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Annual Report 2016

Abzena Annual Report 2016 | Chairman’s statement

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To improve the quality of healthcare by providing innovative discovery, development and manufacturing solutions to enable superior therapeutic options for patients

Our vision


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To be the preferred provider of services and technologies to enable the development and commercialisation of better biopharmaceutical products

Our mission

To actively engage with innovators to accelerate the development process for innovative and differentiated products

To sustain a strong reputation as innovators in the field of biopharmaceutical development


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ContentsOverview 5Strategic overview 6Chairman’s statement 10Chief Executive Officer’s review 12Technology spotlight: Composite Human Antibodies™ 17Technology spotlight: Antibody Drug Conjugates 20Financial Report 23Key performance indicators 26Principal risk and uncertainties 27Directors and Company Secretary 30Senior management team 32Corporate governance report 34

Directors’ report for the year ended 31 March 2016 39Directors’ remuneration report 44Report of the independent Auditors to the members of Abzena plc 50Consolidated Financial Statements 51Notes to the consolidated financial statements 58Glossary 93Company Information 94


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OverviewCorporate highlights• Expansion of Abzena business through two US acquisitions

receiving positive customer response with integration progressing well

• Acquired PacificGMP for $7.0 million (£4.6 million) in September 2015 to provide GMP manufacturing capability within Abzena

• Acquired The Chemistry Research Solution LLC for $15 million (£9 million) in December 2015 to expand antibody drug conjugate (ADC) and chemistry services offering

• Raised £20m (net) by placing new Ordinary Shares with certain existing and new shareholders

• Entered into significant ThioBridge™ ADC technology licence deal with Halozyme Therapeutics (US) with potential to deliver $150 million of licence fees and milestone payments as well as royalties on sales of ThioBridge™ ADC products developed by Halozyme

• Three more ABZENA Inside products entered clinical development, bringing the total portfolio to eleven. TNT009 being developed by True North Therapeutics disclosed as one of the products

• Gilead Sciences moved GS-5745 into a Phase III clinical study in gastric cancer, started enrolling patients in a Phase II/III study in ulcerative colitis and a Phase II study in Crohn’s disease

• Conducted 208 service projects for 113 customers, including 8 contracts with the potential to generate future milestones and/or royalty payments

Financial summary• Revenues up 73.7% to £9.9 million (Year-ended March

2015: £5.7 million)

• Research and Development expenditure up 41% to £4.2 million (Year-ended March 2015: £3.0 million)

• Reported loss after tax of £9.9 million (Year-ended March 2015: £4.7 million)

• Cash and cash equivalents of £13.7 million (Year-ended March 2015: £15.8 million)

Post-period highlight• True North Therapeutics presented positive results from

a Phase I study of TNT009 in patients suffering from cold-agglutinin disease at the Congress of the European Hematology Association

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“We continue to focus on our growth strategy, investing in internal research & development to provide next generation technologies and enhancing our GMP manufacturing capabilities.

ABZENA Inside partners and service customers alike are reacting very positively to our enlarged offering and we expect the number of opportunities to work on programmes across the Group to increase in the next financial year.”

John Burt, CEO

Abzena Annual Report 2016 | Strategic overview

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Biology

Chemistry

Business modelAbzena is a revenue generati ng life sciences group with its headquarters in the UK and two sites in the US. The Group off ers a range of complementary services and technologies for the selecti on, development and manufacture of biopharmaceuti cals. These provide two sources of income for the Group:

• Fee for service income from fi xed price and full ti me equivalent based contracts

• Technology licence revenues from the development and commercialisati on of ABZENA Inside products – products whose properti es have been enhanced with the Group’s proprietary technologies

Abzena’s customers are based all over the world and include the majority of the top 20 biopharmaceuti cal companies by research & development (R&D) investment.

Strategic overview Abzena engages with organisati ons involved in biopharmaceuti cal R&D at any stage of the R&D process from target identi fi cati on through selecti on of lead product candidate to initi ati on of Phase II clinical development. The Group provides a broad range of services from anti body discovery, via a strategic alliance with FairJourney Biologics (Portugal), to manufacture of products for clinical studies. Services are provided on an integrated or standalone basis. Abzena leverages its relati onships with its customers to cross-sell its services and provide its technologies.

Abzena’s highly skilled scienti sts can facilitate the selecti on of a lead candidate by its customers by providing them with a comparison of the potenti al for a range of candidates to produce an unwanted immune response in pati ents. The Group’s proprietary Composite Human Anti body™ and Composite Protein™ technologies can be used to produce products with less risk of producing such an eff ect.

Abzena develops cell lines for the manufacture of therapeuti c anti bodies in Cambridge (UK) and can then transfer them to its site in San Diego (US) where the manufacturing process can be developed and scaled-up. The products manufactured in San Diego can be supplied for testi ng in both preclinical and Phase I and II clinical studies, thereby enabling the customer to progress development of their product with the Abzena Group.

Immunology

Protein engineering*Bioassays

Cell line and process

development

Non-GMP & GMP

manufacturing

ADC characterisati on

Custom synthesis

Novel ADC linkers* & payloads

Bioconjugati on

Small molecule ADC linker* /

payload & conjugati on

Integrated services &

technologies to enable bett er

biopharmaceuti cals

Man

ufac

turin

g

* Includes Abzena Inside technology


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Market opportunity Abzena provides its services and technologies to organisations involved in the development of biopharmaceutical products.

The global biopharmaceutical market was valued at $163bn in 20141. Six of the top ten pharmaceutical products by sales in 2015 were biopharmaceutical products with combined revenues of $57bn2.

Many large pharmaceutical companies are shifting their R&D efforts to biopharmaceuticals which have the potential to address previously untreatable conditions and where innovative products can command a high price. Abzena provides companies developing such products with data to assist them in the selection of the lead product candidate and with technologies to enable them to produce better biopharmaceutical products.

The manufacture of biopharmaceuticals requires specialist equipment and expertise. The manufacture of ADCs is particularly complex because they comprise both an antibody and a highly potent drug which need to be linked together. Their manufacture thus requires facilities and expertise for both biopharmaceutical manufacture and handling highly potent, and therefore hazardous, substances. There are few organisations that have this dual capability in-house and therefore, 70%-80% of ADC manufacture is outsourced3.

The overall market for contract manufacturing of ADCs is likely to exceed $1bn in the coming decade. The Group is positioned to benefit from the growth in this market by being one of the few organisations with the capability and capacity to produce the component parts of ADCs in accordance with GMP standards.

1 McKinsey & Company, 20142 Statista 20163 ADC Contract Manufacturing Market, 2014 – 2024, Roots Analysis, 05-Feb-2015

Abzena has the capability and experience to manufacture antibodies in San Diego and produce new ADCs with enhanced properties in Cambridge (UK) using its proprietary bioconjugation technology, ThioBridge™. The Group can also produce bioconjugation reagents and undertake conjugation using other methods for customers in Bristol (US) where larger scale ThioBridge™ conjugations can also be undertaken.


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StrategyAbzena’s strategy is to increase both its service revenue and the opportunity for revenues from technology licences.

The acquisition of PacificGMP (San Diego) and TCRS (Bristol, US) in September and December 2015, respectively, has positioned the Group for significant growth in service revenues. Manufacturing contracts are generally of a higher value than contracts for other services provided by the Group, due to their size and duration. Revenues from manufacturing operations in the US are therefore expected to become an increasingly large proportion of the Group’s revenues in the future, until royalties from sales of ABZENA Inside products commences.

The Group plans to increase its manufacturing capacity in San Diego and add the capability to produce materials for clinical studies in Bristol (US) during the course of the next 12-18 months. This will further enhance the opportunity to increase revenues from manufacturing.

The acquisition of PacificGMP and TCRS provide Abzena with access to new customers and increased the opportunity for cross-selling the Group’s services and technologies. A number of customers have already started to broaden their engagement with the Group to discuss these services.

Part of Abzena’s growth strategy is to build on its existing expertise and provide services and technologies that

are aligned with new innovative therapies, such as immuno-oncology and rapidly growing segments of the biopharmaceutical market, such as biosimilar antibodies. The Group, therefore, continues to invest in its own R&D to expand its offering to remain competitive and attract new business.

Key areas of focus for internal R&D during the previous year have been:

• Development of a range of bioconjugation linkers and novel highly potent drugs for ADCs to provide new options for our partners to create better products

• Expansion of analytical capability to enable critical product attributes to be identified and, in the case of biosimilar products, compared with other products

• Development of screening assays to support selection of an appropriate formulation for preclinical studies

For the coming year Abzena expects to:

• Enhance its bioconjugation and purification processes to support the Group’s expanding manufacturing capability for ADCs in the US

• Create a dedicated analytical team in Cambridge (UK) which, in addition to current activities, will add support for customers’ preclinical programmes

Abzena Annual Report 2016 | Chief Executive Officer’s review

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Chairman’s statement

Abzena acquired PacificGMP, a contract biomanufacturing company located in San Diego, and The Chemistry Research Solution LLC (TCRS), a specialist contract chemistry and bioconjugation company located in Bristol (US) near Philadelphia, in September and December 2015, respectively. The acquisitions have broadened the Group’s offering and provide more opportunities for cross-selling. Both acquisitions have immediately enhanced the revenues of the Group.

The Group’s financial performance over the year to 31 March 2016 has seen revenues increase by 73.7% to just under £10 million. Losses have widened as a result of exceptional costs incurred as a result of the acquisitions and impairment of certain intangible assets that are no longer material to the Group’s ongoing operations, In addition, increased investment in R&D has delivered improvements to the ThioBridge™ technology and enhanced service offering within the immunology field.

Good progress has been made with the development of ABZENA Inside products - those created by Abzena using its proprietary technologies for its partners to develop. There are now 11 in clinical development, an increase of three from last year.

Gilead Sciences has moved GS-5745 forward in development by starting three new clinical studies. The studies are a Phase III study in gastric cancer, a Phase II/III study in ulcerative colitis and a Phase II study in Crohn’s disease.

Roche is expected to move RG6125 (previously SDP051) into Phase II following its acquisition of Adheron in October 2015 in a deal worth up to $580m. SDP051 was the only product being developed by Adheron Therapeutics.

The Group produced new ABZENA Inside products for a number of organisations. These included a Composite Human Antibody™ with the potential to treat macular degeneration which is being developed by University College London.

Abzena also signed a significant licence deal for ThioBridge™, its novel linker technology for ADCs, with Halozyme Therapeutics. This could potentially provide the Group with up to $150m (£105m) in licence and milestone payments.

The Board is confident that the successful development and commercialisation of ABZENA Inside products by its partners has the potential to generate significant future revenues for Abzena.

Dr Ken Cunningham, Chairman

“Over the last 12 months, Abzena has been delivering on its growth strategy. This transformational year has seen the international expansion of the Group’s operational footprint with the completion of two acquisitions in the US.

The Group is now able to support its partners further through the drug development process and to position its technologies to a broader set of customers.”


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The additional capacity in San Diego and expanded capability in Bristol (US) will enable those customers for which Abzena has produced ADCs to be able to continue to work with the Group as the products move through development to testing in patients.

The Group is anticipating its partners progressing further ABZENA Inside products into clinical development during the coming year. For some of those currently in the clinic, the aim is for them to progress to the next phase of development and thus closer to potential commercialisation.

I would like to welcome our new colleagues in the US to the Abzena Group and thank all our employees, management and board for their hard work. I would also like to thank our shareholders and all other stakeholders for their support during the year. I look forward to seeing the Group continue its growth after the transformational year just ended.

K. Cunningham

Chairman

13 June 2016

The Group is well-positioned to capture a larger share of the outsourced biopharmaceuticals market following the broadening of its offering to include manufacture of therapeutic proteins for Phase I and II clinical studies and its increased capacity to produce ADCs. The Board is confident that synergies with the newly acquired businesses will drive growth in service revenue and increase opportunities to position ABZENA Inside technologies with the Group's customers.

Biopharmaceutical companies are expected to outsource about £2.9 billion ($4.1 billion) of biomanufacturing work by 20191. In the future it is expected that the majority of the Group’s service revenues will be generated from its manufacturing business in the US due to the high value of manufacturing contracts.

To support the growing biopharmaceutical outsourcing market, Abzena intends to increase its capacity for manufacture of biopharmaceutical products and invest in establishing the capability to manufacture ADCs for clinical studies. Work to reconfigure manufacturing suites to create two new cleanrooms is already ongoing in San Diego. The facilities and systems required to produce linker-payload reagents for ADCs in accordance with Good Manufacturing Practice (GMP) have been put in place in Bristol (US) and will be fully operational in the second half of 2016.

1 HighTech Business Decisions, reported in BioPharma Reporter, 24-Apr-15


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Chief Executive Officer's Review

Over the last year, Abzena has achieved the next stage of its transformation and is rapidly becoming the partner of choice for companies involved in the R&D of biopharmaceuticals. The Group has expanded by organic growth and acquisitions, which has given it a footprint on both the East and West coasts of the US and a broader offering for its customers.

In the year to 31 March 2016, the UK business has performed strongly with significantly increased revenue from immunology and bioconjugation in particular. With the strong underlying performance and the contributions from PacificGMP and TCRS since the acquisitions, Abzena generated just under £10 million in consolidated Group revenues. The majority of revenues were generated from the organic growth of the established business, which comprised 28% of the growth of the Group. Growth has been further accelerated by a revenue contribution from the acquired businesses of £2.7 million.

Whilst at this stage of its development Abzena is reporting an operating loss for the year of £8.4 million (before exceptional items), the business is on a trajectory to profitability.

The acquisitions of PacificGMP and TCRS have significantly expanded the scope, scale and reach of Abzena’s offering. The enlarged Group now has a strong platform from which to continue its strategy for growth.

During the next few years we expect to see the validation of our integrated business model of providing specialist services to our partners which translate through technology licences to potential milestones and/or royalties from ABZENA Inside products. We also expect to see continued growth of the service business and the commencement of royalty revenues as ABZENA Inside products currently in later-stage clinical trials reach the market.

With the addition of PacificGMP and TCRS to the Abzena Group, we can now provide an integrated solution for our customers. Combined with the strategic marketing alliance announced with FairJourney Biologics, Abzena has the capability to work with a partner along the journey from antibody discovery to GMP manufacturing. We can therefore help our partners to translate their knowledge of disease biology and therapeutic targets into investigational products for evaluation in clinical studies.

As companies adopt ADC strategies for more antibody targets, Abzena’s ability to provide a “one-stop shop” of chemistry, bioconjugation and manufacturing solutions represents an opportunity to engage with many more companies. Our offering is unique as our partners can also benefit from our proprietary technologies, such as the ThioBridge™ ADC linker, to enable best-in-class ADCs to be developed.

Dr John Burt, CEO

“Abzena is fast becoming a preferred partner for biopharmaceutical services.

The integration of our businesses in the UK and US enables us to offer more services to a broader set of organisations and helps existing customers access the tools to translate their research into clinical products.”


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Positive results from the Phase I study of TNT009 in patients suffering from cold agglutinin disease have been presented at the European Hematology Association Congress. We are pleased to see this translation of the successful relationship between Abzena and True North Therapeutics into a clinical program that has the potential to bring significant benefit to patients with this rare form of autoimmune haemolytic anaemia. True North has indicated that it intends to progress TNT009 into a pivotal clinical trial later this year.

Gilead Sciences is recruiting patients into a Phase III study in gastric cancer, a Phase II/III study in ulcerative colitis and a Phase II study in Crohn’s disease. Furthermore, Gilead Sciences has announced its intention to initiate Phase II studies with GS-5745 in rheumatoid arthritis, chronic obstructive pulmonary disease (COPD) and cystic fibrosis.

Enabling emerging biotech companies to progress their pioneering research towards clinical development is rewarding. However, the real validation of the value of our ABZENA Inside technology comes when partners are acquired by large biopharmaceutical companies. These value realisations for our partners also help de-risk the development of the ABZENA Inside products as the large biopharmaceutical company can

The business

StructureHaving expanded the Abzena Group with the two recent acquisitions, the business now operates in three complementary areas:

• Biology Research Services (immunology, proteinengineering, bioassays and bioanalysis)

• Chemistry Research Services (custom synthesis, ADClinkers, payloads & bioconjugation)

• Manufacturing (cell line development, processdevelopment, GMP manufacturing)

Continued growth of the enlarged business is being driven by the demand from existing and prospective customers and partners to access the Group’s services and technologies. We are also investing in service and technology innovation to maintain our position as an innovator in the field of biopharmaceutical R&D and expanding our capacity across the business.

Even prior to the acquisitions of PacificGMP and TCRS, the majority of Abzena’s business came from the US. Now we have a physical presence on both the East and West coasts of the US, we are able to establish even closer links to the East coast pharmaceutical companies and the West coast biotech hubs. This geographic spread for the business enables local commercial engagement with Abzena’s customers to access Group capabilities.

Our customers have responded very positively to the enlarged Abzena Group by cross-buying the range of services and technologies that we offer from the UK and US. We expect this trend to continue as the benefits of working with a preferred and integrated provider are realised by our customers across the academic, biotech and pharmaceutical company spectrum.

Abzena Inside products

The application of our proprietary technologies for protein engineering and bioconjugation enables us to potentially earn licence fees, milestone payments and/or royalties on ABZENA Inside products created with these technologies as they progress through development and reach the market.

Over the last year, three further Composite Human Antibodies™ have entered clinical development, bringing the number of ABZENA Inside products in clinical development to eleven. These include the previously undisclosed TNT009 which is being developed by True North Therapeutics for the treatment of rare diseases in the fields of haematology, transplantation, and dermatology.

Biol

ogy

Chem

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y

Deve

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ent &

M

anuf

actu

ring

Company A*

Company B*

Company C

Company D

Company E

Company F*

Company G

Company H

Company I*

Company J*

Company K

Company L

Past or current customer Prospective * Abzena Inside Partner

Above: Abzena's customers are increasingly accessing services and technologies across the whole group to support their product development and manufacture.


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Biology ServicesThe Biology Services business comprises immunology, protein engineering and the supporting bioassay and bioanalysis groups. The revenues for the Biology Services business have increased by 27% for the year-ended 31 March 2016.

ImmunologyThe immunology research services include our proprietary EpiScreen™ immunogenicity assessment platform, along with the expertise to develop bespoke assays to address broader immunology issues.

Further investment in immunology research services will enable Abzena to remain at the forefront in this field. The Group is well-positioned to support companies as they continue to harness the power of the human immune system, particularly for the development of novel cancer therapies.

Protein engineeringThe protein engineering services include the humanization and deimmunisation of antibodies and the deimmunisation of therapeutic proteins using our Composite Human Antibody™ and Composite Protein™ technologies.

Applying our Composite Human Antibody™ technology to optimise our partners’ development candidates has resulted in six further agreements. These have the potential to provide future licence revenues should these ABZENA Inside products be progressed through development by our partners to the market.

Manufacturing cell line developmentThe acquisition of PacificGMP enables Abzena to provide an integrated offering for manufacturing cell line development, process development and GMP manufacturing. Prior to the acquisition, the cell lines developed by Abzena had to be transferred to another manufacturer but now Abzena can work with its customers through the development process to supply products for both preclinical and clinical studies.

provide significant development funding and the expertise necessary for successful development, registration and commercialisation of the products.

Such an event happened in October 2015, when Roche acquired Adheron Therapeutics for up to $580 million. This acquisition is expected to lead to the progression of Adheron’s sole asset, SDP051 (now designated as RG6125) to Phase II clinical development for rheumatoid arthritis.

Over the coming year, we expect to see further progression of ABZENA Inside products along the clinical pathway and data emerging from Phase I and Phase II trials for several of them. We also anticipate further ABZENA Inside products entering clinical development to further expand the portfolio, which was five at the time of Abzena’s IPO in July 2014 and is eleven today.

Beyond the Composite Human Antibodies™ in the ABZENA Inside portfolio, Abzena also announced a significant licence agreement with Halozyme Therapeutics for its proprietary ThioBridge™ ADC linker technology. The deal provides Abzena with the potential to earn up to $150 million of licence fees and milestones plus royalties on the sale of ADCs addressing up to three cancer targets. Data presented by Halozyme at the American Association of Cancer Research conference in 2016 demonstrated the advantage of ThioBridge™ ADCs.


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and the analysis of the antibodies and other proteins produced. These services are provided by PacificGMP in San Diego.

The addition of GMP biomanufacturing capability has provided the opportunity for Abzena’s customers to expand their engagement with the Group from cell line development through to manufacturing for clinical trials. The acquisition of PacificGMP has also established a presence for Abzena on the US West coast in one of the world’s leading biotech hubs, close to many of the Group’s most innovative partners.

PacificGMP’s manufacturing platform is built on single-use disposable technologies that provide efficient, flexible utilisation of space and equipment with reduced infrastructure requirements compared to traditional biomanufacturing facilities.

Since the integration of PacificGMP into Abzena, further service agreements have been secured with returning customers. There has been significant interest in our manufacturing capability from customers from other areas of the business, supporting the strong positioning of manufacture as part of the Abzena business.

OperationsWith over 69,000 sq ft (6,400 m2) of laboratories, manufacturing suites and offices across the UK and US and over 180 employees, Abzena has the scale and breadth of operations to be a preferred partner for organisations engaged in biopharmaceutical R&D. By the end of 2016, we expect to have consolidated all UK operations into a new building on the Babraham Research Campus, Cambridge (UK). This will mean the closure of the small chemistry facility that the Group retained on the University of Warwick Science Park after it acquired Warwick Effect Polymers Limited in January 2012.

We are expanding the GMP manufacturing capacity in San Diego which, with associated development laboratories, offices and available expansion, provide 27,200 sq ft (2,500 m2) of space. Work is ongoing to establish two further manufacturing clean rooms which are expected to be available from Q3 2016.

The facility in Bristol (US) is also being expanded to provide further chemistry and bioconjugation laboratories to support the growing chemistry services business. The first phase of the expansion, establishing GMP manufacture of ADC reagents, is due to be complete in Q3 2016.

During the year, the cell line development business has performed steadily and demand for cell line development is increasing as a result of the integrated offering with GMP manufacturing following the acquisition of PacificGMP.

Chemistry Services

The Chemistry Services business comprises custom synthesis, ADC linkers, payloads and bioconjugation using ThioBridge™ and other technologies. The revenues for this group have increased by 66% (an increase of £0.5 million) for the year-ended 31 March 2016 on a like-for-like basis.

Abzena’s investment in the development of ThioBridge™ and in building its bioconjugation expertise has been rewarded with the licence agreement with Halozyme Therapeutics announced in January 2016.

The acquisition of TCRS complements Abzena’s established bioconjugation capabilities and enhances the offering for ADCs. TCRS brings a strong reputation for the quality of its chemistry services, especially in the ADC field.

The addition of TCRS to Abzena’s existing customer engagement provides a deeper penetration into the ADC market and allows the Group to cross-sell its GMP manufacturing capability for ADC linkers and linker-payload reagents.

The acquisition of TCRS has enabled the Group to provide custom synthesis and added further capacity to develop novel payloads for the next generation of ADCs.

The chemistry business, both in the UK and US, is seeing significant engagement with major pharmaceutical and biotech companies, providing a good opportunity to position Abzena’s ThioBridge™ technology for adoption by these companies.

