Verona Pharma plc ("Verona Pharma" or the "Company") Implementing the revised strategy with a strengthened balance sheet
28 April 2014, Cardiff- Verona Pharma plc(AIM: VRP), the drug development company focused on first-in-class medicines to treat respiratory diseases, today announces its audited results for the twelve months ended 31 December 2013. 2013 OPERATIONAL HIGHLIGHTS * Lead molecule, RPL554 - a first-in-class, inhaled, PDE3/4 inhibitor - demonstrates anti-inflammatory effects in man, confirming the drug's potential as a dual bronchodilator and anti-inflammatory treatment for respiratory disease. * Development of novel commercial formulation of RPL554 for inhalation by nebulisation. * Enhanced strategy for faster route to market by developing RPL554 initially as a nebulised bronchodilator for treatment of patients with severe COPD in the hospital setting. * VRP700 Phase 2 clinical trial started in patients with Idiopathic Pulmonary Fibrosis to further evaluate efficacy of the drug as a treatment for chronic severe cough: data expected in the first half of 2014. * Filing of multiple patents on RPL554 and VRP700 to extend IP coverage. * Peer-reviewed papers in The Lancet Respiratory Medicine and the Journal of Pharmacology and Experimental Therapeuticshighlight clinical efficacy of RPL554 in COPD and asthma patients, and the potential for synergy when combining RPL554 with muscarinic receptor antagonists and beta2 agonists as drugs for the treatment of COPD and asthma. * Formation of a Clinical and Scientific Advisory Board(CSAB) to support the development of RPL554. * Closed operations in Vancouverand moved all activities to the UK. 2013 FINANCIAL HIGHLIGHTS * Completed a placing in February 2013raising gross proceeds of £1.16 million and a further placing in October 2013raising gross proceeds of £ 0.8 million. * Loss after tax of £2.52 million (2012: £2.52 million) equivalent to 0.74 pence(2012: 0.82 pence) per ordinary share. * Net cash outflows from operating activities during the year of £2.34m (2012: £2.57m), with cash and cash equivalents as at 31 December 2013of £ 0.60m (2012: £0.96m). POST PERIOD HIGHLIGHTS * Completed a share placing, subscription and open offer in March 2014raising gross proceeds of £14.0m. Jan-Anders Karlsson, Chief Executive Officer of Verona Pharma, said: "During the period, Verona Pharmahas continued to implement its strategy of creating a biopharmaceutical company focused on addressing large markets by developing high value, first-in-class drugs for chronic, debilitating respiratory diseases. It has achieved this through further development of RPL554, its lead pipeline drug, as a nebulised treatment for hospitalised patients with acute exacerbations of COPD, and development of VRP700 as a novel inhaled treatment for patients with intractable, chronic cough due to severe lung disease. Over the next 24 months, the significant funds recently raised post period will enable RPL554 to be advanced in a series of further clinical and supplementary pre-clinical studies that should position the drug ready for a Phase 2b trial to subsequently start. We continue to anticipate data from the VRP700 proof of concept trial in mid-2014. If successful, additional pre-clinical and clinical work is planned to further evaluate its properties as a potential new inhaled anti-tussive drug." "The Board believes that both drugs address specific patient groups that are currently under-treated, that there is limited competition in both segments, and they therefore present very attractive commercial opportunities for generating significant value for shareholders." For more information, please contact: Verona Pharma plc Tel: 020 7863 3300 Clive Page, Chairman Jan-Anders Karlsson, CEO Richard Bungay, CFO WH Ireland Limited (NOMAD) Tel: 020 7220 1666 Chris Fielding Nick FieldFTI Consulting Tel: 020 3727 1000 Julia Phillips Simon ConwayNotes to Editors About Verona Pharma plc Verona Pharmais developing first-in-class drugs to treat respiratory disease, such as COPD, asthma and chronic, severe cough. The Company has three drug programmes, two of which are in Phase 2. The lead programme, RPL554, is an innovative dual phosphodiesterase (PDE) 3 and 4 inhibitor with both bronchodilator and anti-inflammatory properties. VRP700 is an innovative product for suppressing chronic, severe cough in patients with underlying lung disease. In its third programme, Verona Pharmais investigating novel anti-inflammatory molecules, called NAIPs, for a wide range of respiratory and inflammatory diseases. About RPL554 for the treatment of COPD and Asthma Verona Pharma's lead drug, RPL554, is a dual phosphodiesterase (PDE) 3 and 4 inhibitor being developed as a novel treatment for chronic obstructive airways disease such as COPD and asthma with bronchodilator and anti-inflammatory effects. Both effects are essential to improve symptoms in patients with COPD or asthma. RPL554 is currently in Phase 2 for both diseases. COPD is a chronic lung disease with significant unmet need for which current treatment is far from optimal, as it often has unwanted side-effects and/or limited effectiveness. COPD is most commonly characterised by fixed airflow obstruction and chronic airways inflammation resulting from exposure to irritants like tobacco smoke. Asthma, which remains one of the most common chronic diseases in the world, is characterised by recurrent breathing problems and symptoms such as breathlessness, wheezing, chest tightness, and coughing. The market for COPD and asthma drugs is currently estimated to be GBP20 billion[source: visiongain]. About VRP700 for the treatment of Cough VRP700 is Verona Pharma's lead drug compound for the treatment of cough, having a novel mechanism of action involving the suppression of cough initiating signals originating from cough sensory nerve endings located in the lungs. A clinical trial completed at the University of Florence, Italyin September 2011clearly demonstrated significant anti-tussive effects with nebulised VRP700 in hospitalised patients with chronic severe cough. Cough can be a very debilitating comorbidity reported by patients, especially those with respiratory conditions such as asthma, COPD, lung cancer, interstitial lung disease, fibrosis or lung infections. It is a neglected symptom which is often self-medicated. Consumer spending on OTC medications, including those for cough, grew by 10% over 2005-10, to reach GBP532 millionin UK[source: Mintel]. However, there is very little clinical evidence for such OTC cough medications being really effective and it is widely recognised by the medical community that there is a large need for more effective drugs to control and prevent pathologically induced coughing. CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S JOINT STATEMENT INTRODUCTION Verona Pharmais a biopharmaceutical company focused on the development of high value, first-in-class drugs for patients with chronic, debilitating respiratory diseases. The Company continued