ANNUAL
REPORT AND FINANCIAL STATEMENTS
INTRODUCTION
AND CONTENTS
Centessa
Pharmaceuticals PLC (the “Company”, or the “Parent Company”) is a public limited company
incorporated under the laws of England and Wales with American Depositary Shares (“ADS’s”) (representing its
ordinary shares on a 1:1 basis) listed on the NASDAQ Global Select Market and traded under the symbol “CNTA”.
To meet
US securities law reporting requirements, the Company is required to file an annual report on Form 10-K with the United States
Securities and Exchange Commission (the “SEC”), which includes the audited consolidated financial statements
of the Company and its subsidiaries (the “Group”) prepared in accordance with accounting principles generally accepted
in the United States of America (“U.S. GAAP”). To meet UK statutory requirements for being a quoted company under
the UK Companies Act 2006 (the “Companies Act”), the Company is required to file UK consolidated accounts.
The contents of
this Annual Report are as follows:
This “Annual Report”,
as mentioned throughout these UK financial documents, is comprised of the reports listed above and the Annual Report on Form 10-K
(the “Form 10-K”) filed with the SEC on 30 March 2023. For the purposes of this Annual Report, the exhibits
to the Form 10-K are not incorporated by reference.
1
COMPANY
INFORMATION
Directors |
Francesco De Rubertis (Non-Executive
Director) |
|
Dr Arjun Goyal (Non-Executive Director) |
|
Mary Lynne Hedley (Non-Executive Director) |
|
Samarth Kulkarni (Non-Executive Director) |
|
Dr Saurabh Saha (Executive Director) |
|
Carol Stuckley (Non-Executive Director) |
|
Dr Brett Zbar (Non-Executive Director) |
|
Mathias Hukkelhoven (Non-Executive Director)
(appointed 1 July 2022) |
|
|
Former Directors |
Aaron Kantoff (Non-Executive Director) (resigned
1 July 2022) |
|
Dr Robert Mckinnon Califf (Non-Executive Director)
(resigned 16 February 2022) |
|
|
Secretary |
Iqbal Hussain |
|
|
Registered number |
12973576 |
|
|
Registered office |
3rd Floor, 1 Ashley Road |
|
Altrincham |
|
Cheshire |
|
WA14 2DT |
|
United Kingdom |
|
|
Independent auditors |
KPMG LLP |
|
2 Forbury Place |
|
33 Forbury Road |
|
Reading |
|
RG1 3AD |
|
United Kingdom |
2
A LETTER
FROM OUR CEO
2022 was a year in
which we made solid progress advancing many of our pipeline programs toward our goal of bringing transformational medicines to
patients. Across the year, we advanced key clinical and development objectives, prioritized our pipeline, and continued to manage
our resources with timely data and science-driven decisions, consistent with our asset-centric operating model. Importantly, we
also unified our culture into “ONE” Centessa. At the same time, we were challenged with several impactful strategic
decisions that demonstrated our commitment to data-driven decision making, including the decisions to terminate our Phase 3 program
for lixivaptan for which we had been conducting a registration trial in Autosomal Dominant Polycystic Kidney Disease (ADPKD),
and our Phase 1 program in Alpha-1 Antitrypsin Deficiency (AATD) with ZF874.
As a result of all
our work, we entered 2023 with solid momentum and a clear focus on our pipeline programs that we believe have the greatest potential
to transform the lives of patients with unmet medical needs. We believe we are well-positioned with a cash runway into 2026 to
support the potential for multiple clinical readouts across our pipeline.
SerpinPC
Our most advanced
product candidate is SerpinPC, a subcutaneously administered novel inhibitor of activated protein C (“APC”) being
developed as a potential treatment for hemophilia. To date, our Phase 2a clinical data has shown SerpinPC to have a favourable
safety and tolerability profile, as well as evidence of sustained efficacy in patients with hemophilia, as measured by a reduction
in the all-bleeds annualized bleeding rates (ABRs). Based on these data, we believe SerpinPC has the potential to be a first-in-class
subcutaneously administered therapy with a differentiated safety profile for individuals with hemophilia, subject to regulatory
review and approval. We are excited to be advancing the registrational program for SerpinPC in hemophilia B, and look forward
to dosing subjects in the PRESent-2 and PRESent-3 interventional studies for patients with hemophilia B without inhibitors and
with inhibitors, respectively, this year.
LockBody Technology Platform and
LB101
Following IND clearance
from the U.S. FDA in January this year, we dosed the first subject in the Phase 1/2a trial for LB101, the first clinical trial
evaluating our proprietary LockBody® technology platform in patients with solid tumors. LB101 is a conditionally tetravalent
PD-L1xCD47 bispecific monoclonal antibody. We look to this study to provide valuable insights regarding the safety and tolerability
of LB101, as well as the performance of our LockBody platform in a clinical setting. We are working to develop additional LockBody
molecules, including PD-L1xCD3.
ORX750 and MGX292
Our team is also excited
to be advancing ORX750, an orally administered, selective orexin receptor 2 (OX2R) agonist, as our product candidate for the treatment
of narcolepsy with potential expansion into other sleep disorders. We look forward to achieving a steady cadence of preclinical
milestones and sharing preclinical data on ORX750 at a scientific meeting later this year. Our earlier stage development programs
also include MGX292, a protein-engineered variant of human bone morphogenetic protein 9 (BMP9), for pulmonary arterial hypertension
(PAH).
I’m proud of
our team’s accomplishments across 2022. Our pipeline and continued progress are a testament both to the strength of our
team and to the support of our shareholders. Importantly, it reflects our continuing commitment to help patients. There is much
work ahead, and we remain confident that we are well-positioned to drive both innovation and long-term value for the benefit of
all our stakeholders.
Sincerely,
Saurabh Saha, M.D., Ph.D.
Board Member and Chief Executive
Officer
3
UK
STATUTORY STRATEGIC REPORT
All
references in this Annual Report to “CENTESSA”, the “Company”, the “Group”,
“we,” “us” and “our” refer to Centessa Pharmaceuticals PLC and its subsidiaries.
The directors present their UK Statutory Strategic Report on the Group and the audited financial statements for the 52 weeks ended
31 December 2022. The comparative period covers the period from incorporation, 26 October 2020, to 31 December 2021. The information
in this document that is referred to in the following table shall be deemed to comply with the Companies Act requirements for
the UK Statutory Strategic Report.
Principal
Activities
We
are a clinical-stage pharmaceutical company with a mission to discover, develop and ultimately deliver medicines that are transformational
for patients.
Our
company was formed in October 2020 to pursue our mission within a unique, at-scale asset-centric operating model in a capital
efficient manner. We refer to this concept as “asset-centricity.” On January 29, 2021, we acquired 11 pre-revenue,
development stage biotechnology companies as direct subsidiaries (together referred to as the “Centessa Subsidiaries”),
and in June 2021, we completed an initial public offering (“IPO”). Since early 2022, we have substantially changed
how we manage the Centessa Subsidiaries, and where applicable, we have reorganized their assets into individual focused pipeline
programs unified under the Centessa Pharmaceuticals corporate brand.
At
the core of our asset-centric model is a research and development (“R&D”) engine that aims to pursue the best
assets in areas of unmet need, regardless of therapeutic area or technology. We manage our programs dynamically and have a disciplined,
data-driven approach to determining which product candidates and programs to progress, including considering whether the potential
product profile or most recent data meet our criteria to justify further investment. In particular, we apply various scientific,
clinical and commercial criteria aggressively throughout the development of each program individually and evaluate the merits
of each program individually. In addition, our program decisions are not biased to therapeutic areas or technologies. We believe
our unbiased, science-driven approach to each asset is not only a key differentiator for our Company, but also supports the quality
of our diversified pipeline programs.
Equally
important, our R&D model is designed toward rapidly progressing programs through development in a capital efficient manner.
Research activities related to each of our programs are conducted through a Research Excellence Hub. Each Research Excellence
Hub is dedicated to pursuing pathway and/or disease domain-specific research with the aim of bringing assets through candidate
selection. Each is led by a subject matter expert based on their unique knowledge and expertise and is overseen by our Chief Innovation
Officer (“CIO”). Once a candidate is selected, the program is transitioned to a development program team. The integrated
one-team development structure brings together cross-functional expertise to drive agile, lean and effective clinical development
of the asset. The development strategy is overseen by our Chairman of Development.
The
Research Excellence Hub and development program teams are designed to be lean, with limited fixed costs to further enhance the
economics of asset-centric drug development. To accomplish this aim, the teams rely on strategic Contract Research Organization
(“CRO”) and Contract Development and Manufacturing Organization (“CDMO”) partners and consultants while
maintaining a small, agile, and highly experienced core team of drug developers. Where appropriate, we also pursue opportunities
for potentially rapid development, including orphan drug designation, fast track designation, and other regulatory and development
avenues.
Our
R&D spend is consistent with our asset-centric approach, with the highest spend on the programs that have already established
clinical proof of concept. For programs in the earlier stages, we aim to implement capital-efficient plans to reach the next set
of catalysts, gating more significant spending until after we obtain clinical proof of concept.
While
we continue to refine aspects of our R&D model, we believe that this model enables a pipeline of high conviction assets.
We
are led by a management team with both subject matter expertise and extensive R&D experience from leading biotech and pharmaceutical
companies. In addition, our program teams are comprised of both inventors of our assets and renowned leaders in their respective
fields. Our extensive knowledge of both our assets and drug development informs our decision-making to advance the science and
clinical path to demonstrate pharmacological activity and proof-of-concept, with the goal of achieving an efficient timeframe
and cost-effective budget. We have a track record of making judicious capital and resource allocation decisions for discovery
and development efforts across our portfolio, and expeditiously evaluating and terminating programs when the data do not support
advancing a program. We believe this experience and our capabilities well positions us to identify and rapidly advance high value
programs from research through all stages of development in a capital efficient manner.
Our
most advanced product candidate is SerpinPC, a subcutaneously administered novel inhibitor of activated protein C (“APC”)
being developed as a potential treatment for hemophilia. To date, our Phase 2a clinical data has shown SerpinPC to have a favorable
safety and tolerability profile, as well as evidence of sustained efficacy in patients with hemophilia, as measured by a reduction
in the all-bleeds annualized bleeding rates (ABRs). Based on these data, we believe SerpinPC has the potential to be a first-in-class
subcutaneously administered therapy with a differentiated safety profile for individuals with hemophilia, subject to regulatory
review and approval. We are excited to be advancing the registrational program for SerpinPC in hemophilia B and look forward to
dosing subjects in the PRESent-2 and PRESent-3 interventional studies for patients with hemophilia B without inhibitors and with
inhibitors, respectively, this year. Following IND clearance from the U.S. FDA in January this year, we dosed the first subject
in our Phase 1/2a trial for LB101, the first clinical trial evaluating our proprietary LockBody technology platform in patients
with solid tumors. LB101 is a conditionally tetravalent PD-L1xCD47 bispecific monoclonal antibody. We look to this study to provide
valuable insights regarding the safety and tolerability of LB101, as well as the performance of our LockBody platform in a clinical
setting.
4
Our
team is also excited to be advancing ORX750, an orally administered, selective orexin receptor-2 (OX2R) agonist, as our product
candidate for the treatment of narcolepsy with potential expansion into other sleep disorders. We look forward to achieving a
steady cadence of preclinical milestones and sharing preclinical data on ORX750 at a scientific meeting later this year. Our earlier
stage development programs also include MGX292, a protein-engineered variant of human bone morphogenetic protein 9 (BMP9), for
pulmonary arterial hypertension (PAH). Applying our data-driven decision making, in 2022 we took a number of actions with respect
to our pipeline programs: (1) we discontinued the development of lixivaptan in Autosomal Dominant Polycystic Kidney Disease (“ADPKD”);
ZF874 in Alpha-1 Antitrypsin Deficiency (“AATD”), a dual-STAT3/5 degrader program in Acute Myeloid Leukemia (“AML”),
and all programs associated with PearlRiver including the small molecule epidermal growth factor receptor (“EGFR”)
Exon20 insertion mutation inhibitor program and the C797S mutation inhibitor program for the treatment of Non-Small Cell Lung
Cancer (“NSCLC”); (2) we divested PearlRiver in December 2022; and, (3) we evaluated strategic options for imgatuzumab,
an anti-EGFR mAb; and subsequently divested this program and the associated entity Pega-One in early January 2023. Additionally,
in December 2022, as a result of protocol defined stopping criterion being met, we suspended dosing in the multiple ascending
dose (MAD) stage of the Phase 1 study of CBS001, a neutralizing therapeutic mAb to the inflammatory membrane form of LIGHT for
inflammatory / fibrotic diseases. In early 2023, we determined to deprioritize CBS001 and paused all development activities. We
continue to evaluate strategic partnerships to progress development of CBS001 and CBS004, a therapeutic mAb targeting BDCA-2 for
the potential treatment of autoimmune diseases.
Where
the requirements of the strategic report in accordance with the Companies Act have been met in the Form 10-K, details of this
have been provided in the table below and referenced to the Form 10-K accordingly. Additional requirements which are not met by
Form 10-K have been disclosed separately at the end of the UK Statutory Strategic Report. The Form 10-K is attached in Appendix
1, and forms part of this report by cross reference.
Required
item in the UK Statutory Strategic Report |
Company
Response and where information can be found in the Annual Report on Form 10-K, if applicable |
A
fair review of the company’s business, including use of key performance indicators |
Part
I, Item 1: Business; Overview - p.5
Part
II, Item 7: Management Discussion & Analysis of Financial Condition and Results of Operations (“MD&A”)
- under the subheadings of:
Overview
– p.117
Results
of operations – p.121
Liquidity
and capital resources – Sources of liquidity and cash flow – p.124
|
A
description of the principal risks and uncertainties facing the company |
Part
I, Item 1A: Risk Factors – p.44 |
Information
about the company’s employees and other non-financial information |
Part
I, Item 1: Employees and Human Capital – p.44
Part
I, Item 1A: Risks Factors; Risks Related to our Reliance on Third Parties – discussed under the topic “If
our third-party manufacturers use hazardous and biological materials in a manner that causes injury or violates applicable
law, we may be liable for damages” – p.68.
Part
I, Item 1A: Risks Factors; Risks Related to our Business and Industry – discussed under the topic “If we fail
to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or
incur costs that could have a material adverse effect of the success of our business.” – p.88.
|
Description
of the company’s strategy and business model |
Part
I, Item 1: Business; Overview – p.5
Part
I, Item 1: Business; Our Operating Model – p.5
|
Main
trends and factors likely to affect the future development, performance and position of the company’s business |
Part
I, Item 1A: Risk Factors – p.44
Part
I, Item 1: Business; Overview – p.5
Part
II, Item 7: Management Discussion & Analysis of Financial Condition and Results of Operations (“MD&A”)
- under the subheadings of:
Overview
– p.117
Results
of operations – p.121
Liquidity and capital resources – p.124
|
Risk
management objectives and policies of the entity |
Part
I, Item 1A: Risk Factors; Risks Related to our Business and Industry – p.88 |
5
Other
information required within the Strategic Report which is not included in the Form 10-K
Key
Performance Indicators (KPIs):
Given
the Group’s operational inception in January 2021 and the focus of the business, KPI’s for the Group are centered
on operational execution and effective cash management.
The
directors and management review the Group’s total liquidity position and cash burn as part of the management of overall
liquidity, cash runway and capital requirements.
At
31 December 2022, the Group’s total liquidity position was $393.6M (2021: $595.1M) and these cash and cash equivalents were
expected to fund the Group’s operations into 2026 without drawing on the remaining available tranches under the Oberland
Capital financing agreement. On 2 June 2022, the Company announced its decision to discontinue the development of lixivaptan for
ADPKD and on 2 August, 2022, the Company announced its decision to discontinue the development of ZF874 in AATD.