Manufacturing ServicesThe Group’s Manufacturing Services includes process development, GMP manufacture for Phase I and II clinical trials


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IntegrationIntegration of PacificGMP and TCRS into Abzena has significantly increased the team of scientists, business professionals and administrative staff that are committed to enabling the development of better biopharmaceuticals.

Campbell Bunce (Biology Services), Naresh Jain (Chemistry Services) and Leigh Pierce (Manufacturing) have joined Abzena’s executive management team during the last year, adding to the already strong team that will guide the development of the business over the coming years.

Current trading and outlookThe year-ended 31 March 2016 has been one of change and development for the Group. The underlying services business has grown well, winning new customers and the portfolio of ABZENA Inside products has expanded and matured. The acquisition of PacificGMP and TCRS has given the Group a footprint on both coasts of the US. The integration of both companies is nearing completion and we are already seeing the benefits of the acquisitions.

Going forward, the businesses within the Abzena Group will all trade as Abzena, demonstrating our commitment to present a unified offering to our customers to enable the development and manufacture of better biopharmaceuticals.

The benefits of the integrated Abzena Group are already evident. At this early stage of the current financial year contracted business is already in excess of £9 million, with a strong pipeline of further business opportunities being pursued across all areas of the Group. The Board of Directors expects reported Group revenues for the coming year to be significantly higher than the level reported this year. The past year has been a pivotal one for Abzena where we have established the Group as a preferred partner for biopharmaceutical services through acquisitions and organic growth. The continued progression of ABZENA Inside products into the clinic demonstrates the value that we can add to the quality of healthcare by providing superior therapeutic options for patients. We look forward to this coming year with confidence.

J. BurtChief Executive Officer13 June 2016

Abzena Annual Report 2016 | Technology spotlight

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Products in clinical developmentAs of 13 June 2016, Abzena’s partners had progressed 11 Composite Human Anti bodies™ into clinical development. The most advanced is GS-5745 (Gilead Sciences) which is being evaluated in a Phase III study for gastric cancer. Three products are in Phase II, with at least one other expected to enter Phase II in the next 12 months, and seven are in Phase I.

The Composite Human Anti bodies™ are being developed for a wide range of indicati ons with the three most advanced products being studied in two or more indicati ons in parallel. Evaluati on in more than one indicati on provides some miti gati on against the risk of the product failing to meet its clinical endpoints in any parti cular pati ent populati on.

Technology Spotlight:Composite Human Anti bodies™The Group’s Composite Human Anti body™ protein engineering technology combines both deimmunisati on and humanizati on techniques to create new anti bodies – ABZENA Inside products.

Company & product candidate Target Potenti al indicati ons Phase I Phase II Phase III

Gilead Sciences – GS-5745 MMP-9 Gastric cancer, Crohn’s disease, ulcerati ve coliti s, RA, COPD

Gilead Sciences – Simtuzumab LOXL2 Liver fi brosis (including NASH) & IPF

Opsona Therapeuti cs – OPN-305 TLR2 Delayed renal graft functi on & myelodysplasti c syndrome

Vascular Pharmaceuti cals – VPI-2690B

αVβ3 receptor Diabeti c nephropathy

True North – TNT009 C1s Cold aggluti nin disease & other anti body-driven diseases

NKT Therapeuti cs – NKTT120 iNKT cells Sickle cell disease

Adheron Therapeuti cs – SDP 051 Cadherin 11 RA, fi broti c conditi ons, cancer

Therapure Innovati ons – TBI 304H CD163 Chemotherapy-induced anaemia

3 Undisclosed companies Undisclosed Undisclosed

NASH = Non-alcoholic steatohepati ti s; IPF = idiopathic pulmonary fi brosis; COPD = chronic obstructi ve pulmonary disease; RA = rheumatoid arthriti s

Corr

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The EMA’s guidance for therapeutic antibodies indicates that the risk assessment should include specific product-related factors, such as whether the protein has intrinsic immunogenic motifs (e.g. T cell epitopes), the presence of aggregates, and the influence of the formulation.

Abzena has developed a suite of technologies to assess the risk of immunogenicity of therapeutic products: The EpiScreen™ T cell assay can be used to identify T cell epitopes within a therapeutic protein and assess its potential to produce an immune response in patients. This assay can also be used to determine the effects of protein purity, the presence of aggregates and the impact of the product formulation on immunogenicity. Abzena has other EpiScreen™ assays to determine the specific nature of the immune response observed. These and other types of assays provided by Abzena can be used as part of a risk mitigation strategy in order to satisfy the requirements of the FDA and EMA.

Reducing the risk of an immune responseOne outcome of the risk assessment may be that a decision is made to reduce the potential for an unwanted immunogenic response by re-engineering the protein to remove the T cell epitopes that drive immunogenicity. Abzena has two proprietary platforms, Composite Human Antibodies™ and Composite Proteins™, which achieve this. The former combines multiple sequence segments derived from unrelated human antibodies and identified from a database, owned by Abzena, to generate humanized and deimmunised antibodies devoid of T cell epitopes. The sequences are selected to ensure that the affinity, specificity and productivity of the therapeutic antibody is retained. A similar process of replacing T cell epitopes is carried out to create Composite Proteins™. The reduction in risk of immunogenicity of Composite Human Antibodies™ and Composite Proteins™ is confirmed using EpiScreen™.

Assessing the risk of an immune responseAn unwanted immune response can be a significant problem for the treatment of patients with therapeutic proteins, including antibodies. Many factors can contribute to the development of anti-drug antibodies (ADAs), including those related to the patient, disease, route of administration or the impurities in the products. Regardless of the contributing factors, central to the process of eliciting an immune response is the presence of particular sequences of amino acids within the protein, referred to as CD4+ T cell epitopes, which drive the development of ADAs that bind to the therapeutic protein products.

The consequences of an unwanted immune response can range from the transient appearance of ADAs without any clinical significance to the development of severe life-threatening conditions such as anaphylaxis. The therapeutic product may become less effective if the ADAs bind to the active site of the protein. ADAs that are produced against a product that is based on a protein that naturally exists in the body can potentially bind to this protein and stop it functioning, with potentially catastrophic consequences.

The medicine regulators responsible for approving new drugs in the US (the Food & Drug Administration, FDA) and Europe (the European Medicines Agency, EMA) have produced guidelines to indicate how companies should systematically identify the risks of an unwanted immune response to their drugs and then develop a risk mitigation strategy. As mentioned above, numerous factors can contribute to the generation of an immune response and these need to be considered as part of the risk assessment.


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Photo source – Babraham Institute

Case study:

Rheumatoid arthritis - the clinical consequences of an immune response in patients

Rheumatoid arthritis is a chronic progressive disease causing inflammation in the joints and resulting in painful deformity and immobility, especially in the fingers, wrists, feet, and ankles. It is currently incurable and is estimated to affect approximately 4.9 million people across the major markets. Rheumatoid arthritis leads to substantial economic and quality of life impairments for patients, at least 50% of whom are unable to remain in full-time employment within 10 years of onset of the disease. The global market for treatments for rheumatoid arthritis is expected to be worth just over $19 billion in 20201.

There are two main types of treatment for rheumatoid arthritis: (i) products that primarily ease the symptoms of the disease, such as pain; and (ii) products that slow or stop the course of the disease. The latter are referred to as disease-modifying antirheumatic drugs (DMARDs) and include therapeutic proteins, which are referred to as biological response modifiers.

The biological response modifiers include the antibodies adalimumab (Humira®), infliximab (Remicade®), golimumab (Simponi®), and rituximab (Rituxan®). The first three of these bind to TNF-alpha and prevent it activating the inflammatory cells that cause the damage in rheumatoid arthritis. Anti-TNF therapy was pioneered and developed by Arthritis Research UK and has

1 Rheumatoid Arthritis Market to 2020, GBI Research, Jan-2015

transformed the treatment of inflammatory arthritis for millions of people across the globe2.

Anti-TNF therapies are initially effective in about 60-70% of patients but after 1 year only about 40% are adequately treated (Moss et al, 2013). The most likely reason for this reduction in efficacy is the development of neutralising ADAs that bind to the product and prevent it binding to TNF-alpha. ADA binding can also lead to the product being eliminated from the body more quickly even if the ADA is not neutralising. An analysis of patients being treated with adalimumab and infliximab found that 31.2% and 17.4%, respectively, had developed ADAs (Moot et al, 2015). The presence of ADAs has been associated with a reduction in efficacy for both products which usually leads to the discontinuation of treatment.

Development of better treatments for rheumatoid arthritisThere is a need for new treatments for rheumatoid arthritis and two of the antibodies produced by Abzena for its partners are being developed for this indication. These are GS-5745, which is being developed by Gilead Sciences and RG6125 (previously SDP051) which is being developed by Roche. Roche acquired Adheron Therapeutics, the company that was developing the product, in October 2015. Adheron Therapeutics had previously completed a Phase I study in healthy subjects which showed that the product was safe and well tolerated at doses up to 10 mg/kg with no evidence of significant side effects.

GS-5745 and RG6125 have different and novel mechanisms of action: GS-5745 is a selective inhibitor of MMP-9, an enzyme that is implicated in various inflammatory diseases; and RG6125 which binds cadherin-11. Cadherin-11 has a role in promoting the invasion of cells into the synovial joint which eventually form a tissue mass called the pannus which destroys the cartilage (Kiener et al, 2009). Both Gilead Sciences and Roche have indicated that they will start Phase II clinical studies in rheumatoid arthritis with these antibodies in the latter part of 2016.

2 Arthritis Today, 15-Nov-10


20

proteins that target cancer cells. Its technology is also suitable for conjugation of two different drugs to a bispecific antibody.Currently only two ADCs have received market approval: brentuximab vedotin (Adcetris®) for Hodgkin’s lymphoma and anaplastic large cell lymphoma and ado-trastuzumab emtansine (Kadcyla®) for breast cancer that has spread to other parts of the body (metastatic breast cancer). Before receiving Kadcyla®, patients have to be screened to confirm that their tumours have the HER2 antigen to which the antibody binds.

There are about 50 ADCs in development, the vast majority for the treatment of cancers. Seattle Genetics is undertaking a clinical study with Adcetris® in systemic lupus erythematosus, a chronic autoimmune rheumatic disease and there is the potential for other ADCs to be used in autoimmune diseases. It is expected that around 7-10 new ADCs will be launched over the next 10 years 1. The ADC market is growing and is expected to reach $12.7 billion by 20202.

1 ADC Review, 17-Aug-152 Global Drug Antibody Drug Outlook 2020, Research and Markets, Jul-2015.

The Group’s proprietary bioconjugation technologies provide more stable and homogeneous ADCs – ABZENA Inside products – which are easier to characterise and manufacture.

The market for ADCsAntibody drug conjugates comprise an antibody linked to a potent drug that is targeted to its site of action by the antibody binding to receptors (antigens) on cells in the diseased tissue. To date most ADCs in development have been targeted to tumours to deliver very toxic drugs to kill the cancer cells. The advantage of targeting very potent drugs to the site of disease is that they are much less likely to cause side effects by damaging other tissues.

The majority of ADCs use whole antibodies as the targeting moiety but antibody fragments and other small protein scaffolds are also being developed to target drugs to cancer cells. These may be better able to penetrate solid tumours than whole antibodies. Abzena has a range of bioconjugation technologies which can specifically link drugs to sites on almost any type of antibody and protein. The Group has worked with customers to conjugate drugs to antibody fragments and

Technology spotlight:Antibody Drug Conjugates


21

The development of better ADCsMost of the ADCs currently in development are produced using conjugation technologies that produce a product which is a mixture of antibodies with different numbers of drugs attached. This drug antibody ratio (DAR) can vary from zero to 12 but the ideal range for optimal pharmacokinetics, efficacy and safety is considered to be a DAR of three to four. Antibody drug conjugates with higher DARs are cleared more quickly from the body (and are therefore less effective) and those with low DAR are simply less effective. Antibodies with no drug attached (DAR 0) can bind to the cancer cell and thereby block ADCs with drug attached from binding thereby reducing efficacy.

Abzena’s main bioconjugation technology, ThioBridge™, has been developed to produce an ADC with a DAR4. The conjugation process links the drug to four reduced disulfide bonds in the antibody and as the bond is rebridged during the conjugation reaction there are only four sites to which drug can be attached. This leads to a more homogeneous product which is simpler to manufacture and characterise.

Abzena has worked with an increasing number of companies in the last year and produced more than 100 different antibody or protein drug conjugates for its partners. They included different drug payloads and linker variants for companies to evaluate. Abzena has helped companies select the best product to take forward into development. One of these companies is Halozyme Therapeutics, a clinical-stage biotechnology company based in San Diego. Abzena entered into a licence agreement with Halozyme Therapeutics for its ThioBridge™ ADC linker technology in January 2016.

Case study: HalozymeHalozyme presented a poster showing data on its novel anti-EGFR ADC (HTI-1511) at the American Association for Cancer Research annual conference, which took place in New Orleans from 17-20 April 2016 (abstract #1217). Abzena produced an ADC which was more than 99% DAR4 with Halozyme’s antibody and the frequently used drug payload, monomethyl auristatin E (MMAE). The ADC was effective in two preclinical models of cancer (triple negative breast cancer and colorectal cancer) with complete regression of the tumours at the highest dose used. It was well-tolerated in a preclinical safety study and was also shown to have good stability as unlike the control ADC, which was conjugated using maleimide chemistry, it did not degrade in the circulation. HTI-1511 was more potent than the control ADC in both preclinical cancer models. Halozyme and Abzena are working together to progress HTI-1511 into clinical development.

Preclinical model of non-small cell lung cancer (EGFR+, KRASpG12C) PDx

Preclinical model of cholangiocarcinoma (EGFR+, KRASpG12A) PDx

Huang.L et al. (2016). AACR Annual Meeting, Poster #1472


22

Manufacture of ADCsAs ADCs comprise multiple components (antibody, linker and drug payload) they are more challenging to manufacture than many other types of therapeutic products and require expertise in both the manufacture of biopharmaceutical products and small molecules. In addition, because of the high potency and thus toxicity of the drugs used, their manufacture has to be in a contained space using specialist equipment to prevent inhalation and skin contact by employees and contamination of the environment. There are very few contract manufacturing organisations that can manufacture both the antibodies and the ADCs and thus companies developing ADCs often have the additional complexity of having to use different CMOs to have their ADCs produced.

Abzena can produce antibodies for use in clinical studies at its site in San Diego and the conjugation reagent, with the payload attached, and the ADC at its site in Bristol (US). The strategic acquisitions of PacificGMP and TCRS in September and December 2015, respectively, has enabled the Group to support its ADC partners further along the development pathway. The facility in Bristol (US) is being expanded and its capability enhanced so that the Group will be able to provide cytotoxic payloads and conjugation reagents manufactured in accordance with GMP which can then be used to produce ADCs for clinical development by the end of 2017.

Antibody drug conjugates can currently be produced in either Cambridge (UK) or Bristol (US) for partners’ preclinical studies.

In addition to producing ADCs using the Group’s proprietary technologies ADCs are produced in Bristol (US) using a customer’s own technology or non-proprietary technologies. Abzena has experience of a wide range of bioconjugation methods and can quickly provide a panel of different ADCs, including those produced using ThioBridge™, for companies to evaluate. The Group can support the evaluation by undertaking assays and managing preclinical studies for companies. Once a lead ADC has been selected by a company, Abzena can provide further material for preclinical development and ongoing analytical services.

Abzena Annual Report 2016 | Financial report

23

Financial report The following section should be read in conjunction with the Financial Statements and related notes included in this Annual Report.

Overview and Summary

During the year the businesses performed solidly, growing revenue by 73.7% year on year. The UK based businesses performed well increasing revenues by 28% to £7.2 million demonstrating the strength of their offering. Two acquisitions in the year broadening the range of customer services together with the further equity raise increased the net assets of the Group by £13 million to £41 million. The Group has cash reserves of £13.7 million at the end of the year, to invest in the acquisitions and further establishing the business opportunities.

Group revenues increased by £4.2 million 73.7% to £9.9 million (2015: £5.7 million) for the full year as a result of continued organic growth from the existing businesses and the contribution from the two acquisitions. R&D investment to broaden and enhance the services and technologies offered by the Group increased 41% to £4.2 million (2015: £3.0 million) and is expected to drive future growth in service and licence revenues. Non-recurring exceptional costs of £2.5 million were incurred during the year. These were acquisition expenses of £1.5 million and the write off of intangible assets associated with the rebranding of the Group and with regards to the closure of the business of Warwick Effect Polymers, a subsidiary purchased in 2012. The adjusted consolidated operating loss after taking into account the non-recurring exceptional items for the Group for the year-ended 31 March 2016 was £7.2 million, compared with £4.7 million in the previous year.

Summary Consolidated Statement of Comprehensive Income Year-ended Year-ended

31 March

2016 31 March

2015 £’000 £’000 Revenue 9,854 5,667 Cost of sales (5,319) (2,532)

Gross profit 4,535 3,135

Other operating income 367 189 R&D costs (4,216) (2,989) Expenses - Administration (9,047) (5,634) - Exceptional items (2,542) –

Operating loss (10,903) (5,299)

Net Finance income 244 79

Loss before income tax (10,659) (5,220)

Income tax 961 498

Loss for the year (9,698) (4,722)

Adjusted loss (before exceptional items)

(7,156) (4,722)

Financial report | Abzena Annual Report 2016

24

Revenues Total revenues for the year-ended 31 March 2016 were £9.9 million (2015: £5.7 million). Total Revenues include both service and licences revenues. Year-ended Year-ended

31 March

2016 31 March

2015 £’000 £’000 Biology Research Services 5,299 4,158 Chemistry Research Services 2,174 657 GMP manufacturing 2,096 594 Licence revenue 285 258 Total 9,854 5,667

The service revenues of PacificGMP and TCRS from acquisition at 11 September 2015 and 11 December 2015 respectively are included in the analysis above. The established UK businesses of PolyTherics and Antitope maintained the revenue growth seen in prior years in the second half of the year showing 28% annual growth of £1.5 million (2015: £0.9million) over the first half of the year. Modest licence revenue includes amounts received under licences to the technologies of both Antitope Limited and PolyTherics Limited, in both the current and previous financial years. Key to the ongoing success of the Group and providing an indicator on the view of the services provided and its technology, is the number of repeat customers buying additional services from the Group. The Group has historically retained a high level of repeat customers particularly for the Episcreen™ immunogenicity assessment studies. Revenue generated from repeat customers for the year-ended 31 March 2016 was £5.2 million, 52% of the total revenue, compared with £3.8 million, 67% of the total revenue, in the prior year. The Group does not rely on just a few large partners and was working with 113 partners during the year-ended March 2016 (2015: 99 customers). The top 10 partners represent £4.2 million in revenue (43%), compared with the prior period where the top 10 represented £2.4 million (43%) demonstrating the spread of the customer base.

Gross Profit Cost of sales rose to £5.3 million (2015: £2.5 million) due to the revenue increase of the established UK businesses of PolyTherics and Antitope which generated 50% gross margin on sales; and due to US acquisitions during the financial year and the gross profit margin generated from service revenues is 44% (2015: 53%).

Operating income and expenditure Total R&D costs were £4.2 million (2015: £3.0 million). The movement in R&D costs mainly relates to increased material, reagent and laboratory costs of £0.8 million as the Group took some of the technologies into external trials. Administrative expenses rose to £9.0 million (2015: £5.6 million). The principal movements were an increase in staff, property and travel costs of £2.2 million increasing as a result of the acquisition of the subsidiary undertakings in the year. The Group does not anticipate a significant increase in the run rate of the combined R&D and administrative expenses for the coming year. Depreciation and amortisation costs at £1.4 million increased by £0.6 million year on year as a result of increased capital expenditure in earlier years and amortisation of intangibles arising on consolidation. The Group reported a pre-tax loss of £10.7 million (2015: £5.2 million). Basic loss per share was 9p for the year-ended 31 March 2016 (2015: loss per share 7p). This movement is the result of combined effect of the fund-raising which took place in December 2015, increasing the average share capital and increased annual losses. See note 7 for further details.

Taxation The Group is entitled to receive R&D tax credits on its UK operations and as such the Group does not pay UK corporation tax. The R&D tax credit is first used to offset any tax payable in the year and any excess is surrendered for a repayable tax credit. The Group received income from taxation in the year-ended March 2016 amounting to £0.8 million (2015: £0.5 million). The Group also receives a R&D Expenditure Credit (RDEC). This is shown within Other Operating Income, in both the current and the prior year. The US operations did not incur a tax charge during the year.

Abzena Annual Report 2016 | Financial report 25

Cash and cash equivalents The Group ended the year with £13.7 million (2015: £15.8 million) in cash or cash equivalents. The movement arises as a result of the funding of working capital and the acquisition of PacificGMP and TCRS in the year-ended March 2016, off-set by the net funds raised from the share placing which resulted in further cash raised for the Group of £20 million after fund raising costs.

The Group invests surplus cash to working capital requirements in short-term deposits, across a number of banks with a focus on capital preservation rather than interest earned. The Group has no foreign currency deposits, other than foreign currency held in instant access accounts for working capital purposes.

Financial Position The Group made an investment in capital equipment during the year-ended 31 March 2016, with additions of short-term leasehold property and fixtures, fittings and equipment totalling £2.0 million (2015: £1.1 million). This investment has been made to enable the Group to continue to provide a wide range of services to its customers and to support R&D into broadening the application of the technologies of the Group.

Total current liabilities increased to £5.9 million (2015: £2.4 million). These arise largely as a result of deferred income for projects already invoiced (£1.3 million) and the timing of year-end invoices (£1.0 million) for projects under way at year-end. The increase is due to the acquisition of TCRS and PacificGMP.

Provisions of £0.4 million (2015: £nil) are included in total current liabilities. It is the policy of the Group to settle all trade payables, within the agreed payment terms, wherever possible, whilst adhering to documented approval policies.

The total current assets of the Group increased by £1.2 million to £22.1 million (2015: £20.9 million). The most significant increases were an increase in accrued income of £1.2 million and an increase in trade receivables of £0.9 million as a result of the increased turnover of the Group.

J. SmithChief Financial Officer13 June 2016

Key performance indicators | Abzena Annual Report 2016

26

Key performance indicators The Group acquired PacificGMP in 11 September 2015 and TCRS in 11 December 2015. The results of these entities are included in the KPIs given below from their respective purchase dates. Further information on these acquisitions is included in note 1 Accounting policies and note 23 Business combinations.

1. Revenue Strategic objective: To optimise revenue. Key performance indicator: Revenue of £9.9 million (Year-ended 31 March 2015: £5.7 million). Definition: Total revenue as reported in the Statement of Comprehensive Income.

2. Cash Strategic objective: To carefully manage and preserve cash and cash equivalents, whilst pursuing business objectives, to ensure that the Group has sufficient liquid assets to meet business needs. Key performance indicator: Cash £13.7 million (2015: £15.8 million) Definition: Total cash and cash equivalents as reported in the Statement of Financial Position.

