Futura Medical Regulatory News (FUM)

Futura Medical plc

("Futura" or "the Company")

Preliminary Results for the year ended 31 December 2016

Futura Medical plc (AIM: FUM), the innovative healthcare company focused on advanced transdermal technology, is pleased to announce its preliminary results for the year ended 31 December 2016.

Highlights

MED2002: Eroxon® - Treatment for erectile dysfunction ("ED")

· Breakthrough results in clinical study showing efficacy, safety and speed of onset, with the potential to be the world's fastest-acting treatment for ED

· Advisors appointed to assist in securing out-licensing partners

CSD500: Erectogenic condom

· Achieved extended shelf life via modified manufacturing process

· Second manufacturer approved by regulator

· Two new licensing agreements signed for CSD500 with a further agreement announced in March 2017, bringing network of international partners to a total of eight

· First licensee launch and first non-EU regulatory approval granted

Pain relief products TPR100 (diclofenac) and TIB200 (ibuprofen)

· First out-licensing agreement signed in January 2017 for TPR100 in the UK

· US Food and Drug Administration regulatory feedback received for TPR100 which confirmed the

Company's regulatory strategy for the US

· Ongoing out-licensing discussions with prospective partners for TIB200 and TPR100 (outside of the UK)

Organisational

· Strengthened operations with appointment of Ken James to Executive Director and Head of R&D

Financial

· Net loss of £3.70 million (2015: net loss of £5.08 million), reflecting lower R&D spend on clinical trials during the year

· Fundraising in November 2016 via placing of shares raised £12.00 million (before expenses), with proceeds being applied to clinical development work and to working capital

· Cash resources of £12.35 million at 31 December 2016 (31 December 2015: £4.19 million)

James Barder, Futura's Chief Executive, commented: "Futura continues to make good progress, both commercially and clinically, across its portfolio of product opportunities and we look forward to the year ahead with confidence. 2017 has started well with the launch in the Middle East of CSD500, our novel erectogenic condom, and the signing of a licensing deal for TPR100, our diclofenac pain relief gel. We have the balance sheet strength to drive forward our exciting clinical plans for MED2002, our breakthrough erectile dysfunction gel, with potential for significant prescription sales, once approved, and the prospect of an over-the-counter switch in the future to enable additional sales."

Analyst meeting and webcast

A meeting for analysts will be held at 10.00am this morning, 23 March 2017, at the offices of Buchanan, 107 Cheapside, London EC2V 6DN. There will be a live webcast of the analyst presentation. If you would like to listen to the webcast, please log on to the following web address approximately 5 minutes before 10.00am:

http://vm.buchanan.uk.com/2017/futuramedical230317/registration.htm

A recording of the webcast will also be made available at www.futuramedical.com and www.buchanan.uk.com following the results meeting.

For 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 Review

2016 was a year of great progress for Futura with the major highlight being the announcement on 7 September of breakthrough results for our product MED2002 in a clinical study. MED2002 is our topical gel for erectile dysfunction ("ED"). We are well advanced in our plans for the further development of the product and we have been very encouraged by the high level of commercial interest from potential licensing partners. MED2002 has the potential to be a highly disruptive product with significant prescription sales, a possible patent life extension to 2038 and the prospect of an over-the-counter ("OTC") switch in the future.

During the year we signed a further two distribution agreements for CSD500, our novel erectogenic condom product. These agreements were with Milsing, for seven countries in Southeast Europe, and with TTK Protective Devices Limited ("TTK"), the Indian company with whom we also signed a manufacturing agreement in June 2016. In addition earlier this week, we signed a further distribution agreement for CSD500 with F Lima SA for Portugal. With these new distribution agreements in place we have succeeded in out-licensing CSD500 to distribution partners in the majority of key countries worldwide as part of our strategy for delivering global sales.

We made substantial progress during 2016 with CSD500 particularly in modifying the manufacturing process to extend the product's shelf life to meet the requirements of our licensing partners. TTK has received regulatory approval from the relevant EU Notified Body to manufacture the extended shelf life product.

The first international licensee launch has already taken place, as announced in early January 2017, in Saudi Arabia by Kabey Pharmaceuticals ("Kabey"), our distribution partner for key countries in the Middle East and North Africa ("MENA"). Church & Dwight, our CSD500 distribution partner for North America and key countries in Europe, is currently working to enable launch in selected markets.