to implement the refined strategy to accelerate shareholder value creation, which was announced at the end of last year. Further steps have been taken to focus the initial development of the lead programme RPL554, an innovative inhaled, dual phosphodiesterase (PDE) 3 and 4 inhibitor, as a nebulised treatment for patients in hospital with acute exacerbation of COPD. Many of these patients become hospitalised as a result of an acute worsening of their disease that cannot be prevented by their current medications and are in need of more intensive care and treatment. The bronchodilator and anti-inflammatory properties of RPL554 should be beneficial to these patients. The second programme, VRP700, is an innovative inhaled product for suppressing intractable, chronic cough in patients with underlying severe lung disease. Both drugs address specific patient medical needs that currently are not optimally treated. There is limited competition in the form of novel types of bronchodilators or anti-cough drugs in clinical development for these patient groups and the Board believes that these could become very attractive commercial markets for Verona Pharma. In addition, both compounds have great potential as chronic maintenance treatments of out-patients with respiratory diseases and thus provide attractive and flexible partnering opportunities. During 2013, the Company completed an anti-inflammatory study with RPL554 and reported the first headline data. It also developed a novel formulation for RPL554 for use in a nebuliser, which will be used in clinical testing starting in 2014. For the VRP700 project, a second Phase 2 study was commenced in patients with chronic, severe cough, which is expected to be completed and reported in the first half of 2014. Additionally, new patents were filed on both RPL554 and VRP700 in order to further strengthen the patent portfolio around the two compounds. The Company published its first paper on clinical trial data with RPL554 in the prestigious, peer-reviewed journal, The Lancet Respiratory Medicine, in October 2013and the paper was accompanied by a positive commentary in the same issue of the journal. Further scientific and clinical data on the bronchodilator effects of RPL554 in patients with asthma and COPD were presented at the American Thoracic Society's annual conference in Philadelphiain May, and data on the anti-inflammatory effects of the drug were presented at the European Respiratory Societymeeting in Barcelonain September, further enhancing the profile of these innovative agents. The Company also streamlined operations by closing its office in Vancouver, Canada. RPL554 RPL554 is a novel inhaled dual PDE 3 and 4 inhibitor that was selected for clinical development following pre-clinical studies that demonstrated both potent bronchodilator and anti-inflammatory properties. RPL554 is currently being developed as a potential first-in-class treatment for patients with chronic respiratory diseases such as COPD and asthma. RPL554 has successfully completed a number of early clinical Phase 1 and 2 clinical studies. These single and multiple dose studies suggest that RPL554, when inhaled across a range of doses, is an effective bronchodilator in patients with COPD or asthma and is an excellent candidate for further development as a new class of bronchodilator. Importantly for the positioning of RPL554 as a novel inhaled treatment for patients with COPD, in an experimental clinical trial at the Tor Vergata Clinicat the University of Rome, the magnitude of the bronchodilator response produced by the drug showed a statistically significant difference to placebo and was at least equivalent to that produced by a standard dose of the reference bronchodilator beta2-agonist salbutamol in these patients. Importantly, no safety issues were observed. A randomised, double blind, placebo-controlled clinical trial to examine the potential anti-inflammatory effects of RPL554 was completed at MEU in Manchesterand reported in March 2013. The trial was conducted in healthy subjects, treated once daily for 6 consecutive days with either inhaled RPL554 or inhaled placebo before being challenged on the last day by an irritant agent that provokes a COPD-like inflammatory response in their airways. RPL554 significantly reduced the number of neutrophils (an inflammatory cell type recognised for its central role in COPD or severe asthma) in the sputum. There was a highly significant reduction in the numbers of inflammatory cells, with no clinically significant adverse events reported. These data indicate that RPL554 has anti-inflammatory properties, most likely due to inhibition of PDE4 (or perhaps the combined inhibition of PDE3 and 4), and it is believed that this adds to the direct bronchodilator effect of the drug and contributes to the improvement of symptoms of COPD. The Company is strongly encouraged by recent data showing a synergistic effect between RPL554 and anti-muscarinic drugs (an important drug class currently used in the treatment of patients with COPD) on human airway smooth muscle, published in the peer-reviewed scientific journal, the Journal of Pharmacology and Experimental Therapeutics. These data suggest that RPL554 can be both a stand-alone treatment as well as a very attractive combination partner to existing treatments for COPD and asthma. In October 2013, a paper entitled "Efficacy and safety of RPL554, a dual PDE3 and PDE4 inhibitor, in healthy volunteers and in patients with asthma or chronic obstructive pulmonary disease: findings from four clinical trials" was published in the prestigious journal The Lancet Respiratory Medicine. This peer-reviewed paper highlighted the potential of RPL554 to reverse the narrowing and reduce the inflammation of airways and provide a novel treatment for patients not adequately treated with currently available treatments. Further abstracts and papers were published during the year to increase the awareness of RPL554 in the medical and pharmaceutical business community. A novel nebulised formulation of RPL554 has been developed and will be used in the further clinical development of the compound. It is expected that this formulation will be of a quality suitable for commercialization. In addition, further work has been performed to extend and prolong patent protection of RPL554. VRP700 Cough is the most common symptom of many lung diseases and can be very troublesome in some patients. Chronic cough of more than eight weeks duration can be a symptom of severe lung diseases such as interstitial lung disease, including idiopathic pulmonary fibrosis (IPF), lung cancer, cystic fibrosis, asthma and COPD. Currently available cough remedies are widely considered to be relatively ineffective against chronic cough and are commonly associated with significant side effects. To the best of the Company's knowledge, there are no novel and effective inhaled therapies for treating the severe, intractable cough associated with these lung diseases currently