Sinclair Pharma plc · 2019. 2. 18. · Sinclair Pharma plc Annual Report and Accounts 2016 Strategic report Strategic review Chris Spooner Chief Executive Officer Grahame Cook Chairman

Shaping the future

Aesthetic dermatology

Sinclair Pharma plc

Annual Report and Accounts 2016

Sinclair P

harma plc A

nnual Report and A

ccounts 2016

Sinclair Pharma plc Annual Report and Accounts 2016

Sinclair Pharma Plc is a pure-play aesthetics business with a highly differentiated portfolio based on improving facial shape and volumisation.

Strategic report

Highlights 2016 01

At a glance 02

Strategic review 04

Our milestones 08

Our strategy 16

Business model 18

Financial review 20

Principal risks and uncertainties 23

Corporate governance

Board of Directors 24

Directors’ report 25

Corporate governance report 28

Remuneration report 30

Financial statements

Independent auditor’s report 34

Consolidated income statement 36

Consolidated statement of comprehensive income 36

Consolidated balance sheet 37

Company balance sheet 38

Consolidated statement of changes in equity 39

Company statement of changes in shareholders’ equity 40

Cash flow statements 41

Notes to the financial statements 42

Advisers 72

Introduction

Strategic review See pages 04-07

Our products See pages 12-13



Strategic review

Ellansé®

Silhouette Soft®

Perfectha®

01



Strategic report

Highlights 2016

Increase in revenue

51%£37.8m2015: £25.0m

1 The Company changed its accounting reference date from 30 June to 31 December following the disposal of the non-aesthetics business in order to align itself with industry peers. The financial highlights focus on the 12 months ended 31 December 2016 compared to the 12 months ended 31 December 2015; figures for the 18-month period to 31 December 2016 are also presented.

2 Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation, impairment, share based payments, exceptional items and loss from discontinued operations. Adjusted EBITDA loss (ex US) for the 12 months ended 31 December 2016 of £0.8 million (2015: £8.0 million, 18 months £9.6million) is adjusted EBITDA excluding £5.3million of losses attributable to US operations during the launch of Silhouette InstaLift®.

3 £132million represents initial consideration received. Final net proceeds of £130million (note 31) are stated after receipt of deferred working capital settlement of £3million net of Alliance warranty claim payable of £5million.

Financial highlights for the 12 months ended 31 December 20161

• Delivered significant sales growth of 51% at £37.8 million, (2015: £25.0 million, 18 months £45.5 million)

• Underlying growth 38% on constant currency basis excluding InstaLift™ US launch and Brazil – Silhouette Soft® sales up 51% to £14.0 million (2015: £9.3 million) – Silhouette InstaLift® initial sales of £1.3 million (2015: £nil) – Ellansé® sales increased 84% to £8.1 million (2015: £4.4 million) – Perfectha® sales up 42% to £8.1 million (2015: £5.7 million)

• Gross profit increased 56% to £26.7 million (2015: £17.1 million, 18 months £31.8 million) as gross margin improved to 70.7% (2015: 68.3%, 18 months 69.9%)

• Adjusted EBITDA2 loss narrowed to £6.1 million (2015: £8.0 million, 18 months £14.9 million)

• Adjusted EBITDA loss (ex US) of £0.8 million

• Net cash of £16.8 million at 31 December 2016

Operating highlights

• Sale of non-aesthetics business for £1323 million in late 2015 transformed Sinclair into a fast growth high margin pure-play aesthetics business, significantly reduced business complexity and a strengthened balance sheet

• Successful August 2016 US launch of Silhouette InstaLift® with partner ThermiGen LLC – Over 300 US physicians attended Continuing Medical Education (CME) training by the end of

2016 and anticipate more than 1,000 additional physicians attending CME training by the end of 2017 – High demand for physician training in Q1 2017

• Products launched in multiple new markets – Ellansé® and Silhouette Soft® launched in Mexico and Columbia – Ellansé® launched in Hong Kong, Malaysia and Singapore

• Established Brazilian affiliate with repatriated local rights for Silhouette Soft® and Perfectha®

– Revenues of Perfectha® in Brazil up over 200% on 2015 following relaunch – Sales of Silhouette Soft® up 21% to £2.3 million (2015 £1.9 million).

• Successfully renegotiated Ellansé® milestone payments, significantly reducing the deferred consideration payable from €36.0 million to a one-off payment of €15.0 million resulting in a £8.5 million one-off exceptional gain

• Restructuring post disposal of non-aesthetic businesses to generate over £2 million in annualised cost savings.

Post period highlights

• Trading in Q1 2017 in line with management expectations

• Acceleration in the number of CME training events including Silhouette InstaLift® physician training

• New £10.0 million debt facility secured to fund investment in future growth

• Warranty claim arising on disposal of non-aesthetics business to Alliance Pharma plc settled for £5.0 million

02


Strategic report

At a glance

Repositioning and liftingVolume rejuvenation and shaping Volumising

Silhouette Soft®

Resorbable PLLA/ PLGA sutures with bi-directional resorbable cones for skin repositioning and tightening

• Redefined face, volume repositioned, reduced wrinkles

• Long-lasting results• Immediate correction• Non-surgical procedure• Minimal downtime

Ellansé®

Ellansé® defines a new class of Dermal Fillers

• Volume through regeneration of autologous type 1 collagen, fully integrated into dermal matrix

• Natural and natural looking results – both at rest and in motion (talking, smiling, laughing, crying, etc.)

• Tunable and longest lasting results of any resorbable (non-permanent) filler

• Unmatched safety – superior clinical (in-use) safety experience

Perfectha®

Latest generation of biphasic Hyaluronic acid (‘HA’) filler range for volume and contouring

Leading viscoelastic profile

• High volumising capacity• Easy to inject• Long-lasting correction• Provides complementary treatments for

facial contouring and fine-tuning

Sculptra®/New-Fill®

Collagen stimulator made from PLLA for progressive correction*

• Deep tissue regeneration• Full facial approach• Gradual and natural results• Long-lasting correction up to

25 months • Recognisable brand * Rights to Western Europe only

2016 revenue

£15.3mPeak sales potential

£150m

2016 revenue


£90m

2016 revenue


£20m

2016 revenue


£6m

Highly differentiated and broad aesthetics portfolio

03



Strategic report

Deep tissue regeneration

Silhouette Soft®

Resorbable PLLA/ PLGA sutures with bi-directional resorbable cones for skin repositioning and tightening

• Redefined face, volume repositioned, reduced wrinkles

• Long-lasting results• Immediate correction• Non-surgical procedure• Minimal downtime

Ellansé®

Ellansé® defines a new class of Dermal Fillers

• Volume through regeneration of autologous type 1 collagen, fully integrated into dermal matrix

• Natural and natural looking results – both at rest and in motion (talking, smiling, laughing, crying, etc.)

• Tunable and longest lasting results of any resorbable (non-permanent) filler

• Unmatched safety – superior clinical (in-use) safety experience

Perfectha®

Latest generation of biphasic Hyaluronic acid (‘HA’) filler range for volume and contouring

Leading viscoelastic profile

• High volumising capacity• Easy to inject• Long-lasting correction• Provides complementary treatments for

facial contouring and fine-tuning

Sculptra®/New-Fill®

Collagen stimulator made from PLLA for progressive correction*

• Deep tissue regeneration• Full facial approach• Gradual and natural results• Long-lasting correction up to

25 months • Recognisable brand * Rights to Western Europe only

2016 revenue


£150m

2016 revenue


£90m

2016 revenue


£20m

2016 revenue


£6m

04


Strategic report

Strategic review

Chris SpoonerChief Executive Officer

Grahame CookChairman

We are proud of what has been achieved at Sinclair Pharma in 2016. Following the disposal of the non-aesthetics assets, the Company is simplified as a fast growth and self-pay aesthetics business. During the period, Silhouette InstaLift® was launched in the US, a direct Brazilian affiliate was formed and revenue growth of 51% was recorded, beating management expectations. Looking ahead, the Board expects Sinclair to be adjusted EBITDA positive in 2017. Beyond this year, the Board believes that strong core revenue growth augmented by US, Brazil and China launches, combined with operational leverage through rising gross margins and a controlled cost base, will position the Company well to deliver superior returns for shareholders.

