Futura Medical Regulatory News (FUM)

A meeting for analysts will be held at 10.00 am this morning, 11 March 2011, at the offices of Buchanan Communications, 45 Moorfields, London EC2Y 9AE

Futura Medical plc

("Futura" or "the Group" or "the Company")

Preliminary Results for the year ended 31 December 2010

Futura Medical plc (AIM: FUM), the pharmaceutical group that develops innovative products for consumer healthcare, is pleased to announce its preliminary results for the year ended 31 December 2010.

Highlights

·; CSD500 - CE mark approval expected shortly

·; PET500 - Worldwide agreement signed with Ansell in February 2011

·; TPR100 - Development agreement signed with GlaxoSmithKline in June 2010

·; TPR100-Rx - New prescription pain relief product opportunity identified

·; Further in-house product opportunities under evaluation

·; Reduced net loss of £1.09 million (2009: Net loss of £1.39 million)

·; Cash resources of £0.82 million at 31 December 2010 (31 December 2009: £1.79 million),

tax credit receivable £0.15 million at 31 December 2010 (31 December 2009: £0.12 million)

·; £3.20 million (£3.07 million net of expenses) fundraising by way of a placing of 4,737,402 new ordinary shares at 67.50 pence per share announced today - see separate release

James Barder, Futura's Chief Executive, said: "As highlighted, 2010 saw great progress and the current year has started extremely well. We have signed a commercial deal with Ansell for PET500 and remain confident of receiving the CE mark for CSD500 in the near future. Both of these products are due to launch in the foreseeable future, with the potential of transforming Futura into a revenue generating company with significant royalty income."

The full results are available on the Company's website at www.futuramedical.com.

For any further information please contact:

Notes to Editors

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 Joint Review

In the year to 31 December 2010 we made significant progress towards our objective of becoming a profitable company with revenue streams from multiple products and a growing pipeline of new product opportunities. We now look forward to the launch of two revenue-generating products and we expect recurring royalty income to commence in 2011, marking a major milestone for the Company.

During the year we focused on advancing our two late-stage products, CSD500 and PET500, and on an earlier stage opportunity, TPR100. Major progress was made across all three products.

During the first half of the year commercial discussions focused on our pain relief franchise, specifically in securing a development partner for TPR100, a topically applied pain relief gel. On 30 June 2010, we signed a development agreement with GlaxoSmithKline Consumer Healthcare ("GSK") for TPR100, work on which is progressing as planned.

With CSD500, our innovative condom to help healthy men maintain a firm erection whilst wearing a condom, our effort was centred on working with our commercial partner, Reckitt Benckiser plc ("RB"), to achieve the award of the CE mark for the product ahead of its launch as a Durex® branded condom. We announced on 18 January 2011 that we were assisting RB to address minor points raised by the notified body ahead of CE mark approval. Since that date and in conjunction with RB we had a very positive meeting with the regulatory body where all outstanding points were reviewed, the conclusion of these discussions is that we are confident that the CE mark should be awarded within the first half of this year.

For PET500, our innovative spray for enhanced sexual control, the key objective in the year was to successfully conclude commercial discussions with potential distribution partners. Discussions progressed well during the latter part of the year, culminating in the announcement on 7 February 2011 of an exclusive worldwide agreement with Ansell Limited ("Ansell"), one of the world's leading sexual health companies and the second largest condom company worldwide.

We also progressed earlier stage opportunities in our pipeline, and added a new opportunity in TPR100-Rx, a higher strength topical pain relief product to treat profound indications such as osteoarthritis and rheumatic pain. The product's development name includes the letters 'Rx' as this is expected to be a prescription only medicine.

We have begun the current financial year in a very strong position with commercial relationships with three global businesses: RB, Ansell and GSK. The quality of these relationships is a reflection of the innovation and commercial potential of our products and, in the case of PET500 and TPR100, an endorsement of our proprietary drug delivery technology, DermaSys®.

Additionally, we announced today that we have raised £3.07 million (net of expenses) by way of a placing, the net proceeds of which strengthens our Group Statement of Financial Position. However, we continue to manage our financial resources carefully, we work only on projects where the commercial and clinical opportunities are compelling and we own the intellectual property rights to all our products, hence protecting and maximising the potential commercial and shareholder return.

