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Syntopix Group plc - Interim Results

RNS Number:9872S Syntopix Group plc 24 April 2008 Immediate release 24 April 2008 SYNTOPIX GROUP PLC ('Syntopix' or 'the Company') Interim results for the six months ended 31 January 2008 Syntopix Group plc (AIM: SYN) the speciality pharmaceutical research and development company focused on dermatological diseases, today announces its interim results for the six months ended 31 January 2008. Highlights: * Positive results from our first Phase II study. * First commercial exclusive evaluation agreement with a major consumer healthcare company. * Strengthening prospects for further licensing and joint development agreements with other healthcare and dermatological companies. * Expanding library of compounds and combinations of compounds. * Growing intellectual property portfolio with three granted patents and 12 patent applications. Dr Stephen Jones (Chief Executive Officer) commented: 'I am pleased with the Group's progress over the last 6 months. We are expanding the use of our antimicrobial pipeline and are attracting commercial interest in new areas of consumer healthcare. Our Phase II proof of concept study yielded positive results, which has enabled us to progress discussions with several dermatological companies. I am also pleased to report that we signed our first commercial agreement in December 2007 with a major healthcare company and we have expectations for further commercial opportunities in the next 12 months.' Enquiries Syntopix Group plc + 44 (0) 845 125 9204 Dr Rod Adams, Chairman Dr Stephen Jones, Chief Executive Officer Buchanan Communications Limited + 44 (0) 20 7466 5000 Mark Court Catherine Breen KBC Peel Hunt Ltd + 44 (0) 20 7418 8900 Capel Irwin Notes to editors About Syntopix Group plc Syntopix is a group focused on the discovery and development of drugs for the topical treatment of dermatological diseases. The company was founded in 2003 as a spin-out from the University of Leeds by Dr Jon Cove and Dr Anne Eady, two of the leading experts in skin microbiology, with initial funding from The Wellcome Trust. Syntopix' strategy is to seek to reduce the risks and costs of drug discovery and development by discovering novel uses for known compounds. The company concentrates on compounds and combinations of compounds that have a history of use in man; and that have well characterised properties, for example antimicrobials and anti-inflammatories. The Group currently has 3 granted patents and 12 further pending patent applications. Syntopix is currently concentrating on acne and Staphylococcus aureus infections and has identified a pipeline of lead drug candidates that it intends to take through pre-clinical and, as appropriate, clinical trials. The Group intends to out-license products to commercial partners on obtaining proof of principle and to seek co-development partnerships. The Group is based at the Institute of Pharmaceutical Innovation in Bradford, giving access to the expertise in skin biology, formulation and toxicology at the universities of Bradford and Leeds. Syntopix' shareholders include Techtran Group Limited (a subsidiary of IP Group plc), The Wellcome Trust Limited, University of Leeds Limited and Ridings Early Growth Investment Company Limited. Syntopix joined the AIM market of the London Stock Exchange in March 2006. For further information please visit www.syntopix.com. Chairman and Chief Executive's Statement We are pleased to report the interim result for the six months to 31 January 2008. Since our last annual report, we have continued to work on the discovery of compounds for use in the treatment of acne and the prevention and treatment of superficial skin infections due to Staphylococcus aureus including methicillin resistant strains (MRSA). We are also expanding into new areas of consumer healthcare where our ability to detect novel activities of known compounds and beneficial interactions between compounds is of potential commercial interest. We have conducted and reported a Phase II clinical study in subjects with acne-prone skin and have also evaluated a range of compounds for activity against MRSA in a model system. Additionally, we have signed and reported a 12-month exclusive evaluation agreement with a major consumer healthcare company in the field of oral healthcare. Finally, we are in an advanced stage of discussions with another major consumer healthcare company to evaluate the use of our antimicrobial pipeline in another area of personal healthcare. Development Programme We have completed the Phase II proof-of-concept clinical study in 130 subjects with acneic skin that we reported as just having started in the last Annual Report. This randomised, blinded trial began in July 2007 and was conducted in Germany. Two Syntopix preparations were investigated: SYN 0126, a compound used in cosmetic preparations; and a combination of SYN 0126 with SYN 0091, a bacteriostatic agent used in soaps and cosmetics. The study had positive (an existing marketed product) and negative (vehicle) controls, and the products were used once a day for eight weeks. The combination preparation containing SYN 0126 and SYN 0091 ranked as more effective than the marketed product and as most effective overall with statistically significant reductions in inflammatory and non-inflammatory lesions (spots) from week 2 to the end of the study. By week 8, this preparation had reduced the total number of lesions by 