6
Corporate
Governance Report (Section 172(1), Companies Act 2006 Statement)
The
directors of Centessa, and all directors of UK companies must act in accordance with a set of general duties including (but
not limited to) a duty to act in a way that they consider, in good faith, would most likely promote the success of the
Company for the benefit of its members as a whole and in doing so must have regard (amongst other matters) to the matters set
out in sub-paragraphs (a) to (f) of Section 172 of the Companies Act:
| ● | The
likely consequences of any decision in the long term |
| ● | The
interests of the company’s employees |
| ● | The
need to foster the company’s business relationships with suppliers, customers and
others |
| ● | The
impact of the company’s operations on the community and the environment |
| ● | The
desirability of the company maintaining a reputation for high standards of business conduct |
| ● | The
need to act fairly as between members of the company |
Section
172(1) Companies Act Requirements |
Company
Response and where information can be found in the Annual Report on Form 10-K, or elsewhere in this Annual Report, if applicable. |
the
likely consequences of any decisions in the long term |
See Part I, Item 1: Business; Overview section of 10-K – p.5
|
the
interest of the company’s employees |
Diversity
and inclusion are important to the Group’s growth strategy and align with the Group’s values of integrity and
equality. Appointments within the Group are made on merit according to a balance of skills and experience. Whilst acknowledging
the benefits of diversity, individual appointments are made irrespective of personal characteristics such as race, disability,
gender, sexual orientation, religion or age. |
|
|
|
|
|
|
|
A breakdown of employment statistics as of 31 December 2022 is as follows: |
|
|
|
|
|
|
|
|
Position |
Male |
Female |
Total |
|
|
Company Executive Director* |
1 |
— |
1 |
|
|
Executive Officers |
6 |
2 |
8 |
|
|
All other Employees |
41 |
33 |
74 |
|
|
Total Employees |
48 |
35 |
83 |
|
|
Non-Executive Directors |
5 |
2 |
7 |
|
|
Total Employees and Non-Executive Directors |
53 |
37 |
90 |
|
|
|
|
|
|
|
|
*
Chief Executive Office |
|
|
|
|
|
|
|
|
|
|
|
A breakdown of employment statistics as of 31 December 2021 is as follows: |
|
|
|
|
|
|
|
|
Position |
Male |
Female |
Total |
|
|
Company Executive Director* |
1 |
— |
1 |
|
|
Executive Officers |
7 |
2 |
9 |
|
|
All other Employees |
37 |
36 |
73 |
|
|
Total Employees |
45 |
38 |
83 |
|
|
Non-Executive Directors |
7 |
2 |
9 |
|
|
Total Employees and Non-Executive Directors |
52 |
40 |
92 |
|
|
|
|
|
|
|
|
*
Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
7
|
The
Board and Company management have a good relationship with the Group’s employees.
The Board maintains constructive dialogue with employees through the Company’s
Executive Leadership. Additionally, the Group conducts monthly town hall meetings for
all of the Group’s employees to communicate important developments and provide
a forum for exchange of questions & answers. The Group holds extended Leadership
Team meetings to inform and collect feedback from senior managers from time to time.
The Chief Executive Officer holds periodic ‘coffee chats’ which employees
are encouraged to attend and which provide an informal, small group setting for employees
to engage with the Group’s CEO. Other officers also hold periodic ‘coffee
chats’ with employees on a rotational basis offering additional engagement opportunities
between officers and employees. There is a comprehensive on-boarding program for new
hires to meet members of the Executive Leadership and human resources.
Appropriate
remuneration and incentive schemes are maintained to align employees’ objectives with those of the Group, which
offer a mix of fixed and variable incentives inclusive of equity. The Group also offers private medical and death-in-service/life
insurance coverage to employees along with disability (supplemental wage) insurance coverage, as appliable.
The
Board and the Company aim to attract and retain employees and encourage development of the individual in an inclusive
environment where employees from all backgrounds can thrive. The Company aims to keep our people engaged as the Company
continues to develop, by encouraging open communication and sharing strategic developments and decisions, including the
basis for those decisions and seeking feedback from the team. The Group conducted training regarding key Company policies
and initiatives during 2022.
|
the
need to foster the company’s business relationships with suppliers, customers and others |
Centessa’s
aim is to build honest, respectful and reliable relationships and arrangements with our suppliers and business partners, inspiring
confidence and collaboration. Our business model creates value through partnerships and relationships with various key collaborators,
and we evaluate these relationships taking into account the feedback received in our on-going discussions. We aim to build
clear and reliable supply arrangements with our contract manufacturers for clinical product supply, in particular with an
emphasis on quality, especially in relation to a clinical environment. |
8
the
impact of the company’s operations on the community and environment |
Our
communities comprise those with whom the Group does business and more broadly the wider
society whose lives the Group aims to positively impact with its technologies.
● The Board receives regular updates from the CEO and the CIO on the impact of our research & development efforts across
science and society
● The Board receives regular updates on operational matters from senior management on good business practices
Environmental
Matters
The
Group’s activities have a minimal environmental impact and the Group seeks to take positive steps to reduce its
carbon footprint where possible. During the period the Group operated largely on a virtual basis. For a discussion on
the carbon emissions for the Group please see the section entitled “Carbon emissions” in the Directors’
Report.
Social
and Human Rights Matters
The
Group does not, at present, have a specific policy on human rights. However, we have several policies that promote the
principles of human rights. We will respect the human rights of all our employees, including:
● the provision of a safe, clean working environment;
● ensuring employees are free from discrimination and coercion;
● not using child or forced labour; and
● respecting the rights of privacy and protecting the access and use of employee personal information.
|
the
desirability of the company maintaining a reputation for high standards of business conduct and; |
Centessa
is a company founded on strong ethical principles, with positive societal impact as a core value. The Board sets high standards
for the Company’s employees, officers and Directors. Implicit in this philosophy is the importance of sound corporate
governance. The Group has established a Code of Business Conduct and Ethics (the “Code”), which is posted
in the Corporate Governance section of the Group’s website and includes mechanisms for reporting suspected violations
of the Code and other policies and procedures of the Company. The Company’s employees, officers and Directors must review
the Code periodically and are required to comply with its terms. Additionally, the Group has in place a Foreign Corrupt Practices
Act, Bribery Act and Anti-Corruption Policy. |
the
need to act fairly between members of the company |
The
Board endeavors to maintain good relationships with its shareholders and treat them equally. The Board values good relations
with the Company’s shareholders and understands the importance of effectively communicating the Company’s operational
and financial performance as well as its future strategy. The Company’s website provides financial information as well
as historical news releases and matters relating to corporate governance. Annual and quarterly results are communicated via
press releases, and are filed with the SEC, as are certain operational and regulatory press releases. Shareholders may also
attend the Annual General Meeting where they can discuss matters with the Board. |
The
directors of the Company are mindful of their duties and obligations under section 172 of the Companies Act when making decisions.
This
report was approved by the Board of Directors on 22 May 2023 and is signed on behalf of the Board of Directors by:
Saurabh
Saha, M.D, Ph.D.
Board
Member and Chief Executive Officer
22 May 2023
9
UK
STATUTORY DIRECTORS’ REPORT
The
directors present their report and the audited financial statements of the Company for the 52 weeks ended 31 December 2022. The
comparative period covers the period from incorporation, 26 October 2020, to 31 December 2021.
Where
the requirements of the Directors’ Report in accordance with the Companies Act have been met in the Form 10-K, details of
this have been provided in the table below and referenced to the Form 10-K accordingly.
Additional
requirements which are not met by the Form 10-K have been disclosed separately at the end of the Directors’ Report. The
Form 10-K is attached in Appendix 1.
Required
item in the UK Statutory Directors’ Report |
Company
Response and where information can be found in the Annual Report on Form 10-K, or elsewhere in this Annual Report, if applicable. |
Principle
activities of the group and indication of likely future developments of the company’s business |
Part
I, Item 1A: Risk Factors – p.47 Part I, Item 1: Business; Overview - p.5
Part
II, Item 7: Management Discussion & Analysis of Financial Condition and Results of Operations (“MD&A”)
- under the subheadings of:
Results
of operations – p.121
Liquidity
and capital resources – p.124
|
Research
and development |
Part
II, Item 7: Management Discussion & Analysis of Financial Condition and Results of
Operations (“MD&A”) under the subheadings of:
Components
of results of operations – Research and development expenses – p.121
Results
of operations – Research and development expenses – p.122
|
Post
balance sheet events |
Part
II, Item 8: Note 11 - Subsequent Events – p.159 |
The
financial risk management objectives and policies of the entity |
Part
I, Item 1A: Risk Factors – “Risks Related to our Financial Position, Need for Additional Capital and Growth Strategy”
– p.48 |
Credit
and liquidity risk |
Part
II, Item 8: Note 1 Organization and description of business – Risks and Liquidity
– p.137
Part
II, Item 7: Management Discussion & Analysis of Financial Condition and Results of Operations (“MD&A”)
- under the subheading Liquidity and capital resources – p.124
|
Other
information required within the UK Statutory Directors’ Report which is not included in the Form 10-K.
Directors
The
directors who served at any time during the year were as follows:
Francesco
De Rubertis, Ph.D
Arjun
Goyal M.D., M.Phil, M.B.A
Mary
Lynne Hedley, Ph.D
Aaron
Kantoff (resigned 1 July 2022)
Samarth
Kulkarni, Ph.D
Saurabh
Saha, M.D., Ph.D
Carol
Stuckley, M.B.A.
Brett
Zbar, M.D.
Robert
Mckinnon Califf, M.D. (resigned 16 February 2022)
Mathias
Hukkelhoven, Ph.D (appointed 1 July 2022)
10
Capital
structure
The
group’s share capital is comprised of one class of ordinary shares of £0.002 each, the shares are listed on the NASDAQ
Global Select Market under the symbol “CNTA”. At 31 December 2022, 95,442,812 shares were in issue (2021: 90,971,172).
The shares carry no rights to fixed income and each share carries the right to one vote at general meetings. All shares are fully
paid. For further details, refer to note 9 of the notes to the financial statements.
The
group’s debt to equity ratio at 31 December 2022 is 0.23(2021: 0.14). The Company is financed primarily through share issues
and the associated share premium, which totals $383,007,000 as at 31 December 2022. (2021: $344,976,000). In addition, the Company
has a Note Purchase Agreement of $75,000,000 with Oberland Capital Management, LLC. See Part II, Item 8: Note 6 (Debt) on the
Company’s 10-K for additional information.
Going
concern
The
directors have assessed the going concern and believe that the Company has adequate resources to continue in operational existence
for twelve months from the date of signing the accounts.
Greenhouse
gas and Carbon emissions
The
Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013 require quoted companies to report on the
greenhouse gas emissions for which they are responsible. For clarity, Scope 1 emissions are direct emissions produced by the burning
of fuels. Scope 2 emissions are indirect emissions related to the generation of the electricity consumed and purchased by Centessa.
Scope 3 emissions are indirect emissions produced by Centessa activity, these emissions are not owned or controlled by the Company.
We are a company with a small number of employees. We have limited serviced offices and we currently outsource much of our research,
development and testing activities. As a result, we do not emit greenhouse gases from our own activities. Our consumption of electricity
for our own purposes is also within the reporting threshold of 40 MwH (Scope 1 and Scope 2 disclosures).
Accordingly,
there are no greenhouse gas emissions to report from the Company’s operations, nor do we have responsibility for any other
emissions. Further, for the same reason, the Company considers that it is a ‘low energy user’ under the Streamlined
Energy & Carbon reporting regulations and therefore a disclosure on energy and carbon emissions is not required.
Political
donations and expenditure
The
Group did not make any political donations or incur any political expenditure (including in respect of any non-UK political party)
in the financial period being reported on. (2021: nil).
Dividend
The
Company did not pay any dividend in the financial year being reported on (2021: nil) and has no intentions to pay dividends in
the near future.
Disclosure
of information to auditors
In
accordance with Section 418 of the Companies Act, each director who held office at the date of approval of this directors’
report confirms that, so far as they are each aware, there is no relevant audit information of which the Company’s auditors
are unaware; and each director has taken all the steps that ought to have been taken as a director in order to make him or herself
aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.
Independent
auditor
The
Group’s auditor, KPMG LLP, has indicated their willingness to continue in office and a resolution that they be re-appointed
will be proposed at the annual general meeting.
This
report was approved by the Board of Directors on 22 May 2023 and is signed on behalf of the Board of Directors by:
Saurabh
Saha, M.D., Ph.D.
Board
Member and Chief Executive Officer
22 May 2023
11
CENTESSA
PHARMACEUTICALS PLC DIRECTORS’ REMUNERATION REPORT
ANNUAL
STATEMENT FROM THE CHAIR OF THE COMPENSATION COMMITTEE
Dear
Shareholder,
As
the Chair of the Compensation Committee (the “Committee”), I am pleased to present, on behalf of the board
of directors (the “Board”) of Centessa Pharmaceuticals PLC (the “Company” or “Centessa”),
the Directors’ Remuneration Report for the period ended 31 December 2022 (the “Remuneration Report”).
The
Company’s Remuneration Report will be subject to an advisory vote at the forthcoming Annual General Meeting on 22 June 2023
(the “AGM”).
Introduction
In
2022, the Company made a number of impactful strategic decisions that resulted in a number of Company programs, including its
leading Phase 3 program, lixivaptan for which the Company had been conducting a registration trail in Autosomal Dominant Polycystic
Kidney Disease (ADPKD), and its Phase 1 program in Alpha-1 Antitrypsin Deficiency (AATD) with, ZF874, being terminated and others
accelerated. This resulted in a number of employees being terminated or redeployed depending on transferability of skills and
needs within other Company programs. At the same time, the Company continued to hire in strategic positions to fill identified
skill gaps including the Company’s Chief People Officer and a number of senior employees at the SVP level. During this period,
besides attracting key talent, it was critical for the Company to be able to retain, appropriately incentivize and develop high
caliber talent. In order to enable the Company to achieve this, we continued to evaluate and established a broad range of remuneration
programs and policies designed to attract, incentivize and retain a high calibre team to enable the Company to deliver on the
Company’s core objectives and deliver value to shareholders.
As
we move into 2023 and beyond, the Committee’s role will continue to be to ensure that directors and senior executives are
appropriately compensated and incentivised to deliver value in a long-term and sustainable manner to shareholders. The Committee
will seek to accomplish this by ensuring remuneration programs are grounded in market practice, appropriately balance fixed and
variable components of remuneration, are effective at driving proper executive behaviours, and clearly link pay and performance.
Key considerations guiding our Remuneration Policy are discussed further on within the Directors’ Remuneration Report.
Pay
for Performance
We
continue to believe that a significant portion of remuneration of our Executive Directors should be based on achieving objectives
designed to create inherent value in the Company, and ultimately on achieving value creation for our shareholders. In line with
this belief, the compensation of our Executive Director includes both short and long-term incentives based on strategic goals.
On the same basis, our Non-Executive Directors receive equity incentives designed to reward long-term value creation for our shareholders.
The
Global Marketplace for Talent
Centessa
is a global clinical-stage pharmaceutical company with operations in the United States (“US”) and Europe. Given
that our Chief Executive Officer (“CEO”) (currently our sole Executive Director) and most Non-Executive Directors
continue to be US-based and that the market for experienced directors and pharmaceutical executive talent, particularly in the
US, is very competitive, the Committee references the US market as the leading indicator for remuneration levels and practices.
Doing so will help attract and retain directors and motivate the superior executive talent needed to successfully manage the Company’s
complex global operations. Being consistent in this market view of the US as the primary benchmark for remuneration practices
for our Executive and Non-Executive Directors is key for the Company as it builds its global operations in a manner designed to
deliver sustainable long-term shareholder value.
It
can be difficult for Centessa, as a global company with operations in various global regions, to have remuneration arrangements
that satisfy all local requirements and market demands. As the Company is a UK public limited company, in taking any actions,
the Committee is mindful of the general UK compensation framework, including investor bodies’ guidance, and the UK Corporate
Governance Code, and has considered these when determining the remuneration programs and policies where it believes they best
serve the long-term interests of shareholders.
Remuneration
Program Highlights
During
the period, we undertook a number of activities to establish a broad range of remuneration programs and policies to appropriately
position the Company as a global pharmaceutical company, including:
| ● | Awarded
the Executive Director and Non-Executive Directors, and other employees and certain key
consultants market value share options under the equity incentive plan; |
| ● | Awarded
the Executive Director and certain other key employees retention grants under the equity
incentive plan in the form of restricted stock units; |
12
| ● | Considered,
reviewed and approved the objectives for the annual bonus for the financial period; and |
| ● | Assessed
performance for the financial period and recommended to the Board the level of bonus
to be paid to the Executive Director, as discussed below. |
2022
Bonus Outcome
The
CEO was eligible to receive a target bonus of 55% of his salary for 2022. In 2022, the goals for the CEO’s annual bonus
included: advancement of individual clinical program development goals, advancement of preclinical programs, people and culture
goals and certain finance goals. The Committee, at its discretion, awarded a bonus payout at 95% of target based on performance
and achievement of objectives. The Committee is satisfied that the overall bonus outcome is appropriate.
Conclusion
The
Committee believes the proposals put forth in this report will properly motivate our directors to deliver sustainable shareholder
value over the long-term and do so in a responsible manner.
I
hope that you find the information in this report helpful and I look forward to your support at the Company’s AGM.
Yours
sincerely,
Brett
Zbar
Chair
of the Compensation Committee
14
May 2023
13
DIRECTORS’
REMUNERATION POLICY
This
part of the Directors’ Remuneration Report sets out the Company’s Directors’ Remuneration Policy (the “Policy”)
and has been prepared in accordance with the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations
2013, the Companies (Miscellaneous Reporting) Regulations 2018, and the Companies Directors’ Remuneration Policy and Directors’
Remuneration Report) Regulations 2019. The Policy was approved by shareholders in a binding vote at the Company’s annual
general meeting on 30 June 2022. The Policy applies for a maximum period of three years (or until a revised policy is approved
by shareholders).