05



Strategic report

Revenue growth

+51%£37.8m2015: £25.0m

Underlying growth

+37%At constant currency excl. US launch and Brazil

2016 was an exceptionally busy and highly successful period for Sinclair. During the year, the Company concluded the strategic review, restructured the organisation and transitioned the entire non-aesthetics business, signed a distribution agreement with Thermi to launch Silhouette InstaLift® and created a direct affiliate in Brazil to sell Silhouette Soft® directly. These activities have transformed Sinclair into a sustainably fast-growth, high gross margin and pure-play aesthetics company, and were executed during a period of dynamic revenue growth; 51% revenue growth in 2016 was ahead of management expectations.

Sinclair’s product offering has been greatly simplified and now comprises Silhouette Soft®/ InstaLift™, Ellansé®, Perfectha® and Sculptra®/New-Fill®. The Company’s strategy is to provide aesthetic physicians with a portfolio of tools to clinically address the key drivers of patient satisfaction: safe and highly effective products which are minimally invasive in approach and thus create minimal downtime, produce natural looking and long-lasting results, but are not permanent. Commercially, the Company aims to generate compelling economics for the prescribing physicians. To this end, the predominant marketing activities during the period were aimed at training physicians how to optimally and safely use our brands and how to best promote the products within their clinics. More recently, Sinclair has increased its marketing emphasis directly to patients.

Conclusion of the strategic review and use of fundsIn May 2016, Sinclair announced the result of a detailed strategic review by the Board. The Board concluded that due to Sinclair’s unique product portfolio, underlying sales trends and future launch opportunities, and more generally dynamic aesthetics market fundamentals, the best shareholder returns would result from remaining an independent pure-play aesthetics company.

The £132 million proceeds from the non-aesthetics disposal in December 2015 created a net cash position. This was then used to pay down the Hayfin debt facility, fund the acquisition of various distribution rights

including the creation of the Brazil affiliate, pay aesthetics brand acquisition milestones, fund US pre-marketing costs and the Thermi launch contribution and fund the budgeted 2016 EBITDA loss recorded by the standalone aesthetics business. The Ellansé® milestones (to the founders of Aqtis) were fully paid out in return for a €20 million discount on the total consideration. This led to an exceptional accounting gain of £8.5 million during the period.

Transition of non-aesthetics to Alliance Pharma plc and management restructuringThe disposal and transition of the non-aesthetics activities to Alliance Pharma plc was a highly complex and time-consuming transaction. The product portfolio was transformed from 32, largely lower margin, low-growth products to four high-margin, high-growth differentiated aesthetics brands; Sinclair significantly reduced external manufacturers from 19 to three; and exited over 40 distributor relationships, thereby significantly reducing business complexity. The Company’s headcount and cost base also declined, with 39 employees transferring to Alliance alongside the non-aesthetics business. The financial year-end was also changed to 31 December to align with industry peers. Transitional services were due to be completed by year-end and although largely completed in the period, a few activities remain, with full transition now expected by Q2 2017.

By mid-year, the dramatic simplification of Sinclair’s activities allowed a downsizing of the Company’s management structure. COO and European Head positions were eliminated, as were further senior positions in European commercial operations. Significantly increased investment in centralised marketing, with an emphasis on Sinclair’s on line and social media activities, was partially offset by a reduction in marketing spend at local level.

US strategy and recent activitiesThe US injectable aesthetics market is approximately $1.4 billion and growing at 7%. With fewer approved products and tighter regulation than is found in other markets, product prices are higher than in Europe. The Board believes the US offers

a transformational commercial opportunity for Sinclair over the next several years as Silhouette InstaLift® continues to grow and Ellansé® is launched; allowing for the potential establishment of a direct Sinclair commercial presence in the largest aesthetics market.

Silhouette InstaLift® was FDA cleared in May 2015; it is the only injectable aesthetics brand in the US market with a claim for lifting the mid-face. The Company’s strategy is to ultimately establish a direct presence in the US for the launch of Ellansé® in late 2019 (clinical trials are currently planned for Ellansé® ahead of an anticipated FDA filing in 2019). The option to reacquire Silhouette InstaLift® distribution rights at the end of 2018 provides one route to achieve this goal.

Silhouette InstaLift® was launched in August 2016, approximately 15 months after it was cleared by the FDA. During the pre-launch period and before an exclusive US distribution agreement was signed with ThermiGen LLC (‘Thermi’, US aesthetics Almirall subsidiary), Sinclair developed a US Advisory Board comprising eight highly renowned Key Opinion Leaders from aesthetic dermatology and plastic surgery. The Company invested heavily in pre-launch activities largely with a focus on podium activity at dermatological congresses and the support of CME programmes which included physician training. These activities have had a very positive impact on product awareness, acceptance and reputation, and as a result, have created significant physician demand for training and rapid adoption by those physicians in the post-launch period. Moreover, Silhouette InstaLift® has been profiled at multiple aesthetics and dermatology congresses and events since mid-2015. Most recently at the 2017 American Academy of Dermatology (‘AAD’), Silhouette InstaLift® was included in all of the key aesthetic dermatology sessions including to circa 1500 physicians in the “What’s New In Dermatology?” session. US aesthetic physician and consumer awareness is already high, with the brand being the subject of numerous high-profile discussions and citations on television, and in social media and published press.

06


Strategic report

Strategic review continued

US launch of Silhouette InstaLift® with partner ThermiIn May 2016, Sinclair announced an exclusive US Distribution Agreement with Thermi. Thermi is a world leader in minimally invasive thermistor-regulated energy solutions for aesthetics, dermatology and women’s health, and is one of the fastest growing aesthetics companies in the US. It has excellent relationships with physicians and has an established installed base of more than 1,000 Thermi systems, a minimally invasive single treatment for skin laxity.

The combination of Thermi’s technology and Silhouette InstaLift® provides a highly effective and minimally invasive non-surgical alternative to the facelift and a potentially transformative approach to treating the aging neck. Both Sinclair and Thermi are committed to extensive physician training and actively sponsor CME certified education and training programmes.

Thermi signed a four-year arrangement with Sinclair, expiring in mid-2020. The agreement involves a material financial investment in the launch and marketing of Silhouette InstaLift® by Sinclair, in return for a structure that gives Sinclair an annual option, after year three, to repatriate the rights at a capped cost to Sinclair.

Thermi’s 65-strong rep team began the initial commercial launch of Silhouette InstaLift® in mid-August 2016. They are supporting the Silhouette InstaLift® launch through a combination of field personnel dedicated to Silhouette InstaLift® and its consumable sales team. This broad team provides InstaLift™ a far greater footprint in the US than Sinclair would have been able to provide at this stage of launch. Thermi was chosen as the partner for the Silhouette InstaLift® launch due to its entrepreneurial, fast-moving approach in the US market, significant and recent success with the launch of ThermiTight®, a shared sense of urgency, and the opportunity to jointly leverage the excitement around both complementary technologies.

Silhouette InstaLift® revenues were £1.3 million in 2016, slightly ahead of Sinclair’s budget. The single biggest rate-limiting step to revenue growth is physician training. As of 2016-end, over 300 physicians had received training, in excess of Sinclair’s launch model. Subsequently in 2017 and in response to strong physician demand, Thermi has revamped its commercial model to accelerate the initial start-up of newly trained physicians and is supporting new and additional CME programming that will result in a greater number of training opportunities.

As a result of these changes, it is expected that over 1,000 additional physicians will receive CME training during 2017 including almost 300 physicians attending CME programmes in Q1 2017.

These numbers are well ahead of Sinclair’s initial launch expectations and internal models.

Sinclair expects product reorder rates to rise over time as use rises with procedure familiarity. The 2016 average reorder rate is not a meaningful data point because the majority of physicians trained in 2016 were trained only towards the end of the period and had not had sufficient time to use their initial Silhouette InstaLift® inventory. More recent data from February 2017 shows the reorder rate by the initial cohort of physicians trained from August to October trending upwards and ahead of Sinclair’s budget at around 60%.

Creation of Brazil affiliateBrazil is one of the world’s most dynamic and fastest growing injectable aesthetics markets with 1.3 million procedures undertaken annually and forecast annual growth of 10% despite an uncertain economic environment. In July 2016, Sinclair created a new Brazilian affiliate with a total commercial field force of 21 reps and bought back the distribution rights for Silhouette Soft®, allowing direct selling to clinics and physicians. Sales of Silhouette Soft® in Brazil grew in 2016 to £2.3 million (2015: £1.9 million), although growth was below historic trends while the switch from the distributor to Sinclair was negotiated and subsequently transitioned. With a fully established local infrastructure and revamped marketing under the Sinclair umbrella, the Company is confident for a strong performance in 2017. Sinclair now has the platform for future product launches in this important market. Most notably, regulatory applications are underway for Ellansé® ahead of a planned launch in H1 2018. The Board believes the launch of Ellansé® in Brazil is an important growth opportunity for Sinclair over the medium term.