Portfolio updates - Sexual healthcare

CSD500: Condom safety device

The updated regulatory dossier for CSD500 was submitted to the Notified Body for CE mark approval in the first half of 2010 and there have been subsequent discussions between the Notified Body and SSL International plc ("SSL"), our commercial partner. In July 2010, SSL announced that it was to be acquired by RB, a deal that completed in November 2010 and which we believe will be very positive for the Durex® brand and for CSD500. As disclosed above, Futura is currently assisting RB to address and close the minor points raised by the Notified Body and we expect the award of the CE mark before the end of June. It is not the practice of RB to comment publicly about its new products ahead of their launch but we look forward to the commercial launch of CSD500 as a Durex® branded condom.

CSD500 has already gained a positive regulatory opinion, in November 2008, from the Competent Authority in the European Union ("EU") with respect to the pharmaceutical aspects of the product, which confirmed that CSD500 is a Class III medical device with an ancillary medicinal substance.

As previously announced Futura commissioned a user study involving 108 couples in which CSD500 met its endpoints of: demonstrating the maintenance of a firmer erection in healthy men during intercourse whilst wearing a condom, increased penile size and a longer lasting sexual experience for women.

In addition to positive clinical data, the results of our market research 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, conducted by an internationally recognised research company, 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. The 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 ("STIs").

STIs are a serious and growing problem. In the UK, a Government report from the Health Protection Agency¹, published in August 2010, indicated that the number of new cases of STIs in the UK continues to rise and that over the past 10 years there has been a substantial increase in diagnoses of most STIs.

We have protected CSD500's unique intellectual property position throughout the world including the principal consumer markets within Europe, the USA and Canada through patents now granted or proceeding to grant in 35 countries and applications pending in a further two.

MED2002: Treatment for erectile dysfunction

MED2002, our topical gel for the treatment of men with erectile dysfunction, is also licensed to RB and has the potential to become the world's first non-prescription pharmaceutical treatment for men with erectile dysfunction, a condition that affects, to some degree, as many as 52% of men aged 40 or over².

A simplified development plan has been outlined for MED2002, which shares the same active compound as CSD500, and it is expected that this product will be progressed by RB once CSD500 receives CE mark approval.

PET500: Enhanced sexual control

In February 2011 we signed an exclusive worldwide agreement with Ansell for the commercialisation of PET500, our innovative product for enhanced sexual control. PET500 is a topical spray that combines our DermaSys® AquaFree delivery system with a mild anaesthetic.

Ansell is an ideal partner for this product, not least because it shares our belief that 'enhanced sexual control' is a more attractive marketing stance for the product than premature ejaculation. We believe that a clinically effective product to treat premature ejaculation, but which is marketed as a product to enhance sexual control, will provide a much wider potential market for the product and have greater acceptability from sufferers of premature ejaculation.

Premature ejaculation is considered to be at least as prevalent as erectile dysfunction. Moreover, whilst erectile dysfunction tends to affect older men, premature ejaculation affects all ages. We believe that PET500, backed by the globally recognised marketing strength of Ansell, has the opportunity to be as commercially successful as we expect CSD500 to be.

As with CSD500, we are unable to provide information on the launch and roll-out of PET500 as Ansell does not comment publicly about its new products ahead of their launch. However, no further clinical or regulatory work is required ahead of launch in certain key territories and we expect recurring royalty income from Ansell to commence during the current financial year.

The branding of the product is currently being developed by Ansell, who will also be responsible for product manufacture and all regulatory work in jurisdictions where marketing authorisation is required. In territories where additional clinical work is required Futura will work closely with Ansell in the conducting of any studies.

Portfolio updates - Pain relief management

TPR100: Topical pain relief

In June 2010, we signed a development agreement with GSK for TPR100, our topical pain relief product. Under the terms of the agreement GSK will fully fund and be responsible for all clinical and regulatory development. GSK will also make modest annual payments to Futura whilst development work proceeds. Subject to satisfactory clinical outcomes and regulatory approvals both parties expect to enter into a commercial distribution agreement in due course. Since signing the development agreement work on TPR100 by GSK has progressed as planned.

