Futura Medical Regulatory News (FUM)

Futura Medical plc

("Futura" or the "Company")

Interim Results for the six months ended 30 June 2013

Futura Medical plc (AIM: FUM), the innovative healthcare company focused on advanced transdermal technology, is pleased to announce its interim results for the six months ended 30 June 2013.

Highlights

· CSD500 - Significant commercial, technical and regulatory progress:

- Licensing deal with Church & Dwight for North America and key European countries

- Licensing deal with Middle Eastern healthcare group for key MENA countries

- Positive opinion received from EU regulators ahead of formal award of CE mark

- Major product improvements to increase shelf life and reduce cost of goods

· PET500 - Soft launch under way in the USA by Ansell under the LifeStyles® brand

· Pain Relief Portfolio - Two new products added to the portfolio

· Net loss of £0.88 million in the period with net cash outflow of £0.70 million

· Cash resources of £2.12 million at 30 June 2013

James Barder, Futura's Chief Executive, said: "The year to date is progressing well and we are moving closer to the launch of CSD500. Our two licensing deals cover a total of 24 countries and we continue in advanced discussions for the licensing of CSD500 in certain other geographic territories. Our ambition is that CSD500 will be launched on three continents in 2014 thereby transforming the Company's financial profile."

For further information:

Notes to editors:

About Futura Medical plc

Futura Medical is a pharmaceutical group that develops innovative products for consumer healthcare. The Company is developing a portfolio of products and its strategy is to license their manufacture and distribution to major pharmaceutical and healthcare groups.

Futura is based in Guildford, Surrey, and its shares trade on the AIM market of the London Stock Exchange.

www.futuramedical.com

Chairman's and Chief Executive's Review

Futura had a good first half during which we made significant progress with the commercialisation of CSD500. We have now signed two licensing deals and received a positive opinion from European regulators.

Just over a year ago, in August 2012, we regained the marketing rights to our lead product, the novel condom CSD500, after becoming concerned at the pace of the product's commercialisation. We were confident that by regaining the rights we would have greater control to set the product on a more rapid path towards launch.

CSD500 has shown compelling efficacy in clinical studies and we were convinced that we could relicense the product as part of a clear strategy for bringing the product to market as soon as possible. During the first half of the current financial year we have been focused on delivering against that strategy, a key part of which is the licensing of CSD500 on a territorial basis to leading condom brands.

In April this year we were delighted to announce that the major US consumer products group Church & Dwight, whose brands include Trojan® condoms, had licensed CSD500 in North America and certain European countries. We have also recently licensed CSD500 to a Middle Eastern healthcare group, which has a significant sales presence in the region. We continue in discussions in respect of licensing deals in other geographic territories.

In total, the rights to CSD500 have been licensed in 24 countries, with Europe being the first territory in which the product will become available. As announced this week, we have received a positive opinion in connection with our regulatory submission for CSD500 in Europe and expect the award of the CE mark certificate this month. The award of the CE mark will mean that CSD500 can proceed to launch in Europe as well as facilitating the regulatory process in many other territories.

During the period we also made major progress with our manufacturing strategy by gaining the necessary ISO 13485 certification and establishing two outsourced and independent supply chains, one in Europe and one in Asia. We have also improved the technical specifications of CSD500 whilst reducing the cost of goods.

The first half of the financial year has also seen progress elsewhere in our portfolio of product opportunities.

The soft launch of PET500, our innovative spray for enhanced sexual control, is now underway in the USA, where the product has been launched by Ansell Limited under its Lifestyles® brand. It is hoped that the product will be made available in mass market retailers following the current period of test marketing.

We also added two new product opportunities to our pain relief portfolio, using the active ingredients ibuprofen and methyl salicylate. Futura now has a portfolio of three, topically applied over-the-counter gels for pain relief and has appointed an advisory firm to assist in fully exploiting the potential of this product group.

We have also received the results of our second clinical study of CRF100, our reformulated topical treatment for cellulite. The improvement in the appearance of cellulite, although statistically significant, represented only a very modest reduction in the appearance of cellulite. We are interested only in products that can produce robust clinical data with significant benefit for users and so have therefore taken the decision not to pursue this product opportunity.