OPERATIONAL REVIEWSinclair’s current aesthetics portfolio comprises four products (Silhouette®, Ellansé®, Perfectha® and Sculptra®). The Company owns these assets globally with the exception of Sculptra, licensed on a long-term basis for Western Europe from Galderma. Brands are marketed directly (in France, the UK, Spain, Germany and Brazil) or through an established network of distributors (notably the US, South Korea, UAE, Hong Kong, Russia and Mexico). Sales for the 12 months to 31 December 2016 were £37.8 million, representing headline growth of 51%. Sterling weakness contributed £3.3 million to sales. The adjusted EBITDA loss for the 12 months to 31 December 2016 was £6.1 million. As expected selling, marketing and distribution costs increased to £21.7 million (2015: £14.7 million) due mainly to one-off US pre-launch costs for Silhouette InstaLift™, an initial contribution to marketing and training costs as part of the Thermi distribution agreement, and initial costs from the direct presence in Brazil.

It is the Board’s objective to become adjusted EBITDA positive in the year to 31 December 2017. With a relatively fixed operating cost base, a significant part of incremental sales is projected to convert to EBITDA. Improved product mix generated a record gross margin of 70.7% and this upward trend is expected to continue.

Following the non-aesthetics disposal, Sinclair’s remaining business had pro-forma 2015 revenues of £25 million. Post-restructuring and including the annual contribution to Thermi training costs, Sinclair’s breakeven adjusted EBITDA revenue run-rate is approximately £47 million. While it was essential for the business to grow quickly in 2016, the business remains forecast to move to a positive adjusted EBITDA in the second half of 2017.

MARKETING During 2016 the Company evolved its marketing strategy, with a significant shift of resources towards direct-to-consumer (DtC) marketing, largely via digital and online social media, driven by our centralised marketing team based in Paris.

Sinclair’s marketing strategy and new DtC messaging have now been conveyed to Group affiliates and distribution partners. The aim for 2017 is to create an industry-leading digital offering to drive brand awareness to consumers. This will be in parallel to existing physician programmes which are designed to promote Sinclair product sales within clinics.

07



Strategic report

PRODUCT DEVELOPMENT AND REGULATORYProduct development activities are focused on improving and extending Sinclair’s portfolio through developing line extensions and new indications, undertaking additional studies required to support new regulatory submissions and generating scientific data to support the marketing of our brands.

US Sinclair continues to liaise with the FDA to ensure that all necessary data is provided to meet the requirements of the Pre-Marketing Approval (‘PMA’) for Ellansé®. Long-term pre-clinical studies have been initiated, with the pivotal clinical trial likely to start in 2018 for an expected approval by late 2019.

Silhouette InstaLift® was the subject of a first-of-its-kind clinical study using 3D imaging to measure accurately mid-face tissue lifting. The data suggest that after the initial tensile lift, the onset of secondary collagen stimulation begins at around three months post implantation; it is intended to investigate this aspect at longer time points and to use the data to support a simplified Instructions for Use (IFU) label change.

Latin America (‘LATAM’)In LATAM there were eight registrations during 2016, including approvals in Mexico for Silhouette Soft® and Perfectha®. There is ongoing dialogue with ANVISA (Brazil) concerning the registration of Ellansé®, with approval in this key market expected in early 2018.

Asia Sinclair continues to work in close collaboration with Asian distribution partners. In China, the pivotal clinical trial for Ellansé® will commence in mid 2017 and product approval is expected by late 2019. A slightly longer timetable is anticipated for Silhouette InstaLift®.

Change of notified Body The de-designation of a number of Notified Bodies for certification of medical devices in Europe has unfortunately affected the existing registrations of numerous medical devices in the healthcare and aesthetics industries. Sinclair has also been affected and the Group has been working to obtain new certifications for Perfectha® and the Silhouette products in Europe. Perfectha® has already received its new CE mark certification and the dossier for the Silhouette products is currently under review. In line with the move to a new Notified Body, the Board fully expects that the Silhouette products will receive their new CE mark certification ahead of the expiry of the current CE mark certification in Q4 2017.

Brand development The Company is actively pursuing opportunities to widen the Silhouette brand with alternative device designs to address potentially high-volume new opportunities including breast, abdomen, buttocks and thighs.

Sinclair has started an Ellansé® clinical programme to quantify visible improvements to patients’ skin quality and tone. The Company believes this is an area in which the unique benefits of Ellansé® can be distinguished over HA fillers. Sinclair is investigating extending the Ellansé® franchise to include a lower microsphere stock keeping unit for fine lines and resurfacing. As a consequence, the Atléan® development programme has been put on hold.

European CE mark approval for Perfectha® Lidocaine is expected in Q4 2017. Regulatory approval for Perfectha® Lips is targeted for mid-2018.

BOARD CHANGES In July 2016 Jean-Charles Tschudin, Senior Independent Director left the Board, and in September 2016 Christophe Foucher, Chief Operating Officer, also stepped down as part of a comprehensive business restructuring following the disposal of the non-aesthetics business. The Board would like to thank both Christophe and Jean-Charles for their valuable contributions to Sinclair over many years. In July 2016 Alan Olby was welcomed to the main Board as an executive member in his role as CFO. It is intended to add a new Non-executive member to the Board during 2017.

OUTLOOK Sinclair has established a portfolio of differentiated, high-growth aesthetics brands that address patients’ and physicians’ needs, and has multiple line extensions and launches in new geographic markets scheduled over the next few years. The Board believes this will sustain robust medium-term growth.

Physician training is key to the success of Silhouette InstaLift® in the US. The product continues to experience a high profile at industry congresses and in the media. This has resulted in strong demand from doctors for training. Over 1,000 physicians are planned to be trained during 2017, significantly ahead of Sinclair’s original expectations.

In 2017 Sinclair expects revenue growth to remain strong and to receive an additional tailwind from Sterling weakness. The Board’s objective is to deliver a positive adjusted EBITDA for 2017 through a combination of strong sales growth and high marginal profitability. Trading in the current quarter is in line with management expectations.

Over the next three years, product launches in the three biggest aesthetics markets, the US, Brazil and China are projected to substantially augment an already strong core revenue growth rate. Over the same period, the Board expects the gross margin to trend upwards due to improving product and geographical mix. Operating costs are budgeted to grow at a significantly lower rate than the sales growth rate. In addition, the option at 2018-end to reacquire US Silhouette InstaLift® distribution rights is a potential route for the creation of a direct US affiliate ahead of the anticipated Ellansé® launch in late 2019. With differentiated, high-margin products in the sweet spot of the fast-growing, self-pay aesthetics market, the Company is well positioned to generate attractive returns for its shareholders. The Board believes that Sinclair’s prospects have never been better.


Strategic report

08

Our milestones

2012OctoberWestern Europe distribution agreement for Sculptra®

2014JanuaryAcquisition of Perfectha® worldwide rights

2014MarchAcquisition of Ellansé® worldwide rights

Foundations in place for significant future growth

09



Strategic report

2014MayAcquisition of Silhouette worldwide rights

2015AprilUS FDA clearance for Silhouette InstaLift®

2015DecemberDisposal of non-aesthetics business for £132m to create a pure-play aesthetics business

2016May–July 2016Announcement of US distribution agreement for Silhouette InstaLift® with Thermi

Launch of Sinclair Brazil affiliate

Geographical expansion in new territories

2017 2020Ellansé® Brazil Ellansé® USSilhouette China Ellansé® ChinaPrefectha® Lidocaine Europe

11



Strategic report

Silhouette Soft® delivered revenues of £14.0 million for the 12 months to 31 December 2016, growth of 51% (47% at constant currency excluding Silhouette InstaLift® and Brazil). Silhouette InstaLift® launched by partner ThermiGen in the US in August 2016 delivered sales of £1.3m.

Sales of Silhouette Soft® in the Asia-Pacific (‘APAC’) region demonstrated strong sales momentum, with revenues growing by 167% to £3.1 million in 2016. Despite a challenging competitive market, South Korea was the country with the highest sales in the region, with sales to our local partner growing strongly. Sinclair’s partner was able to use a combination of clinician training excellence and messaging around Silhouette’s clinical benefits to achieve revenue to Sinclair of £1.0 million (2015: £0.1 million).

