Chairman’s Statement on Corporate Governance
All members of the Board believe strongly in the value and importance of good corporate governance and in our accountability to all the Company’s stakeholders, including shareholders, staff, customers and suppliers. In the statement below, we explain our approach to governance, and how the Board and its committees operate.
The corporate governance framework which the Company operates, including Board leadership and effectiveness, Board remuneration, and internal control, is based upon practices which the Board believes are proportional to the size, risks, complexity and operations of the business and is reflective of the Group’s values. The Board adopts the Quoted Companies Alliance’s (‘QCA’) Corporate Governance Code for small and mid-size quoted companies.
The QCA Code is constructed around ten broad principles and a set of disclosures. The QCA has stated what it considers to be appropriate arrangements for growing companies and asks companies to provide an explanation about how they are meeting the principles through the prescribed disclosures.
|1 – Establishing a strategy and business model which promote long-term value for shareholders|
|2 – Seek to understand and meet shareholder needs and expectations||Shareholder communications and engagement|
3 – Consider wider stakeholder and social responsibilities and their implications for long-term success
|Shareholder communications and engagement|
4 – Embed effective risk management, considering both opportunities and threats, throughout the organisation
See this section and the ‘Principal Risks and Uncertainties’ in the 2022 Report and Accounts
|Maintain a dynamic management framework|
|5 – Maintain the board as a well-functioning, balanced team led by the Chairman||Board structure, skills and compliance|
|6 – Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities||
See this section and the Director profiles
7 – Evaluate board performance based on clear and relevant objectives, seeking continuous improvement
|Board evaluation and performance|
8 – Promote a corporate culture that is based on ethical values and behaviours
|Corporate culture, environmental and social responsibility|
9 – Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board
|Board structure, skills and compliance|
10 – Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders
|Shareholder communications and engagement|
The Board considers that it does not depart from any of the principles of the QCA Code.
Establishing a strategy and business model which promotes long-term value for shareholders
Our Mission is to improve patients’ lives and grow shareholder value by developing novel cancer therapies and powerful diagnostics using our proprietary Affimer® and pre|CISION™ platforms.
- Avacta operates through two separate divisions in both the oncology drug development market and the diagnostics sector.
- The Diagnostics Division is growing through an M&A-led strategy with a vision to build a European IVD business with global reach serving both professionals and consumers.
- The Therapeutics Division is leveraging Avacta’s proprietary technologies to develop innovative oncology drugs that transform treatment outcomes to improve cancer patients’ lives.
- Avacta’s has two proprietary platform technologies – the Affimer® and pre|CISION™ platforms – which are being used to deliver a robust portfolio of differentiated therapeutic and diagnostic products that address multi-billion dollar markets.
- Affimer® molecules are engineered alternatives to antibodies that have significant competitive advantages including size, stability, versatility, rapid development and ease of production. Despite their shortcomings, antibodies currently dominate markets, such as diagnostics and therapeutics, worth in excess of $100 billion.
- The pre|CISION™ platform provides a mechanism for targeting the release of active chemotherapy to the tumour, thereby reducing systemic exposure and the side effects associated with many commonly used cancer treatments the effectiveness of which is limited by toxicity and tolerability for patients.
- Avacta Therapeutics Division’s strategy is to build an in-house pipeline of first-in-class and best-in-class targeted cancer therapies and immunotherapies, and to accelerate the development of its platform technologies by working with partners.
- The Phase I trial for the first candidate, AVA6000, started in August 2021 and FDA approval of its Investigational New Drug (‘IND’) application was announced in November 2021. The Phase Ia dose escalation study is expected to complete in 2023 and the Phase Ib dose expansion study to commence shortly afterwards.
- The second pre|CISIONTM tumour-targeted chemotherapy candidate for development was announced in January 2022 and is a proteasome inhibitor referred to as AVA3996.
- The Company plans to generate additional Affimer® and pre|CISION™ drug candidates to grow its innovative therapeutic pipeline.
- There is also significant longer term potential to combine the two platforms to create next generation targeted ‘drug conjugate’ cancer treatments.
- Avacta has a partnership with LG Chem which is developing Avacta’s AVA004 PD-L1 antagonist with Affimer XT® half-life extension. Avacta also has a joint venture with Daewoong Pharmaceutical called AffyXell Therapeutics which is developing next generation stem cell therapies that have been engineered to express and secrete immunomodulatory Affimer proteins targeting CD40L and TNFR. Both partnerships’ first programmes are at the IND-enabling stage.