3. Number of clinical stage programmes derived from or incorporating Group technologies

Strategic Objective: To optimise long term value arising from technology licence agreements Key Performance Indicator: The number of products created using the Group’s technologies and being developed by the Group’s partners, which could potentially lead to future licence revenues being paid to the Group. There were eleven as at 31 March 2016 (2015: eight). Definition: The number of products for which clinical development has been initiated, as at each respective reporting date, where the Group has the potential to receive future licence revenues.

4. Research and development Strategic Objective: A current investment in R&D to generate future revenue for the Group Key Performance Indicator: R&D of £4.2 million (For the year-ended 31 March 2015: £3.0 million) Definition: Costs including labour, materials and other expenditure incurred by the Group in respect of R&D.

3.85.7

9.7

2014 2015 2016

Revenue £m

2.8

15.813.7

2014 2015 2016

Cash £m

5

8

11

2014 2015 2016

Clinical stage programmes

2.0

3.0

4.2

2014 2015 2016

Research and development £m

Abzena Annual Report 2016 | Principal risks and uncertainties

27

Principal risks and uncertainties The Board has overall responsibility for the Group’s system of risk management. The management of the business and the execution of the Group’s strategy are subject to a number of risks. Risks are formally reviewed by the Board and appropriate processes and controls are put in place to monitor and mitigate them. If more than one event occurs, it is possible that the overall effect of such events would compound the possible adverse effects on the Group. The key business risks affecting the Group are set out below, any number of which could have a material adverse effect on the Group, its financial condition, results of operations and future prospects.

Risk management The Group’s policies, procedures and practices used to identify, monitor and control a variety of risks may not be effective. The Group’s risk management methods rely on a combination of internally developed technical controls, industry standard practices, observation of historical market behaviour and human supervision. The Board reviews the Group's risks formally at least once a year by reference to a summary of the risk register and management appraisal of pertinent risks.

Legislation and compliance Changes in legislation and government policy may occur in the UK, European Union and US that could have an adverse effect on the Group’s business, taxation and/or the position of its Shareholders and may reduce returns to Shareholders. A change in UK Government, European Union or any US federal or state legislation or policy could adversely affect the business sector in which the Group operates. The Group is an active member of the UK bioscience community and a member of the BioIndustry Association (BIA), One Nucleus and the OBN, groups which all play an active role in promoting the interests of bioscience to a wider community, including government. If the UK ceases to be a member nation of the European Union, there could be a significant negative impact on the Group’s ability to provide its services to European customers. Changes in law and regulations following an exit by the UK from the EU would have an unpredictable effect on the Group’s business

Commercially successful products risk A substantial element of the value of the Group arises from the portfolio of licences and contracts which contain provisions for future payments to the Group as the customers continue the development of their products. Continued development of viable new products, and their

successful registration and marketing, is key to the success of the Group and, although this is carried out by the Group’s partners, is a costly and lengthy process and subject to technical and economic and business risks. The rationale for the customers continuing their product development may indicate potential value to the Group; however there is no guarantee that a product will be successful and thereby generate future licence revenues to the Group. However the Group has licences with a variety of external customers across a range of disease indications and products. This mitigates the risk in this area, as the Group is not dependent upon a single customer’s product candidate being commercially successful.

Competition from other service providers in the sector Competition from other services providers in the sector, may impact upon the financial performance of the Group. The Board and Executive management team are constantly monitoring the business environment and investing in development of improvements to existing services and technologies, as well as new service and technology capability.

Regulatory and health, safety & environment A number of the Group’s activities are subject to various statutory, regulatory, health & safety and environmental regimes and many activities require specific approvals, licences and/or authorisation from designated bodies in order to be performed lawfully. Failure of the Group to comply with the requirements of such regulatory, health & safety and environmental regimes and/or maintain such approvals, licences and/or authorisations may result in the need to cease certain of the Group’s activities until such time as the Group is able to comply with the requirements and/or the regulatory approvals or authorisations have been reinstated. Such cessation could result in a loss of revenue and/or termination of contracts by customers. Furthermore, any such failure of the Group to comply could result in fine

Principal risks and uncertainties | Abzena Annual Report 2016 28

and/or other sanctions being imposed on the Group and/or senior executives.

The Group maintains an active process for ensuring that all approvals are maintained and new obligations are identified, tracked and managed.

Financial risks Liquidity risk Adequate funding may not be available to the Group, either through reserves, borrowings, raising new funds on the AIM, cash generated through sales or from licence revenues arising from the Group’s customers’ progression through the biopharmaceutical development and commercialisation process of products created by or incorporating the Group’s technologies. The Board actively reviews the financial requirements of the Group on a regular basis in order to ensure that adequate funding is available.

Foreign currency exposure A majority of the Group’s sales are denominated in US Dollars or Euros whilst a significant proportion of the costs are substantially in the UK and incurred in pounds sterling, and therefore the Group is exposed to exchange rate volatility. The Group monitors exchange rates regularly, and holds working capital in both US Dollars and Euros. These funds are used to settle liabilities in these currencies, thereby mitigating financial and exchange rate risks, on a reasonable basis appropriate for the size and complexity of the Group.

Other information on financial risks is provided in note 24 to the consolidated financial statements.

Intellectual property risk Group patents and licence agreements may be challenged at any time and any unsuccessful defence may cause the Group to lose protection for its products and subsequently affect further development and sales. The Group has internal intellectual property expertise and is advised by suitably qualified and experienced patent agents. Internal controls are in place to avoid disclosure of patentable material and to protect existing patents. Arrangements are also in place to notify the Group of any infringements of our intellectual property so that appropriate steps can be taken.

Product manufacturing The Group manufactures products for use in clinical trials and is subject to regulations and applicable quality standards of the United States Food and Drug Administration and other regulatory agencies. Failure to comply with the regulatory standards may lead to claims

from the Group’s customers and/or liability claims arising from the use of products manufactured by the Group. The Group has a Quality Management System to ensure that expected standards and legislative requirements are met.

Internal controls and management The system is designed to manage rather than eliminate risk. It can provide only reasonable and not absolute assurance against material misstatement or loss and includes the safeguarding of assets, the maintenance of proper accounting records, the reliability of financial information, compliance with appropriate legislation, regulation and best practice and the identification and management of business risk.

The ability of the Group to implement its strategy requires effective planning and management control systems. The Group’s international growth strategy may place a significant strain on its management and operational, financial and personnel resource. Therefore, the Group’s future growth and prospects will depend on its ability to manage this growth.

The Board sets strategy and management set detailed objectives and the Group also has a budgeting and reporting system in place, with results compared with annual budgets and quarterly forecasts using variance analysis.

Service and technology licence revenues The Group’s success depends on the receipt of revenues from the provision of services and its technology licences. These revenues might be reduced if:

• one or more competitors licence, acquire or developservices or technologies that are superior to one ormore of the Group’s services or technologies so thatpotential new business is lost;

• one or more competitors offer services ortechnologies at a lower cost or on more favourablecommercial terms than those offered by the Group so that potential new business is lost;

• one or more significant customers develops oracquires their own internal capabilities to conductresearch studies to achieve the same objectives asthe Group’s services;

• products created using the Group’s technologies failto progress through development for any reason,including due to their safety, efficacy or quality or asa result of management decisions, so that fewer or no development milestone and royalty payments arereceived;

• products created using the Group’s technologies failto gain or maintain marketing approval or exclusivity

Abzena Annual Report 2016 | Principal risks and uncertainties

29

in some or all territories for any reason, including due to their safety, efficacy or quality or as a result of management decisions, so that commercial milestone payments or royalties on product sales are not received or are reduced;

• products created using the Group’s technologies are subject to regulated pricing arrangements that limit the sales revenues and thus potentially the royalties that the Group would receive; or

• customers fail to raise the necessary capital to develop products created with the Group’s technologies that would yield deferred consideration, milestone payments and/or royalties for the Group.

The Group has a broad service offering and continually invests in the development of new and enhanced services to reduce its dependence on any one particular offering.

Key personnel The success of the Group is dependent on the knowledge, skills and experience of its key management and scientific personnel. There can be no guarantee that suitably skilled and qualified individuals will be retained, or identified and employed, and failure to do so may adversely impact the Group’s ability to develop its technologies and/or provide its services at the time requested by its customers or its ability to market its services and technologies. Finding and hiring additional personnel to replace leavers or increase resources could be costly and time consuming. If the Group is unable to retain and hire suitably skilled and qualified individuals in a timely manner, the development of the Group’s services and/or technologies could be delayed and its ability to market its technologies and services, and otherwise to grow its business, could be impaired. The Group regularly reviews its remuneration packages to ensure it remains competitive. Internal performance reviews ensure that individuals continually develop and are able to progress within the Group.

Directors and Company Secretary | Abzena Annual Report 2016

30

Directors and Company Secretary

Ken Cunningham (aged 63) - Chairman Ken Cunningham has over 25 years’ experience in the pharmaceutical industry. He is currently Non-Executive Director of Xention Ltd, Verona Pharma plc and Sunergos Innovations Ltd. Previously he was Chief Executive Officer of Skyepharma plc, Chief Executive Officer of Arakis Ltd, Vice-President European Affairs at Alza Corporation and Vice-President Clinical Development at Sequus Inc. Earlier in his career he held a variety of clinical development and commercial strategy roles at GlaxoWellcome plc and Warner-Lambert. He holds a Medical Degree from St Mary's, Imperial College, London University.

John Burt (aged 47) - Chief Executive Officer Appointed Chief Executive Officer in May 2011, John has been leading the group to deliver its international growth strategy to enable the development of better biopharmaceuticals through organic growth, technology innovation and acquisitions. John’s has led the delivery of the M&A strategy that has brought together the businesses of PolyTherics, Antitope, PacificGMP and TCRS into the Abzena group, and the transition to AIM-quoted business on the London Stock Exchange in July 2014.

Previously, John co-founded Thiakis, with Professor Sir Steve Bloom (Imperial College), and he served as Chief Executive Officer through to its successful acquisition by Wyeth Pharmaceuticals in December 2008. Earlier in his career John held a range of roles covering finance, technology licensing and business and corporate development roles with Vanguard Medica (now part of Vernalis), GlaxoWellcome/ GlaxoSmithKline and Imperial Innovations. John was awarded a DPhil (molecular biology) from University of Oxford, following his first degree in Natural Sciences at the University of Cambridge.

Julian Smith (aged 51) - Chief Financial Officer and Company Secretary Julian joined PolyTherics as its Chief Financial Officer and Director in September 2013. Prior to this he was the Chief Financial and Operations Officer at Imperial Innovations Group plc, where in 2006 he managed its listing on AIM and secondary offerings and a debt facility from the EIB. Prior to Imperial Innovations Group plc, Julian was the Chief Financial Officer of RadioScape Limited and Group Financial Controller of Mobile Systems International Limited. Julian is a Chartered Accountant and has an MA in engineering science from Oxford University.

Tony Brampton (aged 59) - Non-Executive Director Tony was previously Managing Director, Corporate Finance at J. P. Morgan Cazenove, with responsibility for healthcare. During the period 1994 to 2006 he was actively involved in numerous IPOs, follow on fund raisings, and mergers and acquisitions. He has a BA and MSc in Biochemistry from the University of Oxford. He is a partner at Longbow Capital LLP and a Non-Executive Director of Polar Capital Global Healthcare Growth and Income Trust plc, Origin Inc, iPulse Limited and Domainex Limited.

Abzena Annual Report 2016 | Directors and Company Secretary 31

Anker Lundemose (aged 54) - Non-Executive Director Anker is currently Chief Executive Officer of MISSION Therapeutics. He has extensive experience from business and corporate development as well as R&D in several key therapeutic areas including oncology, diabetes and anti-infectives.

Previously, Anker was Chief Executive Officer and President of Bionor Pharma ASA, Chief Executive Officer of Prosidion Limited and, Executive Vice President Corporate & Business Development, OSI Pharmaceuticals Inc. until Astellas Pharmaceutical Inc's acquisition of OSI in 2010. He has previously held positions as Managing Director at OSI Pharmaceuticals venture arm, and as Business Development Director at Novo Nordisk. Anker has MD, PhD and DMSc qualifications in medical microbiology.

Nigel Pitchford (aged 46) - Non-Executive Director Nigel is the Chief Investment Officer for Imperial Innovations Group plc, and is responsible for all the Group’s investment activities. He joined Imperial Innovations Group plc in January 2012. He was previously a Partner at DFJ Esprit, and prior to that spent 12 years at 3i Group plc, becoming a Partner in 2006, and ultimately leading the venture team's healthcare activities across Europe and the US.

Nigel sits on the boards of Imperial Innovations plc, Veryan Medical Ltd, and Epsilon 3 Bio Ltd, Precision Ocular Ltd. He studied Chemistry at the University of Oxford, before completing a PhD at the University of Durham.

Peter Grant (aged 60) - Non-Executive Director Peter was Chief Executive Officer of Skyepharma plc from January 2012 to June 2016, when the Company was merged with Vectura Group plc. He joined Skyepharma as Chief Financial Officer in November 2006.

Previously Peter was Interim Chief Executive Officer of Voice Commerce Group, Group Finance Director at Eurodis Electron plc, Chief Financial Officer at WorldPay plc and Group Finance Director, then Group Chief Executive at Molins plc. Prior to this he held a variety of senior commercial, financial and general management roles in the General Electric Company plc Group of companies. He was previously a Non-Executive Director of ShipServ, Inc. He holds an MA in Mathematics from the University of Oxford and is a Chartered Accountant.

Senior management team | Abzena Annual Report 2016

32

Senior management team A number of other senior members of staff are involved in the execution of the Group’s strategic plans which are set by the Board of Directors. However, these senior members of staff are not all considered to be key management personnel as described in IAS 24 as they are not all involved with the planning, directing and controlling of the Group’s strategic plan or for the setting of tactical plans.

Matthew Baker - Chief Scientific Officer Matthew was a co-founder of Antitope and formerly Vice President for Biologics Discovery at Biovation Limited, a former subsidiary of Merck. Matthew led a team at Biovation/Merck which successfully developed novel biological products for inflammation, blood disorders, infection and cancer. He has a background in B and T cell immunology and completed post-doctoral positions in Cambridge, UK, after obtaining his PhD in cellular immunology at the University of Birmingham.

Campbell Bunce - Senior VP, Scientific Operations Campbell has over 19 years’ experience working in the biotech and diagnostics sectors, occupying senior management positions with Piramed Pharma (Director, Development Programmes), Immune Targeting Systems (R&D Director) and Oxford Immunotec (General Manager, Immunology Products). He has extensive experience in developing novel biologics and vaccines for cancer, inflammatory and infectious diseases, leading them through development and regulatory processes including pre-clinical evaluation and translation in the clinic. Campbell has a PhD in Immunology from the University of Manchester and has published a number of papers in T cell biology, immunomodulators and vaccines.

`

Donna Hackett - Senior VP, Intellectual Property, Commerical and Legal Affairs Donna joined PolyTherics as part of the Executive management team in January 2014. Her previous roles include COO and Executive Director of Stabilitech, partner of the consulting firm ProPharma Partners and Executive Director of Stealthyx Therapeutics. While Assistant Director of UCL Ventures, she was UCL lead in establishing BioVex and held a Non-Executive Board position for four years; BioVex was sold to Amgen for potential consideration of $1 billion. Donna started her career at BTG and is scientifically and legally qualified as a non-practising barrister.

Nareshkumar Jain - Senior VP (ADC Biomanufacturing) and Global Head of Chemistry Naresh has more than 10 years of medicinal chemistry experience at Johnson and Johnson where he worked on advancing new drug molecules from early lead to lead optimization and clinical trials. He has co-authored more than 60 publications, patents, and chapters in medicinal/synthetic chemistry books. Naresh received his PhD from Boston University with Prof James Panek and was a Post-Doctoral Research Fellow at The Scripps Research Institute, La Jolla, CA (US) with Prof K.C. Nicolaou. Among his notable achievements are the total syntheses of complex natural products including vancomycin and rutamycin.

Abzena Annual Report 2016 | Senior management team 33

Jim Mills - Senior VP, Technical Operations Jim has over 20 years’ experience working in the biotech and biopharmaceutical sector. He has held senior management positions at Cantab biopharmaceuticals (CEO), Xenova Biomanufacturing (Director of Operations) and Xenova Research Ltd (Leader, Upstream Process Development and Technical Business Development). Jim has a PhD in microbial physiology and biochemistry from the University of Leicester and has published a number of papers on microbial enzymes, upstream and downstream process development.

Leigh Pierce - Chief Technology Officer (Biomanufacturing) Leigh co-founded PacificGMP in 2005 establishing the company as the only contract manufacturing organization that specializes in the development and manufacturing of biologics utilizing single-use technology in both upstream and downstream processes. She has over 20 years’ experience in the biotechnology industry. Prior to PacificGMP she was President of Pierce BioDevelopment, a consulting firm that assisted pharmaceutical companies with preclinical development and clinical manufacturing of biologics.

Sally Waterman - Senior VP, Corporate Development Sally joined PolyTherics in October 2009 as Chief Operating Officer and became Senior Vice President of Corporate Development in December 2013. Her previous roles include Director of Research & Development at Protherics plc (now part of BTG), Vice President of Research & Development at KS Biomedix (acquired by Xenova Group plc), VP of Non-clinical Development at Vernalis plc (previously Vanguard Medical plc) and Director, Scientific Operations at Pharmakopius (since acquired by PRA). She is currently the Chairman of the OBN board.

Corporate governance report | Abzena Annual Report 2016 34

Corporate governance report The Group has a policy of seeking to comply with established best practice in the field of corporate governance as set out in the Financial Reporting Council’s UK Corporate Governance Code (September 2014) (the “Code”). It should be noted that the Group is not required to comply with the Code. However, in the interests of good corporate governance the Group has due regard to the Code in the conduct of its operations and reporting and where possible complies with the Code. Where full compliance with the Code is not possible or appropriate, the Group seeks to comply with the principles and requirements set out in the Corporate Governance Guidelines devised by the Quoted Companies Alliance (QCA), in consultation with a number of significant institutional small company investors, as an alternative corporate governance code applicable to AIM companies.

The following sets out the main principles of good governance in the UK Corporate Governance Guidelines and UK Corporate Governance Code that have been followed by the Board and how those principles have been applied. As described above, the following disclosure is voluntary for the Group and indicates where appropriate relevant principles and practices have been adopted. It has not been possible for the Group to comply with the Guidelines and Code in full in all areas, given the size and complexity of the Group.

The Board The Group is controlled through its Board of Directors, which comprises those individuals set out in the Directors’ report. The Board’s main roles are to create value for shareholders, to approve the Group’s strategic objectives and to ensure that the necessary financial and other resources are made available to enable them to meet those objectives.

The Board, which meets normally at least every six weeks, has a schedule of matters reserved for its approval. Board papers are sent electronically to all Directors in advance of each Board meeting including management accounts and accompanying reports from Executive Directors and other members of the senior management team. At each meeting, the Board is briefed on issues arising, reviews the progress of the Group towards its objectives and monitors financial performance against budget and forecast.

The specific responsibilities reserved for the Board include: setting Group strategy and approving an annual budget and medium term projections; reviewing operational and financial performance; approving the material terms of any acquisition, investment, divestment or capital expenditure which has a value of over £75,000, reviewing the Group’s systems of financial control and risk management; ensuring that appropriate management development and succession plans are in place; reviewing the environmental, health and safety performance of the Group; approving appointments to the Board; approving policies relating to Directors’ remuneration and the severance of Directors’ contracts; and ensuring that a satisfactory dialogue takes place with shareholders.

Other than as set out above, operational control is delegated by the Board to the Chief Executive Officer or to such other person as the Chief Executive Officer shall determine. Non-Executive Directors are able to contact the Executive Directors at any time for further information.

Remuneration Committee During the year, the Remuneration Committee comprised K. Cunningham (Chairman of the Board and Chairman ofthe Committee), T. Brampton (Non-Executive Director), A.Lundemose (Non-Executive Director) and N. Pitchford(Non-Executive Director). In all cases all serving membersattended the meetings (at least two meetings a year),either in person or by telephone where appropriate. Whenappropriate, non-Committee members were invited toattend. No Director is involved in deciding his or her ownremuneration. The Committee’s principal responsibilitiesare the review and recommendation of the scale andstructure of remuneration for senior management. Inaccordance with best practice, the Company hasestablished a Remuneration Committee with written termsof reference for each which deal with their authorities andduties.

Audit Committee During the year, the Audit Committee comprised T. Brampton (Non-Executive Director and Chairman of theCommittee), K. Cunningham (Chairman of the Board) andP. Grant (Non-Executive Director), N. Pitchford (Non-Executive Director). The Audit Committee meets on aregular basis (at least twice a year), with the auditors inattendance, by invitation of the committee. Whennecessary, non-Committee members were invited toattend at the discretion of the committee.The Audit Committee regularly reviews its functionsagainst best practice with the assistance of the Group’sauditors.

Abzena Annual Report 2016 | Corporate governance report 35

The Committee is responsible for ensuring that the financial performance of the Group is properly reported on and monitored and for meeting the auditors and reviewing the reports from the auditors relating to accounts and internal control systems. The external auditors will attend all meetings and the audit committee will have discussions with the external auditors at least once a year, without any executive Directors being present.

Nomination Committee The Board has not appointed a Nomination Committee.

The roles of the Chairman and the CEO The division of responsibilities between the Chairman of the Board and the Chief Executive Officer is clearly defined. K. Cunningham, the Chairman, is required to spend anaverage of one and a half days per month on the businessof the Group. The Chairman leads the Board in thedetermination of its strategy and in the achievement of itsobjectives.

The Chairman is responsible for organising the business of the Board, ensuring its effectiveness and setting its agenda. The Chairman facilitates constructive relations between executive and Non-Executive Directors, and ensures that Directors receive accurate, timely and clear information and that the Board has effective communication with shareholders. The Chief Executive Officer has direct charge of the Group on a day to day basis and is accountable to the Board for the operational and financial performance of the Group.

Re-election of Directors Directors are required to stand for re-election. Terms and conditions as set out in their letter of appointment, are detailed in the Directors’ remuneration report.

At every annual general meeting, any Directors who are required to retire under Article 90 of the Articles of Association of the Company and one third of the other Directors, or if their number is not a multiple of three, then the number nearest to but not exceeding one third, shall retire from office by rotation.

Subject to the provisions of the Companies Act 2006 and of the Articles of Association of the Company, the Directors to retire by rotation shall include (so far as necessary to obtain the number required) any Director who wishes to retire and not offer themselves for re-election. Any further Directors so to retire shall be those who have been longest in office since their last election but, as between persons who became or were re-elected Directors on the same day, those to retire shall (unless they otherwise agree among

themselves) be determined by lot. A retiring Director shall be eligible for re-election.

The Directors to retire on each occasion (both as to number and identity) shall be determined by the composition of the Board at the start of business on the date of the notice convening the annual general meeting notwithstanding any change in the number or identity of the Directors after that time but before the close of the meeting. If the Company, at the meeting at which a Director retires under the Articles of Association of the Company, does not fill the vacancy the retiring Director shall, if willing to act, be deemed to have been reappointed unless at the meeting it is resolved not to fill the vacancy or unless a resolution for the reappointment of the Director is put to the meeting and lost.

