out in the Articles of and with the Board’s recommendation, only be amended with shareholder Association for considering and, where will offer themselves for re-election. approval in accordance with relevant appropriate, authorising directors’ legislation. The powers of the directors situational conflicts and confirms that Of the retiring directors, Dr Fellner and are contained in the Company’s Articles the system operated effectively during Ms Ferguson are non-executive directors of Association or in accordance with the 12 month period under review. and Mr Mackney is an executive director. the provisions of the Companies Act Ms Ferguson has a letter of appointment 2006. The Companies Act 2006 provides DIRECTORS’ INDEMNITIES with the Company and Dr Fellner and that directors may issue and buy back The Company has entered into qualifying Mr Mackney both have service contracts the Company’s shares on behalf of the third-party indemnity arrangements with the Company. Details of these are Company, subject to authority being for the benefit of all its directors in a set out on page 43 of the remuneration given to the directors by shareholders form and scope which comply with the report. In evaluating the performance in General Meeting. No such authority requirements of the Companies Act of Dr Fellner and Ms Ferguson, as to buy back the Company’s ordinary 2006, which continued in force during non-executive directors offering shares of 1 pence has been sought. the 12 month period under review themselves for re-election, the Board and continue to be enforceable. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 31 Directors’ report Additional information

FINANCIAL RISK MANAGEMENT INDEPENDENT AUDITORS The financial risk management and A resolution to reappoint objectives of the Group and the PricewaterhouseCoopers LLP as auditors exposure of the Group to foreign to the Group and authorise the directors currency risk, cash flow and liquidity to determine their remuneration risk, interest rate risk, credit risk, price will be proposed at the AGM. risk, fair value estimates and capital risk management are set out in Note DIRECTORS’ STATEMENT CONCERNING 29 (Financial risk management) to the DISCLOSURE OF INFORMATION TO financial statements on pages 84 to 88. AUDITORS Each person who is a director of the GOING CONCERN Company at the date of approval of At 30 June 2016, the Group had cash this report confirms that so far as the resources (being cash and cash director is aware, there is no relevant audit equivalents and held-to-maturity information of which the Group’s auditors financial assets) of £84.0 million. are unaware and each director has taken all the steps that he/she ought to have After making enquiries and taking into taken as a director to make himself/herself account management’s estimate of aware of any relevant audit information future revenues and expenditure, the and to establish that the Group’s directors have a reasonable expectation auditors are aware of that information. that the Group will have adequate financial resources to continue in On behalf of the Board operation for the foreseeable future.

CORPORATE GOVERNANCE The Company’s statement on corporate governance compliance can be found Kevin Kissane in the corporate governance report Company Secretary on pages 32 to 36 of these financial 28 September 2016 statements. The corporate governance report forms part of this directors’ report and is incorporated by reference. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 32 Strategic report Financial statements Directors’ report Additional information

Corporate governance

The directors acknowledge the importance free from any relationship which could page 33. All directors receive the agenda of the principles of the QCA Code. materially affect the exercise of their and Board papers in advance of Board independent judgement. In the case of meetings to enable them to make an Although adherence to the QCA Code is Ms Ferguson, despite the fact that she effective contribution at the meetings. not compulsory for companies listed on has now served as a director for some 13 Between Board meetings, the executive AIM, the directors adopt the principles years, the Board considers her to still be directors maintain regular informal of the QCA Code to the extent they independent for the following reasons. contact with non-executive directors. consider appropriate for a company During the time Ms Ferguson has served of the size and nature of Vernalis plc. as a director, there have been three While the Board retains overall different management teams running responsibility for, and control of, the THE BOARD the Company for consecutive periods of Group, day-to-day management of The Board is responsible for the around four, one and seven and a half the business is conducted by the Company’s systems of corporate years. Of the present Board, one director executive directors. Review of the Group’s governance. During the 12 month period was appointed five years ago and two principal business activities is the under review, the Board initially comprised directors one year ago. The CEO and CFO responsibility of the Executive Committee five directors, three of whom were non- were appointed approximately seven (comprising the Chief Executive executive. Following the appointment and a half years ago. Accordingly, the Officer, the Chief Financial Officer, the of Dr Gilham and Ms Schoenberg as length of service of individual current Research Director, Chief Operating Non-Executive Directors on 1 July 2015 members of the Board has varied over Officer – VTI, Senior Vice President – and 1 September 2015 respectively, the the period Ms Ferguson has been a Pharmaceutical Quality Operations, Board now comprises seven directors, director. Ms Ferguson has not been, and Senior Vice President – Medical Affairs, five of whom are non-executive. The is not now, a member of any board which the General Counsel and the Human biographies of all members of the Board has among its members any other of Resources Director) who meet weekly. are set out on pages 26 and 27. the current directors of the Company. To fulfil its role of providing leadership There were no other changes to the Board During the 12 month period under and ensuring effectiveness, the Board during the 12 month period under review. review, and up to the date of this report, has a defined schedule of matters changes in the Chairman’s external reserved for its decision, which are Dr Fellner, as Chairman of the Board, is commitments are as listed in his periodically reviewed and which are responsible for leading the Board and biography on page 26 of this report. published on the Group’s website at ensuring its effectiveness. Mr Garland, www.vernalis.com. These include: as Chief Executive Officer, is responsible All the directors have access to the for the operational management advice and services of the Company • business strategy and management; of the Group and implementation Secretary, who is responsible for ensuring • financial reporting and control of Board strategy and policy. The that Board procedures and applicable (including approval of the annual division of responsibilities between the regulations under the Company’s budget); Chairman and Chief Executive Officer Articles of Association or otherwise are • material acquisitions and divestments; is set out in writing and approved by complied with. Each director is entitled, • major capital expenditure projects; the Board, which periodically reviews if necessary, to seek independent • Group policies; such division of responsibilities. professional advice at the Company’s • corporate governance matters; and expense. The Group maintains directors’ • the establishment and monitoring of The Chairman is not considered to be and officers’ liability insurance. internal controls. independent since he was Executive Chairman of the Company between The Board holds around seven scheduled The Board reviews the strategy and at 23 April 2003 and 1 November meetings per year, with additional each meeting evaluates the progress 2009, following which he became meetings when circumstances and of the Group towards achieving its Non-Executive Chairman. urgent business dictate. In the 12 month annual objectives, particularly relating period under review, there were seven to its recently established US commercial The Board determines each of the other scheduled meetings and two additional business. It also analyses the risk non-executive directors to be independent Board meetings. Attendance of members of potential activities and monitors of the executive management and at these meetings is shown in the table on financial progress against budget. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 33 Directors’ report Additional information

BOARD PERFORMANCE AND The Company Secretary analysed To comply with the provisions of the APPRAISAL the replies to the questionnaire, drew QCA Code, any director who has served The Board evaluates its performance conclusions and formulated suggestions as such for longer than nine years and that of its Committees through a for the Board to adopt in future, all should retire and submit themselves process of regular dialogue and periodic of which he summarised in a report for re-election annually. Subject to formal Board evaluations. In respect of the for consideration by the Board. their re-election and the provisions period under review, the Board evaluation of the Companies Act 2006, the non- process consisted of completion Each year, two meetings are executive directors, with the exception by each director of a questionnaire scheduled for the non-executive of Dr Fellner, are appointed for specified prepared by the Company Secretary directors to meet without the terms. Dr Fellner has a 12 month rolling covering the following eight topics: presence of executive directors. service contract with the Company.

• the responsibilities and the roles of The Senior Independent Director, BOARD COMMITTEES individual directors and the Board Ms Ferguson, seeks the views of all The Board has established Audit, as a whole; directors on the performance of the Remuneration, and Nominations and • the role of non-executive directors; Chairman and discusses their combined Corporate Governance Committees, • the role of executive directors; views with him, which she did in each with written terms of reference • the conduct of Board meetings; respect of the period under review. which are published on the Group’s • the conduct of Committees of the website at www.vernalis.com. Board; APPOINTMENT AND RE-ELECTION • the Board’s role in monitoring the OF DIRECTORS Membership of Board Committees and performance of the Group; All directors are required to retire and attendance at Board and Committee • the Group’s leadership and culture; submit themselves for re-election at meetings during the 12 month period and the first AGM after appointment and, under review was as follows: • corporate governance practices. thereafter, at least every three years.

Audit Remuneration Nominations and Board meetings Committee meetings Committee meetings Corporate Governance Scheduled: 7 Scheduled: 2 Scheduled: 3 Committee meetings Additional: 2 Additional: 2 Additional: 0 Scheduled: 1 Meetings Meetings Meetings Meetings Director’s name Independent Position attended Position attended Position attended Position attended Dr P J Fellner No Non-Executive 7 – – – 3 Chairman 1 Chairman 2 Mr I R Garland No Executive CEO 7 – 2 – 3 Member 1 2 2 Mr D Mackney No Executive CFO 7 – 2 – – – – 2 2 Ms C C Ferguson Yes Non-Executive 7 Chairman 2 Member 3 Member 1 1 2 Dr I D Gilham Yes Non-Executive 7 Member 2 Chairman 3 Member 0 0 2 Ms L Schoenberg* Yes Non-Executive 6 Member 1 Member 2 Member 0 0 2 Mr N Sheail Yes Non-Executive 7 Member 2 Member 3 Member 1 0 2

* Ms Schoenberg was appointed a director of the Company on 1 September 2015. Accordingly, Ms Schoenberg was not eligible to attend any meetings of the Board or its Committees which occurred before the date of her appointment as director. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 34 Strategic report Financial statements Directors’ report Additional information

Corporate governance CONTINUED

AUDIT COMMITTEE The Audit Committee considers that INTERNAL AUDIT The Audit Committee members the Company’s relationship with the Due to its size and structure, the are all independent non-executive Group’s auditors is working well and Group does not have an internal directors. During the 12 month period the Committee remains satisfied audit function. This is a matter which under review, the Committee was with the effectiveness of the auditors. the Committee reviews annually. chaired by Ms Ferguson, whom the Accordingly, the Company does not Board considers has recent and consider it necessary to put out the REMUNERATION COMMITTEE relevant financial experience. audit to tender. There are no contractual The Remuneration Committee members obligations restricting the Company’s are all independent non-executive The Audit Committee reviews and reports choice of external auditors. directors. During the 12 month period to the Board on the Group’s annual under review, the Committee was financial statements, interim reports and FINANCIAL REPORTING PROCEDURES chaired by Dr Gilham. The Remuneration considers the Group’s accounting policies AND EXTERNAL AUDIT Committee determines the terms of and the effectiveness of the internal The Audit Committee provides a forum service and remuneration of the executive control and risk management systems. through which the Group’s external directors and senior employees with auditors report to the Board. The auditors advice from external remuneration The Audit Committee held two have held office as the Company’s consultants. It also determines scheduled meetings and two additional auditors for over 13 years. They attend overall remuneration policy for all meetings during the 12 month all Audit Committee meetings and have other Company employees and sets period under review. Attendance the opportunity to meet privately with targets for performance-related pay of members at these meetings is Committee members in the absence of schemes operated by the Group. shown in the table on page 33. executive directors. The Audit Committee is responsible for recommending the The remuneration of non-executive The terms of reference of the Audit appointment and removal of the directors is also based on advice from Committee include the following auditors and agreeing the audit fees. The the same remuneration consultants. responsibilities: Committee also monitors the scope and The Remuneration Committee held results of the audit, the independence three scheduled meetings during the 12 • to review the effectiveness of the and objectivity of the auditors and their month period under review. Attendance Group’s internal financial controls, risk performance. In order to safeguard the of members at these meetings is management systems and financial auditors’ objectivity and independence, shown in the table on page 33. reporting procedures; the Audit Committee approves in advance • to review the internal management of any non-audit services to be performed The terms of reference of the financial matters; by the auditors such as tax compliance Remuneration Committee include • to review the Group’s arrangements/ and advisory work, the issue of investment the following responsibilities: systems and controls for: whistle- circulars, and other assurance services. blowing and fraud; the prevention of The independent auditors continue to • to determine the framework and policy, bribery; and the adequacy of anti- operate procedures to safeguard against and the individual packages for the money laundering and the the possibility of their objectivity and remuneration of the executive directors, compliance function; independence being compromised. This Chairman and other senior executives; • to review annually the need for an includes the use (where appropriate) • to determine targets for the internal audit function; of quality review partners, a technical performance-related pay schemes; • to consider and make review board and the carrying out of • to approve overall remuneration policy; recommendations regarding the an annual independence procedure • to review employee benefit structures; appointment of the Group’s external within their firm. The auditors’ report to the and auditors, including the pre-approval of Audit Committee on matters including • to produce an annual report of the non-audit services; independence and non-audit fees on an Committee’s remuneration policy. • to establish procedures for the receipt, annual basis. The specific audit partner retention and treatment of complaints changes every five years. The amount NOMINATIONS AND CORPORATE regarding accounting, internal charged by the external auditors for GOVERNANCE COMMITTEE accounting control and auditing the provision of services during the 12 The majority of the Nominations and matters; month period under review is set out in Corporate Governance Committee • to review the consistency and Note 4 (Group operating expenses) of members are independent. During application of accounting policies; and the financial statements on page 64. the 12 month period under review, the • to review annual financial statements, Committee was chaired by Dr Fellner. The interim announcements and interim Committee is responsible for determining management statements before they the qualities and experience required are considered by the Board for of the Group’s executive and non- approval. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 35 Directors’ report Additional information

executive directors and for identifying The Audit Committee reviews the Group’s The active involvement of the executive suitable candidates, assisted where internal financial controls and risk directors in the Group’s Executive appropriate by recruitment consultants. management systems and the Board Committee enables the Board to monitor The Committee is also responsible for reviews the effectiveness of all the Group’s and assess the significant business, succession planning and for reviewing internal controls including operational operational, financial, compliance and and making recommendations in and compliance controls and risk other risks to which the Group is exposed relation to the Group’s corporate management systems in effect during and to review the effectiveness of the governance procedures which the full the period. Group’s internal controls of them. This Board then considers. The Nominations is reinforced by the executive directors and Corporate Governance Committee Since the establishment of the US providing to the Board regular and detailed held one meeting during the 12 month commercial operations, the Group has reports covering financial performance, period under review. Attendance introduced a whistleblowing policy and a investor relations, research, clinical of members at these meetings is telephone hotline which is managed by development, commercial interactions shown in the table on page 33. an independent company. and management of intellectual property.

The terms of reference of the Nominations The Group’s internal controls are To further manage risks faced by the and Corporate Governance Committee regularly reviewed by the Board in Group, the Company attempts to ensure include the following responsibilities: each financial period as part of the that employees fully understand the risk management process. This process Group’s business strategy and objectives. • to review the structure, size and involves a review of each area of the The Group’s communication and composition of the Board; business to identify material risks and consultation programme includes internal • to prepare a description of the role and the controls in place to manage these briefings at the time of key external capabilities required for a particular risks. Material controls including financial, announcements, reference to economic appointment to the Board; operational, business and compliance and/or financial factors affecting • to identify and nominate candidates to controls and risk management processes the Company’s performance and fill Board vacancies as and when they were reviewed. The process prioritises presentations by directors to all employees arise, including consideration of the risks, evaluates controls and assesses throughout the year. Regular meetings candidate’s business interests and any whether any improvements to such are held with staff and managers, both conflicts of interest; controls are necessary. The process to discuss specific issues and provide an • to satisfy itself with regard to succession was undertaken by the Chief Financial exchange of information. In the UK, the planning within the Group; and Officer, Company Secretary and senior Group has an elected Staff Consultative • to review the effectiveness of the managers with responsibility for specific Committee, which meets on a regular Company’s corporate governance. controls. Where any significant weakness basis. Email and the Group’s intranet site or failing was identified, implementation also provide information to employees. INTERNAL CONTROL AND RISK of appropriate remedial action was MANAGEMENT recommended to the Board to consider, REGULATORY FRAMEWORK The Board is responsible for establishing and, if felt appropriate, to approve. Documented quality procedures are and monitoring risk management and in place to ensure the maintenance internal control systems throughout the Following the implementation of the of regulatory compliance which are Group and assessing their effectiveness. Bribery Act 2010, the Board reviewed subject to periodic review to ensure The Board recognises that rigorous the Group’s policies and procedures current standards of quality compliance systems of internal control are critical to which related to this area in light of the are maintained. A quality group the Group’s achievement of its business guidance published by the Ministry monitors compliance of both staff objectives and that those systems of Justice concerning adequate and contractors to GxP, through the are designed to manage rather than procedures to have in place should a implementation of a programme for eliminate risk of failure to achieve business person associated with the Company relevant in-house and contracted-out objectives. The internal control and risk be accused of bribery. The Board carried activities. Pharmacovigilance contractors management systems can only provide out a risk assessment to consider the are responsible for monitoring and reasonable, not absolute, assurance nature and the extent of the risks relating reporting adverse events in support against material misstatement or loss. to bribery to which it is exposed and of the Group’s marketed product and has since continued to monitor and development programmes. These are A continual process for identifying, review its policies and procedures to managed in accordance with formally evaluating and managing the significant ensure compliance and effectiveness, documented procedures and oversight risks faced by the Group has been in both internally and externally. which comply with current regulatory place for the 12 month period under requirements. All relevant employees review and up to the date of approval receive training concerning current of this report and financial statements. regulatory and quality standards. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 36 Strategic report Financial statements Directors’ report Additional information

Corporate governance CONTINUED

FINANCIAL the Board is provided with brokers’ The Group follows practices which A comprehensive budgeting system reports, a summary of the contents of give regard to protection to the operates whereby managers submit meetings with shareholders and reports environment, particularly relating to waste detailed budgets, which are reviewed by analysts. The Board considers that management and utility consumption. and, where appropriate, amended by the provision of these documents is a Waste is minimised with packaging and executive directors prior to submission practical and efficient way for both the containers returned to suppliers where to the Board for approval. Each Chairman and Senior Independent possible. Paper waste is recycled and month, actual results are reported Director to be informed of major confidential paper waste is shredded against budget and distributed to shareholders’ opinions on governance and recycled. Where possible, the Group managers and are provided to the and strategy and to understand any recycles wood, metal, plastics and glass. Board in advance of meetings. shareholder issues and concerns. The The Group does not knowingly discharge Senior Independent Director and other toxic materials into the environment INSURANCE non-executive directors are available to other than very small amounts via fume The Group annually reviews its insurance meet major shareholders if requested. cupboard extraction systems, arising policies with its insurance broker to ensure from small-scale synthetic chemistry. that the policies are appropriate for CORPORATE SOCIAL RESPONSIBILITY the Group’s activities and exposures. The Board recognises the importance of taking into account CSR in operating COMMUNICATIONS WITH the business, and the impact of its SHAREHOLDERS activities, particularly relating to health, The Group reports formally to shareholders safety and environmental issues. when its full-year and half-year results are published, around September/ The Group has well-developed health October (full year) and February/March and safety policies and procedures, (half year). At the same time, executive safeguarding staff, contractors and directors present the results to institutional visitors, and it complies with current investors, analysts and the media. legislation and best practice. Mr Garland is the executive director responsible Notification of the date of the AGM is for HS&E. The Group has established in sent to shareholders at least 20 working the UK a Health and Safety Committee days in advance of the meeting. The which meets quarterly. The Chairman directors are available at the AGM of the Committee is the Company to answer questions, both during the Secretary who reports on health course of the meeting, and informally and safety matters to the Board. afterwards. Details of the 2016 AGM are set out in the Notice of Meeting. Following the establishment of the Group’s US commercial operations in Berwyn, PA, Contact with major shareholders is the Group has adopted an appropriate principally maintained by the Chief health and safety policy to apply to its Executive Officer and the Chief Financial staff, contractors and visitors at that site. Officer, who ensure that their views are communicated to the Board as a whole. The Group’s health and safety policies The Chairman is also available to discuss and procedures are published on governance and other matters directly the Group’s intranet and are a key with major shareholders. The Board component of the staff induction believes that appropriate steps have programme. Appropriate health been taken during the reporting period and safety training is provided with to ensure that the members of the Board, quarterly internal safety audits, and and in particular the non-executive annual audits by specialists and directors, develop an understanding of government agencies. In the period the views of major shareholders about under review, no significant issues have the Company. At every Board meeting, been identified by these audits. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 37 Directors’ report Additional information

