Vectura announces intention to complete £45m placing

28 Jun 2006

Placing of 52,941,177 million shares at 85p per share raising £45.0 million

Chippenham, UK – June 28 2006: Vectura Group plc (LSE: VEC) today announces its intention to raise £ 42.9 million net of expenses in an over-subscribed Placing of new ordinary shares to institutional investors in the UK, mainland Europe and the United States.

The Placing is conditional upon, inter alia , the approval of shareholders. A circular convening an EGM of the Company, which is expected to take place on 24 July 2006, is being posted to shareholders.

PLACING HIGHLIGHTS

Vectura to raise approximately £42.9 million (net of expenses) through the placing of 52,941,177 Placing Shares at a Placing Price of 85 pence per share. The Placing is being fully underwritten by Piper Jaffray.
The Placing Price represents the closing mid-market price of 85 pence per ordinary share as at 27 June 2006, the latest practicable date prior to the announcement of the Placing.
The shares are being offered to new and certain existing institutional shareholders to further widen the institutional shareholder base.
The funds raised will be used by the Company to create additional value from its portfolio by taking key products further through development before seeking co-development deals, progressing certain products to regulatory submission, and by broadening the early stage pipeline.
The necessary authority required to issue and allot the Placing Shares pursuant to the Placing will be sought at an Extraordinary General Meeting convened for 2.00pm on 24 July 2006.

Commenting on the proposed Placing, Dr. Chris Blackwell , Chief Executive of Vectura, said: " This fundraising is a significant step forward for Vectura. It follows an extremely successful period in the history of the Company, in which we have demonstrated our ability to deliver on the objectives set out at IPO by taking the key products in our pipeline to the next stages of development and establishing three major licensing deals with international pharmaceutical companies.

We have been delighted by investor appetite for Vectura stock in this over-subscribed fundraising, which we believe reflects our ongoing success and the strong prospects for the Company.

With the advancement of our product pipeline further enhanced by our ability to finance Phase III trials for speciality orphan products, and the continued interest in our technologies from licensing partners, we are well placed to generate further value for our shareholders."

- Ends -

There will be a conference call today at 8.30am UK time, for details please call Claire Rowell at Financial Dynamics on 0207 269 7285.

Enquiries

Vectura Group plc On 25/05/06 +44 (0) 207 831 3113,
thereafter +44 (0) 1249 667 700
Chris Blackwell, Chief Executive
Anne Hyland, Chief Financial Officer

Piper Jaffray Ltd.
Jamie Adams +44 (0) 207 743 8740
Will Carnwath +44 (0) 207 743 8741

Financial Dynamics +44 (0) 207 831 3113
David Yates/Sarah MacLeod/John Gilbert

Piper Jaffray Ltd. is nominated adviser and joint broker to the Company for the purpose of the AIM Rules. Piper Jaffray Ltd., which is authorised and regulated in the United Kingdom by the Financial Services Authority and is a member of the London Stock Exchange, is acting exclusively for the Company in relation to the Placing. Piper Jaffray Ltd. is not acting for any other person in connection with the matters referred to in this announcement and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Piper Jaffray Ltd. or for giving advice in relation to the matters referred to in this announcement.

This press announcement has been issued by the Company and is the sole responsibility of the Company. This announcement has not been approved by Piper Jaffray Ltd. for the purposes of section 21 of the Financial Services and Markets Act 2000.

This announcement does not constitute or form part of any offer to sell or issue or the solicitation of any offers to acquire, purchase or subscribe for shares in any jurisdiction. This announcement is not an offer of securities for sale in the United States . The new ordinary shares to be issued have not been and will not be registered under the United States Securities Act of 1933 (as amended) (the "Securities Act") or the securities laws of any state or other jurisdiction of the United States and new Ordinary Shares may not be offered or sold, directly or indirectly through CREST or otherwise within the United States, absent registration under the Securities Act or an exemption from registration. The Company does not intend to register any of its securities in the United States or to conduct a public offering of securities in the United States .

This announcement does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities in any jurisdiction. Copies of this announcement are not being and must not be mailed or otherwise distributed or sent in or into or from the United States, Canada, Australia or Japan and any person receiving this announcement (including custodians, nominees and trustees) must not distribute or send it in or into or from the United States, Canada, Australia or Japan.

The delivery of this announcement shall not under any circumstances create any implication that there has been no change in the affairs of the Group since the date of this announcement or that the information in it is correct as of any subsequent time.

This announcement may contain forward-looking statements that reflect the Group's current expectations regarding future events, including the clinical development and regulatory clearance of the Group's products, the Group's ability to find partners for the development and commercialisation of its products, on the Group's liquidity and results of operations, as well as the Group's future capital raising activities. Forward-looking statements involve risks and uncertainties. Actual events could differ materially from those projected herein and depend on a number of factors, including the success of the Group's strategies, the applicability of the discoveries made therein, the successful and timely completion of clinical studies, the uncertainties related to the regulatory process, the successful integration of completed mergers and acquisitions and achievement of expected synergies from such transactions, the ability of the Group to identify and consummate suitable strategic and business combination transactions.