In summary, Futura has made significant progress in the first half of 2013 particularly with CSD500. For commercial reasons it is not possible to be specific about how the product will be rolled out but our ambition in the short term is to see CSD500 launched in three continents during 2014. We believe this ambition is deliverable and will transform Futura into a revenue-generating business at the forefront of topical drug innovation.

Portfolio updates - Sexual healthcare

CSD500: Condom safety device

We regained worldwide marketing rights to CSD500 in August last year and since that time have made major progress in delivering our strategy for the product's commercialisation. Whilst the previous licensing deal was on a worldwide basis, our preferred strategy for licensing CSD500 is on a geographic basis to condom distributors that hold leading positions in their regions.

The key difference compared with the previous commercialisation agreement is that in the first instance Futura will be in control of all manufacturing and development work. The distribution agreements will be focused on commercialisation. Once licensed, manufacture may switch to the relevant distributor's preferred location but adopting the strategy outlined above is aimed at guaranteeing continuity of supply and certainty to our shareholders.

In April this year we were delighted to announce a licensing deal with Church & Dwight Co Inc, the major US consumer products group whose brands include Trojan® condoms. Under the terms of the agreement, Church & Dwight will hold the rights to manufacture, market and distribute CSD500 in North America and in a number of key European territories.

The financial details of the agreement are not being disclosed although Futura received an upfront payment and will receive royalties on all product sales along with certain minimum performance guarantees.

We have also recently licensed CSD500 to a Middle Eastern healthcare group, whose identity is currently undisclosed for commercial reasons. The healthcare group has a strong sales presence in the region and will market and distribute CSD500 in a number of Middle Eastern and North African countries. The financial details are again confidential but include an upfront payment, royalties on sales and certain minimum performance guarantees.

We continue in discussions in respect of licensing deals in other geographic territories and look forward to making further announcements in due course. In total, the rights to CSD500 have been licensed in 24 countries, with Europe being the first territory in which the product will become available.

As announced this week, we have received a positive opinion in connection with our regulatory submission for CSD500 in Europe and expect the award of the CE mark certificate this month. The award of the CE mark will mean that CSD500 can proceed to launch throughout Europe.

During the half year we also made major progress with our manufacturing strategy by gaining the necessary ISO 13485 certification and establishing two outsourced and independent supply chains, one in Europe and one in Asia. The recent positive opinion currently only covers one of these supply chains with the second supply chain expected to come on stream next year as more distribution agreements are agreed. Futura's virtual business model remains unchanged and the Company will therefore not be directly involved in manufacturing, packaging, warehousing or any other discipline associated with integrated businesses.

We have improved the technical and commercial specifications and the supply chain for CSD500 which will extend the shelf life of the product and result in a significant reduction in the cost of goods, for the shared benefit of Futura and our commercial partners. We have filed a new patent in connection with these improvements which, if granted, would extend the commercial value of the product for a further 10 years to 2033.

CSD500's unique intellectual property position has been protected throughout the world including the principal consumer markets within Europe, the USA and Canada through patents now granted or proceeding to grant in 36 countries with one application still pending. CSD500 benefits from three marketing claims which have been clinically proven and approved by the regulatory authorities: the maintenance of a firmer erection, increased penile size and a longer lasting sexual experience for women. These claims were demonstrated in a statistically significant user study involving 108 couples.

As previously announced, the results of our own market research, conducted by internationally recognised research companies, reinforce the commercial potential of CSD500 with men and women who already use condoms as well as with men and women who do not currently use them. Market research showed that 88% of existing condom users would be interested in purchasing CSD500 and that 49% of non-condom users would be interested in purchasing the product. Further research also showed that 46% of men had experienced some loss of sensitivity when using a condom during sexual intercourse, which can lead to loss of erection. This is one reason why some men avoid condoms, thereby increasing the risks of unwanted pregnancies and contracting or spreading sexually transmitted infections.

MED2002: Treatment for erectile dysfunction

MED2002, which uses our DermaSys® drug delivery system, is our topical gel for the treatment of men with erectile dysfunction (ED). We regained the worldwide rights to the product in August 2012 at the same time as regaining the rights to CSD500, with which it shares the same active ingredient.

