Financial Decision Making Of Vectura Pharmaceutical Company

Company Strategy

Discuss about the Financial Decision Making of Vectura Pharmaceutical Company.

About Vectura location

The Vectura is a leading company in Britain pharmaceutical industry and it is based in Chippenham, UK. The company was founded by David Anthony. Besides the UK market, the company also operates in France, Germany and United States of America. It is also listed as a stock exchange company in the London Stock Exchange market (Apte, 2014, p. 45). The Vectura begun in 1997 as a pharmaceutical company. 1n 1999 after acquiring a coordinated drug development Vectura became a drug formulation study Centre. In 2007, Vectura was listed as an investment market. To increase its market share and profitability, Vectura merged with Skyepharma in 2016 under the name Vectura (The merged company was not renamed). The company engages in commercialization, development, and research of therapeutic products.

Besides, development of pharmaceutical products, the company is also a founder of inhaled therapies aimed at treating respiratory ailments also known as airways diseases. Vectura is among the leading companies globally that has expertise in developing, designing and delivering a wide range of products.

With vast capabilities and expertise, the company has the ability to utilize resources, dry powder, solutions, and suspension. Moreover, Vectura has approximately 140 device engineers, and biotechnological and pharmaceutical scientists who engage in the development of a wide range of products. With a deep experience and vertical integrated capability (VIC), Vectura will provide differentiated and unique medicines which meet specific need of both its partners and clients. Vectura will be a strong company in the UK market. Besides over 2000 partners in the supply chain, Vectura has at least 478 workers working on a permanent basis (Inamdar, 2014, p. 567)

The Vectura’s strategy is based on maximizing value, leverage its skills and unique technology. The company aims at changing the lives of patients with airways diseases through enhancing performance and delivery of inhaled products. The objective will be fulfilled by offering quality generic products as an alternative to branded therapies. Airways diseases comprise of illnesses such as COPD, cystic fibrosis, and asthma (Jackhotiya, 2018, p. 154). According to a study by Jackhotiya (2018, p. 154), the number of patients suffering from airways diseases is expected to increase in One hundred million in the next six years. At the moment the market is valued at $40bn and is expected to increase to $56bn by the year 2025.

Products and services

In 2018, the company aims at maintaining its strong cash flow and profitability from in-market sales. This will help to reinvest in new opportunities in the market as a way of wealth maximization and offering solutions to a larger market. Generic drugs and enhanced therapies are new products in the market and Vectura will use this as a competitive advantage to attract more consumers. The company also considers Merger and acquisitions as a strategy to increase their market growth and expansion.  

Vectura is operating within a large airways market and the company’s growth directly depends on the performance of its products in the market. Likewise, Vectura has a potential of increasing its revenue from business research and development. In 2018, the cost of a Research &Development sector of the company is expected to reduce from $ 65 million to $ 55 million. The Expenditure on R&D activities is expected to reduce further from $55 million to $45 million in 2019.

With a focusing on increasing their sales. The company’s sales were $103.7 million and is projected to grow by 10% in 2018. Moreover, reducing the total expenditures is another option of increasing profitability. However, the Capital expenditure is expected to increase from $10 million to $15 million due to the proposed expansions and innovative activities in 2018 (Kohok, 2015, p. 234).

Vectura being a revenue-generating company has a variety of product. The products are categorized into three segments namely oral, inhaled and non-inhaled i.e. ten oral products, two non-inhaled products, and eight inhaled products. The products are marketed and sold by partners of global relationship and diverse portfolio in clinical development. Our key partners are Novartis, Hikma, Mundipharma, Baxter, Sandoz, UCB, GSK, Bayer, Ablynx, Kyorin, Almirall, Chiesi, Janssen, Tianjin, and Dynavax. The company acquires royalties from the selling seven products while revenue is realized from selling Flutiform to Kyorin and Mundipharma companies (Kulkarni, 2017, p. 345).