A Director retiring at a meeting who is not reappointed shall retain office until the meeting appoints someone in their place or, if it does not do so, until the end of the meeting or of any adjournment thereof.

No person, other than a Director retiring at the meeting, shall be appointed or reappointed a Director at any general meeting unless: they are recommended by the Board; or not less than seven nor more than 21 clear days before the date appointed for the annual general meeting, notice executed by a member qualified to vote at the meeting has been given to the Company of their intention to propose that person for appointment or reappointment stating the particulars which would, if they were so appointed or reappointed, be required to be included in the Company’s register of Directors together with notice executed by that person confirming their willingness to be appointed or reappointed.

Subject to the provision of the Articles of Association of the Group, the Company may by ordinary resolution appoint a person who is willing to act to be a Director either to fill a vacancy or as an additional Director. The Board may appoint a person who is willing to act to be a Director, either to fill a vacancy or as an additional Director (the Articles of Association of the Company do not stipulate any maximum number of Directors, but the number of Directors shall not be less than two). A Director so appointed shall hold office only until the next following annual general meeting when they shall retire from office and be eligible for reappointment. If not reappointed as such annual general meeting, they shall vacate office at its conclusion.

Directors and Directors’ independence The composition of the Board of Directors at the date of this report is set out in the Directors’ report. All of these Directors served throughout the period under review.


The Board considers that the Chairman of the Audit Committee has the appropriate recent and relevant financial experience.

The Board currently comprises the Chairman, four other Non-Executive Directors and two Executive Directors. The Non-Executive Directors constructively challenge, help develop proposals on strategy, bring strong, independent judgement, knowledge and experience to the Board’s deliberations.

A. Lundemose, a Non-Executive Director, has options overOrdinary Shares of the Group as set out in the Directors’Remuneration Report. Directors, other than the ExecutiveDirectors, may accept appointments as Directors of othercompanies and retain any related fees paid to them. K.Cunningham, T. Brampton, P. Grant, A. Lundemose and N.Pitchford, act as Directors for a number of public andprivate companies outside the Group.

The Executive Directors may accept external appointments as Non-Executive Directors of other companies with the prior consent of the Board.

The Board considers K. Cunningham, T. Brampton, P. Grant and A. Lundemose to be sufficiently independent to be classified as independent Non-Executive Directors. None has served as a Board member for more than nine years.

The Directors are given access to independent professional advice at the Group’s expense when the Directors deem it is necessary in order for them to carry out their responsibilities.

All Directors have access to the advice and services of the Company Secretary who is responsible to the Board as a whole for ensuring that Board procedures are properly followed and that applicable rules and regulations are complied with.

The Group has adopted a code of dealings in securities of the Group which is considered appropriate for a Company on AIM. The Directors comply with Rule 21 of the AIM Rules relating to Directors’ dealings and take all reasonable steps to ensure compliance by the Group’s ‘applicable employees’ (as defined in the AIM Rules).

Professional development On appointment, a Director takes part in an induction programme when they receive information about the Group, the role of the Board and the matters reserved for its decision, the terms of reference and membership of the Board committees, the Group’s corporate governance practices and procedures, and the latest financial information about the Group. Throughout their period in office the Directors are continually updated on the Group’s business and the competitive and regulatory environments in which it operates. Directors are also advised on

appointment of their legal and other duties and obligations as a Director of an AIM listed Company and they are also updated on changes to the legal and governance requirements of the Group and upon themselves as Directors.

Board evaluation The Board is mindful of the requirement to undertake an annual evaluation of its performance and that of its committees and individual Directors. The Board has adopted the following procedures in order to conduct Board performance evaluation.

The performance of the Board, its committees, the Executive Directors and the Non-Executive Directors is evaluated by the Chairman on an ongoing basis. The Chairman meets each of the Executive Directors regularly throughout the year. The Chairman conducts an annual formal performance appraisal of the Chief Executive Officer. The Chairman, in conjunction with the Chief Executive Officer, assesses annually the performance of the Chief Financial Officer, and other senior managers.

Relations with shareholders The Board attaches great importance to communications with both institutional and private shareholders. In fulfilment of the Chairman’s obligations under the UK Corporate Governance Code (September 2014), the Chairman gives feedback to the Board, and in particular to the other Non-Executive Directors, on issues raised with him by major shareholders. Regular communication is maintained with all shareholders through Company announcements, the Annual Report and Accounts, Preliminary Results and the Interim Report.

The Directors seek to build a mutual understanding of objectives between the Group and its shareholders. Institutional shareholders are in contact with the Directors through presentations and meetings to discuss issues and to give feedback regularly throughout the year. With shareholders this is not always practical. An Annual General Meeting (AGM) will be held each year, and regular business updates are provided on its website.

The Group operates a website, which can be found at www.abzena.com. The website contains the information about the Group that is required by AIM Rule 26. That information contains, amongst other information, details on the Group and its activities, the Group’s regulatory announcements, its Annual Reports and Interim Reports and details of the Group’s share price.

Abzena Annual Report 2016 | Corporate governance report

37

Internal control It is the responsibility of the Directors and senior management to safeguard the value of the business and assets of the Group. Part of this responsibility requires the development of relevant policies and appropriate internal controls to ensure proper management of the Group’s resources and the identification of risks which might serve to undermine them. The Board acknowledges that it has ultimate responsibility for the Group’s system of internal controls and for reviewing their effectiveness. The system of internal control is however designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. The system of internal control accords with the Turnbull Guidance and is reviewed at least once a year by the Audit Committee of the Board. The Board complies with principle C.2 of the UK Corporate Governance Code (September 2014) in having a continuous process for identifying, evaluating and managing the significant risks the Group faces. This process has been in place throughout the year under review and up to the date of the approval of the Annual Report and Financial Statements. Appropriate members of staff are aware of the internal controls of the Group and the Group has adopted a whistle-blowing policy for all staff. Procedures are in place to deal with conflicts of interest and they have been operated effectively throughout the year. Directors are regularly appraised of their duties as Directors in respect of conflicts of interest. The Audit Committee, which was established by the Board, is chaired by T. Brampton and includes K. Cunningham, P. Grant and N. Pitchford. The Audit Committee reviews the risk management and control processes and reports to the Board. The Audit Committee reached its recommendation to the Board that a resolution be put to shareholders to reappoint the auditors after consideration of the Group’s policies and controls including its policy on using auditors for non-audit services. The Audit Committee and the Board have reviewed the effectiveness of the Group’s internal controls for the year-ended 31 March 2016 up to the date of approval of the Annual Report and Accounts and have addressed significant issues as they have been identified. The key features of the internal control systems that operated throughout the period covered by the Financial Statements are set out below: The Group prepares detailed budgets and working capital forecasts, which are based upon the strategy of the Group and are approved by the Board. Detailed management

accounts are prepared each month and are compared with budgets, with any significant variances being investigated. The Board monitors the activities of the Group through the supply of regular information from various areas of the business as set out in Board papers. The Group has a structure with clearly drawn lines of accountability and authority. Employees are required to follow clearly laid out internal procedures and policies appropriate to the business and their position within the business. The Group employs Directors and senior employees with the appropriate knowledge and experience. Given the Group’s size and development, the Board did not consider it necessary to have an internal audit function during the year. The Board will continue to monitor this requirement.

Going concern After making appropriate enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least 12 months from the date of signing of these financial statements. For this reason, they continue to adopt the going concern basis in preparing the accounts. The directors made this assessment based on future cash flow projections of the Group which demonstrated the ability of the Group to meet expected future financial liabilities as they fall due for a period of at least 12 months from the date of signing of the financial statements.

Corporate and social responsibility The principal activities of the Group are as a revenue generating provider of services and technologies that address critical R&D issues to enable the development of better biopharmaceutical products. During the year, the Group employed an average of 139 people. The Group aims to conduct its business in a socially responsible manner and in all its activities the Group aims to be commercial and fair, to maintain its integrity and professionalism and to respect the needs of its investors, employees and suppliers. For example, the Group has supported the development of drugs that may help patients in third world countries; specifically, the Group has previously provided services to the Drugs for Neglected Diseases Initiative (www.dndi.org). During the year-ended 31 March 2016, as referenced above, whilst the Group is not required to comply with the UK Corporate Governance Code (September 2014), it has observed and operated in accordance with such except in the areas listed below:


• A. Lundemose, an independent Non-ExecutiveDirector, has options over Ordinary Shares of theGroup as set out in the Directors’ remunerationreport;

• The Board have not appointed a NominationsCommittee, and as such it does not meet in respectof appointments to the Board;

• The Group does not have an internal audit function;• A Senior Independent Director has not been

appointed;• In the absence of a senior independent Director, the

Non-Executive Directors do not meet without theChairman present at least annually to appraise the

Chairman’s performance and on such other occasions as are deemed appropriate;

• T. Brampton and N. Pitchford have, or have hadwithin the last three years, a material businessrelationship with the Group, either directly, or as apartner, shareholder, Director or senior employee ofa body that has a material relationship with theGroup.

K. Cunningham Chairman13 June 2016

Abzena Annual Report 2016 | Directors’ report for the year-ended 31 March 2016 39

Directors’ report for the year-ended 31 March 2016 The Directors present their Report and the audited financial statements for the year-ended 31 March 2016.

Results and dividends As set out in the Strategic Report, and in particular the Financial Review, the Group’s loss for the financial year was £9.7 million (2015: £4.7 million). The Directors do not recommend the payment of a dividend (2015: £nil).

Directors The Directors of the Group who served during the reported year, and up to the date of this report, and their appointment dates are as follows:

Group Company

T. Brampton (Non-Executive Director) 15 June 2007 23 May 2014 J. Burt (Chief Executive Officer) 26 May 2011 25 March 2014 K. Cunningham (Chairman) 29 April 2010 25 March 2014 P. Grant (Non-Executive Director) 5 June 2014 5 June 2014 A. Lundemose (Non-Executive Director) 1 May 2012 23 May 2014 N. Pitchford (Non-Executive Director) 7 February 2012 23 May 2014 J. Smith (Chief Financial Officer) 9 September 2013 26 March 2014

Company appointment above indicates when the Director was appointed as a Director of Abzena plc (or Abzena Limited, or PolyTherics Group Limited as previously named). Group appointment indicates when the Director was appointed as a Director of PolyTherics Limited, which prior to the creation of Abzena plc, had been the holding company of the Group. All Directors noted above have been Group Directors throughout the period, unless a resignation date is stated. There have been no changes to the composition of the Board of Abzena plc between 31 March 2016 and the date of this report.

Business review A review of the business of the Group is included in the Strategic Overview and the Chief Executive’s report. The Group had 13 subsidiaries at 31 March 2016 which are described more fully in note 1 to the financial statements. The Chairman’s statement together with the Chief Executive’s report, the Strategic Overview, the Financial Report, the Key Performance Indicators, the Principal risks and uncertainties and the Corporate Governance report (which together comprise the Strategic Report) describe the principal activities, key risks and performance indicators together with the financial position, future developments and corporate governance of the Group.

Financial Summary Year-ended Year-ended

31 March 2016 31 March 2015

Revenue (£m) 9.9 5.7 Loss for the financial year (£m) (9.7) (4.7) Cash and cash equivalents at the year (£m) 13.7 15.8

Directors’ report for the year-ended 31 March 2016 | Abzena Annual Report 2016 40

Charitable and political donations The Group did not make any charitable donations in the year (2015: nil). No donations were made to any political party (2015: £nil).

Research and development The Group invests in R&D activities to drive short and long-term revenue growth by increasing capacity to meet demand, to develop the Group’s existing services and technologies and to add new services and technologies through in-house development, in-licencing and / or the acquisition of businesses. The Group additionally pursues opportunities to add further value through co-investment in the adoption of the Group’s technologies by its partners to create better pharmaceutical products. The Directors believe that investment in these key areas will enable the Group to continue to build a strong, sustainable business that is a key provider of services and technologies to the biopharmaceutical R&D industry.

Directors’ Interests in the Ordinary Shares of Abzena plc The Directors held, either directly or indirectly, an interest in the following ordinary shares of Abzena plc (“Ordinary Shares”) at 31 March:

2016 2015

T. Brampton (Non-Executive Director) 135,380 135,380 J. Burt (Chief Executive Officer) 2,120,262 1,695,725 K. Cunningham (Chairman) 757,310 757,310 P. Grant (Non-Executive Director) 25,000 25,000 J. Smith (Chief Financial Officer) 495,116 262,084

As at 31 March 2016 J. Burt held 215,000 Ordinary Shares in a SIPP (2015: 175,000). As of 31 March 2016 J. Smith held 222,000 Ordinary Shares in a SIPP (2015: 170,000).

Directors’ Direct shareholdings The Directors directly held the following Ordinary Shares of Abzena plc at 31 March:

2016 2015

T. Brampton (Non-Executive Director) 125,000 125,000 J. Burt (Chief Executive Officer) 1,905,262 1,520,725 K. Cunningham (Chairman) 757,310 757,310 P. Grant (Non-Executive Director) 25,000 25,000 J. Smith (Chief Financial Officer) 273,116 92,084

Directors’ Warrants held at 31 March 2016 At 31 March 2016, T. Brampton directly held warrants over 37,500 Ordinary £0.002 Shares with an exercise price of £0.36 (2015: 37,500 £0.002 Shares with an exercise price of £0.36). The grant of these warrants was a result of participation in an investment round in PolyTherics Limited on 15 June 2007, alongside other investors in the same class of shares. They were not issued in consideration for any goods or services rendered.

Abzena Annual Report 2016 | Directors’ report for the year-ended 31 March 2016

41

Directors’ awards of share options No Directors were awarded options over Ordinary shares in the Company during the year-ended 31 March 2016. As at 31 March 2015 and 2016, the Directors held the following options over Ordinary Shares:

Scheme Grant Date

At 31 March

2015 Exercised

in the year

At 31 March

2016 Exercise

Price Expiry Date J. Burt EMI 29-11-13 576,210 (424,537) 151,673 £0.001 29-11-23 J. Burt EMI 25-03-14 1,000,000 – 1,000,000 £0.001 25-03-24 A. Lundemose Non-EMI 01-05-12 75,000 – 75,000 £0.001 01-05-22 N. Pitchford – – – – – – – J. Smith EMI 29-11-13 316,285 (233,032) 83,253 £0.001 29-11-23 J. Smith EMI 25-03-14 625,000 – 625,000 £0.001 25-03-24 As set out in the table above J. Burt and J. Smith exercised a total of 657,569 share options during the year, which crystallised a gain on exercise of £327,469 based on the difference between the mid-market price of £0.50 per share and the exercise price of £0.002 per share. They remain the beneficial owner of all of these shares at the year-end and these are subject to a formal lock in and orderly market arrangement until at least 10 July 2016. Further details of the interests of the Directors in options over Ordinary shares of the Group are shown in the Directors’ remuneration report.

Company Secretary The Company Secretary of the Group is Mr J. Smith.

Directors’ report for the year-ended 31 March 2016 | Abzena Annual Report 2016 42

Substantial shareholdings As at 13 June 2016 the Company had been advised of the following shareholders with interests of 3% or more in its Ordinary Share capital.

Shareholder percentage holdings %

Company Invesco Asset Management Limited (The Bank of New York Nominees) 26.4 Woodford Investment Management LLP 23.0 Imperial Innovations Group plc (and its associated group companies) 19.8 Ballie Gifford & Co 3.3

The Company has considered independently whether two of the largest shareholders, Invesco Limited and Woodford Investments, with their significant shareholding in the Company (albeit in a number of its different funds in the case of Invesco Limited), are related parties. As neither entity takes part in financial or operating policy decisions, and in the opinion of the Board does not exert significant influence over the Group, the Company has taken the view that Invesco Limited and Woodford Investments are not Related Parties.

The Company has considered whether Imperial Innovations Group plc (and / or any of its associated group companies), with its significant shareholding in the Group (albeit in a number of its different Group entities), is a related party. As N. Pitchford is a Director of both Abzena plc and Imperial Innovations Group plc, and is involved in management, financial and / or operating policy decisions, and in the opinion of the Board could be seen to exert significant influence over the Group, the Group has taken the view that Imperial Innovations Group plc (and / or any of its associated group companies) is a Related Party.

Employees The Group employed an average of 139 employees (2015: 91) during the year, including Executive Directors, butexcluding Non-Executive Directors (as shown in note 5).No formal agreement exists on consulting employees.However, Employees are informed of the economicprospects of the business, job prospects and majorchanges in the organisation of the business throughdepartmental meetings, CEO updates where all currentmembers of staff are invited to attend and an open, clearand defined reporting structure.

The Group operated an annual bonus scheme during the current and prior periods for certain members of staff, whereby certain staff where applicable, are eligible for an annual bonus based on their own and the Group’s performance for the year.

Applications for employment by disabled persons are always fully considered, bearing in mind the respective aptitudes of the applicant concerned. In the event of members of staff becoming disabled every effort is made to ensure that their employment within the Group continues and that the appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of a disabled person should, as far as possible, be identical to that of a person who does not suffer from a disability.

Financial risk management Information on financial risk management is set out in note 24 to the financial statements.

Statement of Directors’ responsibilities The Directors are responsible for preparing the Chairman’s statement together with the Chief Executive’s report, the Strategic Overview, the Financial Report, the Key Performance Indicators, the Principal risks and uncertainties and the Corporate Governance report (which together comprise the Strategic Report), the Directors’ 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 Company’s 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 applythem consistently;

• make judgements and accounting estimates that arereasonable and prudent;

• state whether IFRSs as adopted by the EuropeanUnion have been followed, subject to any materialdepartures disclosed and explained in the Group andparent Company’s financial statements respectively;and

• prepare the financial statements on the goingconcern basis unless it is inappropriate to presumethat the Group and the parent Company will continuein business.

Abzena Annual Report 2016 | Directors’ report for the year-ended 31 March 2016 43

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the transactions of the Group and Company and disclose with reasonable accuracy at any time the financial position of the Group and Company 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 preparing the sections of this report which comprise the Strategic Report and Directors’ Report, in accordance with the Companies Act 2006 and all applicable regulations.

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

Directors’ indemnities As permitted by the Company’s Articles of Association, the Directors have the benefit of an indemnity which is a qualifying third party indemnity provision as defined by Section 234 of the Companies Act 2006. The indemnity was in force throughout the last financial year and is currently in force. The Group also purchased and maintained throughout the financial year Directors’ and officers’ liability insurance in respect of itself, its Directors and Officers, and the Directors and Officers of its subsidiary companies.

Provision of information to auditors So far as each of the Directors is aware, there is no relevant audit information as detailed by section 18 of the Companies Act 2006, of which the Group’s auditors are unaware and each Director has taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group’s auditors are aware of that information.

Annual general meeting An Annual General Meeting will be arranged in due course, in accordance with the Articles of Association of the Group and the requirements of the Companies Act 2006.

Independent auditors The Group’s independent auditors, James Cowper Kreston, have indicated their willingness to continue in office and the Audit Committee has recommended that James Cowper Kreston remain in office. A resolution to re-appoint the independent auditors will be proposed at the AGM.

By order of the Board

J. SmithCompany Secretary13 June 2016

Directors’ remuneration report | Abzena Annual Report 2016 44

Directors’ remuneration report Basis of preparation of report The directors acknowledge the importance of the UK Corporate Governance Code and endeavour to comply with its requirements so far as the directors consider is appropriate to a Group of the size and nature of Abzena plc. The Board has voluntarily chosen to comply with the Regulations in order to demonstrate its commitment to best practice in corporate governance.

Accordingly this Report has been prepared in accordance with the requirements of Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (“the Regulations”) concerning disclosure of Directors’ remuneration and the provisions in Chapter 6 of Part 15 of the Companies Act 2006 as far as practicable and appropriate.

The Regulations require the auditors to report to the Group’s members on part of the Directors’ Remuneration Report and to state whether in their opinion that part of the report has been properly prepared in accordance with the Companies Act 2006 and the Regulations. This report has therefore been divided into separate sections for audited and unaudited information.

Unaudited information The following information has been prepared by the Group but has not been subject to an audit by the independent auditors.

The Remuneration Committee (the “Committee’) The members of the Committee are K. Cunningham (Chairman of the Board and Chairman of the Committee), T. Brampton (Non-Executive Director of the Board and a member of the Committee), A. Lundemose (Non-Executive Director and a memberof the Committee), N. Pitchford (Non-Executive Directorand a member of the Committee). The mainresponsibilities of the Committee are set out in theCorporate Governance Report.

The Board is responsible for the remuneration of the Non-Executive Directors and in that matter the Non-Executive Directors play no part. The Committee is responsible for the remuneration of the Chairman and the Executive Directors. The Chief Executive Officer and the Chief Financial Officer may be invited to attend the

Committee’s meetings but are not present when their own remuneration is discussed. During the year, the Committee commissioned and received the advice of remuneration consultants MM&K Limited with regard to the Group’s executive incentive arrangements.

Remuneration policy The Directors believe that the success of the Group depends, in part, on the performance of the senior management. The Directors also recognise the importance of ensuring that employees are incentivised and identify closely with the value of the Group. The Remuneration Committee considers when determining the remuneration of the Chairman and the Executive Directors not only the pay and conditions of the Chairman and the Executive Directors but also those employees that are members of the senior management team and employees as a whole.

The Group’s policy is to provide remuneration packages to members of the senior management that are a fair reward for their contribution to the business, having regard to the complexity of the Group's operations and the need to attract, retain and motivate high quality senior management. Remuneration comprises basic salary, discretionary bonus awards, share options, benefits in kind and pensions.

The components of the remuneration of the Chief Executive Officer and the Chief Financial Officer are set out in the following sections of the Directors’ remuneration report and are designed to ensure retention in the long-term. The remuneration packages as a whole are designed to be broadly comparable with those offered by other similar businesses.

Base salary Individual base salaries of Executive Directors and senior employees are reviewed regularly by the Remuneration Committee, taking into account a number of factors, including individual performance, responsibility changes and the Group’s performance.

Base salary may also be determined with reference to the advice of external consultants and an appropriate comparator group of companies which may be reviewed annually. The base salaries of Directors have been increased by the Remuneration Committee as set out in the table later in this report under the heading “Remuneration Details”.

Abzena Annual Report 2016 | Directors’ remuneration report 45

Discretionary Bonus Awards Each year the Remuneration Committee considers and recommends a discretionary bonus award to be made to certain eligible employees based on their own and the Group’s performance.

For the Chief Executive Officer and the Chief Financial Officer, such consideration includes their performance against a target set by the Remuneration Committee. For the reported year, the Group has recommended awards to such officers that are set out under the heading “Remuneration Details” in the column headed “Bonus Payments”. The Chairman and the Non-Executive Directors are not eligible for any annual award or payment.

Benefits In addition to their pension provisions described below, the Chief Executive Officer and the Chief Financial Officer are each entitled to participate in the Group’s death in service and private medical insurance schemes.

Pension arrangements The Chief Executive Officer and the Chief Financial Officer are members of the Company pension arrangements to which the Group contributes.

Pensionable earnings do not include elements of remuneration other than Base salary. This scheme is described more fully in note 20 of the consolidated financial statements.