Notes for Editors

Vectura’s principal focus is the development of a range of inhaled drugs for the treatment of both lung diseases and other conditions where optimised delivery via the lungs can provide significant benefits, such as a rapid onset of action, improved efficacy and improved tolerability compared with current therapies.

Vectura's products combine its proprietary, innovative, pulmonary formulation and device technologies (Aspirair ® GyroHaler ® and PowderHale ® ) with existing, off-patent drugs either for use in new indications or to provide inhalation as an improved route of administration. Using drugs that have already been approved in some form in at least one major pharmaceutical market lowers the risk of product development failure compared to new chemical entities, Vectura is able to secure patent protection for its portfolio by identifying new indications for off-patent compounds and applying the Company's proprietary delivery technologies to create new methods of administration. The Company has development collaborations with a number of companies, including Boehringer Ingelheim, Novartis, GSK and Chiesi and an un-named leading international pharmaceutical company.

For further information, please visit Vectura's website at www.vectura.com

VECTURA GROUP PLC ("THE COMPANY" OR "VECTURA")

Placing of 52,941,177 shares (the "Placing Shares") at 85 pence per share (the "Placing Price") raising £45.0 million ( the "Placing")

REASONS FOR THE FUNDRAISING
Since the Company was admitted to trading on AIM in July 2004, it has completed three major licensing deals. These deals have provided confirmation of the strength of the product pipeline and the pulmonary technologies. As part of these licensing agreements, each partner has requested the continued support of Vectura's scientists which provides additional validation of the Group's expertise in the field of inhalation.

The high value of the deals and the validation of the technologies lead the Board to believe that strategic value and greater returns can be realised if the Group invests further in its products and technologies. The further investment will be made in the product pipeline as well as Vectura's device technologies that underlie both the VR315 and the Boehringer Ingelheim agreements.

The proposed product development expenditure is primarily planned for co-development opportunities where Vectura would seek to retain additional rights for certain territories or products with Orphan Drug Status, where the investment in later stage clinical trials is lower than for other products.

PROPOSED USE OF PROCEEDS

• Co-development of VR315 for US and other territories - approximately 35 per cent. of the funds to be raised

Vectura signed a European collaboration, development and licence agreement with a leading international pharmaceutical company for VR315, a combination asthma therapy. Under this agreement, VR315 will be developed as a generic combination product, delivered using GyroHaler.

The agreement covers Europe and certain other countries, with Vectura retaining the rights for the US , Japan , Canada , South America , Australia , New Zealand and some other territories.

Under the terms of the agreement Vectura will be responsible for the further formulation development of VR315 and supply of the GyroHaler device. Vectura's partner will be responsible for the clinical development, manufacture and European marketing of the product. The Group will have access to all clinical data and the partner intends to provide, if requested, US-compliant manufacturing facilities for the blister filling and assembly of VR315 for non-European territories.

Combination therapy is the biggest and fastest growing sector of the asthma market with annual sales currently exceeding $6 billion and non-European annual sales estimated at approximately $4.5 billion. The non-European market therefore provides a very significant opportunity.

The Directors believe that, with the validation from the European deal, Vectura will be an attractive partner for large generic companies in the US and other territories and the Group's ability to co-fund the development will enable Vectura to retain a substantial proportion of the product value.

Vectura is currently in discussions with potential co-development partners, which are expected to conclude in H2 2006. The funds are required for Vectura's share in the costs of development work required to prove equivalence prior to filing for marketing approval. The Group will also need to invest in third party manufacturing facilities for the GyroHaler device. As part of such an agreement, the Directors would expect to retain a significant share of the future potential revenues from the product.

• Develop VR040 to registration - approximately 30 per cent. of the funds to be raised

Vectura strengthened its product pipeline during 2005 by introducing VR040 (inhaled apomorphine hydrochloride) for Parkinson's disease (PD) which is currently in a Phase IIa proof-of-concept study in 24 patients.

Patients with advanced stage PD often experience unpredictable ‘‘off episodes'' of sudden onset that severely compromise their ability to perform routine daily activities and negatively impact their quality of life. These can occur several times a day resulting in patients suffering lack of co-ordination, inability to move or communicate coherently, muscle cramps, musculoskeletal pain, and associated cognitive slowing.

Apomorphine has been used for over half a century, primarily in the treatment of advanced PD, but administered subcutaneously. VR040 has the potential to reduce the therapeutic dose required, and this should reduce the incidence of unwanted side-effects when compared with other approaches used to deliver apomorphine. With its expected rapid benefit within minutes of inhalation and non-invasive route of administration, VR040 has the potential to satisfy significant unmet patient needs.

It is estimated that approximately 1 million people in Europe and 1.5 million in the US have PD; approximately 10 per cent. of these experience severe on/off motor fluctuations unresponsive to therapies other than apomorphine.