1. Inhaled products
2. Flutiform

Flutiform is a combination of ICS (inhaled anti-inflammatory and LABA (a bronchodilator) in a pMDI device. The revenue earned from selling the products to Kyorin and Mundipharma companies it is expected to increase to $30m in future. Currently, the product is sold in the UK, but the market is expected to expand into the European countries and the US. At the end of 2017, the sales of Flutiform increased by 11.8% to $206.2 million thus generating $68.5 million revenue and royalty for the company. The revenue increased from destocking reported previously in the supply market. The product is marketed by partners in the ROW and Europe. Upon approval by DCP and MHRA, the launch of enhanced flutiform k-haler will help in the market expansion and increased revenue (Pandey, 2013, p. 432).

Seebri Breezhaler and Ultibro Breezhaler

Currently, Seebri Breezhaler and Ultibro Breezhaler are substantial products launched outside US. In 2017 Novartis reported a total sale of $562M thereafter Vectura earned $17.3M of royalties. These products are supplied by Novartis in ROW and EU.

Ultibro Breezhaler is a dual inhaled bronchodilator (LABA/LAMA) which is meant to relieve patients with COPD. This product has been launched in more than one hundred countries such as Europe, Japan, and China. Net sales increase by 12% annually due to restocking. In 2017, a positive growth of 18% was recorded in translating to 76.3% IMS. The growth was as a result of GOLD changes, FLASH study, and FLAME study, which recommended LABA/LAMA as a reliever of symptomatic patients. In 2017, Ultibro Breezhaler recorded a net sale $151 million.

The company earns royalties from Breo, Anoro and Increase Ellipta products. Vectura partners in the sales of GSK Ellipta products are GSK and Skypharma. Earnings from the product was subject to a $9 million annual Cap in 2017. The product has been established in 35 countries with a reported sales of $3.8 million in 2017 compared to $4.9 million in 2016. The reduction in the revenues arose as a result of restocking in the supply chain (Pritchard, et al., 2018, p. 34).

Breelib is an alternative drug in treating pulmonary HP. The product was established in Europe by Bayer Company in 2017. It was then launched in Germany, Poland, Austria, and Portugal markets. Vectura Company earned approximately $5.0 million in 2017.

In addition to the main focus in airways ailments, the company generates revenue from non-inhaled and oral products. The revenue generated in 2017 was $24.3M in 2017 compared to $23.7M in 2016.

The company enjoys capabilities, expertise, and technology for manufacturing Oral products. Investment in the sector is moderate, but it is Vectura expect that the segment will develop fully within the next three years. The five products established under non-inhaled and oral products that have been manufactured using Geomatrix technologies are coruno, Madopar DR, Diclofenactrationpharmuno sular and ZYFLO CR while RAYOS/Lodotra uses Geoclock chronotechnology (RAO, 2017, p. 53).

EXPAREL

The EXPAREL is an injectable dose that provides post-surgical Analgesia. The company received a 3% share from $ 6.6 million sales in 2017. With new investments and market expansions, Vectura expects sales to grow by $32 million by the year 2025.

Advate

Advate treats haemophilia and is sold by the Baxter Company. Vectura earns royalties from the sales of these products. In 2017, the sale of the product amounted to $1 million. The product is considered to be at its maturity stage and Vectura does not expect additional royalties (Barr RG, 2010, p. 23).

GSK Ellipta products.

Solarize

Solarize is an NSAID that treats actinic keratosis exposed from the sun. Vectura earned royalties amounting to $2.9 million in 2017 compared to $6.7 million in 2016.

Adept

Adept is used when administering surgery to relieve adhesions after abdominal and gynecological surgery. Royalties earned from this product are minimal, however, the company is focusing on R&D as an investment strategy is to increase value drivers of Adept in the market.