Remuneration report

DEAR SHAREHOLDERS Our remuneration policy for the 12 The last 12 months has seen further I am pleased to present our month period ended 30 June 2016 is progress across all three elements of our unchanged from that of the previous business. Following approval of Tuzistra® XR remuneration report for the reporting period. Following significant and its subsequent launch, CCP-07 NDA 12 month period ended 30 June strategic developments in Q1 2012, was filed with the FDA in June 2016 and 2016 which will be subject to an the Committee reviewed executive CCP-08 is on track for NDA filing in 2016. advisory vote at the 2016 AGM. remuneration arrangements and Both these products could be launched The outcome of this vote will be implemented the Value Builder Plan, which into the 2017/18 cough cold season. was designed to incentivise executives Tris continues to work on the remaining considered carefully by the to deliver outstanding share price growth two programmes, both of which could Remuneration Committee in for our shareholders over a five-year achieve POC in the current 2016/17 the formulation and approval term. Awards were made under this plan accounting period. of the Company’s future to the CEO, CFO and selected senior remuneration policies. management in 2012, 2013 and 2014. Consistent with our strategy, we The Committee granted further awards completed in-house development work in 2015 and 2016 to senior employees. on V158866 in August 2015. Following Novatis’ notification in 2014 that it would The three month average share price cease development of the AUY922 to 30 June 2015 was 60.76 pence and cancer programme following results from therefore 18 per cent of the 2012 VBP clinical studies and return to us rights to awards vested. These can be exercised the programme, we continue attempts from 1 October 2017. The three month to find a partner for the programme. average share price to 30 June 2016 was 46.5 pence. A further 0.1 per cent of the Our research business continued 2012 VBP awards therefore vested, as did to perform well, with continued 9 per cent of the 2013 VBP awards, which progress in collaborations with are exercisable from 1 October 2018. external companies and receipt of milestone payments from Servier. In June 2016, the Company adopted the rules of the Executive Incentive Plan We remain in a strong cash position to and granted awards under it to selected execute our commercial strategy and senior management, excluding the achieve profitability. In the context of this executive directors. As no further awards performance the Committee decided that can be made under the VBP from 2017, it was appropriate to pay a bonus of 40 the Committee intends to make awards per cent of base salary to the CEO and to executive directors under the EIP from 40 per cent of base salary to the CFO for the 2016/2017 financial year. Further the 12 month period ended 30 June 2016. details will be provided in the Directors’ Remuneration Report for that year.

DR IAN GILHAM CHAIRMAN OF THE REMUNERATION COMMITTEE Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 38 Strategic report Financial statements Directors’ report Additional information

Remuneration report CONTINUED

This report covers the 12 month period At appropriate times, the Committee A significant proportion of executive ended 30 June 2016 with comparative invited the views of the Chairman, remuneration is performance-related. figures provided for the 18 month period Chief Executive Officer and Deloitte LLP, Performance conditions for performance- ended 30 June 2015. The Company independent remuneration consultants. related bonus and long-term incentives is traded on AIM and therefore is not During the 12 month period ended are designed to support the Company required to prepare a remuneration 30 June 2016, Deloitte supported strategy and to align the interests of report. The Company aims to adhere to a the Company in the operation of its executives, employees and shareholders. high level of compliance with corporate share plans and provided IFRS 2 share governance guidelines and therefore scheme valuations for the accounts. The Company’s policy on remuneration the Company has prepared this report takes account of the pay structure voluntarily so that shareholders can The Company’s policy on the and employment conditions within the clearly understand remuneration paid to remuneration of employees, including Group, industry sector and geographical the directors. At the Company’s AGM, a executive directors, is established by location. To determine the elements resolution to approve the remuneration the Committee and approved by and level of remuneration appropriate report will be proposed, details of the Board. The overall remuneration to each employee and executive which will be given in the Notice of cost of employees and the individual director, the Committee considers: Meeting. The vote will be advisory. remuneration packages of each executive director and senior employee •• remuneration levels in comparable THIS PART OF THE REMUNERATION is determined by the Committee. biotechnology and pharmaceutical REPORT IS UNAUDITED No executive director or employee companies; participates in discussions relating to •• pay and benefits surveys relating THE REMUNERATION COMMITTEE ROLE the setting of their own remuneration. to industry sector or professional AND ADVISERS specialism; and Membership of the Remuneration REMUNERATION POLICY •• individual skills, experience and Committee (the Committee) during The objective of the Company’s performance. the 12 month period under review was remuneration policy is to incentivise composed entirely of independent non- executives to deliver the Company’s executive directors of the Company. The business strategy and to ensure that Committee met three times during the 12 all employees receive remuneration month period ended 30 June 2016. The appropriate to their performance, scale Committee was chaired by Dr Gilham of responsibility, skills and experience. following his appointment on 1 July 2015. Remuneration packages are intended Dr Gilham, Ms Ferguson and Mr Sheail to enable the Company to attract and were members of the Committee retain key employees by ensuring they throughout the 12 month period under are rewarded competitively and that review and Ms Schoenberg became they are incentivised to achieve the a member following her appointment highest level of Company performance as a director on 1 September 2015. in line with the Company strategy and in the best interests of shareholders. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 39 Directors’ report Additional information

Purpose and Maximum Performance Element of pay link to strategy Operation opportunity measures FIXED PAY Base pay The role of base Salaries are set taking into The current annual salaries are as n/a salary is to support account salary levels at other follows: the recruitment and companies of a similar size retention of executive and similar business areas, CEO – £400,000 directors, as well as individual skills, experience CFO – £280,000 other employees of and performance and the the Company, of the remuneration arrangements Any increase in executive directors’ calibre required to for other employees in the salaries is determined by the develop and deliver Group. Committee, taking into account the the strategy. factors stated in this table and the following principles:

•• Salary increases for executive directors will typically be in line with the average salary increase (in percentage of salary terms) for other permanent employees. •• Increases may be made above this in certain circumstances, including: –– Progression within the role; –– Increase in scope and responsibility of the role; –– Increase in size and complexity of the Company; –– Increase in experience where an individual was recruited on a lower salary.

Executive directors’ salaries were reviewed and increased by 10% (CEO) and 14% (CFO) with effect from 1 July 2015 following the significant increase in the size and complexity of the Group. Following a review on 1 January 2016 no changes were made to those salaries.

Salaries for other employees were increased by 2.7% from 1 January 2016 in line with the increase in RPI. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 40 Strategic report Financial statements Directors’ report Additional information

Remuneration report CONTINUED

Purpose and Maximum Performance Element of pay link to strategy Operation opportunity measures FIXED PAY CONTINUED Benefits To provide certain All UK employees are n/a n/a non-monetary benefits automatically enrolled in a cost-effective way, in these schemes upon including: commencing employment.

•• Life Assurance; •• Death in Service Pension; and •• Income Protection.

Retirement To provide a All employees in the UK are Contributions for the 12 month period n/a pension competitive pension invited to participate in a under review were: benefit which money purchase Group facilitates employees Personal Pension plan which •• Executive directors – 19% of base saving until retirement. has no defined benefits. salary. •• Senior management – 15% of The Company has no base salary. obligation to the pension •• Other employees – up to 10% of scheme beyond the payment base salary. of contributions. VARIABLE PAY Performance- To incentivise All employees participate in a Maximum bonus opportunities are The level of bonus is related bonus employees to performance-related bonus as follows: based on overall Group achieve key strategic scheme. performance and, in objectives of the •• CEO and CFO – 100% of base the case of executive business. salary. directors and senior •• Other employees – range management, on between 10% and 40% of base individual performance salary, dependent on their role measured against and market factors. criteria established by the Committee at the beginning of the financial reporting period.

These objectives relate directly to the development and growth of the product portfolio and operational effectiveness. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 41 Directors’ report Additional information

Purpose and Maximum Performance Element of pay link to strategy Operation opportunity measures VARIABLE PAY CONTINUED 2012 VBP The Board believes Awards under the plan are Maximum awards are as follows: Awards vest based that long-term made in the form of nominal on achieving Approved by incentive schemes are value options. CEO – maximum of 10,353,041 shares. stretching share price shareholders important in retaining CFO – maximum of 7,209,922 shares. performance targets in 2012 and recruiting high- Any employee is eligible to over a five year period. calibre individuals participate in the VBP at the Awards were made in three and ensuring that discretion of the Committee phases, with 50% of the award being If targets are met in year the performance is although it is intended that granted in 2012, 30% of the award three or year four there focused on creating participation in the VBP will being granted in 2013 and the is an opportunity for a long-term shareholder be limited to the CEO, CFO remaining 20% of the award being portion of awards to value while conserving and senior management. granted in 2014. vest at this time. Awards the Company’s are only exercisable, cash reserves. For other employees the maximum however, at the end of award is 75% of salary per annum the five year period. (100% in exceptional circumstances) based on the share price at the date of grant.

2007 Bonus LTIP All employees and executive directors of the Company are eligible Matching share awards to participate in the Bonus LTIP at the discretion of the Committee, only vest if challenging Approved by although it is not intended that executive directors will participate share price growth shareholders in further in the Bonus LTIP. Awards can be made in the following forms: targets are achieved 2007 over a three year period. •• Participants may receive a Share Bonus Award, the amount of which is determined by reference to an individual’s annual performance cash bonus awarded in respect of the previous financial year. The maximum Share Bonus Award cannot exceed 60% of a participant’s base salary (100% in exceptional circumstances). •• Under the Bonus LTIP, the Committee may also offer participants the opportunity, or require a participant, to sacrifice a portion of their annual performance cash bonus up to a maximum of 100% in return for an Investment Award. •• The Committee can also grant a Matching Award. The maximum Matching Award which may be made is three times the Share Bonus Award granted. 2016 EIP To incentivise key Awards under the plan are The maximum award size for executive Awards to executive employees to achieve made in the form of nominal directors will be determined by the directors will generally be strategic objectives value options. Committee prior to their participation subject to performance and to grow the value in the plan. conditions tested over at of the business. Participation in the plan is least three years. focused on key employees Awards are in the who are critical to delivering form of shares to shareholder value. create alignment with shareholders interest. No awards have currently been made under the plan to executive directors. However, it is intended that awards will be made to the CEO and CFO in the future. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 42 Strategic report Financial statements Directors’ report Additional information

Remuneration report CONTINUED

FURTHER DETAILS ON LONG-TERM INCENTIVES 2012 Value Builder Plan (VBP) Awards were granted in 2012, 2013 and 2014 under the VBP to the CEO, CFO and selected senior management and in 2015 and 2016 to selected senior management.

The awards are subject to the satisfaction of share price targets outlined below. Although awards will normally vest at the end of the five year performance period, if the performance target is achieved in the third or fourth year of the performance period then a portion of the award may vest at those times.

The targets for awards granted to executive directors in 2012, 2013 and 2014 are set out below. Proportion of the award that Company share price may vest 45 pence 25% 60 pence 50% 75 pence 100%

Vesting between points shall be on a straight-line basis.

The performance target shall be assessed based on the three month average share price performance to 30 June in the relevant year of the performance period, unless the Committee determines that another measurement period would be appropriate.

When determining vesting, the Committee will also consider the general performance of the business and the performance of the Company against key peers (the Committee will generally consider relative operational, financial and share price performance when making this assessment) to ensure that the level of vesting is appropriate in the context of this wider performance.

The performance target may be varied if one or more events occur which cause the Committee to consider that a varied performance target would be more appropriate. Any varied performance target would not be materially less difficult to satisfy. Details of the awards granted to the executive directors are set out in the table on page 45.

2007 Bonus Long Term Incentive Plan (Bonus LTIP) In June 2016, certain UK employed staff, excluding the executive directors, were granted awards of 20 per cent of their 2015/16 cash bonus. The Committee also granted a Matching Award of twice the Bonus Award.

2016 Executive Incentive Plan (EIP) During 2016, the Company adopted the Executive Incentive Plan and granted awards in June 2016 to selected employees in its US operations. Awards under the EIP are in the form of nominal value (1 pence) options that vest over a period of time subject to continued employment and, if the Company so determines, performance conditions.

From 2017, no further awards can be made under the VBP or the Bonus LTIP. The Committee therefore proposes in future to use the EIP as its primary incentive plan for all employees. It is intended that awards under the EIP will be made to executive directors in the 2016/17 financial year. Awards to executive directors will generally be subject to performance conditions tested over at least three years. Further details will be provided in next year’s directors’ remuneration report.

Sharesave Grants of options were made on 3 September 2012 to the two executive directors and other employees under the Company’s 2003 savings related share option plan approved by HMRC which vested in October 2015.

A grant of 1,211,509 options to 60 employees including the two executive directors was made on 2 December 2015 under the Company’s 2015 Sharesave Plan which was adopted by the Company on 27 November 2015. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 43 Directors’ report Additional information

CAPITAL AVAILABLE FOR OPERATION OF SHARE PLANS During the 12 month period under review, the Company has complied with the requirement that the total number of unissued ordinary shares in the capital of the Company which may be placed under option on any day under the Vernalis share option schemes (ie the EIP, Bonus LTIP, the VBP and the Sharesave), may not exceed, when added to the aggregate number of shares that have been or may be issued under them, for the past ten years, 10 per cent of the issued ordinary share capital of the Company immediately prior to that day.

DIRECTORS’ SERVICE CONTRACTS The Company’s policy in entering into service contracts with executive directors is to enable the recruitment of high-quality executives and to obtain protection from their sudden departure to competitor companies. In addition, service contracts are an important element in maintaining maximum protection for the Group’s intellectual property rights and other commercially sensitive information. All service contracts are approved by the Committee and are one-year rolling contracts. Each service contract may be terminated by mutual agreement or by either party giving to the other 12 months’ notice. However, if an executive director is guilty of serious misconduct, is in serious breach of contract or persistently fails to carry out his duties, then the Company (after due warning) is entitled summarily to terminate his service contract without notice or any compensation in respect of that termination. If an executive director’s service contract is terminated for any other reason, he is entitled to receive a sum equal to 12 months’ pay and benefits.

The service agreement of Mr Garland was made on 13 November 2008 and came into effect on 29 December 2008. The service agreement of Mr Mackney was made on 13 November 2008 and came into effect on 1 February 2009.

CHAIRMAN’S REMUNERATION AND SERVICE AGREEMENT The remuneration of the Company’s Chairman is determined by the Committee, after taking appropriate advice. Since 1 July 2015, following a review of market practice by the Committee, the Chairman receives an annual fee of £125,000. He does not participate in the pension scheme and did not receive any other benefits in the 12 month period under review. Dr Fellner has a service agreement made on 21 March 2003 which came into effect on 23 April 2003. This agreement was amended on 1 November 2009 to reflect his transition from Executive Chairman to Non-Executive Chairman.

NON-EXECUTIVE DIRECTORS’ REMUNERATION AND LETTERS OF APPOINTMENTS Non-executive directors are appointed by letter of appointment for periods not exceeding three years. They receive fees for services as members of the Board and its Committees (£40,000 per annum) and the Chair of each Board Committee is paid an additional fee for performing that role. The Remuneration Committee Chairman is paid a total fee of £47,500 and the Senior Independent Director and Audit Committee Chairman is paid a total fee of £52,500 to recognise the additional time and responsibilities involved in the roles.

Ms Ferguson signed an appointment letter dated 17 July 2003, which became effective on 1 September 2003, for a fixed-term of three years to 30 August 2006. This contract was extended first to 29 August 2009 and subsequently to 29 August 2012, 29 August 2015 and 29 August 2018. Mr Sheail signed an appointment letter, which became effective on 3 August 2011, for a fixed-term of three years to 2 August 2014. This contract was extended to 2 August 2017. Dr Gilham signed an appointment letter, which became effective on 1 July 2015, for a fixed-term of three years to 30 June 2018. Ms Schoenberg signed an appointment letter, which became effective on 1 September 2015, for a fixed-term of three years to 30 August 2018.

All of these appointments are subject to the directors being re-elected under the provisions in the Company’s Articles of Association, and in compliance with the QCA Code. Each non-executive director still serving at the end of his/her term will have his/her appointment reviewed by the Board and a further term of office may be agreed. Where a non-executive director does not serve until the end of his/her term, he or she receives fees due pro rata to the date of cessation.

In March 2007, the Company entered into qualifying third-party indemnity arrangements for the benefit of all its directors in a form and scope which comply with requirements of section 234 the Companies Act 2006. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 44 Strategic report Financial statements Directors’ report Additional information

Remuneration report CONTINUED

REMUNERATION IN RESPECT OF THE PERIOD FROM 1 JULY 2015 TO 30 JUNE 2016 This table is audited. 12 month 12 month 12 month 12 month period ended period ended 12 month 12 month 12 month 18 month period ended period ended 30 June 2016 30 June 2016 period ended period ended period ended period ended 30 June 2016 30 June 2016 Performance- Discretionary 30 June 2016 30 June 2016 30 June 2015 30 June 2015 Salary/fees Benefits related bonus bonus paid(iii) Pension Total Total Total £000 £000 £000 £000 £000 £000 £000 £000 Executive I R Garland(i)(ii)(iii) 413 3 160 213 76 865 744 1,097 D Mackney(i)(ii)(iii) 293 2 112 84 53 544 508 749 Non-Executive Dr A Baxter – – – – – – 25 47 Dr P J Fellner 123 – – – – 123 105 158 C C Ferguson 52 – – – – 52 49 73 Dr I Gilham 47 – – – – 47 – – L Schoenberg 33 – – – – 33 – – N Sheail 40 – – – – 40 40 60 Total 1,001 5 272 297 129 1,704 1,471 2,184

(i) Salaries/fees for Mr Garland and Mr Mackney include a car allowance of £12,600 per annum. (ii) In respect of Mr Garland’s pensions arrangements for the 12 month period ended 30 June 2016, £22,710 (18 month period ended 30 June 2015: £69,791) was paid directly into a pension scheme and the remainder paid to Mr Garland to invest for his retirement. In respect of Mr Mackney’s pensions arrangements for the 12 month period ended 30 June 2016, £49,900 (18 month period ended 30 June 2015: £68,776) was paid directly into a pension scheme and the remainder paid to Mr Mackney to invest for his retirement. (iii) A discretionary amount was paid to Mr Garland and Mr Mackney in lieu of options granted to them in 2010 under the Bonus LTIP which they were unable to exercise due to trading restrictions and which therefore lapsed. See page 45 for more information.