Outside South Korea, sales grew strongly in Australia, Malaysia and Indonesia, and additional sales were generated by new launches of the product in the Greater China region, with the first sales occurring in Hong Kong in Q3 2016. The 2017 outlook for Silhouette Soft® in Asia remains encouraging and it is expected that sales will continue to be driven mainly by growth in South Korea and Greater China and be supported by double-digit growth in other key markets in the region.

In Sinclair’s direct European operations Silhouette Soft® grew to £4.3 million from £3.4 million in 2015. Sales of Silhouette Soft® were especially strong in Spain, with sales

growing annually by 31% at constant currency to £1.1 million. There was a successful local focus on cross-selling to common customers, brand building through training excellence and the expansion of sales into major chain clinics. In Germany, France and the UK the benefits of the 2016 restructuring are likely to come through in 2017.

Following the positive reception for Silhouette Soft® at both the European and Latin American World Experts’ Meetings (‘WEM’) in H2 2015, Sinclair held its first Asia WEM in Bali in 2016. This event was attended by over 300 leading aesthetic physicians and plastic surgeons from the region, and included hands-on training workshops.

The 2016 European WEM was held in Barcelona in September, attracting in excess of 1,000 dermatologists and plastic surgeons from Europe, the US, Brazil, the Middle East and Asia. The Company believes this to be the best attended single company educational event in the aesthetics industry. In 2017, the WEM agenda will be expanded to focus on Ellansé®, Perfectha® and combination treatments as well as both Silhouette brands.

Silhouette Soft®

£14.0m2015: £9.3m

Silhouette InstaLift®

£1.3m2015: £nil

AfterBefore

A unique and highly differentiated technology

Silhouette Soft®’s innovative cone technology provides minimally invasive face and neck reshaping by safely lifting tissues to their desired location, stimulating the production of natural collagen and enhancing skin quality; uniquely building value through high patient satisfaction.

LiftingCheeks, eyebrows, jawline, neck

Volume restorationMalar and submalar area

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Strategic report

AfterBefore

Ellansé® delivered revenues of £8.1 million for the 12 months to 31 December 2016, and growth of 87%.

Sales growth

69%At constant currency

Revenue

£8.1m2015: £4.4m

Ellansé® creates the most natural looking, safest, and longest-lasting results. Ellansé naturally regenerates the volume and restores the shape that time has taken away.

Ellansé® is uniquely able to achieve this through regeneration of the body’s own, new type 1 collagen that is fully integrated into the dermal matrix.

South Korea remains the leading market for Ellansé® and following the destocking issues in 2015, sales into this territory grew by 54% in 2016 to £1.8 million. Sales in the Greater China region also grew strongly with revenues growing to £1.8 million (2015: £0.4 million). Consumer demand for premium aesthetics products in Greater China continues to accelerate and Ellansé® is well placed to take advantage of the burgeoning demand for premium aesthetics products in this market.

In Sinclair’s direct operations in Europe, Ellansé® growth was 55%, taking total revenue to £2.3 million, 42% in constant currency. Sales in Spain were particularly strong (+80%), driven by strong clinician and consumer demand as the product becomes increasingly recognised for its safe and natural results.

The performance in international markets has been a highlight for 2016. There are many countries with improved performance, with notably strong growth in Poland, Chile and Iran. Despite the economic and political situations in Russia and Turkey, Ellansé® revenues for these countries have grown by 41% and 69% respectively, albeit from relatively small bases; however, this is very encouraging for 2017 and beyond.

Ellansé® was relaunched in Mexico in May 2016 through our new partner Farmapiel, which also has the rights to the rest of the Sinclair portfolio in Mexico and successfully launched Silhouette and Perfectha® in Q4 2016. In Q2 2017 Ellansé® will be launched in Colombia, the third largest market in LATAM. Physician training is already underway.

Safe Natural Regenerative

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Strategic report

Where an HA is the preferred option, Perfectha® is a tailor-made range of ‘Made in France’ HA dermal fillers, designed for wrinkle correction, facial contouring and volume restoration, combining ease of injection and long-lasting effect, with good value for money.

Perfectha® delivered sales of £8.1 million for the 12 months to December 2016, growth of 43%.

Sales growth

+30%At constant currency

Increase in revenue

£8.1m2015: £5.7m

AfterBefore

Despite an increasingly competitive and price-conscious HA filler market Perfectha® performed well in many countries in 2016. In South Korea, the brand’s leading market, a contract renegotiation and refocusing on the product by partner DNC led to 123% growth to £1.7 million, following the period of destocking in 2015. However, in-market sales of Perfectha® in South Korea grew by just 5% in 2016, reflecting the highly competitive nature of this HA market where there are multiple low-price local brands available. Following the recovery in sales in 2016, sales in 2017 for this key market are expected to reflect in-market performance.

Sales of Perfectha® in Sinclair’s European direct operations grew by 47% in 2016 to £2.3 million with Spain and the UK in particular performing well.

The relaunch of Perfectha® in Brazil through Sinclair’s newly created direct operation delivered better than expected results, re-establishing the brand. Perfectha® revenues in Brazil reached £0.7 million for the year, increased from £0.2 million in 2015.

Revenues in Iran increased strongly in 2016 and with our partner in Iran now responsible for the full Sinclair portfolio, further growth is projected in 2017. Poland also performed exceptionally well in 2016. The launch in Mexico and a relaunch in the Nordics helped to provide new revenue streams for Perfectha® and offer strong prospective growth for 2017. Although Perfectha® sales were weak in Russia, where sales declined by 40% to £0.4 million, in-market sales stabilised in the fourth quarter and more recently have shown a modest rebound.

Long-lasting range of HA dermal fillers

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Strategic report

Our strategy

Sinclair provides scientifically advanced products, exceptional practice support, and ongoing skill development to select highly trained aesthetic physicians; delivering unmatched patient outcomes and creating enhanced practice value.

Strategic priorities

01 BuildBuild and strengthen market position

02 ExpandExpand into new markets and geographies

03 DevelopDevelop our existing product portfolio

04 PeopleInvest in the development of our people

Sinclair’s existing positions of market leadership are founded on providing scientifically advanced products, international reach, industry-leading safety standards, high-quality doctor training and our long-standing relationships with distributors.

We have a direct sales presence in Spain, France, Germany, Brazil and the UK. Our US distribution deal with ThermiGen for Silhouette InstaLift® with a 55-strong rep workforce, gives us access to the world’s biggest aesthetic dermatology market for the first time.

We are constantly looking to expand our product range into new geographies with special emphasis on the three big markets, the US, Brazil and China. Through line-extensions and the development of new products and the pursuit of regulatory approval, we have multiple years of expansion ahead.

Sinclair provides innovative and high-value products aimed at facial rejuvenation through collagen stimulation for volume loss, thread lifting for facial contouring and dermal fillers for wrinkles and lines. We aim to ensure that new product launches and acquisitions are aligned with our existing brands in these sectors. We continually work towards enhancing and extending our existing brand identities.

People are our greatest asset, which is why we attract and recruit the best talent, provide training to ensure optimal performance and create development plans for all staff. Our management team focuses on creating a stimulating and rewarding working environment for everyone in the Group.

Global growth 11%• Strong performance in developed US and

European markets• ‘Western’ product prices in emerging markets• Resilient to economic cycle

Significant long-term growth in emerging markets• Driven by rising disposable incomes• Fast-growing aspirational class

Market increasingly price aware• Premium for innovation with proven

clinical benefits• Declining price environment for

undifferentiated toxins and HA fillers

Strong market fundamentals• Innovation driving ‘combination therapy’• Improving clinical outcomes

We continue to strengthen our management team and refine our internal structures to maximise long-term growth prospects.

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Strategic report

Key performance indicators

Revenue 2016

£37.8m2015: £25.0m

Growth margin 2016

70.7%2015: 68.3%

Adjusted EBITDA 2016

(£6.1m)2015: (£8.0m)

Number of US physicians trained for Silhouette™ 2016

3002015: nil

Increase in revenue

+51%

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Strategic report

Our strengths Approach BenefitsLeading brands and innovative aesthetics portfolioWe have a focused operation of four private-pay brands, Silhouette Soft®, Ellansé®, Perfectha® and Silhouette InstaLift®. Our focus on collagen stimulation, using the body’s natural response to treat the underlying causes of facial aging helps deliver unmatched patient outcomes.

Integrated marketingDuring 2016 the Company has evolved its marketing strategy, with a shift of resources towards the end customer. There has been significant investment in a new digital platform and implementation of a strategy that ensures solid practice development, a consistent pricing strategy and an innovative and dynamic management programme. This approach, combined with Sinclair’s unique product suite, exceptional practice support and ongoing skill development, helps deliver unmatched patient outcomes and creates enhanced practice values.