Our key focus during 2016 with our two pain relief products was on the out-licensing of the products, which both showed statistically significant pain relief in an earlier clinical study. Our out-licensing negotiations resulted in the announcement in January 2017 of our first commercialisation agreement for our pain relief portfolio. This agreement is with Thornton & Ross, a UK subsidiary of STADA Arzneimittel AG ("STADA"), for the UK commercialisation of TPR100, our diclofenac gel for topical pain relief. Futura continues in discussions in connection with the licensing of TPR100 in other countries and also with the licensing of TIB200, our ibuprofen gel.

The fundraising in November 2016 raised £12.0 million (before expenses), strengthening the Company's balance sheet and providing the financial capability to drive forward Futura's clinical and commercial development activities. These activities include a placebo-controlled Phase III clinical study of MED2002, to commence later this year, in 700 or more patients.

We were delighted that Ken James, the former head of consumer healthcare R&D at GlaxoSmithKline, agreed to become Head of R&D in November 2016 to lead our development programmes. Ken joined Futura in April 2016, initially as a Non-Executive Director.

Our balance sheet is strong, with cash resources of £12.4 million as at 31 December 2016 (31 December 2015: £4.2 million). We will continue to use these cash resources prudently.

Portfolio updates - Sexual healthcare

MED2002: Eroxon® Treatment for erectile dysfunction

MED2002, which uses our DermaSys® drug delivery system, is the development name for our topical gel for the treatment of men with ED. We hold worldwide patents to the product in a market worth US$4.8 billion1 for currently available treatments and have registered the brand name Eroxon®.

Major clinical progress was made with MED2002 during 2016, led by the breakthrough clinical results announced in September 2016. The clinical study, which began in June 2015, met its primary endpoint and showed efficacy, safety and speed of onset. MED2002's rapid onset of action means that it has the potential to be the world's fastest-acting treatment for ED.

The clinical study comprised a total of 232 randomised males and measured, as its primary endpoint, improvement in the erectile function ("EF") domain score of the International Index of Erectile Function ("IIEF"), the scoring system used for the approval of PDE5 inhibitors, the class of products including Viagra® and Cialis®. The placebo-controlled study used one dosage, 0.2% w/w glyceryl trinitrate ("GTN") gel, and included mild, moderate and severe ED patients.

The study achieved its primary endpoint in demonstrating a statistically significant improvement in erectile function in the EF domain score, averaged across the entire patient set, when using MED2002 compared with placebo.

The speed of onset of action of MED2002 was rapid, partly reflecting the method of application with the gel being applied directly to the penis, with an average speed of onset of action of fewer than 5 minutes in the responder group.

No major safety concerns were identified. No serious adverse events or serious adverse reactions were recorded and there were no drop-outs from the study owing to side-effect issues. Patients reported fewer than 2% mild side-effects of a headache, in over 1,000 intercourse attempts, which is considered a very low percentage in pharmaceutical terms.

We have been refining our strategy for the further development of the product following these breakthrough trial results. It is our intention to begin a Phase III placebo-controlled parallel group multi-centre clinical study of 700 or more patients in Q4 2017 using two dosage forms, the 0.2% w/w GTN gel used in the earlier study and a higher strength dose form of 0.4% w/w GTN gel. We will also conduct a separate 30 patient pharmacokinetic safety study to compare GTN blood plasma levels of MED2002 with existing cardiovascular GTN drugs. Both studies are expected to complete in Q4 2018 with regulatory submissions expected in Q2 2019. We are currently consulting with the UK and US regulatory authorities to enable us to finalise the design and timing of these studies.

We have had substantial interest in MED2002 from potential licensing partners following the breakthrough results of the clinical study and we intend to commence the Phase III clinical trial whilst licensing negotiations are ongoing.

As part of earlier market research into the potential of MED2002 as a prescription product Decision Resources Group ("DRG") conducted a survey in the US involving 200 physicians and 400 ED patients. The survey found that the top three characteristics that patients and physicians desired in a new ED treatment were: fast onset, safety, and the ability to be used by all ED patients. As a topical treatment MED2002 has been developed to meet these requirements by offering a safe and effective treatment with a rapid speed of onset and no contraindications for ED sufferers.

Currently approximately 7.5% of ED sufferers are unable to be prescribed PDE5 inhibitors due to contraindications with nitrate medicines taken by them for cardiovascular conditions. These patients also represent an additional potential market for MED2002 as its active ingredient, GTN, is unlikely to be contraindicated.