1 JULY 2015 TO 30 JUNE 2016 PERFORMANCE-RELATED BONUS The performance objectives for the bonus for this period included the following:

Successful launch of Tuzistra® XR including:

• establishing supply chain (in and out of VTI) and distribution to the pharmacies; • obtaining formulary coverage; and • hiring and deploying sales force and ensuring operational performance in relation to: –– TRx performance; –– Average US$ per Rx performance; –– Average TRx size; and –– Gross and Net sales vs budget.

Progress Tris cough cold programmes, in particular:

• CCP-06 – successfully achieve POC; • CCP-07 – file NDA by 31 December 2016; and • CCP-08 – complete stability batches and file NDA by 31 December 2016.

The Committee considered performance against these objectives as a result of which it determined the bonus paid as described below.

For the 12-month period ended 30 June 2016, the Committee decided to award performance-related bonuses to executive directors and all staff. In the case of executive directors and senior management, the Committee determined that a bonus of 40 per cent of the maximum should be payable. This was determined by the Committee assessing the degree of achievement of the objectives set for each individual at the beginning of the 2015/16 financial year. For all other staff, the bonus paid for the financial year 2015/16 was also assessed at 40 per cent of their maximum bonus potential.

As a direct link between executive remuneration and the interests of shareholders, the Committee has requested executive directors to use a portion of bonuses paid to them to continue to purchase shares in the Company, with the aim of building and maintaining over time a personal shareholding of at least one times annual salary. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 45 Directors’ report Additional information

SHARE OPTION INTERESTS This part of the remuneration report is audited.

Granted in the Expired in the Exercised in the At 12 month 12 month 12 month At Exercise Date from Performance 1 July 2015 period period period 30 June 2016 price which conditions number number number number number £ exercisable Expiry date I R Garland Bonus LTIP (i) 550,089 – (550,089) – – £0.010 N/A N/A Bonus LTIP 91,310 – – – 91,310 £0.010 May 2014 May 2017 VBP (ii) 5,176,521 – – – 5,176,521 £0.010 Oct 2017 Oct 2022 VBP (ii) 3,105,912 – – – 3,105,912 £0.010 Oct 2018 Oct 2023 VBP (ii) 2,070,608 – – – 2,070,608 £0.010 Oct 2019 Oct 2024 Sharesave (iii) 45,918 – – (45,918) – £0.196 N/A N/A Sharesave (iv) – 15,734 – – 15,734 £0.572 Feb 2019 Aug 2019 11,0 40,358 15,734 (550,089) (45,918) 10,460,085 D Mackney Bonus LTIP (i) 217,215 – (217,215) – – £0.010 N/A N/A Bonus LTIP 48,630 – – – 48,630 £0.010 May 2014 May 2017 VBP (ii) 3,604,961 – – – 3,604,961 £0.010 Oct 2017 Oct 2022 VBP (ii) 2,162,977 – – – 2,162,977 £0.010 Oct 2018 Oct 2023 VBP (ii) 1,441,984 – – – 1,441,984 £0.010 Oct 2019 Oct 2024 Sharesave (iii) 45,918 – – (45,918) – £0.196 N/A N/A Sharesave (iv) – 15,734 – – 15,734 £0.572 Feb 2019 Aug 2019 7,521,685 15,734 (217,215) (45,918) 7,274,286 Total 18,562,043 31,468 (767,304) (91,836) 17,734,371

No share options are held by the non-executive directors.

PERFORMANCE CONDITIONS The option awards listed above are subject to share price growth performance as compared with the following various comparators:

(i) Bonus LTIP Mr Garland and Mr Mackney volunteered to sacrifice their cash bonus for 2009 in exchange for a grant under the Bonus LTIP of Investment Awards with attached Matching Awards. These awards were granted in April 2010. There are no performance conditions for the Investment Awards. The Matching Awards were subject to share price performance conditions.

Investment Awards vested in April 2013 and were exercisable until April 2016. The Matching Awards lapsed as share price performance targets were not met. The Company entered a close period in January 2016 which was expected to end on 17 March 2016 following the publication of the Company’s interim results. The close period was however extended until 26 April 2016 due to inside information about a development product and the capital raising. Executive directors were therefore unable to exercise their awards. The Committee considered that, given these awards were granted in substitution for a bonus earned in respect of 2009, it would be appropriate to provide executive directors with a cash payment of equivalent value to the option which lapsed. The executive directors chose to use the net amount of the payment to purchase shares in the Company and therefore are effectively in the same economic position they would have been had they been able to exercise their options.

(ii) VBP In relation to the VBP’s performance targets for 2012, 2013 and 2014 options:

• Subject to the rules of the plan on each of the following testing dates: –– the first testing date (in the third year); –– the second testing date (in the fourth year); and –– the third testing date (in the fifth year). Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 46 Strategic report Financial statements Directors’ report Additional information

Remuneration report CONTINUED

The Board will determine the extent to which an option will vest in accordance with the following table and for average share price performance between the points shown in the table. Vesting will be on a straight-line basis:

Average share price Vesting Target 45p 25% Stretch 60p 50% Maximum 75p 100%

• On the first testing date up to one-third of the option (rounded down to the nearest whole share) may vest. • On the second testing date up to two-thirds of the option (rounded down to the nearest whole share) may vest after deducting any vested portion. • On the third testing date the whole option may vest after deducting any vested portion. • The exercise date shall be 1 October 2017 for awards granted in 2012, 1 October 2018 for awards granted in 2013 and 1 October 2019 for awards granted in 2014. No price was paid for the grant of options, nor were any options exercised by directors during the 12 month period under review. • On the first testing date of the options granted in 2012, the Company ascertained that the average closing mid-market price of the Company’s shares for the three months ending 30 June 2015 was 60.76 pence. The Committee determined that in accordance with the rules of the Plan, 18 per cent of the options granted on 28 May 2012 vested according to the performance targets set out in the Deed of Grant. In accordance with the rules of the Plan, these options which vested are not able to be exercised until 1 October 2017. • On the second testing date of the options granted in 2012, the Company ascertained that the average closing mid-market price of the Company’s shares for the three months ending 30 June 2016 was 46.5 pence. The Committee determined that in accordance with the rules of the Plan, a further 0.1 per cent of the options granted on 28 May 2012 vested according to the performance targets set out in the Deed of Grant. In accordance with the rules of the Plan, these options which vested are not able to be exercised until 1 October 2017. • On the first testing date of the options granted in 2013, the Company ascertained that the average closing mid-market price of the Company’s shares for the three months ending 30 June 2016 was 46.5 pence. The Committee determined that in accordance with the rules of the Plan, 9 per cent of the options granted on 15 April 2013 vested according to the performance targets set out in the Deed of Grant. In accordance with the rules of the Plan, these options which vested are not able to be exercised until 1 October 2018.

(iii) Sharesave 2012 There were no performance conditions for this award which vested in October 2015.

On 8 October 2015, Mr Garland exercised his Sharesave 2012 options at a market price of 75.5 pence, resulting in an unrealised gain of £25,700. On 15 October 2015, Mr Mackney exercised his Sharesave 2012 options at a market price of 71.74 pence, resulting in an unrealised gain of £23,900.

Both Mr Garland and Mr Mackney have retained the shares following these option exercises.

(iv) Sharesave 2015 There were no performance conditions for this award, which was granted in December 2015 and will vest in February 2019.

COMPANY SHARE PRICE This part of the remuneration report is unaudited. The market price of the Company’s shares as at 30 June 2016, the last working day of the 12 month financial period under review, was 33.75 pence.

During the 12 month period under review, the daily closing market price of the Company’s shares ranged from 32.75 pence (29 June 2016) to 86.5 pence (9 September 2015) (2014/15: 30.25 pence (3 June 2014) to 73 pence (9 June 2015)). Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 47 Directors’ report Additional information

DIRECTORS’ INTERESTS IN SHARES The table below sets out the interests of directors and their connected persons in the Company’s shares.

Ordinary Ordinary shares owned shares owned at 30 June at 30 June 2016 2015 number number Dr P J Fellner 270,000 250,000 Ms C C Ferguson 156,212 128,212 Mr I R Garland 1,049,857 658,939 Dr I D Gilham – – Mr D Mackney 512,203 319,285 Mr N Sheail 346,838 294,000 Ms L Schoenberg – –

There were no changes in interests in shares between 30 June 2016 and the date of this report.

Approved by the Board of Directors

Ian Gilham Chairman Remuneration Committee 28 September 2016 Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 48 Strategic report Financial statements Directors’ report Additional information

Statement of directors’ responsibilities

The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and Parent Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

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

The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess a Company’s performance, business model and strategy.

Each of the directors, whose names and functions are listed on pages 26 and 27, confirm that, to the best of their knowledge:

• the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and loss of the Group; and • the Strategic Report contained in pages 4 to 25 includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

On behalf of the Board

Kevin Kissane Company Secretary 28 September 2016 Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 49 Directors’ report Additional information

Independent auditors’ report TO THE MEMBERS OF VERNALIS PLC

REPORT ON THE FINANCIAL STATEMENTS Our opinion In our opinion:

• Vernalis plc’s group financial statements and company financial statements (the “financial statements”) give a true and fair view of the state of the group’s and of the company’s affairs as at 30 June 2016 and of the group’s loss and the group’s and the company’s cash flows for the 12 month period (the “period”) then ended; • the group financial statements have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union; • the company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

What we have audited The financial statements, included within the Annual report and accounts 2015/16 (the “Annual Report”), comprise:

• the Balance sheets as at 30 June 2016; • the Consolidated income statement and Consolidated statement of comprehensive income for the period then ended; • the Statements of changes in equity for the period then ended; • the Cash flow statements for the period then ended; and • the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.

Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited.

The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by the European Union and, as regards the company financial statements, as applied in accordance with the provisions of the Companies Act 2006, and applicable law.

In applying the financial reporting framework, the directors have made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events.

OPINION ON OTHER MATTER PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion, the information given in the Strategic Report and the Directors’ report for the financial period for which the financial statements are prepared is consistent with the financial statements.

OTHER MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION Adequacy of accounting records and information and explanations received Under the Companies Act 2006 we are required to report to you if, in our opinion:

• we have not received all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or • the company financial statements are not in agreement with the accounting records and returns.

We have no exceptions to report arising from this responsibility.

Directors’ remuneration Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 50 Strategic report Financial statements Directors’ report Additional information

Independent auditors’ report TO THE MEMBERS OF VERNALIS PLC CONTINUED

RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT Our responsibilities and those of the directors As explained more fully in the Statement of directors’ responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the parent company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What an audit of financial statements involves We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:

• whether the accounting policies are appropriate to the group’s and the company’s circumstances and have been consistently applied and adequately disclosed; • the reasonableness of significant accounting estimates made by the directors; and • the overall presentation of the financial statements.

We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements.

We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.

In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Matthew Hall (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Reading 28 September 2016 Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 51 Directors’ report Additional information

Consolidated income statement FOR THE 12 MONTH PERIOD ENDED 30 JUNE 2016

12 month period ended 30 June 2016 18 month period ended 30 June 2015 Pre- Exceptional Pre- Exceptional exceptional items exceptional items items (note 3) Total items (note 3) Total Note £000 £000 £000 £000 £000 £000 Revenue 2 12,034 – 12,034 19,882 – 19,882 Other income 396 – 396 611 – 611 Cost of sales 4 (2,004) – (2,004) (1,373) – (1,373) Sales and marketing expenditure 4 (20,428) – (20,428) – – – Research and development expenditure 4 (10,932) – (10,932) (22,563) – (22,563) General and administrative expenditure 4 (5,289) 2,651 (2,638) (8,635) 243 (8,392) Operating (loss)/profit (26,223) 2,651 (23,572) (12,078) 243 (11,835) Finance income 5 8,315 – 8,315 2,733 – 2,733 Finance expense 5 (42) – (42) (157) – (157) (Loss)/profit before income tax (17,950) 2,651 (15,299) (9,502) 243 (9,259) Income tax credit 6 804 – 804 2,858 – 2,858 (Loss)/profit for the period (17,146) 2,651 (14,495) (6,644) 243 (6,401) (Loss)/earnings per share (basic and diluted) 7 (3.8)p 0.6p (3.2)p (1.5)p 0.1p (1.4)p

Following the launch of Tuzistra® XR in September 2015, an additional expense category of Sales and Marketing has been introduced which includes costs related to the commercialisation of pharmaceutical products including the sales force, marketing costs and other related expenditures. Pre-launch costs in the comparative period were reported as Research and Development expenses in line with group accounting policies.

The notes on pages 55 to 90 are an integral part of these consolidated financial statements.

All activities relate to continuing operations.

Consolidated statement of comprehensive income FOR THE 12 MONTH PERIOD ENDED 30 JUNE 2016

12 month period ended 30 June 2016 18 month period ended 30 June 2015 Pre- Exceptional Pre- Exceptional exceptional items exceptional items items (note 3) Total items (note 3) Total £000 £000 £000 £000 £000 £000 (Loss)/profit for the period (17,146) 2,651 (14,495) (6,644) 243 (6,401) Other comprehensive income: Items that may subsequently be reclassified to profit and loss: Exchange loss on translation of overseas subsidiaries (100) – (100) (18) – (18) Total comprehensive (expense)/income for the period (17,246) 2,651 (14,595) (6,662) 243 (6,419)

The notes on pages 55 to 90 are an integral part of these consolidated financial statements. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 52 Strategic report Financial statements Directors’ report Additional information

Balance sheets AS AT 30 JUNE 2016

Group Company 30 June 30 June 30 June 30 June 2016 2015 2016 2015 Note £000 £000 £000 £000 Assets Property, plant and equipment 8 1,673 1,637 – – Intangible assets 9 17,6 45 12,895 – – Investments in subsidiary undertakings 10 – – 190,010 164,373 Trade and other receivables 12 631 534 – – Non-current assets 19,949 15,066 190,010 164,373 Inventories 11 233 – – – Trade and other receivables 12 7,225 7,017 121 51 Tax receivable 1,065 2,933 – – Derivative financial instruments 18 – 301 – 301 Held-to-maturity financial assets 13 76,997 42,426 76,949 42,385 Cash and cash equivalents 14 7,021 18,832 6,691 18,787 Current assets 92,541 71,509 83,761 61,524 Total assets 112,490 86,575 273,771 225,897 Liabilities and shareholders’ equity Liabilities Trade and other liabilities 15 1,422 744 125,760 125,760 Deferred income 16 85 – – – Provisions for other liabilities and charges 17 504 3,510 – – Derivative financial instruments 18 37 – 37 – Non-current liabilities 2,048 4,254 125,797 125,760 Trade and other liabilities 15 5,095 3,368 146 131 Deferred income 16 922 1,688 – – Tax payable 80 5 – – Provisions for other liabilities and charges 17 1,333 154 – – Derivative financial instruments 18 281 – 281 – Current liabilities 7,711 5,215 427 131 Total liabilities 9,759 9,469 126,224 125,891 Equity attributable to owners of the parent Share capital 20 5,262 4,434 5,262 4,434 Share premium 23 514,791 476,392 514,791 476,392 Other reserves 22 253,932 253,365 162,230 161,563 Retained deficit (671,254) (657,085) (534,736) (542,383) Total equity 102,731 77,10 6 147,547 100,006 Total liabilities and equity 112,490 86,575 273,771 225,897

The notes on pages 55 to 90 are an integral part of these consolidated financial statements.

The Company’s registered number is 02304992.

The financial statements and accompanying notes on pages 51 to 90 were approved by the Board of Directors on 28 September 2016 and signed on its behalf by

David Mackney Chief Financial Officer 28 September 2016 Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 53 Directors’ report Additional information

Statements of changes in equity FOR THE 12 MONTH PERIOD ENDED 30 JUNE 2016

Share Share Other Retained Total capital premium reserves deficit equity Group £000 £000 £000 £000 £000 Balance at 1 January 2014 4,421 476,392 252,416 (650,985) 82,244 Loss for the period – – – (6,401) (6,401) Other comprehensive expense for the period – – (18) – (18) Total comprehensive expense for the period – – (18) (6,401) (6,419) Transactions with owners: Exercise of share options 13 – (301) 301 13 Share-based payments charge – – 1,268 – 1,268 13 – 967 301 1,281 Balance at 30 June 2015 4,434 476,392 253,365 (657,085) 77,10 6 Loss for the period – – – (14,495) (14,495) Other comprehensive expense for the period – – (100) – (100) Total comprehensive expense for the period – – (100) (14,495) (14,595) Transactions with owners: Issue of equity share capital 800 39,200 – – 40,000 Costs on issue of share capital – (1,097) – – (1,097) Exercise of share options 28 296 (317) 326 333 Share-based payments charge – – 984 – 984 828 38,399 667 326 40,220 Balance at 30 June 2016 5,262 514,791 253,932 (671,254) 102,731

Share Share Other Retained Total capital premium reserves deficit equity Company £000 £000 £000 £000 £000 Balance at 1 January 2014 4,421 476,392 160,596 (543,594) 97,815 Profit for the period – – – 910 910 Total comprehensive income for the period – – – 910 910 Transactions with owners: Exercise of share options 13 – (301) 301 13 Share-based payments charge – – 1,268 – 1,268 13 – 967 301 1,281 Balance at 30 June 2015 4,434 476,392 161,563 (542,383) 100,006 Profit for the period – – – 7,321 7,321 Total comprehensive income for the period – – – 7,321 7,321 Transactions with owners: Issue of equity share capital 800 39,200 – – 40,000 Costs on issue of share capital – (1,097) – – (1,097) Exercise of share options 28 296 (317) 326 333 Share-based payments charge – – 984 – 984 828 38,399 667 326 40,220 Balance at 30 June 2016 5,262 514,791 162,230 (534,736) 147,547

The notes on pages 55 to 90 are an integral part of these consolidated financial statements. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 54 Strategic report Financial statements Directors’ report Additional information

Cash flow statements FOR THE 12 MONTH PERIOD ENDED 30 JUNE 2016

Group Company 12 month 18 month 12 month 18 month period ended period ended period ended period ended 30 June 30 June 30 June 30 June 2016 2015 2016 2015 Note £000 £000 £000 £000 Cash flows from operating activities (Loss)/profit for the period (14,495) (6,401) 7,321 910 Taxation 6 (804) (2,858) – – Depreciation 8 607 797 – – Loss on disposal of tangible fixed assets 8 144 – – – Amortisation of intangible fixed assets 9 713 571 – – Impairment charge on intangible fixed assets 9 – 300 – – Movement in provisions 17 (1,636) (775) – – Movement in deferred income 16 (681) 726 – – Share-based payments charge 24 984 1,855 – – Movement in derivative financial instruments 18 619 (279) 619 (279) Finance income 5 (8,315) (2,733) (8,190) (2,758) Finance expense 5 42 157 – – Exchange gain (203) (239) (5) (396) (23,025) (8,879) (255) (2,523) Changes in working capital Inventories (233) 130 – – Receivables (1,109) (3,373) (2) 3 Liabilities 813 (13) 14 60 Cash used in operations (23,554) (12,135) (243) (2,460) Taxation received 2,912 1,887 – – Taxation paid (128) (88) – – Net cash used in operating activities (20,770) (10,336) (243) (2,460) Cash flows from investing activities Purchase of property, plant and equipment 8 (212) (1,005) – – Purchase of intangible fixed assets 9 (71) (7,474) – – Loans to subsidiary undertakings – – (24,612) (16,409) Movement in held-to-maturity financial assets* (27,329) 7,9 03 (27,322) 7,94 4 Acquisition of business 27 (3,677) – – – Interest received on cash and cash equivalents 26 79 30 93 Interest received on held-to-maturity financial assets 204 274 204 274 Net cash used in investing activities (31,059) (223) (51,700) (8,098) Cash flows from financing activities Gross proceeds on issue of equity share capital 20, 23 40,333 13 40,333 13 Costs on issue of share capital (1,097) – (1,097) – Net cash generated from financing activities 39,236 13 39,236 13 Foreign exchange gain on cash and cash equivalents 782 1,057 611 1,064 Movements in cash and cash equivalents in the period (11,811) (9,489) (12,096) (9,481) Cash and cash equivalents at the beginning of the period 18,832 28,321 18,787 28,268 Cash and cash equivalents at the end of the period 14 7,021 18,832 6,691 18,787 Held-to-maturity financial assets 13 76,997 42,426 76,949 42,385 Total cash, cash equivalents and held-to-maturity financial assets 84,018 61,258 83,640 61,172

* Within the Group and Company, movement in held-to-maturity financial assets includes a foreign exchange gain of £7.2 million for the 12 months ended 30 June 2016 (£1.7 million for the 18 months ended 30 June 2015). Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 55 Directors’ report Additional information

Notes to the financial statements

1 ACCOUNTING POLICIES AND BASIS OF PREPARATION The consolidated financial statements include the financial statements of Vernalis plc (the Company) and all its subsidiary undertakings (together, the Group), made up for the 12 months ended 30 June 2016. The Group is transitioning from a research and development focus to a commercial pharmaceutical company.

