BTG Regulatory News (BTG)

BTG plc

22 June 2011

ANNUAL REPORT AND ACCOUNTS 2011

In accordance with the Listing Rule 9.6.1, copies of the following documents have been submitted to the UK Listing Authority.

·; A copy of the Company's Annual Report and Accounts for 2011

·; A Circular to shareholders incorporating the Notice of the 2011 Annual General Meeting

These documents have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do

The Annual Report and Accounts and Notice of the Annual General Meeting are also available on the Company's website at www.btgplc.com.

The Annual General Meeting will be held at 10.30 am on Wednesday, 20 July 2011 at the offices of Stephenson Harwood, 1 Finsbury Circus, London EC2M 7SH

The documents have been posted/made available to shareholders and the Annual Report and Accounts 2011 and Notice of Annual General Meeting 2011 are available on the Company website at www.btgplc.com.

 In accordance with DTR 6.3.5, extracted below from the Annual Report and Accounts is a management report in full unedited text which contains a responsibility statement, principal risk factors and details of related party transactions. References to page numbers and notes in the extract refer to those in the Annual Report and Accounts 2011. A condensed set of financial statements were appended to BTG plc's preliminary results announcement issued on 25 May 2011.

Name of contact and telephone number for queries:

Andy Burrows 020 7575 1741

Director of Investor Relations

BTG plc

 UNEDITED EXTRACT FROM ANNUAL REPORT AND ACCOUNTS 2011

 The directors include the following statements:

 1. STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS

The directors are responsible for preparing the Annual Report and Accounts and the

Group and Parent Company financial statements 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 are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the Parent Company financial statements on the same basis.

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 their 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 and prudent;

·; State whether they have been prepared in accordance with IFRSs as adopted by the EU; and

·; Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business.

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 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 Directors' Report, Directors' Remuneration Report and Corporate Governance Statement 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.

Directors' responsibility statement pursuant to DTR4

We confirm that to the best of our knowledge:

·; The financial statements, prepared in accordance with the applicable set of

accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

·; The directors' report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

2. STATEMENT IN THE DIRECTORS' REPORT IN RESPECT OF THE BUSINESS REVIEW

The information that fulfils the requirements of the business review, including a review of the business, the principal business risks, key performance indicators and likely future developments, can be found in the Chief Executive Officer's review on pages 16 to 19, the business review on pages 20 to 29 and the corporate responsibility report on pages 30 to 35. These are incorporated into this report by reference.

3. PRINCIPAL RISKS AND UNCERTAINTIES

a) Interruption of product supply

BTG relies on third-party contractors for the supply of key materials and services, such as filling and freeze-drying of end products. These processes carry risks of failure and loss of product. Problems at contractors' facilities may lead to delays and disruptions in supplies. Some materials and services may be available from one source only and regulatory requirements make substitution costly and time-consuming. BTG's polyclonal antibody products rely on serum produced from our sheep flocks in Australia, which could be subject to disease outbreaks. BTG relies on its single site in Wales for supply of manufactured product, with the consequent possibilities for disruption to supplies.

Controls and mitigating actions:

Rigorous monitoring of suppliers; dual sourcing implemented wherever possible; inventories monitored through sales and operational planning process and production changes implemented where needed to ensure continued product supply; regular checks made on sheep flock health; disaster recovery plans in place.

b) Patent validity, patent infringement litigation and changes in patent laws

In common with all patents, BTG's patents can be subject to challenge at any time. Challenges can relate to the validity of patents or to alleged infringement of others' intellectual property, which might result in litigation costs and/or loss of earnings. BTG might be obliged to sue third-parties for their infringement of its patents. Failure by BTG to maintain or renew key patents might lead to losses of earnings and liability to suit from both the licensee and licensor. BTG may not be able to secure the necessary intellectual property rights in relation to products in development, limiting the potential to generate value from these products. Changes in patent laws and regulations in territories where BTG conducts its business that make it more difficult or time-consuming to prosecute patents, or which reduce the exclusivity period for granted patents, could adversely impact the Group's financial performance. BTG's patent portfolio is currently subject to several challenges.