Market research conducted by DRG into the potential of MED2002, following approval as a prescription medicine, forecast peak annual sales of up to US$560 million in key countries worldwide with no price premium, at DRG's forecast price of $5. Both the DRG research work and the recently announced Ipsos research indicated that consumers may be willing to pay a price premium for MED2002, compared with the existing available products, potentially enhancing the prescription market value of the product.

MED2002 has substantial potential, as the fastest-acting compound with a favourable safety profile, in the prescription market where it will be marketed first. These characteristics also give MED2002 the potential to become one of the largest OTC products in the global OTC market place later in its product life cycle. As announced on 6 March 2017, the market research firm Ipsos used its validated healthcare forecasting model to forecast peak OTC annual sales for MED2002 in key countries worldwide of more than US$650 million. Importantly, Ipsos forecasts that 73% of these potential OTC sales would be incremental to the prescription category.

The Ipsos valuation was based on the outcomes from primary market research carried out amongst 400 men, with ED or suspected ED, in the USA. The respondents were shown a concept about MED2002 as part of the market research but they did not use the product as it is currently in clinical development. The key findings of the market research showed that the respondents believed that the product, once approved, would be highly differentiated from existing products and that its claims would meet their needs. MED2002's rapid onset of action was the key feature that attracted respondents to the product.

MED2002's patent protection runs until August 2028 in the USA and August 2025 in Europe. An additional patent filing announced earlier this month could extend patent protection through to 2038.

MED2002, as a topically applied gel with a very rapid speed of onset, has the potential to be a significant product with combined peak sales of more than US$1 billion in a market currently dominated by Viagra® and Cialis®, which are taken orally and do not take effect for at least 30 minutes, and typically one hour or more1.

Note 1 US patient information for Viagra® and Cialis®

CSD500: Condom containing the erectogenic Zanifil® gel

CSD500 benefits from three clinically proven claims: the maintenance of a firmer erection, maximised penile size and a longer lasting sexual experience for women. CSD500, which is CE Marked, represents real innovation in an industry where there has been limited new product development. Futura's unique intellectual property for CSD500 has been protected throughout the world through the filing and granting of a range of patents.

To date CSD500 has been out-licensed to a total of 41 countries including major commercial markets in North America and Europe. During 2016, we signed a licensing agreement with Milsing for the marketing and distribution of CSD500 in seven countries in Southeast Europe and we also signed a licensing agreement with TTK for marketing and distribution within India. TTK owns the fastest growing condom brand in India, SKORE®, and it is intended that CSD500 will be part of the SKORE® brand. In March 2017 we signed a licensing agreement with F Lima SA for the marketing and distribution of CSD500 in Portugal. We continue in discussions with potential licensing partners for countries where we have not yet licensed the product and are pleased to report that we have succeeded in out-licensing CSD500 to distribution partners in the majority of key countries worldwide as part of our strategy for delivering global sales.

During 2016 we made major progress in preparing for the international roll-out of the product by our distribution partners. We successfully modified the manufacturing process to achieve an extended shelf life to meet the requirements of our distribution partners. Both of our manufacturing partners - TTK in India and our European manufacturer - have the required approvals to ship CSD500 to any country in which the product is approved, for example in all 28 EU countries. TTK has received regulatory approval from the relevant EU Notified Body to manufacture the extended shelf life product. We are currently awaiting approval from the same EU Notified Body of the extended shelf life product for our European based manufacturer.

In January 2017, CSD500 was launched in Saudi Arabia by our distributor Kabey and further launches in MENA are expected during the course of 2017. Kabey is using the brand name Futura Max Manex Super and its promotion is based on direct retail marketing rather than an online campaign, which reflects local marketing practices. We have been advised by Kabey that the launch in Saudi Arabia has received positive feedback and in March 2017 Kabey placed a further order for the Saudi Arabia market.

In addition to the Kabey launch in Saudi Arabia, CSD500 continues to be test marketed in the Netherlands and Belgium by Bizzy Diamond BV under Futura's brand, Blue Diamond®. The sales achieved in the Netherlands continue to provide useful consumer feedback for our post-market clinical follow-up ("PMCF") study required for CE Marking and the PMCF study will also assist with other regulatory approvals.

As highlighted above, Church & Dwight, our CSD500 distribution partner for North America and key countries in Europe, is currently working to enable launch in selected markets.