Physicians and patientsWe offer healthcare providers effective, high-quality, non-invasive treatment. We provide customers with clinically proven aesthetics technologies and products focused on improving facial shape and volumisation.

Global reachWe have an extensive office network in the territories where our products are sold. Directly in the UK, France, Germany, Spain and Brazil and through distributors around the world, notably the US, South Korea, the Middle East, Russia and Central America. Staffed by highly experienced teams, this network ensures outstanding outcomes for both physicians and patients.

Key opinion leader engagementWe pride ourselves on attracting the most highly regarded plastic surgeons and aesthetic dermatologists from around the world to endorse and promote our products. Our unique and innovative technology and outstanding patient outcomes have helped us recruit some of the most high profile practitioners in the field of aesthetic dermatology.

EmployeesOur success is dependent upon our people, and as such we are fully committed to investing in staff development and training. We are committed to developing policies that encourage all employees to achieve their greatest potential and to continue to contribute to the success of the Group. We seek to develop employees’ potential by encouraging them to attend seminars and, training courses, and providing help in seeking necessary professional qualifications to further their careers.

Value propositionWe offer high-margin, high-value products at the premium end of the aesthetic dermatology market. This gives physicians a point of differentiation and enhanced returns.

TrainingSinclair prides itself on its rigorous training methods and sells products only to doctors who have been trained to use its products correctly. By holding workshops, one-on-one training sessions and live demonstrations, Sinclair educates users to a very high standard. This leads to low numbers of adverse events, high patient satisfaction and excellent clinical results.

InvestorsSinclair’s objective is to generate sustainable growth for our shareholders by creating and maintaining positions of market leadership in established and developing markets. Underpinning this is a sound financial position and a strong and experienced management team.

Business model

enables us to leverage our brand and expertise into new and emerging markets that will generate value for healthcare providers and our shareholders.

Our flexible model

19



Strategic report

Our strengths Approach BenefitsLeading brands and innovative aesthetics portfolioWe have a focused operation of four private-pay brands, Silhouette Soft®, Ellansé®, Perfectha® and Silhouette InstaLift®. Our focus on collagen stimulation, using the body’s natural response to treat the underlying causes of facial aging helps deliver unmatched patient outcomes.

Integrated marketingDuring 2016 the Company has evolved its marketing strategy, with a shift of resources towards the end customer. There has been significant investment in a new digital platform and implementation of a strategy that ensures solid practice development, a consistent pricing strategy and an innovative and dynamic management programme. This approach, combined with Sinclair’s unique product suite, exceptional practice support and ongoing skill development, helps deliver unmatched patient outcomes and creates enhanced practice values.

Physicians and patientsWe offer healthcare providers effective, high-quality, non-invasive treatment. We provide customers with clinically proven aesthetics technologies and products focused on improving facial shape and volumisation.

Global reachWe have an extensive office network in the territories where our products are sold. Directly in the UK, France, Germany, Spain and Brazil and through distributors around the world, notably the US, South Korea, the Middle East, Russia and Central America. Staffed by highly experienced teams, this network ensures outstanding outcomes for both physicians and patients.

Key opinion leader engagementWe pride ourselves on attracting the most highly regarded plastic surgeons and aesthetic dermatologists from around the world to endorse and promote our products. Our unique and innovative technology and outstanding patient outcomes have helped us recruit some of the most high profile practitioners in the field of aesthetic dermatology.

EmployeesOur success is dependent upon our people, and as such we are fully committed to investing in staff development and training. We are committed to developing policies that encourage all employees to achieve their greatest potential and to continue to contribute to the success of the Group. We seek to develop employees’ potential by encouraging them to attend seminars and, training courses, and providing help in seeking necessary professional qualifications to further their careers.

Value propositionWe offer high-margin, high-value products at the premium end of the aesthetic dermatology market. This gives physicians a point of differentiation and enhanced returns.

TrainingSinclair prides itself on its rigorous training methods and sells products only to doctors who have been trained to use its products correctly. By holding workshops, one-on-one training sessions and live demonstrations, Sinclair educates users to a very high standard. This leads to low numbers of adverse events, high patient satisfaction and excellent clinical results.

InvestorsSinclair’s objective is to generate sustainable growth for our shareholders by creating and maintaining positions of market leadership in established and developing markets. Underpinning this is a sound financial position and a strong and experienced management team.

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Strategic report

Change of accounting reference dateThe Group changed its accounting reference from 30 June to 31 December following the disposal of the non-aesthetics business in order to align its reporting calendar with industry peers. The financial information within the Annual Report and accounts therefore covers the 18-month period ended 31 December 2016. The financial review below includes numbers for the unaudited 12 months ended 31 December 2016 and comparatives for the unaudited 12 months ended 31 December 2015. This provides a more meaningful comparison and reflects the annual 12-month period for the Group going forward.

Unaudited12 months

ended31 December

2016£’000

Unaudited12 months

ended31 December

2015£’000

Unaudited18 months

ended 31 December

2016£’000

Audited12 months

ended 30 June

2015£’000

Continuing operationsRevenue 37,817 24,969 45,489 27,842 Cost of sales (11,091) (7,903) (13,674) (9,262)

Gross profit 26,726 17,066 31,815 18,580 70.7% 68.3% 69.9% 66.7%

Selling, marketing and distribution costs (21,690) (14,742) (29,799) (13,481)Administrative expenses (18,391) (16,012) (27,289) (16,287)Exceptional administrative expenses 6,538 (47) 7,037 (546)

Operating loss (6,817) (13,735) (18,236) (11,734) Total finance costs (4,742) (15,891) (15,794) (12,695)

Loss before taxation (11,559) (29,626) (34,030) (24,429)Taxation 428 952 634 1,058

Loss for the period from continuing operations (11,131) (28,674) (33,396) (23,371)

Reconciliation of adjusted EBITDA to operating lossAdjusted EBITDA* (6,124) (7,961) (14,890) (4,329)Depreciation (476) (490) (707) (451)Amortisation and impairment (4,933) (3,421) (7,001) (4,437)Exceptional items 6,538 (47) 7,037 (546)Share-based payments (1,822) (1,816) (2,675) (1,971)

Operating loss from continuing operations (6,817) (13,735) (18,236) (11,734)

Net cash outflow from operations before exceptional items (continuing) (7,002) (12,186) (16,077) (10,262)

* Adjusted EBITDA defined as earnings before interest, tax, depreciation, amortisation, impairment, share-based payments, exceptional items and loss from discontinued items.

RevenueIn the 12-month period ended 31 December 2016, revenue totalled £37.8 million (2015: £25.0 million) representing 51% headline growth. On a constant currency basis, revenues were £34.5 million. The weakness of Sterling during the period contributed an additional £3.3 million to reported revenues. All three strategic products, Silhouette®, Ellansé® and Perfectha® contributed to the strong growth, as detailed in the Strategic Report, with Sculptra®/New-Fill® sales broadly flat.

Gross profit There was a 57% increase in gross profits in the year to 31 December 2016 to £26.7 million (2015: £17.1 million) driven by increases in revenue and an improving sales mix. The gross margin for the period of 70.7% is the best achieved to date and improved from 68.3% in 2015 as a result of the growth in higher margin products, Silhouette and Ellansé®. With sales of these two brands expected to drive the bulk of the Group’s medium-term growth, especially with Silhouette InstaLift® growth in the US and also capturing the full Silhouette Soft® margin through our direct operation in Brazil, the Board expects gross margins to continue to improve in the coming periods.

Operating expenses Selling, marketing and distribution costs were £21.7 million for the year ended 31 December 2016, which represents an increase of 47% over the £14.7 million in 2015. There has been a significant increase in sales and marketing investment arising from Sinclair’s pre-launch activities for Silhouette InstaLift® in the US, followed by the Group’s financial commitment to support Thermi through the launch phase. Selling and marketing expense for the US was £5.4 million in the period. The establishment of Sinclair Brazil from 1 July 2016 added a direct selling presence in a key global aesthetics market, which added £0.9 million to sales costs for the period. A significant proportion of the Group’s sales and marketing costs are incurred in Euros and US Dollars to support the Group’s direct operations in France, Spain and Germany and investment in the US launch of InstaLift®. The weakness of Sterling has increased these costs on a reported basis in the second half of 2016.