MED2002 has the potential to become the world's first non-prescription pharmaceutical treatment for erectile dysfunction, a condition that affects, to some degree, as many as 52% of men aged 40 or over1. MED2002 has several highly attractive characteristics: its safety, its speed of onset and the potential for the application of the gel to become part of sexual foreplay.

We have completed external market research to better understand the potential opportunity that

MED2002 represents as a prescription and as a non-prescription treatment for erectile dysfunction to optimise the commercial opportunity. We are continuing to refine our strategy for the strategic development of this product, which we believe represents a significant opportunity.

Note1: Massachusetts Male Aging Study (MMAS), J Urol. 1994 Jan; I5I (1): 54-61

PET500: Enhanced sexual control

PET500 is a topical spray that combines our DermaSys®AquaFree delivery system with a well-known mild topical anaesthetic. It is designed to take effect rapidly and to delay male ejaculation, thereby offering enhanced sexual control.

PET500 is licensed to Ansell Limited, one of the world's major sexual health companies, which signed an exclusive worldwide agreement to commercialise the product under its LifeStyles® brand. Under the terms of the agreement Futura will receive a significant royalty rate on sales of PET500, which is approved in the USA under the current Food & Drug Administration monograph for male genital desensitisers.

Since signing the agreement, Ansell has developed the brand positioning and packaging for PET500 for initial sale in the USA and will be sold under their well-known LifeStyles® brand. Ansell has begun the soft launch of the product in the USA and it is hoped that it will be made available in mass market retailers following the current period of test marketing.

Futura expects to receive some revenue from PET500 in the current financial year though this is not expected to be significant owing to the product's phased roll out in the USA. We are also in discussions in respect of the launch of the product in other territories.

Portfolio updates - Pain relief management

During the half-year we made significant advances with our pain relief portfolio, culminating in the addition of two new compounds to complement our existing pain relief product, TPR100. The two new compounds, TIB200 and SPR200, use ibuprofen and methyl salicylate respectively as their active ingredients.

In vitro studies show that very high levels of skin penetration were achieved with each of ibuprofen and methyl salicylate when using Futura's highly efficient transdermal delivery system, DermaSys®. This rapid skin penetration offers potential benefits including improved speed of onset, greater depth and longer duration of pain relief.

The two new programmes complement TPR100, which uses DermaSys® with the non-steroidal anti-inflammatory drug ("NSAID") diclofenac as its active ingredient.

As announced on 1 July 2013, the three programmes together present a portfolio opportunity for a potential licensing partner and in view of this, and for reasons unrelated to the product's technical development, Futura mutually agreed with GlaxoSmithKline Consumer Healthcare ("GSK"), to discontinue the development agreement for TPR100 at the end of June 2013.

Futura has recently appointed an advisory firm to assist in fully exploiting the commercial potential of this product group. The portfolio comprises:

TPR100 - a topical gel combining the NSAID diclofenac with the DermaSys® delivery system. TPR100 has been shown to achieve in excess of eight times higher penetration through human skin and 35 times greater bioavailability than achieved by the UK's best-selling topically applied diclofenac-based pain relief product, Voltarol® Emulgel.

A graph and data showing the superior skin penetration of TPR100 is available at this link: www.futuramedical.co.uk/archive/painreliefclinicalgraphs.pdf. The link also shows the superior performance of the two new pain relief programmes described below, TIB200 and SPR300.

In addition to TPR100, we have developed a higher strength version, TPR100-Rx, to treat more profound pain associated with conditions such as osteoarthritis and rheumatic pain. TPR100-Rx is expected to be a prescription product due to the medical indications.

TIB200 - a topical gel combining the well-known analgesic ibuprofen with the DermaSys® delivery system. TIB200 has been shown to achieve in excess of eight times higher penetration through isolated human skin compared with the UK's best-selling topically applied ibuprofen-based topical pain relief product, Nurofen®.

SPR300 - a topical gel combining methyl salicylate and menthol with the DermaSys® delivery system. SPR300 has been shown to achieve in excess of four times higher penetration through isolated human skin compared with the UK's best-selling topically applied methyl salicylate/menthol-based topical pain relief product, Deep Heat®.