Portfolio updates - Topical pain relief

The rapid skin permeation rates offered by Futura's transdermal delivery system, DermaSys®, have created a major opportunity in topical pain relief. Rapid skin permeation offers potential benefits in pain management including: improved onset of action, duration and degree of pain relief. DermaSys® also allows the potential to have a twice a day dosing regimen which provides a compelling commercial proposition for ibuprofen which is currently dosed three to four times per day. Futura has previously demonstrated statistically significant results from its two non-steroidal anti-inflammatory drug ("NSAID") programmes, TPR100 (2% diclofenac gel) and TIB200 (10% ibuprofen gel), in a clinical study.

During 2016 the Company was focused on the out-licensing of the pain relief portfolio and, on 10 January 2017, announced a licensing agreement with Thornton & Ross Ltd, the UK subsidiary of international healthcare company STADA Arzneimittel AG, for the commercialisation in the UK of TPR100, the Company's novel diclofenac gel for pain relief.

Under the terms of the agreement, Thornton & Ross Ltd will conduct the manufacturing scale-up of TPR100 and hold rights to manufacture, market and distribute the product in the UK for the lifetime of the product's patents, which run to at least 2028 in the UK. Futura received an upfront payment and will receive a further milestone payment upon the product receiving UK regulatory marketing authorisation along with royalties on product sales.

It is not expected that any further clinical work will be required ahead of a regulatory submission for UK marketing authorisation to be made by Thornton & Ross Ltd, which we anticipate in the second half of 2017.

We received a written response from the US Food and Drug Administration ("FDA") in December 2016 which confirms our US regulatory strategy for TPR100. The main requirement being to conduct a 700 patient placebo-controlled efficacy study of TPR100 in treating osteoarthritis of the knee, with an open label extension of 100 patients for six months and 50 of those patients for a year, to demonstrate patient tolerability and safety. We will not, however, progress this study without a clear indication of interest from a potential commercial partner for the US market. Futura continues in commercial discussions in connection with the licensing of TPR100 outside of the UK.

Our ibuprofen based product TIB200 has attracted significant interest, especially if we are able to deliver a twice-a-day dosing regimen (morning and evening). This product requires further clinical work which, again, we will not progress without a clear indication of interest from a potential commercial partner. We continue in commercial discussions in connection with the licensing of TIB200.

Our objective is for our pain relief products to be best-in-class. The rationale for this is that the National Institute for Health and Care Excellence (NICE) gives clear guidance to physicians to prescribe topical NSAIDs in the first instance for joint pain associated with osteoarthritis, in preference to oral NSAIDs, owing to concerns over the long term use of oral NSAIDs. This means that the best-in-class topical treatment should be the first choice for doctors in the initial treatment of pain and therefore represents a substantial opportunity in a market with global sales estimated at US$2.9 billion2.

Note2 2015 IMS Health estimate

People

At the year end, Futura had 12 employees, (excluding Non-Executive Directors), (2015: 12) however two additional staff have been recruited in the current year to support the regulatory function as we move forward from a UK-centric to a more internationally focused regulatory environment.

Board changes comprised the appointment of Ken James as a Non-Executive Director in April 2016 at which time Lisa Arnold, who had served as a Non-Executive Director since 2008, stepped down. We are immensely grateful to Lisa for her contribution to the Company during her tenure. In November 2016, we were pleased to appoint Ken James to an executive Board role, as Head of R&D, and it is our intention to appoint a further Non-Executive Director in due course to maintain the depth, balance and independence of the Board.

We are highly appreciative of our staff and of our external consultants and partners who continue to support our virtual business model.

Outlook

Futura continues to make good progress, both commercially and clinically, across its portfolio of product opportunities and we look forward to the year ahead with confidence. 2017 has started well with the launch in the Middle East of CSD500, our novel erectogenic condom, and the signing of a licensing deal for TPR100, our diclofenac pain relief gel. We have the balance sheet strength to drive forward our exciting clinical plans for MED2002, our breakthrough erectile dysfunction gel, with potential for significant prescription sales, once approved, and the prospect of an over-the-counter switch in the future to enable additional sales.

John Clarke James Barder

Chairman Chief Executive

The financial information set out below does not constitute the Company's full statutory accounts for the year ended 31 December 2016 (or year ended 31 December 2015) but it is derived from those accounts that have been audited. Statutory accounts for 2015 have been delivered to the Registrar of Companies and those for 2016 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 2016

Group Statement of Changes in Equity

For the year ended 31 December 2016

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 2016

Group Statement of Cash Flows

For the year ended 31 December 2016

Notes to the Group Financial Information

For the year ended 31 December 2016

1. Accounting policies

1.1 Basis of preparation

The consolidated 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 consolidated 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 2016.