TPR100 leverages one of our key proprietary assets, DermaSys®, a highly efficient transdermal delivery system which facilitates rapid absorption of pharmacologically active compounds through the skin. In TPR100 we are using DermaSys® for the topical delivery of a non-steroidal anti-inflammatory drug ("NSAID") for pain relief. Clinical tests carried out by Futura have shown that TPR100 achieves between 30 to 40 times higher bioavailability than those achieved by the market-leading product. TPR100's speed of permeation brings potential benefits including the rapid onset of action of pain relief.

We have previously consulted with relevant regulatory authorities and believe the regulatory pathway for TPR100, in a number of key commercial territories, is relatively straightforward as the active compound is well-characterised and has already been approved in both oral and topical form for the indication of pain relief.

TPR100-Rx: Higher strength topical pain relief for prescription based indications

When we conducted the low dose in vitro and clinical permeation studies for TPR100 we also studied a significantly higher dose of the same NSAID. These studies gave positive results, showing an excellent dose-related response, which creates the potential to treat more acute indications such as osteoarthritis and rheumatic pain. TPR100-Rx, with its targeted delivery through the skin, has the potential benefit of avoiding the systemic side-effects seen in the use of oral NSAIDs.

As this will be a prescription product, which is to an extent outside of our current area of expertise, we appointed external consultants to assist us to progress TPR100-Rx commercially, which we believe represents a substantial market opportunity.We have received initial expressions of interest in TPR100-Rx from potential commercial partners but have decided to progress a Phase II study to generate further clinical data to enhance the value of the product.

RAD100: Rapid anaesthetic delivery

RAD100 was conceived in a similar way to TPR100-Rx in that the success of a low dose of topical anaesthetic compound in PET500 prompted us to explore the potential of a higher dose to provide rapid topical anaesthesia prior to injection, vaccination or cannulation. Demand in this market is already well developed, but poorly served, with treatments taking at least 30 to 45 minutes to take effect. We believe that there is clear commercial potential for a product in which the speed of onset of skin desensitisation is significantly increased. In common with TPR100-Rx, RAD100 would be a prescription product.

In early in vitro work, previously reported, we have shown a 250% increase in the rate of permeation of a topical anaesthetic across the skin, using RAD100 and the DermaSys® AquaFree delivery system, when compared with an established product. This substantial increase in skin permeation is expected to equate to a more rapid onset of skin desensitisation compared to existing products.

People

We continue to run a highly efficient business and benefit from considerable stability in our workforce. Staff numbers, including non-executive directors, were ten at the year end, unchanged since 31 December 2008. We would like to offer our sincere thanks to all of our staff, scientific advisers and commercial partners for their contribution to the development of the Company throughout the year.

Outlook

The current year has started extremely well. We have signed a commercial deal with Ansell for PET500 and remain confident of receiving the CE mark for CSD500 in the near future. Both of these products are due to launch in the foreseeable future, with the potential of transforming Futura into a revenue generating company, beginning this financial year.

Our highly effective in-house research team has proposed a number of exciting new product opportunities, leveraging our DermaSys® delivery system in a number of diverse areas. Our intention is to add a further three products to our pipeline during the current year, broadening our range of target areas but continuing our focus on products with big potential to attract global commercial partners.

Dr W D Potter J H Barder

Executive Chairman Chief Executive

Note

¹Health Protection Report, Vol. 4 No. 34. London: Health Protection Agency, Centre for Infections. August 2010.

² Massachusetts Male Aging Study (MMAS), J Urol. 1994 Jan; I5I (1): 54-61

Financial Review

The Group ended the year with costs firmly under control, a more advanced development portfolio and the prospect of recurring royalty revenues.

Revenue

Group revenue for the year ended 31 December 2010 was £125,000 (2009: £50,000). Grant income for the year ended 31 December 2010 was £nil (2009: £30,000).

Losses

The Group continues to maintain a focus on tight control of all expenditure.

The Group's operating loss for the year ended 31 December 2010 was £1.34 million (2009: £1.53 million).