27% and the acne severity grade by 38%; reductions for the marketed product were 12% and 24% respectively. From week 4 onwards the Syntopix product reduced the total number of acne spots to a significantly greater extent than the currently marketed acne treatment. Following these positive study results, several major dermatological companies have approached us. It is the Group's intention to investigate the possibility of a licensing agreement with a suitable partner in the cosmetics or consumer healthcare industries. We have also conducted a study, in Canada, using a model system to determine the effectiveness of SYN 0017, SYN 0854, SYN 0564 and SYN 0017 in combination with SYN 0710 against the carriage of MRSA. Compared to vehicle, SYN0017 produced a greater reduction in numbers of MRSA than the positive control and ranked as the most effective treatment. The commercial significance of this result is being evaluated. Commercial agreements In December 2007 we announced that we had signed a 12-month exclusive evaluation agreement with a major consumer healthcare company. Under this agreement, Syntopix will evaluate the Group's library of compounds for their potential usefulness in oral healthcare. The full financial details of the agreement are confidential, although Syntopix has received an upfront payment at the start of the exclusivity period and will receive further payments for any compounds subject to additional evaluation. Commercialisation of a compound would be subject to a licensing agreement to be negotiated separately. We have also been in discussions with another major consumer healthcare company, concerning the use of antimicrobial compounds in a different area of personal healthcare. These discussions will be completed over the next few months, and we are very confident that this will result in a Joint Development Agreement to evaluate Syntopix compounds in order to improve the effectiveness of a major consumer healthcare brand. Discussions are underway with this company regarding a commercial contract. Lead candidate development programmes It is our intention to conduct another human use study in 2008 with a new test compound. This will utilise the experience gained from the previous studies and will use the same clinical model that was used so successfully for our first Phase II study. We anticipate results will be available before the end of the calendar year. Pipeline The Group continues its research activities to generate further potential promising synergistic combinations. We continue to screen single compounds and combinations of compounds and now have over 1,400 compounds in our library. Approximately 20% of these compounds show antimicrobial activity against Propionibacterium acnes and/or Staphylococcus aureus. We are also extending the range of microbes that we use to evaluate antimicrobial activity, in line with the commercial interest we are receiving from several healthcare companies and anticipate that this will result in more commercial opportunities. Our intellectual property portfolio continues to grow: Syntopix has a patent portfolio that currently comprises three granted patents and a further 12 patent applications. Each application is continually re-evaluated for commercial relevance, and in the last 12 months we have filed a new application on average every six to eight weeks. Financial summary Since our last Annual Report, the Group has continued its development programme and we have completed the Phase II study in Germany and the MRSA study in Canada. Total research and development costs during the six months to 31 January 2008 were #668,883 (six months to 31 January 2007: #490,763). The increase is partly attributable to the additional studies undertaken in this period and partly due to additional expenditure on patent protection for our growing intellectual property portfolio. Towards the end of this accounting period we signed our first commercial deal. The group has received upfront payments for an exclusivity and evaluation agreement amounting to #145,000. In accordance with our revenue recognition accounting policy, this is initially treated as deferred income and is being recognised in revenue over the period of the agreement. Consequently, revenue recognised in this accounting period amounts to #36,666 and the remaining deferred income of #108,334 will be recognised over the next 10 months. The Group is well positioned for establishing further revenue streams from commercial deals going forward. At 31 January 2008, the Group had cash reserves of #724,505 (31 January 2007: #2,501,993) and net assets of #798,024 (31 January 2007: #2,636,275). As in previous periods we anticipate further Research and Development tax credits in the coming months. The Group continues to carefully monitor overhead costs. In our 2007 Annual Report, we stated that the Group will need additional funding during the next financial period to enable the planned development programme to continue and to ensure that the Group has sufficient financial resources to sustain the trading operations until the Group becomes cash generative as a result of revenues from royalties, milestones and other commercial deals. The directors remain confident that the Group will be able to raise sufficient additional funds. This is the first accounting period in which the Group is required to comply with International Financial Reporting Standards and consequently this report is prepared in accordance with the new requirements. The