Key
considerations when determining the Policy
The
Committee designed the Policy with a number of specific objectives in mind. The Policy should serve to:
| ● | ensure
the attraction and retention of key management personnel; |
| ● | ensure
the motivation of management to achieve the Company’s corporate goals and strategies; |
| ● | be
competitive against appropriate market benchmarks (being predominantly the US biotech sector) and have a strong link to performance,
providing the ability to earn above-market rewards for strong performance; |
| ● | create
a corporate culture that promotes high levels of integrity, teamwork and ethics; |
| ● | promote
the adoption of good governance practice while mitigating against potential reputational or behavioural risks and avoiding overpaying
for talent; and |
| ● | ensure
the alignment of the interests of management with the long-term interests of the Company’s
shareholders. |
In
determining compensation policies and practices, the Committee follows a robust process taking into account the views of relevant
stakeholders, whilst ensuring that any conflicts of interest are suitably managed. This was the first Policy to be subject to
a vote by the Company’s shareholders following the Company’s initial public offering of ADSs on the NASDAQ Global
Select Market in May 2021.
Remuneration
Policy Table
The
table in the following pages sets out, for each element of pay, a summary of how remuneration is structured and how it serves
the Company’s strategy.
14
Policy
for Executive Directors
Component |
|
Purpose
and
link
to strategy |
|
Operation |
|
Maximum
opportunity |
|
Performance
measures |
Salary |
|
Designed
to attract and retain high-caliber talent to deliver the Company’s strategy.
Reflects
the responsibilities of the role as well as the individual’s skills, experience and performance.
Designed
to provide an appropriate level of fixed income to avoid any over-reliance on variable pay elements that could indirectly
encourage excessive risk taking.
|
|
The
Committee reviews salaries at appropriate intervals, normally annually, and makes recommendations
to the Board. Changes approved by the Board are generally effective from 1 January each
year.
Salaries
are set taking into account a number of factors including but not limited to:
● scope and responsibilities of the role;
● salary
increases awarded to the overall employee population;
● skills and experience of the relevant individual;
● individual and company performance;
● market;
● competitiveness assessed by periodic benchmarking;
● general economic and market conditions;
● changes in the size and complexity of the Company; and
● the underlying rate of inflation.
To the extent that salary is set in USD but paid to a
UK-based Executive Director, it will be converted and paid in GBP pursuant to the terms of the applicable service agreement (as
amended and/or superseded from time to time). |
|
There
is no prescribed formulaic maximum salary or salary increase but any increases will take
into account prevailing market and economic conditions and the approach to employee pay
throughout the Company.
In
assessing base salaries, the Committee takes into account market data, but does not target a specific percentile when
setting pay levels, rather considers it as one factor along with several others including those set out under the “Operation”
column.
Base
salary increases for Executive Directors are awarded at the discretion of the Board upon the recommendations of the Committee;
however, salary increases will normally be no greater than the general increase awarded to the wider workforce, in percentage
of salary terms unless the salary is meaningfully below peers or below market salary.
In
addition, a higher increase may be made where an individual had been appointed to a new role at below- market salary while
gaining experience. Subsequent demonstration of strong performance may result in a salary increase that is higher than
that awarded to the wider workforce.
|
|
While
no formal performance conditions apply, an individual’s performance in their role is taken into account in determining
any salary increase.
|
15
Component |
|
Purpose
and link to strategy |
|
Operation |
|
Maximum
opportunity |
|
Performance
measures |
Benefits
|
|
Designed
to support Executive Directors in carrying out their duties and contribute to retention
and recruitment.
|
|
The
Company aims to offer benefits that are in line with market practice.
The
main benefits currently provided include private health insurance, disability insurance, and death in service.
The
Company may offer relocation allowances or assistance. Expatriate benefits may be offered where relevant including fees
for tax advice associated with completion of international tax returns and, if relevant, any gross-up for tax.
Travel,
accommodation and any reasonable business-related expenses (including tax thereon) may be reimbursed.
Executive
Directors may become eligible for other benefits in future where the Committee and/or the Board deems it appropriate.
Where additional benefits are introduced for the wider workforce, Executive Directors may participate on broadly similar
terms. |
|
Not
applicable.
|
|
Not
applicable.
|
|
|
|
|
|
|
|
|
|
Pension |
|
The
Company aims to provide a contribution towards life in retirement. |
|
Executive
Directors are eligible to receive employer contributions to the Company’s Group Personal Pension Scheme or 401k plan,
as applicable, or a salary supplement in lieu of pension benefits, or a mixture of both. |
|
Up
to 6% of compensation per annum or such contribution required by legislation aligned to the wider workforce. Company contributions
to employee pension plans may be limited by tax regulations. |
|
Not
applicable. |
16
Component |
|
Purpose
and
link
to strategy |
|
Operation |
|
Maximum
opportunity |
|
Performance
measures |
Annual
Performance bonus |
|
Designed
to incentivise and reward for performance in the relevant year against targets and objectives linked to the delivery of the
Company’s strategy. |
|
The
annual performance bonus is subject to the achievement of targets and objectives which
are agreed between the Executive Directors and the Board (following recommendations
from the Committee) at the start of each financial year.
The
full amount of any performance bonus earned, which will be determined by the Committee following the end of the performance
period, will ordinarily be paid in cash.
Payment
of performance bonuses is conditional on the Executive Directors being in employment (and not having served notice of
termination) as of the date of payment of the bonus. No deferral period applies to bonuses.
|
|
The
maximum target bonus opportunity for Executive Directors is 75% of base salary, with
a maximum bonus payout opportunity of up to two times the target opportunity.
For
the Chief Executive Officer, the annual performance bonus target is currently 55% of base salary.
|
|
Performance
is normally measured over the financial year. Performance measures and targets,
including the weighting of such measures, are determined by the Board each year (following
recommendations from the Committee) taking into account the strategic priorities
of the business and shareholder value.
The
annual performance bonus will typically be subject to corporate objectives, which may be operational, financial or
strategic in nature and/or personal objectives.
The
Board has discretion to amend the formulaic bonus outcome (up or down) should it not reflect the Board’s assessment of
overall Company performance, taking into account factors it considers relevant. This will help ensure that payments reflect
overall Company performance during the period |
17
Component |
|
Purpose
and link to strategy |
|
Operation |
|
Maximum
opportunity |
|
Performance
measures |
Long-term
Incentive Plan |
|
Designed
to incentivize the successful execution of the business strategy over the longer term
and provide long-term retention. Facilitates share ownership to provide further
alignment of the interests of Executive Directors with those of shareholders.
|
|
Under
the Amended and Restated 2021 Stock Option and Incentive Plan (the “Plan”),
the Committee may grant equity-based (or cash-based) awards to the Executive Directors.
Grants to Executive Directors require Board approval (following recommendations
from the Committee).
Awards
may be granted in the form of restricted share units, options, share appreciation rights or other share- based awards.
The Committee will determine the type of equity award, if any, to be granted to Executive Directors, which may include
a combination of different awards.
The
Committee will determine the specific terms and conditions which govern that award, including:
● the vesting period
● the exercise period (if relevant)
● the exercise price (if relevant)
● whether any performance conditions will apply and if so, the performance targets
● any other conditions and restrictions as it may determine |
|
There
is no defined maximum opportunity under the Plans.
However,
the Committee will generally work within the benchmarking guidelines provided by its compensation consultants.
|
|
Awards
are granted with an exercise price no less than the fair market value of the shares on
the date of grant. Accordingly, such awards will only have value to the extent the
Company’s share price increases following the date of grant. Performance conditions
may apply to award vesting. The Committee may amend, relax or waive performance conditions
if it considers that they have become unfair or impractical. This will help ensure that
vesting reflects overall Company performance during the period.
|
18
Component |
|
Purpose
and
link
to strategy |
|
Operation |
|
Maximum
opportunity |
|
Performance
measures |
|
|
|
|
In
respect of any option granted, the exercise period will not exceed ten years from the
date of grant.
Awards
will typically be granted annually, although may also be granted more or less frequently.
Awards
to new joiners are typically subject to vesting over a four-year period, with 25% of the award vesting on the first anniversary
of the grant, and the remainder vesting in 36 equal monthly instalments thereafter.
Annual
awards typically vest in equal monthly instalments over 48 months. The Committee has discretion to adopt different vesting
terms.
No
deferral or holding period applies to the shares acquired on the exercise of awards.
|
|
|
|
|
Share
ownership guidelines |
|
To
promote Executive Directors share ownership and to align Executive Directors to the interests of shareholders during employment |
|
The
Executive Directors will be required to build over a five-year period from appointment as an Executive Director and maintain a
shareholding in the Company equivalent to 200% of base salary. In the event an Executive Director fails to meet or to show sustained
progress toward meeting the ownership requirement, the Committee may determine to reduce future long- term incentive grants and/or
require the Executive Director to retain all shares obtained through the vesting or exercise of equity or option grants.
|
|
Not
applicable |
|
Not
applicable |
Employee
Share Purchase Plan |
|
To
increase alignment between employees and shareholders in a tax efficient manner and to promote share ownership. |
|
Executive
Directors will be eligible to participate in any all-employee share purchase plan operated by the Company on the same terms
as other eligible employees. |
|
Consistent
with prevailing tax limits at the time. |
|
Not
applicable |
19
Policy
for Chair and Non-Executive Directors
Component |
|
Purpose
and link
to
strategy |
|
Operation |
|
Maximum
opportunity |
|
Performance
measures |
Fees
and benefits |
|
Designed
to attract and retain high-calibre Non- Executive Directors who have a broad range of skills and experience to provide independent
judgement on issues of strategy, performance, resources and standards of conduct.
|
|
Fees
for Non-Executive Directors are reviewed by the Committee for onward recommendation to
the Board and are based on market data and peer group comparisons as well as the underlying
rate of inflation.
An
annual base fee is paid to all Non- Executive Directors, with additional fees paid for:
● service as the Non-Executive Chair of the Board
● chairing a Committee of the Board
● membership of a Committee of the Board
The
Chair’s fee is reviewed annually by the Committee (without the Chair present).
Additional
fees may be paid to reflect additional responsibilities or roles, as appropriate.
When
reviewing fee levels, account is taken of market movements in fee levels, Board committee responsibilities, ongoing time
commitments and the general economic environment.
In
exceptional circumstances, if there is a temporary yet material increase in the time commitments for Non- Executive Directors,
the Board may pay additional fees to recognise that additional workload.
Non-Executive
Director fees are generally denominated and paid in USD but may be denominated and/or paid in GBP, USD, or a combination
depending on the personal situation of each Non-Executive Director. Any currency conversions are calculated in accordance
with the applicable Company procedure from time to time.
Non-Executive
Director fees in respect of those Non-Executive Directors who are appointed by an investor (or group of investors) may
be paid to those investor(s) on behalf of the relevant Non-Executive Director.
The
Company will reimburse all reasonable out-of-pocket expenses in attending meetings of the Board of Director or any committee.
Non-Executive
Directors do not participate in any Company sponsored benefit programs. |
|
The
maximum total compensation (inclusive of fees and equity compensation) to a Non-Executive
Director shall be $1,000,000 in any year.
When
reviewing fee levels, account is taken of the responsibilities of the role and expected time commitment as well as appropriate
market data and peer group comparisons, as well as the underlying rate of inflation.
Actual
fee levels are disclosed in the Annual Remuneration Report for the relevant financial year.
|
|
Not
applicable. |
20
Component |
|
Purpose
and link
to
strategy |
|
Operation |
|
Maximum
opportunity |
|
Performance
measures |
Equity
awards |
|
Designed
to attract and retain Non-Executive Directors with the required skills and experience
to support the growth of the Company.
This
aligns the interests of Non-Executive Directors with those of shareholders.
|
|
Non-Executive
Directors may be granted equity awards upon their first appointment or election to the
Board (the “Initial Grant”). This Initial Grant will normally vest
over a three year periodin 36 equal monthly instalments, subject generally to continued
service. Vesting of the Initial Grant shall cease if the director resigns as a director
or otherwise ceases to serve as a director.
A
further grant of equity awards will be made annually to each Non-Executive Director who will continue in role following
the annual general meeting (the “Annual Grant”). This Annual Grant will normally vest in full, subject
to continued service, on the earlier of (i) the first anniversary of grant, or (ii) the next annual general meeting. Vesting
of the Annual Grant shall cease if the director resigns from as a director or otherwise ceases to serve as a director,
unless the Board determines that the circumstances warrant the continuation of vesting.
If
a new Non-Executive Director joins the Board following the date of grant of the Annual Grant in any financial year, such Non-Executive
Director will be granted a pro rata portion of the next Annual Grant, based on the time between his or her appointment and the
date of such Annual Grant.
If
any equity award takes the form of a share option, such share option shall have a per share exercise price equal to the fair market
value of the Company’s securities on the date of grant. |
|
The
maximum total compensation (inclusive of fees and equity compensation) to a Non-Executive
Director shall be $1,000,000 in any year.
The
Committee will set the actual grant levels taking into account any factors it deems relevant including, but not limited
to, the responsibilities of the role and expected time commitment as well as appropriate market data and peer group comparisons.
Actual
grant levels are disclosed in the Annual Remuneration Report for the relevant financial year.
|
|
Not
applicable. |
21
Notes
to the Policy Table
Legacy
arrangements
For
the duration of the Policy, the Company will honour any commitments made in respect of current or former directors before the
date on which either: (a) the Policy becomes effective; or (b) an individual becomes a director, even when not consistent with
the Policy set out in this report or prevailing at the time such commitment is fulfilled. For the avoidance of doubt, all outstanding
historic equity awards that were granted in connection with, or prior to, listing on NASDAQ and/or under the Plans remain eligible
to vest based on their original or modified terms.
Payments
may be made in respect of existing awards under the Plans and the Committee may exercise any discretions available to it in connection
with such awards in accordance with the rules of the Plans and relevant award documentation. Certain options granted under the
Plans vest in full on a change of control in accordance with the terms of the grant agreements.
Explanation
of performance measures
The
Committee determines performance measures that are appropriately challenging and linked to the delivery of the Company’s
core strategic objectives. For the annual performance bonus, the Committee reviews and sets performance measures and targets at
the start of each year based on the key strategic priorities and objectives of the business at that time.
Measures
may be based on a range of operational, financial and qualitative performance objectives for the particular financial year.
The
targets for the bonus scheme for the forthcoming year will be set out in general terms, subject to limitations with regards to
commercial sensitivity. The full details of the targets will be disclosed when they are in the public domain and are no longer
considered commercially sensitive.
Stock
option awards made to Directors do not currently carry performance conditions. It is considered that the exercise price of options
(which is set at the fair market value on issuance), vesting and, where relevant, exercise period provides alignment to the long-term
success of the business. The Committee may determine that performance conditions apply to future awards. If this were to be the
case, performance conditions would be determined by the Committee to support the Company’s long-term strategy and sustainable
value creation.
The
Committee may vary or substitute any performance measure if an event occurs which causes it to determine that it would be appropriate
to do so (including to take account of acquisitions or divestments, a change in strategy or a change in prevailing market conditions),
provided that any such variation or substitution is fair and reasonable and, in the opinion of the Committee, the change would
not make the measure less demanding than the original measure would have been but for the event in question. If the Committee
were to make such a variation, an explanation would be given in the next Directors’ Remuneration Report.
Malus
and Clawback
Awards
under the annual bonus and the Amended and Restated 2021 Stock Option and Incentive Plan made after the 2022 AGM are subject to
malus and clawback provisions which permit the Committee, in its discretion, to reduce the size (including to zero) of any future
bonus or share award granted to an Executive Director, to reduce the size (including to zero) of any granted but unvested share
award. The circumstances in which the Company may apply the malus and clawback provisions are the discovery of a material misstatement
of financial results, a miscalculation or error in assessing the performance condition applying to the award, or in the event
of serious misconduct committed by the Executive Director.
In
respect of cash bonus payments, the malus and clawback provisions apply for one year from the date of payment of the bonus (or,
if later, the date of publication of the Company’s financial results for the year following the relevant year over which
the bonus was earned).
In
respect of share awards under the Amended and Restated 2021 Stock Option and Incentive Plan, malus and clawback provisions apply
up until the first anniversary of the date on which the relevant award vests, although the Committee may extend this period for
a further two years if there is an ongoing investigation into the circumstances of any event that, if determined to have occurred,
would permit the Committee to operate the malus and clawback provisions.
22
Committee
Discretion
The
Committee has discretion in several areas of the Policy to ensure the efficient administration of the policy. This includes with
regards to the operation and administration of the incentive arrangements in which directors participate, including the award
and payment of any annual performance bonus and the grant and associated terms and conditions of any equity awards. Use of any
discretion in relation to equity awards will be in accordance with the terms of the relevant plan and subject to any relevant
legislation.