Long-term Incentive arrangements The Group operates, or has operated, the following long-term incentive arrangements:

The “Incentive Plans” - Options over Ordinary Shares under the Long-Term Incentive Plan and the Unapproved Share Option Scheme Various Incentive Plans were historically adopted by the Board between 2006 and 2014. The most recent Incentive Plan, was approved and adopted by the Board on 25 March 2014. Eligible employees (including certain Directors) may be awarded options over Ordinary Shares. Only the Remuneration Committee has the discretion to grant awards under the Incentive Plans.

During the year under review, no options have been awarded to employees and Directors under the Incentive Plans as part of a review of the Group’s long-term incentive arrangements. Details of such options, which have historically been awarded to Directors, are disclosed in the Directors’ Report.

As at 31 March 2016, and the date of signing the financial statements, there are a total of 6.2 million share options outstanding under the Incentive Plans (see note 8 to the Consolidated Financial Statements). Other share options under other arrangements remain outstanding in respect of Directors as set out in the information later in this report in respect of the interests of the Directors in options over Ordinary Shares.

Directors’ shareholdings Details of the Directors’ shareholdings in the Company are set out in the Directors’ Report and, in so far as they relate to share options, below under the heading “The interests of the Directors in options over Ordinary Shares of the Company”.

Executive Directors’ service contracts Executive Directors each have a service contract of indefinite duration until normal retirement age. It is the Group’s policy that Directors’ service contracts should incorporate no more than 12 months’ notice of termination from the Group, in line with current best practice. None of the Directors’ service contracts have a provision for compensation for loss of office or wrongful termination upon change of control beyond payment in lieu of contractual notice.

The Committee’s policy for provision for compensation for loss of office is to provide compensation which reflects the Group’s contractual obligations.

The acceptance by an Executive Director of Non-Executive Director appointments with other companies is subject to Board approval.

J. Burt is employed as Chief Executive Officer of theGroup under a service agreement dated 4 July 2014(although for continuous employment purposes, J. Burtcommenced his employment with the Group on1 November 2010). The appointment is continuing andis terminable by J. Burt on six months’ notice and 12months’ notice by the Group. J. Burt is entitled to 25days’ paid holiday per annum, in addition to normalpublic holidays. On termination of J. Burt’s employment,the Group may at its discretion require him not to carryout any duties during his notice period or pay his salary


in lieu of notice. J. Burt is not entitled to any other benefits on the termination of his employment.

J. Smith is employed as Chief Financial Officer of theGroup under a service agreement dated 4 July 2014(although for continuous employment purposes, J.Smith commenced his employment with the Group on 9September 2013). The appointment is continuing and isterminable by either party on six months’ written notice. J. Smith is entitled to 25 days’ paid holiday per annum,in addition to normal public holidays. On termination ofJ. Smith’s employment, the Group may at its discretionrequire him not to carry out any duties during his noticeperiod or pay his salary in lieu of notice. J. Smith is notentitled to any other benefits on the termination of hisemployment.

Non-Executive Directors The remuneration of Non-Executive Directors is determined by the Board, in which matter the Non-Executive Directors play no part. T. Brampton, P. Grant, A. Lundemose and N. Pitchford do not participate in theGroup pension plan. Non-Executive Directors aretypically expected to serve two three year terms, butmay be invited by the Board to serve for an additionalperiod. Any term renewal is subject to Board review andannual general meeting re-election. Notwithstandingany mutual expectation, there is no right to re-nomination by the Board, either annually or after anythree year period.

T. Brampton was appointed to the Board of the Groupas a Non-Executive Director on 15 June 2007. Hisappointment is governed by an agreement dated 4 July2014. The agreement is terminable by either partygiving one month’s notice. The agreement states anexpected term office commencing on 4 July 2014 andcontinuing until the conclusion of the Company’s annualgeneral meeting occurring approximately three yearsfrom that date, unless terminated by either party givingto the other, one month’s prior written notice.

P. Grant was appointed to the Board of the Group as aNon-Executive Director on 5 June 2014. Hisappointment is governed by an agreement dated 4 July2014. The agreement is terminable by either partygiving one month’s notice. The agreement states anexpected term office commencing on 4 July 2014 andcontinuing until the conclusion of the Company’s annual general meeting occurring approximately three yearsfrom that date, unless terminated by either party givingto the other, one month’s prior written notice.

A. Lundemose was appointed to the Board of the Groupas a Non-Executive Director on 1 May 2012. Hisappointment is governed by an agreement dated 4 July2014. The agreement is terminable by either partygiving one month’s notice. The agreement states an

expected term office commencing on 4 July 2014 and continuing until the conclusion of the Company’s annual general meeting occurring approximately three years from that date, unless terminated by either party giving to the other, one month’s prior written notice.

N. Pitchford was appointed to the Board of the Group asa Non-Executive Director on 7 February 2012. Hisappointment is governed by an agreement dated 4 July2014. The agreement is terminable by either partygiving one month’s notice. The agreement states anexpected term office commencing on 4 July 2014 andcontinuing until the conclusion of the Company’s annualgeneral meeting occurring approximately three yearsfrom that date, unless terminated by either party givingto the other, one month’s prior written notice.N. Pitchford’s does not receive any payment personallyand the annual fee is payable to Imperial InnovationsGroup plc (and / or any of its associated groupcompanies).

The annual fee for T. Brampton is £35,000 per annum. The annual fee for P. Grant is £30,000 per annum. The annual fee for A. Lundemose is £30,000 per annum. The annual fee with respect to N. Pitchford’s services is £30,000.

The Non-Executive Directors are not entitled to any benefits upon the termination of their service to the Group.

The Chairman The remuneration of the Chairman is determined by the Remuneration Committee, in which matter the Chairman plays no part and does not participate in the Committee’s decision. K. Cunningham does not participate in the Group’s pension plan.

K. Cunningham’s service both as a Non-ExecutiveDirector and as Chairman has been through a Letter ofAppointment dated 4 July 2014, with a fee per annumas specified below. Whilst the anticipated term ofappointment for K. Cunningham is not specificied in theLetter of Appointment, either the Group or K.Cunningham may terminate his appointment at anytime on giving one month’s prior written notice to theother.

The annual fee for the Chairman is £70,000 per annum. K. Cunningham is not entitled to any benefits upon thetermination of his services to the Group.

Performance chart The chart below shows the share price performance for the period from 10 July 2014, when the Ordinary Shares of the Company were admitted to trading on AIM, to


9 June 2016 alongside the performance of the FTSE AIM All-Share, FTSE All-Share and FTSE techMARK Mediscience indices. The Chart below shows the closing price, at the end of each day’s trading. The subscription

price for the Company’s Ordinary Shares at IPO and immediately before Admission to trading on AIM was £0.80.

For ease of comparison these figures have been rebased such that the Group’s share price on 10 July 2014 is equal to the FTSE AIM All-Share, FTSE All-Share and FTSE techMARK indices. The Directors have selected the FTSE AIM All-Share, FTSE All-Share and Mediscience FTSE techMARK Mediscience indices as, in their opinion, these indices comprise the most relevant equity indices of which the Group is a member against which total shareholder return of the Group should be measured. Full details of the Directors’ remuneration, together with options granted over Ordinary Shares of the Company, are set out herein:

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ABZENA FTSE All share FTSE Techmark Mediscience FTSE AIM All share


Audited Information

Remuneration of Directors Details of Directors’ remuneration are shown below:

Year-Ended 31 March 2016 Year-Ended 31 March 2015

Note Salary /Fees

Benefits in Kind Bonus Pension Total Total Pension

£’000 £’000 £’000 £’000 £’000 £’000 £’000 Current Directors T. Brampton a 35 – – – 35 33 – J. Burt d 259 1 80 15 355 257 14 K. Cunningham b 70 – – – 70 62 – P. Grant a 30 – – – 30 25 – A. Lundemose a 30 – – – 30 27 – N. Pitchford c 30 – – – 30 29 – J. Smith e 208 2 39 12 261 212 12

Former Directors S. Mery f – – – – – 3 – Mercia Fund Management g – – – – – 3 –

a. Non-Executive Directors. With effect from 4 July2014 the Board set the annual fees of the followingNon-Executive Directors as follows: T. Brampton£35,000, P. Grant £30,000, A. Lundemose £30,000and N. Pitchford £30,000.

b. Chairman. The Board increased the annual feespaid to K. Cunningham to £70,000 with effect from4 July 2014

c. N. Pitchford does not receive any remunerationfrom the Group personally. The fees disclosedabove for N. Pitchford, are paid to ImperialInnovations Group plc (and / or any of its associatedgroup companies)

d. Chief Executive Officer. The Chief ExecutiveOfficer’s pensionable base salary was increasedfrom £225,000 per annum to £228,375 pa witheffect from 1 April 2015.

Also included within Salary / Fees in the amountsdisclosed in the table above is an additional non-pensionable £30,000 per annum allowance payablewith effect from 1 August 2015 in relation to therelocation of the head office from London toCambridge (2015: £15,000 with effect from 1August 2014). Taxable relocation and additionaltravel expenses up to August 2015 have also beenreimbursed during the year.

Subsequent to the year-end a 2% pay rise wasapplied with effect from 1 April 2016 bringing thebasic pensionable salary to £232,943 per annum.The bonus payable for the year-ended 31 March2016 reflects amounts due and payable for theyear.

e. Chief Financial Officer. The Chief Financial Officer’sbase pensionable salary was increased from£180,000 pa to £182,700 with effect from 1 April2015. Also included within Salary / Fees in theamounts disclosed in the table above is anadditional non-pensionable £25,000 per annumallowance payable with effect from September2015 in relation to the relocation of the head officefrom London to Cambridge (2015: £15,000 witheffect from August 2014). Taxable relocation andadditional travel expenses up to August 2015 havealso been reimbursed during the year.

Subsequent to the year-end a 2% pay rise wasapplied with effect from 1 April 2016 bringing thebasic pensionable salary to £186,425 per annum.The bonus payable for the year-ended 31 March2016 reflects amounts due and payable for theyear.

f. S Mery did not receive any remuneration from theGroup personally. The remuneration disclosed inthe comparative above for him, was paid toBeringea LLP. S Mery is no longer a Director.

g. Mercia Fund Management (Nominees) Limited didnot receive any remuneration from the Groupdirectly which was paid to Mercia FundManagement Limited. Mercia Fund Management(Nominees) Limited no longer provide a director tothe board.


The interests of the Directors in options over Ordinary Shares of the Company

Scheme Grant Date

At 31 March

2015 Issued in the year

Exercised in the year

At 31 March

2016 Exercise

Price Expiry

Date

J Burt Issue 1 EMI 29-11-13 576,210 – (424,537) 151,673 £0.001 29-11-23Issue 2 EMI 25-03-14 1,000,000 – – 1,000,000 £0.001 25-03-24J. Burt total 1,576,210 – (424,537) 1,151,673

– –A. Lundemose Non-EMI 01-05-12 75,000 – – 75,000 £0.001 01-05-22N. Pitchford – – – – – – – –

J Smith Issue 1 EMI 29-11-13 316,285 – (233,032) 83,253 £0.001 29-11-23Issue 2 EMI 25-03-14 625,000 – – 625,000 £0.001 25-03-24J. Smith total 941,285 – (233,032) 708,253

No price was paid for the award of any of the options referred to in the table above.

The options set out in the table above were granted prior to the admission of the Company’s ordinary shares to trading on AIM on 10 July 2014 (Admission) upon the conversion of former options over shares in a subsidiary of the Group that were granted to those individuals. The options may be exercised subject to their terms, unless at the date of any purported exercise the options have lapsed. No changes since grant have been made to the criteria relating to any of the options described above.

Directors exercised 657,569 options during the year (year-ended March 2015: 1,683,135). The market price of the Company’s shares at the end of the financial year (being at close on the last trading day of that year, 31 March 2016) was £0.495 (31 March 2015: £0.8325). The range of prices during the year was between £0.8325 and £0.495.

On behalf of the Board

K. CunninghamChairman, Remuneration Committee13 June 2016

Report of the Independent Auditors to the members of Abzena plc | Abzena Annual Report 2016 50

Report of the Independent Auditors to the members of Abzena plc We have audited the financial statements of Abzena Plc for the year ended 31 March 2016 which comprise the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position and Company Statement of Financial Position, the Consolidated Cash Flow Statement, the Company Cash Flow Statement, the Consolidated Statement of Changes in Equity, the Company Statement of Changes in Equity, and the related notes. The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in a Report of the Auditors and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement 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). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.

Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at:

• www.frc.org.uk/apb/scope/private.cfm

Opinion on financial statements In our opinion:

• the financial statements give a true and fair view of thestate of the Group’s and of the parent Company’s affairs as at 31 March 2016 and of the Group’s loss for the year then ended;

• the financial statements have been properly prepared inaccordance with IFRSs as adopted by the European Union;

• and, the financial statements have been prepared inaccordance with the requirements of the Companies Act2006;

Opinion on other matters prescribed by the Companies Act 2006 In our opinion:

• the part of the Directors’ Remuneration Report to beaudited has been properly prepared in accordance with the Companies Act 2006;

• the information given in the Directors’ Report for thefinancial year for which the financial statements areprepared is consistent with the financial statements.

Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by theparent company, or returns adequate for our audit havenot been received from branches not visited by us; or

• the parent company financial statements and the part ofthe Directors’ Remuneration report to be audited are not in agreement with the accounting records and returns; or

• certain disclosures of directors’ remuneration specified bylaw are not made; or

• we have not received all the information and explanations we require for our audit.

Alan Poole BA (Hons) FCA (Senior Statutory Auditor) for and on behalf of James Cowper Kreston Chartered Accountants and Statutory Auditor 2 Chawley Park Cumnor Hill Oxford OX2 9GG

Date: 13 June 2016

Abzena Annual Report 2016 | Consolidated Financial Statements 51

Consolidated Financial Statements Consolidated Income Statement

Year ended Year ended 31 March 2016 31 March 2015

Note £’000 £’000

Continuing operations

Revenue 2 9,854 5,667 Cost of sales (5,319) (2,532)

Gross profit 4,535 3,135

Other operating income 367 189 Research and development costs (4,216) (2,989) Administrative expenses - Other (9,047) (5,634) Exceptional items, impairment of intangible assets 4 (1,007) – Exceptional items, acquisition costs 4 (1,535) –

Operating loss (10,903) (5,299)

Finance income 3 263 88 Finance expense 3 (19) (9)

Loss before income tax 4 (10,659) (5,220)

Income tax 6 961 498


Basic and diluted losses per Ordinary Share 7 (9)p (7)p

The accompanying notes are an integral part of these consolidated financial statements

Consolidated Statement of Comprehensive Income Year ended Year ended

31 March 2016 31 March 2015 Note £’000 £’000


Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign operations (216) –

Other comprehensive loss for the year net of tax (216) –

Total comprehensive loss for the year (9,914) (4,722)

The accompanying notes are an integral part of these consolidated financial statements

Consolidated Financial Statements | Abzena Annual Report 2016 52

Consolidated Statement of Financial Position At 31 March 2016 At 31 March 2015

Note £’000 £’000 Assets Non–Current Assets Goodwill 10 15,060 2,032 Other intangible assets 10 8,117 6,910 Property, plant and equipment 11 4,170 1,490

Total Non–Current Assets 27,347 10,432

Current Assets Inventories 13 1,379 817 Trade and other receivables 14 5,436 3,161 Current income tax assets 1,569 1,147 Cash and cash equivalents 15 13,724 15,799

Total Current Assets 22,108 20,924

Total Assets 49,455 31,356

Equity and Liabilities Equity attributable to equity holders Issued share capital 16 272 195 Share premium 41,263 18,982 Retained earnings (1,026) 8,672 Share based payment reserve 155 – Contingent consideration reserve 608 – Foreign exchange reserve (216) –

Total Equity 41,056 27,849

Liabilities Non-current liabilities Other non-current liabilities 18 518 –

Deferred tax 6 2,031 1,153

Total Non-Current Liabilities 2,549 1,153

Current liabilities Trade and other payables 18 5,488 2,354 Provisions 19 362 –

Total Current Liabilities 5,850 2,354

Total Liabilities 8,399 3,507

Total Equity and Liabilities 49,455 31,356

Company Registered Number: 08957107 The financial statements were approved by the Board and are signed on its behalf by:

J. Smith13 June 2016


Company Statement of Financial Position At 31 March 2016 At 31 March 2015

Note £’000 £’000 Assets Non–Current Assets Investments 12 13 13

Total Non–Current Assets 13 13

Current Assets Trade and other receivables 14 40,248 19,237

Cash and cash equivalents 15 1,347 –

Total Current Assets 41,595 19,237

Total Assets 41,608 19,250

Equity and Liabilities Equity attributable to equity holders Issued share capital 16 272 195 Share premium 41,263 18,982 Retained earnings 73 73

Total Equity 41,608 19,250

Company Registered Number: 08957107 The financial statements were approved by the Board and are signed on its behalf by:

J. Smith13 June 2016


Consolidated Cash Flow Statement Year ended Year ended

31 March 2016 31 March 2015

Note £’000 £’000 Cash flows from operating activities


Adjustments to reconcile operating (loss) to net cash flows used in operating activities: Share based payments 155 – Depreciation of property, plant and equipment 801 285 Amortisation of intangible assets 588 504 Impairment charge for intangible assets 1,007 – Increase / (decrease) in provisions 362 (118) Net finance income (244) (79)

(7,990) (4,628)

Working Capital Adjustments (Increase) in trade and other receivables (1,203) (898) (Increase) in inventories (562) (522)(Decrease) / increase in trade and other payables (1,115) 1,189

Net working capital movements (2,880) (231)

Cash (used in) operating activities (10,870) (4,859)

Taxation received / (paid) 371 (133)

Net cash (used in) operating activities (10,499) (4,992)

Cash flows from investing activities Acquisitions (net of cash acquired) (9,357) – Purchase of property, plant and equipment (2,033) (1,082) Purchase of intangible assets (14) – Foreign exchange gains on subsidiary investments (216) –

Interest received 50 88

Net cash used in investing activities (11,570) (994)

Cash flows from financing activities Cash proceeds from share issues 20,924 20,627 Issue costs (911) (1,590)Interest paid (19) (9)

Net cash generated from financing activities 19,994 19,028

Net increase in cash and cash equivalents (2,075) 13,042 Cash and cash equivalents at beginning of the year 15,799 2,757

Cash and cash equivalents at end of the year 15 13,724 15,799


Company Cash Flow Statement Year ended Year ended

31 March 2016 31 March 2015 £’000 £’000

Cash flows from operating activities Profit before income tax – 200

Net cash inflow from operating activities – 200

Working Capital Adjustments (Increase) in trade and other receivables – (19,237)

Increase in trade and other creditors – –

Net working capital movements – (19,237)

Cash (used in) operating activities – (19,037)

Net cash (used in) operating activities – (19,037)

Cash flows from investing activities Investing activities (18,666)

Net cash used in investing activities (18,666) (994)

Cash flows from financing activities Cash proceeds from share issues 20,924 20,627 Issue costs (911) (1,590)

Net cash generated from financing activities 20,013 19,037

Net increase in cash and cash equivalents 1,347 – Cash and cash equivalents at beginning of the period – –

Cash and cash equivalents at end of the period 1,347 –

Significant non-cash transactions During the year, Abzena Plc issued £2,369,000 of ordinary shares as part of the consideration for the acquisition of The Chemistry Research Solution LLC (see note 23 for further details). This consideration was settled by an intermediate group company, by reducing the amounts owed to Abzena Plc and is therefore a significant non-cash transaction.


Consolidated Statement of Changes in Equity

For the year ended 31 March 2016

Note

Issued Share

Capital Share

Premium Retained Earnings

Share based payments

reserve

Contingent consideration

reserve

Foreign exchange

reserve Total £’000 £’000 £’000 £’000 £’000 £’000 £’000

Balance at 1 April 2015 195 18,982 8,672 – – – 27,849

Comprehensive income Loss for the year – – (9,698) – – – (9,698) Other comprehensive loss – – – – – (216) (216)

Transactions with Owners Value of employee services 8 – – – 155 – – 155 Contingent shares 23 – – – – 608 – 608Share capital issued (i) 16 77 23,192 – – – – 23,269Issue costs 16 – (911) – – – – (911)

Balance at 31 March 2016 272 41,263 (1,026) 155 608 (216) 41,056

(i) £20.9 million of this amount was issued for cash with a further £2.4 million issued to acquire The Chemistry ResearchSolution LLC.

For the year ended 31 March 2015

Note Issued Share Capital Share Premium Retained Earnings Total £’000 £’000 £’000 £’000

Balance at 1 April 2014 13 22,416 (8,895) 13,534

Comprehensive income Total comprehensive loss for the year – – (4,722) (4,722)

Transactions with Owners Bonus share issue 16 118 – (127) (9) E Class share conversion 16 3 – – 3 Recapitalisation 16 – (22,416) 22,416 –

Share capital issued 16 61 20,572 – 20,633

Issue costs 16 – (1,590) – (1,590)

Balance at 31 March 2015 195 18,982 8,672 27,849


Company Statement of Changes in Equity

For the year ended 31 March 2016 Note Issued Share Capital Share Premium Retained Earnings Total

£’000 £’000 £’000 £’000

Balance at 1 April 2015 195 18,982 73 19,250

Comprehensive income Total comprehensive income for the year – – – –

Transactions with Owners Value of employee services 16 – – – – Contingent shares 23 – – – – Share capital issued (i) 16 77 23,192 – 23,269Issue costs (911) – (911)

Balance at 31 March 2016 272 41,263 73 41,608

(i) £20.9 million of this amount was issued for cash with a further £2.4 million issued to acquire The Chemistry ResearchSolution LLC.

For the year ended 31 March 2015 Note Issued Share Capital Share Premium Retained Earnings Total

£’000 £’000 £’000 £’000

Balance at start of year – – – –

Comprehensive income Total comprehensive income for the year – – 200 200

Transactions with Owners Share for share exchange 16 13 13 Bonus share issue 16 118 – (127) (9) E Class share conversion 16 3 – – 3 Share capital issued 61 20,572 – 20,633Issue costs – (1,590) – (1,590)

Balance at 31 March 2015 195 18,982 73 19,250

Notes to the consolidated financial statements | Abzena Annual Report 2016 58

Notes to the consolidated financial statements 1. Summary of significant accounting policies

General information Abzena Plc is a public limited company incorporated and domiciled in England and Wales with registered number 08957107. The Company’s registered office is Babraham Research Campus, Babraham, Cambridge, CB22 3AT.

The principal activity of the Group is that of life science R&D and the provision of services and technology licensing to the biopharmaceutical industry.

The consolidated Financial Information comprises a consolidation of the Company and the following subsidiary companies: Company Country of Incorporation Abzena Holdings Limited England & Wales

Holding Company Abzena Holdings Inc. USA

Holding Company Abzena Manufacturing Inc. USA

Holding company Abzena Inc. USA

Holding Company Abzena Manufacturing Property Inc. USA

Holding company Abzena Pennsylvania Inc. USA

Holding company Abzena Property Inc. USA

Holding company Antitope Limited England & Wales

Services & technology licensing to the biopharmaceutical industry Denceptor Therapeutics Limited England & Wales

Dormant PacificGMP USA

Manufacturing of biopharmaceutical products PolyTherics Limited England & Wales

Services & technology licensing to the biopharmaceutical industry The Chemistry Research Solution LLC USA

Services & technology licensing to the biopharmaceutical industry Warwick Effect Polymers Limited England & Wales

Services & technology licensing to the biopharmaceutical industry

All the subsidiaries of the Group are 100% owned by the Group and have been included in the consolidated Financial Information from the date of acquisition.