effect of implementing the new standards is largely presentational and there is no significant impact on the reported results or net assets. Outlook The Group has made significant progress during the six months to 31 January 2008. We have entered into our first commercial deal and the positive results from the Phase II study have enabled us to progress discussions with several major dermatological companies. Consequently, we believe that the Group is well positioned to capitalise on the development activity undertaken in this period. Dr Rod Adams, Chairman Dr Stephen Jones, Chief Executive Officer 23 April 2008 Condensed consolidated interim income statement - unaudited For the six months ended 31 January 2008 Six months Six months Year ended ended ended 31 January 31 January 31 July 2008 2007 2007 Note # # # Turnover 36,666 2,500 30,962 Administrative expenses: Research and development costs (668,883) (490,763) (1,398,092) Other administrative expenses (369,859) (356,355) (628,785) (1,038,742) (847,118) (2,026,877) Other operating income 13,085 20,000 21,921 Operating loss (988,991) (824,618) (1,973,994) Financial income 22,784 54,186 99,741 Loss before tax (966,207) (770,432) (1,874,253) Income tax credit 72,000 92,207 133,561 Loss for the period (894,207) (678,225) (1,740,692) Loss per share Basic and diluted 4 (15.6p) (11.9p) (30.6p) All Group activities relate to continuing operations. Condensed consolidated interim balance sheet - unaudited As at 31 January 2008 At At At 31 January 31 January 31 July 2008 2007 2007 # # # Assets Non-current assets Property, plant and equipment 95,553 117,470 112,401 Current assets Trade and other receivables 197,451 87,161 208,110 Income tax 72,000 92,207 133,561 Cash and cash equivalents 724,505 2,501,993 1,494,018 Total current assets 993,956 2,681,361 1,835,689 Total assets 1,089,509 2,798,831 1,948,090 Liabilities Current liabilities Trade and other payables (291,485) (162,556) (306,001) Total liabilities (291,485) (162,556) (306,001) Net assets 798,024 2,636,275 1,642,089 Capital and reserves attributable to equity holders of the company Share capital 573,260 568,398 573,260 Share premium reserve 3,379,046 3,379,046 3,379,046 Merger reserve 337,935 337,935 337,935 Share-based payments reserve 182,453 69,378 132,311 Retained losses (3,674,670) (1,718,482) (2,780,463) 798,024 2,636,275 1,642,089 Minority interest - - - Total equity 798,024 2,636,275 1,642,089 Consolidated statement of changes in equity - unaudited For the six months ended 31 January 2008 Share based Retained Share Share Merger Payments (losses)/ Capital Premium Reserve Reserve Earnings Total # # # # # # Balance at 1 August 568,398 3,379,046 337,935 16,832 (1,040,257) 3,261,954 2006 Loss for the six month period ended 31 January 2007 - - - - (678,225) (678,225) Total recognised (expense) for the period - - - - (678,225) (678,225) Share option charge - - - 52,546 - 52,546 in the period Balance at 31 January 2007 568,398 3,379,046 337,935 69,378 (1,718,482) 2,636,275 Balance at 1 August 2006 568,398 3,379,046 337,935 16,832 (1,040,257) 3,261,954 Loss for the year ended 31 July 2007 - - - - (1,740,692) (1,740,692) Total recognised (expense) for the year - - - - (1,740,692) (1,740,692) Share option charge in the year - - - 115,965 - 115,965 Adjustment for options subsequently exercised - - - (486) 486 - Shares issued in the year 4,862 - - - - 4,862 Balance at 31 July 2007 573,260 3,379,046 337,935 132,311 (2,780,463) 1,642,089 Balance at 1 August 2007 573,260 3,379,046 337,935 132,311 (2,780,463) 1,642,089 Loss for the six month period ended 31 January 2008 - - - - (894,207) (894,207) Total recognised (expense) for the period - - - - (894,207) (894,207) Share option charge in the period - - - 50,142 - 50,142 Balance at 31 January 2008 573,260 3,379,046 337,935 182,453 (3,674,670) 798,024 Condensed consolidated interim statement of cash flows - unaudited for the six months ended 31 January 2008 Six months Six months Year ended ended ended 31 January 31 January 31 July 2008 2007 2007 # # # Cash flows from operations Loss for the period (894,207) (678,225) (1,740,692) Adjustments for: Interest received (22,784) (54,186) (99,741) Income tax credit (72,000) (92,207) (133,561) Depreciation 18,068 15,931 33,332 Share option expense 50,142 52,546 115,965 Decrease/(increase) in trade and other receivables 10,659 (49,354) (170,303) (Decrease)/increase in trade and other payables (14,516) (67,936) 75,508 Net cash from operating activities (924,638) (873,431) (1,919,492) Income tax received 133,561 86,168 86,169 Net cash flows used in operating activities (791,077) (787,263) (1,833,323) Cash flows used in investing activities Interest received 22,784 54,186 99,741 Purchase of property, plant and equipment (1,220) (12,360) (24,692) Net cash flows used in investing activities 21,564 41,826 75,049 Cash flows from financing activities Share issue - - 4,862 Net cash flows used in financing activities - - 4,862 Net decrease in cash and cash equivalents (769,513) (745,437) (1,753,412) Cash and cash equivalents at start of period 1,494,018 3,247,430 3,247,430 Cash and cash equivalents at end of period 724,505 2,501,993 1,494,018 Notes to the consolidated interim report For the six months ended 31 January 2008 1. Accounting Policies Basis of preparation From 1 August 2007, the Group has adopted International Financial Reporting Standards (IFRS) as adopted by the EU in the preparation of the consolidated financial statements. Prior