The Group's loss after taxation for the year ended 31 December 2010 was £1.09 million (2009: £1.39 million).

Loss per share for the year ended 31 December 2010 was 1.61 pence (2009: 2.24 pence).

No dividends were paid and none are proposed by the Board of Directors ("the Board") (2009: £nil).

Financial instruments

The financial instruments held by the Group are disclosed in note 13 of the Notes to the Preliminary Announcement. The Group policy on exposure to financial risk is disclosed in note 2 of the Notes to the Preliminary Announcement.

Group research and development costs

The Group aims to achieve cost effective research and development ("R&D") and to bring products to market through licensing partners as soon as is practicable.

Group R&D costs each year reflect the number of products being developed, the stage of development reached for each and the impact on their progress of external factors.

R&D costs of £760,637 (2009: £810,188) were lower compared to 2009, due to the scale down of activity pending receipt of marketing authorisation for CSD500.

The table below shows the trend in our R&D costs and other administrative costs over the past five years ended 31 December:

The R&D ratio is the percentage of R&D costs relative to total operating costs. The Board is mindful to keep a sensible balance as reflected in this ratio. Total R&D spend since formation of the business in 1997 totals £10.75 million (54.7% of total cumulative operating costs). During the year, the sole subsidiary, Futura Medical Developments Limited continued to incur this R&D expenditure which has been accounted for as explained in accounting policy note 1.7 of the Notes to the Group Financial Statements and has been written off as incurred for all reporting periods prior to and including the year ended 31 December 2010.

The Board considers that this overall total R&D spend relative to its pipeline of later stage products and emerging new products distinguishes the Group's lower funding requirements and risk profile from more typical businesses in the wider pharmaceutical industry. The Group's strategy is to focus on medical devices and pharmaceutical drugs that offer the potential for a significant return on the costs of development. As well as progressing its existing R&D programme, the Group continues to seek new opportunities for potential products to add to its portfolio.

Other administrative costs

Other administrative costs for the year ended 31 December 2010 were £700,399 (2009: £796,186). These comprised all other operating costs excluding those relating to product development and associated intellectual property. The main constituents and their relative proportions were:

During 2010 the Board reacted to the continuing difficult economic conditions by reducing operating costs and achieved additional cost savings, as a result of the scale down of research activity pending receipt of marketing authorisation for CSD500.

Supplier payment policy

The Group's policy concerning the payment of its trade payables is to pay on the basis of the agreed terms of payment established with each supplier, providing that all terms and conditions have been complied with and are in accordance with the Group's financial control procedures. The average credit period for the Group (expressed as creditor days) during the year ended 31 December 2010 was 45 days (2009: 33 days). At the year end the Company had trade creditors totalling £19,107 (2009: £29,542) giving rise to an average credit period for the year ended 31 December 2010 of 90 days (2009: 34 days).

Charitable and political contributions

No political donations were made during either year. Charitable donations of £162 were made during the year (2009: £190).

Taxation

A tax credit of £225,731 (2009: £119,289) in respect of R&D expenditure incurred has been recognised in the Group financial statements. The increase compared to 2009 reflects a widening of the scope of qualifying indirect activities included in the level of R&D expenditure undertaken and includes prior period adjustments of £28,385, £27,366 and £23,600 in respect of the years 2007 to 2009 respectively.

Capital structure and funding

The Group remains funded primarily by equity share capital. This reflects the development status of its products. Cash held by the Group at 31 December 2010 totalled £0.82 million. This comprised cash and cash equivalents and medium-term deposits with original maturities of more than three months, shown below at each year ended 31 December:

The Group had no bank borrowings at 31 December 2010 (2009: £nil).

On 12 October 2010, the Group raised £66,800 following the issue of 160,000 shares at 41.75 pence per share under the employee share option scheme. On 11 March 2011, the Group raised £3.20 million (£3.07 million net of expenses) by way of a placing of 4,737,402 new ordinary shares at 67.50 pence per share. The net proceeds raised are for general corporate and research and development purposes.

Other significant sources of funding received for the Group from formation of the business until 31 December 2010 comprised: R&D tax credits £1.59 million, bank interest £0.88 million and R&D grants £0.28 million.