The Group’s Financial Information presented is as at 31 March 2016 and 31 March 2015 and for the year ended 31 March 2016 and year ended 31 March 2015.

The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the financial periods presented, unless otherwise stated.

Abzena Annual Report 2016 | Notes to the consolidated financial statements 59

Basis of preparation The consolidated Financial Statements have been prepared in accordance with European Union Endorsed International Financial Reporting Standards (IFRSs), the IFRS Interpretations Committee (formerly the International Financial Reporting Interpretations Committee (IFRIC)) interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The Financial Statements have been prepared on a going concern basis and under the historical cost convention, except for certain financial instruments that have been measured at fair value.

The preparation of the Financial Statements in conformity with IFRS as endorsed by the EU 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.

Merger accounting On 23 May 2014 Abzena Plc acquired the entire issued share capital of PolyTherics Limited in a share for share exchange, in an exact replication of the pre-existing share capital. Reorganisations involving entities under common control are outside the scope of IFRS 3, and there is no other specific IFRS guidance that applies in these circumstances. Accordingly, the Directors have used their judgement to develop an accounting policy that is relevant and reliable and therefore the Group reconstruction has been accounted for using the merger method of accounting in accordance with FRS 6, which treats the merged entities as if they had been combined throughout the current and comparative accounting periods. Under merger accounting, the results for the Group have been reported as if the Group had been in existence in its current form through the current and previous financial years. No purchased goodwill was created in the transaction and the assets and liabilities of PolyTherics Limited were not adjusted to reflect their fair value.

Revenue recognition Revenue, which excludes value added tax, represents the income generated by the Group from services provided to external parties, licensing activities and grants. Revenue is recognised only when it is reasonably certain that the economic benefits associated with the transaction will flow to the Group.

Revenue in respect of service contracts, where the Group’s contractual obligations are performed gradually over time, is recognised as the contracted activity progresses, to reflect the Group’s partial performance of its contractual obligations. The stage of completion requires a degree of estimation and judgement by management, although typically obligations are discharged evenly over the

performance period and revenue is therefore typically recognised on a straight-line basis. This is not necessarily in line with the stage payments specified within contractual agreements, resulting in accrued and deferred revenue, as appropriate. Where the substance of a contract is that a right to consideration does not arise until the occurrence of a critical event, revenue is not recognised until the event occurs. Consideration for options and similar contingent receipts are recognised when the contingency is resolved or from the point the option is exercised.

Revenue in respect of licensing activities typically comprises an initial up–front fee receivable on signature of the agreement, followed by subsequent payments when certain milestone conditions are met. In addition, future sales royalties may also be due under licence agreements. The initial up–front fee receivable on the signature of a licence agreement is generally recognised in full on the date the agreement is executed, as long as all of the Group’s obligations required to enter into the licence have been completed and at the point that the up-front fee becomes non-refundable. Milestone payments are recognised only when all the conditions stipulated in the agreement are satisfied for the particular milestone payment and all the Group’s obligations have been met. Future sales royalties receivable under a licence would generally be recognised on receipt of a royalty statement unless accurate sales information is available to accrue revenue for royalty over the financial period. To date, the Group has not received nor recognised any royalty income.

Grant income is typically claimed quarterly in arrears and is recognised on a straight line basis throughout each quarter. Where a grant claim has not been made, grant income is accrued on a straight line basis. Grant income is disclosed as Other Operating Income on the face of the Consolidated Statement of Comprehensive Income. Government grants received relating to property, plant and equipment are treated as deferred income and released to the Consolidated Statement of Comprehensive Income over the shorter of the period of the grant, or the life of the asset.

Goodwill and intangible assets arising on business combinations IFRS 3 (revised) “Business Combinations” requires that goodwill arising on the acquisition of subsidiaries is capitalised and included in intangible assets. IFRS 3 (revised) also requires the identification of other intangible assets at acquisition. The assumptions involved in valuing these intangible assets requires the use of estimates and judgements which may differ from the actual outcome. These estimates and judgements cover future growth rates, expected inflation rates and the discount rate used. Changing the assumptions selected by management could significantly affect the allocation of the purchase price paid between goodwill and other acquired intangibles.


Classification of IPO and share issuance costs Due to the nature of an initial public offering (IPO) and other public share issuances new shares are issued to raise additional capital and, along with existing shares, subsequently become listed on a stock exchange. Judgement is required in assessing whether the associated expenditure is directly attributable to the issue of shares and whether it meets the criteria to be offset against the share premium account.

Recent accounting developments

New standards, amendments and interpretations

(a) Standards, amendments andinterpretations effective in 2016 and applied by the Group: The Company has adopted the following revisions and amendments to IFRS issued by the International Accounting Standards Board, which are relevant to and effective for the Group's financial statements for the period beginning 1 April 2015.

• IFRS 2 Share-based Payment - Definitions ofvesting conditions

• IFRS 3 Business Combinations - Accounting forcontingent consideration in a business combination

• IFRS 8 Operating Segments - Aggregation ofoperating segments

• IFRS 8 Operating Segments - Reconciliation of thetotal of the reportable segments’ assets to theentity's assets

• IAS 16 Property, Plant and Equipment and IAS 38Intangible Assets - Revaluation method -proportionate restatement of accumulateddepreciation/amortisation

• IAS 24 Related Party Disclosures - Keymanagement personnel

• IAS 19 Employee Benefits - Discount rate: regionalmarket issue

The Directors have assessed that the adoption of these revisions and amendments did not have an impact on the financial position or performance of the Company.

(b) Standards, amendments andinterpretations that are not yet effective and have not been early adopted: At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:

Effective date* -01-Jan-16 • IFRS 10 and IAS 28 Sale or Contribution of Assets

between an Investor and its Associate or JointVenture - Amendments to IFRS 10 and IAS 28

• IFRS 10 and IAS 28 Sale or Contribution of Assetsbetween an Investor and its Associate or JointVenture - Amendments to IFRS 10 and IAS 28

• IFRS 10, IFRS 12 and IAS 28 Investment Entities:Applying the Consolidation Exception - Amendmentsto IFRS 10, IFRS 12 and IAS 28

• IFRS 11 Accounting for Acquisitions of Interests inJoint Operations - Amendments to IFRS 11

• IFRS 14 Regulatory Deferral Accounts• IAS 1 Disclosure Initiative - Amendments to IAS 1• IAS 16 and IAS 38 - Clarification of Acceptable

Methods of Depreciation and Amortisation -Amendments to IAS 16 and IAS 38

• IAS 16 and IAS 41 Agriculture - Bearer Plants -Amendments to IAS 16 and IAS 41

• IAS 27 - Equity Method in Separate FinancialStatements - Amendments to IAS 27

• IFRS 5 Non-current Assets Held for Sale andDiscontinued Operations - Changes in methods ofdisposal

• IFRS 7 Financial Instruments: Disclosures - Servicingcontracts

• IFRS 7 Financial Instruments: Disclosures -Applicability of the offsetting disclosures tocondensed interim financial statements

• IAS 34 Interim Financial Reporting - Disclosure ofinformation 'elsewhere in the interim financialreport'

Effective date* -01-Jan-17 • IAS 7 Disclosure Initiatives – Amendments to IAS 7• IAS 12 Recognition of Deferred Tax Assets for

Unrealised Losses – Amendments to IAS 12Effective date* -01-Jan-18 • IFRS 15 Revenue from Contracts with Customers• IFRS 9 Financial Instruments

Effective date* -01-Jan-19 • IFRS 16 Leases

* the standard is effective for accounting periodsbeginning in or after this date


The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group.

Basis of consolidation The Group’s consolidated Financial Information consists of Abzena Plc and all of its subsidiaries.

Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Control comprises the power to govern the financial and operating policies of the investee so as to obtain benefit from its activities and is achieved through direct or indirect ownership of more than half of the voting rights, or by way of contractual agreement. The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of acquisition is measured at fair value of assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Acquisition related costs are expensed as incurred. Identifiable assets acquired, and liabilities and contingent liabilities assumed, in a business combination are initially measured at their fair values at acquisition date, irrespective of the extent of any non–controlling interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets is recorded as goodwill.

Inter–company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiary undertakings have been changed where necessary to ensure consistency with the policies adopted by the Group.

Foreign currency translation The consolidated Financial Statements are presented in pounds sterling, which is the Group’s presentational currency. The Group determines the functional currency of each entity. Transactions undertaken in foreign currencies are translated into the functional currency of the subsidiary at the exchange rate prevailing on the date of the transaction. Foreign currency assets and liabilities are translated into the functional currency at the rates of exchange ruling at the year-end date. Any exchange differences arising are included within ‘Administrative expenses’ in the Consolidated Income statement. This also applies to sterling-based entities with foreign currency transactions, assets and liabilities. The Group has subsidiaries which are denominated in United States dollars. The results of these subsidiaries are translated monthly at the prevailing rate of exchange. At each reporting period end, the assets and liabilities are translated at the closing rate of exchange. Gains or losses

on translation are recorded in the Consolidated Statement of comprehensive income and as a separate component of equity. Such gains or losses are transferred to the Consolidated Income statement on disposal or liquidation of the relevant subsidiary.

Financial instruments The Group uses financial instruments comprising cash and cash equivalents and various other short–term instruments such as trade receivables and trade payables which arise from its operations. The main purpose of these financial instruments is to fund the Group’s business strategy and the short–term working capital requirements of the Group.

Trade and other receivables 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 receivables. The amount of the provision is the difference between the asset's carrying amount and the present value of the estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the Consolidated Statement of Comprehensive Income within administrative expenses.

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

Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held with banks, bank overdrafts and other short–term highly liquid investments with original maturities of less than 3 months. Short term liquid investments with a maturity of over three months would be included in a separate category, ‘Short term liquidity investments’.

Research and development Research costs are written off to the Consolidated Income Statement in the year in which they are incurred. All research costs, whether funded by grant or not, are included within R&D costs on the face of the income statement.


All ongoing development expenditure is currently expensed in the year in which it is incurred. Due to the regulatory and other uncertainties inherent in the development of the Group’s programmes, the criteria for development costs to be recognised as an asset, as prescribed by IAS 38, “Intangible assets”, are not met until the product has been submitted for regulatory approval, such approval has been received and it is probable that future economic benefits will flow to the Group. The Group does not currently have any such internal development costs that qualify for capitalisation as intangible assets.

Pensions The Group makes payments to defined contribution schemes. The assets of the schemes are held separately from the Group in independently administered funds. Contributions made by the Group are charged to the Consolidated Statement of Comprehensive Income in the period to which they relate.

Inventories Inventories are stated at the lower of cost and net realisable value. Cost includes all expenditure directly attributable to bringing each product to its present location and condition on a first in first out basis, unless separately identified. Net realisable value is based on estimated selling price, or value in use less further costs expected to be incurred to completion and disposal. Where necessary, provision is made for obsolete, slow moving and defective inventories.

Current and deferred income tax Income tax on the result for the year comprises current and deferred tax. Income tax is recognised in the Consolidated Statement of Comprehensive Income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable or receivable on the taxable income for the period, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous periods.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Operating leases Rentals paid under operating leases are charged to the Consolidated Statement of Comprehensive Income on a straight line basis over the period of the lease.

Benefits received and receivable as an incentive to sign an operating lease are recognised on a straight line basis over the period of the lease.

Warrants Where the Company issues shares and equity-classified warrants in the same transaction, the Group estimates the fair value of the warrant instruments. If material, the fair value of the warrants is recorded as a separate component of equity.

Goodwill Goodwill arising on the acquisition of a subsidiary represents the excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill impairment reviews are undertaken annually, or more frequently if events or changes in circumstances indicate potential impairment. The carrying value of goodwill is compared with the recoverable amount, which is the higher of the value in use and the fair value less costs to sell. Any impairment is recognised immediately as an expense, separately disclosed in the intangible fixed asset note to the financial statements, and is not subsequently reversed.

Impairment The carrying value of non-current assets is reviewed whenever events or changes in circumstances indicate that the carrying value may not be recoverable to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. Intangible assets initially recognised during the current annual period which are not yet available for use are also tested for impairment by reference to the asset’s recoverable amount at the balance sheet date.


An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the greater of the fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows over the remaining useful economic life of the asset in question are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Exceptional Items The Group discloses separately items of income or expenditure which are by nature not expected to recur as part of the normal operational activity of the business. Such items are shown separately on the face of the Consolidated Statement of Comprehensive Income.

Segmental reporting An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity’s Chief Operating Decision Maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Operating segments are aggregated into reporting segments where they share similar economic characteristics.

Equity All the classes of the Group’s share capital are classified as equity. Share capital is determined using the nominal value of shares issued.

The share premium account represents premiums received on the initial issuing of share capital. Incremental costs directly attributable to the issue of new share capital are shown as a deduction, net of tax, from the share premium account.

The share based payment reserve represents the cumulative amount which has been expensed in the Consolidated Statement of Comprehensive Income in connection with equity settled share based payments, less any amounts transferred to the profit and loss account on the exercise of share options.

Retained earnings include all current and prior results as disclosed in the Consolidated Statement of Comprehensive Income

Where, as part of a business combination, the Group enters into an agreement which includes a contingent element that is classified as equity, these amounts are fair

valued at the date of acquisition and held in a separate equity reserve. These amounts are not subsequently re-measured but are transferred to share capital and share premium on settlement of the contingent consideration.

Significant accounting judgements and estimates The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated Financial Statements are as follows:

Restricted stock units (RSUs) Where the Company issues restricted stock units classified as equity instruments, the Group estimates the fair value of the RSU’s at the date of issue and records the value as a separate component of equity under deferred consideration. Where the Company issues restricted stock units classified as liabilities, the Group estimates the fair value of the RSU’s at the date of issue and records this as a financial liability. At each subsequent balance sheet date the Group revalues the liability using observable market based data wherever possible and applying estimates where not possible. Fair value gains and losses are recorded in the income statement under financial income.

Restructuring provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that the Group will be required to settle that obligation and the amount can be estimated reliably. Provisions are measured at the best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

Share–based payments Employees (and Directors) receive remuneration in the form of equity–settled share–based payments, whereby employees render services in exchange for shares or for rights over shares. The fair value of the employee services received in exchange for the grant of options or shares is recognised as an expense. The total amount to be expensed on a straight line basis over the vesting period is determined by reference to the fair value of the options or shares determined at the grant date, excluding the impact of any non–market based vesting conditions (for example, continuation of employment and performance targets).

The share options are valued using the Black-Scholes option pricing model. Non–market based vesting conditions are included in assumptions about the number of options that are expected to become exercisable or the


number of shares that the employee will ultimately receive. This estimate is revised at each Balance Sheet date to allow for forecast leaving employees and the difference is charged or credited to the Consolidated Statement of Comprehensive Income, with a corresponding adjustment to reserves.

Impairment of goodwill and acquired intangibles Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating unit (“CGU”) to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows of the CGU, and a suitable discount rate, in order to calculate present value. Similar calculations are required in respect of other acquired intangibles. Changing the assumptions selected by management, in particular the discount rate and growth rate assumptions used in the cash flow projections, could significantly affect the Group’s impairment evaluation.

Acquired intangible assets At the date of acquisition of a subsidiary, intangible assets that are separately identifiable and that arise from contractual or other legal rights are capitalised and included within net identifiable assets acquired. These intangible assets are initially measured at fair value, which reflects market expectations of the probability that the future economic benefits embodied in the asset will flow to the entity, and are amortised as follows:

Licence portfolio

Over the residual life of the underlying patents, once royalties begin to be paid in respect of the underlying licences

Existing customer relationships

Straight line over expected useful economic life estimated to be 2 - 9 years

Trade names Straight line over expected useful economic life estimated to be 8 years

Current technology

Straight line over expected useful economic life estimated to be 10 years

They are subsequently measured at cost less accumulated amortisation and impairment. At each balance sheet date, these assets are assessed for indicators of impairment and, in the event that an asset’s carrying amount is determined to be greater than its recoverable amount, the asset is written down immediately through the Consolidated Statement of Comprehensive Income.

Property, plant and equipment All property, plant and equipment are stated at historical cost less accumulated depreciation, together with any incidental costs of acquisition. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is provided on all property, plant and equipment at rates calculated to write each asset down to its estimated residual value on a straight line basis over its expected useful life, as follows:

Leasehold property improvements - over the life of the lease Fixtures, fittings and equipment -20%-33% straight line

The assets’ residual lives are reviewed annually and adjusted as appropriate.


2. Segmental reporting

The Group has adopted IFRS 8, “Operating Segments”. IFRS 8 defines operating segments as those activities of an entity about which separate financial information is available and which are evaluated by the Chief Operating Decision Maker to assess performance and determine the allocation of resources. The Chief Operating Decision Maker has been identified as the Board of Directors. The Directors are of the opinion that under IFRS 8 the Group has only one operating segment, being the provision of services and technology licencing to the biopharmaceutical industry through short-term service contracts and long-term licencing agreements. The Board of Directors assess the performance of the operating segment using financial information which is measured and presented in a manner consistent with that in the Financial Statements. Segmental reporting will be reviewed and considered in light of the development of the Group’s businesses over the next period.

The Group had no single significant customer which alone contributed more than 7 % of Group revenue in 2016 (2015: largest customer contributed 10%). An analysis of the revenue from all sources is as given below:

Analysis of revenue by location of customer: Year ended Year ended

31 March 2016 31 March 2015 £’000 £’000

North America 6,640 3,027 Europe (excluding United Kingdom) 2,048 1,944 United Kingdom 580 522 Other 586 174

Total 9,854 5,667

Analysis of revenue by category: Year ended Year ended

31 March 2016 31 March 2015 £’000 £’000

Biology research services Immunology 3,978 2,940 Protein engineering 1,321 1,218

5,299 4,158

Chemistry research services 2,174 657

GMP Manufacturing Cell line development 525 594 Contract GMP manufacturing 1,571 –

2,096 594

Licence revenue 285 258

Total 9,854 5,667


3. Finance income and expenses


£’000 £’000 Interest received 50 88 Net gains on financial instruments 213 – Finance Income 263 88 Finance Expense (19) (9)

4. Loss before income tax

Loss before income tax is stated after charging / (crediting): Year ended Year Ended 31 March 2016 31 March 2015

£’000 £’000 Depreciation of property, plant and equipment 801 285 Amortisation of intangible fixed assets 588 504 Operating lease costs (land and buildings) 607 408 Cost of inventories recognised as an expense 3,722 2,438 Exceptional items 2,542 Foreign exchange losses / (gains) (73) (4)

Auditors’ remuneration: Fees payable to the Group’s auditors for the audit of the parent Company and consolidated accounts 50 16 Fees payable to the Group’s auditors for other services: - The auditing of accounts of subsidiaries of the Company pursuant to

Legislation by Group and subsidiaries’ auditors 93 44 - Other services supplied including services for taxation compliance 9 13 - All other non-audit services 66 78

Total auditors’ remuneration 218 151

Exceptional costs in the year amounted to £2,542,000 (2015: £nil). The charge principally arose from legal and professional fees pursuant to the PacificGMP and The Chemical Research Solution LLC acquisitions (£1,535,000). In addition, there was an impairment of the intangible assets and goodwill in respect of Warwick Effect Polymers and Antitope Limited (£1,007,000).


5. Employees and Directors

Analysis of payroll costs by category: Year ended Year ended 31 March 2016 31 March 2015

£’000 £’000

Wages and salaries 6,844 4,390 Social security costs 737 470 Other pension costs 480 370

Total 8,061 5,230

Average monthly number of persons (including Executive Directors but excluding non-executive Directors) employed: By Activity Year ended Year ended

31 March 2016 31 March 2015

Laboratory staff 104 64 Sales, marketing, business development, administration and management 35 27

Total 139 91

Key Management Compensation

The Group considers all members of the Board (including Non-Executive Directors) to be key management.

Directors’ emoluments are as follows:


£’000 £’000

Aggregate Emoluments 754 610 Company contributions to defined contribution pension schemes 27 26 Sums paid to third parties for Directors’ services 30 37

Total 811 673

The Group contributes to defined contribution money purchase pension schemes for its Executive Directors and employees. Contributions of £2,000 (included in other payables) were payable to pension funds for the benefit of Directors at the year-end (2015: £2,000).The details of Directors who received emoluments from the Group are shown in the tables contained in the Directors’ Remuneration Report.


6. Taxation

Analysis of taxation (credit) in the year

The Group is entitled to claim tax credits in the United Kingdom for certain R&D expenditure. The amount included in the financial information represents the credit receivable by the Group for the year. The 2016 amounts have not yet been agreed with the relevant tax authorities.


£’000 £’000

Analysis of credit in the period: United Kingdom corporation tax (718) (440)Corporation tax in respect of overseas subsidiaries – –

Adjustment in respect of prior period (36) (33)

Total Current Tax (754) (473)

Deferred Tax (257) Origination and reversal or temporary differences 50 (22) Effect of rate change on opening balance – (3)

Total Tax in the Consolidated Statement of Comprehensive Income (961) (498)

Additionally, included in other operating income is £193,000 (2015: £132,000) in respect of a R&D expenditure credit.

There is no current tax charge in the year as the Group has utilized losses brought forward and is entitled to a cash tax credit in the United Kingdom for certain R&D expenditure. The repayable tax credit for the year is lower (2015: lower) than the credit that would be repayable at the standard rate of corporation tax in the UK of 20% (2014: 21%). The differences are explained in the following table:

Tax reconciliation Year ended Year ended

31 March 2016 31 March 2015 £’000 £’000


Loss before income tax multiplied by the standard rate of corporation tax in the UK of 20% (2015: 21%)

(2,132) (1,096)

Tax effect of: Different statutory tax rates of overseas jurisdictions – Non-taxable and non-deductible items 239 35 Additional deduction for R&D expenditure (685) (537)Surrendered losses for R&D tax credit 272 222 Utilization of tax losses – 62Adjustments in respect of prior periods (36) (33)Changes in tax rates – (6)Adjustments to deferred tax 23 16Current year losses for which no deferred tax asset has been recognised 1,313 771Other temporary differences 45 68

Total Tax Credit (961) (498)


The Finance Act 2013 which provided for reductions in the main rate of corporation tax for 23% to 21% effective from 1 April 2014 and to 20% effective from 1 April 2015, was substantively enacted on 22 July 2013. These rate reductions have been reflected in the calculation of deferred tax at the balance sheet date. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. A change to the UK corporation tax rate was announced in the Chancellor’s Budget on 16 March 2016. The change announced is to reduce the main rate to 17% from 1 April 2020. Changes to reduce the UK corporation tax rate to 19% from 1 April 2017 and to 18% from 1 April 2020 had already been substantively enacted on 26 October 2015. As the change to 17% had not been substantively enacted at the balance sheet date its effects are not included in these financial statements. The overall effect of that change, if it had applied to the deferred tax balance at the balance sheet date, would not be material.