Controls and mitigating actions:

Dedicated internal resource supplemented by external expertise monitors patent portfolio and third-party patent applications; processes in place to automate patent renewals; internal controls established to avoid disclosure of patentable material prior to filing patent applications.

c) Patent expiry, product supply, safety or compliance issues, or competition may reduce current revenues

BTG's key current royalty-generating products are expected to continue to provide royalty revenues until their patents or licence agreements expire. Any unforeseen patent loss, supply, safety or compliance issues with these products could result in premature cessation of the revenues.

BTG also earns revenues from sales of its acute care products CroFab® and DigiFab®. CroFab® is patent protected but DigiFab® has no patent protection; both products are protected by significant know-how and complex manufacturing processes, and BTG expects revenues to continue regardless of patent protection. However, future competition cannot be ruled out and competing products could materially adversely impact BTG's financial results. BTG's Bead products are subject to competition.

Controls and mitigating actions:

New royalty streams may emerge from our licensing activities. For example, ZYTIGA™ (abiraterone acetate) was approved as a treatment for men with advanced prostate cancer in April 2011 and BTG will earn a royalty on all sales; additional future royalty streams would result if alemtuzumab is approved to treat multiple sclerosis and AZD9773 (CytoFab™) if approved to treat severe sepsis.

BTG acquired Biocompatibles International plc in January 2011 and acquired a portfolio of marketed products, providing another revenue stream and reducing the reliance on revenues from the acute care products. Mitigations with respect to the Bead products include product development, geographic expansion and the conduct of clinical studies to expand Bead product sales.

d) Product liability and other risks may not be capable of being adequately insured

The manufacturing, testing, marketing and sale of BTG's products involve significant product liability and business interruption risks. As the developer, manufacturer and seller of certain products, BTG may be held liable for death or personal injury to persons receiving the products during the development phase or after the product is approved.

Controls and mitigating actions:

BTG maintains product liability insurance and operates quality systems relating to the manufacture of its products and a pharmacovigilance system to monitor safety events arising with respect to products sold.

e) Failure to comply with regulations may result in prosecutions

The pharmaceutical industry is highly regulated and the Group must comply with a broad range of regulations relating to the development, approval, manufacturing and marketing of its products. This is particularly true in the US, from which the Group derives most of its revenues and where the Group is establishing its own sales and marketing operations. Regulatory regimes are complex and dynamic, and alterations to the regulations may result in delays in product development or in the products becoming non-approvable. Ensuring compliance with such regulations necessitates allocation of significant financial and operating resources.

Failure to comply with relevant rules, laws and regulations may result in criminal and civil proceedings against the Group. Significant breaches could result in large financial penalties, which could materially adversely impact the Group's financial performance and prospects. Moreover, failure by BTG or a BTG partner company to comply with regulations may result in a product being withdrawn from market with a subsequent loss of revenues.

Controls and mitigating actions:

A Code of Conduct has been provided to all employees supported by an ongoing training programme; compliance systems are in place to ensure sales and marketing activities comply with regulations in the US and other territories; standard operating procedures in place to ensure compliance with good clinical and manufacturing practice, monitored through quality control systems.

f) Inability to access new products and programmes may limit future growth

Other than through the CellMed subsidiary acquired with Biocompatibles, BTG does not conduct fundamental research to generate its own development programmes but instead seeks to acquire new products and late-stage development programmes from other organisations. There is significant competition from other companies who may have greater financial resources and sales and marketing reach than BTG. BTG may not be able to acquire suitable products and programmes, which will materially adversely impact the Group's financial future performance and growth prospects.

Controls and mitigating actions:

Dedicated product acquisition team in place; strategy is to focus on niche opportunities that leverage BTG's US commercial operations and may be a better fit with BTG than with other organisations.

g) The success of development activities is uncertain

BTG may not be able to access the later-stage development opportunities it seeks. The development of medical products is inherently uncertain and the timelines and costs to approval may vary significantly from budget or expectation. The product may not demonstrate the expected efficacy or safety benefits and may not be approved by the regulatory bodies, such as the US Food and Drug Administration. Manufacturing difficulties or patent litigation may cause programmes to be delayed or halted. Failure of a late-stage programme such as Varisolve® (PEM) would materially adversely impact the Group's financial prospects.