D A Martin

Secretary

The financial information set out below does not constitute the Company's full statutory accounts for the year ended 31 December 2010 (or year ended 31 December 2009) but it is derived from those accounts that have been audited. Statutory accounts for 2009 have been delivered to the Registrar of Companies and those for 2010 will be delivered after the forthcoming Annual General Meeting. The independent auditors have reported on those accounts; their report was unqualified, did not include an emphasis of matter statement and did not contain any statements under section 498 of the Companies Act 2006.

Group Statement of Comprehensive Income

For the year ended 31 December 2010

All amounts relate to continuing activities.

Group Statement of Comprehensive Income

For the year ended 31 December 2010

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 Financial Position

As at 31 December 2010

The Group financial statements from which this preliminary results announcement is derived were approved and authorised for issue by the Board on 11 March 2011 and were signed on its behalf by J H Barder, Director.

Group Statement of Cash Flows

For the year ended 31 December 2010

Notes to the Preliminary Announcement

For the year ended 31 December 2010

1. Accounting policies

1.1 Basis of preparation

The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union.

The accounting policies set out below, have been applied to all periods presented in these Group financial statements and are in accordance with IFRSs as adopted by the European Union, and International Financial Reporting Interpretations Committee ("IFRIC") interpretations that were applicable for the year ended 31 December 2010.

1.2 Going concern

The Group had cash balances of £0.82 million at 31 December 2010, and a net cash outflow of £0.96 million in the year. The Directors expect a net cash outflow in the period to 31 March 2012 and recognised that there would be a need for increased funding. As disclosed in note 22 the Group raised £3.20 million (£3.07 million net of expenses) by way of a placing of 4,737,402 new ordinary shares at 67.50 pence per share in March 2011 and the Directors have prepared a cash flow forecast which shows that the net placing proceeds provide sufficient working capital for the Group to meet its liabilities in the review period as they fall due.

The Group financial statements have been prepared on the going concern basis which assumes that the Group will continue in operational existence for the foreseeable future. The Group 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, effective for the first time from 1 January 2010, have not had a material effect on the Group financial statements:

·; 'Improvements to IFRSs (2009)'

·; IFRS 3 (Revised) 'Business Combinations'

● IAS 27 (Amendment) 'Consolidated and Separate Financial Statements'

The following new standards, amendments to standards or interpretations have been issued but are not effective for the year ended 31 December 2010 and have not been adopted early as the Directors do not expect them to have a material effect on the Group financial statements:

·; 'Improvements to IFRSs (2010)'

·; IAS 24 (Revised) 'Related Party Disclosures'

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 receiving marketing authorisation for sale 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 Government grants

Government grants are recognised at fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs defrayed are accrued and recognised in the Group Statement of Comprehensive Income over the period required to match them with the costs which they reimburse.

1.13 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.

1.14 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.

1.15 Employee benefits

(i) Defined contribution plans

The Group provides retirement benefits to all employees and Executive Directors (except the Chairman) 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 HM Revenue & Customs 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 for the Executive Directors. The quantum of any awards receivable by the Executive Directors 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 Finance income

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

1.17 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

The fees invoiced in respect of the TPR100 exclusivity agreement have been recognised as revenue on an accruals basis in the Group Statement of Comprehensive Income over the period of the agreement.

(ii) Intangible asset recognition

The Directors consider that the criteria to capitalise development expenditure are not met for a product prior to receiving marketing authorisation for sale 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 as detailed in note 18. 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. Financial risk management

2.1 Financial risk factors

The Group's activities expose it to a variety of financial risks: market risk (including foreign exchange rate risk, cash flow interest rate risk and fair value interest rate risk); credit risk and liquidity risk.

It is Group policy not to enter into speculative positions using complex financial instruments. The Group's primary treasury objective is to minimise exposure to potential capital losses whilst at the same time securing favourable market rates of interest on Group cash deposits using money market deposits with banks. Cash balances used to settle the liabilities from operating activities are also maintained in current accounts which earn interest at variable rates.