to this accounting period, the Group prepared its audited annual financial statements under UK Generally Accepted Accounting Principles (UK GAAP). For periods commencing 1 August 2007, the Group is required to prepare its annual consolidated financial statements in accordance with IFRS as adopted by the European Union. As the financial statements for the year to 31 July 2008 will include comparatives for the year ended 31 July 2007, the Group's date of transition to IFRS is 1 August 2006 and the comparatives will be restated to IFRS. Accordingly, the financial information for the six months to 31 January 2007 has been restated to present the comparative information in accordance with IFRS based on a transition date of 1 August 2006. Note 5 of this interim financial information sets out how the Group's previous financial position is affected by the change to IFRS. The financial information for the six months ended 31 January 2008 and 31 January 2007 is unaudited. The financial information does not constitute the financial statements for that period within the meaning of Section 240 of the Companies Act 1985. The comparative figures for the year ended 31 July 2007 were derived from the Group's audited financial statements for that period as filed with the Registrar of Companies as restated for IFRS. Those accounts received an unqualified audit report which does not contain any statement under Section 237 (2) or (3) of the Companies Act 1985. Statement of compliance These condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standard (IFRS) IAS 34, Interim Financial Reporting. They do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the group as at and for the year ended 31 July 2007. These condensed consolidated interim financial statements were approved by the Board of Directors on 23 April 2008. The financial information has been neither audited nor reviewed pursuant to guidance issued by the Auditing Practices Board. Changes in Accounting Policies (a) Standards, amendments and interpretations to published standards effective in 2007 but which are not relevant to the group The following standards, amendments and interpretations to published standards are mandatory for accounting periods beginning on or after 1 January 2007 but are currently not relevant to the group's operations: - IFRIC 7, Applying the restatement approach under IAS 29, Financial Reporting in Hyperinflationary Economies (b) Standards, amendments and interpretations to published standards not yet effective Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the group's accounting periods beginning on or after 1 January 2008 or later periods and which the group has decided not to adopt early. These are: - Revised IAS 1, Presentation of Financial Statements (effective for accounting periods beginning on or after 1 January 2009, yet to be endorsed by the EU) - Amendments to IAS 32, Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation (effective for accounting periods beginning on 1 January 2009) - IFRS 8, Operating Segments (effective for accounting periods beginning on or after 1 January 2009) - IAS 23, Borrowing Costs (revised) (effective for accounting periods beginning on or after 1 January 2009) - IFRIC 11, IFRS 2 - Group and Treasury Share Transactions (effective for accounting periods beginning on or after 1 March 2007) - IFRIC 12, Service Concession Arrangements (effective for accounting periods beginning on or after 1 January 2008) - IFRIC 13, Customer Loyalty Programmes (effective for accounting periods beginning on or after 1 July 2008) - IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective for accounting periods beginning on or after 1 January 2008). - Revised IFRS 3, Business Combinations and complementary Amendments to IAS 27, Consolidated and Separate Financial Statements (both effective for accounting periods beginning on or after 1 July 2009). - Amendment to IFRS 2, Share-based payments: vesting conditions and cancellations (effective for accounting periods beginning on or after 1 January 2009). Revenue Revenue is recognised when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, prices are fixed or determinable and collectability is assured. Certain revenues are generated from licensing and exclusivity agreements under which we grant third parties rights to certain of our products or technologies. Upfront payments and other similar non-refundable payments received under these agreements are recorded as deferred revenue and are recognised in the income statement over the performance period stipulated in the agreement. Non-refundable milestone payments which represent the achievement of a significant technical/regulatory hurdle in the research and development process, pursuant to collaborative agreements, are recognised as revenue upon the achievement of the specified milestone. The group may also generate revenues from collaborative research and development as well as co-promotion arrangements. Such agreements may consist of multiple elements and provide for varying consideration terms, such as upfront, milestone and similar payments, which are complex and require significant analysis by management in order to determine the most appropriate method of revenue recognition. Such determinations require us to make certain assumptions and judgements. Royalty income is recognised on an accruals basis in accordance with the economic substance of the agreement and is reported as part of revenue. Other revenues are recorded as