The company has employees who are compensated with equity, besides the overall reward strategy. This compensation scheme is measured on a fair value at a period of issue. The compensation also depends on the increase in equity over the period. The company has a pension scheme for its employees in accordance with Swish law (Chen & Sadatsafavi M. , 2015, p. 545). The scheme involves guarantees in accordance with IFRS. It is measured as PV for Estimated cash flows. When the client is curtailed or when the scheme changes, the profit or loss is reconciled in the consolidated income statement. Vectura provides funds to ESOP trusts for the purchase of shares on the market. Employees can also subscribe new issued capital. Shares are subtracted from reserves.

Workers at French manufacturing and Swiss R&D included 74% due to Skyepharma merger. Apart from full-time workers, we also have fixed-term contracts with employees to aid in the delivery and integration, maternity and paternity illness. Remuneration included wages and salaries, aggregate remuneration, social security cost and payment of pension plans. Other payments include director’s remuneration and key personnel payments (Frith, et al., 2017, p. 678).

In the year ended 31^st Dec 2017, the company earned 75% of total revenue from the sale of products (2016) all products were launched in 2000 and generated excess revenue of $2.8 billion one year. The company realized $148 million in 2017 as revenue which is in line with the company expectations as compared to $126.5 million 2016.

With the strength in the market performance, delivery strategy and excellence I expect to maintain revenue in 2018 with R&D investment ranging from $55M to 65M.

Comparison of the annual financial results for 2017 and 2016 showed distorted results due to various factors such as change of accounting period, Skypharma merger and reduced revenue resulting from non-recurring streams. This is information was obtained from audited reports which have been prepared in accordance with IFRS and accounting policies. The financial information is important because it allows evaluation of a company’s performance as well as in decision making.

Breelib

The statements have been drawn on a pro forma basis in order to show the performance of the business. There is low income from non-recurring activities relating to R&D development service and licensing in 2016. Low royalties was also recorded as a result of expiry of several products before the sales (Gold, 2017, p. 134)

Vectura generates revenue from royalties, products supply, device revenue, development, service milestones and signing payments. Underlying revenue improved by 4% showing a strong performance of products in the market. Income from flutiform and Ultibro rose by 5.3% to $86.7% million because of increased stocking, and high sales of oral products and EXPAREL.

Revenue from device sales of product was $74.7 million in 2017 as compared to $72.6 million in 2016. The sales from supplying flutiform to Kyorin and Mundipharma increased from $60.8 million to $63.4 million. This increase is as a result of increased customer demand and destocking (Watz, 2010, p. 45).

Royalties

In 2017, royalties grew by 4.6% from non-inhaled and inhaled products. Total royalties from seebri and Ultibro breezehaler were $17 million in 2017 as compared to $15.6 million in 2016. Seebri and Ultibro breezehaler net sales were $411million in 2017 posting an improvement of 12%. The increase was as a result of normalizing stock. Royalties from flutiform sales grew as a result of increased demand of the product in Japan. In 2017, royalties contributed to $5.1 million revenue as compared to $5 million in 2016. The total sales for Ventura were $206.2 million resulting to 11.8% increase compared to the total sales in 2016. The increase in sales came from an agreement between Vectura and Mundipharma which reduced operating cost between the two companies by 35%. Royalties from Kyorin rose by 18%. Lastly, Moderate contribution was received from AirFlusal Forspiro. In total, Vectura earned $2.3 million royalties in 2017 as compared to $1.8M in 2016.

Sales per product

Sales per region

The company’s operating loss was reported as $ 96.2 million. This is because of the full year impact, charges from impairment and amortization of assets worth $109.7 million from previous sales. EDITDA was more than what was expected to lead to a profit of $25.8million driven by good performance. Good R&D management, cost, and delivery of savings. R&D cost was $60.3million lower than in 2016.there was a reduction in EBITDA of 9million in 2017. The closing cash was $103.7million in 2017 as compared to $92.5million in 2016 (Wedzicha, et al., 2016, p. 67).