in clinical development. The Company is initially evaluating VRP700 as a potential first-in-class treatment in patients with chronic cough due to severe lung disease. An exploratory clinical trial of VRP700 at the University of Florence, Italy, showed a very effective reduction of coughing in a small group of patients with various forms of severe lung disease. A follow-on study in patients with IPF was commenced at the Respiratory and Allergy Centre at the University of Manchester, UK, during the reporting period. In this randomised, double-blind, placebo-controlled clinical study with inhaled VRP700, IPF patients are treated with a single dose of either VRP700 or placebo and the effect on cough and other symptoms are recorded. The study is expected to be completed in the first half of 2014. NAIPs The Company has conducted limited work in the NAIPs program, as this is a longer term research opportunity at this point in time. FINANCIALS The loss from operations for the year ended 31 December 2013was £2.52m (2012: £2.52m). Research and development expenditure amounted to £1.66m (2012: £1.67m) and reflected a decrease in expenditures on the RPL554 programme by £0.21m to £ 1.10m (2012: £1.31m) offset by an increase in expenditure on the VRP700 programme by £0.20m to £0.55m (2012: £0.35m). The decrease in expenditure on the RPL554 programme was primarily due to the majority of costs for the anti-inflammatory study being incurred in 2012 with no new clinical studies initiated in 2013, partly offset by costs of developing the new nebulised formulation. The increase in expenditure on the VRP700 programme predominately arose from the study in IPF patients being conducted at the University of Manchester, which commenced in 2013 and is due to complete in the first half of 2014. Administrative expenses for the year were £1.16m (2012: £0.91m). The increase of £0.27m arose mainly from an increase in the share-based payments charge and from cash bonus payments made during 2013, as detailed in the Directors' Report. As at 31 December 2013, the Group had approximately £0.60 million in cash and cash equivalents. On 24 March 2014the Company announced that it had raised £14 million in gross proceeds from a placing, subscription and open offer. These funds will be used primarily to support the development of RPL554 in severe COPD and VRP700 in chronic cough as well as corporate and general administrative expenditures. MANAGEMENT AND STAFF In September 2013, the Company appointed Richard Bungayas Chief Financial Officer. Richard has close to 20 years' experience in corporate and senior finance roles within R&D-based companies within the biotechnology and pharmaceutical sector. He was also Director of Corporate Communications and Strategic Planning at Celltech Group plcuntil its acquisition by UCB in 2004. Richard qualified as a Chartered Accountant with Deloitte. His experience will be invaluable as the key clinical programmes move forward and the Company grows. OUTLOOK During the reporting period, Verona Pharmacontinued to implement the refined strategy of creating a biopharmaceutical company focused on the development of high value, first-in-class drugs for chronic, debilitating specialist-treated respiratory diseases. The initial focus of the lead pipeline drug, RPL554, is to develop a nebulised treatment for hospitalised patients with acute exacerbations of COPD, and the initial focus for VRP700 is to develop a novel inhaled treatment for patients with intractable, chronic cough due to severe lung disease. The Board believes that both drugs address specific patient groups that are currently under-treated, that there is limited competition in both segments, and that both drugs therefore present very attractive commercial opportunities for generating significant value for shareholders. Over the next 24 months the significant funds raised in March 2014will enable RPL554 to be advanced in a series of further clinical and supplementary pre-clinical studies that should position the drug for a subsequent Phase 2b study. The Company continues to anticipate data from the VRP700 proof of concept trial in the first half of 2014. If successful, additional pre-clinical and clinical work is planned to further evaluate its properties as a potential new inhaled anti-tussive drug. This continued clinical work will support the optimised development and commercial strategy. Importantly, strengthening the IP coverage around both projects has provided longer patent protection and adds very significant value to both programmes. In addition, the Company believes that RPL554, with its unique bronchodilator and anti-inflammatory properties, ultimately has the potential to benefit a much wider group of patients and to be used either alone or in combination with existing medicines. RPL554 could become a particularly attractive combination partner to currently used anti-muscarinic drugs, the mainstay treatment for COPD patients, as the Company has demonstrated a synergistic effect when these two drugs are used in combination. The Company recognises that an experienced and resourceful commercial partner could bring significant value to the development of RPL554 for chronic maintenance treatment in COPD and perhaps asthma and therefore continues to be involved in business development discussions around the RPL554 programme. However, the Company intends to partner its drug candidates only when it can extract a commercially attractive return for the Company and its Shareholders. The Company will continue to operate with a strong focus and financial discipline, and remains very positive about its progress to date and the opportunities for its two lead drug development programmes. Professor Clive P. Page Dr. Jan-Anders Karlsson Chairman Chief Executive Officer 25 April 2014GROUP STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2013Notes Year ended 31 Year ended 31 December 2013 December 2012 £ £ Continuing operations Revenue - - Cost of sales - - Gross profit - - Research and development (1,656,490) (1,674,977) Administration expenses (1,160,294) (910,372) Operating loss 4 (2,816,784) (2,585,349) Finance revenue 6 2,632 20,177 Loss before taxation (2,814,152) (2,565,172) Taxation - credit 7 289,400 48,069 Loss for the year (2,524,752) (2,517,103) Other comprehensive income - - Total comprehensive loss for (2,524,752) (2,517,103) the year Loss per ordinary share - 2 (0.74)p (0.82)p basic and diluted (pence) The results shown above relate entirely to continuing operations and are attributable to equity holders of the Company. GROUP STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2013Notes 31 December 31 December 2013 2012 £ £ ASSETS Non-current assets Plant and equipment 12 27,647 39,484 Intangible assets - patents 13 207,144 125,280 Goodwill 14 1,469,112 1,469,112 1,703,903 1,633,876 Current assets Trade and other receivables 9 249,639 208,051 Cash and cash equivalents 10 603,791 960,870 853,430 1,168,921 Total assets 2,557,333 2,802,797 