earned or as the services are performed. Basis of consolidation Where the company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the result of the company and its subsidiaries ('the group') as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full. Business combinations The consolidated financial statements incorporate the results of business combinations using the purchase method. In the consolidated balance sheet, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated income statement from the date on which control is obtained. Business combinations that took place prior to 1 August 2006 have not been restated. The group has used merger accounting to consolidate the results and assets of its subsidiary company, Syntopix Limited, as this business combination took place prior to 1 August 2006. The group has applied the exemptions of IFRS1 on transition in prior periods. Segment reporting A business segment is a distinguishable component of an enterprise that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business segments. A geographical segment is a distinguishable component of an enterprise that is engaged in providing products or services within a particular economic environment and that is subject to risks and returns that are different from those of components operating in other economic environments. Financial assets The group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. The group has not classified any of its financial assets as held to maturity. The group's accounting policy for each category is a follows: Fair value through profit or loss: The group does not currently have any derivative financial instruments. Loans and receivables: These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the income statement. On confirmation that the trade receivable will not be collectible, the gross carrying value of the asset is written off against the associated provision. The group's loans and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet. Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less. Financial liabilities The group classes its financial liabilities into different categories, depending on the purpose for which the asset was acquired. The group's accounting policies for each relevant category is as follows: Fair value through profit or loss: The group does not currently have any derivative financial instruments. Other financial liabilities: Other financial liabilities include the following items: Trade payables and other short term monetary liabilities, which are initially recognised at fair value and subsequently at amortised cost using the effective interest method. Share capital Financial instruments issued by the group are treated as equity only to the extent that they do not meet the definition of a financial liability. The group's ordinary shares are classified as equity instruments. Retirement benefits: Defined Contribution Schemes Contributions to defined contribution pension schemes are charged to the consolidated income statement in the year to which they relate. Share-based payments The group has applied the requirements of IFRS 2 Share-based payments. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments that were unvested as of 1 August 2006. Where equity settled share options are awarded to employees, the fair value of the options at the date of grant is charged to the consolidated income statement over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the consolidated income statement over the remaining vesting period. Where equity instruments are granted to persons other than employees, the consolidated income statement is charged with the fair value of goods and services received. Leased assets Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the group (a 'finance lease'), the asset is treated as if it had been purchased outright. The amount initially recognised as an asset is the lower of the fair value of the leased property and the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. The lease payments are analysed between capital and interest. The interest element is charged to the consolidated income statement over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor. Where substantially all of the risks and rewards incidental to ownership are not transferred to the group (an 'operating lease'), the total rentals payable under the lease are charged to the consolidated income statement on a straight line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight line basis. The land and buildings element of property leases are considered separately for the purposes of lease classification. Internally Generated Intangible Assets (Research and Development Costs) Expenditure on internally developed products is capitalised if it can be demonstrated that: * it is technically feasible to develop the product for it to be sold; * adequate resources are available to complete the development; * there is an intention to complete and sell the product; * the group is able to sell the product; * sale of the product will generate future economic benefits; and * expenditure on the project can be measured reliably. Capitalised development costs are amortised over the periods the group expects to benefit from selling the products developed. The amortisation expense is included within the administrative expenses line in the consolidated income statement. Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised in the consolidated income statement as incurred. Deferred taxation Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs from its tax base, except for differences arising from: * the initial recognition of goodwill; * the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profits; and * investments in subsidiaries and jointly controlled entities where the group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered). Deferred tax assets and liabilities are offset when the group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either: * the same taxable group company; or * different group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered. Property, plant and equipment Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognised within provisions. Items of property, plant and equipment are carried at depreciated cost. Depreciation is provided on all items of property, plant and equipment so as to write off the carrying value of items over their expected useful economic lives. It is applied at the following rates: Computer equipment - 3 years Laboratory equipment - 5 years 2. Critical Accounting Estimates and Judgements The group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Impairment of Non-Current Assets Property, plant and equipment is depreciated over the useful lives of the assets. Useful lives are based on the management's estimates of the period that the assets will generate revenue, which are periodically reviewed for continued appropriateness. Share-based payments The group has equity settled share-based remuneration schemes for employees. The fair value of share options is estimated by using the Black-Scholes valuation model, on the date of grant based on certain assumptions. These assumptions include, among others, expected volatility, expected life of the options and number of options expected to vest. Income taxes The group is recognising research & development tax credits receivable in the consolidated income statement in respect of the significant expenditure on research and development activity during the period. The amount recognised is an estimate of the amount which the group believes it is entitled to claim. Until the claim is submitted to the tax authorities and the amounts are actually received there is a risk that the tax credit claim could be challenged by the tax authorities. The group believes that the receivable for income tax repayments is appropriate based on its assessment of several factors including past experience and interpretations of tax law. To the extent that the final tax outcome is different from the amounts recorded, such differences will impact on the income tax expense in the period in which such determination is made. 3. Segmental information The Group has one business segment - the research and development of pharmaceutical products, with all activities taking place in the UK. Consequently, there are no reportable segments in accordance with IAS 14. 4. Earnings per share The calculation of basic and diluted loss per share is based upon the loss after tax divided by the weighted average number of shares in issue during the period. Due to the losses incurred there is no dilutive effect from the issue of share options. Loss after Weighted tax average EPS number Basic and diluted loss per share # of shares (pence) 6 months ended 31 January 2008 (894,207) 5,732,601 (15.6p) 6 months ended 31 January 2007 (678,225) 5,683,981 (11.9p) 12 months ended 31 July 2007 (1,740,692) 5,697,035 (30.6p) At 31 January 2008, there were 426,298 share options granted but not yet exercised. 5. Explanation of transition to IFRS The Group's financial statements for the year ending 31 July 2008 will be the first financial statements that comply with International Financial Reporting Standards (IFRS). The Group's financial statements prior to and including 31 July 2007 had been prepared in accordance with Generally Accepted Accounting Principles in the United Kingdom (UK GAAP). As required by IFRS 1, the impact of the transition from UK GAAP to IFRS is explained below. The accounting policies set out above have been applied consistently to all periods presented in this interim financial information and in preparing an opening IFRS balance sheet at 1 August 2006 for the purposes of transition to IFRS. IAS 1 - Presentation of Financial Statements. The form and presentation in the UK GAAP financial statements has been changed to be in compliance with IAS 1. There are no adjustments arising from the transition to IFRS and therefore there is no impact on the reported Income Statement or Balance Sheet. Consequently, no reconciliation between IFRS and UK GAAP has been provided. IAS 7 - Cash Flow Statements. The IFRS Cash Flow Statement, prepared under IAS 7, presents cash flows in three categories: cash flows from operating activities, cash flows from investing activities and cash flows from financing activities. Other than the reclassification of cash flow into the new disclosure categories, there are no significant differences between the Group's Cash Flow Statement under UK GAAP and IFRS. Consequently, no cash flow reconciliations are provided. Purchases of tangible fixed assets under UK GAAP have been reclassified to purchases of property, plant and equipment under IFRS. The Group has elected not to apply IFRS 3 to business combinations that occurred prior to the date of transition. This information is provided by RNS The company news service from the London Stock Exchange END IR SEUFMDSASEIL

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