Non-inhaled and Oral

Cost of sales rose by $21 million to $57.2 million due to increased device sales and product supply. R$D expenses were $60.3million which was lower than in 2016 due to prioritization of pipeline and R$D initiatives. The total expenditure was $34.2million in 2017 and $27.5million in 2016.

Other operating expenditure was $1.7million compared to $1.4million in 2016. Amortization charge included $109.7million and comprised of $8.7million impairment charge. The Activaero and skypharma products will be amortized in the coming years. Exceptional costs, after merging, was $4.5million in 2017. A total of $1.8million was spent on processing legal documents against GSK concerning Ellipta products and $0.2M for restructuring facilities in France.

Conclusion

From the report 2017 was a year of progress and good financial results have been experienced. In line with board market expectations as well as inhaled products, ultibro breezhaler and flutiform have shown good market growth. As much as we struggle to achieve the best there are challenges being faced by the company and they include failure to secure protection,   commercial limitations by patents or third parties, delays in getting regulatory approval and dependence. However, this will not hinder our growth, we therefore Even though there are delays from VR315 generic program from the US the company has seen value from inhaled generics and therefore need to expand our portfolio for inhaled generics. We also have to enhance our therapy pipeline and deliver our merger plans fully. Therefore, we have refocused our investment plans announced January 2018. This is followed by tight financial discipline, skilled workforce and strong core businesses. We commit to maximizing the value of forecast sale, differentiated technologies and leveraging our capabilities at a lower risk and cost. The company has well-defined priorities and expecting significant flows in 2018. In addition, my strategy is to retain and attract existing and new employees in the company so as to ensure quality work. I will ensure we have a platform for employee interaction between seniors and juniors. Leadership is key to success, therefore, I will ensure a better choice of employing staff with qualification and skills.

References List

Apte, P. G., 2014. International financial Management. USA: TMH publication.

Barr RG , 2010. Percent Emphysema, Airflow Obstruction, and Impaired Left Ventricular Filling. 6 ed. New Engl : J Med.

Chen, W. & Sadatsafavi M. , M., 2015. Risk of cardiovascular comorbidity in patients with chronic obstructive pulmonary disease: a systematic review and meta-analysis.. 3 ed. UK: Lancet Respir Med.

Frith , P., Ashmawi , S. & Krishnamurthy , S., 2017. Assessing direct switch to indacaterol/glycopyrronium from salmeterol/fluticasone in moderate to severe symptomatic COPD patients: APSR: The FLASH study.

Gold, 2017. Global Initiative for Chronic Obstructive Lung Disease (GOLD). Global Strategy for the Diagnosis, Management, and Prevention of COPD. [Online]
Available at: https://goldcopd.org
[Accessed 12 07 2017].

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Inamdar, S. M., 2014. Financial Management. 6th ed. UK: Everest.

Jackhotiya, G. P., 2018. Strategic Financial Management. Everest: Vikas.

Kohok, M. A., 2015. Advanced Financial Management, s.l.: Everest publishing house.

Kulkarni, P. V., 2017. Financial Management:Conceptual Approach. 13th ed. Himalaya: TMH.

Pandey, I. M., 2013. Financial Management. 5th ed. UK: Vikas.

Pritchard, J., RHM Hatley & Denyey, 2018. Therapeutic Delivery. UK: s.n.

RAO, A. P., 2017. Cases and Problems On Financial Management, USA: Everest Publishing House .

Srivastava, R. M., 2013. Financial Management Using Excel Spreadsheet. 2nd ed. UK: Taxman Allied Service.

Watz, H., 2010. Decreasing Cardiac Chamber Sizes and Associated Heart Dysfunction in COPD. 138 ed. UK: Chest.

Wedzicha , J. A., Banerji , D. & Chapman , K. R., 2016. Indacaterol/Glycopyrronium Versus Salmeterol/Fluticasone for COPD Exacerbations. New England Journal of Medicine, 10(1056).

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