Controls and mitigating actions:

Experienced development team in place; focus is on acquiring later-stage programmes that have already demonstrated proof of concept and potentially have lower-risk development pathways; development programmes monitored to identify risks and challenges and recommend mitigating and corrective actions. Certain products are licensed to larger companies who may have greater resources to support product development.

h) Competition may erode revenues

The Group operates in competitive markets. The products on which BTG currently earns revenues, or from which it anticipates earning revenues once on the market, face competition from other products that are already approved or in development. Competing products may have superior efficacy and side-effect profiles, cost less to produce or be offered at a lower price than BTG's products; such competition could materially adversely impact Group revenues.

Controls and mitigating actions:

BTG focuses on niche opportunities addressing specialist markets where there is limited competition and high barriers to entry; CroFab® has no current competitor and BTG estimates DigiFab® has about 80% market share; both products are complex to manufacture. We differentiate the embolisation and drug-eluting bead products from competitors by supporting clinical studies to generate safety and efficacy data.

i) Pricing and reimbursement pressures are increasing

There is increasing pressure on healthcare budgets causing payers to demand increasing treatment and economic benefits before agreeing to reimburse product suppliers at all or at appropriate prices. In March 2010, healthcare reform legislation was adopted in the US, requiring manufacturers to increase the rebates or discounts they give on products reimbursed or paid for by public payers including Medicaid and Medicare. The purpose of the reform is to increase healthcare coverage in the US population and to manage treatment of chronic conditions efficiently and cost effectively. Management of acute conditions is generally not affected. BTG's acute care and implantable oncology products treat serious medical conditions and the impact of healthcare reform on current Group revenues is not expected to be material to the Group's financial position. If BTG acquires products in future that are more impacted by healthcare reforms, revenue expectations could be lower. Failure of a product to qualify for government or health insurance reimbursement or the failure to achieve an appropriate sales price could adversely impact the Group's financial performance.

Controls and mitigating actions:

BTG focuses on niche products that address serious unmet needs; early on in a product's development the Group conducts pricing and reimbursement studies; the assessments of potential new products will include an assessment of healthcare reforms on pricing and reimbursement.

j) Currency and treasury effects can adversely impact results

Many of BTG's revenues and receipts are denominated in US dollars and movements in foreign exchange rates could adversely impact results.

Controls and mitigating actions:

BTG actively manages its exchange risks where feasible, using short-term hedging transactions guided by market expectations and economic forecasts to seek to match actual receipts and payments over a rolling 12-month period to those forecast. This policy can result in both exchange gains and losses, but provides a level of certainty over cash receipts.

4. RELATED PARTY TRANSACTIONS

The Group has a related-party relationship with its subsidiary undertakings (see note 2(b)), its associates (see note 2(b)) and its directors. During the year the Group invested a further £0.5m in its investments (see note 20). No dividends were received from associates in the years ended 31 March 2011 or 2010.

In relation to the related-party relationship identified on page 49 concerning Giles Kerr, payments made by BTG to Oxford University and Isis Innovations Ltd under the relevant licence agreements were £1.8m during the year ended 31 March 2011. There were no amounts still outstanding and payable by BTG under these agreements as at 31 March 2011.

In relation to the related-party relationship identified on page 49 concerning Melanie Lee, payments made by BTG to Cancer Research Technology Ltd under the relevant licence agreements were £0.1m during the year ended 31 March 2011. There were no amounts still outstanding and payable by BTG under these agreements as at 31 March 2011.

Key management personnel are considered to be the directors and their remuneration is disclosed within the remuneration report on pages 57 to 68.

Dr Peter Geigle, although not considered key management personnel, is a director of CellMed AG. Dr. Geigle is also an executive board member of Geigle Verwaltungs GmbH, a company that leases the premises to CellMed AG. The rental cost for the two months since acquisition was £0.1m. This arrangement is on an arms-length basis at a commercial rate. There were no amounts outstanding as at 31 March 2011 under this agreement.

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