- Avacta has also licensed its pre|CISIONTM platform in a tightly defined agreement with POINT Biopharma to develop tumour microenvironment targeting of radionucleotides.
- There are many factors driving growth in the diagnostic sector, such as an aging population, the increasing incidence of chronic and infectious diseases, the influence of tech companies through digital health and devices and the increase in awareness of self-testing in a post-pandemic world.
- The diagnostics sector is quite fragmented with a large number of small and medium sized companies, which provides ideal conditions for an M&A-led growth strategy to consolidate European diagnostics SMEs in a market with strong future growth drivers.
- The Group has a platform and an experienced management team to execute an M&A-led strategy to build a leading European IVD business.
- Integrating the unique Affimer® platform to develop new immunodiagnostic products and to help differentiate acquired products gives a clear advantage in a competitive market.
- Initiating its M&A-led growth strategy in October 2022, Avacta completed the acquisition of UK-based IVD distributor Launch Diagnostics (‘Launch’), which has provided Avacta with well-established sales channels in the professional, centralised hospital laboratory testing market in the UK and France.
- Avacta Diagnostics continues to actively pursue other opportunities to build a fully integrated diagnostics business. These focus on expanding our routes to market in Europe for both professional and consumer testing products, while adding further IVD products suitable for these markets to our portfolio.
The Board believes that following the significant fundraise during 2022 and its strong balance sheet, it has the right strategy in place to be able to deliver major value inflection points driven primarily by its well-funded therapeutic programmes, and also from the M&A-led development of its Diagnostic Division in the medium term to drive significant future shareholder value.
Board structure, skills and compliance
The Board has a collective responsibility and legal obligation to promote the interests of the Company and to define the corporate governance arrangements. At 31 December 2022, the Board comprised five Non-executive Directors and two Executive Directors. The profiles of the Directors are set out here.
The division of responsibilities between the Chairman and the Chief Executive Officer is clearly defined. The Chairman’s primary responsibility is ensuring the effectiveness of the Board and setting its agenda. The Chairman is not involved in the day-to-day business of the Group. The Chief Executive has direct charge of the Group on a day-to-day basis and is accountable to the Board for the financial and operational performance of the Group.
The Chairman, Dr Eliot Forster, was appointed as Chairman to the Board in June 2018. Prior to his appointment to the Board, he was not involved with any part of the Avacta Group and has been considered to be independent since his appointment. Eliot has significant experience within US and European life science companies, in particular in the therapeutics area where the Group’s Affimer® and pre|CISION™ technologies have a significant focus. Eliot’s time commitment is one to two days per month.
The Chief Executive Officer, Dr Alastair Smith, was appointed to the Board in September 2007. Alastair has over 15 years’ experience as Chief Executive Officer of an AIM-listed business, having founded the business and has been responsible for the strategic development of the Group, leading fund-raising and M&A activities during this time. Alastair’s time commitment is full time.
Dr Trevor Nicholls was appointed as Non-executive Director in August 2013 and was Chairman from August 2013 to June 2018. Prior to his appointment to the Board, he was not involved with any part of the Avacta Group and has been considered to be independent since his appointment. Trevor has vast experience with life science and reagents companies and has provided significant oversight into the development of the Affimer® reagents and diagnostics proposition. During the period Trevor has been Chairman of the Remuneration Committee. Trevor’s time commitment is one to two days per month.
Paul Fry was appointed as a Non-executive Director in February 2020. Prior to his appointment to the Board, he was not involved with any part of the Avacta Group and has been considered independent since his appointment. Paul has an extensive financial background within the life sciences sector and has been Chairman of the Audit Committee since his appointment to the Board. Paul’s time commitment is one to two days per month.
Dr Mark Goldberg was appointed as a Non-executive Director in August 2021. Prior to his appointment to the Board, he was not involved with any part of the Avacta Group and has been considered independent since his appointment. Mark has an extensive background as an Executive and Non-executive Director within the US biotechnology sector and is also a medical oncologist. Mark’s time commitment is one to two days per month.
Dr Christina Coughlin was appointed as a Non-executive Director in March 2022. Prior to her appointment to the Board, she was not involved with any part of the Avacta Group and has been considered independent since her appointment. Christina has an extensive background in the pharmaceutical and biotechnology fields, with a broad background of drug development from pre-IND to filing experience in global companies. Christina’s time commitment is one to two days per month.