The
Committee’s discretion applies to the following (amongst other matters):
| ● | reviewing
and recommending to the Board for approval the proposed compensation for the CEO and all other officers of the Company; |
| ● | selecting
the individuals who will receive awards under the plans on an annual basis; |
| ● | determining
the timing of grants of awards and/or payments; |
| ● | determining
the quantum of awards and/or payments; |
| ● | determining
the choice (and adjustment) of any performance measures and targets, vesting schedules, exercise prices (where applicable) and
other award terms for each incentive plan; |
| ● | determining
the extent of vesting, including for leavers; |
| ● | making
the appropriate adjustments (including to any performance targets) required in certain circumstances, for instance for changes
in capital structure; |
| ● | application
of malus and clawback provisions; |
| ● | interpreting
the plan rules where necessary; and |
| ● | undertaking
the annual review of weighting of performance measures and setting targets for the annual bonus plan and other incentive schemes,
where applicable, from year to year. |
If
an event occurs which results in the annual performance plan or the Plans (where performance conditions apply) performance conditions
and/or targets being deemed unfair or impractical (e.g. material acquisition or divestment), the Committee will have the ability
to amend, relax or waive (and/or recommend such alterations to the Board for approval) measures and/or targets and alter weightings.
The
Committee reserves the right to make any compensation payments and/or payments for loss of office (including exercising any discretions
available to it in connection with such payments) notwithstanding that they are not in line with the Policy where the terms of
the payment were agreed (i) before the Company’s first shareholder-approved Policy came into effect; or (ii) at a time when
the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment was not in consideration
for the individual becoming a Director of the Company. For these purposes “payments” includes the Committee satisfying
awards of variable compensation and, in relation to an equity award, the terms of the payment are “agreed” at the
time the award is granted.
The
Committee may make minor amendments to the Policy (for regulatory, exchange control, tax or administrative purposes or to take
account of a change in legislation) without obtaining shareholder approval.
Employment
conditions
The
Committee is regularly updated throughout the year on pay and conditions applying to Company employees. Where significant changes
are proposed to employment conditions, these are highlighted for the attention of the Committee at an early stage.
Whilst
the Committee does not currently consult directly with employees regarding its policy for directors, the Committee is considering
the best method of bringing the employee voice to the boardroom.
Policy
for the remuneration of employees and consideration of employment conditions elsewhere in the Company
The
Company aims to provide all employees with a remuneration package that is competitive and which is appropriate to promote the
long-term success of the Company, while not paying more than is necessary. Generally, all employees will receive a base salary,
benefits, a discretionary bonus subject to performance and equity awards. In respect of the Executive Director and other members
of the senior management team, the compensation package is more heavily weighted towards variable pay and a greater proportion
is delivered in equity. The Plans, in which all of the Company’s employees can participate, were introduced to align employee
and shareholder interests.
The
Committee does not formally consult with employees when determining Executive Director compensation.
23
Consideration
of shareholder views
This
is the first Policy to be subject to a vote of the Company’s shareholders. The views of the Company’s shareholders
are important, and the Committee welcomes any feedback from shareholders or their advisors on the Company’s remuneration
arrangements. Any feedback received will be considered by the Committee as it develops the Company’s remuneration framework
and practices going forward.
Illustration
of application of the Policy
The
following chart provides an illustration, for the Chief Executive Officer, of the application of the Policy for the year ending
31 December 2022. The chart shows the split of remuneration between fixed pay, the annual performance bonus and equity awards
on the basis of minimum remuneration, remuneration receivable for performance in line with Company expectations and maximum remuneration.
The CEO’s target bonus for 2022 is 55% of base salary, which is less than that shown in the illustration of the policy below.
|
Fixed
pay |
|
Annual
performance bonus |
|
Equity
awards |
Minimum
performance |
● Base salary as at 1 January 2022 for the CEO was $621,000. |
|
No
bonus |
|
No
equity award |
On
Target performance |
● Pension/Retirement benefits (being participation in the Company’s 401k plan which includes a match of 4% of compensation,
up to the IRS limitations for 2022). |
|
Cash
bonus equal to 75% of base salary |
|
|
Maximum
performance |
● Benefits (being the annualised cost of private medical insurance in which Dr. Saha elected to participate effective 1 January
2022). |
|
Cash
bonus equal to 150% of base salary |
|
Market
value option grant ($0 intrinsic value) to be recommended by Compensation Committee and approved by Board. |
24
Illustration
of remuneration policy application
The
Company only has one Executive Director, Dr. Saurabh Saha, and below provides his base case, expected, and maximum remuneration
with respect to the period ending 31 December 2023. Dr. Saha will only receive market value options in 2023 as is assumed in this
illustration which have an intrinsic value of $0 and are therefore not included in the chart and there is no illustration of share
price appreciate on equity award value. The assumptions used in the calculations are set out below:
| |
Chief
Executive Officer | |
Base Salary | |
$ | 652,050 | |
Private Medical Benefits | |
$ | 34,393 | |
Pension | |
$ | 12,200 | |
Base Case(i) | |
$ | 698,643 | |
On Target Bonus(ii) | |
$ | 489,038 | |
On Target Case(iii) | |
$ | 1,187,681 | |
Maximum Bonus(iv) | |
$ | 978,075 | |
Maximum Case(v) | |
$ | 1,676,718 | |
| i. | Minimum
(i): this illustration assumes fixed remuneration, as set out above, representing base
salary plus employer paid private medical insurance plus employer pension contributions.
This illustration assumes no annual bonus. |
| ii. | On
Target Bonus (ii): On target bonus for Dr. Saha in this illustration is assumed to be at 75% of base salary, being $489,038 for
the period. Please note that Dr. Saha’s actual target bonus for 2022 is 55% of base salary. |
| iii. | On
Target Case (iii): this illustration assumes the Minimum remuneration as set out above
plus On Target Bonus. |
| iv. | Maximum
Bonus (iv): Maximum bonus for Dr. Saha in this illustration is assumed to be at 150% of base salary, being $978,075 for the period. |
| v. | Maximum
Case (v): this illustration assumes the minimum case remuneration set out above, plus the maximum annual bonus of 150% of minimum
salary, being $978,075 for the period. |
Amounts
in USD
25
Approach
to compensation on recruitment
When
hiring a new Executive Director, the Committee will typically align the compensation package with the Policy taking into account
the skills, experience and country of residence of the relevant individual as well as broader considerations such as market competitiveness.
The Committee may however include other elements of compensation, as described below, which it considers appropriate.
Base
salary will be set at a level appropriate to the role and the experience of the Executive Director being appointed. This may include
agreement on future increases, in line with increased experience and/or responsibilities, subject to satisfactory performance,
where it is considered appropriate. Benefits, including retirement benefits, will be provided in line with the Policy and to reflect
the local market. Where an Executive Director is required to relocate in order to take up the position, relocation benefits may
be provided.
The
maximum annual performance bonus will be in line with the approach outlined in the Policy. Any equity award will be granted at
the discretion of the Committee and in line with the Policy.
The
maximum level of variable compensation that may be awarded on an ongoing basis to a new Executive Director (including the annual
performance bonus and any equity awards) would be determined by the Committee on appointment. This would not include any amounts
paid in relation to replacement awards or recruitment awards, which would be determined at the discretion of the Committee.
Where
a position is filled internally, any ongoing compensation obligations or outstanding variable compensation will continue to be
honoured in accordance with their terms.
Compensation
for a newly appointed Non-Executive Director will be in line with the Policy. In terms of equity awards, the Initial Grant will
be made upon their election to the Board.
Service
contracts and policy on payments for loss of office
Service
contracts and letters of appointment, as applicable, are available for inspection at the Company’s registered office.
Executive
Directors
Executive
Directors typically have employment agreements under which, other than by termination in accordance with the terms of the agreements,
employment continues indefinitely. Dr. Saurabh Saha is the only Executive Director, and details of his employment agreement are
set out in the table below. Dr. Saha is located in the US and in line with market practice has entered into an at-will employment
agreement that does not have a notice period.
Executive
Director |
|
Position |
|
Effective
Date of most recent
employment
agreement |
|
Notice
period |
Dr.
Saurabh Saha |
|
Chief
Executive Officer |
|
30
March 2022 |
|
None |
The
Company is unequivocally against rewards for failure; the circumstances of any departure, including the individual’s performance,
would be taken into account in every case. At-will employment agreements may be terminated summarily without notice. Where applicable,
statutory redundancy payments may be made.
26
Treatment
of compensation, including variable compensation and equity awards, on termination of employment, without cause, would be as set
out below.
Element
of Pay / Benefit |
|
Termination
outside of the 12-month period following a sale event (as defined in the Centessa Pharmaceuticals PLC 2021 Stock Option and
Incentive Plan) |
|
Termination
within the 12-month period following a sale event (as defined in the Centessa Pharmaceuticals
PLC 2021 Stock Option and Incentive Plan) |
Base
salary |
|
A
lump sum payment equal to 12 months’ base salary payable |
|
A
lump sum payment equal to 18 months’ base salary payable |
Benefits |
|
Payment
of the employer portion of COBRA (continuation of private medical insurance) premiums until the earliest of (A) the first anniversary
of his date of termination, (B) the expiration of his eligibility for the continuation coverage under COBRA or (C) the
date when he becomes eligible for substantially equivalent health insurance coverage in connection with new employment |
|
Payment
of the employer portion of COBRA premiums until the earliest of (A) the 18-month anniversary of his date of termination, (B)
the expiration of his eligibility for the continuation coverage under COBRA or (C) the date when he becomes eligible for substantially
equivalent health insurance coverage in connection with new employment |
Annual
performance bonus |
|
Payment
of any bonus will be determined by the Committee taking into account the terms of the relevant employment agreement. Payment
will also consider the circumstances of the relevant individual’s departure and contribution to the business during the
relevant financial year as well as their time in role. |
|
150%
of target bonus |
Equity
awards |
|
Awards
treated in accordance with plan rules and terms of specific grant agreements. Unless otherwise determined by the Committee, unvested
equity awards lapse on the date of termination of employment/service relationship |
|
100%
acceleration of equity awards granted on or after 1 February 2022 that are subject solely to time-based vesting (awards granted
prior to 1 February 2022 will continue in accordance with their terms) |
Non-Executive
Directors
Under
our articles of association, our Board is divided into three classes (Class I, Class II and Class III), with members of each class
serving staggered three-year terms (the “Initial Period”). In the event of termination, the Chair and Non-Executive
Directors are only entitled to fees accrued to the date of termination together with reimbursement of expenses properly incurred
before that date.
Non-Executive
Director |
|
Commencement
Date |
|
Unexpired
tenure as at the 2023 Annual General Meeting |
Francesco
De Rubertis, Ph.D.
(Class
III Director)
|
|
20
November 2020
|
|
One
year. Term will expire at the 2024 Annual General Meeting.
|
|
|
|
|
|
Arjun
Goyal, M.D.,
M.Phil,
M.B.A
(Class
I Director)
|
|
29
January 2021
|
|
Two
years. Term will expire at the 2025 Annual General Meeting though Dr. Goyal will stand for re-election at such time.
|
|
|
|
|
|
Mary
Lynne Hedley, Ph.D.*
(Class
III Director)
|
|
26
January 2021
|
|
One
year. Term will expire at the 2024 Annual General Meeting.
|
|
|
|
|
|
Mathias
Hukkelhoven, Ph.D.*
(Class
I Director)
|
|
1
July 2022
|
|
None.
Term will expire at the 2023 Annual General Meeting to be held in 2023, though Dr. Hukkelhoven will stand for re-election
at such time.
|
|
|
|
|
|
Samarth
Kulkarni, Ph.D.*
(Class
I Director)
|
|
3
February 2021
|
|
Two
years. Term will expire at the 2025 Annual General Meeting.
|
|
|
|
|
|
Carol
Stuckley, M.B.A.*
(Class
II Director)
|
|
17
May 2021
|
|
None.
Term will expire at the 2023 Annual General Meeting, though Ms. Stuckley will stand for re-election at such time.
|
|
|
|
|
|
Brett
Zbar, M.D.
(Class
II Director)
|
|
29
January 2021
|
|
None.
Term will expire at the 2023 Annual General Meeting, though Dr. Zbar will stand for re-election at such time.
|
*
Engaged under a Non-Executive Director appointment letter.
27
On
termination of appointment, a Non-Executive Director will not be entitled to any compensation for loss of office.
Equity
awards to Non-Executive Directors vest subject to continued service as a director. Therefore, on termination of appointment, any
unvested equity awards granted to a Non-Executive Director would lapse. The exercise period for any vested but unexercised options
would be reduced, unless otherwise determined, to twelve months from the date of cessation of office.
Non-Executive
Directors’ letters of appointment, as applicable, are available for inspection at the Company’s registered office
during normal business hours and will be available for inspection at the AGM.
Change
of control
In
the event of a change of control all outstanding equity awards may vest on an accelerated basis. Alternatively, awards may be
exchanged for equivalent awards over shares in another company.
Annual
Report on Remuneration
This
part of the report has been prepared in accordance with Part 3 of The Large and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013 and section 420 of the Companies Act 2006. The Annual Report on Remuneration and the Annual
Statement by the Chair of the Compensation Committee will be put to a single advisory shareholder vote at the AGM to be held on
22 June 2023.
Remuneration
Committee
The
remuneration of the Executive Directors and the Chair is determined by the Committee.
The
members of the Committee during 2022 were all Non-Executive Directors. Brett Zbar chaired the Committee, Sam Kulkarni and Arjun
Goyal were members of the Committee throughout 2022. Aaron Kantoff was a member of the Committee until his resignation from the
Board on 1 July 2022.
No
conflicts of interest have arisen during the period and none of the members of the Committee has any personal financial interest
in the matters discussed, other than as shareholders. Brett Zbar is the Managing Director and Global Head of Life Sciences for
General Atlantic and acts as its representative on the Board of Centessa and Arjun Goyal is Co-Founder and Managing Director of
Vida Ventures and acts as its representative on the Board of Centessa. The fees of the Non-Executive Directors are approved by
the Board on the recommendation of the Committee.
During
the period, the Committee met four times formally. Details of attendees are as below.
Meetings
Attendance
|
Attendance |
Brett Zbar |
4 of 4 |
Aaron Kantoff |
3 of 4 |
Arjun Goyal |
4 of 4 |
Samarth Kulkarni |
4 of 4 |
The
CEO, General Counsel, CFO and Chief People Officer are invited to attend meetings where appropriate. No individual is present
when matters relating to their own remuneration are discussed.
Advisors
to the Remuneration Committee
During
the period, the Remuneration Committee received advice from the executive compensation practice of Aon. Aon advises the Committee
on all aspects of director and senior executive remuneration. Since the IPO, Aon has assisted with the drafting of the Remuneration
Policy and has updated the Committee on US and UK remuneration reporting and corporate governance best practice. In relation to
work carried out in 2022, fees charged by Aon for advice provided to the Committee amounted to approximately $130,000 (2021: $135,000).
The Committee evaluates the support provided by AON annually and is content that it does not have any connections with the Group
that may impair its independence.
Activities
of the Remuneration Committee
The
Committee’s principal function is to develop and implement compensation policies and plans that ensure the attraction and
retention of key management personnel, the motivation of management to achieve the Company’s corporate goals and strategies,
and the alignment of the interests of management with the long-term interests of the Parent Company’s shareholders. In overseeing
the Company’s overall compensation structure and the remuneration policy, and in constructing the remuneration arrangements
for Executive Directors and senior employees, the Board, advised by the Committee, aims to provide remuneration packages that
are competitive and designed to attract, retain and motivate Executive Directors and senior employees of the highest caliber.
28
The
Committee is responsible for and considered, where applicable, during the period:
| ● | evaluating
the efficacy of the Company’s remuneration policy and strategy; |
| ● | reviewing
and making recommendations to the Board regarding remuneration to be paid to the Company’s
executive officers, including setting the executive remuneration policy; |
| ● | reviewing
and making recommendations to the Board regarding remuneration for non-executive members
of the Board, including the approval of the director remuneration policy; |
| ● | agreeing
the design of all share incentive plans; |
| ● | preparing
any report on executive remuneration required by the rules and regulations of the U.S.
Securities and Exchange Commission, The Nasdaq Stock Market LLC and as required under
English law; |
| ● | reviewing,
evaluating, and approving change-of-control protections, corporate performance goals
and objectives, and other compensatory arrangements of the executive officers and other
senior management and adjusting remuneration, as appropriate; |
| ● | evaluating
and approving remuneration plans and programs and establishing equity remuneration policies; |
| ● | reviewing
remuneration practices and trends to assess the adequacy and competitiveness of the executive
remuneration programs as compared to industry peers, and determining the appropriate
levels and types of remuneration to be paid; |
| ● | reviewing
and approving remuneration arrangements for any executive officer involving any subsidiary,
special purpose or similar entity, with consideration of the potential for conflicts
of interest; and |
| ● | reviewing
the Company’s practices and policies of employee remuneration as they relate to
risk management and risk-taking incentives. |
The
Committee is formally constituted and operates pursuant to a written charter, which is available on Centessa’s website,
https://investors.centessa.com.