In addition SPR300 was directly compared with the best-selling over-the-counter topically applied gels sold in the USA, Icy Hot® and Bengay®, and showed similarly improved permeation rates. It should be noted that the US market differs from the European market in that no NSAIDs are licensed as over-the-counter topically applied pain relief products.

It is not envisaged that any further clinical work will be required to obtain regulatory approval for SPR300 in the UK or USA. It is therefore intended to move ahead as soon as possible to obtain the necessary regulatory clearances to prepare the product for launch.

Portfolio updates - Cellulite reduction

CRF100: Topical treatment for cellulite

CRF100 is a topically applied cream for the treatment of cellulite, the condition characterised by dimpled skin, which we added to our early stage pipeline in December 2011. It comprises a well-characterised chemical compound (an alkaloid) within Futura's DermaSys® delivery system. The alkaloid is already used by a number of major cosmetics companies in the treatment of cellulite and its use, at levels sufficient to produce a physiological effect, is supported by scientific literature.

We conducted an initial clinical study of CRF100 in women with cellulite, the results of which were announced last year. A statistically significant trend of improvement in cellulite was seen at the first review point after 28 days, compared with placebo, but a side-effect profile of dry skin prompted us to reduce the dosage for the subsequent two months. The results of the study were equivocal so we reformulated CRF100 with the objective of reducing the incidence of dry skin whilst maintaining the level of active ingredient.

We are today announcing the results of the second clinical study. We saw a statistically significant improvement in the appearance of cellulite after 28 days and for the duration of the three month study however the improvement, although statistically significant, was very small and does not, in the view of the Board, represent an out-licensing opportunity.

These results are disappointing as we thought the active ingredient could produce efficacy. However, we are interested only in products that can produce robust clinical data and have taken the decision not to pursue any further development work with this product opportunity.

We have spent an immaterial amount on the product's development, which highlights the cost-effective nature of our R&D. Whilst we wanted to see efficacy, we have at least achieved a go/no-go decision without spending a substantial amount of shareholders' funds.

Early Stage Product Development

We have a rigorous approach to vetting potential new products and our interest is contingent upon robust evidence-based outcomes. Our initial evaluation includes five key criteria: performance, aesthetics, stability, defensible intellectual property and commercial potential. Unless a new opportunity gives a clear indication of meeting these criteria then the product concept will not progress to the next stage of development.

Futura's highly efficient DermaSys® delivery system is a versatile asset and we are currently working on a number of potential products at various stages.

Finance

Cash and cash equivalents at 30 June 2013 was £2.12 million (31 December 2012: £2.82 million) with a net cash outflow of £701k in the period. We continue to manage our financial resources carefully.

In the period under review, we earned milestone payments of £321k (year ended 31 December 2012: £75k). The retained loss for the six months ended 30 June 2013 was £885k. Research and development ("R&D") costs of £887k were higher than that for the corresponding six month period ended 30 June 2012: £683k (year ended 31 December 2012: £1,436k) as we are investing in new products to add to the development pipeline. Other administrative costs of £472k were lower than that for the corresponding six month period ended 30 June 2012: £481k (year ended 31 December 2012: £1,095k).

Outlook

The year to date is progressing well and we are moving closer to the launch of CSD500. Our two licensing deals cover a total of 24 countries and we continue in advanced discussions for the licensing of CSD500 in certain other geographic territories. Our ambition is that CSD500 will be launched on three continents in 2014 thereby transforming the Company's financial profile.

Group Statement of Comprehensive Income

All amounts relate to continuing activities.

Group Statement of Changes in Equity

Share premium represents amounts subscribed for share capital in excess of nominal value, less the related costs of share issues.

Merger reserve represents the reserve arising on the acquisition of Futura Medical Developments Limited in 2001 via a share for share exchange accounted for as a group reconstruction using merger accounting under UK GAAP.

Retained losses represent cumulative net losses recognised in the Group Statement of Comprehensive Income. The total comprehensive loss for the year represents the total recognised income and expense for the year.

Group Statement of Cash Flows

Notes to the Group Interim Financial Information

1. Accounting policies

1.1 Basis of preparation

The unaudited Interim Report was approved by the Board of Directors on 11 September 2013.