1.2 Going concern

The Group had an operating loss of £4.55 million for the 2016 financial year (2015: £6.12 million), but had a positive net asset value of £12.58 million at 31 December 2016 (31 December 2015: £4.79 million).

The increase in the net asset value of the Group is mainly attributable to the £12 million funding received from the equity placing in November 2016. The Directors consider this to represent sufficient funds for the foreseeable future, taking into account the Group's current development plans.

In assessing the Group's going concern ability the Directors have considered all relevant available information about the future trading activities of the Group, including profit forecasts, cash forecasts and funding. Based on this assessment, the consolidated financial statements have been prepared on a going concern basis and the Directors have no reason to believe that the Group will not operate as a going concern for the foreseeable future.

1.3 Accounting developments

The following amendments have been adopted in the year and do not have a material effect on the Group financial statements:

· Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation

· Disclosure Initiative: Amendments to IAS 1 Presentation of Financial Statements

The following new standards, amendments and interpretations, which are not yet effective and have not been adopted early in these financial statements do not currently have a material impact, but the future impact will be considered on an ongoing basis:

· IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018)

· IFRS 9 Financial Instruments (effective 1 January 2018)

· IFRS 16 Leases (effective 1 January 2019)

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

1.5 Revenue

Revenue comprises the fair value received or receivable for milestone income and royalties, net of value added tax.

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

(i) 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 Consolidated Statement of Comprehensive Income over the accounting periods in which the royalties would otherwise be receivable.

(ii) 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 Consolidated 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-license 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, including patents and trademarks, 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 Consolidated 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 yet met for CSD500 prior to the extended shelf life product being commercially launched in at least one major market and also that further testing and development is required before the capitalisation criteria are met.

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 Consolidated Statement of Comprehensive Income as incurred.

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 Consolidated 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 Consolidated 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 Consolidated 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 Consolidated Statement of Comprehensive Income.

1.10 Inventories

Inventories are consumable materials to be used in development 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 Consolidated Statement of Comprehensive Income in respect of obsolete 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 Consolidated Statement of Comprehensive Income in administrative costs.

Cash and cash equivalents are financial assets and comprise cash in hand and sterling short-term money market funds which are held by the Group so as to be available to meet short-term cash commitments.

The Group assesses at each Consolidated 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 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 Consolidated 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 Consolidated 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 Consolidated 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.

1.13 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 Consolidated Statement of Comprehensive Income in the period in which they arise.

1.14 Employee benefits

(i) Defined contribution plans

The Group provides retirement benefits to all employees 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 Consolidated Statement of Comprehensive Income in the period in which they become payable.

(ii) Accrued holiday pay

Provision is made at each Consolidated Statement of Financial Position date for holidays accrued but not taken, at applicable rates of salary. The expected cost of compensated short-term absence (holidays) is charged to the Consolidated 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 Consolidated 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 Consolidated 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 Consolidated 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 plan

The Group operates a long-term incentive plan for all staff and Directors. 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.

1.15 Finance income

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

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.

Estimates and assumptions

Share-based payments

The Group operates an equity-settled share-based compensation plan as detailed in note 17 for employee (and consultant) services to be received and the corresponding increases in equity are measured by reference to the fair value of the equity instruments as at the date of grant. The fair value determination is based on the principles of the Black-Scholes Model, the inputs of which require the use of estimation.

Judgements

Deferred tax recognition

The determination of probable future profits, against which the Group's deferred tax profits can be offset, requires judgement.

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 market rates of interest on Group cash deposits using money market funds. Cash balances used to settle the liabilities from operating activities are maintained in current accounts.

(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 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 2016 the Group had no trade payables denominated in a foreign currency

(31 December 2015: £27,014).

Cash flow interest rate risk and fair value interest rate risk

The Group's interest rate risk arises from short-term money market deposits.

(ii) Credit risk

Credit risk arises from cash and cash equivalents and money market deposits as well as credit exposure in relation to outstanding receivables.

(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 Consolidated Statement of Financial Position date of £855,177 (2015: £729,118) which fall due 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.