29
The
information provided in this part of the Directors’ Remuneration Report is subject to audit:
Single
total figure of remuneration of each Director (Audited)
The
Company was incorporated in October 2020 but did not have any employees or make any payments to directors until 2021. Dr. Saha,
Executive Director and Chief Executive Officer, did not receive any compensation for his service as a director. The total remuneration
of the individual Directors who served during the 12-month period ending 31 December 2022 is shown below, along with the comparative
12 months ended 31 December 2021.
| |
Period | |
Base
Salary and fees earned | |
Pension
(i) | |
Total
Fixed | |
One-time
Bonus (ii) | |
Annual
Bonus (iii) | |
Long-Term
Incentive Plan (iv) | |
Total
variable | |
Total | |
| |
| |
US
$ | |
US
$ | |
US
$ | |
US
$ | |
US
$ | |
US
$ | |
US
$ | |
US
$ | |
Saurabh Saha MD, PhD | |
2022 | |
| 621,000 | |
| 12,200 | |
| 633,200 | |
| — | |
| 324,472 | |
| — | |
| 324,472 | |
| 957,672 | |
| |
2021 | |
| 572,581 | |
| — | |
| 572,581 | |
| 100,000 | |
| 314,630 | |
| | |
| 414,630 | |
| 987,211 | |
Francesco De Rubertis, PhD (v) | |
2022 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| |
2021 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Arjun Goyal, MD, MPhil, MBA | |
2022 | |
| 57,500 | |
| — | |
| 57,500 | |
| — | |
| — | |
| — | |
| — | |
| 57,500 | |
| |
2021 | |
| 35,227 | |
| — | |
| 35,227 | |
| — | |
| — | |
| — | |
| — | |
| 35,227 | |
Aaron Kantoff (vi) | |
2022 | |
| 26,250 | |
| — | |
| 26,250 | |
| — | |
| — | |
| — | |
| — | |
| 26,250 | |
| |
2021 | |
| 32,163 | |
| — | |
| 32,163 | |
| — | |
| — | |
| — | |
| — | |
| 32,163 | |
Brett Zbar, MD | |
2022 | |
| 55,000 | |
| — | |
| 55,000 | |
| — | |
| — | |
| — | |
| — | |
| 55,000 | |
| |
2021 | |
| 33,695 | |
| — | |
| 33,695 | |
| — | |
| — | |
| — | |
| — | |
| 33,695 | |
Mary Lynne Hedley PhD | |
2022 | |
| 50,000 | |
| — | |
| 50,000 | |
| — | |
| — | |
| — | |
| — | |
| 50,000 | |
| |
2021 | |
| 46,267 | |
| — | |
| 46,267 | |
| — | |
| — | |
| — | |
| — | |
| 46,267 | |
Samarth Kulkarni PhD | |
2022 | |
| 52,500 | |
| — | |
| 52,500 | |
| — | |
| — | |
| — | |
| — | |
| 52,500 | |
| |
2021 | |
| 46,703 | |
| — | |
| 46,703 | |
| — | |
| — | |
| — | |
| — | |
| 46,703 | |
Carol Stuckley MBA | |
2022 | |
| 60,000 | |
| — | |
| 60,000 | |
| — | |
| — | |
| — | |
| — | |
| 60,000 | |
| |
2021 | |
| 37,720 | |
| — | |
| 37,720 | |
| — | |
| — | |
| — | |
| — | |
| 37,720 | |
Robert Califf MD (vii) | |
2022 | |
| 5,875 | |
| — | |
| 5,875 | |
| — | |
| — | |
| — | |
| — | |
| 5,875 | |
| |
2021 | |
| 43,889 | |
| — | |
| 43,889 | |
| — | |
| — | |
| — | |
| — | |
| 43,889 | |
Mathias Hukkelhoven PhD (viii) | |
2022 | |
| 22,500 | |
| — | |
| 22,500 | |
| — | |
| — | |
| — | |
| — | |
| 22,500 | |
| |
2021 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (i) | The
Company offers a defined contribution retirement plan with an employer matching contribution in which Dr. Saha is entitled to
participate. He did not participate in 2021 but received employer 401k match contribution of $12,200 in 2022. |
| (ii) | Dr.
Saha was paid a one-time sign-on bonus in 2021. |
| (iii) | The
amount reported represents a discretionary bonus earned by Dr. Saha for the fiscal period
ended 31 December 2022 of 95% of target based upon his achievement of goals as determined
by the Compensation Committee. |
| (iv) | All
annual equity awards are market value stock options and the exercise price was set at
the share price at the date of grant and therefore the cash equivalent value for these
options are nil. Vesting of these stock options is linked to continued employment or
service at the time and awards are not subject to performance conditions. |
| (v) | Dr.
Rubertis waived his director compensation and entitlement to receive equity awards in
2022. |
| (vi) | Mr.
Kantoff resigned as a director on 1 July 2022. |
| (vii) | Dr.
Califf resigned as a director on 16 February 2022, as a result of his confirmation as
the incoming Commissioner of the U.S. Food and Drug Administration. |
| (viii) | Dr.
Hukkelhoven was appointed as a director on 1 July 2022. |
30
Long-term
incentive awards (Audited)
During
2022, the Executive Director and Non-Executive Directors were awarded options to subscribe for the ordinary shares under the Company’s
2021 Plan (“Options”). Options granted to the Executive Director and Non-Executive Directors have an exercise
price equal to the market price on the date of grant and are subject to service conditions. There are no performance conditions
associated with regards to the Options. In addition, during 2022, the Executive Director was awarded Restricted Stock Units (“RSUs”)
as part of a one-off retention grant. Details of the Options and RSUs are noted in the table below:
Individual | |
Period | | |
Award
Date | | |
Exercise
price($) | | |
Granted
during the period | | |
Face
value at Date of Grant | | |
Vesting
End Date | | |
Expiry
Date | |
Saurabh Saha MD, PhD (i) | |
| 2022 | (a) | |
| 1/2/2022 | | |
$ | 9.53 | | |
| 750,000 | | |
$ | 7,147,500 | | |
| 1/2/2026 | | |
| 1/2/2032 | |
| |
| 2022 | (b) | |
| 1/7/2022 | | |
| N/A | | |
| 750,000 | | |
$ | 3,877,500 | | |
| 31/12/2024 | | |
| N/A | |
| |
| 2021 | | |
| 19/2/2021 | | |
$ | 5.84 | | |
| 4,169,485 | | |
$ | 24,349,792 | | |
| 1/1/2025 | | |
| 19/2/2031 | |
Francesco De Rubertis, PhD (ii) | |
| 2022 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| 2021 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Arjun Goyal, MD, MPhil, MBA (iii) | |
| 2022 | | |
| 30/6/2022 | | |
$ | 4.87 | | |
| 48,000 | | |
$ | 233,760 | | |
| 30/6/2023 | | |
| 30/6/2032 | |
| |
| 2021 | | |
| 1/7/2021 | | |
$ | 22.55 | | |
| 64,570 | | |
$ | 1,456,054 | | |
| 1/7/2024 | | |
| 1/7/2031 | |
Aaron Kantoff (iv) | |
| 2022 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| 2021 | | |
| 19/2/2021 | | |
$ | 5.84 | | |
| 250,000 | | |
$ | 1,460,000 | | |
| 1/2/2025 | | |
| 19/2/2031 | |
Brett Zbar, MD (iii) | |
| 2022 | | |
| 30/6/2022 | | |
$ | 4.87 | | |
| 48,000 | | |
$ | 233,760 | | |
| 30/6/2023 | | |
| 30/6/2032 | |
| |
| 2021 | | |
| 1/7/2021 | | |
$ | 22.55 | | |
| 64,570 | | |
$ | 1,456,054 | | |
| 1/7/2024 | | |
| 1/7/2031 | |
Mary Lynne Hedley, PhD(v) | |
| 2022 | | |
| 30/6/2022 | | |
$ | 4.87 | | |
| 48,000 | | |
$ | 233,760 | | |
| 30/6/2023 | | |
| 30/6/2032 | |
| |
| 2021 | | |
| 19/2/2021 | | |
$ | 5.84 | | |
| 208,474 | | |
$ | 1,217,488 | | |
| 1/2/2025 | | |
| 19/2/2031 | |
Samarth Kulkarni, PhD (v) | |
| 2022 | | |
| 30/6/2022 | | |
$ | 4.87 | | |
| 48,000 | | |
$ | 233,760 | | |
| 30/6/2023 | | |
| 30/6/2032 | |
| |
| 2021 | | |
| 19/2/2021 | | |
$ | 5.84 | | |
| 208,474 | | |
$ | 1,217,488 | | |
| 1/2/2025 | | |
| 19/2/2031 | |
Robert Califf, MD (vi) | |
| 2022 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| 2021 | | |
| 19/2/2021 | | |
$ | 5.84 | | |
| 208,474 | | |
$ | 1,217,488 | | |
| 1/2/2025 | | |
| 19/2/2031 | |
Carol Stuckley, MBA (v) | |
| 2022 | | |
| 30/6/2022 | | |
$ | 4.87 | | |
| 48,000 | | |
$ | 233,760 | | |
| 30/6/2023 | | |
| 30/6/2032 | |
| |
| 2021 | | |
| 7/5/2021 | | |
$ | 9.42 | | |
| 208,474 | | |
$ | 1,963,825 | | |
| 1/5/2025 | | |
| 7/5/2031 | |
Mathias Hukkelhoven, PhD (vii) | |
| 2022 | | |
| 1/7/2022 | | |
$ | 5.17 | | |
| 96,000 | | |
$ | 496,320 | | |
| 1/7/2025 | | |
| 1/7/2032 | |
| |
| 2021 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
The
Options vest as follows:
| (i) | In
2022, Dr. Saha was awarded (a) 750,000 options as part of the Company’s annual
grant cycle to employees, and (b) 750,000 restricted stock units (RSUs) as a one-off
retention grant. Options awarded to Dr. Saha in 2022 vest in 48 equal monthly installments;
RSUs awarded to Dr. Saha in 2022 vest one fifth on the six-month anniversary of the grant
date and the remainder in eight equal quarterly installments. Options granted to Dr.
Saha in 2021 vest 25% on the one-year anniversary of his employment starting date and
the remaining 75% vest in 36 equal monthly installments thereafter, in each case subject
to his continued service through the applicable vesting date. In addition, the shares
underlying these options are subject to the potential acceleration provisions upon certain
change of control events. |
| (ii) | Dr.
De Rubertis waived his entitlement to equity awards in 2021 and 2022. |
| (iii) | Options
awarded to Dr. Zbar and Dr Goyal in 2022 vest in 12 equal monthly installments from the
grant date; options awarded in 2021 vest in 36 equal monthly installments from the grant
date, in each case subject to the respective directors’ continued service through
the applicable vesting date. In addition, the shares underlying these options are subject
to the potential acceleration provisions upon certain change of control events. |
| (iv) | Options
awarded to Mr. Kantoff in 2021 vest 50% at grant date, 12.5% on the one-year anniversary
of the grant date, and 37.5% in 36 equal monthly instalments thereafter, in each case
subject to his continued service through the applicable vesting date. No options were
granted to Mr. Kantoff in 2022. Following Mr. Kantoff’s resignation on 1 July 2022,
the Company retained Mr. Kantoff as an advisor. The Compensation Committee agreed for
the existing options granted to Mr. Kantoff to continue to vest as sole remuneration
for his consulting services. In the event Mr. Kantoff ceases to provide consulting services
or such services are terminated by the Company, all unvested equity grants would lapse. |
| (v) | Options
awarded to Dr. Hedley, Dr. Kulkarni and Ms. Stuckley in 2022 vest in 12 equal monthly
installments from the grant date; Dr. Hedley, Dr. Kulkarni and Ms. Stuckley vest 25%
on the one-year anniversary of the grant date, and the remaining 75% vest in 36 equal
monthly installments thereafter, in each case subject to the respective directors’
continued service through the applicable vesting date. In addition, the shares underlying
these options are subject to the potential acceleration provisions upon certain change
of control events. |
31
| (vi) | Options
awarded to Dr. Califf in 2021 vest 25% on the one-year anniversary of the grant date,
and the remaining 75% in 36 equal monthly instalments thereafter, in each case subject
to his continued service through the applicable vesting date. No options were awarded
to Dr. Califf in 2022. On the date of Dr. Califf’s resignation, 52,118 options
had been accelerated and were exercised by Dr. Califf. 156,356 options were unvested
and lapsed on the date of resignation. |
| (vii) | Dr.
Hukkelhoven joined the Board on 1 July 2022 and was awarded options at the time of joining
in accordance with the Company’s [equity incentive plan]. |
Directors’
Shareholding and Share Interests (Audited)
The
share interests of each Director at 31 December 2022 (together with interests held by his or her connected persons) are set out
in the table below. There is no requirement for any director to hold shares.
As
a direct link between executive remuneration and the interests of shareholders, the Committee has implemented shareholding guidelines
for Executive Directors in 2022. The guidelines require that Executive Directors build up and maintain an interest in the ordinary
shares of the Company that is 200% of their salary within five years from the later of the introduction of the guidelines or appointment.
|
|
|
|
|
|
Share
Options |
| |
Beneficially
owned shares at 31
December 2022 | | |
Total
share options at 31
December 2022 | | |
Unvested
without performance conditions | | |
Vested
but unexercised | |
Saurabh Saha, MD, PhD (i) | |
| 143,975 | | |
| 4,919,485 | | |
| 2,765,356 | | |
| 2,154,129 | |
Francesco De Rubertis, PhD | |
| — | | |
| — | | |
| — | | |
| — | |
Arjun Goyal, MD, MPhil, MBA (ii) | |
| 3,931,818 | | |
| 112,570 | | |
| 82,072 | | |
| 30,498 | |
Brett Zbar, MD | |
| — | | |
| 112,570 | | |
| 82,072 | | |
| 30,498 | |
Mary Lynne Hedley, PhD | |
| — | | |
| 256,474 | | |
| 160,918 | | |
| 95,556 | |
Samarth Kulkarni, PhD | |
| — | | |
| 256,474 | | |
| 160,918 | | |
| 95,556 | |
Carol Stuckley, MBA | |
| — | | |
| 256,474 | | |
| 173,948 | | |
| 82,526 | |
Mathias Hukkelhoven, PhD Aaron Kantoff (resigned 1 July, 2022) Dr Robert Mckinnon Califf (resigned 16 February, 2022) | |
| — | | |
| 96,000 | | |
| 82,667 | | |
| 13,333 | |
| (i) | Beneficially
owned shares consists of (i) 105,975 ordinary shares held by Dr. Saha, (ii) 38,000 ordinary
shares held by a trust, for which Dr. Saha and his spouse serve as trustees, |
| (ii) | Beneficially
owned shares consists of (i) 3,825,659 ordinary shares held by Vida Ventures II, LLC
(“Vida II Main Fund”), (ii) 106,159 ordinary shares held by Vida Ventures
II-A, LLC (“Vida II Parallel Fund”, and together with the Vida II Main Fund,
“Vida II”). VV Manager II, LLC (“VV Manager II”) is the manager
of Vida II. Arie Belldegrun, Fred Cohen, and Leonard Potter are the members of the management
committee of VV Manager II (the “Management Committee”) and Arie Belldegrun,
Fred Cohen, Stefan Vitorovic, Arjun Goyal, Helen Kim, Rajul Jain, and Joshua Kazam are
the members of the investment committee of VV Manager II (the “Investment Committee”).
Each of the Management Committee, the Investment Committee and the respective members
thereof may be deemed to share voting and dispositive power over the shares held by Vida
II. VV Manager II, the Management Committee, the Investment Committee and each member
of each of the Management Committee and Investment Committee disclaims beneficial ownership
over the securities held of record by Vida II. The address of all entities affiliated
with Vida is 40 Broad Street, Suite 201, Boston, MA 02109. |
External
Directorships
The
Board believes that it may be beneficial to the Company for Executive Directors to hold certain roles outside the Company, provided
that the Company’s business takes priority. Any such appointments are subject to the prior written consent of the Board
and the director may retain any fees received. In April 2022, Dr. Saha was appointed a director of Scorpion Therapeutics, Inc.
32
Payments
to past directors (Audited)
There
were no payments made to past Directors during the period ending 31 December 2022. However, Aaron Kantoff was retained as an advisor
by the Company following his resignation on 1 July, 2022. No cash compensation is paid to Mr. Kantoff in respect of his services
as an advisor but Mr. Kantoff is entitled to have options granted to him in his capacity as a Director in 2021 continue to vest
during the service period. In the event Mr. Kantoff ceases to be an advisor to the Company or his service agreement is terminated
by the Company, vesting will cease and on such date, unvested options shall lapse.
Payments
for loss of office (Audited)
There
were no payments made to Directors for Loss of Office during the period ended 31 December 2022.