The Company is a public limited company incorporated and domiciled in the UK. The address of its registered office is 100 Berkshire Place, Wharfedale Road, Winnersh, Berkshire, RG41 5RD and is traded on AIM.

BASIS OF PREPARATION These financial statements have been prepared in accordance with EU endorsed IFRS, IFRS IC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention as modified by financial assets and liabilities (including derivative financial instruments) at fair value through the profit or loss.

A summary of the more significant Group accounting policies applied in the preparation of the consolidated accounts is set out below. These policies have been consistently applied on all periods presented unless otherwise stated.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to the financial statements, are disclosed later in this note.

ACCOUNTING REFERENCE DATE CHANGE The Group changed its accounting reference date from 31 December to 30 June on 18 November 2014 to align the external reporting period with the seasonality of the US cough cold market which will become a major component of the Company’s future commercial business. The comparative financial information in the annual report therefore covers the 18 month period ended 30 June 2015.

GOING CONCERN As at 30 June 2016, the Group had cash resources (being cash and cash equivalents and held-to-maturity financial assets) of £84 million.

After making enquiries and taking into account management’s estimate of future revenues and expenditure, the directors have a reasonable expectation that the Group will have adequate financial resources to continue in operation for the foreseeable future.

ACCOUNTING POLICIES Basis of consolidation The consolidated financial statements include the financial statements of the Company and the Group up to 30 June 2016.

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. Acquisition-related costs are expensed as incurred.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 56 Strategic report Financial statements Directors’ report Additional information

Notes to the financial statements CONTINUED

1 ACCOUNTING POLICIES AND BASIS OF PREPARATION CONTINUED ACCOUNTING DEVELOPMENTS The following new standards, amendments to standards and interpretations are effective for the first time for the financial year beginning 1 July 2015. None of these have a material effect on the financial statements of the Group.

• Annual improvements 2012 include a variety of amendments covering: IFRS 2, “Share-based payments”; IFRS 3, “Business combinations”; IFRS 8, “Operating segments”; IFRS 13, “Fair value measurement”; IAS 16, “Property, plant and equipment”; IAS 38 “Intangible assets”; IFRS 9, “Financial instruments”; IAS 37, “Provisions, contingent liabilities and contingent assets” and IAS 39, “Financial instruments”. • Annual improvements 2013 include a variety of amendments covering: IFRS 1, ”First time adoption”; IFRS 3, “Business combinations”; IFRS 13, “Fair value measurement” and IAS 40, “Investment Property”.

The following new standards, amendments to standards and interpretations have been issued but are not effective for the first time for the financial year beginning 1 July 2015. The Group has not adopted early any of the below standards. With the exception of IFRS 16 and IFRS 15, none is expected to have a material impact on the financial statements:

• Amendments to IFRS 11, “Joint arrangements” on acquisition of an interest in a joint operation. This is applicable for accounting periods beginning on or after 1 January 2016. • Amendments to IAS 16, “Property, plant and equipment” and IAS 38, “Intangible assets”. This clarifies the methods appropriate to the calculation of depreciation. This is applicable for accounting periods beginning on or after 1 January 2016. • IFRS 14, “Regulatory deferral accounts”. This is applicable for accounting periods on or after 1 January 2016. • Amendments to IAS 27, “Separate financial statements”, allow entities to use the equity method to account for investments in subsidies, joint ventures and associates in their separate financial statements. This is applicable for accounting period 1 January 2016. • Amendments to IFRS 10, “Consolidated financial statements” and IAS 28, “Investments in associates and joint ventures”. This eliminates inconsistencies between the two requirements and clarifies the consolidation exception for investment entities. It is applicable for accounting periods on or after 1 January 2016. • Amendments to IAS 1, “Presentation of financial statements”. This provides guidance on materiality of aggregation, the presentation of subtotals, the structure of financial statements and the disclosure of accounting policies. It is applicable to accounting periods beginning on or after 1 January 2016. This is applicable to the Group although not expected to have any material impact on the presentation of statements. • Amendment to IFRS 15, “Revenue from contracts with customers”. This provides additional information about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer. This is applicable to accounting periods beginning on or after 1 January 2018. • IFRS 9, “Financial instruments”, includes requirements on the classification and measurement of financial assets and liabilities and introduces the expected losses model which replaces the current incurred loss impairment model. This is applicable to accounting periods beginning 1 January 2018. • Annual improvements 2014, include a variety of amendments covering: IFRS 5, “Non-Current assets held for sales and discontinued operations’ regarding methods of disposal”; IFRS 7, “Financial Instruments, disclosures”; IAS 19, “Employee benefits” and IAS 34, “Interim financial reporting”. These are applicable to accounting periods starting on or after 1 January 2016. • Amendments to IAS 7, “Statements of cash flows” requiring additional disclosures. These are applicable to accounting periods starting on or after 1 January 2017. • IAS 12, “Income taxes” includes additional guidance on how to account for losses associated with debt instruments. This is applicable to accounting periods beginning 1 January 2017. • An amendment to IFRS 2, “Share-based payments”, clarifies the measurement basis for cash-settled schemes only. This applies from periods starting January 2019. • IFRS 16, “Leases”, requires that leases shall be treated as a “right-of-use asset” versus the current off balance sheet treatment of operating leases. This is applicable to accounting periods starting January 2019. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 57 Directors’ report Additional information

1 ACCOUNTING POLICIES AND BASIS OF PREPARATION CONTINUED SHARE-BASED PAYMENTS The Group makes equity-settled share-based payments to its employees and directors. Equity-settled share-based payments are measured at fair value at the date of grant and expensed on a straight-line basis over the vesting period of the award. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. At each balance sheet date, the Group revises its estimate of the number of options that are expected to become exercisable. It recognises the impact of the revision to original estimates, if any, in the consolidated income statement, with a corresponding adjustment to equity. Equity-settled share-based payments granted by the Company to employees of subsidiaries are recognised as an expense charged to the relevant subsidiary with an equal increase in the investment in subsidiary undertakings.

When share options are exercised, the proceeds received net of any transaction costs are credited to share capital (nominal value) and share premium.

INTANGIBLE ASSETS Intangible assets are stated at cost less provision for amortisation and impairments.

Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable net assets (including intangible assets) of the acquired business at the acquisition date. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is not amortised but is tested at each balance sheet date for impairment and is carried at cost less accumulated impairment losses. Gains and losses on disposal of an entity include the carrying amount of goodwill relating to the entity or investment sold. Impairment losses on goodwill are not reversed. Impairment losses are recognised in general and administrative expenses in the income statement.

Purchased intangibles Intangibles are recognised when they have been acquired separately for cash or other monetary assets or as part of a business combination and are amortised through cost of sales over their estimated useful lives, commencing at the start of the first full month after they are available for use. Purchased intangibles typically include product rights, trademarks and licences.

Impairment of assets Assets that have an indefinite useful life, or which are not yet available for use, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised in the income statement for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

EMPLOYEE BENEFITS All employee benefit costs, notably holiday pay and contributions to the Group or personal defined contribution pension plans, are charged to the income statement on an accruals basis. The Group operates several defined contribution pension schemes. The assets of the schemes are held separately from those of the Group in independently administered funds. The Group does not offer any other post-retirement benefits.

LOANS AND RECEIVABLES Loans and receivables are non-derivative financial assets or liabilities with fixed or determinable payments that are not quoted in an active market. Assets in this category are recognised at amortised cost and included in trade and other receivables, and loans in the balance sheet.

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 58 Strategic report Financial statements Directors’ report Additional information

Notes to the financial statements CONTINUED

1 ACCOUNTING POLICIES AND BASIS OF PREPARATION CONTINUED HELD-TO-MATURITY FINANCIAL ASSETS Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. Assets in this category are held at amortised cost. Held-to-maturity investments include short-term investments with original maturities of more than 90 days.

CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash in hand, bank deposits repayable on demand and other short-term, highly liquid investments with original maturities of 90 days or less.

INVESTMENTS IN SUBSIDIARY UNDERTAKINGS Investments in subsidiary undertakings including shares and loans are carried at cost less any impairment provision. Such investments are subject to annual review, and any impairment is charged to the income statement.

DEFERRED REVENUE Income received from upfront licences and collaborations is recognised over the expected life of the contract. Income received from research collaborations in advance of services provided is deferred over the performance period.

REVENUE RECOGNITION Commercial Product sales are recognised when title and risk of loss passes to the wholesaler customer. Estimates are made for the relevant deductions and obligations due to reflect the complete economic transaction. Revenue recognised in the consolidated income statement is disclosed net of these various sales-related deductions. Net revenue reflects the gross turnover reduced for estimates of: rebates, discounts, allowances and provision for product returns, given or expected to be given which vary by product arrangements and buying groups based on actual in market data received pre- and post- the end of the accounting period applied to inventory held by wholesalers and pharmacies. Amounts are reviewed frequently but as estimates they may not fully reflect the final outcome.

Research and development Non-refundable access fees, options fees and milestone payments receivable for participation by a third party in commercialisation of a compound are recognised when they become contractually binding provided there are no related commitments of the Group. Where these receipts are upfront payments to enter into contracts, they are recognised over the expected life of the contract. Where there are related commitments, revenue is recognised on a percentage-of-completion basis in line with the actual levels of expenditure incurred in fulfilling these commitments. All other licence income and collaborative research fees are recognised over the accounting period to which the relevant services relate.

Royalty income is recognised in relation to sales to which the royalty relates. Royalties are recognised as they are earned. Value added tax and other sales taxes are excluded from revenue.

RESEARCH AND DEVELOPMENT EXPENDITURE Research and development expenditure consists of internal and external research and development expenditure, pre-commercial launch costs, allocation of overheads and any impairment of intangible assets. Research costs are expensed as incurred. Development costs are also expensed unless the criteria for recognising an asset are met, usually when approval is considered likely.

PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at historical cost less depreciation and impairments. Historical cost comprises the purchase price together with any incidental costs of acquisition. Depreciation is calculated to write-off the cost, less residual value, of property, plant and equipment in equal annual instalments over their estimated useful lives as follows:

Short leasehold buildings Period of lease Plant and machinery Two to ten years Fixtures and fittings Three to ten years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the income statement. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 59 Directors’ report Additional information

1 ACCOUNTING POLICIES AND BASIS OF PREPARATION CONTINUED OPERATING LEASES Costs in respect of operating leases are charged to the income statement on a straight-line basis over the terms of the leases.

INVENTORIES Inventories are carried at the lower of cost and net realisable value. Cost is calculated on a first-in, first-out basis. The cost of finished goods and work in progress comprises raw material, direct labour and other direct costs. Where the carrying value of inventories is higher than cost and net realisable value a provision has been made.

TAXATION Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted, or substantively enacted, by the balance sheet date.

Deferred tax is recognised in respect of all temporary differences identified at the balance sheet date, except to the extent that the deferred tax arises from the initial recognition of goodwill (if amortisation of goodwill is not deductible for tax purposes) or the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting profit nor taxable profit and loss. Temporary differences are differences between the carrying amount of the Group’s assets and liabilities and their tax base.

Deferred tax liabilities may be offset against deferred tax assets within the same taxable entity or qualifying local tax group. Any remaining deferred tax asset is recognised only when, on the basis of all available evidence, it can be regarded as probable that there will be suitable taxable profits, within the same jurisdiction, in the foreseeable future against which the deductible temporary difference can be utilised.

Deferred tax is provided on temporary differences arising in subsidiaries, except where the timing of reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the asset is realised or liability settled, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Measurement of deferred tax liabilities and assets reflects the tax consequence expected to fall from the manner in which the asset or liability is recovered or settled.

RESEARCH AND DEVELOPMENT EXPENDITURE CREDIT Legislation was enacted to allow companies in the UK to elect for RDEC on qualifying expenditure incurred since 1 April 2013. The RDEC is recognised as a receivable (offset against other UK tax liabilities) when the directors have agreed by the balance sheet date that the RDEC will be claimed by the Group, the conditions to obtain the credit have been complied with and there is reasonable assurance the credit will be received. The amounts are credited to the income statement in the same period as the related research and development costs for which the grant is compensating. The grant income is presented in the consolidated income statement as other income.

FOREIGN CURRENCIES Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the transaction date. Monetary assets and liabilities in foreign currencies are retranslated into sterling at the rates of exchange ruling at the balance sheet date. Differences arising due to exchange rate fluctuations are taken to the income statement in the period in which they arise.

The assets and liabilities of foreign operations, including goodwill, intangible assets and fair value adjustments arising on consolidation, are translated at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated at an average rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. Exchange differences arising from this translation of foreign operations, and of related qualifying hedges, are taken directly to the translation reserve. They are released into the income statement upon disposal. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 60 Strategic report Financial statements Directors’ report Additional information

Notes to the financial statements CONTINUED

1 ACCOUNTING POLICIES AND BASIS OF PREPARATION CONTINUED SEGMENTAL INFORMATION Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the segments, has been identified as the Executive Committee.

DERIVATIVE FINANCIAL INSTRUMENTS The Group enters into derivative financial instruments where necessary, to hedge against future material foreign currency exposures. Derivative financial assets and liabilities are recognised and cease to be recognised on the basis of when the related legal title or obligations pass to or from the Group. Derivative financial assets and liabilities are recognised at fair value, as determined by reference to the market value of the asset or liability. Income and expenses arising from derivative financial assets and financial liabilities are recognised on movements in the fair value through general and administrative expenditure. The Group currently does not designate any financial instruments as hedging.

TRADE PAYABLES Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

Trade payables are recognised initially at fair value and subsequently at amortised cost using the effective interest method.

PROVISIONS Provisions for sales-related deductions and obligations are calculated based on contractual obligations, available current/future market information and historic experience. The methodology and assumptions used are reviewed and adjusted regularly.

Provisions for onerous lease costs and dilapidations costs (where required) are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligations. The increase in the provision due to the passage of time is recognised as interest expense.

SHARE CAPITAL Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

BUSINESS COMBINATIONS Where acquisitions meet the definition of a business combination per IFRS 3 (R) they are accounted for using the acquisition accounting method. Identifiable assets, liabilities and contingent liabilities are measured at fair value at the acquisition date. The consideration transferred is measured at fair value and includes the fair value of any contingent consideration. Where the total consideration is in excess of the net assets acquired at fair value, goodwill is recognised. Costs related to acquisitions are charged to the income statement in the period they were incurred. The equipment acquired is being depreciated over its remaining useful life and intangible assets are amortised over a period reflecting their useful economic life.

Any contingent consideration arising on a business combination, to be paid by the Group, is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 in the income statement.

EXCEPTIONAL ITEMS Exceptional items represent significant items of income and expense which due to their size, nature or the expected infrequency of the events giving rise to them, are presented separately on the face of the income statement to give a better understanding to shareholders of the elements of financial performance in the year, so as to facilitate comparison with prior years and to better assess trends in financial performance. Exceptional items include, but are not limited to, restructuring costs and provisions for vacant leases. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 61 Directors’ report Additional information

1 ACCOUNTING POLICIES AND BASIS OF PREPARATION CONTINUED CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a) Product related intangible assets The Group has significant intangible assets arising as a result of purchases of assets such as product development and marketing rights. Under IFRS, intangible assets that are being amortised are only tested for impairment when there is an indication of the balance sheet carrying value not being recoverable. Amortisation for intangible assets are charged to cost of sales in the income statement.

Intangible assets that are not yet in use are not amortised, but are tested annually for impairment. The impairment analysis is principally based upon estimated discounted future cash flows. The key assessments and judgements included in the discounted models for Tuzistra® XR and Moxatag® are:

• Market size and product • Gross and net sales • Cost of distribution, sales and marketing • Discount rates

Impairment of intangible assets not yet in use is charged to research and development expenditure. Actual outcomes could vary significantly from such estimates made.

The determination of these underlying assumptions relating to the recoverability of intangible assets is subjective and requires the exercise of considerable judgement. Changes in key assumptions about our business and prospects, or changes in market conditions, could result in an impairment charge.

(b) Provisions The Group has material provisions for allowances, discounts, rebates and returns for its commercial sales. Claims for these items are presented some time after the original sale. These reserves vary by product and are dependent on the underlying contracts with buying groups and purchasing organisations. While the estimates are updated for changes in contract and market information they may not fully reflect the final outcome.

The Group has a property provision for dilapidations. The determination of the provision is subjective and requires exercise of considerable judgement. Where possible, qualified external advisers are used to inform the assumptions used. Key assumptions and estimates considered in calculating the provision include the estimated cost of reinstatement (dilapidations) of properties is based on contractual commitments.