Tony Gardiner was appointed as an Executive Director in January 2016 and fulfils the role of Chief Financial Officer for the Group. Tony has over 25 years’ experience in senior financial and operational roles across small and large organisations and has previously served as CFO in an AIM-listed business. In addition to this role, Tony is also Company Secretary and provides advice and guidance to the Board and Non-executive Directors. The Board acknowledges that best corporate governance practice would not combine the role of an Executive Director and Company Secretary; however, given the relative size of the Group at this stage, the Board is comfortable with Tony performing both roles but will review the position as the Group grows. Tony’s time commitment is full time.
The Board met regularly throughout the year, either in person or by video conferencing methods, with ad hoc meetings also being held. The role of the Board is to provide leadership of the Company and to set strategic aims but within a framework of prudent and effective controls which enable risk to be managed to acceptable levels. The Board has agreed the Schedule of Matters reserved for its decision, which includes ensuring that the necessary financial and human resources are in place to meet its obligations to its shareholders and others. It also approves acquisitions and disposals of businesses, major capital expenditure, annual financial budgets and recommends interim and final dividends. It receives recommendations from the Audit Committee in relation to the appointment of an auditor, their remuneration and the policy relating to non-audit services. The Board agrees the framework for Executive Directors’ remuneration with the Remuneration Committee and determines fees paid to Non-executive Directors. Given the relative size of the Company, there is currently no separate Nomination Committee and the Board, with advice from the Remuneration Committee, takes responsibility for any recruitment of Executive and Non-executive Directors, together with succession planning. Board papers are circulated before Board meetings in sufficient time to allow meaningful review and preparation by all Board members.
Conflicts of interest
Each Director has a duty to avoid situations in which he or she has or can have a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the Group. The Board requires each Director to declare to the Board the nature and extent of any direct or indirect interest in a proposed transaction or arrangement with the Group and the Company Secretary maintains a register of Directors’ other interests. The Board has power to authorise any potentially conflicting interests that are disclosed by a Director.
Board evaluation and performance
The performance of the Board is evaluated on an ongoing basis informally with reference to all aspects of its operation including, but not limited to: the appropriateness of its skill level; the way its meetings are conducted and administered (including the content of those meetings); the effectiveness of the various Committees; whether corporate governance issues are handled in a satisfactory manner; and whether there is a clear strategy and objectives.
A new Director, on appointment, is briefed on the activities of the Company. Professional induction training is also given as appropriate. The Chairman briefs Non-executive Directors on issues arising at Board meetings if required and Non-executive Directors have access to the Chairman at any time. Ongoing training is provided as needed. Directors are continually updated on the Group’s business by means of Board presentations on risk and compliance matters as well as issues covering pensions, social, ethical, environmental and health and safety.
In the furtherance of their duties or in relation to acts carried out by the Board or the Company, each Director has been informed that they are entitled to seek independent professional advice at the expense of the Company. The Company maintains appropriate cover under a Directors and Officers insurance policy in the event of legal action being taken against any Director.
Each Director is appraised through the normal appraisal process. The Chief Executive is appraised by the Chairman, the executive Board members by the Chief Executive and the non-executive Board members by the Chairman. Each Director has access to the services of the Company Secretary if required.
The Non-executive Directors are considered by the Board to be independent of management and are free to exercise independence of judgement. The Non-executive Directors have never been employees of the Company nor do they participate in any of the Company’s pension schemes or bonus arrangements. They receive no remuneration from the Company other than the Directors’ fees. Dr Eliot Forster, shortly after his appointment to the Board in 2018, received an award of share options, which were equivalent to one year’s fee for his services as Chairman. The share options which are now fully vested do not carry any performance obligations (further details are provided within the Remuneration Report). The Board and Company’s advisers do not consider the share options, given their relatively low value in relation to Dr Forster’s fee for his services and his income from other roles outside of the Avacta Group, to impact his independence.
Directors are subject to re-election at the Annual General Meeting following their appointment. In addition, at each Annual General Meeting one third (or whole number more than one third) of the Directors will retire by rotation.
As the Group evolves and develops, the composition of the Board will change to reflect the priorities of the Group. There are currently no ethnic minority Board members; however, the Group is satisfied that as further Directors are added to the Board that there will be no limitation of opportunities due to diversity.