Total
Shareholder Return
The
graph below shows the Company’s performance, measured by total shareholder return, for the Company’s American Depositary
Shares (“ADSs”), which are listed on Nasdaq and each representing one of the Company’s ordinary shares
against the Nasdaq Composite Index (Nasdaq: CMPS vs NBI). The Nasdaq Biotech Index has been selected for this comparison because
the Company has been admitted to trading on the Nasdaq exchange and it is considered to be the most suitable comparator index.
The total cumulative stockholder return on the ADSs below includes data from 1 January 2022, through 31 December 2022, assuming
an initial investment of $100 on 31 December 2021.
Chief
Executive Officer (‘CEO’) remuneration
The
CEO’s total cash compensation for the period ended 31 December 2022 was $957,672. The CEO’s total non-cash compensation
was $8,654,558 comprising grant of $4,777,058 options and $3,877,500 of restricted stock units. The CEO’s total combined
cash and non-cash compensation was $9,612,230.
Annual
percentage change in remuneration of directors and employees
The
Committee and the Board considered the average increases being awarded to employees below the level of Executive Management in
the UK and US. After due consideration of performance, it was agreed that it was appropriate to award increases in line with the
wider workforce to the CEO (Executive Director) to ensure the competitiveness of his remuneration could be maintained. There was
no change to the remuneration of the Non-Executive Directors.
Base
Salary |
|
2022 |
|
%
Change |
Wider
workforce(i)
CEO |
|
—
— |
|
5%
3.5% |
(i)
Based on the average increase budget for employees below the level of Executive Management in the UK and the US.
Annual
Bonus
No
changes were made to the annual bonus target percentage. An award of 95% of the target was granted to the CEO and the wider workforce(i).
33
(i)
Based on the average award across wider workforce.
Benefits
No
changes.
Relative
Importance of Spend on Pay
The
Committee considers the Company’s research and development expenditure relative to salary expenditure for all employees
to be the most appropriate metric for assessing overall spend on pay due to the nature and stage of the Company’s business.
The Company does not have a history of making any dividend distributions and does not intend to make any distributions in the
near future. The graph below illustrates the total salary payable to all employees in comparison to research and development expenditures
(excluding the IPR&D charge related to the acquisition) for the period 1 January 2022 through 31 December 2022 compared to
the prior year.
Amounts
in USD
Statement
of shareholder votes on remuneration matters: 2022 AGM
Matter |
Total
Votes Cast (millions) |
Votes
in favour (%) |
|
Votes
against (%) |
|
Votes
withheld (%) |
Remuneration
report
Remuneration
policy |
64,231,455
64,231,455 |
63,872,064
(99.4%)
63,858,376
(99.4%) |
|
47,806
(0.1%)
61,775
(0.1%) |
|
311,585
(0.5%)
311,304
(0.5%) |
Statement
of implementation of remuneration policy in 2023
There
have been no significant changes in the way that the remuneration policy will be implemented in the 2023 financial year compared
to how it was implemented in the 2022 financial year. There have been no deviations from the procedure for the implementation
of the remuneration policy set out in that policy.
Executive
Director Remuneration Annual base salary and benefits
The
percentage salary increase for the CEO effective as of 1 January 2023 was within the range of salary increase provided to Company
employees on the whole for 2023 of 5%. Dr. Saha’s base salary for 2023 is $652,050. Dr. Saha is eligible for the same benefits
(such as private health insurance and retirement plan contribution) as provided to all employees in the jurisdiction in which
he resides. Matching pension contributions for 2022 are up to 4% of compensation, subject to tax limitations.
Bonus
Dr.
Saha will be entitled to a target bonus of 55% of base salary in 2023. The bonus will be paid in cash and is subject to the achievement
of a number of operational and strategic objectives determined by the Committee and recommended to the Board. Company specific
targets are commercially sensitive and therefore are not disclosed in advance. However, full details of the targets and performance
against them will be disclosed when they are no longer considered commercially sensitive.
34
Long-term
Incentive Plan
In
February 2023, the CEO was granted 315,000 share options in the Company at a strike price of $3.85 per share, based on the NASDAQ
closing price on the grant date and 211,400 restricted stock units (“2023 RSU Grant”). The share options will expire
10 years from the date of grant. The share options vest monthly over a 4-year period beginning 1 March 2023 and contain no performance
conditions. The 2023 RSU Grant vest in four equal annual installments beginning 1 February 2024 and contain no performance conditions.
Non-Executive
Director Remuneration
Fees
Each
director who is not an employee will be paid cash compensation, as set forth below:
| |
Annual Retainer | |
Board of Directors: | |
| | |
Members | |
$ | 40,000 | |
Additional retainer for non-executive chair | |
$ | 30,000 | |
Audit Committee: | |
| | |
Members (other than chair) | |
$ | 10,000 | |
Retainer for chair | |
$ | 20,000 | |
Compensation Committee: | |
| | |
Members (other than chair) | |
$ | 7,500 | |
Retainer for chair | |
$ | 15,000 | |
Nominating and Corporate Governance Committee: | |
| | |
Members (other than chair) | |
$ | 5,000 | |
Retainer for chair | |
$ | 10,000 | |
Long-term
Incentive
The
Committee will review and make recommendations to the Board as to the actual equity grant award levels for non-executive Directors
each year taking into account any factors it deems relevant including, but not limited to, the responsibilities of the role and
expected time commitment as well as appropriate market data and peer group comparisons.
For
2023, the Committee recommended to the Board, and the Board has established that upon initial election to our Board, each non-employee
director will be granted an option to purchase up to 96,000 ordinary shares, or the Initial Grant. The Initial Grant will vest
in 36 equal monthly installments over three years from the grant date, subject to continued service as a director through the
applicable vesting date.
Furthermore,
at the upcoming annual meeting of shareholders on 22 June 2023, each non-employee director who continues as a non-employee director
following such meeting will be granted an option to purchase up to 48,000 ordinary shares, or the Annual Grant. The Annual Grant
will vest in full on the earlier of (i) the first anniversary of the grant date or (ii) our next annual meeting of shareholders,
subject to continued service as a director through the applicable vesting date.
The
grant date fair value of all equity awards and all other cash compensation paid by the Company to any non-employee director in
any calendar year for services as a non-employee director shall not exceed $1,000,000.
We
will reimburse all reasonable out-of-pocket expenses incurred by non-employee directors in attending meetings of the board of
directors and committees thereof.
35
STATEMENT
OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS
The
directors are responsible for preparing the Annual Report and the financial statements of the Group and Parent Company in accordance
with applicable law and regulations.
Company
law requires the directors to prepare Group and Parent Company financial statements for each financial year. Under that law they
have elected to prepare the Group financial statements in accordance with US GAAP and applicable law and the Parent Company financial
statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising
FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, and applicable law).
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 Parent Company and of the Group’s profit or loss for that period. In preparing
each of the Group and Parent Company financial statements, the directors are required to:
| ● | select
suitable accounting policies and then apply them consistently; |
| ● | make
judgements and estimates that are reasonable, relevant and reliable and in respect of the Parent Company financial statements
only, prudent; |
| ● | state
whether applicable accounting principles generally accepted in the United States of America (US GAAP) have been followed for the
Group financial statements and, United Kingdom Accounting Standards, comprising FRS 102, have been followed for the Parent Company
financial statements, subject to any material departures disclosed and explained in the financial statements; |
| ● | assess
the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern; and |
| ● | use
the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations,
or have no realistic alternative but to do so. |
The
directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to
ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due
to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets
of the Group and to prevent and detect fraud and other irregularities.
Under
applicable law and regulations, the directors are also responsible for preparing a Strategic Report, a Directors’ Report
and a Directors’ Remuneration Report that complies with that law and those regulations.
The
directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation
in other jurisdictions.
36
INDEPENDENT
AUDITOR’S REPORT TO THE MEMBERS OF CENTESSA PHARMACEUTICALS PLC
1
Our opinion is unmodified
We
have audited the financial statements of Centessa Pharmaceuticals Plc (‘the Company’ or ‘the Parent Company’)
for the year ended 31 December 2022 which comprise the Consolidated Balance Sheets, Consolidated and Combined Statement of Operations
and Comprehensive Loss, Consolidated Statement of Shareholders’ Equity, Combined Statements of Convertible Preferred Shares
and Combined Deficit, Consolidated and Combined Statements of Cash Flows, and the related notes included on Form 10-K including
the accounting policies in note 2. In addition, the financial statements include the Parent Company Balance Sheet, and Statement
of Changes in Equity and the related notes, including the accounting policies in note 2 and the notes on pages 45 to 54.
In
our opinion:
| ● | the
financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as
at 31 December 2022 and of the Group’s loss for the year then ended; |
| ● | the
Group financial statements have been properly prepared in accordance with accounting principles generally accepted in the United
States of America (“U.S. GAAP”); |
| ● | the
Parent Company financial statements have been properly prepared in accordance with UK accounting standards, including FRS 102
The Financial Reporting Standard applicable in the UK and Republic of Ireland; and |
| ● | the
financial statements have been prepared in accordance with the requirements of the Companies Act 2006. |
Basis
for opinion
We
conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Group
in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed entities. We believe that
the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.
Overview | |
| |
Materiality | Group
Financial statements as a whole: $2,400k, 1.12% of total expenses |
| |
| (2021: $3,810k, 1% of total expenses) |
| |
| Parent Company’s Financial
statement as a whole: $1,900k, 0.50% of total asset |
| |
| (2021:
$757k, 2.7% of total expenses) |
Coverage | 85%
(2021: 92%) of Group total expenses |
|
| |
|
Key audit matters: | vs
2021 |
|
| |
|
New risk | Debt
– Note Purchase Agreement |
◄► |
| |
|
Recurring
risk | Recoverability
of Parent Company’s investment in subsidiaries |
◄► |
37
2
Key audit matters: our assessment of risks of material misstatement
Key
audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements
and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including
those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the
efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In arriving at our audit opinion
above, the key audit matters, in decreasing order of audit significance, were as follows:
|
|
The
risk |
|
Our
Response |
Debt – Note Purchase Agreement
Long-term debt: 2022 – $69.8 m
(2021 - $75.7 m) |
|
Subjective
valuation
In
2021, the Parent Company entered into a note purchase agreement that provides a six- year senior secured facility and
issued a gross $75
million in notes. These notes are carried at a fair value.
|
|
Our
procedures included:
We
performed the tests below rather than seeking to rely on any of the Group’s controls because the nature of the balance is
such that we would expect to obtain audit
evidence primarily through the detailed procedures described. |
|
|
|
|
|
Refer
to page
150
of attached
10-K
(note 6)
|
|
Determining
the fair value of these notes involves estimation uncertainty associated with the assumptions including yield and the
probabilities of scenarios crystallising regarding early redemption.
The
determination of fair value of these notes is not at a high risk of significant misstatement or subject to significant
judgement. However, due to the materiality of this item in the context of the Group financial statements and due to the
involvement of our specialists in arriving at its fair value, we considered this to be the area which was the key focus
of the overall Group audit in the current year.
|
|
KPMG
valuation expertise:
Assisted
by KPMG valuation specialists we critically assessed the appropriateness of the valuation method and developed an independent
expectation in order to evaluate key assumptions including yield used in our consideration of the fair value of this long-term
debt.
Test
of detail:
We
performed audit procedures evaluating the key drivers for highest likelihood repayment scenarios over various redemption
probability assumptions developed by the directors and compared those to the probabilities set in previous year and applicable
terms contained in the note purchase agreement.
Sensitivity
analysis:
We
also performed sensitivity analysis over the probability of scenarios crystallising regarding early redemption and evaluated the
results of how they impact the fair values.
|
Recoverability
of Parent Company’s investment in subsidiaries
Gross
investment in subsidiaries: 2022 - $655.8 m
(2021 - $405.0 m)
Impairment
charge: 2022 - $564.3 m
(2021- Nil)
Refer
to page 52 of attached Parent Company financial statements (note 5) |
|
Low
risk, high value
The
carrying amount (net of impairments) of the Parent Company’s investment in subsidiaries represents 24% (2021 –
42%) of the Parent Company’s total assets.
Its
recoverability is not at a high risk of significant misstatements or subject to significant judgement. However, due to
its materiality in the context of the Parent Company financial statements, this is a key area that has an effect on our
overall Parent Company audit.
|
|
Our
procedures included:
We
performed the tests below rather than seeking to rely on any of the Parent Company’s controls because the nature
of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described.
Test
of detail:
We
compared the aggregate of the net carrying amount (after impairments) of the investments to the recoverable amount (Market capitalisation
adjusted with the net of outstanding debt/ Cash and cash equivalents) as at 31 December 2022, which is an approximation of the
minimum recoverable amount of the aggregation of the investment, to assess whether it was in excess of the aggregate carrying
amount. |
In
our audit report last year we included the Acquisition of Centessa subsidiaries – fair value of Centessa ordinary shares
issued as a key audit matter. This was a specific risk that related solely to that financial year. Hence, this has not been identified
as a key audit matter in the current year
38
| 3 | Our
application of materiality and an overview of the scope of our audit |
Materiality
for the Group financial statements as a whole was set at $2,400k (2021: $3,810k, determined with reference to a benchmark of total
expenses of $215 million (2021: $381 million) of which it represents 1.12% (2021: 1%). The benchmark used is consistent with that
used in the prior year.
Materiality
for the Parent Company financial statements as a whole was set at $1,900k, determined with reference to a benchmark of total assets
of $382 million, limited to be less than materiality for Group materiality as a whole. It represents 0.50% of the stated benchmark.
In the prior year materiality for the Parent Company financial statements as a whole was set at $757k using a benchmark of total
expenses of $28m of which it represented 2.7%. We selected total assets as the benchmark in the current year because of the significant
decrease in expenses resulting from less research and development activity and the principal activity of the business now just
being a Parent Company.
In
line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold,
performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual
account balances add up to a material amount across the financial statements as a whole.
Performance
materiality was set at 75% (2021: 75%) of materiality for the financial statements as a whole, which equates to $1,800k (2021:
$2,858k) for the Group and $1,425k (2021: $567k) for the Parent Company. We applied this percentage in our determination of performance
materiality by considering a number of factors and concluded the aggregation risk was low and therefore a higher percentage was
more appropriate.
We
agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding $120k (2021: $190k) for
the Group and $95k (2021: $38k) for the Parent Company, in addition to other identified misstatements that warranted reporting
on qualitative grounds.
Of
the Group’s 11 reporting components, we subjected 4 (2021:4) to full scope audits for Group purposes and 2 (2021:6) to specified
risk-focused audit procedures. The Group team instructed the component auditor as to the significant areas to be covered, including
the relevant risks detailed above and the information to be reported back. The Group team approved the components’ materiality
levels, which ranged from $1.1 million to $1.9 million (2021: $1.3 million to $3.2 million), having regard to the mix of size
and risk profile of the Group across the components. The Group team held virtual meetings with the component auditor on multiple
occasions. At these meetings, the findings reported to the Group team were discussed in more detail, and any further work required
by the Group team was then performed by the component auditor. Our audit of the Parent Company was undertaken to the materiality
level specified above and was performed by the Group audit team.
The
scope of the audit was fully substantive as we did not rely upon the Group’s internal controls over financial reporting.
The
directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group or the
Parent Company or to cease their operations, and as they have concluded that the Group’s and the Parent Company’s
financial position means that this is realistic. They have also concluded that there are no material uncertainties that could
have cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of
the financial statements (“the going concern period”).
We
used our knowledge of the Group and the Parent Company, its industry, and the general economic environment to identify the inherent
risks to its business model and analysed how those risks might affect the Group’s and Parent Company’s financial resources
or ability to continue operations over the going concern period. The risks that we considered most likely to adversely affect
the Group’s available; financial resources over this period were:
| ● | Underperformance
against plan and |
| ● | Progress
and alignment of various clinical trial. |
We
considered whether these risks could plausibly affect the liquidity in the going concern period by comparing severe but plausible
downside scenarios that could arise from these risks individually and collectively against the level of available financial resources
indicated by the Group’s financial forecasts.
We
considered whether the going concern disclosure in note 2.3 to the financial statements gives a full and accurate description
of the directors’ assessment of going concern, including the identified risk and related sensitivities.
Our
conclusions based on this work:
| ● | we
consider that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate; |
| ● | we
have not identified, and concur with the directors’ assessment that there is not,
a material uncertainty related to events or conditions that, individually or collectively,
may cast significant doubt on the Group’s or Parent Company’s ability to continue
as a going concern for the going concern period; and |
| ● | we
found the going concern disclosure in note 2.3 to be acceptable |
39
However,
as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with
judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Group or the Parent
Company will continue in operation.
| 5 | Fraud
and breaches of laws and regulations – ability to detect |
Identifying
and responding to risks of material misstatement due to fraud
To
identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate
an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included:
| ● | Enquiring
of directors, the audit committee, and inspection of policy documentation as to the Group’s
high-level policies and procedures to prevent and detect fraud as well as whether they
have knowledge of any actual, suspected or alleged fraud. |
| ● | Reading
Board of Directors, Audit Committee and remuneration committee meeting minutes. |
| ● | Considering
remuneration incentive schemes and performance targets of management personnel and directors. |
| ● | Using
analytical procedures to identify any unusual or unexpected relationships. |
We
communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit.