(i) Market risk

Foreign exchange rate risk

The Group primarily enters into supplier contracts which are to be settled in sterling. However, some contracts involve other currencies including the US Dollar and the Euro. Where large supplier contracts of more than £100,000 total value are to be settled in foreign currencies consideration is given to settling the sums to be paid through conversion of sterling deposits to the appropriate foreign currency holdings at the outset of the contract to minimise the risk of adverse currency fluctuations.

For contracts with smaller values the foreign exchange rate risk is not considered sufficient to require the establishment of foreign currency accounts unless specific circumstances are identified which warrant this.

At 31 December 2010 the Group had no trade payables denominated in a foreign currency (31 December 2009: £nil).

Cash flow interest rate risk and fair value interest rate risk

The Group's interest rate risk arises from short-term money market deposits. Deposits which earn variable rates of interest expose the Group to cash flow interest rate risk. Deposits at fixed rates expose the Group to fair value interest rate risk. The Group analyses its interest rate exposure on a dynamic basis.

The impact in the year ended 2010, of a defined interest rate shift of a 1% higher rate of interest earned per annum applied to the term deposits over the period of the deposit, on the post-tax loss for the year and net assets would have been £12,501 lower/higher (2009: £9,931 lower/higher).

The impact in the year ended 2010, of a defined interest rate shift of a 1% lower rate of interest earned per annum applied to the term deposits over the period of the deposit, on the post-tax loss for the year and net assets would have been £12,281 higher/lower (2009: £9,107 higher/lower).

(ii) Credit risk

Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions as well as credit exposure in relation to outstanding receivables. Group policy is to spread deposits over at least two institutions with investment grade A2 or better (Moody's credit rating) and deposits are made in sterling only. The Group does not expect any losses from non-performance by these institutions.

(iii) Liquidity risk

Liquidity risk arises from the Group's management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. Prudent liquidity risk management involves maintaining sufficient cash and cash equivalents and the monitoring of rolling forecasts of the Group's liquidity reserve on the basis of expected cash flow.

The Group had trade and other payables at the Group Statement of Financial Position date of £152,755 (2009: £224,532) as disclosed in note 16, which mature within one year.

2.2 Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for equity holders of the Company and benefits for other stakeholders and to maintain an optimal capital structure to minimise the cost of capital.

2.3 Fair value estimation

The Group uses amortised cost, using the effective interest rate method, to determine subsequent fair value, after initial recognition, for its financial instruments.

3. 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 which at this stage is solely the UK. Since there is currently only one business segment and one geographical segment, no separate segment reporting has been prepared.

4. Grant income

There were no unfulfilled conditions attaching to the grant income that has been recognised.

5. Operating loss

The fees of the Group's auditor, BDO LLP, for services provided are analysed below:

6. Wages and salaries

The average monthly number of persons (including all Directors) employed by the Group during the year was 10 (by category: R&D 4, administration 6), (2009:10, by category: R&D 4, administration 6) and their aggregate emoluments were:

All employees of the Group are employed by Futura Medical Developments Limited.

7. Directors' emoluments

Emoluments disclosed above include the following amounts in respect of the highest paid Director:

During the year, three Directors (2009: three Directors) participated in a private money purchase

defined contribution pension scheme.

8. Finance income

9. Taxation

Current tax

The tax assessed for the year is different from the standard rate of corporation tax in the UK.

The differences are explained below:

The Group has tax losses of £11,649,224 (2009: £11,274,288) available for offset against future taxable profits.

Deferred tax

Deferred tax assets amounting to £2,436,068 (2009: £2,211,953) have not been recognised on the basis that their future economic benefit is not certain. Assuming a prevailing tax rate of 20% (2009: 20%) when the timing differences reverse, the unrecognised deferred tax asset comprises:

10. Loss per share (pence)

The calculation of the loss per share is based on a loss of £1,091,040 (2009: loss of £1,392,687) and on a weighted average number of shares in issue of 67,563,969 (2009: 62,219,312).

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, details of which are disclosed in note 18, 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'.

11. Plant and equipment

All fixed assets of the Group are held in Futura Medical Developments Limited.

12. Inventories

13. Financial instruments by category

The accounting policies for financial instruments have been applied to the line items below:

14. Trade and other receivables

Trade receivables that are under three months past due are not considered impaired. At 31 December 2009 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 receivable.