EQUITY AND LIABILITIES Capital and reserves attributable to equity holders Share capital 15 372,598 307,203 Share premium 14,184,412 12,447,364 Share-based payment reserve 640,579 470,577 Retained losses (13,129,576) (10,621,672) Total equity 2,068,013 2,603,472 Current liabilities Trade and other payables 11 489,320 199,325 Total liabilities 489,320 199,325 Total equity and liabilities 2,557,333 2,802,797 The financial statements were approved by the Board of Directors on 25 April 2014and signed on its behalf by: Dr. Jan-Anders KarlssonChief Executive Company Number: 05375156 COMPANY STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2013Notes 31 December 31 December 2013 2012 £ £ ASSETS Non current assets Plant and equipment 12 27,647 39,484 Intangible assets - patents 13 207,144 125,280 Goodwill 14 1,453,569 1,453,569 Investment 8 1 1 1,688,361 1,618,334 Current assets Trade and other receivables 9 248,917 207,025 Cash and cash equivalents 10 602,503 957,155 851,420 1,164,180 Total assets 2,539,781 2,782,514 EQUITY AND LIABILITIES Capital and reserves attributable to equity holders Called up share capital 15 372,598 307,203 Share premium account 14,184,412 12,447,364 Share-based payment reserve 640,579 470,577 Retained losses (13,147,128) (10,641,741) Total equity 2,050,461 2,583,403 Current liabilities Trade and other payables 11 489,320 199,111 Total liabilities 489,320 199,111 Total equity and liabilities 2,539,781 2,782,514 The financial statements were approved by the Board of Directors on 25 April 2014and approved on its behalf by: Dr. Jan-Anders KarlssonChief Executive Company Number: 05375156 GROUP STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2013Notes Year ended 31 Year ended 31 December 2013 December 2012 £ £ Net cash outflow from operating 16 (2,343,944) (2,573,609) activities Cash inflow from taxation 289,400 48,069 Cash flow from investing activities Interest received 2,642 20,194 Purchase of plant and equipment (2,033) (46,594) Payment for patents (105,587) (27,953) Net cash outflow from investing (104,978) (54,353) activities Cash flow from financing activities Financing costs - 12,074 Net proceeds from issue of shares 1,802,443 1,002,494 Net cash inflow from financing 1,802,443 1,014,568 activities Decrease in cash and cash equivalents (357,079) (1,565,325) Cash and cash equivalents at the 960,870 2,526,195 beginning of the year Cash and cash equivalents at the end of 10 603,791 960,870 the year COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2013Notes Year ended 31 Year ended 31 December 2013 December 2012 £ £ Net cash outflow from operating 16 (2,332,329) (2,561,282) activities Cash inflow from taxation 289,400 48,069 Cash flow from investing activities Interest received 2,642 20,194 Purchase of plant and equipment (2,033) (46,594) Payments for patents (105,587) (27,953) Advance to subsidiary (9,188) (9,489) Net cash outflow from investing (114,166) (63,842) activities Cash flow from financing activities Financing cost - 12,074 Net proceeds from issue of shares 1,802,443 1,002,494 Net cash inflow from financing 1,802,443 1,014,568 activities Decrease in cash and cash equivalents (354,652) (1,562,487) Cash and cash equivalents at the 957,155 2,519,642 beginning of the year Cash and cash equivalents at the end of 10 602,503 957,155 the year GROUP STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2013Share Share Option Retained Total capital premium reserve earnings £ £ £ £ £ Balance at 1 January 285,844 11,466,229 510,499 (8,211,826) 4,050,746 2012 Loss for the year - - - (2,517,103) (2,517,103) Other comprehensive - - - - - income Total comprehensive - - - (2,517,103) (2,517,103) loss for the year Issue of shares 21,359 1,046,607 - - 1,067,966 Share issue costs - (65,472) - - (65,472) Share-based payments - - 67,335 - 67,335 Transfer of previously - - (107,257) 107,257 - expensed share based payment charge upon exercise of options Balance at 31 December 307,203 12,447,364 470,577 (10,621,672) 2,603,472 2012 Balance at 1 January 307,203 12,447,364 470,577 (10,621,672) 2,603,472 2013 Loss for the year - - - (2,524,752) (2,524,752) Other comprehensive - - - - - income Total comprehensive - - - (2,524,752) (2,524,752) loss for the year Issue of shares 65,395 1,894,767 - - 1,960,162 Share issue costs - (157,719) - - (157,719) Share-based payments - - 186,850 - 186,850 Transfer of previously - - (16,848) 16,848 - expensed share based payment charge upon lapse of options Balance at 31 December 372,598 14,184,412 640,579 (13,129,576) 2,068,013 2013 COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2013Share Share Option Retained Total capital premium reserve earnings £ £ £ £ £ Balance at 1 January 285,844 11,466,229 510,499 (8,234,710) 4,027,862 2012 Loss for the year - - - (2,514,288) (2,514,288) Other comprehensive - - - - - income Total comprehensive - - - (2,514,288) (2,514,288) loss for the year Issue of shares 21,359 1,046,607 - - 1,067,966 Share issue costs - (65,472) - - (65,472) Share-based payments - - 67,335 - 67,335 Transfer of previously - - (107,257) 107,257 - expensed share based payment charge upon exercise of options Balance at 31 December 307,203 12,447,364 470,577 (10,641,741) 2,583,403 2012 Balance at 1 January 307,203 12,447,364 470,577 (10,641,741) 2,583,403 2013 Loss for the year - - - (2,522,235) (2,522,235) Other comprehensive - - - - - income Total comprehensive - - - (2,522,235) (2,522,235) loss for the year Issue of shares 65,395 1,894,767 - - 1,960,162 Share issue costs - (157,719) - - (157,719) Share-based payments - - 186,850 - 186,850 Transfer of previously - - (16,848) 16,848 - expensed share based payment charge upon lapse of options Balance at 31 December 372,598 14,184,412 640,579 (13,147,128) 2,050,461 2013 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 20131. Accounting policies A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below. i. Basis of preparation The financial statements have been prepared using the historical cost convention. In addition, the financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs"). ii. Going concern During the year ended 31 December 2013the Group made a loss of £2,524,752 (2012: a loss of £2,517,103). At the year-end date the Group had net assets of £2,068,013 (2012: £2,603,472) of which £603,791 was cash and cash equivalents. The operation of the Group is currently being financed from funds that the Company raised from private and public share placings. On 24 March 2014the Company announced that it had raised £14 million in gross proceeds from a placing, subscription and open offer. These funds will be used primarily to support the development of RPL554 in severe COPD and VRP700 in chronic cough as well as corporate and general administrative expenditures. The Group's capital management policy is to only raise sufficient funding to finance the Group's near term research objectives. Upon completion of objectives, or identification of new projects, the Directors will seek new funding to finance the next stage of the research programme or the new projects. The Directors believe that the Group has sufficient funds for it to comply with its foreseeable commitments and, accordingly, are satisfied that the going concern basis remains appropriate for the preparation of these financial statements. iii. Basis of consolidation These group financial statements include the accounts of Verona Pharma plcand its wholly-owned subsidiary Rhinopharma Limited. The purchase method of accounting is used to account for the acquisition of Rhinopharma Limited. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. Goodwill arising on acquisitions is capitalised and subject to an impairment review, both annually and when there are indications that the carrying value may not be recoverable. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Rhinopharma Limitedadopts the same accounting policies as the Company. iv. Foreign currency translation Items included in the Group's financial statements are measured using the currency of the primary economic environment in which the Group operates ("the functional currency"). The financial statements are presented in pounds sterling ("£"), which is the functional and presentational currency of the Company and the presentational currency of the Group. Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in the profit and loss account. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the original transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. The assets and liabilities of foreign operations are translated into sterling at the rate of exchange ruling at the balance sheet date. Income and expenses are translated at weighted average exchange rates for the period. The resulting exchange differences are recognised in other comprehensive income. v. Cash and cash equivalents The Company considers all highly liquid investments, with a maturity of 90 days or less to be cash equivalents, carried at the lower of cost or market value. vi. Deferred taxation Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and expected to apply when the related deferred tax is realised or the deferred liability is settled. Deferred tax assets are recognised to the extent that it is probable that the future taxable profit will be available against which the temporary differences can be utilised. vii. Research and development costs Research costs are charged as an expense in the period in which they are incurred. Development costs are charged as an expense in the period incurred unless the Company believes a development project meets generally accepted accounting criteria for capitalisation and amortisation. At 31 December 2013no development costs have been capitalised. viii. Plant and equipment Plant and equipment are recorded at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the expected useful lives as follows: Computer hardware 3 years Computer software 2 years Office furniture and 5 years equipment ix. Intangible assets Patent costs associated with the preparation, filing, and obtaining of patents are capitalised and amortised on a straight-line basis over the estimated useful lives of the patents of ten years. x. Impairment of intellectual properties The carrying value of patents and goodwill do not necessarily reflect present or future values and the ultimate amount recoverable will be dependent upon the successful development and commercialisation of products based on these intellectual properties. Management reviews the intellectual properties for impairment whenever events or changes in circumstances indicate that full recoverability is questionable, and such review is performed on at least an annual basis. Management measures any potential impairment by comparing the carrying value to the discounted amounts of expected future cash flows. xi. Share based payments The Company made share-based payments to certain directors and advisers by way of issue of share options. The fair value of these payments is calculated by the Company using the Black-Scholes option pricing model. The expense is recognised on a straight line basis over the period from the date of award to the date of vesting, based on the Company's best estimate of shares that will eventually vest. xii. Critical accounting judgements and estimates The preparation of financial statements in conformity with International Financial Reporting Standards requires the use of accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results ultimately may differ from those estimates. IFRSs also require management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are as follows: (a) Impairment of intangible assets Determining whether an intangible asset is impaired requires an estimation of whether there are any indications that its carrying value is not recoverable. At each reporting date, the Company reviews the carrying value of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset's fair value less costs to sell and value in use, is compared to the asset's carrying value. Any excess of the asset's carrying value over its recoverable amount is expensed to the income statement. (b) Valuation of goodwill Management values goodwill after taking into account the results of research efforts and estimated future sales and costs. If the assumed factors vary from actual occurrence, this will impact on the amount of the asset that should be carried in the statement of financial position. Further details of the Group's assessment of the carrying value of goodwill are disclosed in note 14. (c) Share based payments The Group records charges for share based payments. For option based share based payments management estimate certain factors used in the option pricing model, including volatility, vesting date of options and number of options likely to vest. If these estimates vary from actual occurrence, this will impact on the value of the equity carried in the reserves. Further details of the Group's estimation of share based payments are disclosed in note 18. xiii. New standards and interpretations The following new standards and amendments are mandatory for the first time for financial periods commencing on or after 1 January 2013: IFRS 13 - Fair Value Measurement The standard applies to IFRSs that require or permit fair value measurements or disclosures and provides a single IFRS framework for measuring fair value and requires disclosures about fair value measurement. The Standard defines fair value on the basis of an 'exit price' notion and uses a 'fair value hierarchy', which results in a market- based, rather than entity-specific, measurement. Amendments to IAS 1 - Presentation of Financial Statements The amendments require entities to group items presented in other comprehensive income on the basis of whether they are potentially reclassifiable to profit or loss. These standards and amendments to standards have been applied in the preparation of the financial statements for the current period. They have not had any