(c) Contingent consideration The Group has a material liability for the future payment of royalties and milestones associated with contractual obligations on a commercial product acquired as part of a business combination. The estimates for the future contingent consideration are based on a discounted cash flow model. The key assessments and judgements included in the calculation of deferred consideration include:

• Market size and product • Gross and net selling price • Costs of manufacturing and product distribution • Discount rates including a risk adjustment for ongoing supply

Contingent consideration is reviewed annually and changes to the assumptions will be recognised in the income statement in accordance with IAS 39. Actual outcomes could differ significantly from the estimates made. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 62 Strategic report Financial statements Directors’ report Additional information

Notes to the financial statements CONTINUED

1 ACCOUNTING POLICIES AND BASIS OF PREPARATION CONTINUED COMPANY INCOME STATEMENT In accordance with the provisions of section 408 of the Companies Act 2006, no separate income statement and statement of comprehensive income has been presented for the Company. The results for the Company are also prepared under IFRS.

The profit attributable to shareholders for the 12 month period ended 30 June 2016 for the Company was £7,321,000 (2015: profit of £910,000).

2 SEGMENTAL INFORMATION For the 12 months ended 30 June 2016, the Group has two segments Commercial and Research and Development. Prior to the 12 months ended 30 June 2016, the Group had only one segment being the research, development and commercialisation of pharmaceutical products. In line with the reporting to the Executive Committee, which comprises the executive directors and other senior management, the performance of these segments is reviewed at a sales and operating profit level which does not include the full allocation of general administrative costs which are reported separately. The Commercial segment covers all areas relating to the commercial sale of pharmaceutical products, the manufacture, distribution and operating expenses directly related to that activity. The Research and Development business includes all activities related to the research and development of pharmaceutical products for a range of medical disorders and includes the income generated by collaboration, milestones or royalties as well as the costs directly associated with those activities. There is no segmentation of the balance sheet. Charges such as depreciation, impairment, amortisation and other non-cash expenses are expensed to the relevant segment.

The Group discloses the following other information, not all of which represents segmental information required by IFRS 8.

REVENUE ANALYSIS The revenue analysis in the table below is based on the country of registration of the fee-paying party: 12 month 18 month period ended period ended 30 June 30 June 2016 2015 £000 £000 United Kingdom 5 24 Rest of Europe 8,133 15,379 North America 1,162 1,004 Rest of the World 2,734 3,475 12,034 19,882

An analysis of revenue by category is set out in the table below: 12 month 18 month period ended period ended 30 June 30 June 2016 2015 £000 £000 Product sales* 3,994 6,648 Royalties 5 212 Collaborative agreement 8,035 13,022 12,034 19,882

* Includes frovatriptan royalty linked to the supply of API, received at 25.25 per cent of Menarini sales.

Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 63 Directors’ report Additional information

2 SEGMENTAL INFORMATION CONTINUED REVENUE ANALYSIS CONTINUED An analysis of revenue by customer is set out in the table below: 12 month 18 month period ended period ended 30 June 30 June 2016 2015 £000 £000 Customer A 4,562 7,0 40 Customer B 2,921 6,540 Customer C 1,925 3,200 Other customers 2,626 3,102 12,034 19,882

The analysis of the segmental revenues and operating losses are as follows:

12 month period ended 30 June 2016 18 month period ended 30 June 2015 Research and Research and Commercial Development Total Commercial Development Total £000 £000 £000 £000 £000 £000 Revenue 3,994 8,040 12,034 6,648 13,234 19,882 Other income – 396 396 – 611 611 Cost of sales (2,004) – (2,004) (1,272) (101) (1,373) Depreciation and amortisation (763) (401) (1,164) (585) (816) (1,401) Share-based payments charge (189) (238) (427) (71) – (71) Other operating expenses (19,476) (10,293) (29,769) (5,228) (15,863) (21,091) Segmented loss (18,438) (2,496) (20,934) (508) (2,935) (3,443) Corporate and unallocated cost (2,638) (8,392) Operating loss (23,572) (11,835) Net finance income 8,273 2,576 Loss before tax (15,299) (9,259)

COMPANY The Company’s business is to invest in its subsidiaries and, therefore, it operates in a single segment.

3 EXCEPTIONAL ITEMS Exceptional items represent significant items of income and expense, which, due to their size, nature or the expected infrequency of the events giving rise to them, are presented separately on the face of the income statement to give a better understanding to shareholders of the elements of financial performance in the period, so as to facilitate comparison with prior periods and to better assess trends in financial performance. Exceptional items include, but are not limited to, restructuring costs and the provision for vacant leases. 12 month 18 month period ended period ended 30 June 30 June 2016 2015 £000 £000 Credit – release of provision for vacant leases (note 17) 2,651 243 Total exceptional items 2,651 243 Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 64 Strategic report Financial statements Directors’ report Additional information

Notes to the financial statements CONTINUED

4 GROUP OPERATING EXPENSES Expenses by nature: 12 month 18 month period ended period ended 30 June 30 June 2016 2015 £000 £000 Amortisation of intangible assets (note 9) 689 562 Depreciation charge (note 8) 37 – Cost of inventory sold and other cost of sales 1,278 811 Cost of sales 2,004 1,373 Externally funded research and development expenditure* 415 3,573 Internally funded research and development expenditure** 8,939 17,126 Sales and marketing expenditure*** 19,983 – Release of provision for vacant leases (note 3) (2,651) (243) Depreciation of owned property, plant and equipment (note 8) 570 797 Net foreign exchange loss/(gain) included within operating expenses 398 (352) Loss/(gain) on disposal (note 8) 144 (1) Share-based payments charge (note 24) 984 1,855 Operating lease rentals 1,243 1,494 Amortisation of intangible assets (note 9) 24 9 Impairment of intangible assets (note 9) – 300 Other operating expenses including overheads, administration activities and staff costs 3,949 6,397 Total operating expenses 36,002 32,328

* Excluding impairment and amortisation of previously capitalised intangibles. ** Excluding a portion of depreciation, operating lease rentals, share-based payment and foreign exchange which are allocated to research and development expenditure as reported in the income statement. *** Excluding a portion of depreciation, operating lease rentals, share-based payments, foreign exchange and loss on disposal of assets, which are allocated to sales and marketing as reported in the income statment.

During the period, the Group (including its overseas subsidiaries) obtained the following services provided by the Company’s auditors and its associates:

12 month 18 month period ended period ended 30 June 30 June 2016 2015 £000 £000 Fees payable to the Company’s auditors for the audit of parent company and consolidated statements 66 60 Fees payable to the Company’s auditors and its associates for other services: Audit of accounts of the Group’s UK subsidiaries 93 90 Audit-related assurance services (half-year report) 31 – Tax compliance services 14 25 Tax advisory services 68 85 Other non-audit services 13 8 285 268 Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 65 Directors’ report Additional information

5 FINANCE INCOME/EXPENSE 12 month 18 month period ended period ended 30 June 30 June 2016 2015 £000 £000 Finance income Interest on cash, cash equivalents and held-to-maturity assets 291 341 Exchange gains on cash, cash equivalents and held-to-maturity assets 8,024 2,392 8,315 2,733 Finance expense Unwinding of discount on accruals 5 – Unwinding of discount on provision (note 17) 37 157 42 157

6 INCOME TAX CREDIT Analysis of current tax credit in the period: 12 month 18 month period ended period ended 30 June 30 June 2016 2015 £000 £000 Research and development tax credits 1,065 2,933 Corporation tax on RDEC (79) (129) Overseas corporation tax (161) (48) Adjustments in respect of prior period (21) 102 804 2,858

The tax credit for the period is lower (2015: higher) than the standard rate of corporation tax and the differences are reconciled below.

12 month 18 month period ended period ended 30 June 30 June 2016 2015 £000 £000 Accounting loss before tax (15,299) (9,259)

Factors affecting the tax credit for the period Loss before tax at 20.0 per cent (2015: 21.17 per cent) (3,060) (1,960) Expenses not deductible for tax purposes 107 200 Movement on deferred tax asset not recognised 2,387 (193) Research and development tax credit received at 33.35 per cent of losses compared with 20.0 per cent tax rate (426) (939) Adjustments in respect of prior period 21 (102) Corporation tax on research and development expenditure credit 79 129 Overseas tax rate differential 88 7 (804) (2,858)

The Group had losses, as computed for taxation purposes, of approximately £479 million at 30 June 2016 (30 June 2015: £465 million) available to be carried forward to future years.

In accordance with the provisions of the Corporation Tax Act 2009 in respect of research and development tax relief, the Group is entitled to claim tax credits for certain research and development expenditure. The amount included in the financial statements in respect of the 12 month period ended 30 June 2016 of £1,065,000 (18 month period ended 30 June 2015: £2,933,000) represents the tax credit receivable by the Group in the UK. In addition, £21,000 in respect of the 12 month period ended 30 June 2016 represents a reduction to the tax credit claimed by the Group in the UK in relation to prior periods (18 month period ended 30 June 2015: £102,000 increase). Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 66 Strategic report Financial statements Directors’ report Additional information

Notes to the financial statements CONTINUED

7 LOSS PER SHARE Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

For diluted loss per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion for all dilutive potential ordinary shares.

For diluted loss per share, all potential ordinary shares including options and deferred shares are antidilutive as they would decrease the loss per share. 12 month 18 month period ended period ended 30 June 30 June 2016 2015 Attributable loss before exceptional items (£000) (17,146) (6,644) Exceptional items (£000) 2,651 243 Attributable loss (£000) (14,495) (6,401) Weighted average number of shares (basic and diluted) in issue (000) 455,258 442,280 Loss per ordinary share before exceptional items (3.8)p (1.5)p Exceptional items 0.6p 0.1p Loss per share (basic and diluted) (3.2)p (1.4)p

8 PROPERTY, PLANT AND EQUIPMENT Short leasehold Plant and Fixtures and buildings machinery fittings Total Group £000 £000 £000 £000 Cost At 1 July 2015 1,758 6,159 584 8,501 Additions – business combinations – 558 – 558 Additions – other 21 182 9 212 Disposals (609) (398) (3) (1,010) Exchange differences 2 6 19 27 At 30 June 2016 1,172 6,507 609 8,288 Accumulated depreciation At 1 July 2015 (1,500) (4,913) (451) (6,864) Depreciation charge for the period (88) (477) (42) (607) Disposals 609 254 3 866 Exchange differences – (4) (6) (10) At 30 June 2016 (979) (5,140) (496) (6,615) Net book value at 30 June 2016 193 1,367 113 1,673 Cost At 1 January 2014 1,726 5,830 516 8,072 Additions 32 866 107 1,005 Disposals – (535) (33) (568) Exchange differences – (2) (6) (8) At 30 June 2015 1,758 6,159 584 8,501 Accumulated depreciation At 1 January 2014 (1,364) (4,833) (437) (6,634) Depreciation charge for the period (136) (615) (46) (797) Disposals – 535 32 567 At 30 June 2015 (1,500) (4,913) (451) (6,864) Net book value at 30 June 2015 258 1,246 133 1,637 Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 67 Directors’ report Additional information

9 INTANGIBLE ASSETS Assets Assets not yet Goodwill in use in use Total Group £000 £000 £000 £000 Cost At 1 July 2015 8,954 37,570 13,042 59,566 Additions – business combinations – 4,022 – 4,022 Additions – other – 16 55 71 Reclassification of royalty credit – 1,370 – 1,370 Transferred to in use – 9,188 (9,188) – At 30 June 2016 8,954 52,166 3,909 65,029 Accumulated amortisation and impairment At 1 July 2015 (8,954) (37,417) (300) (46,671) Amortisation charge in the period – (713) – (713) At 30 June 2016 (8,954) (38,130) (300) (47,384) Net book value at 30 June 2016 – 14,036 3,609 17,6 45 Cost At 1 January 2014 8,954 37,40 8 5,730 52,092 Additions – 162 7,312 7,474 At 30 June 2015 8,954 37,570 13,042 59,566 Accumulated amortisation and impairment At 1 January 2014 (8,954) (36,846) – (45,800) Impairment charge – – (300) (300) Amortisation charge in the period – (571) – (571) At 30 June 2015 (8,954) (37,417) (300) (46,671) Net book value at 30 June 2015 – 153 12,742 12,895

USEFUL LIFE AND NET BOOK VALUE OF INTANGIBLE ASSETS 30 June 30 June 30 June 30 June 2016 2015 2016 2015 Assets in use Useful life Useful life £000 £000 Frova® to 2014 to 2014 – – Finance software to 2022 to 2022 145 153 Licence to Tris’ extended release technology to 2036 – 3,281 – Tuzistra® XR to 2036 – 6,818 – Moxatag® to 2027 – 3,792 – Total assets in use 14,036 153

30 June 30 June 2016 2015 £000 £000 Assets not yet in use – cough cold development pipeline 3,609 12,742

In accordance with IAS 21, “The effects of changes in foreign exchange rates”, goodwill and other intangible assets that are created in relation to the acquisition of a foreign subsidiary are maintained in the functional currency of that subsidiary. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 68 Strategic report Financial statements Directors’ report Additional information

Notes to the financial statements CONTINUED

9 INTANGIBLE ASSETS CONTINUED ADDITIONS Additions of £4.1 million were made during the 12 months ended 30 June 2016 of which £4.0 million related to the Moxatag® acquisition (see note 27). £9.2 million was moved to “assets in use” following the approval and subsequent launch of Tuzistra® XR and a further £1.4 million was reclassified from prepayments.

This amount was part of the NDA acquisition payment made and was treated as a prepayment in the accounts to 30 June 2015 as the amount can potentially be offset against future royalty payments to Tris. The recoverability of the royalty prepayment is dependent upon the net sales levels of Tuzistra® XR achieved over a 30 month period from commercial launch, and the amount expect to be recovered from Tris is now £1.4 million lower. Accordingly, this has been transferred from prepayments into the Tuzistra® XR intangible asset and will be amortised over the remaining useful economic life to 2036, consistent with other Tris milestone payments.

In the 18 month period ended 30 June 2015 there were additions of £7.5 million which relate primarily to Tris milestones payments made under the collaboration agreement. US$6.0 million related to Tuzistra® XR paid in two milestones, the first for the FDA accepting the NDA filing and the second for the purchase of the NDA from Tris after FDA approval. This second milestone was US$6.0 million but US$3.0 million was initially treated as a royalty prepayment. Two POC milestones, each of US$3.0 million for CCP-07 and CCP-08 were also paid during the 18 month period ending June 2015.

IMPAIRMENTS During the 12 months ended 30 June 2016 there were no impairments. In the 18 month period ended 30 June 2015, a charge of £0.3 million was made in relation to AUY922. This programme was out licensed in 2004 to Novartis. In December 2014, Novartis ceased all development work on AUY922 and rights will revert back to Vernalis.

IMPAIRMENT REVIEWS Goodwill and intangible assets that are not yet ready for use are subject to impairment review at least annually. Intangible assets in use are amortised over their expected useful lives and are reviewed when there is an indication that an impairment may have occurred. If the balance sheet carrying amount of the asset exceeds the higher of its value in use to the Group or its anticipated fair value less cost of sale, an impairment loss for the difference is recognised.

The impairment analysis is performed in line with the Group’s accounting policies detailed in note 1.

Value in use calculations are utilised to calculate recoverable amounts. Value in use is calculated as the net present value of the projected risk-adjusted, post-tax cash flows of the cash-generating unit (being the related products) relating to the intangible asset, and applying a discount rate of the Group post-tax weighted average cost of capital of approximately 10 per cent. These calculations use cash flow projections based on financial budgets approved by management covering a five year period. Cash flows beyond the five year period are projected over the useful life of the products. In relation to intangible assets not yet in use, cash flows reflect zero growth beyond the approved five year financial plan.

The determination of these underlying assumptions relating to the recoverability of intangible assets is subjective and requires the exercise of considerable judgement. These assumptions reflect past experience and/or external sources of information. Key assumptions include:

• Outcome of research and development activities. • Probability and timing of obtaining regulatory approval. • Success in commercialising products, size of the market and speed of market penetration. • Selling price and margins, together with erosion rates after the end of any patent protection due to generic competition. • Behaviour of competitors (launch of competing products, marketing initiatives, etc.).

Changes in key assumptions about our business and prospects, or changes in market conditions, could result in an impairment charge. Certain events could occur which could lead to an impairment e.g. regulatory approval not received from the FDA.

None of the Group’s intangible assets at either 30 June 2016 or 30 June 2015 was internally generated. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 69 Directors’ report Additional information

9 INTANGIBLE ASSETS CONTINUED Tuzistra® XR As a result of the modest sales performance of Tuzistra® XR over the last 12 months, the carrying value of the intellectual property, including the royalty prepayment, has been reviewed for impairment. The licence to Tris’ extended release technology is not attributable to any product but has been aggregated with the carrying value of Tuzistra® XR, and a possible impairment considered with reference to the Tuzistra® XR sales forecasts.

The value in use calculation for Tuzistra® XR, based on more conservative market penetration assumptions, does not indicate a need to impair the carrying value of the intangible asset at 30 June 2016.

Moxatag® After re-establishing supply of Moxatag® through its sole FDA approved supplier, Suir, £1.3 million of deferred consideration was paid to Pragma, in addition to the initial consideration of £2.4 million.

In May 2016, Suir entered voluntary liquidation. Because of the uncertainty over ongoing supply of the product by Suir, this triggered an impairment review. The total consideration, including an estimate for deferred consideration (based on future sales levels), has been reviewed for impairment based on future sales projections of Moxatag®. These projections have been further risk adjusted, because of the uncertainty over ongoing supply and incorporate both time and cost estimates for the validation of a new site of manufacture.

The value in use calculation for Moxatag® does not indicate a need to impair the carrying value of the intangible asset at 30 June 2016.

10 INVESTMENTS IN SUBSIDIARY UNDERTAKINGS 30 June 30 June 2016 2015 Company £000 £000 Cost At 1 July 2015/1 January 2014 694,555 679,343 Exchange movement 3,902 (2,497) Net investment in the period 24,529 17,70 9 At 30 June 722,986 694,555 Provision for impairment At 1 July 2015/1 January 2014 (530,182) (532,649) Exchange movement in the period (2,794) 2,467 At 30 June (532,976) (530,182) Investment in subsidiary undertakings at 30 June 190,010 164,373 Liability at 30 June Amounts due to subsidiary undertakings (note 15) (125,760) (125,760) Total liability at 30 June (125,760) (125,760) Net investment at 30 June 64,250 38,613

The increase in the net investment in subsidiary undertakings relates to funding provided to subsidiaries and the share-based payments charge in the period.

Amounts due to subsidiary undertakings are unsecured and interest free. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 70 Strategic report Financial statements Directors’ report Additional information

Notes to the financial statements CONTINUED

10 INVESTMENTS IN SUBSIDIARY UNDERTAKINGS CONTINUED IMPAIRMENT The carrying value of the Company’s net investments in its subsidiaries has been considered by reference to the Group’s market capitalisation as well as specific consideration of the performance of individual subsidiary companies. Based on this assessment, no further impairment is required in the period.