One-off costs in 2016 of £1.5 million associated with the US Silhouette InstaLift® pre-launch activities will not be repeated in 2017. However, the Group expects marketing spend will be c. £2 million higher in 2017 due to the annualisation of Brazil affiliate costs, incremental (digital) marketing spend and Sterling weakness.

Financial review

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Strategic report

Administrative expenses pre-exceptional items were £18.4 million for 2016, up from £16.0 million in 2015. Increases in non-cash charges for depreciation, amortisation and impairment accounted for £1.5 million of the increase and there were incremental costs of £1.1 million arising from additional headcount and presence in the US ahead of and post the launch of Silhouette InstaLift®.

Operating loss and adjusted EBITDA The operating loss for the year ended 31 December 2016 was £6.8 million (2015: £13.7 million). Adding back depreciation, amortisation, impairment, exceptional items and share-based payments derives an adjusted EBITDA for 2016 of £6.1 million, reduced from £8.0 million in 2015.

Finance costs Finance costs for the year ended 31 December 2016 of £4.7 million (2015: £13.0 million) represent the non-cash discount unwind charge linked to deferred consideration liabilities. There was no cash interest payable in the period following the repayment of all borrowings in December 2015.

Taxation A tax credit of £0.4 million (2015: £1.0 million) has been recorded for the year to 31 December 2016. This is made up of corporation tax charges arising in overseas entities of £0.9 million (2015: £Nil) and net deferred tax credits of £1.3 million (2015: £1.0 million). The deferred tax credits are linked to the amortisation of intangible assets acquired through business combinations.

Loss from continuing operations pre-exceptional itemsThere has been a significant reduction in the statutory loss pre exceptional items for the year to 31 December 2016 to £17.7 million from £25.8 million in 2015 which has been driven by the strong growth in revenues and gross profitability and reduction in finance costs.

Exceptional items for the 18-month period to 31 December 2016There have been a number of exceptional items recorded in the statutory 18-month period which result in a net credit to the income statement of £4.2 million. The main components of this are:• Acquisition and business development costs of £0.4 million principally relating to the repatriation of rights to Silhouette Soft® in Brazil and

the establishment of a direct operation in this key market.• A credit of £13.6 million has arisen from various adjustments to the value and expected timing of deferred considerations relating to the acquisitions

of Aqtis Medical, Obvieline and Silhouette Lift. The major element of this credit arises from an agreement reached in February 2016 to early settle all future consideration for the acquisition of Aqtis Medical for a one-off payment of €15 million which resulted in a credit of £8.5 million from the reduction in deferred consideration. A credit of £2.1 million arose on the reduction in purchase consideration for the direct rights for Silhouette in the UK; this is offset by an impairment charge of £1.5 million against the intangible asset arising on the acquisition of these rights in 2014.

• Restructuring costs of £2.9 million have been incurred as a result of the internal restructuring of the Group post the disposal of the non-aesthetics business. This restructuring programme has resulted in annualised cost savings in excess of £2.0 million being realised.

• An inventory provision of £1.8 million as a result of the decision to destock distribution partners and eliminate shorter shelf-life product from distribution.

• Early repayment of the Group’s borrowings in December 2015 results in the amortisation of all loan set-up fees as well as an early repayment premium which in total amounted to £2.9 million.

Discontinued operationsA profit on discontinued operations of £3.8 million has arisen in the 18-month period to 31 December 2016. This consists of a post-tax profit of £1.3 million for the non-aesthetics business for the five-and-a-half-month period prior to the sale in December 2015, a loss on disposal of £0.8 million and a tax credit of £3.4 million. In the first quarter of 2017, the Group received a claim from Alliance Pharma plc under the warranties contained in the sale agreement for the non-aesthetics business. A full and final settlement of the claim has been agreed for an amount of £5.0 million, £4.0 million of which is payable in the first half of 2017 and £1.0 million before 30 June 2018. The settlement has been provided for in the results for the period as a reduction in the consideration received.

Cash flow Net cash outflow for continuing operations of £7.0 million for the year ended 31 December 2016 was considerably better than £12.2 million for the prior year. This was a result of the lower adjusted EBITDA loss and a significant reduction in working capital outflow which was limited to £1.6 million (2015: £6.4 million). In addition, there were cash outflows in the year for exceptional items of £2.8 million and discontinued operations of £2.2 million.

Investing activities accounted for a cash outflow of £47.1 million in the year. This included the early settlement of all Aqtis deferred consideration for £11.8 million, Silhouette milestones and royalty buy-back totalling £24.9 million, acquisition costs for Silhouette rights in Brazil of £6.8 million, offset by £3.7 million in deferred consideration received for the disposal of the non-aesthetics business linked to recovery of working capital balances and final inventory payment.

New debt facility In March 2017, the Group entered into a new £10 million debt facility with Silicon Valley Bank to fund investment in future growth. The facility consists of a £5.0 million term loan maturing in September 2020 and £5.0 million two-year working capital facility. Proceeds of the facility will be utilised to fund working capital as the Group continues its rapid growth, and to invest in expanding and upgrading manufacturing capacity and pre-US clinical trial development activities for Ellansé®.

22


Strategic report

Balance sheet The Group’s balance sheet is considerably stronger at 31 December 2016 compared with 30 June 2015 following the disposal of the non-aesthetics business, repayment of all borrowings and settlement of a significant portion of overall deferred consideration liabilities.

Non-current assets were £150.7 million at 31 December 2016, down from £237.5 million at 30 June 2015, reflecting the disposal of intangible assets and goodwill that made up the non-aesthetics business and utilisation of deferred tax assets, net of additions from the acquisition of rights to Silhouette Soft® in Brazil and the impact of Foreign Exchange (‘FX’) rates.

Current assets at 31 December 2016 were £33.9 million. Both inventories and receivables have been significantly reduced following the disposal of the non-aesthetics business and a drive to improve management of working capital. Inventories ended 2016 at a low point of £3.8 million. Cash at 31 December stood at £16.8 million (30 June 2015: £12.7 million).

Total liabilities have been reduced to £84.3 million at 31 December 2016, compared with £179.8 million at 30 June 2015. Borrowings of £51.8 million were fully repaid in December 2015 and total deferred consideration liabilities have been reduced to £37.7 million from £77.7 million. This is a result of payments made in the period, and agreed savings from early settlements, offset by the unwinding of discounting to reflect the time value of money and movements in FX rates. Trade and other payables have also reduced to £19.6 million at 31 December 2016, from £22.6 million at 30 June 2015 as a result of the disposal and reduced size of the current overall business.

23



Strategic report

Principal risks and uncertainties

Sinclair Pharma plc is a business that depends on product revenues generated through its own sales force, and marketing operations and marketing partners to build future revenues. The Group’s performance and future prospects may be affected by risks and uncertainties relating to our business environment. Our internal controls include a risk management process to identify key risks and, where possible, manage those risks through systems and processes and by implementing specific mitigation strategies.

The most significant identified risks that could materially affect the Group’s ability to achieve its financial and operating objectives are summarised below.

Area Principal risk MitigationRisk associated with commercialised success of products

The Group’s revenues are from sales of its products. There can be no assurance that current product revenues can be maintained or increased in the future. Product sales may be affected by adverse market conditions or other factors including: pricing competition from other products, the withdrawal of a product because of a regulatory or other reason, or the financial or commercial failure of a marketing partner. Lack of commercial success could result in low profits and the potential impairment of goodwill and intangible assets.

The Group manages these risks through regular reviews of the performance of its direct affiliates and partners. In-market sales data is closely monitored in order to assess products and partner performance and guide any corrective actions that may be required.

Interruption to product supply

The Group relies on third-party manufacturers for the supply of the majority of its products. Problems at manufacturers’ facilities may lead to delays and disruptions in the supply chain which could have significant negative impact on the Group.

The Group maintains a close dialogue with key suppliers and rigorously monitors inventory levels and customer demand to ensure that any interruption to product supply can be managed, and back-up sources of supply are maintained where possible.

Product liability risk The Group’s products may produce unanticipated adverse side effects that may hinder their marketability.

Sinclair maintains product liability insurance and operates quality systems relating to the manufacture of its products and a pharmacovigilance system to monitor safety of its marketed products.

Competition and intellectual property risk

The position of Sinclair’s products in the market is dependent on its ability to obtain and maintain patent and/or trademark protection for its products, preserve its trade secrets, defend and enforce its rights against infringement and operate without infringing the proprietary or intellectual property rights of third parties. The validity and enforceability of patents and/or trademarks may involve complex legal and factual issues resulting in uncertainty as to the extent of the protection provided. The Group’s intellectual property may become invalid or expire before or during commercialisation of the product.