impact on the comprehensive loss or the value of either the Group or Company assets or liabilities for the current or comparative periods. xiv. New standards and interpretations not applied during the year During the year the IASB and IFRIC have issued new standards, amendments and interpretations with an effective date in the EU after the date of these financial statements. Of these, only the following are expected to be relevant to the Group: Standard Subject Effective from IFRS 9 Financial Instruments 1 January 2015 IFRS 10 Consolidated Financial Statements 1 January 2014 IFRS 11 Joint Arrangements 1 January 2014 IFRS 12 Disclosure of Interests in Other Entities 1 January 2014 IAS 27 Separate Financial Statements (2011) 1 January 2014 IAS 28 Investments in Associates and Joint 1 January Ventures (2011) 2014 Amendment to IAS 32 Financial Instruments Presentation 1 January 2014 Amendment to IAS 36 Impairment of Assets 1 January 2014 2. Earnings per share Basic loss per share of 0.74p (2012: loss of 0.82p) for the Group is calculated by dividing the loss for the period by the weighted average number of ordinary shares in issue of 341,564,623 (2012: 306,620,807). Diluted loss per share for the current period has not been presented since the Company's share options are anti-dilutive. 3. Segmental information The Group has determined that its operating segments be reported on a product pipeline basis as this best reflects the Group's activity cycle. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the Board of Directors. The Group's product pipeline is dedicated to the research, discovery and development of new therapeutic drugs for the treatment of acute and chronic respiratory diseases. At present there are three products: RPL554, VRP700 and NAIPs. RPL554 and VRP700 are in the clinical phase, RPL554 having successfully completed Phase 1 and 2 trials, VRP700 having successfully completed a Phase 2 trial, and NAIPs are in the basic research phase. Segment information by operating segment is as follows: Clinical Clinical Basic Basic research research 2013 2012 2013 2012 £ £ £ £ Income statement information Research and (1,648,083) (1,656,444) (8,407) (18,533) development Amortisation of patent (19,951) (13,567) (3,772) (3,676) Segment loss (1,668,034) (1,670,011) (12,179) (22,209) Assets information Patent 187,379 101,743 19,765 23,537 Goodwill 1,469,112 1,469,112 - - Segment assets 1,656,491 1,570,855 19,765 23,537 2013 2012 £ £ Reconciliation of segment result Loss per reportable segment - Clinical (1,668,034) (1,670,011) Loss per segment - Basic research (12,179) (22,209) Total loss for reportable segments (1,680,213) (1,692,220) Amortisation of non-segment assets (13,870) (13,131) Unallocated administration expense (1,122,701) (879,998) Group operating loss (2,816,784) (2,585,349) At the end of the financial year, the Group was still in the early development stage and therefore had no turnover in either 2012 or 2013. Reconciliation of segment assets Assets per reportable segment - Clinical 1,656,491 1,570,855 Assets per reportable segment - Basic research 19,765 23,537 Total assets for reportable segments 1,676,256 1,594,392 Unallocated non-current assets 27,647 39,485 Unallocated current assets 853,430 1,168,920 Group total assets 2,557,333 2,802,797 Segment information by geographical segment for 2013 is as follows: Geographical segment (Group) United Canada Total Kingdom £ £ £ Research and development (1,656,490) - (1,656,490) Administration expenses (1,148,589) (11,705) (1,160,294) Finance revenue 2,632 - 2,632 Loss before taxation (2,802,447) (11,705) (2,814,152) Tangible assets 27,647 - 27,647 Intangible assets 207,144 - 207,144 Trade and other receivables 248,917 722 249,639 Cash and cash equivalents 602,503 1,288 603,791 Goodwill 1,469,112 - 1,469,112 Trade and other payables (489,320) - (489,320) Net assets 2,066,003 2,010 2,068,013 Segment information by geographical segment for 2012 is as follows: Geographical segment (Group) United Canada Total Kingdom £ £ £ Research and development (1,674,977) - (1,674,977) Administration expenses (907,557) (2,815) (910,372) Finance revenue 20,177 - 20,177 Loss before taxation (2,562,357) (2,815) (2,565,172) Tangible assets 39,484 - 39,484 Intangible assets 125,280 - 125,280 Trade and other receivables 207,025 1,026 208,051 Cash and cash equivalents 957,155 3,715 960,870 Goodwill 1,469,112 - 1,469,112 Trade and other payables (199,111) (214) (199,325) Net assets 2,598,945 4,527 2,603,472 4. Operating loss 2013 2012 £ £ Group This is stated after charging/(crediting): Foreign exchange loss 4,746 10,909 Profit on disposal of fixed assets (3,632) - Research and development costs 1,656,490 1,674,977 Share-based payments 186,850 67,335 Auditors' remuneration for audit services - Group and Company audit 18,750 18,750 Auditors' remuneration for non audit services - Taxation consultancy 3,250 3,230 Total auditors' remuneration 22,000 21,980 5. Employee costs 2013 2012 £ £ Group Wages and salaries 147,296 173,444 Social security costs 9,854 9,690 157,150 183,134 Remuneration of Directors is separately disclosed in the Report on Directors' remuneration. 2013 2012 Number Number Group The average number of employees 10 12 including directors during the year was: 6. Finance revenue 2013 2012 £ £ Group Bank interest 2,631 20,177 7. Taxation 2013 2012 £ £ Analysis of tax credit for the year Current tax: UK corporation tax at 23.25% (2012: 24%) - - Prior year adjustment (289,400) (48,069) Foreign taxation - - Current tax credit (289,400) (48,069) Factors affecting the tax charge for the year Loss on ordinary activities before (2,814,152) (2,565,172) taxation Multiplied by standard rate of corporation tax of 23.25% (2012: 24%) (654,290) (615,641) Effects of: Non deductible expenses 46,430 25,314 Timing differences not recognised 3,225 - Tax losses carried forward 604,635 590,327 Prior year adjustment (289,400) (48,069) Current tax credit (289,400) (48,069) The prior year adjustment of £289,400 is a research and development tax credit received in the year (2012: £48,069). The tax credit is a cash refundable tax credit for qualifying research and development activities undertaken by the Company. Factors that may affect future tax charges At the year-end date, the Group has unused United Kingdomtax losses available for offset against suitable future profits in the United Kingdom. A deferred tax asset has not been recognised in respect of such losses due to uncertainty of future profit streams. The contingent deferred tax asset at 20% (2012: 23%) is estimated to be £2,748,000 (2012: £2,234,000). 8. Subsidiary entities The Company currently has one wholly owned subsidiary, Rhinopharma Limited. Rhinopharma Limitedis incorporated under the laws of the Province of British Columbia, Canada. Rhinopharma Limitedwas a drug discovery and development company focused on developing proprietary drugs to treat allergic rhinitis and other respiratory diseases prior to its acquisition by the Company on 18 September 2006. 