Deferred tax liability


£’000 £’000

Balance at 1 April 1,153 1,183 Deferred tax liability acquired with subsidiary undertakings 2 – Deferred tax liability arising on intangible fixed assets recognised in business combination

1,112 –

Unwinding of deferred tax during the period (257) (95)Movement in fixed asset temporary differences 50 68 Movement in short term temporary differences (29) (3)

Total deferred tax liability 2,031 1,153


£’000 £’000

Fixed asset temporary differences 2,060 1,156 Short term temporary differences (29) (3)

Total deferred tax liability 2,031 1,153

As at 31 March 2016, the unrecognised deferred tax asset amounted to £2,860,000 (2015: £2,348,000). This deferred tax asset is in respect of cumulative losses incurred to date. The Directors have not recognised this asset, as they are not sufficiently certain, with regard to the recoverability of the asset.


7. Losses per share

Basic losses per share is calculated by dividing the loss for the financial year by the weighted average number of Ordinary Shares in issue during the period. The losses and weighted average number of shares used in the calculations are set out below:


£’000 £’000

Loss for the financial period (£’000) (9,698) (4,722) Weighted average number of Ordinary Shares (basic) (thousands) 109,397 71,615 Losses per Ordinary Share basic (pence) (9)p (7)p

As net losses were recorded in 2016 and 2015, the potentially dilutive share options and restricted stock units are anti-dilutive for the purposes of the losses per share calculation and their effect is therefore not considered.

8. Share–based payments

Awards made under long–term incentive and other arrangements The following applies to share options awarded to employees and outstanding at each year end under the Group’s EMI Share Option Schemes (the EMI Schemes) and the Group’s Unapproved Share Option Scheme (the Unapproved Scheme):

Options over ordinary shares outstanding as at 31 March 2016

Grant Date Share Price* Total number options

Exercise price

Risk-free Rate

Fair value per Option

Expected forfeiture

Vesting Schedule

EMI Unapproved

29-Nov-13 £0.001 960,051 75,000 £0.001 1.5% £0.001 15% A 06-Jan-14 £0.001 69,144 – £0.001 2.8% £0.001 15% B 25-Mar-14 £0.001 4,257,845 – £0.001 1.3% £0.001 15% C 16-Sep-15 £0.690 708,139 – £0.01 1.4% £0.68 15% D 24-Nov-15 £0.690 250,000 – £0.01 1.4% £0.68 15% E

Total 6,245,179 75,000

* The share price in the table above reflects the share price of ordinary shares at the date of grant of the option. Grantsprior to 16 September 2015 reflect nominal value of shares in Polytherics.

Options over ordinary shares outstanding as at 31 March 2015

Grant Date Share Price Total number options

Exercise price

Risk-free Rate

Fair value per Option

Expected forfeiture

Vesting Schedule

EMI Unapproved

29-Nov-13 £0.001 1,750,915 75,000 £0.001 1.5% £0.001 7% A 06-Jan-14 £0.001 110,000 – £0.001 2.8% £0.001 20% B 25-Mar-14 £0.001 4,479,498 – £0.001 1.3% £0.001 54% C

Total 6,340,413 75,000


Option vesting schedules

A The options vest daily at a rate of 1/1460 per day, from 1 October 2013. Accelerated vesting for 25% of the options occurred as a result of the IPO.

With respect to 280,259 options, the first 25% of the options granted do not vest daily, but instead vested 25% on 1 October 2014, (with the exception of 10,000 with a vesting commencement date of 4 December 2014). The remaining 75% vest daily on a straight line basis, over the following 3 years.

B 25% of the options vested on 1st October 2014 with the remaining 75% vesting daily over the subsequent four years. An additional 25% vested as a result of the IPO, thereby accelerating the vesting profile.

C Vesting commenced on 10 July 2014 IPO over four years rateably on a daily basis. No options may be exercised until three years after Admission (9 July 2017) of the shares at which point 75% of the grant may be exercised only if the market condition test has been met.

The remaining 25% of the options are exercisable on the fourth anniversary of the Admission subject to the market condition test. The market condition test requires that the total shareholder return exceeds 8% per annum from the date vesting commences for the options to be exercisable. Vesting commences for these options at the IPO on 10 July 2014. Once this criteria has been met the options remain exercisable subject to the vesting provisions.

D Vesting commenced on employee joining date over four years rateably on a daily basis. No options may be exercised until three years after the employee joining date at which point 75% of the grant may be exercised only if the market condition test has been met.

The remaining 25% of the options are exercisable on the fourth anniversary of the employee joining date subject to the market condition test.

The market condition test requires that the total shareholder return exceeds 8% per annum from the IPO on 10 July 2014. Once this criteria has been met the options remain exercisable subject to the vesting provisions.

The weighted average exercise price for options outstanding at the year-end was £0.001 (31 March 2015: £0.001). The contractual life of the options is 10 years. Options cannot normally be exercised before the option holder has completed one year of service with the Group.

For EMI Scheme options granted on the 24 March 2014 or earlier, the option exercise price was set to equal to the fair market value which was the par value of the shares at £0.001 per ordinary share reflecting the prior ranking liquidation preferences of preferred shares prior to the Group’s IPO as agreed with HMRC between December 2011 and March 2014 for the purposes of issuing EMI stock options only. For EMI Scheme options granted 15 September 2015 or later the exercise price remains at £0.001 per share.

Options were valued using the Black–Scholes option pricing model. For each relevant option grant, individual valuation assumptions were assessed based upon conditions at the date of grant. The range of assumptions in the calculation of share based payments is as follows:

• The nature of all arrangements is the grant of share options and these have an expected option life at grant date of10 years.

• Expected dividend (dividend yield) in all cases is nil (2015: £Nil).• All option exercises are expected to be equity settled.• The expected volatility in all cases is 50% based upon the historical share price volatility of listed, comparable

businesses over a period of time equal to the expected option life ending on the date of grant (2015: 50% volatility).• The risk free rate applied to a given option ranges from 0.9% to 2.84% depending upon the grant date and is based

upon the yield on zero–coupon UK government bonds of a term consistent with the expected option life (2015: riskfree rate range 1.3% - 5.1%).

• It has been assumed that the staff attrition rate will remain at 15% throughout the period (2015: 20%).• The weighted average exercise price is £0.001 (2015: £0.001)


• The share price at date of grant was 69 pence for options granted in 2015 and 0.1 pence for options granted priorto 2015.

A reconciliation of movements in all options outstanding during the year ended 31 March 2016 and the period ended 31 March 2015 and an analysis of outstanding options is given below. There were 6,320,179 options outstanding as at 31 March 2016 (2015: 6,395,360) with a weighted average remaining contractual life of 8 years 36 days (2015: 8 years 328 days). The finance charge recognised in the Consolidated Statement of Income arising from the grant of options in the year ended 31 March 2016 was £101,000 (2015: £Nil).

Reconciliation of outstanding options

As at 31 March 2016 As at 31 March 2015 Weighted Average Exercise Weighted Average Exercise

Number Price Number Price

Outstanding at start of year 6,395,360 £0.001 2,096,558 £0.006 Exercised prior to share re-organisation – – (6,250) £0.001 Forfeited / Lapsed prior to share re-organisation – – (35,750) £0.001 Granted in period 978,000 £0.01 – – Increase due to share re-organisation – – 8,218,232 £0.006 Forfeited / Lapsed since share re-organisation – – (477,820) £0.13 Exercised since share re-organisation – – (3,399,610) £0.001 Forfeited / Lapsed in year (255,047) £0.001 – –

Exercised in year (798,134) £0.001 – –

Outstanding at end of year 6,320,179 £0.001 6,395,360 £0.001

Exercisable at end of year 3,764,063 £0.001 1,618,316 £0.001

Weighted average life remaining

(all outstanding options)

8.2 years 8.9 years

Restricted stock units

The Group has issued restricted stock units (RSU’s) which allow the holder, on vesting of the award, to be granted ordinary shares in Abzena Plc. The following applies to restricted stock units (RSU’s) issued in the year under review to employees of subsidiary companies as primarily part of the purchase arrangements of acquisitions. The second tranche of RSUs granted on 11 December 2015(601,131) have been treated as share based payments to employees of TCRS and as such do not form part of the purchase consideration:

Grant Date RSU total Expected

forfeiture rate Fair value at

acquisition date Fair Value at

31 March 2016 Note £ £

11-Dec-15 601,131 20% 319,000 n/a A

The RSU's were issued as a deferred employment related payment to employees of TCRS. The vesting criteria is, subject to discretion of the administrator, for members of staff to remain employed by the Group for two years after acquisition, for TCRS to reach USD 10 million turnover and other performance criteria to be met. The award is fixed at 601,131 shares. The share price for calculation of fair value at date of acquisition is £0.66 per share. The fair value of the award has been used to calculate the share based payment associated with the granting of this second tranche of RSUs, which has been charged to the Consolidated Income Statement, with a corresponding entry in the Share Based Payment Reserve in the Consolidated Statement of Financial Position and the Consolidated Statement of Changes in Equity. The charge recognised in the Consolidated Income Statement is £53,000


9. Profit of Parent CompanyAs permitted by Section 408 of the Companies Act 2006, the income statement of the Parent Company is not included as part of these financial statements. The Parent Company’s result for the period was a profit of £Nil (year ended 31 March 2015: £200,000).

10. Intangible Fixed Assets

For the year ended 31 March 2016 – Goodwill and Intangibles resulting from Business Combinations

Existing Customer Relationships

Trade Names

Licence Portfolio

Current Technology (1)Goodwill Total

£’000 £’000 £’000 £’000 £’000 £’000

Cost At 1 April 2015 2,058 229 3,653 1,823 2,032 9,795 Acquisitions (note 23) 2,610 – – – 13,204 15,814 Impairment – (229) – (988) (176) (1,393)

At 31 March 2016 4,668 – 3,653 835 15,060 24,216

Amortisation At 1 April 2015 402 45 – 412 – 859Amortisation in the year 400 29 – 153 – 582

Impairment – (74) – (314) – (388)

At 31 March 2016 802 – – 251 – 1,053

Net book value: At 31 March 2015 1,656 184 3,653 1,411 2,032 8,936

At 31 March 2016 3,866 – 3,653 584 15,060 23,163

For the year ended 31 March 2016 – Other Intangibles Website Total

£’000 £’000

Cost At 1 April 2015 34 34 Acquisitions 14 14

At 31 March 2016 48 48

Amortisation At 1 April 2015 28 28 Amortisation in the year 6 6

At 31 March 2016 34 34

Net book value: At 31 March 2015 6 6

At 31 March 2016 14 14


For the year ended 31 March 2015 – Goodwill and Intangibles resulting from Business Combinations

Existing Customer Relationships

Trade Names

Licence Portfolio

Current Technology (1)Goodwill Total

£’000 £’000 £’000 £’000 £’000 £’000

Cost At 1 April 2014 2,058 229 3,653 1,823 2,032 9,795 Acquisitions – – – – –

At 31 March 2015 2,058 229 3,653 1,823 2,032 9,795

Amortisation At 1 April 2014 153 17 – 191 – 361Amortisation in the year 249 28 – 221 – 498

At 31 March 2015 402 45 – 412 – 859

Net book value: At 31 March 2014 1,905 212 3,653 1,632 2,032 9,434

At 31 March 2015 1,656 184 3,653 1,411 2,032 8,936

For the year ended 31 March 2015 – Other Intangibles Website Total

£’000 £’000

Cost At 1 April 2014 34 34 Acquisitions – –

At 31 March 2015 34 34

Amortisation At 1 April 2014 22 22 Amortisation in the year 6 6

At 31 March 2015 28 28

Net book value: At 31 March 2014 12 12

At 31 March 2015 6 6

(1) In line with the requirements of IAS 38, the fair value of goodwill is measured as the purchase consideration paidin excess of an acquired business’ tangible and separately identifiable intangible assets, less liabilities. Goodwillis not amortised but is assessed for impairment at the end of each accounting period.

The amortisation charge for the period has been included in Administrative expenses in the Consolidated Statement of Comprehensive Income.


The goodwill arose on the purchase of 100% of the share capital of each of Antitope Limited on 25 July 2013 as to £1,856,000; Warwick Effect Polymers Limited on 19 January 2012 as to £176,000, PacificGMP on 11 September 2015 as to £6,203,000; and TCRS on 11 December 2015 as to £7,001,000. The goodwill represents the excess of the fair value of the consideration over the fair value of assets acquired. The detailed analysis of the assets acquired is disclosed in note 23.

The Group tests annually whether goodwill and intangible assets have suffered any impairment and tests more frequently when events or circumstances indicate that the current carrying value may not be recoverable.

The Directors consider there to be five Cash Generating Units (CGUs) at the level below the one operating segment. These are the legacy businesses of Antitope Limited, PolyTherics Limited, PacificGMP, TCRS and Warwick Effect Polymers Limited.

In considering the goodwill and other intangible asset impairment reviews the Directors have considered the legacy operations individually within the Group as conducted by Antitope Limited, PolyTherics Limited, PacificGMP, TCRS and Warwick Effect Polymers Limited.

Goodwill has been allocated to the legacy operations as follows:

TCRS Antitope Warwick Effect Polymers

PacificGMP Total

£’000 £’000 £’000 £’000 £’000

Year ended 31 March 2015 – 1,856 176 – 2,032

Year ended 31 March 2016 7,001 1,856 – 6,203 15,060

The range of key assumptions used for value in use calculations are as follows:

Year ended Year ended 31 March 31 March

2016 2015 £’000 £’000

Budgeted gross margin as % of service revenue 45% 50% Growth rate used for cash flows during the budget period 30% 5% Growth rate used to extrapolate cash flows beyond the budget period 2% 2% Weighted average cost of capital (Discount rate pre-tax) 14% 25%

The budgeted gross margin represents management’s best estimate of gross margin based on past performance of each business segment as a percentage of service revenue. The growth rate is consistent with past experience and management expectations given the level of investment made in each CGU. The discount rate applied to the cash flows reflects the weighted average cost of capital of the Company using the industry standard formula.

Goodwill associated with Warwick Effect Polymers valued at £176,000 on the date of acquisition and current technologies with a net book value of £674,000 were considered impaired at 31 March 2016 and charged under exceptional items in the Consolidated Statement of Income, with the associated deferred tax credit of £108,000 included in the taxation line. The Antitope trade name, previously identified as a separate intangible asset was considered impaired at 31 March 2016. The Group plans to discontinue the use of the Antitope name and to trade under the Abzena brand. Impaired on consolidation, this resulted in a charge to the income statement in the group financial statements of £155,000.

Notes to the consolidated financial statements | Abzena Annual Report 2016

76

11. Property, plant and equipment

Property, plant and equipment for the year ended 31 March 2016

Short term Leasehold Property

Fixtures, Fittings and Equipment

Total £’000 £’000 £’000 Cost At 1 April 2015 372 2,081 2,453 Acquisitions – 1,448 1,448 Additions 178 1,855 2,033 At 31 March 2016 550 5,384 5,934 Depreciation At 1 April 2015 202 761 963 Depreciation charge for the period 72 729 801 At 31 March 2016 274 1,490 1,764 Net book value: At 31 March 2015 170 1,320 1,490 At 31 March 2016 276 3,894 4,170

Property, plant and equipment for the year ended 31 March 2015

Short term Leasehold Property

Fixtures, Fittings and Equipment

Total £’000 £’000 £’000 Cost At 1 April 2014 170 1,201 1,371 Additions 202 880 1,082 At 31 March 2015 372 2,081 2,453 Depreciation At 1 April 2014 161 517 678 Depreciation charge for the period 41 244 285 At 31 March 2015 202 761 963 Net book value: At 31 March 2014 9 684 693 At 31 March 2015 170 1,320 1,490


12. Investments

Group The principal operating subsidiaries of Abzena Plc, all of which have been included in these consolidated financial statements, are as follows:

Country of incorporation and principal place of business

Proportion of ownership interest as at 31 March

Name 2016 2015

PolyTherics Limited United Kingdom 100% 100% Antitope Limited United Kingdom 100% 100% Warwick Effect Polymers Limited United Kingdom 100% 100% PacificGMP USA 100% – The Chemistry Research Solution LLC USA 100% –

The full list of subsidiary companies is shown in note 1.

Company Investments in subsidiary undertakings

2016 £’000

PolyTherics Ltd As at 31 March 2015 & 2016 13

The investment in PolyTherics Limited, was part of the share re-organisation, explained more fully in note 16. This reflects the share capital of PolyTherics Limited, held by the Company.

13. Inventories

31 March 2016 31 March 2015 £’000 £’000

Raw materials and consumables 1,379 817

Total inventories 1,379 817


78

14. Trade and other receivables Group Group Company Company 31 March 2016 31 March 2015 31 March 2016 31 March 2015 £’000 £’000 £’000 £’000 Current: Trade receivables 2,137 1,233 – – Accrued income 1,801 608 – – Other receivables 338 185 – 1 Value Added Tax 280 530 – – Amounts owed by Group undertakings – – 40,248 19,236 Prepayments 880 605 – –

Total 5,436 3,161 40,248 19,237

The gross value above reflects the fair value of the trade receivables and there were no indicators of impairment.

Trade receivables by currency at the reporting date were as follows: Group Group Company Company 31 March 2016 31 March 2015 31 March 2016 31 March 2016 £’000 £’000 £’000 £’000 US Dollars 1,450 542 – – Euros – 393 – – Pounds Sterling 687 298 – –

Total 2,137 1,233 – –

Trade receivables past due are as follows: 31 March 2016 31 March 2015 £’000 £’000 Not yet due 1,584 860 Past due: 0–30 days 424 113 Past due: 31–60 days 23 92 Past due: 61–90 days 8 30 Past due: More than 91 days 98 138

Total 2,137 1,233

Abzena Annual Report 2016 | Notes to the consolidated financial statements

79

15. Cash and cash equivalents The Group retains cash and cash equivalents on instant access current and deposit accounts in the following currencies:

Group Group Company Company 31 March 2016 31 March 2015 31 March 2016 31 March 2015 £’000 £’000 £’000 £’000 Sterling 13,039 15,658 1,347 – US Dollars 543 116 – – Euro 74 24 – – Other 68 1 – –

Total 13,724 15,799 1,347 –

16. Issued share capital A schedule of the issued share capital of the Company at the period ends was as follows. 31 March 2016 31 March 2015 Number Number Ordinary shares of £0.002 each (2015: £0.002 each) 136,169,592 97,468,858 Total 136,169,592 97,468,858

Share Placement during the year ended 31 March 2016 In December 2015 the Company issued 35,004,972 Ordinary shares of £0.002. Total consideration for these share issues was £20,924,000 with issue costs of £911,000.

Shares issued as consideration for acquisitions during the year ended 31 March 2016 In November 2015 the Company issued 3,609,978 Ordinary shares of £0.002, as part of the consideration for the acquisition of The Chemical Research Solution LLC for £2,369,000.

Shares issued in consideration for the exercise of Share Options during the year ended 31 March 2016 During the year ended 31 March 2016 a total of 798,134 (2015: 3,445,860) Ordinary shares were issued in consideration for the exercise of share options, for cash consideration amounting to £182 (2015: £688).


80

Share Reorganisation during the year ended 31 March 2015 Where a “share re-organisation” is referred to throughout the Annual Report, this refers to the following items: A) On 23 May 2014, the Company acquired the entire share capital of PolyTherics Limited on a share for share exchange

basis. B) A bonus issue followed on 30 June 2014, whereby each shareholder in the Company, received nine additional shares

of the same class in the Company. C) On admission every two issued shares of £0.001 were consolidated into one share each of £0.002 with the same

rights and restrictions. D) A total of 1,255,903 £0.002 Ordinary shares were then issued to the holders of E Ordinary Shares and E Preferred

shares in settlement of the 8% per annum return on the subscription investment. This resulted in an increase to share capital of £2,511.

E) On Admission each of the A Preferred, B Ordinary, B Preferred, C Preferred, D Ordinary, D Preferred, E Ordinary and E Preferred Shares in the Company, were re-designated as Ordinary £0.002 shares.

On admission 25,000,000 new Ordinary £0.002 shares were issued as a result of the IPO and financing on 10 July 2014. Total consideration for shares issued in the year ended 31 March 2015 was £20,633,000, with issue costs of £1,590,000. During the year ended 31 March 2015 1,877,778 Ordinary shares were issued as a result of warrants being exercised.

17. Warrants

A schedule of the warrants over Ordinary Shares outstanding at 31 March 2016 is set out below:

Issue Date

Expiry Date Exercise

Price Par

Value Number

Outstanding Ordinary Shares (1st issue) 15 Jun 2007 15 Jun 2017 £0.36 £0.002 406,250 Ordinary Shares (2nd issue) 27 Mar 2008 27 Mar 2018 £0.36 £0.002 517,260 Ordinary Shares (3rd issue) 16 Feb 2010 16 Feb 2020 £0.36 £0.002 37,500 961,010 Ordinary Shares (4th issue) 11 Sep 2015 11 Sep 2018 £0.80 £0.002 564,762 Ordinary Shares total 1,525,772

The movement in the warrants in the year to 31 March 2016 is as follows:

Ordinary

Shares Number At 1 April 2015 961,010 Warrants issued 564,762

At 31 March 2016 1,525,772


Summary of rights of warrant holders by type Ordinary issued 15 Jun 2007

Warrant holders have the right to subscribe for one Ordinary share at a price of £0.36 per share at any time between the issue and expiry dates.

Ordinary issued 27 Mar 2008


Ordinary issued 16 Feb 2010


Ordinary issued 11 Sep 2015

700,000 warrants were issued to warrant holders entitling each holder to convert into 0.8 ordinary shares in the Company per warrant resulting in a maximum number 564,762 Ordinary shares which could be issued on conversion of the warrants. The exercise price was £0.80 per share. The warrants may be exercised at any time between the issue and expiry dates. These warrants were issued as part of the purchase consideration of PacificGMP as described more fully in Note 23

A schedule of the warrants over Ordinary Shares outstanding at 31 March 2015 is set out below:

Issue Date Expiry Date Exercise

Price Par

Value Number

Outstanding

Ordinary Shares (1st issue) 15 Jun 2007 15 Jun 2017 £0.36 £0.002 406,250 Ordinary Shares (2nd issue) 27 Mar 2008 27 Mar 2018 £0.36 £0.002 517,260 Ordinary Shares (3rd issue) 16 Feb 2010 16 Feb 2020 £0.36 £0.002 37,500

Ordinary Shares total 961,010

The movement in the warrants in the year to 31 March 2015 is as follows: B Ordinary

Shares D Ordinary

Shares Number Number

At 1 April 2014 218,750 370,246 Warrants exercised (26,548) – Balance before share re-organisation 192,202 370,246 Increase due to share re-organisation 768,808 1,480,984 Balance after share re-organisation 961,010 1,851,230 Warrants exercised – (1,851,230)

At 31 March 2015 961,010 –

On 1 July 2014 warrants in respect of B Ordinary shares in PolyTherics Limited, were exchanged for warrants over B Ordinary shares in the Company. Subsequent to this, the warrants were included with the share re-organisation of the Group, whereby each warrant holder received 4 additional warrants, for each warrant held and warrants over B Ordinary Share in the Group, became warrants over the Ordinary shares of the Group.