As
required by auditing standards and taking into account our overall knowledge of the control environment, we perform procedures
to address the risk of management override of controls, in particular the risk that Group management may be in a position to make
inappropriate accounting entries and the risk of bias in accounting estimates and judgements such as those used in determination
of discount rate. On this audit we do not believe there is a fraud risk related to revenue recognition because the Group is in
the pre-commercialisation stage and no revenues are earned from trading.
We
did not identify any additional fraud risks.
In
determining the audit procedures, we took into account the results of our evaluation and testing of the operating effectiveness
of some of the Group-wide fraud risk management controls.
We
also performed procedures including:
| ● | Identifying
journal entries to test for all in-scope components based on risk criteria and comparing
the identified entries to supporting documentation. These included entries posted to
certain account or pairings or non-related accounts. |
| ● | Evaluated
the business purpose of significant unusual transactions. |
| ● | Assessing
whether the judgements made in making accounting estimates are indicative of a potential
bias. |
Identifying
and responding to risks of material misstatement related to compliance with laws and regulations
We
identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements
from our general commercial and sector experience, through discussion with the directors and other management (as required by
auditing standards), and from inspection of the Group’s regulatory and legal correspondence and discussed with the policies
and procedures regarding compliance with laws and regulations.
We
communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout
the audit.
The
potential effect of these laws and regulations on the financial statements varies considerably.
Firstly,
the Group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation
(including related companies’ legislation), distributable profits legislation, and taxation legislation, and we assessed
the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
Secondly,
the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect
on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation or the loss
of the Group’s license to operate.
We
identified the following areas as those most likely to have such an effect: health and safety, anti-bribery, employment law,
human medicines regulations and clinical trial legislation recognising the financial and regulated nature of the Group’s
activities and its legal form. Auditing standards limit the required audit procedures to identify non-compliance with these laws
and regulations to enquiry of the directors and other management and inspection of regulatory and legal correspondence, if any.
Therefore, if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will
not detect that breach.
40
Context
of the ability of the audit to detect fraud or breaches of law or regulation
Owing
to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements
in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards.
For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the
financial statements, the less likely the inherently limited procedures required by auditing standards would identify it.
In
addition, as with any audit, there remained a higher risk of non-detection of fraud, as these may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material
misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with
all laws and regulations.
| 6 | We
have nothing to report on the other information in the Annual Report |
The
directors are responsible for the other information presented in the Annual Report together with the financial statements. Our
opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion
or, except as explicitly stated below, any form of assurance conclusion thereon.
Our
responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work,
the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely
on that work we have not identified material misstatements in the other information.
Strategic
report and directors’ report
Based
solely on our work on the other information:
| ● | we
have not identified material misstatements in the strategic report and the directors’
report; |
| ● | in
our opinion the information given in those reports for the financial year is consistent
with the financial statements; and |
| ● | in
our opinion those reports have been prepared in accordance with the Companies Act 2006. |
Directors’
remuneration report
In
our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
| 7 | We
have nothing to report on the other matters on which we are required to report by exception |
Under
the Companies Act 2006, we are required to report to you if, in our opinion:
| ● | adequate
accounting records have not been kept by the Parent Company, or returns adequate for
our audit have not been received from branches not visited by us; or |
| ● | the
Parent Company financial statements and the part of the Directors’ Remuneration
Report to be audited are not in agreement with the accounting records and returns; or |
| ● | certain
disclosures of directors’ remuneration specified by law are not made; or |
| ● | we
have not received all the information and explanations we require for our audit. We have
nothing to report in these respects. |
41
8
Respective responsibilities
Directors’ responsibilities
As
explained more fully in their statement set out on page 36, the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing
the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company
or to cease operations, or have no realistic alternative but to do so.
Auditor’s
responsibilities
Our
objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of
assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
A
fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
| 9 | The
purpose of our audit work and to whom we owe our responsibilities |
This
report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for
this report, or for the opinions we have formed.
Shirley
Rogan (Senior Statutory Auditor)
for
and on behalf of KPMG LLP, Statutory Auditor
Chartered
Accountants
2
Forbury Place,
33
Forbury Road
Reading
United
Kingdom
RG1
3AD
Date
: 22 May 2023
42
CENTESSA
PHARMACEUTICALS
PLC REGISTERED NUMBER:
12973576
PARENT
COMPANY BALANCE
SHEET AS AT 31 DECEMBER 2022
| |
Note | |
| |
2022 $’000 |
| |
| |
2021 $’000 |
|
Fixed assets | |
| |
| | |
| | |
| | |
| |
Tangible assets | |
4 | |
| | |
1 | | |
| | |
2 | |
Investments | |
5 | |
| | |
91,463 | | |
| | |
405,021 | |
Total fixed assets | |
| |
| | |
91,464 | | |
| | |
405,023 | |
| |
| |
| | |
| | |
| | |
| |
Current assets | |
| |
| | |
| | |
| | |
| |
| |
| |
| | |
| | |
| | |
| |
Other current assets | |
6 | |
18,356 | | |
| | |
19,524 | | |
| |
Cash at bank and in hand | |
| |
272,352 | | |
| | |
539,937 | | |
| |
Gross current assets | |
| |
290,708 | | |
| | |
559,461 | | |
| |
Creditors: amounts falling due within one year | |
7 | |
(1,511 | ) | |
| | |
(2,371 | ) | |
| |
Net current assets | |
| |
| | |
289,197 | | |
| | |
557,090 | |
Total assets less current liabilities | |
| |
| | |
380,661 | | |
| | |
962,113 | |
Creditors: amounts falling due after more than one year | |
8 | |
| | |
(69,800 | ) | |
| | |
(113,399 | ) |
Net assets | |
| |
| | |
310,861 | | |
| | |
848,714 | |
| |
| |
| | |
| | |
| | |
| |
Capital and reserves | |
| |
| | |
| | |
| | |
| |
Called up share capital | |
9 | |
| | |
265 | | |
| | |
254 | |
Share premium | |
| |
| | |
383,007 | | |
| | |
344,976 | |
Other reserve | |
| |
| | |
78,525 | | |
| | |
78,525 | |
Retained earnings | |
| |
| | |
(150,936 | ) | |
| | |
424,959 | |
Total Shareholders Fund | |
| |
| | |
310,861 | | |
| | |
848,714 | |
The
above parent company balance sheet should be read in conjunction with the accompanying notes.
The
Company has elected to take the exemption under section 408 of the Companies Act of 2006 from presenting the company statement
of comprehensive income. The Company loss for the year ended 31 December 2022 was $616,106,000 (2021: loss of $37,109,000).
The
parent company financial statements were approved and authorised for issue by the board and were signed on its behalf on 22 May
2023.
Saurabh
Saha, M.D., Ph.D.
Board
Member and Chief Executive Officer
43
CENTESSA
PHARMACEUTICALS PLC
REGISTERED NUMBER: 12973576
STATEMENT
OF CHANGES IN EQUITY
FOR
THE YEAR ENDED 31 DECEMBER 2022
| |
Called
up share capital $’000 | |
Share
premium account $’000 | |
Other
reserves
$’000 | |
Retained
earnings $’000 | |
Total
equity $’000 |
Balance
as at 26 October 2020 Comprehensive
income for the period | |
| | |
| | |
| | |
| | |
| |
Loss for the period | |
— | | |
— | | |
— | | |
(37,109 | ) | |
(37,109 | ) |
Other comprehensive income for the period | |
— | | |
— | | |
— | | |
1,639 | | |
1,639 | |
Total comprehensive income for the period | |
— | | |
— | | |
— | | |
(35,470 | ) | |
(35,470 | ) |
Stock-based compensation expense | |
— | | |
— | | |
— | | |
28,700 | | |
28,700 | |
Shares issued during the period | |
183,918 | | |
593,053 | | |
78,525 | | |
— | | |
855,496 | |
Share repurchase | |
(12 | ) | |
— | | |
— | | |
— | | |
(12 | ) |
Share re-designation | |
(183,652 | ) | |
— | | |
— | | |
183,652 | | |
— | |
Capital reduction | |
— | | |
(248,077 | ) | |
— | | |
248,077 | | |
— | |
Total transactions with owners | |
254 | | |
344,976 | | |
78,525 | | |
460,429 | | |
884,184 | |
At 31 December 2021 | |
254 | | |
344,976 | | |
78,525 | | |
424,959 | | |
848,714 | |
| |
| | |
| | |
| | |
| | |
| |
Balance
as at 1 January 2022 Comprehensive
income for the period | |
254 | | |
344,976 | | |
78,525 | | |
424,959 | | |
848,714 | |
Loss for the period | |
— | | |
— | | |
— | | |
(616,106 | ) | |
(616,106 | ) |
Other comprehensive income for the period | |
— | | |
— | | |
— | | |
— | | |
— | |
Total comprehensive income for the period | |
— | | |
— | | |
— | | |
(616,106 | ) | |
(616,106 | ) |
Stock-based compensation expense | |
— | | |
— | | |
— | | |
40,211 | | |
40,211 | |
Shares issued during the period | |
11 | | |
38,031 | | |
— | | |
— | | |
38,042 | |
Total transactions with owners | |
11 | | |
38,031 | | |
— | | |
40,211 | | |
78,253 | |
At 31 December 2022 | |
265 | | |
383,007 | | |
78,525 | | |
(150,936 | ) | |
310,861 | |
44
CENTESSA
PHARMACEUTICALS PLC
NOTES
TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
Centessa
Pharmaceuticals PLC (the “Company”) and its subsidiaries (the “Group” or “Centessa”)
was formed in October 2020 with the purpose of bringing impactful new medicines to patients by combining the primary strengths
of the asset-centric venture capital model with the benefits of diversification and scale typically attributed to traditional
large R&D organizations. Medicxi formed Centessa with a view to ultimately acquiring several pre-revenue, development stage
biotech companies, each of which was either controlled by and/or invested in by a fund affiliated with Medicxi or Index Ventures.
Centessa
operates as a clinical-stage pharmaceutical company with a Research & Development (“R&D”) innovation engine
that aims to discover, develop and ultimately deliver impactful medicines to patients. Centessa’s model seeks to minimize
infrastructure investment and fixed costs by incorporating extensive outsourced resources into its research and development model
to optimize deployment of funds for discovery and development. Centessa is led by a management team with extensive R&D experience
from leading biotech and pharmaceutical companies. Centessa’s management team provides direct guidance to rapidly advance
its programs from research through all stages of development through the integrated one-team structure of its operating model.
The management team is also responsible for judicious capital and resource allocation decisions for discovery and development
efforts across the portfolio and aims to expeditiously evaluate and potentially terminate programs when the data do not support
advancing a program.
The
Company is a public limited company limited by shares, incorporated pursuant to the laws of England and Wales. The registered
office is 3rd Floor, 1 Ashley Road, Altrincham, Cheshire, WA14 2DT. These financial statements cover the 52 weeks ended 31 December
2022. The comparative period covers the period from incorporation, 26 October 2020, to 31 December 2021.
| 2.1 | Basis
of preparation of financial statements |
The
financial statements have been prepared under the historical cost convention unless otherwise specified within these accounting
policies and in accordance with Financial Reporting Standard 102, the Financial Reporting Standard applicable in the UK and the
Republic of Ireland and the Companies Act 2006.
The
preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also
requires management to exercise judgement in applying the Company’s accounting policies (see note 3).
The
following principal accounting policies have been applied:
| 2.2 | Financial
reporting standard 102 - reduced disclosure exemptions |
The
Company has taken advantage of the following disclosure exemptions in preparing these financial statements, as permitted by the
FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”:
| ● | the
requirements of Section 7 Statement of Cash Flows; |
| ● | the
requirements of Section 3 Financial Statement Presentation paragraph 3.17(d); |
| ● | the
requirements of Section 11 Financial Instruments paragraphs 11.42, 11.44 to 11.45, 11.47,11.48(a)(iii), 11.48(a)(iv), 11.48(b)
and 11.48(c) |
| ● | the
requirements of Section 12 Other Financial Instruments paragraphs 12.26 to 12.27,12.29(a), 12.29(b) and 12.29A; |
| ● | the
requirements of Section 26 Share-based Payment paragraphs 26.18(b), 26.19 to 26.21 and
26.23; |
| ● | the
requirements of Section 33 Related Party Disclosures paragraph 33.7. |
45
CENTESSA
PHARMACEUTICALS PLC
NOTES
TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
Notwithstanding
a loss for the period ended 31 December 2022 of $616.1M (2021: loss of $37.3M) and $216.2 (2021: Loss of $381.1m) of the Company
and the Group respectively and negative cash outflows from operating activities of $200.5M (2021: $135.1M) of the Group, the financial
statements have been prepared on a going concern basis which the directors consider to be appropriate for the following reasons.
The
Company reported Cash and cash equivalents of $272.3M (2021: $539.9M) and net current assets of $289.2M ($557.1M) as at 31 December
2022. The Group reported Cash and cash equivalents of $393.6m (2021: $595.1M) and net current assets of $406.0M as at 31 December
2022(2021: $604.1M).
Since
inception, the Group has devoted substantially all of its resources to acquiring and developing product and technology rights,
conducting research and development in its discovery and enabling stages, in its clinical and preclinical trials and raising capital.
The Group and the Company have incurred recurring losses and negative cash flows from operations since inception and has funded
operations primarily through the sale and issuance of its common stock and convertible preferred stock. The Group and the Company
expect to continue to incur significant expenses, increasing operating losses and negative cash outflows for the foreseeable future
in connection with ongoing development activities related to its portfolio of programs
The
Directors have reviewed the cash flow forecasts of the Group for the twelve months subsequent to the date of approval of these
financial statements (going concern assessment period), taking account of severe but reasonably possible downsides relating to
various clinical trial scenarios and variability in spending and development costs that may affect the Group in that period. These
show that the Group will be able to pay (or otherwise discharge) its debts as they fall due during the going concern assessment
period.
Accordingly,
the financial statements have been prepared on a basis that assumes the Group and the Company will continue as a going concern
and which contemplates the realisation of assets and settlement of liabilities and commitments as they fall due in the ordinary
course of business for at least 12 months from the date of approval of the financial statements.
| 2.4 | Foreign
currency translation |
Functional
and presentation currency
The
Company’s functional and presentational currency is USD.
Transactions
and balances
Foreign
currency transactions are translated into the functional currency using the spot exchange rates at the dates of the transactions.
At
each period end foreign currency monetary items are translated using the closing rate. Nonmonetary items measured at historical
cost are translated using the exchange rate at the date of the transaction and non-monetary items measured at fair value are measured
using the exchange rate when fair value was determined.
Foreign
exchange gains and losses resulting from the settlement of transactions and from the translation at period-end exchange rates
of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss except when deferred in
other comprehensive income as qualifying cash flow hedges.
Foreign
exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the Profit and loss account
within ‘finance income or costs’. All other foreign exchange gains and losses are presented in profit or loss within
‘other operating income.
46
CENTESSA
PHARMACEUTICALS PLC
NOTES
TO THE FINANCIAL STATEMENTS
FOR
THE YEAR ENDED 31 DECEMBER 2022
The
grant date fair value of share-based payments awards granted to employees is recognised as an employee expense, with a corresponding
increase in equity, over the period in which the employees become unconditionally entitled to the awards. Where awards are made
to employees of subsidiaries of the company, the charge for share-based payments has been recognised as an increase in cost of
investment in subsidiaries. Awards made by the company typically include graded vesting and where this is the case they have been
treated as concurrent awards, such that the charge is ‘front loaded’ in the parent company accounts. The fair value
of the awards granted is measured based on an using an option valuation model, taking into account the terms and conditions upon
which the awards were granted. The amount recognised is adjusted to reflect the actual number of awards for which the related
service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is
based on the number of awards that do meet the related service and non-market performance conditions at the vesting date.
The
financial effect of awards by the Parent Company of share options and other equity-based awards to the employees of subsidiary
undertakings are recognised by the Parent Company in its individual financial statements. In particular, the Parent Company initially
records a debit to the investment value of the subsidiary holding entity with a corresponding credit to the retained earnings
as Stock-based compensation expense within the Statement of Changes in Equity. The expense associated with the subsidiary’s
equity-based awards is recognised in profit and loss for the subsidiary undertaking.
For
full share-based payments disclosures, please refer to p.197 of the attached Form 10-K in the consolidated financial statements
presented with these Parent Company financial statements.
Tangible
fixed assets under the cost model are stated at historical cost less accumulated depreciation and any accumulated impairment losses.
Historical cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary
for it to be capable of operating in the manner intended by management.
Depreciation
is charged so as to allocate the cost of assets less their residual value over their estimated useful lives, using the straight-line
method.