15. Cash and cash equivalents

16. Trade and other payables

17. Share capital

The number of issued ordinary shares as at 1 January 2009 was 57,618,840.

During the year ended 31 December 2009, the Company issued shares of 0.2 pence each as follows:

The number of issued ordinary shares as at 1 January 2010 was 67,483,311.

During the year ended 31 December 2010, the Company issued shares of 0.2 pence each as follows:

18. Share options

At 31 December 2010, the number of ordinary shares of 0.2 pence each subject to share options granted under the Group's Approved and Unapproved Share Option Schemes were:

On 6 July 2010 share options over 840,000 new ordinary shares were granted to employees (including Directors). On 12 October 2010 share options over 160,000 new ordinary shares were exercised by employees (excluding Directors). This generated additional funds of £66,800 for the Company.

The share options outstanding at 31 December 2010 represented 3.6% of the issued share capital as at that date (2009: 2.6%) and would generate additional funds of £946,238 (2009: £672,838) if fully exercised. The weighted average remaining life of the share options was 63 months (2009: 66 months), with a weighted average remaining exercise price of 38.86p (2009: 38.34p).

The share options exercisable at 31 December 2010 totalled 630,000 (2009: 500,000) with an average exercise price of 59.05p (2009: 63.55p) and would generate additional funds of £372,025 (2009: £317,750) if fully exercised.

The Group's share option scheme rules apply to 2,260,000 of the share options outstanding at 31 December 2010 (31 December 2009: 1,580,000) and include a rule regarding forfeiture of unexercised share options by a Director or employee upon the cessation of their employment (except in specific circumstances).

There were no market vesting conditions within the terms of the grant of the share options.

The Black-Scholes-Merton formula is the option pricing model applied to the grants of all share options made in respect of calculating the fair value of the share options.

19. Pension costs

The pension charge represents contributions payable by the Group to independently administered funds which during the year ended 31 December 2010 amounted to £98,180 (2009: £107,052). Pension contributions payable one month in arrears at 31 December 2010 totalled £3,433 (2009: £3,433) and are included in accrued expenses at the relevant Group Statement of Financial Position date.

20. Commitments

At 31 December 2010 the Group had operating lease commitments in respect of property leases cancellable on one month's notice of £5,412 (2009: £5,307).

21. Related party transactions

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

Included within prepayments and accrued income is an amount of £247 in respect of a Cycle to Work Scheme loan to J H Barder, a Director of the Company. The loan of £742 was taken out in April 2010 and is repayable by twelve equal monthly instalments.

Included within prepayments and accrued income is an amount of £247 in respect of a Cycle to Work Scheme loan to D B Davies, a Director of the Company. The loan of £742 was taken out in April 2010 and is repayable by twelve equal monthly instalments.

W D Potter, a Director of the Company, provides consulting services to the wholly owned subsidiary, Futura Medical Developments Limited, through Stapleford Scientific Services Limited. Of the total fees and expenses, excluding VAT, invoiced during the year of £86,317 (2009: £86,736), the amount outstanding at 31 December 2010 including VAT was £8,186 (2009: £8,535), which has since been settled in cash. The amount invoiced during the year is considered to be a related party transaction disclosable under Rule 19 of the AIM Rules for Companies as it exceeds 0.25 % in the relevant class tests.

Key management compensation

The Directors represent the key management personnel. Details of their compensation and share options are given in note 7.

22. Events after statement of financial position date

On 4 February 2011 the Group signed an exclusive worldwide agreement with Ansell Limited for the commercialisation of PET500, the Group's novel product for enhanced sexual control. Ansell has already developed the strategy for the launch of the product, which is expected to take place as soon as practicable. Under the terms of the agreement the Group will receive a significant royalty rate on sales and a modest upfront payment. The branding of the product will be developed by Ansell, which will also be responsible for the product's manufacture and for funding of all regulatory work.

On 11 March 2011 the Group raised £3.20 million (£3.07 million net of expenses) by way of an underwritten placing of 4,737,402 new ordinary shares at 67.50 pence per share. The net proceeds raised are for general corporate and research and development purposes.