The table below shows the number of Board meetings and Committee meetings held during the period and the attendance of each Director
The table below shows the number of Board meetings and Committee meetings held during the period and the attendance of each Director.
The Audit Committee (‘the Committee’) is established by and is responsible to the Board.
Paul Fry is the Chair of the Committee and is considered to be an independent Non-executive Director. Paul is a member of the Chartered Institute of Management Accountants and brings significant breadth of recent and relevant financial experience including his current role as Chief Financial Officer of Argenta and his prior role as Chief Financial Officer of Vectura Group Ltd, which was listed on the Main Market of the London Stock Exchange until it was acquired by Philip Morris International Inc. and subsequently de-listed in October 2021. The current members of the Committee – Eliot Forster and Trevor Nicholls, both of whom are Non-executive Directors – have gained wide experience in regulatory, commercial and risk issues.
The terms of reference of the Audit Committee include the following responsibilities:
- To monitor and be satisfied with the truth and fairness of the Company’s financial statements before submission to the Board for approval, ensuring their compliance with the appropriate accounting standards, the law and the Listing Rules of the Financial Services Authority
- To monitor and review the effectiveness of the Company’s system of internal control
- To make recommendations to the Board in relation to the appointment of the external auditor and their remuneration, following appointment by the shareholders in the Annual General Meeting, and to review and be satisfied with the auditor’s independence, objectivity and effectiveness on an ongoing basis
- To implement the policy relating to any non-audit services performed by the external auditor
The Board is responsible for risk management and reviewing the internal controls systems. The internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable, and not absolute assurance against material misstatement or loss. Given the relative size of the Group, there is not currently a separate internal audit function.
The Group highlights potential financial and non-financial risks which may impact on the business as part of the risk management procedures in the form of a Risk Register. The Board receives these reports periodically and monitors the position at Board meetings. There are ongoing processes for identifying, evaluating and mitigating the significant risks faced by the Group, which are reviewed on a periodic basis. The review process involves a review of each area of the business to identify material risks and the controls in place to manage these risks given the production, regulatory and supply chain considerations within the Diagnostics Division and the commencement of the first clinical trials in the Therapeutics Division. The process is undertaken by the Chief Financial Officer and senior managers with responsibility for specific controls. Where any significant weakness or failing is identified, implementation of appropriate remedial action is completed following approval by the Board.
The Group maintains appropriate insurance cover in respect of actions taken against the Directors because of their roles, as well as against material loss or claims against the Group. The insured values and type of cover are comprehensively reviewed on a periodic basis.
The Remuneration Committee is chaired by Trevor Nicholls and the other current members of the Committee are Eliot Forster and Paul Fry, all of whom are Non-executive Directors. The Committee meets at least once a year with the Chief Executive and Chief Financial Officer in attendance as appropriate.
– The terms of reference of the Remuneration Committee include the following responsibilities:
– To determine the framework and policy, together with the individual packages of the remuneration of the Executive Directors and certain other senior executives of the Group
– To determine targets for performance-related pay schemes
– To review employee benefit structures
– To produce an annual report of the Committee’s remuneration policy
Shareholder communications and engagement
Responsibility for investor relations sits with the Chief Executive Officer, supported by the Chief Financial Officer and Group Communications Director together with input from other members of the Senior Management Team as required.
The Company is committed to communicating openly with its shareholders to ensure that its strategy and performance are clearly understood. We communicate with shareholders through the Annual Report & Accounts, full-year and half-year announcements, trading updates and the Annual General Meeting, and we encourage shareholders’ participation using technology platforms such as the Investor Meet Company platform.
A range of corporate information (including the Annual Report & Accounts) is also available to shareholders, investors and the public on our website, www.avacta.com. The Company uses intermediaries such as Investor Meet Company and Vox Markets to ensure that key updates provided via RNS releases are relayed to as many shareholders as possible. The Directors encourage the participation of all shareholders, including private investors, at the Annual General Meeting and the level of proxy votes (for, against and vote withheld) lodged on each resolution is declared at the meeting and published on the Company’s website.
The Chief Executive Officer and Chief Financial Officer meet regularly with institutional shareholders to foster a mutual understanding of objectives and communicate back to the Board. The Chairman and Non-executive Directors are also available to discuss governance and other matters directly with major shareholders.
The Company also holds science days, where investors and significant private shareholders are provided with an update on the Group’s scientific activities by members of the Board and Senior Management Team.