The Group had the following wholly owned subsidiary undertakings as at 30 June 2016:

Name of company Nature of business Country of incorporation and operations Trading Vernalis (R&D) Limited Research and development England and Wales Vernalis Development Limited Research and development and commercialisation England and Wales Vernalis Therapeutics, Inc. Commercialisation US Non-trading Vernalis Group Limited Intermediate holding company England and Wales Dormant British Biotech (UK) Limited Dormant England and Wales British Biotech International Limited Dormant England and Wales British Biotech Investments Limited Dormant England and Wales British Biotech Services Limited Dormant England and Wales CereXus Limited Dormant England and Wales Ionix Pharmaceuticals Limited Dormant England and Wales RiboTargets Holdings Limited Dormant England and Wales RiboTargets Limited Dormant England and Wales Vernalis (Cambridge) Limited Dormant England and Wales Vernalis Research Limited Dormant England and Wales Cita NeuroPharmaceuticals Inc Dormant Canada Vernalis (Canada) Inc Dormant Canada Vernalis (Canada) II Inc Dormant Canada Vernalis Corporation Dormant US British Biotech Americas Inc Dormant US British Biotech Inc Dormant US Cerebrus Inc Dormant US

All of the Company’s undertakings have been consolidated in the Group financial statements.

11 INVENTORIES 30 June 30 June 2016 2015 Group £000 £000 WIP 72 – Finished goods 639 – Less provision for obsolete inventories (478) – 233 –

The cost of inventories recognised as an expense and included in cost of sales for the 12 month period ended 30 June 2016 amounted to £744,000 (18 month period ended 30 June 2015: £372,000).

Included in the cost of inventories for the 12 month period ended 30 June 2016 is an obsolescence provision of £478,000 (18 month period ended 30 June 2015: £nil), where it is estimated that inventory will not be sold prior to becoming short dated. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 71 Directors’ report Additional information

12 TRADE AND OTHER RECEIVABLES The fair value of trade and other receivables are the current book values. Group Company 30 June 30 June 30 June 30 June 2016 2015 2016 2015 £000 £000 £000 £000 Prepayments and accrued income 631 534 – – Non-current trade and other receivables 631 534 – – Trade receivables 2,739 2,647 – – Interest receivable 103 35 103 35 Other receivables 2,601 752 – – Prepayments and accrued income 1,782 3,583 18 16 Current trade and other receivables 7,225 7,017 121 51 Total trade and other receivables 7,856 7,5 51 121 51

As of 30 June 2016, Group trade receivables of £1,651,000 (2015: £3,000) were past due but not impaired. The past due receivables relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is up to 18 months (2015: three to six months). All past due receivables were received in July 2016.

The carrying amounts of trade and other receivables are denominated in the following currencies:

Group Company 30 June 30 June 30 June 30 June 2016 2015 2016 2015 £000 £000 £000 £000 Pounds sterling 2,544 2,047 43 27 Euro 2,292 2,388 – – US dollars 3,020 3,114 78 24 Other – 2 – – 7,856 7,5 51 121 51

The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable above. The Group does not hold any collateral as security.

Concentration of credit risk is considered in note 29.

13 HELD-TO-MATURITY FINANCIAL ASSETS Group held-to-maturity financial assets of £76,997,000 (2015: £42,426,000) represent fixed-rate, short-term deposits placed with a range of banks at fixed-terms of three months or greater, a floating-rate long-term bank deposit placed as collateral against the Group’s foreign currency exchange contracts, a floating-rate 100-day notice deposit account and collateral given by VTI in support of local credit facilities (see note 29 for more detail).

All held-to-maturity financial assets are held by the Company with the exception of £48,000 (2015: £41,000) held by VTI. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 72 Strategic report Financial statements Directors’ report Additional information

Notes to the financial statements CONTINUED

14 CASH AND CASH EQUIVALENTS Group Company 30 June 30 June 30 June 30 June 2016 2015 2016 2015 £000 £000 £000 £000 Cash at bank and in hand 4,993 12,012 4,663 11,967 Short-term bank deposits 2,028 6,820 2,028 6,820 7,021 18,832 6,691 18,787

15 TRADE AND OTHER LIABILITIES Group Company 30 June 30 June 30 June 30 June 2016 2015 2016 2015 £000 £000 £000 £000 Accruals 394 744 – – Deferred consideration 1,028 – – – Amounts due to subsidiary undertakings – – 125,760 125,760 Non-current trade and other liabilities 1,422 744 125,760 125,760 Trade payables 511 476 51 12 Taxation and social security payable 479 600 – – Accruals 4,105 2,292 95 119 Current trade and other liabilities 5,095 3,368 146 131 Total trade and other liabilities 6,517 4,112 125,906 125,891

Amounts due to subsidiary undertakings are unsecured, interest free and are repayable following the repayment of investment loans and amounts due from subsidiary undertakings.

The fair value of the deferred consideration arrangement of £1,028,000 (2015: £nil) was estimated by applying an income approach. The fair value estimates are based on the discount rate of 10 per cent and current best estimates of net revenues and cost of goods which are used to calculate future royalties and milestones. This is a level 3 fair value measurement.

16 DEFERRED INCOME At 30 June 2016, the Group had a total deferred income balance of £1,007,000 (2015: £1,688,000) of which £922,000 (2015: £1,688,000) was current and £85,000 (2015: £nil) was non-current.

The deferred income balance relates primarily to upfront FTE funding received. In the period ended 30 June 2016, these are from Servier, Lundbeck and Taisho in relation to collaboration agreements which are being recognised in the income statement over their respective funded periods. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 73 Directors’ report Additional information

17 PROVISIONS FOR OTHER LIABILITIES AND CHARGES Property Revenue Total Group £000 £000 £000 As at 1 July 2015 3,664 – 3,664 Arising during the period – 1,753 1,753 Credit – provision reversed during the period (note 3) (2,651) – (2,651) Arising on business combination (note 27) – 99 99 Transfer to trade and other liabilities (474) – (474) Utilised during the period (72) (666) (738) Exchange differences – 147 147 Unwinding of discount (note 5) 37 – 37 As at 30 June 2016 504 1,333 1,837

Provisions have been analysed between current and non-current as follows: 30 June 30 June 2016 2015 Group £000 £000 Current 1,333 154 Non-current 504 3,510 1,837 3,664

PROPERTY PROVISIONS Where leasehold properties become vacant the Group provides for all costs, net of anticipated income, to the end of the lease or the anticipated date of the disposal or sublease. At 1 July 2015, this provision primarily related to properties in Cambridge and was expected to be utilised over the life of the related leases to 2019 and 2023, discounted to fair value at the balance sheet date. Also included were dilapidation provisions which related to costs associated with the Group’s obligation to reinstate leased buildings to their original state. During the period, the Group reached a settlement for the early termination of an onerous lease on a property in Cambridge which has resulted in an exceptional credit of £2,651,000. £474,000 has also been transferred to trade and other liabilities and will be paid over the next four years, reflecting that this amount is now certain.

As at 30 June 2016, the Group had no vacant or tenanted properties. The remaining amounts relate to dilapidation provisions.

The future minimum payments receivable from tenants occupying Group properties which are subject to an onerous lease are:

Property Property 30 June 30 June 2016 2015 £000 £000 Receipts under non-cancellable operating leases Within one year – 489 Later than one year and less than five years – 486 After five years – –

REVENUE PROVISIONS When calculating US commercial revenues, provisions are made for rebates, discounts, allowances and product returns estimated, given or expected to be given which vary by product arrangements and buying groups. These provisions are calculated based on contractual obligations, available current/future market information and historic experience. Amounts are reviewed throughout the reporting period and reflect the best estimate at each reporting date. These provisions are expected to be settled within the ordinary operating cycles of the business. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 74 Strategic report Financial statements Directors’ report Additional information

Notes to the financial statements CONTINUED

18 DERIVATIVE FINANCIAL INSTRUMENTS 30 June 30 June 2016 2015 Group and Company £000 £000 Financial (liabilities)/assets carried at fair value through profit or loss Current – Foreign currency forward contracts (281) 301 Non-current – Foreign currency forward contracts (37) – (318) 301

Further details of derivative financial instruments are provided in note 29. The fair values of all foreign currency forward contracts are based on period-end prices in an active market.

19 DEFERRED TAXATION (UNRECOGNISED) 12 month 18 month period ended period ended 30 June 30 June 2016 2015 Group £000 £000 Tax effect of timing differences Losses (86,234) (93,040) Excess of depreciation over tax allowances (7,243) (7,872) Short-term timing differences (121) (755) Share options (446) (455) Potential deferred tax asset (94,044) (102,122)

Given the uncertainty of the recoverability of the Group tax losses carried forward, no deferred tax asset in respect of future available tax losses is recognised. Note 6 gives details of the tax losses available to be carried forward by the Group.

COMPANY The Company has a potential (unrecognised) deferred taxation asset of £482,000 at 30 June 2016 (2015: £2,090,000) of which £480,000 (2015: £2,088,000) was in relation to losses and £2,000 (2015: £2,000) was an excess of depreciation over tax allowances.

FACTORS THAT MAY AFFECT FUTURE TAX CHARGES The current UK main corporation tax rate used in determining the deferred tax balance is 18 per cent. This is the rate that has been substantially enacted under the Finance Act 2015, to take effect from 1 April 2020.

Although a further rate reduction to 17 per cent was announced in the budget in March 2016, this additional rate reduction has not been substantively enacted at the balance sheet date and therefore has not been reflected in these statements. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 75 Directors’ report Additional information

20 SHARE CAPITAL Number Number Nominal issued authorised value Issued Authorised Group and Company 000 000 £ £000 £000 Ordinary 1 July 2015 443,442 Unlimited 0.01 4,434 Unlimited Issue of shares 82,754 – 0.01 828 – 30 June 2016 526,196 Unlimited 0.01 5,262 Unlimited

Number Number Nominal issued authorised value Issued Authorised Group and Company 000 000 £ £000 £000 Ordinary 1 January 2014 442,126 Unlimited 0.01 4,421 Unlimited Issue of shares 1,316 – 0.01 13 – 30 June 2015 443,442 Unlimited 0.01 4,434 Unlimited

ISSUE OF SHARES – 12 MONTH PERIOD ENDED 30 JUNE 2016 2,754,138 shares were issued following the exercise of options under the LTIP and Sharesave schemes.

On 13 May 2016, 80,000,000 shares were issued on a non-pre-emptive basis to institutional investors and certain directors at a placing price of 50 pence per share.

ISSUE OF SHARES – 18 MONTH PERIOD ENDED 30 JUNE 2015 1,316,301 shares were issued following the exercise of options under the LTIP and Sharesave schemes. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 76 Strategic report Financial statements Directors’ report Additional information

Notes to the financial statements CONTINUED

21 SHARE-BASED PAYMENTS POTENTIAL ISSUES OF ORDINARY SHARES At 30 June 2016, certain directors of the Company and certain employees across the Group held options to subscribe for shares in the Company at prices ranging from 1 pence per share to 57.2 pence per share under share option schemes approved by the shareholders and outlined in the remuneration report on pages 37 to 47. The number of shares subject to options at 30 June 2016, the periods in which they were granted and the periods in which they may be exercised are given below. All of the awards were granted for nil consideration.

OPTIONS ISSUED AND OUTSTANDING AT 30 JUNE 2016

30 June 2016 30 June 2015 Grant date Exercise price £ Exercise period Number Number Bonus LTIP 16 April 2010 0.010 April 2013–April 2016 – 773,385 5 May 2011 0.010 May 2014–May 2017 143,701 161,329 29 May 2012 0.010 May 2015–May 2018 20,089 55,452 29 May 2012 0.010 May 2015–May 2018 40,178 110,9 03 15 April 2013 0.010 April 2016–April 2019 49,272 295,613 15 April 2013 0.010 April 2016–April 2019 147,816 886,839 7 April 2014 0.010 April 2017–April 2020 (note a) 209,495 220,217 7 April 2014 0.010 April 2017–April 2020 (note a) 626,414 660,651 3 June 2016 0.010 June 2018–June 2022 95,654 – 3 June 2016 0.010 June 2018–June 2022 191,308 – Sharesave 3 September 2012 0.196 October 2015–April 2016 – 1,638,346 2 December 2015 0.572 February 2019–August 2019 1,211,509 – VBP 29 May 2012 0.010 October 2017–October 2022 (note b) 9,876,720 9,876,720 15 April 2013 0.010 October 2018–October 2023 (note b) 6,376,862 6,376,862 7 April 2014 0.010 October 2019–October 2024 (note b) 4,216,724 4,216,724 7 April 2014 0.010 October 2019–December 2019 (note b) 583,244 583,244 6 October 2014 0.010 October 2019–December 2019 (note b) 284,406 284,406 22 October 2014 0.010 October 2019–December 2019 (note b) 445,104 445,104 12 February 2015 0.010 October 2019–December 2019 204,703 204,703 5 June 2015 0.010 October 2019–October 2024 240,876 240,876 3 June 2016 0.010 October 2020–October 2025 385,126 – EIP 3 June 2016 0.010 June 2018–December 2018 339,733 – 3 June 2016 0.010 June 2018–December 2018 2,665,823 –

Note a: A total of 6,213 options (2015: Nil) have been subject to accelerated vesting, and are exercisable at 30 June 2016 in accordance with the Bonus LTIP scheme good leaver rules.

Note b: Performance testing dates for the vesting of these options are linked to the end of the financial period. On 18 November 2014 (the modification date), the Group announced the change of financial year end from 31 December to 30 June. The Remuneration Committee decided that it was appropriate to move these testing dates back by six months to reflect the new financial period end. This has meant that in addition the exercise period has also been moved back by six months.

Exercise of an option is subject to continued employment or being a good leaver. Options were valued using the “Monte Carlo” model. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 77 Directors’ report Additional information

21 SHARE-BASED PAYMENTS CONTINUED FAIR VALUE OF GRANTS AT ISSUE Fair value Number Share price on (% of share of shares grant date price on Fair value Award Grant date granted £ grant date) £ Bonus LTIP 16 April 2010 1,041,428 0.525 98.2% 536,900 Bonus LTIP 5 May 2011 286,908 0.371 97. 4% 103,800 Bonus LTIP 5 May 2011 860,724 0.371 45.5% 145,500 Bonus LTIP 29 May 2012 404,492 0.224 95.6% 86,500 Bonus LTIP 29 May 2012 1,213,476 0.224 42.3% 115,000 Bonus LTIP 15 April 2013 330,358 0.226 95.6% 71,500 Bonus LTIP 15 April 2013 991,074 0.226 30.6% 68,600 Bonus LTIP 7 April 2014 226,801 0.359 97.3% 79,200 Bonus LTIP 7 April 2014 680,403 0.359 30.7% 74,900 Bonus LTIP 3 June 2016 95,654 0.453 97.8% 42,300 Bonus LTIP 3 June 2016 191,308 0.453 40.2% 34,800 Sharesave 3 September 2012 1,952,423 0.258 44.3% 223,000 Sharesave 2 December 2015 1,211,509 0.700 33.6% 285,300 VBP 29 May 2012 10,867,893 0.224 60.6% 1,474,800 VBP 15 April 2013 7,379,559 0.226 44.7% 746,300 VBP 7 April 2014 5,088,165 0.359 57. 2 % 1,044,300 VBP 6 October 2014 284,406 0.478 61.7% 83,800 VBP 22 October 2014 445,104 0.490 61.9% 135,000 VBP 12 February 2015 204,703 0.495 63.0% 63,800 VBP 5 June 2015 240,876 0.710 62.2% 106,400 VBP 3 June 2016 385,126 0.453 55.7% 97,10 0 EIP 3 June 2016 339,733 0.453 97.8% 150,300 EIP 3 June 2016 2,665,823 0.453 39.8% 479,600

IMPACT ON FAIR VALUE FOLLOWING DATE MODIFICATION Number of shares Share price on Incremental Incremental outstanding at modification value increase in fair modification date (pence per value Award Original grant date date £ share) £ VBP (note c) 29 May 2012 10,324,996 0.496 0.740 76,000 VBP (note c) 15 April 2013 6,830,350 0.496 0.510 34,800 VBP (note c) 7 April 2014 5,088,165 0.496 1.160 59,200 VBP (note c) 6 October 2014 284,406 0.496 0.380 1,10 0 VBP (note c) 22 October 2014 445,104 0.496 0.380 1,700

Note c: As a result of the change in date of performance testing of the VBP options detailed in note b, options were revalued using the same “Monte Carlo” model. The incremental charges are being recognised and spread over the period from the date of modification to the vesting date. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 78 Strategic report Financial statements Directors’ report Additional information

Notes to the financial statements CONTINUED

21 SHARE-BASED PAYMENTS CONTINUED MODEL ASSUMPTIONS FOR FAIR VALUE AT GRANT Expected Expected dividend yield volatility Risk free rate Award Grant date Expected term (note (c)) (note (d)) (note (e)) Performance condition Bonus LTIP 16 April 2010 3 years (note (a)) 0% 80.5% 1.70% Non-market Bonus LTIP 5 May 2011 3 years (note (a)) 0% 58.4% 1.40% Non-market Bonus LTIP 5 May 2011 3 years (note (a)) 0% 58.4% 1.40% Share price (note (f)) Bonus LTIP 29 May 2012 3 years (note (a)) 0% 50.0% 0.40% Non-market Bonus LTIP 29 May 2012 3 years (note (a)) 0% 50.0% 0.40% Share price (note (f)) Bonus LTIP 15 April 2013 3 years (note (a)) 0% 43.6% 0.30% Non-market Bonus LTIP 15 April 2013 3 years (note (a)) 0% 43.6% 0.30% Share price (note (f)) Bonus LTIP 7 April 2014 3 years (note (a)) 0% 40.5% 1.05% Non-market Bonus LTIP 7 April 2014 3 years (note (a)) 0% 40.5% 1.05% Share price (note (f)) Bonus LTIP 3 June 2016 2.07 years (note (a)) 0% 40.0% 0.38% Non-market Bonus LTIP 3 June 2016 2.07 years (note (a)) 0% 40.0% 0.38% Share price (note (f)) Sharesave 3 September 2012 3.32 years (note (b)) 0% 49.8% 0.21% Non-market Sharesave 2 December 2015 3.33 years (note (b)) 0% 34.0% 0.90% Non-market VBP 29 May 2012 4.8 years (note (a)) 0% 71.8% 0.70% Share price (note (f)) VBP 15 April 2013 4.96 years (note (a)) 0% 53.0% 0.70% Share price (note (f)) VBP 7 April 2014 4.98 years (note (a)) 0% 43.5% 1.73% Share price (note (f)) VBP 6 October 2014 4.48 years (note (a)) 0% 43.7% 1.55% Share price (note (f)) VBP 22 October 2014 4.44 years (note (a)) 0% 42.9% 1.35% Share price (note (f)) VBP 12 February 2015 4.63 years (note (a)) 0% 41.8% 0.99% Share price (note (f)) VBP 5 June 2015 4.32 years (note (a)) 0% 39.3% 1.19% Share price (note (f)) VBP 3 June 2016 4.33 years (note (a)) 0% 36.6% 0.69% Share price (note (f)) EIP 3 June 2016 2.07 years (note (a)) 0% 40.0% 0.38% Non-market EIP 3 June 2016 2.07 years (note (a)) 0% 40.0% 0.38% Share price (note (f))

NOTES TO ASSUMPTIONS (a) All options that have vested are exercised after the initial vesting period.