The Group continuously seeks to develop its products to ensure they are competitive and monitors its intellectual property rights to identify and protect against any infringements.

Regulatory risk The Group is required to comply with a number of different regulatory authorities to maintain product marketing licenses. In particular the Group is currently in the process of renewing its CE mark for Silhouette before it expires in Q4 2017. If there is a breach of regulatory requirements, or the registration of licences is not adequately maintained, products may be required to be withdrawn from certain markets.

The Group has an in-house regulatory and quality department, which maintains a close dialogue with regulatory authorities and reports any issues to the Board on a regular basis.

Liquidity risk The Group is operating in high-growth markets and the Board has developed a strategy to meet anticipated demand within these markets. If expected demand levels are not fulfilled, this could create pressure on the liquidity of the Group.

The Board regularly reviews cash flow forecast models, which include sensitivities to key assumptions. This enables the Group to take timely mitigating actions such as controlling costs and capital spend, or seeking alternative sources of finance to meet anticipated liquidity requirements.

Foreign exchange risk The Group has transactional currency exposures as the majority of revenues, expenditures and deferred consideration liabilities are in Euros, US Dollars and Brazilian Reals. Fluctuations in exchange rates between Sterling and these currencies could adversely impact financial results.

Sinclair seeks to match currency receipts and expenditure as far as possible with deferred consideration liabilities denominated in the functional currency of the underlying businesses acquired. The Group may also engage in short-term hedging transactions in order to hedge against changes in exchange rates during the financial year.

On behalf of the Board

Chris SpoonerChief Executive Officer29 March 2017

24



Board of Directors

Grahame CookNon-executive Chairman

Grahame joined the Board in 2004. He has over 18 years’ experience in investment banking, advising on a wide number of mergers and acquisitions and capital market transactions in the US and Europe. He was Global CEO of West LB Panmure, where he joined in 1999, Managing Director of Capital Markets and on the Global Investment Banking Committee at UBS. He has advised on a number of transactions in the pharmaceuticals and biotechnology sectors across Europe and the US, including private equity investments, IPOs and secondary offerings. He was a founder member of the LSE’s TechMARK Advisory Committee, and holds an MA, double first, from Oxford University.

He is currently a non-executive director at Draper Esprit plc, Horizon Discovery Group Plc, Morgan Rossiter Ltd, Pirtsemit Ltd and Morphogenesis inc.

Chris SpoonerChief Executive Officer

Chris joined Sinclair In December 2009 following a career in financial services, most recently as founder and CEO of HealthCor Management UK, a dedicated healthcare hedge fund and the European division of HealthCor L.P. Prior to that he enjoyed a career as the senior pharmaceuticals analyst at various investment banks covering the European healthcare sector. He holds an MA in Economics from King’s College, Cambridge University.

He is currently a non-executive director of Pirtsemit Limited.

Jeff ThompsonNon-executive Director

Jeff joined the Board in September 2014. Jeff has many years of experience in the US dermatology industry having served on the Board of Directors for, and as COO, of Stiefel Laboratories, Inc., and currently holds various directorships including President/CEO/Chairman of Enaltus (dermatology, pvt) and Non-executive Director of Anika Therapeutics, Inc. a US publicly traded (NASDAQ: ANIK) biotechnology company based in Bedford, Massachusetts, which develops, manufactures and commercialises hyaluronic acid based products.

Alan OlbyChief Financial Officer

Alan joined the Board in July 2016. He joined Sinclair in September 2005 and was promoted to his current position, of Chief Financial Officer, in December 2009. He is responsible for all finance activities of the Group and supply chain and manufacturing activities. Prior to joining Sinclair, Alan gained experience in the biotech sector working at Xenova Group plc and KS Biomedix plc. He qualified as a chartered accountant in 1996 and subsequently spent three years in corporate finance at Deloitte, working with public and private companies completing due diligence, working capital reviews and stock exchange transactions.

25



Strategic report

Directors’ report

The Directors present their Annual Report on the affairs of the Company and the Group, together with the audited consolidated financial statements for the 18-month period ended 31 December 2016. The strategic review of the business and the Company and its subsidiaries is given on pages 4 to 9. Certain information required for disclosure in this report is provided in other sections of this Annual Report. These include the Strategic report, the Corporate governance report, the Remuneration report and disclosures on financial risks included in note 23 of the Notes to the financial statements, and these are, accordingly, incorporated into this report by reference. An indication of the likely future developments of the business are included in the Strategic report.

Change of accounting reference dateDuring the period, the Group and Company changed their accounting reference date from 30 June to 31 December. The financial information in the Annual Report therefore covers the 18-month period ended 31 December 2016.

Key performance indicatorsThe Board measures the Group’s performance according to a wide range of key performance indicators (‘KPIs’). The main KPIs at a Group level are as follows, and are measured for the 12 month periods ending 31 December 2016, and 31 December 2015:

KPI 2016 2015 Definition, method of calculation and analysis

Revenue £37.8m £25.0m Revenues grew ahead of management expectations, by 51% to £37.8m. On a constant currency basis, revenues were £34.5m, representing a growth of 38%. As detailed in the Strategic Report, all three key products, Silhouette, Ellanse® and Perfectha® contributed to the strong growth.

Gross margin 70.7% 68.3% Gross margin is the ratio of gross profit after all direct costs to total revenue. Sinclair aims to maximise gross margins for the Group. The increase in gross margin for the year is primarily a result of growth in higher margin products, Silhouette and Ellanse®.

Adjusted EBITDA loss

(£6,124) (£7,961) Adjusted EBITDA is total earnings of the Group before interest, tax, depreciation, amortisation, impairment, share-based payments, exceptional items and profit from discontinued operations. EBITDA loss has improved in the period, despite significant US pre-launch costs and investment from the direct presence in Brazil.

Number of US physicians trained

300 n/a In excess of 300 US physicians received CME training during 2016, to support the launch of Silhouette InstaLIft® in the US. This number is significantly ahead of Sinclair’s initial launch expectations and internal models.

Results, earnings and dividendsThe loss for the 18-month financial period ending 31 December 2016 was £29,575,000 (12-month period ended 30 June 2015: £7,208,000). The Directors do not recommend a dividend (2015: £nil).

Risk managementThe Group’s operations expose it to a variety of financial risks, including the effects of changes in currency exchange rates, credit exposure and liquidity. More details can be found in note 23 to the financial statements.

Going concernThe Directors are satisfied, after making appropriate enquiries, that the Group has adequate resources to continue in business for at least 12 months and accordingly considers that it is appropriate to adopt the going concern basis in preparing the financial statements.

DirectorsThe Directors of the Company who served during the year and up to the date of this report were:

Grahame Cook Non-executive ChairmanChris Spooner Chief Executive OfficerChristophe Foucher Chief Operating Officer (resigned 1 September 2016)Alan Olby Chief Financial Officer (appointed 19 July 2016)Jean-Charles Tschudin Senior Independent Director (resigned 19 July 2016)Jeff Thompson Non-executive Director

Grahame Cook will retire by rotation, and will be available for reappointment at the Annual General Meeting (‘AGM’). Details of the resolution to reappoint him are contained in the AGM notice.

Directors’ interestsDetails of Directors’ interests in the share capital of the Company, together with details of the share incentives granted to them, are disclosed in the Remuneration report on pages 30 to 33.

At the date of this report, the Directors of the Company had an interest, beneficially and non-beneficially, in an aggregate of 11,558,779 Ordinary shares, representing 2.3% of the Company’s total voting rights.

26



Directors’ and officers’ liability insuranceThe Company had in place qualifying third-party indemnity insurance for all Directors throughout the period and to the date of this report.

Structure of the Company’s capitalThe Company’s share capital comprises a single class of 1p Ordinary shares, each carrying one vote and all ranking equally with each other. At 31 December 2016, the issued share capital was £5,021,984 comprising 502,198,442 1p Ordinary shares (2015: 497,414,773) allotted and fully paid. There are no restrictions on the transfer of shares in the Company or on voting rights.

Authority to issue and buy back sharesEach year at the AGM the Directors seek authority to allot shares and buy back shares. The authorities, when granted, last for 15 months or until the conclusion of the next AGM if sooner. At the last AGM held on 25 January 2016, shareholders gave authority for the Directors to allot relevant securities up to £1,658,049 and to allot for cash equity securities having a nominal amount not exceeding in aggregate £497,414 (being 10% of the issued share capital). Shareholders also gave authority for the Directors to make market purchases of up to 49,741,477 shares (being 10% of the issued share capital).