Depreciation
is provided on the following basis:
| ● | Computer
equipment 3 years |
The
assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted prospectively if appropriate,
or if there is an indication of a significant change since the last reporting date.
Gains
and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in profit or loss.
| 2.7 | Valuation
of investments |
Investments
in subsidiaries are measured at cost less accumulated impairment.
Short
term debtors are measured at transaction price, less any impairment. Loans receivable are measured initially at fair value, net
of transaction costs, and are measured subsequently at amortised cost using the effective interest method, less any impairment.
47
CENTESSA
PHARMACEUTICALS PLC
NOTES
TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
| 2.9 | Cash
at bank and in hand |
Cash
is represented by cash in hand and deposits with financial institutions repayable without penalty on notice of not more than 24
hours.
Short-term
creditors are measured at the transaction price. Other financial liabilities, including bank loans, are measured initially at
fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method.
| 3. | Judgements
in applying accounting policies and key sources of estimation uncertainty |
The
preparation of financial statements in conformity with FRS 102 requires the use of accounting estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements. Although these estimates are based on
management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates. FRS
102 requires management to exercise judgement in the process of applying the accounting policies.
Significant
areas that require management’s estimates for the Group include share-based compensation assumptions, the note purchase
agreement, derivative liability and contingent value rights assumptions, accrued research and development expenses, and, prior
to the IPO, the fair value of the Company’s ordinary shares. For more details, please refer to note 2 summary of Significant
Accounting policies, use of estimates on p.140 of the attached Form 10-K in the consolidated financial statements.
Investment
in subsidiaries
At
each reporting date management performs an assessment as to whether there is any indication the valuation of subsidiaries held
by the Company may be impaired. The valuation of the subsidiaries are primarily derived from publicly available information, being
the market capitalisation of the Group, as at the year end date, given that the future value of the Group is expected to be generated
from the products and treatments which are being developed by the subsidiary companies. On the balance sheet date, where the market
capitalisation of the Group as a whole falls below the carrying value of the investment, management will perform a fair value
less cost to sell calculation and then consider whether an impairment of the investment is required, and if so, will write down
the cost of the investment to its recoverable amount, with an associated impairment charge recognised in the Parent Company profit
and loss account. In the event the Group’s market capitalisation subsequently increases and the reasons for any impairment
loss have ceased to apply, an impairment loss may be reversed in a subsequent period in the Parent Company profit and loss account,
to the extent that the carrying value would have been determined had no impairment loss been recognised for the investment in
prior periods.
| |
US$000 |
|
Cost or valuation | |
| |
As at 31 December 2021 | |
3 | |
Additions | |
— | |
Disposals | |
— | |
As at 31 December 2022 | |
3 | |
| |
| |
Accumulated depreciation
| |
| |
As at 31 December 2021 | |
1 | |
Additions | |
1 | |
Disposals | |
— | |
As at 31 December 2022 | |
2 | |
| |
| |
Net book value as at 31 December 2021 | |
2 | |
Net book value as at 31 December 2022 | |
1 | |
48
CENTESSA
PHARMACEUTICALS PLC
NOTES
TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
| 5. | Fixed
asset investments |
Investments
in subsidiary undertakings
| |
2022
US
$’000 |
| |
2021 US
$’000 |
|
| |
|
| |
|
|
Cost or valuation | |
405,021 | | |
1 | |
Additions | |
256,436 | | |
405,021 | |
Impairment | |
(564,295 | ) | |
— | |
Disposal | |
(5,699 | ) | |
— | |
At 31 December 2022 | |
91,463 | | |
405,021 | |
Subsidiary
undertakings
The
following were direct subsidiary undertakings of the Company:
Name |
Principle
Business Activity |
Registered
office |
|
Class
of shares |
|
Holding |
Pega-One
SAS |
Research
& Development |
31
35 31 Rue De La Federation75015, Paris, France |
|
Ordinary |
|
100% |
|
|
|
|
|
|
|
Palladio
Biosciences Inc |
Research
& Development |
5
Walnut Grove Drive, Suite 120, Horsham, PA 19044 |
|
Ordinary |
|
100% |
|
|
|
|
|
|
|
Centessa
Pharmaceuticals Inc |
Corporate
Services |
One
Federal Street, 38th Floor, Boston, MA, USA |
|
Ordinary |
|
100% |
|
|
|
|
|
|
|
Centessa
Pharmaceuticals (UK) Limited |
Corporate
Services |
3rd
Floor, 1 Ashley Road, Altrincham, Cheshire, WA14 2DT |
|
Ordinary |
|
100% |
The
following were indirect subsidiary undertakings of the Company:
Name |
Principle
Business Activity |
Registered
office |
|
Class
of shares |
|
Holding |
Z
Factor Limited |
Research
& Development |
3rd
Floor, 1 Ashley Road, Altrincham, Cheshire, WA14 2DT |
|
Ordinary |
|
100% |
|
|
|
|
|
|
|
LockBody
Therapeutics Limited |
Research
& Development |
3rd
Floor, 1 Ashley Road, Altrincham, Cheshire, WA14 2DT |
|
Ordinary |
|
100% |
|
|
|
|
|
|
|
Morphogen-IX
Limited |
Research
& Development |
3rd
Floor, 1 Ashley Road, Altrincham, Cheshire, WA14 2DT |
|
Ordinary |
|
100% |
|
|
|
|
|
|
|
ApcinteX
Limited |
Research
& Development |
3rd
Floor, 1 Ashley Road, Altrincham, Cheshire, WA14 2DT |
|
Ordinary |
|
100% |
|
|
|
|
|
|
|
Orexia
Therapeutics Limited |
Research
& Development |
3rd
Floor, 1 Ashley Road, Altrincham, Cheshire, WA14 2DT |
|
Ordinary |
|
100% |
|
|
|
|
|
|
|
Inexia
Therapeutics Limited |
Research
& Development |
3rd
Floor, 1 Ashley Road, Altrincham, Cheshire, WA14 2DT |
|
Ordinary |
|
100% |
|
|
|
|
|
|
|
Capella
Bioscience Ltd |
Research
& Development |
3rd
Floor, 1 Ashley Road, Altrincham, Cheshire, WA14 2DT |
|
Ordinary |
|
100% |
|
|
|
|
|
|
|
Janpix
Limited |
Research
& Development |
3rd
Floor, 1 Ashley Road, Altrincham, Cheshire, WA14 2DT |
|
Ordinary |
|
100% |
49
CENTESSA PHARMACEUTICALS
PLC
NOTES TO THE FINANCIAL
STATEMENTS
FOR THE YEAR ENDED 31
DECEMBER 2022
| 1. | Investments
in subsidiaries are measured at cost less accumulated impairment. The carrying amount
of investments has been compared with their recoverable amount at the end of the period.
The recoverable amount of investments has been determined by proxy to the market capitalization
of the group at 31 December 2022, reduced by the contractual cash outflows relating to
the outstanding debt in order to determine the net amount available to the parent company.
The recoverable amount determined on this basis is $91.5m, requiring an impairment of
$311.7m against the 2021 carrying value of $405.0m. The impairment required is $564.3m
when compared to the value of investments which would have prevailed at the end of 31
December 2022 of $655.8m, following intercompany and share based compensation transactions
in the year. As noted in the 10-K disclosures, The trading price of the Company’s
ADSs is likely to be highly volatile and could be subject to wide fluctuations in response
to various factors, some of which are beyond our control, including limited trading volume.
In addition, the stock market in general, and the market for biopharmaceutical companies,
have experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of these companies. Broad market and
industry factors may negatively affect the market price of our ADSs, regardless of our
actual operating performance. The impairment of investments in subsidiaries for UK GAAP
purposes has no impact on the consolidated results as presented in the 10-K. |
| 2. | In December
2022, the Company sold its wholly-owned subsidiary based in Germany, PearlRiver Bio GmbH
(“PearlRiver) for a nominal amount of proceeds. In addition, as of December 31,
2022, the Company was in the process of selling Pega-One S.A.S. (“Pega-One”),
a wholly owned subsidiary based in France. This sale was consummated on January 9, 2023
for a nominal amount of upfront proceeds. Both sales include future consideration if
certain developmental and commercial milestones are met. |
|
2022
US
$’000
|
2021
US
$’000
|
Amounts owed by group undertakings
|
14,891
|
14,891
|
Other debtors
Prepayments
|
3,465
—
|
108
4,525
|
Total |
18,356 |
19,524 |
Amounts due from subsidiary undertakings are unsecured,
interest free, have no fixed date of repayment and are repayable on demand.
7. | Creditors: Amounts falling due within one year |
|
2022
US
$’000
|
2021
US
$’000
|
Accruals and deferred income |
1,511 |
2,169 |
Other creditors |
— |
202 |
Total |
1,511 |
2,371 |
8. | Creditors:
Amounts falling due after more than one year |
|
2022
US
$’000
|
2021
US
$’000
|
Contingent consideration |
— |
37,699 |
Long term debt |
69,800 |
75,700 |
Total |
69,800 |
113,399 |
Further information regarding
the contingent consideration and long-term debt can be found in Note 6, respectively, of the Annual Report on Form 10-K.
50
CENTESSA PHARMACEUTICALS
PLC
NOTES TO THE FINANCIAL
STATEMENTS
FOR THE YEAR ENDED 31
DECEMBER 2022
Authorised, allotted, called up and fully paid |
2022
US $’000
|
2021
US $’000
|
95,442,812 Ordinary shares of £0.002 each |
265 |
254 |
On 11/02/2022, the company
issued 5,000 Ordinary shares with nominal value of £0.002 and were allotted for cash consideration of £14,114 in aggregate
($19,300).
On 02/03/2022, the company
issued 2,423 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £8,862
in aggregate ($11,800).
On 14/03/2022, the company
issued 26,000 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £149,149
in aggregate ($151,840).
On 16/03/2022, the company
issued 26,118 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £153,393
in aggregate ($152,529).
On 18/03/2022, the company
issued 3,938,423 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £29,936,631
in aggregate ($37,737,738).
On 19/04/2022, the company
issued 13,274 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £41,997
in aggregate ($54,556).
On 19/04/2022, the company
issued 1,861 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £6,977
in aggregate ($9,063).
On 09/06/2022, the company
issued 3,078 Ordinary shares with nominal value of £0.002 and were allotted for cash consideration of £4,958 in aggregate
($6,217).
On 01/07/2022, the company
issued 190 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £611
in aggregate ($733).
On 01/07/2022, the company
issued 10,000 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £32,154
in aggregate ($38,601).
On 01/07/2022, the company
issued 9,397 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £32,172
in aggregate ($38,622).
On 01/07/2022, the company
issued 428 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £1,476
in aggregate ($1,759).
On 01/07/2022, the company
issued 69 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £282
in aggregate ($336).
On 08/07/2022 the company
issued 300 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £969
in aggregate ($1,158).
On 08/07/2022 the company
issued 935 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £4,465
in aggregate ($4,042).
On 08/07/2022 the company
issued 4,363 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £21,038
in aggregate ($19,047).
On 15/07/2022 the company
issued 2,139 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £6,964
in aggregate ($8,257).
51
CENTESSA PHARMACEUTICALS
PLC
NOTES TO THE FINANCIAL
STATEMENTS
FOR THE YEAR ENDED 31
DECEMBER 2022
On 15/07/2022 the company
issued 891 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £3,089
in aggregate ($3,662).
On 01/09/2022the company
issued 5,000 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £17,829
in aggregate ($20,550).
On 02/09/2022 the company
issued 6,782 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £24,064
in aggregate ($27,874).
On 06/09/2022 the company
issued 2,000 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £7,130
in aggregate ($8,220).
On 13/09/2022 the company
issued 4,000 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £7,001
in aggregate ($8,080).
On 14/09/2022 the company
issued 300 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £1,000
in aggregate ($1,158).
On 15/09/2022 the company
issued 54 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £95 in
aggregate ($109).
On 15/09/2022 the company
issued 1,000 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £3,377
in aggregate ($3,772).
On 15/09/2022 the company
issued 5,100 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £18,242
in aggregate ($20,961).
On 15/09/2022 the company
issued 2,000 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £7,191
in aggregate ($8,220).
On 15/09/2022 the company
issued 2,000 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £7,253
in aggregate ($9,220).
On 27/09/2022 the company
issued 3,000 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £5,625
in aggregate ($6,060).
On 27/09/2022 the company
issued 3,000 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £11,445
in aggregate. ($12,330).
On 28/09/2022 the company
issued 886 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £3,300
in aggregate ($3,641).
On 28/09/2022 the company
issued 9,000 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £34,427
in aggregate ($36,990).
On 30/09/2022 the company
issued 168,895 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £338
in aggregate ($377).
On 10/10/2022 the company
issued 2,260 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £4,119
in aggregate ($4,565).
On 10/11/2022 the company
issued 3,000 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £5,485
in aggregate ($6,060).
On 6/12/2022 the company
issued 5,626 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £9,297
in aggregate ($11,365).
On 14/12/2022 the company
issued 3,000 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £4,886
in aggregate ($6,060).
On 15/12/2022 the company
issued 1,000 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £1,653
in aggregate ($2,020).
52
CENTESSA PHARMACEUTICALS
PLC
NOTES TO THE FINANCIAL
STATEMENTS
FOR THE YEAR ENDED 31
DECEMBER 2022
On 27/12/2022 the company
issued 39,633 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £66,497
in aggregate ($80,059).
On 31/12/2022 the company
issued 300,595 Ordinary shares with nominal value of £0.002 per share and were allotted for cash consideration of £318
in aggregate ($384).
On 31/12/2022 the company
withheld 141,380 Ordinary shares towards withholding taxes on share based compensation with a fair value of $504,613.
The total share-based payment
expense and increase to cost of investment by the Company recognised in the period are as follows:
|
2022
US
$’000
|
2021
US
$’000
|
Share based payment expense |
22,565 |
13,200 |
Increase to cost of investments |
17,646 |
15,500 |
Total |
40,211 |
28,700 |
11. | Related party transactions |
The Company has taken advantage
of the exemption under FRS 102 not to disclose related party transactions with other companies that are wholly owned within the
Group.
12. | Post balance sheet events |
Post balance sheet events
are disclosed in the Form 10-K in Note 11.
There is no ultimate controlling party of the Company
as ownership is split between the Company’s shareholders.
53
CERTAIN NOTE DISCLOSURES
RELEVANT TO THE GROUP
Basis of Preparation
The consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”), as permitted by Statutory Instrument 2015 No. 1675, “The Accounting Standards (Prescribed Bodies) (United
States of America and Japan) Regulations 2015” and in accordance with the UK Companies Act 2006.
UK Statutory Disclosure Requirements
(i) Monthly average number of people employed:
The monthly
average number of persons employed by the Company during the year was:
|
Group
2022
Number
|
Group
2021
Number
|
General & administrative |
36 |
18 |
Pension contributions |
54 |
30 |
Total employees |
90 |
48 |
|
|
|
(ii) Employee costs:
|
Group
2022
US
$’000
|
Group
2021
US
$’000
|
Salaries and bonuses |
29,207 |
19,003 |
Pension contributions |
228 |
204 |
Share-based compensation expense |
24,964 |
14,851 |
Benefits |
1,463 |
532 |
Social security cost |
1,363 |
1,200 |
Total employee costs |
57,225 |
35,790 |
|
|
|
Details of directors’
remuneration, including that of the Parent Company’s sole employee, are provided in the Directors’ Remuneration Report
on pages 12 to 36. The aggregate of the amount of gains made by directors on the exercise of share options during the period was
nil.
(iii) Auditor remuneration
During the period, the Group obtained the following
services from the Group’s auditors and its associates:
|
Group 2022
US $’000
|
Group 2021
US $’000
|
Audit fees |
1,450 |
1,373 |
Audit-related fees |
76 |
— |
Other Fees |
2 |
915 |
Total fees paid to the Group’s auditor |
1,528 |
2,228 |
Audit fees disclosed above
relates to the provision of statutory audit services and includes fees for the audit of the Parent Company and its subsidiaries
and consolidated financial statements. Audit-related fees for the fiscal year ended December 31, 2022 consist of professional
services rendered in connection with the Company’s implementation of an Oracle system. All other fees for the fiscal years
ended December 31, 2022 and 2021 consist of a small annual license for the use of accounting research software. In addition, the
fiscal year ended December 31, 2021, included advisory services provided in relation to IPO preparation.
KPMG has been the Group’s
auditors beginning in the period ended 31 December 2022. KPMG operates procedures to safeguard against the possibility of their
objectivity and independence being compromised. This includes the use of quality review partners, consultation with internal compliance
teams and the carrying out of an annual independence procedure within their firm. The audit partner changes every five years.
The amount charged by the external auditors for the provision of services during the period under audit is set above. The Committee
assesses the performance of the auditors and is comfortable that KPMG has operated effectively and a resolution to reappoint the
firm as auditors will be put to shareholders at the Company’s Annual General Meeting (“AGM”).
54