Examination of Vectura Group PLC Essay

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Vectura Group PLC is a product development business based in the UK, focusing on the advance of pharmaceutical therapies for the treatment of airways illnesses or airways-related illnesses. The market for such pharmaceutical therapies (inhaled therapies) is growing as it encompasses both COPD (chronic obstructive pulmonary disease) and asthma and is projected to be worth globally, $44 billion. With eight products marketed through partners via increasing international royalty streams as well as a portfolio of drugs currently in clinical development, Vectura has positioned themselves to gain a large market share ($25 billion) in the near future. In addition to clinical development, the company has also licensed some of their drugs to major pharmaceutical companies like Sandoz, UCB, Baxter, Novartis, Ablynx, Janssen Biotech, GlaxoSmithKline, and Tianjin KingYork Group Company.

The company's turnover (m) is 58.0 with a market cap (m) of 718.43. Founded in 1999 and headquartered in Chippenham, UK, it is a potential frontrunner in Pharmaceuticals thanks to its efforts in licensing inhaled therapies for respiratory diseases. While its net income was $5 million for 2015, it stands to increase its profits in the years to come through its March 2014 acquisition of Activaero, a German pharmaceuticals manufacturer. Vectura Group is a constituent of the FTFSE 250 Index marking its size as a relatively medium-sized company with 201-500 employees. Along with licensing its specialties include drug delivery, formulation, pharmaceutical and airway diseases.

While Vectura Group does not source their own raw materials, they work with manufacturers in order to create their products by operating a supply chain where products can be commercialized and validated successfully in contract or client manufacturing facilities. The company's main strategy is to manufacture clinical trials supplies up to a pilot-plant scale. Vectura Group uses contract manufacturing organizations smaller scale and larger scale manufacturing. This includes late-stage development as well.

2.

Information collected from research suggests Vectura Group will outperform most of its competitors in the market.

As of Apr 01, 2016, the consensus forecast amongst 7 polled investment analysts covering Vectura Group PLC advises that the company will outperform the market. This has been the consensus forecast since the sentiment of investment analysts deteriorated on Feb 06, 2015. The previous consensus forecast advised investors to purchase equity in Vectura Group PLC ("Vectura Group PLC, VEC:LSE forecasts - FT.com," 2016).

The outperformance prediction comes from share price forecast among other things. The share price forecast suggests a 22.86% increase with a high prediction of 264.00 to a median of 215.00, up from the previous year estimation of 175.00.

("Vectura Group PLC, VEC:LSE forecasts - FT.com," 2016)

With an average growth rate of 622.62%, the company's reported semiannual earnings for last year are 0.02 per share resulting in positive growth in the next five years.

Along with positive and higher numbers compared to previous performance, Vectura Group has also increased its revenue. Average growth rate predicted for next year is +11.98% and will either remain the same or increase in the next five years. Previous performance shows consistent growth since 2012 although 2012 and 2013 marked similar revenue earnings. Net income growth is also a favorable determiner in predicting the company's 5-year financial trends.

While net income was unfavorable for the last four years since 2011, the growth of net income has steadily risen with 2015 showing a return on assets of 2.41%. This means that the overall progress shows increasing growth in net income in the next five years along with a higher percentage of return on assets, return on investment, and return on equity. The same can be said of the EPS growth as the cash flow per share is 0.0665 and the cash/price flow per share is 26.12. While the cash flow was higher in 2014 than 2015, since 2011, there has only been one year of negative growth, which was in 2013.

3.

Vectura Group PLC is a UK-based company that leases three facilities. The first is a 50,000 square-foot laboratory, manufacturing and office facility located in Chippenham, Wiltshire. Here is where they manufacture IMPs for clinical trials. The Nottingham facility, a 30,000 square-foot office and laboratory resides in Ruddington where and the third facility, a device engineering unit and laboratory is 4,200 square-feet and lies on Cambridge Science Park. These locations indicate they will not expand to other facilities outside of the UK and will encourage international growth via their previous acquisitions.

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Since their initial start-up phase in 1999, they acquired several companies and organizations. Vectura Group acquired the Co-Ordinated Drug Development and the Centre for Drug Formulation Studies. They also acquired in 2007 Innovata plc, a competitor and developer of pulmonary products. 2014 was it the year of its latest acquisition, a German manufacturer named Activaero. The acquisition of a German manufacturer marks the company's desire to expand, albeit slightly, to other parts of Europe. While the company remains fairly small, any future acquisitions as well as growth may signal a desire to expand internationally with physical offices in other countries.

The reasons perhaps they have not attempted to grow towards that direction is due to their main claim on intellectual property. The company licenses their products and has an extensive patent portfolio that includes over 130 patent applications and families of patents. This means there is no need to expand internationally because they can reach their customers worldwide without having to produce or sell in physical locations.

In terms of overall growth, Vectura group plans to launch nine assets through to 2021. By ramping up through new region launches, the company seeks to encourage rapid growth within market portfolio of partnered projects. They have already made progress on AirFluSal and Forspiro and other products like Breezhaler. Through a 55% increase in royalties leading to a 59% revenue growth along with a +212% EBITDA progression, Vectura has exceeded expectations with its 2015 financial year.

4.

Exchange rate risk

In order to see what exchange rate risk Vectura Group PLC has, it is important to understand what exchange rate represents. It represents the number of units of a single currency that exchanges another currency's unit. Two ways help to express exchange rates among two currencies. For example, Vectura uses the British pound and the U.S. dollar. The currency value always is given in relation to another currency. The British pound will be valued in relation to the U.S. dollar and so forth. Another thing to consider is currency appreciation and depreciation where a currency's value will rise or fall in terms of the other. How Vectura Group can avoid currency depreciation especially with fluctuations in various economies is through spot exchange rate or forward exchange rat where trades occur within a short time span of 2 days or up to 180 days into the future.

Vectura Group PLC considers some key financial risks such as foreign exchange risks.

A substantial proportion of the Group's income from collaborative agreements is received in U.S. dollars and euros and expenditure is predominantly incurred in pounds sterling. To the extent that Vectura's foreign currency assets and liabilities are not matched, fluctuations in exchange rates between pounds sterling, the U.S. dollar and the euro may result in realized or unrealized exchange gains and losses on translation of the underlying currency into our presentational and functional currency of pounds sterling (Vectura, 2016).

In order to mitigate any foreign currency issues or known liabilities, the company retains foreign currency revenue receipts on deposit within the suitable currency to offset and decrease the exchange risk on said liabilities. Vectura Group mentioned as of the end of March, 2015, it has adequate U.S. dollar and euro reserves to cover short-term and immediate liabilities in regards to said currencies.

If there exists a considerable net foreign currency liability, the company may consider hedging against it. The act will lessen foreign currency expense. Nevertheless, the basis for such hedging lies on estimates of future revenues and liabilities and cannot eliminate fully potential and future fluctuations in foreign currency exchange. Vectura shows that it has protocols in place to handle exchange rate risk and can identify appropriately the risk exchange rates pose and what they will have to do in the future to help mitigate such risks.

Some of the financial risks also pertain to regulatory approvals. The United States, the United Kingdom, and Europe all highly regulate the international pharmaceutical industry. These regulatory requirements create hurdles that Vectura has to offset as they try to market and test products internationally. This means additional costs and financial losses should the company be unable to handle the regulatory requirements imposed during product development, testing, and marketing phases.

By working with regulatory advisors and seeking advice from various regulatory authorities on things like clinical and pre-clinical programs, Vectura Group hopes to mitigate any setbacks.....

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