(b) Sharesave awards can be exercised in a six month window after the initial vesting period. It is assumed that all awards will be exercised midway through the exercise window.

(c) The dividend yield of nil per cent in all cases reflects the absence of dividends and of a clear dividend policy statement at the relevant dates of grant.

(d) Expected volatility is a measure of the amount by which a share price is expected to fluctuate during a period. A standard approach to calculating volatility has been used based on a calculation of the standard deviation of the natural logarithm of share price movements.

(e) UK Gilt rates prevalent on the grant date and commensurate with the term of each award.

(f) The VBP and Bonus LTIP matching awards are subject to an absolute share price performance condition on the Company’s ordinary shares. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 79 Directors’ report Additional information

21 SHARE-BASED PAYMENTS CONTINUED A reconciliation of share option scheme movements for the periods ended 30 June 2016 and 30 June 2015 is set out below:

12 month period ended 18 month period ended 30 June 2016 30 June 2015 Weighted Weighted average average exercise price exercise price Number £ Number £ Outstanding at 1 July 2015/1 January 2014 27,031,374 0.021 26,650,163 0.057 Granted 4,889,153 0.149 7,170,458 0.010 Lapsed (44,328) 0.010 (5,472,946) 0.185 Expired (767,304) 0.010 – – Exercised (2,754,138) 0.121 (1,316,301) 0.011 Outstanding at 30 June 28,354,757 0.034 27,031,374 0.021 Exercisable at 30 June 407,269 0.010 1,101,069 0.010

Options exercised in the period ended 30 June 2016 resulted in 2,754,138 (2015: 1,316,301) shares being issued at a weighted average price of 12.1 pence each (2015: 1.1 pence). The related weighted average share price at the time of exercise was 62.9 pence (2015: 65.14 pence) per share.

The following tables summarise information about the range of exercise prices for share options outstanding at 30 June 2016 and 30 June 2015: Weighted Weighted average average remaining life 30 June 2016 exercise price Number of contractual Exercise price £ shares years £0.01 0.010 27,143,248 6.151 £0.572 0.572 1,211,509 3.088 28,354,757

Weighted Weighted average average remaining life 30 June 2015 exercise price Number of contractual Exercise price £ shares years £0.01 0.010 25,393,028 7.191 £0.196 0.196 1,638,346 0.756 27,031,374

The total charge for the period relating to employee share-based payment plans is disclosed in note 24 (employees and directors). Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 80 Strategic report Financial statements Directors’ report Additional information

Notes to the financial statements CONTINUED

22 OTHER RESERVES Capital Merger Other Options Warrant Translation redemption reserve reserve reserve reserve reserve reserve Total Group £000 £000 £000 £000 £000 £000 £000 At 1 January 2014 101,985 78,125 9,929 1,155 3,556 57,666 252,416 Share-based payments charge – – 1,268 – – – 1,268 Exercise of share options – – (301) – – – (301) Exchange loss on translation of overseas subsidiaries – – – – (18) – (18) At 30 June 2015 101,985 78,125 10,896 1,155 3,538 57,666 253,365 Share-based payments charge – – 984 – – – 984 Exercise of share options – – (317) – – – (317) Exchange loss on translation of overseas subsidiaries – – – – (100) – (100) At 30 June 2016 101,985 78,125 11,563 1,155 3,438 57,666 253,932

Capital Merger Other Options Warrant redemption reserve reserve reserve reserve reserve Total Company £000 £000 £000 £000 £000 £000 At 1 January 2014 44,471 47,375 9,929 1,155 57,666 160,596 Share-based payments charge – – 1,268 – – 1,268 Exercise of share options – – (301) – – (301) At 30 June 2015 44,471 47,375 10,896 1,155 57,666 161,563 Share-based payments charge – – 984 – – 984 Exercise of share options – – (317) – – (317) At 30 June 2016 44,471 47,375 11,563 1,155 57,666 162,230

The merger reserve arises as a difference on consolidation under merger accounting principles and is solely in respect of the merger of the Company and Vernalis Group plc in a prior year. The reserve represents the difference between the nominal value of shares issued by the Company in consideration for Vernalis Group plc shares and the nominal value and share premium of Vernalis Group plc shares at the date of the merger.

The other reserve arises as a result of the application of merger relief taken in respect of the issue of shares on the acquisition of subsidiaries of the Group, including RiboTargets Limited, Cerebrus Pharmaceuticals Limited, Vanguard Medica Limited and British Biotech Pharmaceuticals Limited.

The options reserve arises from the valuation of outstanding employee share-based payments to their fair value, charged to date.

The warrant reserve arose from the fair value of the warrants issued to Paul Capital Healthcare on termination of the Paul Capital Healthcare Agreement in 2010.

The translation reserve represents exchange differences arising from the translation of foreign operations.

The capital redemption reserve arises due to shares purchased for cancellation.

23 SHARE PREMIUM The share premium account is a non-distributable reserve.

Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 81 Directors’ report Additional information

24 EMPLOYEES AND DIRECTORS The monthly average number of persons, including executive directors, employed by the Group during the period was as follows:

12 month 18 month period ended period ended 30 June 30 June 2016 2015 Number Number Sales and marketing 13 – Research, development and operations 67 69 Administration 23 22 103 91

Staff costs in respect of these employees were: 12 month 18 month period ended period ended 30 June 30 June 2016 2015 £000 £000 Wages and salaries 8,828 11,195 Social security costs 342 1,815 Other pension costs 563 824 Share-based payments 984 1,268 10,717 15,102

In respect of directors’ remuneration, the Company has taken advantage of the permission in the Large- and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 to omit aggregate information that is capable of being ascertained from the detailed disclosures in the report of the Remuneration Committee on pages 37 to 47.

Pension costs are all in respect of defined contribution schemes. 12 month 18 month period ended period ended 30 June 30 June 2016 2015 Key management compensation £000 £000 Salaries and short-term employee benefits 1,700 2,013 Post-employment benefits 133 171 Share-based payments 544 767 2,377 2,951

Key management includes executive directors, non-executive directors and certain members of the Executive Committee.

COMPANY The Company had nil employees during the 12 month period ended 30 June 2016 (18 month period ended 30 June 2015: nil). Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 82 Strategic report Financial statements Directors’ report Additional information

Notes to the financial statements CONTINUED

25 OPERATING LEASE COMMITMENTS 30 June 30 June 2016 2015 Group £000 £000 Future aggregate minimum payments under non-cancellable operating leases: Within one year 1,296 1,565 Later than one year and less than five years 2,058 5,614 After five years – –

The Group leases various properties and equipment under non-cancellable operating lease agreements. The leases have various terms, escalation clauses and renewal rights.

26 FINANCIAL COMMITMENTS AND CONTINGENCIES 30 June 30 June 2016 2015 Group £000 £000 Financial commitments payable in cash not provided in the financial statements 44,128 37,5 0 8

In February 2012, the Group entered into a licence, development and commercialisation agreement with Tris. Under the agreement, Tris, using its proprietary technology, will develop, on behalf of Vernalis, up to six NDAs. Tris will undertake and fund the development work and Vernalis will pay milestones to Tris in consideration for development on each product to the extent they successfully progress through clinical development. The maximum future development milestones payable to Tris under this agreement are US$59 million (2015: US$59 million). The difference in the financial commitments between the two balance sheet dates relates to the foreign exchange rates used to convert the liability into sterling for financial reporting purposes.

Capital commitments were as follows: 30 June 30 June 2016 2015 Group £000 £000 Contracts placed for future capital expenditure not provided in the financial statements 199 – Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 83 Directors’ report Additional information

27 BUSINESS COMBINATIONS On 2 October 2015, Vernalis acquired the US rights to Moxatag®, which is the only approved once-a-day formulation of the antibiotic, amoxicillin. Moxatag® expands the US product portfolio and complements Tuzistra® XR within the US commercial business. Total consideration, which was fair valued at acquisition, comprised three parts: an upfront cash payment of £2.4 million (US$3.6 million); fixed deferred consideration of £1.3 million (US$1.8 million) contingent on the completion of the first successful manufacture of the product; and further deferred consideration owed by Vernalis on future net revenues of Moxatag® for royalties and milestone payments, which management have estimated the fair value at acquisition to be £0.9 million (US$1.4 million).

The purchase has been treated as a business combination in accordance with the Group’s policies under the acquisition method. The acquisition did not result in goodwill and resulted in the following fair value additions to assets and liabilities:

Acquisition fair value 2 October 2015 £000 Property, plant and equipment 558 Intangible assets 4,022 Non-current assets 4,580 Provision for other liabilities and charges 99 Current liabilities 99 Total acquisition at fair value 4,481 Consideration Cash paid 2,386 Deferred cash consideration 2,095 Total consideration 4,481

No book values were made available by the vendor at the date of acquisition. Fair values of the acquired assets and liabilities as at 2 October 2015 are detailed in the table above.

Since the acquisition, the Group has been focused on the manufacturing of the product and developing sales and marketing strategies for a relaunch. Very limited commercial sales have occurred to date. The charges for the period relate to the amortisation of the intangible asset, which in accordance with the Group accounting policy, is being amortised from the first month in which the intangible asset is available for use, and deprecation of the property, plant and equipment. A summary of the financial impact of Moxatag® from the date of acquisition in the consolidated Group is: 30 June 2016 £000 Net revenue 8 Loss for the period (796)

A view of the potential financial impact of the Moxatag® purchase on the Group on a pro forma basis from 1 July was considered impracticable due to its significant reliance on several uncertain estimates, making the information unreliable for the purposes of comparative analysis.

Contingent consideration relating to the first successful manufacture of product was £1.3 million and was paid in March 2016. A further amount of contingent consideration which may be payable by Vernalis is in the form of royalties and sales milestones and is dependent on net sales achieved in the future.

For the 12 month period ended 30 June 2016, the Group expensed costs of £135,000 relating to the acquisition of Moxatag® which have been recorded within operating expenditure. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 84 Strategic report Financial statements Directors’ report Additional information

Notes to the financial statements CONTINUED

28 RELATED PARTY TRANSACTIONS IDENTITY OF RELATED PARTIES The Group consists of a parent, Vernalis plc, and principally three wholly owned trading subsidiaries. The main trading companies are Vernalis (R&D) Limited, Vernalis Development Limited (both incorporated in the UK) and Vernalis Therapeutics Inc (incorporated in Delaware, US).

The Parent Company is responsible for financing and setting Group strategy. Vernalis (R&D) Limited carries out the Group research and development strategy, employs all the UK staff including the directors, and owns and manages all of the Group’s intellectual property including Tuzistra® XR and Moxatag® (but excluding Vernalis®, Frova® and Migard® trademarks and any frovatriptan-related patents, all of which are owned by Vernalis Development Limited). The proceeds of the issue of shares by the Parent are passed from Vernalis plc to Vernalis (R&D) Limited as a loan, and Vernalis (R&D) Limited manages Group funds and makes payments, including the expenses of the Parent Company. VTI was registered in 2011 and began trading in 2014, employs all US staff and is the Group’s sales and distribution company through which the commercial products are sold in the US market.

GROUP At 30 June 2016, an amount of £4,903 (30 June 2015: £7,921) was due from Dr Fellner and companies where Dr Fellner is a board member, in respect of certain travel costs. Of the amount due at 30 June 2016, £3,434 had been repaid at 31 August 2016. The amount due at 30 June 2015 was repaid in full by 21 March 2016.

Key management compensation is disclosed in note 24.

COMPANY The Company has issued share options to employees of subsidiary undertakings and in accordance with IFRS 2 has made a charge in the 12 month period ended 30 June 2016 of £984,000 (2015: £1,268,000).

The Company has been charged £1,014,000 (2015: £1,729,000) for corporate services provided by subsidiary undertakings. The Company provides financing to its operating subsidiary undertakings. Details of inter-company balances can be found in notes 10 and 15.

29 FINANCIAL RISK MANAGEMENT FINANCIAL RISK FACTORS Monitoring of financial risk is part of the Board’s ongoing risk management, the effectiveness of which is reviewed annually. The Group’s agreed policies are implemented by the Chief Financial Officer, who submits reports at each Board meeting. The Group has maintained compliance throughout the 12 month period ended 30 June 2016.

The main risks arising from the Group’s financial instruments are foreign currency risk, cash flow and liquidity risk, interest rate risk and credit risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below.

FOREIGN CURRENCY RISK The Group has transactional currency exposures. Such exposures arise from sales or purchases in currencies other than the functional currency, which include US dollar payments in relation to the Tris licensing and development collaboration, US dollar payments and product sales receipts associated with commercial activities in the US, as well as royalty product sales receipts in euros from Menarini, the Group’s European licensee for frovatriptan, and FTE funding and milestone income in both US dollars and euros from the research collaborations.

During the 12 month period ended 30 June 2016, the Board continued to hedge the euro revenue stream. A policy of hedging up to two years forward has been maintained, consistent with the prior year, which is reviewed on at least a quarterly basis with regard to the liquidity position of the Group, and the efficiency of any self hedging. Forward contracts have been used during the 12 month period ended 30 June 2016 and at the year end the Group had 15 months of hedging in place. These contracts are not designated in a hedge accounting relationship and are classified as held-for-trading. In relation to US dollars, following the equity issues in March 2012 and May 2016, the Group purchased US dollars to match the expected Tris and US commercial financing requirements, and therefore movements in the US dollar:sterling exchange rate do not put the ability to finance these operations at risk. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 85 Directors’ report Additional information

29 FINANCIAL RISK MANAGEMENT CONTINUED The Group also considers selectively hedging against specific significant currency exposures where the dates of future payments or receipts in foreign currency are known. There were no hedging accounting transactions as defined by IAS 39, “Financial Instruments: Recognition and measurement” in place at 30 June 2016 or 30 June 2015.

The following table summarises the impact on revenues if the euro and US dollar had weakened/strengthened by 5 per cent against the UK pound with all other variables held constant; a sensitivity has been performed at 5 per cent as this quantum of change is considered reasonably possible. The movements below exclude the effect of forward contracts.

Group 12 month 18 month period ended period ended 30 June 30 June 2016 2015 £000 £000 Euro Revenue impact – if euro strengthened by 5 per cent 362 725 Revenue impact – if euro weakened by 5 per cent (328) (656) US dollar Revenue impact – if US dollar strengthened by 5 per cent 31 66 Revenue impact – if US dollar weakened by 5 per cent (28) (60)

The Company has no revenue and therefore there is no impact of a strengthening/weakening in the euro or US dollar. The impact on profit after tax is also not significant.

The Group has translational currency exposures arising on translation of cash, receivables and payables held in foreign currencies to sterling at reporting dates, most notably US dollars and euros. Any excess euros are sold for sterling to limit this exposure. The most significant exposure is in relation to US dollars where the Group held US$82 million (£61 million) at 30 June 2016 (US$70 million (£44 million) at 30 June 2015).

The table below summarises the impact on net assets if the euro and US dollar had weakened/strengthened by 5 per cent against the UK pound with all other variables held constant. The euro movements principally relate to financial assets and liabilities that will be settled at a future date. The US dollar movements principally relate to US dollar cash deposits. The movements below exclude the effect of forward contracts. Group 30 June 30 June 2016 2015 £000 £000 Euro Net assets – if euro strengthened by 5 per cent 194 242 Net assets – if euro weakened by 5 per cent (175) (219) US dollar Net assets – if US dollar strengthened by 5 per cent 3,163 2,430 Net assets – if US dollar weakened by 5 per cent (2,862) (2,199)

The Company had minimal euro denominated net assets at both 30 June 2016 and 30 June 2015 and therefore the impact of a 5 per cent change is not significant. The impact on the Company’s net assets of a change in US dollars is higher at 30 June 2016 compared to 30 June 2015, because of the additional US dollars cash held. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 86 Strategic report Financial statements Directors’ report Additional information

Notes to the financial statements CONTINUED

29 FINANCIAL RISK MANAGEMENT CONTINUED The table below summarises the currency options classified as held-for-trading derivative financial instruments into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. The currency options are Level 2 fair value measurements (2015: all Level 2). Value at contracted Fair value of nominal Nominal contract value exchange rate contract value 30 June 30 June 30 June 30 June 30 June 30 June 2016 2015 2016 2015 2016 2015 €000 €000 £000 £000 £000 £000 Foreign currency forward contracts held for trading Sell euro Less than three months 3,000 1,500 2,316 1,236 2,486 1,069 Three months to one year 2,000 5,000 1,557 3,697 1,668 3,563 Between one and two years 750 – 591 – 628 – 5,750 6,500 4,464 4,933 4,782 4,632

The financial derivatives and deferred consideration are the only financial assets and liabilities carried at fair value through the consolidated income statement of the Group.

CASH FLOW AND LIQUIDITY RISK Cash flow forecasting is performed at a Group level. The Group produces rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs.

The Group invests surplus cash in interest-bearing current accounts, money market managed funds, notice accounts and term deposits. Funds are placed with appropriate maturities as determined by the forecast requirements.

Derivative financial instruments are recognised at fair value. The gain or loss on re-measurement to fair value is recognised immediately in the income statement.

Where market values are not available, fair values of financial assets and financial liabilities have been calculated by discounting expected future cash flows at prevailing interest rates and by applying period end exchange rates.

The table below analyses the Group’s financial liabilities and net-settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted total cash flows, i.e. including financing costs. Less than Between Between Over 1 year 1 and 2 years 2 and 5 years 5 years At 30 June 2016 £000 £000 £000 £000 Trade and other liabilities* 4,616 253 836 1,114

Less than Between Between Over 5 1 year 1 and 2 years 2 and 5 years years At 30 June 2015 £000 £000 £000 £000 Trade and other liabilities* 2,682 31 713 –

* Excluding taxation and social security payable.

INTEREST RATE RISK The Group finances its operations through reserves of cash and liquid resources. The funds are held in sterling, euro and US dollar managed funds and sterling and US dollar treasury deposits. The managed funds are actively managed by independent fund managers to provide the highest rate of return with a neutral risk profile. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 87 Directors’ report Additional information

29 FINANCIAL RISK MANAGEMENT CONTINUED The interest rate profile of the Group’s financial assets are:

30 June 2016 30 June 2015 Floating Fixed Total Floating Fixed Total £000 £000 £000 £000 £000 £000 Financial assets Sterling cash at bank and in hand 86 – 86 102 – 102 Euro cash at bank and in hand 1,497 – 1,497 2,210 – 2,210 US dollar cash at bank and in hand 1,952 1,458 3,410 8,111 1,589 9,700 Sterling short-term bank deposits (i) (ii) 1,228 – 1,228 2,070 – 2,070 US dollar short-term bank deposits (i) (ii) 800 – 800 1,571 3,179 4,750 Sterling held-to-maturity financial assets (iii) (iv) 8,000 11,50 0 19,500 – 12,001 12,001 US dollar held-to-maturity financial assets (v) (vi) 8,228 48,616 56,844 6,993 22,886 29,879 Sterling long-term bank deposits (vii) 605 – 605 505 – 505 US dollar long-term bank deposits (viii) 48 – 48 41 – 41 22,444 61,574 84,018 21,603 39,655 61,258

Interest is not considered to be a significant sensitivity given the low interest rates currently achievable on cash deposits.