The interim financial information for the six months ended 30 June 2013 and for the six months ended 30 June 2012 does not constitute statutory accounts within the meaning of section 434(3) of the Companies Act 2006 and is unaudited.

The Group financial information for the year ended 31 December 2012 which has been extracted from the financial statements of the statutory accounts ("Annual Report") of Futura Medical plc, which were prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union, does not constitute the full statutory accounts for that period. The Annual Report for 2012 has been filed with the Registrar of Companies. The Independent Auditor's Report on those financial statements was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under sections 498(2) or 498(3) of the Companies Act 2006.

1.2 Going concern

The Group had cash balances of £2.12 million at 30 June 2013, with a net cash outflow of £701k in the period.

The Interim Report has been prepared on the going concern basis which assumes that the Group will continue in operational existence for the foreseeable future. The financial statements do not reflect any adjustments that would be required if they were to be prepared on a basis other than the going concern basis.

1.3 Accounting developments

The following new standards, amendments to standards or interpretations have been issued and are effective for the year ended 31 December 2013 however the Directors do not expect them to have a material effect on the Group financial statements:

· IFRS 10 'Consolidated Financial Statements'

· IAS 1 (Amended) 'Presentation of Financial Statements'

· IAS 19 (Amended) 'Employee Benefits'

1.4 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 Group financial statements present the results of the Company and its sole subsidiary Futura Medical Developments Limited as if they formed a single entity ("the Group"). Intra-group transactions and balances are eliminated in preparing the Group financial statements.

1.5 Revenue

Revenue comprises the fair value received or receivable for: exclusivity arrangements, consultancy fees, milestone income or royalties, net of value added tax.

The accounting policies for the principal revenue streams of the Group are as follows:

(i) Exclusivity arrangements and similar agreements are recognised as revenue in the accounting period in which the related services, or required activities, are performed or specified conditions are fulfilled in accordance with the terms of completion of the specific transaction.

(ii) Consultancy fees are recognised as revenue in the accounting period in which the revenue becomes receivable.

(iii) Non-refundable milestone income is recognised as revenue in the accounting period in which the milestones are achieved. If any milestone income is creditable against royalty payments then it is deferred and released to the Group Statement of Comprehensive Income over the accounting periods in which the royalties would otherwise be receivable.

(iv) Royalty income relating to the sale by a licensee of licensed product is recognised on an accruals basis in accordance with the substance of the relevant agreement and based on the receipt from the licensee of the relevant information to enable calculation of the royalty due.

1.6 Leased assets

Leases, which contain terms whereby the Group does not assume substantially all the risks and rewards incidental to ownership of the leased item are classified as operating leases. Operating lease rentals are charged to the Group Statement of Comprehensive Income on a straight-line basis over the lease term. The Group does not hold any assets under finance leases.

1.7 Intangible assets

Research and development ("R&D")

Expenditure incurred on the development of internally generated 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 out-licence or 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 in which the Group expects to benefit from selling the products developed but not exceeding five years. The amortisation expense is included in R&D costs recognised in the Group Statement of Comprehensive Income. The useful life and the value of the capitalised development cost are assessed for impairment at least annually. The value is written down immediately if impairment has occurred and the unimpaired cost amortised over the reduced useful life. The Directors consider that the criteria to capitalise development expenditure are not met for a product prior to that product being commercially launched in at least one country.

Development expenditure, not satisfying the above criteria, and expenditure on the research phase of internal projects are included in R&D costs recognised in the Group Statement of Comprehensive Income as incurred.

Patents and trademarks

The costs incurred in establishing patents and trademarks are either expensed or capitalised in accordance with the corresponding treatment of the development expenditure for the product to which they relate.

1.8 Plant and equipment

Plant and equipment is initially recognised at cost, and subsequently at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is charged to the Group Statement of Comprehensive Income at rates calculated to write off the cost, less estimated residual value, of each asset on a straight-line basis over their estimated useful lives.

The assets' residual values and useful lives are determined by the Directors and reviewed and adjusted if appropriate at each Group Statement of Financial Position date.