3. Segment reporting

The Group is organised and operates as one segment. The Group's revenue analysed by geographical location of the Group's customers is:

4. Operating loss

Loss on foreign exchange 4,823 4,066

The fees of the Group's auditor, KPMG LLP (2015: BDO LLP), for services provided are analysed below:

5. Wages and salaries

The average monthly number of persons (including all Directors) employed by the Group during the year was 14 (by category: R&D 8, administration 6), (2015:14, by category: R&D 8, administration 6) and their aggregate emoluments were:

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

6. Directors' emoluments

There were no share options exercised by the Directors during the current or preceding year. In 2016 one Director (2015: one Director) participated in a private money purchase defined contribution pension scheme.

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

7. Finance income

Interest receivable in 2016 on fixed rate short-term deposits was £14,714 (2015: £38,325).

8. Taxation

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

The Group has tax losses of £22,332,102 (2015: £20,360,259) available for offset against future taxable profits.

Deferred tax

Deferred tax assets amounting to £3,859,456 (2015: £3,676,244) have not been recognised due to it not being probable that taxable profits will be available, against which these deductible temporary differences can be utilised. A reduction in the UK corporation tax rate from 21% to 20% (effective from 1 April 2015) was substantively enacted on 2 July 2013. Further reductions to 19% (effective from 1 April 2017) and to 18% (effective from 1 April 2020) were substantively enacted on 26 October 2015, and an additional reduction to 17% (effective from 1 April 2020) was substantively enacted on 6 September 2016. The unrecognised deferred tax asset at 31 December 2016 has been calculated assuming a prevailing tax rate when the timing differences reverse of 17% (2015: 18%) and comprises:

9. Loss per share (pence)

The calculation of the loss per share is based on a loss of £3,697,113 (2015: loss of £5,081,442) and on a weighted average number of shares in issue of 101,350,836 (2015: 99,022,600).

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, disclosed in note 17, or the issue of shares under the long-term incentive plan, would have the effect of reducing the loss per share and is therefore anti-dilutive under the terms of IAS 33 'Earnings per Share'.

10. Plant and equipment

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

11. Inventories

12. Financial instruments by category

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

13. Trade and other receivables

Trade and other receivables do not contain any impaired assets. The Group does not hold any collateral as security and the maximum exposure to credit risk at the Consolidated Statement of Financial Position date is the fair value of each class of receivable.

14. Cash and cash equivalents

15. Trade and other payables

16. Share capital

The number of issued ordinary shares as at 1 January 2015 was 99,022,600. During the year ended 31 December 2015, the Company issued shares of 0.2 pence each as follows:

The number of issued ordinary shares as at 1 January 2016 was 99,092,318. During the year ended 31 December 2016, the Company issued shares of 0.2 pence each as follows:

17. Share options

At 31 December 2016, the number of ordinary shares of 0.2 pence each subject to share options granted under the Company's Approved and Unapproved Share Option Schemes were:

There were no share options awarded in 2016.

On 13 January 2017 share options over 1,260,000 new ordinary shares were granted to employees (including Executive Directors) at a price of 57.50p. The exercise period for these options is 1 October 2018 to 30 September 2023.

The share options outstanding at 31 December 2016 represented 3.60% of the issued share capital as at that date (2015: 5.03%) and would generate additional funds of £2,193,237 (2015: £2,439,700) if fully exercised. The weighted average remaining life of the share options outstanding at 31 December 2016 was 56 months (2015: 62 months) with a weighted average remaining exercise price of 50.76 pence (2015: 48.94 pence).

The share options exercisable at 31 December 2016 totalled 3,260,462 (2015: 2,834,741) with an average exercise price of 57.51 pence (2015: 55.33 pence) and would have generated additional funds of £1,875,237 (2015: £1,568,500) if fully exercised.

The Group's share option scheme rules apply to 3,740,462 of the share options outstanding at 31 December 2016 (31 December 2015: 4,229,741) and include a rule regarding forfeiture of unexercised share options upon the cessation of employment (except in specific circumstances).

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

The Black-Scholes 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.

18. Pension costs

The pension charge represents contributions payable by the Group to independently administered funds which during the year ended 31 December 2016 amounted to £131,181 (2015: £80,923). Pension contributions payable in arrears at 31 December 2016, included in accrued expenses at the relevant Consolidated Statement of Financial Position date, totalled £6,846 (2015: £5,470).

19. Commitments

At 31 December 2016 the Group had operating lease commitments in respect of property leases cancellable on one month's notice of £9,575 (2015: £5,945).

20. Related party transactions

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

Key management compensation

The Directors represent the key management personnel. Details of their compensation and share options are given in note 6.