The Company interest rate profile is similar to that of the Group.

(i) Short-term bank deposits are used to maintain a positive bank balance in sterling, euro and US dollar.

(ii) Floating-rate short-term bank deposits are invested in a money market managed fund with a weighted average maturity of less than 90 days by reference to seven day LIBID and are repayable within 24 hours.

(iii) Floating-rate sterling held-to-maturity financial assets are placed with a bank at an interest rate of LIBOR three months plus 0.1 per cent at 30 June 2016.

(iv) Fixed-rate sterling held-to-maturity financial assets are placed with a bank at fixed-terms with a weighted average maturity of 171 days and a weighted average fixed rate of 0.79 per cent at 30 June 2016.

(v) Floating-rate US dollar held-to-maturity financial assets are placed with a bank at an interest rate of LIBOR three months plus 0.2 per cent at 30 June 2016.

(vi) Fixed-rate US dollar held-to-maturity financial assets are placed with a range of banks at fixed-terms with a weighted average maturity of 168 days and a weighted average fixed rate of 0.77 per cent at 30 June 2016.

(vii) The floating-rate long-term sterling bank deposit is placed as collateral against the Group’s foreign currency exchange contracts, with an interest rate of SONIA minus 25 basis points at 30 June 2016.

(viii) The floating-rate long-term deposits is placed as collateral within the US.

The following financial assets and liabilities are all non-interest-bearing and thus not exposed to interest rate risk: various receivables and payables, such as trade and other receivables and trade and other payables that arise directly from operations.

CREDIT RISK Credit risk is managed on a Group basis. The Group is exposed to credit risk in relation to the counterparties with whom cash and cash equivalents and held-to-maturity financial assets are held. In addition, the Group is exposed to a concentration of credit risk in respect of certain pharmaceutical companies where one or more of those counterparties is affected by financial difficulty, it could materially and adversely affect the Group’s financial results.

The table on the following page shows the Group’s top cash and cash equivalent and held-to-maturity financial asset investments, and their Moody’s and Fitch long-term ratings as at the end of the period. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 88 Strategic report Financial statements Directors’ report Additional information

Notes to the financial statements CONTINUED

29 FINANCIAL RISK MANAGEMENT CONTINUED Group 30 June 30 June Moody’s credit Fitch credit 2016 2015 rating rating £000 £000 Bank/financial institution A A1 A+ 30,686 18,644 Bank/financial institution B A2 A 30,566 15,943 Bank/financial institution C Aa2 AA- 8,009 4,189 Bank/financial institution D A3 BBB+ 73 8,368

The table below shows the top three trade receivables at the end of the period: Group 30 June 30 June 2016 2015 £000 £000 Company X 1,430 1,453 Company Y 880 913 Company Z 300 151

The Group does not believe it is exposed to major concentrations of credit risk on other classes of financial instruments. The Group is exposed to credit-related losses in the event of non-performance by counterparties to financial instruments, but does not expect any counterparties to fail to meet their obligations.

PRICE RISK The Group is not exposed to market price risk at the year end because it holds no available-for-sale financial assets.

FAIR VALUE ESTIMATES The fair value of short-term deposits with a maturity of one year or less is assumed to be the book value.

CAPITAL RISK MANAGEMENT The objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders. In order to maintain or adjust the capital structure, the Group may return capital to shareholders and issue new shares. The Group considers capital to be “Shareholders’ equity” as shown in the consolidated balance sheet.

The Group is well capitalised following the £38.9 million (net of expenses) equity financing in May 2016, as it executes its transition from a research and development based pharmaceutical company into a profitable and cash-generative pharmaceutical company.

The Group may still need to seek further capital through equity or debt in the future and, if this is not successful, the financial condition of the Group may be adversely affected.

BORROWING FACILITIES The Group has no borrowing facilities at 30 June 2016 (30 June 2015: nil). Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 89 Directors’ report Additional information

30 FINANCIAL INSTRUMENTS BY CATEGORY The Group holds the following financial instruments:

30 June 2016 30 June 2015 Fair value Financial Fair value Financial Loans and through profit liabilities at Loans and through profit liabilities at receivables and loss amortised cost Total receivables and loss amortised cost Total Note £000 £000 £000 £000 £000 £000 £000 £000 Assets Trade and other receivables* 12 4,874 – – 4,874 2,885 – – 2,885 Derivative financial instruments 18 – – – – – 301 – 301 Held-to-maturity financial assets 13 76,997 – – 76,997 42,426 – – 42,426 Cash and cash equivalents 14 7,021 – – 7,021 18,832 – – 18,832 Current assets 88,892 – – 88,892 64,143 301 – 64,444 Total assets 88,892 – – 88,892 64,143 301 – 64,444 Liabilities Trade and other liabilities 15 – 1,028 394 1,422 – – 744 744 Provisions for other liabilities and charges 17 – – 504 504 – – 3,510 3,510 Derivative financial instruments 18 – 37 – 37 – – – – Non-current liabilities – 1,065 898 1,963 – – 4,254 4,254 Trade and other liabilities** 15 – – 4,616 4,616 – – 2,768 2,768 Provisions for other liabilities and charges 17 – – 1,333 1,333 – – 154 154 Derivative financial instruments 18 – 281 – 281 – – – – Current liabilities – 281 5,949 6,230 – – 2,922 2,922 Total liabilities – 1,346 6,847 8,193 – – 7,176 7,176

* Excluding amounts that relate to non-financial instruments of tax and prepayments. ** Excluding amounts that relate to non-financial instruments of taxation and social security.

The above assets and liabilities have all been stated at undiscounted values with the exception of deferred consideration. The undiscounted value of the deferred contingent consideration is £1,812,000 versus a discounted value of £1,028,000, as at 30 June 2016. There was no deferred consideration at 30 June 2015.

The assets and liabilities, which are measured at fair value, are as follows.

Level 2: Derivative financial instruments measured at fair value are classified as level 2, where their value has been determined by reference to observable market data. Foreign currency forward contracts have been determined to be level 2 as their valuation has been derived from forward exchange rates observable at the balance sheet date together with the contractual forward rates and have been measured using the market approach.

Level 3: Financial instruments are classified as level 3 when one or more of the key assumptions being modelled are not based on observable market data. Deferred contingent consideration has been assessed as level 3 and its value has been calculated on an income approach basis. Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 90 Strategic report Financial statements Directors’ report Additional information

Notes to the financial statements CONTINUED

30 FINANCIAL INSTRUMENTS BY CATEGORY CONTINUED The Company holds the following financial instruments:

30 June 2016 30 June 2015 Fair value Financial Fair value Financial Loans and through profit liabilities at Loans and through profit liabilities at receivables and loss amortised cost Total receivables and loss amortised cost Total Note £000 £000 £000 £000 £000 £000 £000 £000 Assets Trade and other receivables*** 12 103 – – 103 35 – – 35 Derivative financial instruments 18 – – – – – 301 – 301 Held-to-maturity financial assets 13 76,949 – – 76,949 42,385 – – 42,385 Cash and cash equivalents 14 6,691 – – 6,691 18,787 – – 18,787 Current assets 83,743 – – 83,743 61,207 301 – 61,508 Total assets 83,743 – – 83,743 61,207 301 – 61,508 Liabilities Trade and other liabilities 15 – – 125,760 125,760 – – 125,760 125,760 Derivative financial instruments 18 – 37 – 37 – – – – Non-current liabilities – 37 125,760 125,797 – – 125,760 125,760 Trade and other liabilities 15 – – 146 146 – – 131 131 Derivative financial instruments 18 – 281 – 281 – – – – Current liabilities – 281 146 427 – – 131 131 Total liabilities – 318 125,906 126,224 – – 125,891 125,891

*** Excluding amounts that relate to non-financial instruments of prepayments.

31 POST-BALANCE SHEET EVENTS On 8 July 2016, the Group announced the successful completion of the CCP-08 pivital multi-dose comparative bioavailability study.

On 15 July 2016, the Group announced that Juno Therapeutics, Inc. had entered into a share purchase agreement with Redox, the licensee of vipadenant (V2006). Redox retains the worldwide license to vipadenant and the clinical and regulatory milestones and commercial royalties due to Vernalis remain unchanged.

On 6 September 2016, the Group announced FDA acceptance of the CCP-07 NDA filing, with a PDUFA date of 20 April 2017. Annual report and accounts 2015/16 Vernalis plc Overview Corporate governance Strategic report Financial statements 91 Directors’ report Additional information

Shareholder information

ANALYSIS OF ORDINARY SHAREHOLDINGS AT 30 JUNE 2016 SHARE PRICE INFORMATION Vernalis’ shares trade on the LSE under the symbol VER. Percentage Percentage of ordinary Number of of total Number of issued share INFORMATION FOR US INVESTORS Shareholder range shareholders shareholders ordinary shares capital The Company’s ordinary shares are represented in the US in the 1–1,000 14,591 96.89 427,0 51 0.08 form of ADSs and are evidenced by ADRs. The ADRs are issued by 1,001–5,000 201 1.34 464,035 0.09 The Bank of New York Mellon. Each ADR is equivalent to two 5,001–50,000 179 1.19 2,987,970 0.57 ordinary shares and trades on the OTC market in the US under 50,001–500,000 50 0.33 8,659,295 1.65 the symbol VNLPY, identified by the CUSIP number 92431M206. 500,001–1,000,000 15 0.10 10,852,935 2.06 1,000,001 and over 23 0.15 502,804,918 95.55 UNSOLICITED TELEPHONE CALLS – BOILER ROOM SCAMS Some of Vernalis’ shareholders have received unsolicited 15,059 100 526,196,204 100 telephone calls or correspondence from organisations or persons which claim or imply that they have some connection Shareholders may obtain information about their shareholding with the Company and which invite shareholders to discuss from Capita and ADR holders may obtain information from The investments. Bank of New York Mellon, at the addresses listed on the inside back cover of this report. These calls are typically from overseas based “brokers” who target UK shareholders either by offering to buy their shares at a SHARE DEALING SERVICE premium or to sell them what often turn out to be worthless, or Capita provide a share dealing service online and by telephone high-risk, shares in UK or overseas investments. The operations to both sell or buy shares. This dealing service allows you to trade are commonly known as “boiler rooms”. Shareholders should be “real time” at a known price which will be given to you when you very wary of any unsolicited advice, offers to buy or sell shares at give your instruction. To deal either online or by telephone you a premium or discount or offers of free reports into the Company. need to provide your surname, shareholder reference number, If you receive any such unsolicited calls: full postcode and date of birth. Your shareholder reference number is on your statement or certificate either as a “folio • obtain the correct name of the person and organisation number” or “investor code”. calling you; • confirm the organisation is genuine and is listed on the For further information on this service to buy and sell shares, Financial Services Register as being authorised to give please contact: www.capitadeal.com (online dealing) or 0371 financial advice. This is a public record of all firms and 664 0445 (telephone dealing, calls are charged at the standard individuals in the financial services industry, which is regulated geographic rate and will vary by provider. Calls outside the UK by the FCA (www.fca.org.uk/firms/systems-reporting/register); will be charged at the applicable international rate, lines are • confirm the organisation is not on the FCA’s list of open weekdays 9.00am to 5.30pm excluding public holidays in unauthorised firms to avoid (www.fca.org.uk/firms/being- England and Wales); from outside the UK +44 (0)371 664 0445. regulated/enforcement/alerts/unauthorised-firms); • either report the incident to the FCA Consumer Helpline (0800 AMALGAMATION OF SHAREHOLDINGS 111 6768) or complete and return the Share Fraud and Boiler If a shareholder receives more than one copy of the annual Room Reporting Form (www.fca.org.uk/consumers/scams/ report and financial statements, it may indicate that multiple investment-scams/share-fraud-and-boiler-room-scams/ accounts in the shareholder’s name appear on the share reporting-form); register. If you wish any accounts to be amalgamated, • visit the FCA website at www.fca.org.uk to find out how share shareholders should contact Capita and ADR holders should fraud is often carried out and what to do to avoid becoming a contact The Bank of New York Mellon, at the addresses listed on victim of a boiler room scam (www.fca.org.uk/consumers/ the inside back cover of this report. scams/investment-scams); and • if the calls persist, hang up. FINANCIAL CALENDAR Interim results 2016/17: February/March 2017 If you deal with an unauthorised firm, should you suffer any loss, Preliminary results 2016/17: September/October 2017 you will not have access to the Financial Ombudsman Service (www.financial-ombudsman.org.uk) or benefit from the Financial Services Compensation Scheme (www.fscs.org.uk). Vernalis plc Annual report and accounts 2015/16 Overview Corporate governance 92 Strategic report Financial statements Directors’ report Additional information

Glossary of abbreviations/definitions

3PL FTE Novartis third-party logistics full-time equivalent used in relation to periods of Novartis Institute for Biomedical Research Inc. and ADR time spent by a number of employees in the Novartis Pharma AG American Depository Receipt provision of services to third parties OTC ADS G&A over-the-counter American Depository Shares general and administrative PDE AGM Genentech phosphodiesterase Annual General Meeting Genentech, Inc. PDUFA AIM Group Prescription Drug User Fee Act Alternative Investment Market Vernalis and its subsidiaries at the date of this PERMP-P document AKP/Asahi permanent product measure of performance, an Asahi Kasei Pharma GSK age adjusted math test GlaxoSmithKline plc AML POC acute myeloid leukaemia GxP proof-of-concept collective term for the regulatory standards of API Pragma Good Manufacturing, Good Laboratory, Good Pragma Pharmaceuticals LLC active pharmaceutical ingredient Distribution, Good Pharmacovigilance, Good Ashfield Clinical and Good Documentation Practices QCA Code Ashfield Market Access LLC Quoted Companies Alliance Corporate HMRC Governance Code for Small and Mid-size Quoted AWE Her Majesty’s Revenue and Customs Companies 2013 Adult Workplace Environment HS&E R&D Capita health, safety and environment research and development Capita Asset Services IAS RDEC Cardinal International Accounting Standard Research and Development Expenditure Credit Cardinal Health SPS IFRS Redox CIII International Financial Reporting Standards as RedoxTherapies, Inc. Schedule III adopted by the EU RPI Chroma IFRS IC Retail Price Index Chroma Therapeutics Limited International Financial Reporting Standards Interpretation Committee Rx CNS Prescription central nervous system IMS IMS Health, Inc. – provider of information, services S&M Company or Vernalis and technology for the healthcare industry (www. Sales and Marketing Vernalis plc, registered in England and Wales under imshealth.com) number 2304992 SAYE IND Save As You Earn COPD investigational new drug chronic obstructive pulmonary disease Servier inVentiv Servier Research Group Corvus inVentiv Commercial Services, LLC Corvus Pharmaceuticals, Inc. Shareholders IST holders of Vernalis plc ordinary shares of 1 pence CSO Investigator Sponsored Trial each in nominal value contract sales organisation Juno SK Chemicals CSR Juno Therapeutics, Inc. SK Chemicals Co., Ltd of Korea corporate social responsibility LIBID SONIA CTA London Interbank Bid Rate Sterling Overnight Index Average clinical trial authorisation Long-Term Incentive Schemes Suir CTI Vernalis 2007 Bonus Long Term Incentive Plan, Suir Pharma Ireland Limited CTI BioPharma Corp. Vernalis 2012 Value Builder Plan and Vernalis 2016 Taisho DEA Executive Incentive Plan Taisho Pharmaceutical Co., Ltd US Drug Enforcement Administration LSE Tris DTRs London Stock Exchange Tris Pharma, Inc. Disclosure and Transparency Rules LTIP TRx EIP Long Term Incentive Plan total prescriptions Executive Incentive Plan Lundbeck UCB EMA Lundbeck A/S UCB SA European Medicines Agency MDS UK Endo myelodysplastic syndrome United Kingdom Endo Pharmaceuticals, Inc. Menarini US or USA EU Menarini International Operations Luxembourg SA United States of America European Union NASDAQ VBP FAAH National Association of Securities Dealers Vernalis 2012 Value Builder Plan fatty acid amide hydrolase Automated Quotations Verona FCA NCE Verona Pharma plc UK Financial Conduct Authority new chemical entity VTI FDA NDA Vernalis Therapeutics, Inc. US Food and Drug Administration new drug application WAC wholesaler acquisition cost Addresses and advisers

Vernalis plc Nominated adviser and broker Registered Office Canaccord Genuity Limited 100 Berkshire Place 88 Wood Street Wharfedale Road London EC2V 7QR Winnersh Berkshire RG41 5RD Tel: +44 (0)20 7523 0000 Fax: +44 (0)20 7523 8134 Tel: +44 (0)118 938 0000 Website: www.canaccordgenuity.com Fax: +44 (0)118 938 0001 Joint broker Registered number 2304992 Domiciled in the United Kingdom Shore Capital Stockbrokers Limited Incorporated in England and Wales Bond Street House 14 Clifford Street Information about the Company may be found on the internet at London W1S 4JU www.vernalis.com Tel: +44 (0)20 7408 4050 Registrar Fax: +44 (0)20 7408 4091 Capita Asset Services Website: www.shorecap.co.uk The Registry 34 Beckenham Road Independent statutory auditors Beckenham PricewaterhouseCoopers LLP Kent BR3 4TU 3 Forbury Place 23 Forbury Road Tel: +44 (0)871 664 0300 – calls cost 12 pence per minute plus Reading your phone company’s access charge, lines are open Berkshire RG1 3JH 9.00am to 5.30pm Monday to Friday Tel: +44 (0)118 959 7111 Tel: (overseas) +44 (0)371 664 0300 Fax: +44 (0)118 938 3020 Fax: +44 (0)1484 600 911 Website: www.pwc.co.uk Email: [email protected] Website: www.capitaassetservices.com Public relations FTI Consulting LLP ADR depositary bank 200 Aldersgate The depositary bank for the Vernalis ADR programme is: Aldersgate Street BNY Mellon Shareowner Services London EC1A 4HD PO Box 30170 College Station, TX 77842-3170 Tel: +44 (0)20 3727 1000 USA Fax: +44 (0)20 3727 1007 Website: www.fticonsulting.com Toll free # for domestic calls: +(00)1-888-BNY-ADRS Number for international calls: +(00)1-201-680-6825 (There is no IVR on this number. Calls will go directly to CSRs) Email: [email protected] Website: www.mybnymdr.com

Solicitors Covington & Burling LLP 265 Strand London WC2R 1BH

Tel: +44 (0)20 7067 2000 Fax: +44 (0)20 7067 2222 Website: www.cov.com Vernalis plc ANNUAL REPORT AND ACCOUNTS 2015/16 REPORT AND ACCOUNTSANNUAL www.vernalis.com 100 BERKSHIRE PLACE WHARFEDALE ROAD WINNERSH BERKSHIRE RG41 5RD Vernalis plc ANNUAL REPORT AND ACCOUNTS 2015/16