1.9 Impairment of non-financial assets

Assets that are subject to depreciation are reviewed for impairment on a half-yearly basis and when events or circumstances suggest that the carrying amount may not be recoverable. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). An impairment loss is recognised immediately in the Group Statement of Comprehensive Income for the amount by which the asset's carrying amount exceeds its recoverable amount.

Recoverable amount is the higher of fair value, less disposal costs, and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods. A reversal of an impairment loss is recognised immediately in the Group Statement of Comprehensive Income.

1.10 Inventories

Inventories are materials and supplies to be consumed in the course of R&D and are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost includes materials, related contract manufacturing costs and other direct costs. Cost is calculated using the first-in, first-out method. Net realisable value is based on estimated selling price, less further costs expected to be incurred to completion and disposal.

A provision is recognised immediately in the Group Statement of Comprehensive Income in respect of obsolete, slow-moving or defective items, where appropriate.

1.11 Financial instruments

Financial assets

The Group classifies its financial assets in the category of loans and receivables, comprising 'trade and other receivables' and 'cash and cash equivalents'. They are recognised initially at fair value and subsequently at amortised cost using the effective interest rate method.

Trade and other receivables are recognised initially at fair value and are subsequently measured at amortised cost using the effective interest rate method, less an estimate made for impairment based on a review of all past due amounts at the year end. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due. If an impairment loss is required the carrying amount of the trade or other receivable is reduced through the use of an allowance account and the amount of the loss recognised immediately in the Group Statement of Comprehensive Income in administrative costs.

Medium-term deposits, comprising sterling fixed rate deposits, with original maturities of more than three months are included in trade and other receivables.

Cash and cash equivalents are financial assets and comprise cash in hand and sterling fixed rate short-term deposits with original maturities of three months or less which are held by the Group so as to be available to meet short-term cash commitments.

The Group assesses at each Statement of Financial Position date whether there is objective evidence that a financial asset is impaired.

Financial liabilities

The Group's financial liabilities comprise 'trade and other payables' recognised initially at fair value and subsequently at amortised cost using the effective interest rate method.

1.12 Foreign currency translation

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Group Statement of Comprehensive Income in the period in which they arise.

1.13 Finance income

Interest income is recognised on a time-proportion basis using the effective interest rate method.

1.14 Taxation

Income tax is recognised or provided at amounts expected to be recovered or to be paid using the tax rates and tax laws that have been enacted or substantively enacted at the Group Statement of Financial Position date. R&D tax credits are recognised on an accruals basis and are included as an income tax credit under current assets.

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability on the Group Statement of Financial Position date differs from its tax base, except for differences arising on:

· the initial recognition of an asset or liability in a transaction which is not a business combination and which at the time of the transaction affects neither accounting profit nor taxable profit; 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 profits 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 Group Statement of Financial Position date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered). Deferred tax balances are not discounted.

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 to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, on each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.

1.15 Employee benefits

(i) Defined contribution plans

The Group provides retirement benefits to all employees and Executive Directors who wish to participate in defined contribution pension schemes. The assets of these schemes are held separately from those of the Group in independently administered funds. Contributions made by the Group are charged to the Group Statement of Comprehensive Income in the period in which they become payable.

(ii) Accrued holiday pay

Provision is made at each Group Statement of Financial Position date for holidays accrued but not taken at the salary of the relevant employee at that date. The expected cost of compensated short-term absence (i.e. holidays) is charged to the Group Statement of Comprehensive Income on an accruals basis.

(iii) Share-based payment transactions

The Group operates an equity-settled share-based compensation plan. For all share options awarded to employees, and others providing similar services, the fair value of the share options at the date of grant is charged to the Group Statement of Comprehensive Income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each Group Statement of Financial Position date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of share options that eventually vest. There are no market vesting conditions. If the terms and conditions of share options are modified before they vest, the change in the fair value of the share options, measured immediately before and after the modification, is also charged to the Group Statement of Comprehensive Income over the remaining vesting period.

The proceeds received when share options are exercised, net of any directly attributable transaction costs, are credited to share capital (nominal value) and the remaining balance to share premium. All employee share option holders enter into an HMRC joint election to transfer the employers' national insurance contribution potential liability to the employee, therefore no Group asset or liability arises.