9. Trade and other receivables 2013 2012 £ £ Group Other receivables 107,235 107,549 Deferred financing costs - 5,000 Prepayments and accrued income 142,404 95,502 249,639 208,051 Company Other receivables 107,235 107,314 Deferred financing costs - 5,000 Prepayments and accrued income 141,682 94,711 248,917 207,025 10. Cash and cash equivalents 2013 2012 £ £ Group Cash at bank and in hand 603,791 960,870 Cash equivalents - - 603,791 960,870 Company Cash at bank and in hand 602,503 957,155 Cash equivalents - - 602,503 957,155 11. Trade and other payables 2013 2012 £ £ Group Trade payables 329,757 135,629 Other payables 18,800 10,918 Accruals 140,763 52,778 489,320 199,325 Company Trade payables 329,757 135,415 Other payables 18,800 10,918 Accruals 140,763 52,778 489,320 199,111 12. Plant and equipment Group and Company Computer Computer Office Total hardware software equipment £ £ £ £ Cost At 1 January 2012 40,719 13,605 1,341 55,665 Additions in 2012 1,395 10,079 35,120 46,594 At 31 December 2012 42,114 23,684 36,461 102,259 Depreciation At 1 January 2012 35,106 13,340 1,198 49,644 Charge for 2012 4,866 3,353 4,912 13,131 At 31 December 2012 39,972 16,693 6,110 62,775 Net book value At 31 December 2012 2,142 6,991 30,351 39,484 Net book value At 31 December 2011 5,613 265 143 6,021 Cost At 1 January 2013 42,114 23,684 36,461 102,259 Additions in 2013 2,033 - - 2,033 Disposals in 2013 (7,477) - - (7,477) At 31 December 2013 36,670 23,684 36,461 96,815 Depreciation At 1 January 2013 39,972 16,693 6,110 62,775 Charge for 2013 1,750 5,039 7,081 13,870 Disposals in 2013 (7,477) - - (7,477) At 31 December 2013 34,245 21,732 13,191 69,168 Net book value At 31 December 2013 2,425 1,952 23,270 27,647 Net book value At 31 December 2012 2,142 6,991 30,351 39,484 13. Intangible assets Group and Company Patents £ Cost At 1 January 2012 166,353 Additions in 2012 27,953 At 31 December 2012 194,306 Amortisation At 1 January 2012 51,784 Charge for 2012 17,242 Impairment during 2012 - At 31 December 2012 69,026 Net book value At 31 December 2012 125,280 Net book value At 31 December 2011 114,569 Cost At 1 January 2013 194,306 Additions in 2013 105,587 At 31 December 2013 299,893 Amortisation At 1January 2013 69,026 Charge for 2013 23,723 Impairment during 2013 - At 31 December 2013 92,749 Net book value At 31 December 2013 207,144 Net book value At 31 December 2012 125,280 14. Goodwill 2013 2012 £ £ Group Goodwill 1,469,112 1,469,112 Company Goodwill 1,453,569 1,453,569 Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in connection with the acquisition of Rhinopharma Limitedin September 2006. Goodwill is capitalised and allocated to appropriate research projects, in Verona's case RPL554. They are deemed to have indefinite useful life and so are not amortised. Annual impairment test of the research projects (`RPs') is performed by comparing the expected recoverable amount of the RPs to the carrying amount of the RPs. The recoverable amount of the RPs is based on value in use calculations. The use of this method requires the estimation of risk-adjusted future cash flows discounted using suitable pre-tax discount rate, and a pre-tax discount rate of 10% has been used. The key assumptions on which the cash flow projections were based include market size, market penetration, pre-tax discount rate, probability, estimated revenue and royalties. Sources of information for these key assumptions have been determined by using a combination of external market information, industry forecasts and management's expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Management has performed sensitivity analysis on the key assumptions including reducing the estimated revenue and probability by 50%. However, the changes would not cause the carrying amount to exceed their recoverable amount. Hence, the Company concluded that no impairment was required as at 31 December 2013. 15. Called up share capital The movements in the share capital are summarised below: Number of shares £ Authorised: 10,000,000,000 Ordinary shares of 0.1p 10,000,000,000 10,000,000 each Allotted, called up and fully paid: Ordinary shares as at 1 January 2012 285,845,075 285,844 Ordinary shares issued from share 21,359,320 21,359 placement As at 31 December 2012 307,204,395 307,203 Ordinary shares issued from share 65,394,255 65,395 placement As at 31 December 2013 372,598,650 372,598 The following issues of new shares took place during the year ended 31 December 2013: As part of a share placement on 14 February 2013 28,971,528 new Ordinary shares of 0.1p each in the Company were issued fully paid for 4 penceper share. As part of a share placement on 25 October 2013 36,422,727 new Ordinary shares of 0.1p each in the Company were issued fully paid for 2.2 penceper share. 16. Net cash outflow from operating activities 2013 2012 £ £ Group Operating loss (2,816,784) (2,585,349) Cost of issuing share options 186,850 67,335 Increase in trade and other (41,598) (129,284) receivables Increase in trade and other payables 289,995 43,316 Depreciation of plant and equipment 13,870 13,131 Amortisation of intangible assets 23,723 17,242 Net cash outflow from operating activities (2,343,944) (2,573,609) Company Operating loss (2,814,267) (2,582,534) Cost of issuing share options 186,850 67,335 Increase in trade and other (41,902) (129,306) receivables Increase in trade and other payables 290,209 43,361 Provision for amounts advanced to 9,188 9,489 subsidiary Depreciation of plant and equipment 13,870 13,131 Amortisation of intangible assets 23,723 17,242 Net cash outflow from operating activities (2,332,329) (2,561,282) 17. Related parties transactions The Company was charged £27,000 (2012: £27,000) by Gryon Consulting Limited, a company of which Prof. Clive Pageis a Director. At the year end the Company owed £Nil (2012: £Nil) to the related party.18. Share-based payments charge Included within administration expenses is a charge of £186,850 (2012: £67,335) for issuing share options. The share based payment charge represents the current year's allocation of the expense for relevant share options between 2009 and 2013. All options issued prior to 2009 are fully expensed. The Company grants share options under an unapproved share option plan (the 'Unapproved Plan') and under tax efficient Enterprise Management Incentive arrangements (the 'EMI Plan'). Under the Unapproved Plan, options are granted to employees, directors and consultants to acquire shares at a price to be determined by the Board. In general, options vest after three years and are exercisable during a period ending ten years after the date of grant. Options are also issued to advisors under the Unapproved Plan: such options generally vest immediately and are exercisable between one and two years after grant. Under the EMI Plan, options are granted to employees and directors who are contracted to work at least 25 hours a week for the Company or for at least 75% of their working time. The options