Vectura Establishes Strategic Partnership (Kinnovata) for New Respiratory Business in China

Vectura Group plc announces that it has established Tianjin Kinnovata Pharmaceutical Company Limited ("Kinnovata") in China with two partners; Tianjin KingYork Group Company Limited ("KingYork"), a leading Chinese pharmaceutical company and specialist manufacturer of corticosteroid based products, and Zendex Bio Strategy Inc ("Zendex"), a private equity investor based in Hong Kong.

Kinnovata will develop, manufacture and commercialise respiratory products for the rapidly growing domestic Chinese and other regional markets in Asia. This new Company will initially exploit Vectura’s Clickhaler® and Duohaler® dry powder inhaler (DPI) technology platforms to address current unmet needs in the Asian asthma and chronic obstructive pulmonary disease (COPD) markets. Recent estimates suggest the overall incidence of asthma in China is approximately 2.0% a patient population of more than 25 million people. COPD is an even bigger challenge, with approximately 42 million people suffering in China, and forecasts estimate that this number will increase to nearly 56 million by 2021.

Despite Government-led healthcare initiatives in recent years, there remains a pressing need for more affordable inhaled products in China. Both asthma and COPD are expected to increase significantly over the next twenty years, in part driven by population growth, increasing urbanisation and an ageing population coupled to the extremely high smoking rates among Chinese adults, especially men (approximately 75% of male adults in China are either current or former smokers).

Kinnovata will be an independent company with its own development and manufacturing operations located in Tianjin. KingYork is expected to hold a 50% equity share; with Vectura holding 35% and Zendex and partners 15%. Vectura's holding is expected to have a nominal value of RMB 140 million (£14.6m) on close.  Vectura will also receive royalties through to 2030 on certain products sold by Kinnovata. The equity stake and potential future royalty streams equate to the value attributed to the intangible and tangible assets relating to the Clickhaler® and Duohaler® devices. The assets include manufacturing equipment, formulation know-how and the regulatory dossiers for European approved products including salbutamol and budesonide delivered in Clickhaler.

KingYork and Zendex are expected to contribute assets of RMB 260 million (£27.1m) including cash of £19.8m, certain technology assets, intellectual property and land at KingYork's pharmaceutical business park in Tianjin where Kinnovata will establish its manufacturing facility. Mr Chris Chan, previously an advisor to Zendex, has been appointed CEO of the Company.

Vectura has been working with KingYork and Zendex since late 2011 on the development of the product pipeline. Vectura is also providing training and other expertise to Kinnovata as the Company prepares to undertake its first Clickhaler® clinical studies in Chinese patients. An application for the import of Asmasal® Clickhaler® (salbutamol) has been filed with the Chinese State Food and Drug Administration (SFDA).

In addition, a separate R&D Cooperation Agreement has been established between Kinnovata and the Shanghai Institute of Pharmaceutical Industry to undertake the development of a number of DPI products on behalf of Kinnovata.

Completion of the transaction is subject to final Government clearances in China. Vectura expects to record an exceptional non-cash gain of approximately £13.5m in relation to the acquisition of the 35% shareholding in Kinnovata. Kinnovata will be accounted for as an associate, with Vectura recording 35% of the profits or losses of Kinnovata on its income statement as a non-cash item.  Kinnovata is expected to be loss-making for at least 24 months following establishment.

Dr Chris Blackwell, Chief Executive of Vectura commented:

“There is a clear, large and growing need in China and other Asian markets for more affordable, locally-produced asthma and COPD products and, for some time, we have been looking for the best means of entry.  Combining Vectura’s established technology with KingYork’s local regulatory expertise and experience in corticosteroid products, Kinnovata has an opportunity to capture a significant market share of the growing Asian respiratory market.”

Chairman Lu Yanchang, of KingYork commented:

“Vectura is an ideal partner for our venture, as it has a track record of innovation, successful partnerships with leading pharmaceutical companies and proven technology.  With our help, Kinnovata has an opportunity to establish itself as a leading Chinese respiratory company.  The majority of patients in China are not receiving adequate therapy for their asthma or COPD.  We aim to introduce DPI products made in China using Vectura’s proven technology.”

Chris Chan, Kinnovata’s Chief Executive commented:

“There is a strong appetite in China for Western branded products and Kinnovata aims to introduce high quality affordable products made locally in China using Western technology.”