In January 2006, the Group received notification from the EMEA that VR040 had been granted orphan drug designation for the treatment of ‘‘off episodes'' in patients with PD who are unresponsive to standard therapies.

The net proceeds of the Placing will allow the Group to retain a higher proportion of the value of VR040 by progressing its development through Phase III trials prior to licensing.

The funds will be used to carry out Phase IIb and Phase III clinical trials, trials with comparator products and additional work to facilitate the manufacture of larger drug batches. The orphan nature of the target indication generally allows the use of smaller numbers of patients in clinical trials. Vectura currently expects to commence the Phase IIb trial in H1 2007, with the Phase III trial currently expected to commence following approximately 18 months thereafter.

• Development of a second multi-dose dry powder inhaler device - approximately 20 per cent. of the funds to be raised

There is a growing demand for dry powder inhalers, particularly those that can deliver high performance and consistent doses. The Directors believe that Vectura's device technology and engineering expertise is well placed to capture significant market share as the Group's devices can provide critical benefits which are required by both patients and regulatory authorities.

In April 2006 Vectura agreed a non-exclusive worldwide collaboration, development and licensing agreement with Boehringer Ingelheim International GmbH ("Boehringer Ingelheim") to develop a dry powder inhaler (DPI) as a tailored Boehringer Ingelheim device. It will be used to deliver a range of Boehringer Ingelheim's proprietary respiratory products, mainly for treating asthma and chronic obstructive pulmonary disease (COPD).

Vectura intends to develop a new DPI device for this market. Most treatments for asthma and COPD are delivered by inhalation. Global markets for these treatments are valued in excess of $17 billion today and are forecast to grow to over $28 billion by 2010. Dry powder inhalers are increasingly the being used for patients with these diseases and it is expected that DPIs will be used to deliver the majority of the drugs sold in these markets by 2010. The second multi-dose dry powder inhaler device which the Company proposes to develop will be differentiated from the device tailored for Boehringer Ingelheim, and Vectura will use the new device primarily for developing selected respiratory products. It will also be available for co-development and technology licensing opportunities with third parties.

The Group will use the funds for the additional development work and contract manufacturing for the device and its assembly.

• Further strengthening of product pipeline - approximately 15 per cent. of the funds to be raised

Vectura is discussing with several pharmaceutical and biotechnology companies the potential for the Group's technologies to drive development of new optimised products, with discussions focused on respiratory and neurological therapeutic targets.

These opportunities involve either co-development or in-licensing of products that have completed their core pre-clinical evaluation. The Group will use the funds to complete pre-clinical development work using proprietary technologies, for the in-licensing payments where necessary, and to fund clinical trials.

DETAILS OF THE PLACING
The Company has entered into a placing agreement with Piper Jaffray (the "Placing Agreement"), pursuant to which Piper Jaffray has agreed (as the Company's agent) to use reasonable endeavours to procure placees for the Placing Shares at the Placing Price. The Placing Price of 85 pence per Placing Share represents the closing mid-market price on 27 June 2006, being the latest practicable date prior to this announcement.

The Placing, which Piper Jaffray has fully underwritten, is conditional on, inter alia :

the approval of the resolution authorising the allotment of the Placing Shares which is being proposed at the EGM;
the Placing Agreement becoming unconditional in all respects and not having been terminated in accordance with its terms; and
admission of the Placing Shares.

The Placing Shares will be issued credited as fully paid and will be identical to and rank pari passu in all respects with the existing ordinary shares of the Company, including the right to receive all future distributions, declared, paid or made in respect of the ordinary shares of the Company from the date of Admission. The Placing Shares represent approximately 31.5 per cent. of the enlarged issued ordinary share capital of the Company following the Placing.

To broaden Vectura's institutional shareholder base and to minimise the transaction costs of the offering, the Placing Shares are only being offered to a number of existing and new institutional shareholders. The Placing Shares are not being made available to the public. Application will be made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. Admission is expected to become effective, and dealings in the Placing Shares to commence, on 25 July 2006.

PLACING STATISTICS

Placing Price	85 p
Total number of Placing Shares being issued pursuant to the Placing	52,941,177
Number of ordinary shares in issue following the Placing	168,210,858
Market capitalisation following the Placing at the Placing Price	£ 143.0 million
Estimated gross proceeds of the Placing	£ 45.0 million
Estimated net cash proceeds of the Placing to be received by the Company	£ 42.9 million

EXPECTED TIMETABLE OF KEY EVENTS	2006
Latest time and date for receipt of Forms of Proxy for the Extraordinary General Meeting	2.00 p.m. on 22 July
Extraordinary General Meeting	2.00 p.m. on 24 July
Dealings to commence in the Placing Shares	25 July
Placing Shares in uncertificated form to be credited to CREST accounts (qualifying CREST shareholders only)	28 July
Definitive certificates for Placing Shares in certificated formto be dispatched (qualifying non-CREST shareholders only) by	4 August