Share dealing code
The Company has adopted a code on dealings in relation to the securities of the Group. The Company requires the Directors and other relevant employees of the Group to comply with the Share Dealing Code and takes proper and reasonable steps to secure their compliance.
Corporate social responsibility
The Board recognises the importance of corporate social responsibility and seek to take account of all of the interests of the Group stakeholders, including shareholders, partners, employees, customers and suppliers. The Board wants to establish and maintain an environment in which employees, suppliers and partners act in an ethical and socially responsible way in operating the business and the impact of its activities relating to health, safety and environmental issues.
Employee welfare and engagement
It is the Group’s policy to involve employees in its progress, development and performance. The Executive Directors regularly engage with employees, most of whom are either shareholders or holders of share options, to seek their views and provide briefings and presentations on key developments and strategy. The updates also follow key events within the financial reporting calendar and aim to give staff the same level of insight provided to institutional shareholders and analysts, providing details of the business objectives, strategy and business model, together with sharing of technical progress across the various teams within the Group. Senior management work across all the Group’s facilities and actively seek regular feedback from staff to ensure that the strategy and aims of the Group are readily understood.
During 2022 the Group continued a development programme for all its staff called CHX (Culture Humanity Excellence) Performance, which focused on reframing the organisation’s mental health, humanising leadership and creating a higher performing, more engaged organisation.
Training, career development and promotion of disabled persons
Applications for employment by disabled persons are fully considered, bearing in mind the respective aptitudes and abilities of the applicants concerned. It is the policy of the Group that the training, career development and promotion of a disabled person should, as far as possible, be identical to that of a person who is fortunate enough not to suffer from a disability. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Group continues.
Equal opportunities and diversity
The Group is a committed equal opportunities employer, and its employees and job applicants will receive equal treatment regardless of age, disability, gender reassignment, marital or civil partner status, pregnancy or maternity, race, colour, nationality, ethnic or national origin, religion or belief, sex or sexual orientation.
The Group does not have formal diversity quotas but recognises that a diverse employee profile is fundamental to the business. The gender profile across all employees as at 31 December 2022 was 51% female and 49% male.
Health and safety
The Group has well-defined health and safety policies and procedures, complying with current legislation and safeguarding staff, contractors and visitors. Alastair Smith is the Executive Director responsible for health and safety, chairing Group meetings and reporting on health and safety matters to the Board. The Group’s policies and procedures form a part of staff induction and training programmes. Regular internal safety audits are carried out and no significant issues have been identified by these audits.
Ethics and compliance
The Group’s Diagnostics and Therapeutics Divisions operate around product development, drug development and clinical trials where there are highly regulated ethical frameworks in place.
Political and charitable donations
The Group does not make political or charitable donations, although charitable fundraising by employees is encouraged.
Modern slavery and human trafficking statement
The Group ensures that all employees are eligible to work in their country of employment. The majority of our workforce are employed directly; however, where agency workers are utilised, it is ensured that these same checks are performed by the supplier.
The Group has a Whistleblowing Policy, where anyone who raise concerns through a defined process, are protected. In addition, there are robust policies in place that ensure equality amongst colleagues, as well as deploying a zero-tolerance approach to harassment and bullying in all areas of the business.
Environment and greenhouse gas emissions
Due to the nature of the Group’s divisions, it has a low environmental impact, and seeks to minimise any environmental impact of its operations and complies with relevant regulations and legislation.
Work started during the period to develop the processes to measure and report on the Group’s Scope 1 and Scope 2 GHG emissions. This will allow the Group to better identify areas of focus in minimising the impact of its operations, as well as setting effective targets, and these will be refined over future periods.
In the table below:
- Scope 1 emissions cover direct emissions of greenhouse gas from fuel combustion
- Scope 2 emissions cover emissions from purchased electricity
- Scope 3 emissions cover all other indirect emissions that occur in a company’s value chain. They are not included in the reporting below but the Group will continue to develop its processes to allow measurement and reporting on these emissions in future periods.
2022 GHG Emissions (CO2e metric tons)
1 Of the amounts disclosed above, a total of 23 CO2e metric tons of Scope 1 GHG emissions and 5 CO2e metric tons of Scope 2 GHG emissions were contributed by Launch Diagnostics in the period following its acquisition in October 2022.
This report was approved by the Board of Directors and authorised for issue on 28 April 2023 and was signed on its behalf by:
Dr Eliot Forster
28 April 2023