Substantial shareholdingsAt 24 March 2017, the Company has been notified (or is otherwise aware) of the following interests in 3% or more of the Ordinary share capital.

Shareholding %

Toscafund Asset Management 137,531,386 27.4Lansdowne Partners 59,987,523 11.9Abingworth Management 29,674,270 5.9Schroder Investment Management 29,190,347 5.8Fidelity Management & Research 27,850,594 5.6Soros Fund Management 25,000,000 5.0Stuart Swanson 22,370,000 4.5

Change of controlThe Company, and various subsidiaries, are party to a number of agreements which have change of control clauses. If triggered, these could lead to the acceleration of certain deferred consideration milestones and vesting of certain awards under employee share plans. There are no agreements between the Company and its Directors or employees that provide for compensation for loss of office or employment following a takeover of the Company.

Research and developmentThe Group actively reviews technical development in its markets with a view of taking advantage of the available opportunities to maintain and improve its competitive position. The Group has continued to invest in the development of new products and line extensions during the period, details of which can be found in the Strategic Review.

EmployeesOur most important asset is our employees. We are committed to developing policies that encourage all employees to achieve their greatest potential and to continue to contribute to the success of the Group. We seek to develop employees’ potential by encouraging them to attend seminars and training courses, and providing help in seeking necessary professional qualifications to further their careers. We operate equal opportunities in recruitment, training and promotion regardless of gender, ethnic origin, nationality or disability.

It is our policy to treat applicants and employees with disabilities equally and fairly, and not to discriminate against the disabled in recruitment, training, career development and promotion.

Political donationsThe Group made political donations totalling £Nil (2015: £Nil).

Independent AuditorPricewaterhouseCoopers LLP has expressed its willingness to continue in office as auditor and a resolution proposing its reappointment and authorising the Directors to determine its remuneration will be proposed at the AGM.

Statement as to disclosure of information to auditorThe Directors, in office at the date of this report, have confirmed that:• so far as they are aware, there is no relevant audit information of which the Company’s auditor is unaware; and• each Director has taken all the steps that they ought to have taken as a Director in order to make himself/herself aware of any relevant audit

information and to establish that the Company’s auditors is aware of that information.

This information is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006.

Directors’ Report continued

27



Strategic report

Statement of Directors’ responsibilitiesThe Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each financial 18-month period. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union and Company financial statements in accordance with 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 Company and of the profit or loss of the Group and Company for that period. In preparing the financial statements, the Directors are required to:• select suitable accounting policies and then apply them consistently;• state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements and IFRSs as adopted

by the European Union have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements;

• make judgements and accounting estimates that are reasonable and prudent; and• prepare the financial statements on the going concern basis unless

it is inappropriate to presume that the Group and Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company’s transactions 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 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

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

The Directors consider that the Annual Report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company’s performance, business model and strategy.

Each of the Directors, whose names and functions are listed in Annual Report and accounts 2016 confirm that, to the best of their knowledge:• the Company financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair

view of the assets, liabilities, financial position and loss of the Company;• the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair

view of the assets, liabilities, financial position and loss of the Group; and• the Directors’ Report includes a fair review of the development and performance of the business and the position of the Group and Company,

together with a description of the principal risks and uncertainties that it faces.

Annual General MeetingThe AGM of the Company will be held at the offices of White and Case LLP on 26 April 2017 at 10am. The Notice convening the AGM, together with information concerning the resolutions to be proposed at the AGM is enclosed with this report.

By order of the Board

Alan Olby Chief Financial Officer29 March 2017

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Compliance with the UK Corporate Governance CodeThe Board is accountable to the Company’s shareholders for good governance. The following statement describes the key corporate governance policies that have been adopted by the Company. The Company is not required to follow, and does not claim compliance with, the UK Corporate Governance Code (the ‘Code’). Nevertheless, the Board supports the ideals of the Code and is committed to high standards of corporate governance which it considers are critical to business integrity and to maintaining investors’ trust.

Board and Board CommitteesThe Board of DirectorsThe Board of the Company is responsible for the Group’s system of corporate governance. As disclosed in the Strategic report, there have been a number of Board changes during the period. At 31 December 2016, the Board comprises four Directors: an Executive Chief Executive Officer, Chris Spooner; a Chief Financial Officer, Alan Olby and two Non-executive Directors, Grahame Cook and Jeff Thompson. In July 2016, Jean-Charles Tschudin resigned from his role as a Non-executive Director and his roles on Board Committees have been fulfilled by Jeff Thompson. It remains a high priority in 2017 to add a new Non-executive to the Board.

All Directors have access to advice and services of the Company Secretary, who is responsible for ensuring that Board procedures and applicable regulations under the Company’s Articles of Association or otherwise are complied with. Each Director is entitled, if necessary, to seek independent professional advice at the Company’s expense.

Board meetingsThe Board of Directors normally meets at least bi-monthly and has a defined schedule of matters reserved for its decision. It is responsible for the overall Group strategy, approval of major capital expenditure projects, and consideration of major financing matters of the Group. The Board held nine formal meetings during the period and they were all fully attended.

The Board is supplied in a timely manner with information in a form and of quality appropriate to enable it to discharge its duties. The Company Secretary is responsible for ensuring the Directors receive accurate, timely and clear information, which is provided by the executive management team.

Board CommitteesThe Board Committees, which are comprised solely of Non-executive Directors, operate within clearly defined terms of reference and report regularly to the Board. The terms of reference of the Board Committees are available for inspection on the Company’s website (www.sinclairpharma.com) and at the Annual General Meeting (‘AGM’) (for 15 minutes prior to the meeting and during the meeting).

Board balance and independenceThe Board includes a balance of Executive and Non-executive Directors such that no individual or small group of individuals can dominate the Board’s decision taking. The size of the Board and balance of skills are considered appropriate for the requirements of the business. No one other than the Committee Chairman and members is entitled to be present at a meeting of the Audit or Remuneration Committees, but others may attend at invitation of the Committee.

Corporate governance report

Audit Committee and auditorThe Audit Committee is composed entirely of independent Non-executive Directors. The Board considers that the members of the Audit Committee possess recent and relevant financial experience; biographies of the Committee can be found on page 24. The Audit Committee has unrestricted access to the Group’s auditors. Meetings are also attended, by invitation, by the Chief Executive Officer, the Chief Financial Officer and representatives of the external auditor. The Audit Committee meetings were fully attended in the period.

Main activities of the Committee during the yearDuring the period, and through to the approval of these financial statements, the Committee carried out the following reviews in line with its role and responsibilities, in all cases having due regard to the interests of shareholders:• reviewed and challenged with management and the external auditor

the appropriateness of the Interim Statement and the annual financial statements, clarity and adequacy of disclosures and the material judgements made;

• reviewed the annual financial statements to ensure that they were fair, balanced and understandable;

• reviewed the reports produced by the external auditor setting out their approach for reviewing its interim and auditing the annual financial statements as well as their findings and recommendations, particularly the key audit areas relating to revenue recognition, acquisition accounting, going concern and impairment reviews;

• reviewed the effectiveness of the external audit process and the external auditor;

• reviewed draft regulatory news announcements in respect of the interim statement and annual financial statements; and

• monitored the quality of internal controls, ensuring that the financial performance of the Group is properly measured and reported on.

AuditorThe Audit Committee also oversees the relationship with the Group’s external auditor, PricewaterhouseCoopers LLP, including approval of remuneration levels, approval of terms of engagement and assessment of its independence and objectivity. The Audit Committee considers that the relationship with the Group’s auditor is working well and it remains satisfied with its effectiveness. Accordingly, it has not been considered necessary to perform a tender which was last performed in 2005 when PricewaterhouseCoopers LLP was appointed.

Remuneration CommitteeThe Remuneration Committee is made up entirely of independent Non-executive Directors. All meetings in the period were fully attended by all members. The Committee’s responsibilities are outlined within the Directors remuneration report on pages 30 to 33.

Internal controlThe Board, assisted by the Audit Committee, is responsible for regularly reviewing the operation and effectiveness of the Group’s internal controls. The internal control system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable assurance, and not absolute assurance, against material errors, losses or fraud. The Board is also responsible for ensuring that appropri

Documents

Sinclair Pharma plc · 2019. 2. 18. · Sinclair Pharma plc Annual Report and Accounts 2016 Strategic report Strategic review Chris Spooner Chief Executive Officer Grahame Cook Chairman