granted under the EMI Plan will be exercisable at a price and in accordance with a vesting schedule determined by the Board at the time of grant and will have an exercise period of 10 years from the date of grant. The Company granted 2,500,000 (2012: 5,000,000) share options under the EMI Plan and 18,655,717 (2012: 600,000) share options under the Unapproved Plan during the current year with total fair values estimated using the Black-Scholes option-pricing model of £352,616 (2012: £110,680). The cost is amortised over the vesting period of the options on a straight-line basis and £ 145,647 is included in the charge to administration expenses noted above. The following assumptions were used for the Black-Scholes valuation of share options granted in 2013, 2012, 2010, and 2009. EMI Plan Unapproved Plan Issued in 2013 Issued in 2013 Year/Type Employees Employees Advisors Options granted 2,500,000 13,000,000 5,655,717 Risk-free interest 2.0-2.8% 1.7-2.3% 0.4-0.5% rate Expected life of 5 years 5 years 2 -3years options Annualised 53.3-72.4% 80.0-81.9% 70.5-122.1% volatility Dividend rate 0.00% 0.00% 0.00% EMI Plan Unapproved Plan Issued in 2012 Issued in 2012 Year/Type Employees Employees Consultants Options granted 5,000,000 300,000 300,000 Risk-free interest 0.97% 0.97% 0.97% rate Expected life of 5 years 5 years 5 years options Annualised 75.56% 82.36% 82.36% volatility Dividend rate 0.00% 0.00% 0.00% Unapproved Plan Unapproved Plan Issued in 2010 Issued in 2009 Year/Type Employees Employees Consultants Options granted 850,000 1,000,000 200,000 Risk-free interest 2.75% 5.0% 4.75% rate Expected life of 5 years 5 years 5 years options Annualised 37.35% 75.02% 155.20% volatility Dividend rate 0.00% 0.00% 0.00% The Company had the following share options movements in the year: Number of options Year Exercise At 1 Options Options Options At 31 Expiry date of price January granted exercised lapsed December issue (pence) 2013 2013 2006 5 10,000,000 - - - 10,000,000 18 September 2016* 2009 4 200,000 - - - 200,000 8 January 2014 2009 17.5 1,000,000 - - - 1,000,000 11 September 2014 2010 9 850,000 - - (50,000) 800,000 15 June 2015 2012 5 1,950,604 - - (1,950,604) - 7 December 2013** 2012 5-15 5,000,000 - - - 5,000,000 1 June 2022 *** 2012 5 600,000 - - - 600,000 23 October 2022 2013 4.8 - 5,000,000 - - 5,000,000 31 January 2016** 2013 4 - 655,717 - - 655,717 31 January 2015** 2013 4 - 5,000,000 - - 5,000,000 15 April 2023 2013 4 - 1,000,000 - - 1,000,000 1 June 2023*** 2013 4 - 8,000,000 - - 8,000,000 29 July 2023 2013 4 - 500,000 - - 500,000 21 August 2023*** 2013 4 - 1,000,000 - - 1,000,000 1 September 2023*** Total 19,600,604 21,155,717 - (2,000,604) 38,755,717 *10,000,000 directors' options with expiry date on 18 September 2011were extended for five years to 18 September 2016. **options granted to agents upon closing of a Placing or financing facility. ***options granted under the EMI Plan. Outstanding and exercisable share options by Plans at 31 December 2013: Plan Outstanding Exercisable WAEP (pence) Unapproved 31,255,717 17,855,717 5.0 EMI 7,500,000 1,666,665 9.4 Total 38,755,717 19,522,382 5.5 The weighted average exercise price (WAEP) of options at the year end is as follows: Number of Weighted average options exercise price (pence) As at 1 January 2012 13,330,000 6.0 Options granted in 2012: Employees and consultants 600,000 5.0 Directors 5,000,000 9.4 Placing agent 1,950,604 5.0 Options lapsed in the year (1,280,000) 4.0 As at 31 December 2012 19,600,604 6.9 Options granted in 2013: Employees and consultants 2,500,000 4.0 Directors 13,000,000 4.0 Placing agent 5,655,717 4.7 Options lapsed in the year (2,000,604) 4.0 As at 31 December 2013 38,755,717 5.5 Exercisable at 31 December 2013 19,522,382 6.1 19. Loss of the parent company The Parent has taken advantage of the exemption permitted by Section 408 of the Companies Act 2006 not to present an income statement for the year. The Parent Company's loss for the year was £2,522,235 (2012: loss of £2,514,288), which has been included in the Group's income statement. 20. Control The Company is not under the control of any individual or group of connected parties. 21. Financial commitments As at 31 December 2013the Group and Company were committed to making the following payments under non-cancellable operating leases in the year to 31 December 2013. Land and Buildings 2013 2012 Operating leases which expire: £ £ Within one year 22,640 55,921 22. Financial instruments (a) Fair values The carrying amounts of cash and cash equivalents, short-term investments, receivables, and accounts payable and accrued liabilities, approximate to fair value due to their short-term nature. b. Credit risk Credit risk reflects the risk that the Group may be unable to recover contractual receivables. The Group is still in the development stage; therefore, no policies are required at this time to mitigate this risk. (c) Currency risk Foreign currency risk reflects the risk that the Group's net assets will be negatively impacted due to fluctuations in exchange rates. The Group has not entered into foreign exchange contracts to hedge against gains or losses from foreign exchange fluctuations. At 31 December 2013, cash and cash equivalents include €16,319 and CAD$2,271, and accounts payable and accrued liabilities include balances of CAD$7,535and €6,825. (d) Financial risk management The Directors recognise that this is an area in which they may need to develop specific policies should the Group become exposed to further financial risks as the business develops. (e) Management of capital The Group considers capital to be its equity reserves. At the current stage of the Group's life cycle the Group's objective in managing its capital is to ensure funds raised meet the research and operating requirements until the next development stage of the Group's suite of projects. The Group ensures it is meeting its objectives by reviewing its Key Performance Indicators ("KPIs") to ensure its research activities are progressing in line with expectations, controlling costs and placing unused funds on deposit to conserve resources and increase returns on surplus cash held. (f) Interest rate risk At 31 December 2013, the Group had cash deposits of £603,791 (2012: £960,870). The Group's exposure to interest rate risk, which is the risk that a financial instrument's value will fluctuate as a result of changes in market interest rates on classes of financial assets and financial liabilities, was as follows: Financial Asset Floating Fixed Floating Fixed interest rate interest rate interest rate interest rate 2013 2013 2012 interest 2012 £ £ £ £ Cash deposits 603,791 - 960,870 - 23. Subsequent events On 24 March 2014the Company announced that it had raised £14 million in gross proceeds from a placing, subscription and open offer. These funds will be used primarily to support the development of RPL554 in severe COPD and VRP700 in chronic cough as well as corporate and general administrative expenditures.