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18. Trade and other payables Group Group Company Company 31 March 2016 31 March 2015 31 March 2016 31 March 2015 £’000 £’000 £’000 £’000 Current: Trade payables 1,953 833 – – Tax and social security 170 146 – – Accruals 1,203 828 – – Other payables 281 57 – – Deferred consideration 124 – – – Deferred income 1,757 490 – –

Total 5,488 2,354 – –

Non-current

Other payables – – – –

Deferred consideration 518 – – –

Total 518 – – –

19. Provisions Restructuring Property cost Other Total £’000 £’000 £’000 £’000 At 1 April 2015 – – – –

Additions during year 191 – 171 362 Utilised during the year – – – –

At 31 March 2016 191 – 171 362

Provisions includes costs on closing the operations of one subsidiary, operating on a single site and associated payroll costs. The provision is expected to be fully utilized over the next 12 months Restructuring Property cost Other Total £’000 £’000 £’000 £’000 At 1 April 2014 – 118 – 118

Additions during year – – – –

Utilised during the year – (118) (118)

At 31 March 2015 – – – –


83

20. Pensions The Group contributes to money purchase pension schemes and SIPPS for employees. The assets of the schemes are held separately from those of the Group in independently administered funds. The Group contributes up to 6.7 % (2015: 6.7%) of pensionable salary to the scheme for all eligible employees who chose to opt into the scheme, on a non-contributory basis. 31 March 2016 31 March 2015 £’000 £’000 Amount paid during the year 474 335 Amount outstanding at the year end 40 34

21. Operating lease commitments a) Operating leases as lessee Lease payments represent amounts payable by the Group for its office and laboratory property. The lease term for office and laboratory property is as follows: Location Operating Lease Term Unit 4, Vanguard Centre, University of Warwick Science Park, Coventry,CV4 7EZ Expiring 22 January 2017 Building 501, Babraham Research Campus, Babraham, Cambridge, CB22 3AT Expiring 30 November 2019 Building 405, Babraham Research Campus, Babraham, Cambridge, CB22 3AT Expiring 1 March 2017 Properties at 360 George Patterson Boulevard, Bristol, Pennsylvania, US Expiring 28 February 2023 Properties at Rehco Road, San Diego, California, US Expiring 30 October 2020

The future aggregate minimum lease payments under non–cancellable operating lease at the balance sheet date were as follows: 31 March 2016 31 March 2015 £’000 £’000 No later than one year 789 333 Later than one year and no later than five years 1,573 250 Total 2,663 583

b) Operating leases as lessor The Group sub-lets parts of the leasehold premises of Building 501, Babraham Research Campus to other biopharmaceutical companies. The future aggregate minimum lease receipts under non–cancellable operating lease at the balance sheet date were £48,000 all due in less than one year from the balance sheet date (2015: nil). There was no contingent rent recognised in the income statement for the year ended 31 March 2016 (2015: none).


22. Capital and other commitments

There are no future capital or other commitments that the Group has contracted for at 31 March 2016 that are not provided in the financial statements.

The Group has received grant income from various sources between 1 January 2013 and 31 March 2016. The Directors are of the belief that there are no liabilities arising from these grants, and as such there is not a requirement to disclose any contingent liabilities in respect of grant income received.

Antitope Limited entered into an agreement to lease for Building 900, Babraham Research Campus, Babraham, Cambridge CB22 3AT for a period of 20 years commencing on completion of the construction of the building. Building 900 is currently under development and is expected to be completed in late 2016. The rent payable on these premises is £909,324 per annum.

23. Business Combinations

Acquisition of PacificGMP On 11 September 2015, the Group completed the acquisition of PacificGMP, a contract development and manufacturing company based in San Diego, California, US. In addition to adding a significant line of service revenue and an operational base in the US, the acquisition extends Abzena’s offering to include GMP manufacturing capability, to provide products for use in customers’ clinical trials, and to enable Abzena to continue its engagement with customers further along the biopharmaceutical R&D value chain.

Abzena acquired the entire issued share capital of PacificGMP and settled certain acquisition related non-trading liabilities at the date of completion. The consideration comprised elements of cash consideration and deferred equity based consideration in the form of warrants granted to all shareholders and a restricted stock unit scheme vesting on the achievement of revenue based targets over the two years after acquisition.

The following table summarises the consideration paid for PacificGMP and the amounts of identifiable assets acquired and liabilities assumed at the acquisition date:

Consideration paid for the entire share capital of PacificGMP $’000 £’000

Cash 5,755 3,759 Restricted stock units 1,311 852 Warrants over 564,762 shares at £0.002/ share 16 10

Total consideration 7,082 4,621


85

Recognised amounts of identifiable assets acquired and liabilities assumed on the acquisition of PacificGMP

$’000 £’000

Intangible assets – Order backlog 349 223 Property, plant and equipment 399 255 Trade and other receivables 454 290 Cash and cash equivalents 354 226 Trade and other payables (3,781) (2,416) Deferred tax arising on the valuation of intangible acquired assets (250) (160) Total identifiable net liabilities (2,475) (1,582)

Goodwill arising on the acquisition 9,557 6,203


The fair value of the acquired net liabilities is as noted above. The acquired receivables are expected to be recoverable in full.

Contingent Consideration Details of the RSUs issued as deferred consideration for the acquisition of PacificGMP and the estimates applied in determining the number and value of the shares for award are detailed below. The RSUs were issued as deferred consideration for the acquisition of PacificGMP to the previous owners and members of staff employed by the subsidiary. The vesting criteria is two years from acquisition date as follows: • First year: Turnover in year to 30 September 2016 above $3,200,000 plus any deferred income is multiplied by

25% to calculate the award of shares • Second year: Turnover in year to 30 September 2017 above $3,200,000 plus any deferred income is multiplied by

25% to calculate the award of shares.

For the purpose of calculating the number of shares for award, the share price is fixed at £0.80 per ordinary share. The award is capped at 5,129,939 shares, and shares awarded in the first year in priority to the second if the award would have exceeded the cap. For the purposes of valuation of the award, the share price at acquisition date was £0.69 per ordinary share. The award is valued on management projections of levels of turnover for the subsidiary. A liability is recorded in trade and other payables against this award which is re-valued at each accounting period and the resulting gain or loss reflected in finance income or expense in the Consolidated Income Statement. The revenue included in the consolidated statement of comprehensive income since 12 September 2015 contributed by PacificGMP was £1.6 million, gross margin of £0.3 million, administration and laboratory expenses of £1.3 million.

Acquisition of TCRS On 11 December the Group completed the acquisition of TCRS. The following table summarises the consideration paid for TCRS and the amounts of identifiable assets acquired and liabilities assumed at the acquisition date:


86

Consideration paid for the entire share capital of TCRS $’000 £’000

Cash 8,950 5,908 Issue of 3,609,978 Abzena Plc ord. shares of £0.002 each 3,601 2,369 Restricted stock units 905 598


Recognised amounts of identifiable assets acquired and liabilities assumed on the acquisition of TCRS

$’000 £’000 Intangible assets – Customer relationship 3,616 2,387 Property, plant and equipment 1,807 1,193 Trade and other receivables 1,313 867 Cash and cash equivalents 129 85 Trade and other payables (2,581) (1,704) Deferred tax arising on the valuation of intangible acquired assets (1,445) (954) Total identifiable net assets 2,839 1,874 Goodwill arising on the acquisition 10,617 7,001 Total consideration 13,456 8,875

The fair value of the acquired net liabilities is noted above. The acquired receivables are expected to be recoverable in full. The revenue included in the consolidated statement of comprehensive income since 12 December 2015 contributed by TCRS was £1.1million, gross margin of £0.7 million, administration and laboratory expenses of £0.9 million.

Contingent Consideration Details of the RSUs issued as deferred consideration for the acquisition of TCRS and the estimates applied in determining the number and value of the shares for award are detailed below. The RSUs were issued as deferred consideration for the acquisition of TCRS to the previous owners. The vesting criteria is, subject to discretion of the administrator, for employees to remain employed by the Group for one year after acquisition. If any employee leaves, the RSU's are awarded to the pre-acquisition owners of TCRS. The award is fixed at 901,697 shares. The share price for calculation of fair value at date of acquisition is £0.66 per share. The fair value of the award is recorded in deferred consideration in reserves in the Consolidated Statement of Financial Position and the Consolidated Statement of Changes in Equity.

Proforma unaudited impact of acqusitions During the period from 1 April 2015 to its acquisition PGMP recorded unaudited proforma revenues of £1.0 million and a net loss of £1.4 million. During the period from 1 April 2015 to its acquisition TCRS recorded unaudited proforma revenues of £2.5 million and a net loss of £0.1 million. Had PacificGMP and The Chemistry Research Solution LLP been consolidated from 1 April 2015, the consolidated Income Statement, would show pro-forma revenue of £13.4 million and a net loss, before amortisation of intangibles arising on the consolidation of the US subsidiaries, of £11.2 million.


87

Legal and professional costs amounting to £1.5 million associated with the acquisitions are included in exceptional items in the Consolidated Income Statement.

24. Financial risk management In common with other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout this financial information. The significant accounting policies regarding financial instruments are disclosed in note 1.

Principal financial instruments The principal financial instruments used by the Group and Company, from which financial risk arises, are as follows: Group Group Group Group Company Company

Liabilities at amortised

cost Liabilities at

FVPL Liabilities at

amortised cost Liabilities at

FVPL

Liabilities at amortised

cost Liabilities at

amortised cost

31 March

2016 31 March

2016 31 March 2015 31 March

2015 31 March

2016 31 March 2015 £’000 £’000 £’000 £’000 £’000 £’000 Trade and other receivables

(excluding prepayments) 4,556 – 2,556 – 40,846 19,237

Cash and cash equivalents 13,724 – 15,799 – – – Trade and other payables

(excluding non-financial liabilities)

(4,676) (642) (2,208) – – –

Total 13,604 (642) 16,147 – 40,846 19,237

The Directors believe there is no material difference between the fair value and book value of these assets and liabilities, given the short maturity periods of these financial instruments

Liquidity Risk The table below analyses the Group’s financial liabilities into the relevant maturity groupings based on their contractual maturities; Group Group Company Company 31 March 2016 31 March 2015 31 March 2016 31 March 2015 £’000 £’000 £’000 £’000 Trade and other payables Within 6 months 5,488 2,354 – – Between 6 and 12 months – – – – Between 1 and 2 years 518 – – Total 6,006 2,354 – – Liquidity risk arises from the Group's management of working capital and the amount of funding required for the technology development programme. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due.


The principal liabilities of the Group are trade and other payables in respect of the technology development programme and provision of research services including purchase of laboratory supplies, consumables and related scientific services, as well as administrative costs associated with the Group’s business. Trade and other payables are all payable within one month. The Board receives cash flow projections on a regular basis as well as information on cash balances.

Recurring fair value measurements This section explains the judgements and estimates made in determining the fair values of the financial instruments that are recognised and measured at fair value in the financial statements. The Group only has Level 3 financial instruments, as indicated by accounting standards, which are Restricted Stock Units. These financial instruments are not traded in an active market but the valuation technique maximises the use of observable market data and rely as little as possible on entity specific estimates. If any significant input required to fair value the instrument is unobservable, the instrument is considered Level 3.

The fair value of recurring fair value financial liabilities as at 31 March 2016 is shown below

Financial liabilities – Level 3Contingent

consideration £’000

Restricted Stock Units Opening balance 1 April 2015 -

Acquisitions 855

Gains recognised in financial income (213)

Closing balance 31 March 2016 642

Recognised fair value measurements

The Group’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.

Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1. Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level3. This is the case for unlisted equity securities.

The key inputs for valuing the financial instruments at the balance sheet date were: • Abzena Plc ordinary share price (observable market data)• US dollar to Sterling foreign exchange rate (observable market data)• Expected turnover from US subsidiary (significant estimate by management)

There were no significant financial assets or liabilities fair valued for the year ended 31 March 2015.


General objectives, policies and processes The Group's activities expose it to a variety of financial risks: market risk (including currency risk), credit risk, liquidity risk and interest rate cash flow risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on financial performance. The Group does not use derivative financial instruments to hedge risk exposures.

The overall objective of the Board is to set policies that seek to reduce ongoing risk as far as possible without unduly affecting the Group's competitiveness and flexibility. Further details regarding these policies are set out herein:

Credit risk 31 March 2016 31 March 2015

£’000 £’000

Trade and other receivables (excluding prepayments) 4,556 2,556 Cash and cash equivalents 13,724 15,799

Total 18,280 18,355

Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. The credit quality of the customer is assessed, taking into account the Group’s understanding of its financial position, past experience and other factors. Individual risk limits are set in accordance with limits set by management.

The Group's principal trade and other receivables arose from sales to customers with no single customer amounting to more than 11% of the total outstanding (2015: 20%). For all periods, cash was held in current accounts with six institutions, rated between BBB+ and AA- by Standard & Poor’s.

Interest rate cash flow risk The Group and Company is exposed to interest rate cash flow risk in respect of surplus funds held. The Directors do not consider this risk to be significant.

All funds are held on instant access facilities. The average interest rate for all floating rate instant access current and instant access deposit accounts, was at prevailing bank interest rates of below 1% throughout the year under review (2015 under 1%).

Currency risk The Group publishes its financial information in pounds sterling and conducts some of its business in US Dollars, Euros, Australian Dollars, Canadian Dollars and Japanese Yen. As a result, it is subject to foreign currency exchange risk due to exchange movements, which will affect the Group's transaction costs and translation of the results. No financial instruments are utilized to manage risk, and currency gains / losses are credited / charged to the Consolidated Statement of Comprehensive Income as incurred. The Board considered that this exposure was not sufficiently material to warrant hedging. Note 15 Cash and cash equivalents itemises the Groups exposure to foreign currency balances.

The majority of the Group’s revenue is in foreign currencies and the majority of the cost base is in Pounds Sterling. There is no natural foreign exchange hedge. A movement in the value of sterling during the course of the year of 10% would impact on the Group’s overall profitability by £75,000, (2015: £311,000).


Foreign exchange 31 March 2016 31 March 2016 31 March 2016 31 March 2016

£’000 £’000 £’000 £’000 US Dollars Euro Other Total

Cash and cash equivalents 543 74 68 685 Trade and other receivables 1,450 - - 1,450 Trade and other payables (2,344) - - (2,344) Deferred consideration (642) - - -

Total (993) 74 68 (209)

31 March 2015 31 March 2015 31 March 2015 31 March 2015 £’000 £’000 £’000 £’000

US Dollars Euro Other Total Cash and cash equivalents 116 24 1 141 Trade and other receivables 542 393 - 935Trade and other payables - - -

Total 658 417 1 1,076

Capital risk management The Group’s objectives, when managing capital are to safeguard the Group’s ability to continue as a going concern and to maintain an optimal capital structure. Total capital, which is the Group’s primary source of funding, is calculated as “Total equity” as shown in the Statement of Financial Position. In order to maintain or adjust the capital structure, the Group could consider the appropriate action, which could include payment of dividend, return of capital to shareholders or issue new shares.

The Group had no undrawn committed borrowing facilities available during the year (2015: None).

25. Related party disclosures

Group There is no ultimate controlling party of the Group as ownership is split between the Company’s shareholders. The most significant shareholders as at 31 March 2016 by percentage are as follows:

Invesco Limited (Invesco Asset Management) 26.4% Woodford Investment Management LLP 23.0% Imperial Innovations Group Plc (and its associated group companies) 19.8% Ballie Gifford & Co 3.3%

The Group considers Imperial Innovations Group Plc to be a related party by virtue of its significant influence over the decisions of the Group through its appointment of a Board member. The Board manages the relationship with Woodford Investment Management LLP and Invesco Asset Management carefully to ensure all transactions are carried out on an arm’s length basis.


Purchases of goods and services During the year ended 31 March 2016 the Group paid the following to related parties and had the following payables at the balance sheet date:

Year ended 31 March Balance as at 31 March Related Party 2016

Monitoring fees 2015

Monitoring fees 2016

Payables 2015

Payables £’000 £’000 £’000 £’000

Imperial Innovations Group Plc 30 29 – – Longbow Growth and Capital VCT – 3 – – Proven Growth and Income VCT Plc – 3 – – Mercia Fund Management Limited – 3 – –

Amounts due to Longbow Growth and Capital VCT, were paid to Longbow Capital LLP. Amounts due to Proven Growth and Income VCT Plc, were paid to Beringea LLP.

In addition to the transactions disclosed above, the Group entered into an agreement to lease from Imperial College a scientific facility and offices at Babraham Research Campus, Babraham, Cambridge CB22 3AT for a period of 20 years commencing on completion of the construction of the building. Building 900 is currently under development and is expected to be completed in late 2016. The rent payable on these premises is £909,324 per annum.

Transactions involving Directors Disclosure of compensation provided to Directors is given in the Directors Remuneration Report and in note 5 Employees and Directors.

David Haddleton was a Director of Warwick Effect Polymers Limited, a subsidiary of Abzena Plc during the year ended March 2015 but resigned during that year. The table below summarises the amounts charged to PolyTherics Limited, also a subsidiary of Abzena Plc, for consultancy services by FX Polymers (a business controlled by David Haddleton) and the balances outstanding (£nil) (2015: £nil) at the respective year and period ends:

31 March 2016 31 March 2015 £’000 £’000

Charge for the year for consultancy services – 22

Warrants The following number of Warrants were held over shares in the Company by the related parties shown in the tables below. These parties are deemed to be related to Abzena Plc, by virtue of a shareholding in the range of 20% or more and / or a Directorship or a close association with a Directorship or the board.

Warrants over Ordinary Shares 31 March 2016 31 March 2015

£’000 £’000

Imperial Innovations Group Plc (and / or any of its associated group companies) 325,000 325,000 Longbow Capital LLP (in total, through association with LCIP 2007 LLP) 517,260 517,260 Exercise price £0.36 £0.36 Class of Share at year / period end Ordinary Ordinary


Company

Purchases of goods and services During the year ended 31 March 2016 subsidiaries paid the following expenses on behalf of the Company which were not expensed in the income statement but deducted from the Share premium account.

Year ended 31 March Balance as at 31 March Related Party 2016

Purchases 2015

Purchases 2016

Payables 2015

Payables £’000 £’000 £’000 £’000

PolyTherics Limited 87 – – –

Amounts loaned to Group Companies During the year ended 31 March 2016 the following amounts were transferred to subsidiaries, by the Company:

31 March 2016 31 March 2015 £’000 £’000

Beginning of the year 19,237 – Loans advanced 21,696 20,259 Loans settled (87) (1,022)

40,846 19,237

Abzena Annual Report 2016 | Glossary

93

Glossary The following technical and scientific terms apply throughout this document, unless the context requires otherwise:

“ABZENA Inside” a product which incorporates or has been produced using one of Abzena’s proprietary technologies for bioconjugation, humanization and/or deimmunisation

"antibody" Y shaped proteins that are the primary effectors of immune response to destroy foreign invaders in the body, such as bacteria, viruses and non-human proteins

“ADA” an anti-drug antibody (ADA) is an antibody that is produced in the body in response to an immunogenic protein, such as a therapeutic antibody, and which binds to the drug

“ADC” an antibody drug conjugate (ADC) is an antibody linked (conjugated) to a drug that delivers the drug to a target cell in the body, such as a cancer cell, to which the antibody binds

"bioconjugation" the joining together of two molecules via a covalent link where at least one molecule is a biological molecule

“biopharmaceutical” any pharmaceutical drug product manufactured in, extracted from, or semi-synthesized from biological sources; also referred to as a ‘biologic’

"cell line" a permanently established cell culture that will proliferate indefinitely under the right conditions and that can be engineered to produce a specific antibody or other protein

“DAR” the drug antibody ratio (DAR) is the average number of drugs that are conjugated to an antibody in an ADC product

"deimmunisation" the process of removing the immunogenic parts of a therapeutic antibody or protein to overcome the problems of immunogenicity that can occur when they are administered to patients

"EMA" the European Medicines Agency (EMA) is located in London and is responsible for, amongst other things, the scientific evaluation of marketing approval applications for medicines developed by companies who want to market them in the European Union

"FDA" the Food and Drug Administration (FDA) is located in Washington and is responsible for, amongst other things, the scientific evaluation of marketing approval applications for medicines developed by companies who want to market them in the US

“GMP” Good Manufacturing Practice (GMP) is a system for ensuring that products are consistently produced and controlled according to quality standards

"humanization" the process of modifying antibodies to increase their similarity to antibodies produced naturally in humans. The process of "humanization" is usually applied to therapeutic monoclonal antibodies developed to treat disease

"immunogenic response" the generation of antibodies that bind to a substance that is introduced to the body that it perceives as 'foreign', such as bacteria, viruses and therapeutic antibodies that contain non-human amino acid sequences

"immunogenicity" the ability of a particular substance, such as an antigen, to provoke an immune response in a human

“Phase I clinical trial” an investigation of a new treatment in a small group of healthy subjects or patients for the first time, usually to evaluate its safety, determine a safe dose, and identify side effects

“Phase II clinical trial” an investigation of a new treatment in a larger group of people to see if it is effective, determine the effective doses, and to further evaluate its safety

“Phase III clinical trial” an investigation of a new treatment in a large groups of people to confirm its effectiveness, monitor side effects, compare it to commonly used treatments, and collect information that will allow the treatment to be used safely

"protein engineering" protein engineering involves changing the amino acid sequence of a protein by design in order to produce a new protein with different (enhanced) properties

"T cell epitope" the part of an antigen that is recognised by a T cell "T cell" a type of white blood cell that plays a central role in cell-mediated immunity "therapeutic antibody" an antibody used to treat a disease, for example, an antibody that can bind specifically to

target cells which then stimulates the patient's immune system to attack those cells “therapeutic protein” a protein used to treat a disease, for example, an enzyme that occurs naturally in the

body but is deficient in a patient

Company Information | Abzena Annual Report 2016 94

Company Information Directors K. Cunningham (Chairman) J. Burt (Chief Executive Officer) J. Smith (Chief Financial Officer) T. Brampton (Non-executive Director) N. Pitchford (Non-executive Director) P. Grant (Non-executive Director) A. Lundemose (Non-executive Director)

Company Secretary Company Registration Number J. Smith 08957107

Registered Office Solicitors Babraham Research Campus Pinsent Masons LLP Babraham 30 Crown Place Cambridge CB22 3AT Earl Street

London EC2A 4ES

Theobald Associates 16 St Martin’s le Grand St Paul’s London EC1A 4EN

Independent auditors Nomad, Financial Advisors & Joint Broker

James Cowper Kreston Cenkos 2 Chawley Park 6.7.8 Tokenhouse Yard Cumnor Hill London EC2R 7AS Oxford OX2 9GG

Principal Bankers Joint Broker Barclays Bank Plc N+1 Singer

1 Bartholomew Lane London EC2N 2AX

Share Registrars SLC Registrars 42-50 Hersham RoadWalton-on-ThamesSurrey KT12 1RZ


23

Registered Office: Babraham Research Campus, Babraham, Cambridge CB22 3AT

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