(iv) Long-term incentive scheme

The Group operates a long-term incentive scheme. The quantum of any awards receivable will depend on the Group achieving set milestones and the share price at the time relative to targets set in advance. The Group can exercise discretion in settling any award in equity or in cash.

1.16 Critical accounting estimates and judgements

Critical accounting estimates, assumptions and judgements are continually evaluated by the Directors based on available information and experience. As the use of estimates is inherent in financial reporting, actual results could differ from these estimates.

Judgements

(i) Revenue recognition

Fees invoiced in respect of non-refundable milestones have been recognised as revenue in the Group Statement of Comprehensive Income in the period as all criteria for revenue recognition have been met.

(ii) Intangible asset recognition

The Directors consider that the criteria to capitalise development expenditure are not met for a product prior to that product being commercially launched in at least one country.

(iii) Deferred tax recognition

The Directors consider that, given the current stage of development of the business, deferred tax assets should not be recognised before the Group is generating recurring royalty revenue.

Estimates and assumptions

(iv) Useful lives of plant and equipment

Plant and equipment is amortised or depreciated over its useful life. Useful lives are based on the Directors' estimates of the periods over which the assets will be used in developing revenue generating products and the estimates are reviewed annually for continued appropriateness. The estimated useful lives are between two and five years for computer equipment and between three and ten years for furniture and fittings. Changes to estimates can result in significant variations in the carrying value and amounts charged to the Group Statement of Comprehensive Income in specific periods.

(v) Fair value of financial instruments

The Group determines the fair value of financial instruments using valuation techniques which can be significantly affected by the assumptions used, including interest and discount rates and estimates of future cash flows.

(vi) Inventories

The Group reviews the net realisable value of its inventories on a half-yearly basis to provide assurance that recorded inventories are stated at the lower of cost or net realisable value. Factors that could impact realisable value include: the timing and success of future technological innovations in relation to product R&D, competitor and Government actions, supplier prices and economic trends.

(vii) Share-based payments

The Group operates an equity-settled share-based compensation plan. Employee (and similar) services received and the corresponding increase in equity are measured by reference to the fair value of the equity instruments as at the date of grant.

2. Segment reporting

The Group is organised and operates as one business segment, being the development of pharmaceutical drugs and medical devices and their commercial exploitation. The main area of R&D continues to be in the field of innovative products for the consumer healthcare market with the focus being on sexual healthcare and pain relief management.

The Group manages any overseas R&D from the UK, the primary business segment. Segment revenue is based on the geographical location of the Group's customers. Since there is currently only one business segment and one geographical segment, no separate segment reporting has been prepared.

3. Loss per share (pence)

The calculation of the loss per share is based on a loss of £884,990 (six months ended 30 June 2012: loss of £958,561; year ended 31 December 2012: loss of £2,176,649) and on a weighted average number of shares in issue of 77,500,251 (six months ended 30 June 2012: 73,687,149; year ended 31 December 2012: 74,746,320).

The loss attributable to equity holders of the Company for the purpose of calculating the fully diluted loss per share is identical to that used for calculating the basic loss per share. The exercise of share options, or the issue of shares under the long-term incentive scheme, would have the effect of reducing the loss per share and is therefore anti-dilutive under the terms of IAS 33 'Earnings per Share'.

4. Trade and other receivables

Trade receivables that are under three months past due are not considered impaired. As of each period end there were no trade receivables past due but not impaired. The other classes within trade and other receivables do not contain impaired assets. The Group does not hold any collateral as security and the maximum exposure to credit risk at the Group Statement of Financial Position date is the fair value of each class of receivables.

5. Cash and cash equivalents

6. Share capital and share premium

During the period share options over 142,038 new ordinary shares were exercised by employees (no Directors). This generated additional funds of £59,888 for the Company.

7. Related party transactions

Related parties, as defined by IAS 24 'Related Party Disclosures', are the wholly owned subsidiary company, Futura Medical Developments Limited, the Board and the Chief Scientific Officer. Transactions between the Company and the wholly owned subsidiary company have been eliminated on consolidation and are not disclosed in this note.