Ixico Regulatory News (IXI)

30 November 2010

Phytopharm plc

Preliminary Results for the year ended 30 September 2010

Phytopharm plc (PYM: London Stock Exchange) ("Phytopharm" or the "Company") announces today its preliminary results for the year ended 30 September 2010. 

Business highlights

Operational

Financial

Mr Tim Sharpington, CEO commented: "In 2010 Phytopharm consolidated its operations and is now focused on the development of its pharmaceutical pipeline. Good progress has been made on the development of Cogane™ following encouraging pre-clinical and Phase I safety results and a Phase II study of Cogane™ in patients with early stage Parkinson's disease has been initiated. We have also identified additional opportunities within our pharmaceutical pipeline which we will pursue over the coming months. Expenditure and resource on our legacy functional food products has been curtailed and a subsequent restructuring exercise has produced efficiency savings of approximately £1 million over the next three years.

With a strong balance sheet, a three year cash runway and a management team with extensive pharmaceutical development experience, Phytopharm is well placed to exploit its pipeline of innovative pharmaceutical products."

For further information about Phytopharm, please see our website at http://www.phytopharm.com

Business Review

Strategy

Phytopharm is a development stage pharmaceutical company developing novel treatments targeting diseases with high levels of unmet need. Our lead series of compounds, the Sapogenins (including Cogane™ and Myogane™), has the potential to be a new class of therapy for neurodegenerative diseases including Parkinson's disease, motor neurone disease and glaucoma.

Phytopharm's strategic direction has evolved from developing products extracted from natural botanical sources to investigating single chemical entities.

Phytopharm operates as a virtual company. We utilise a network of scientific and clinical experts to help guide our development projects with our experienced pharmaceutical managers overseeing operations.

Our commercially focused development projects have the potential to produce significant treatment advances in our target areas of neurodegeneration and inflammatory disease. Our products are single chemical entities with novel mechanisms of action protected by strong patent families. Our pipeline has been sourced from our own research activities and from licensing activities, particularly from leading research institutions in China with whom the company has long-standing relationships.

Our objective is to develop products aimed at major markets with high unmet medical need to key value inflection points before seeking late-stage development and commercial partners as appropriate. We will consider retaining certain rights to products targeting orphan indications.

Overview

In December 2009, Phytopharm successfully completed a Placing and Open Offer securing significant investment of £24.09 million net of expenses providing a robust balance sheet to progress our promising pharmaceutical pipeline.

Following the equity fundraising, we have progressed our strategy of focusing on our pharmaceutical programmes, specifically on the development of Cogane™ for Parkinson's disease. During the year, we reported promising results with Cogane™ in a preclinical model and in a safety, tolerability and pharmacokinetic study in Parkinson's disease patients as well as securing approval from regulatory authorities allowing the commencement of our multi-national Phase II CONFIDENT-PD clinical study.

Recruitment of patients with Parkinson's disease into this study commenced in November 2010. The study is being conducted in leading movement disorder centres in North America and Europe. The Company anticipates that results from the study will be available by the end of 2012.

During the year, the Board were delighted to welcome Tim Sharpington as Chief Executive Officer and Roger Hickling as R & D Director. These appointments strengthen our ability to drive our research and development programmes forward following our successful fundraising activities.

We have continued to limit expenditure to our two legacy programmes, Hoodia and Phytopica®. We have been able to enter into a cooperation agreement with the CSIR for the future development of the Hoodia gordonii programme and we are progressing discussions on a number of opportunities for Phytopica®.

Pharmaceutical programmes

The Sapogenins

Phytopharm's lead products, CoganeTM and MyoganeTM, are structurally related, small molecule, chemical entities and members of the Sapogenin class of compounds. They are orally bioavailable neurotrophic factor inducers that readily cross the blood-brain barrier. Both compounds have demonstrated neuroprotective effects in a range of preclinical models. Specifically, CoganeTM and MyoganeTM have been shown to induce and modulate the production of neurotrophic factors.

Both compounds have completed long term toxicology studies, have been formulated as once daily, orally administered therapies and have completed Phase I studies demonstrating good bioavailability and safety profiles.

CoganeTM is being studied in a Phase II trial of early stage Parkinson's disease and in preclinical models of amyotrophic lateral sclerosis ("ALS", also known as Lou Gehrig's disease). It has also been evaluated for safety and tolerability in patients with Alzheimer's disease.

Additionally, CoganeTM and MyoganeTM are being assessed in preclinical models of glaucoma, a neurodegenerative disease of the eye, and if results are encouraging, have the potential to be progressed rapidly into clinical proof of concept studies.

The neuroprotective and neurotrophic actions of CoganeTM suggest potential beneficial effects in other orphan neurodegenerative diseases.

Neurodegeneration

Neurodegeneration is the umbrella term for the progressive loss of structure, function or death of neurones. Many neurodegenerative diseases including Parkinson's disease, ALS, glaucoma and Alzheimer's disease occur as a result of neurodegenerative processes that exhibit many similarities suggesting that these diseases are related on a sub-cellular level. Because of the similarities in neurodegeneration across this range of diseases, there is hope that therapeutic advances, such as CoganeTM and MyoganeTM, could be beneficial in more than one of these diseases.

Cogane™ in Parkinson's disease

Parkinson's disease is a movement disorder characterised by muscle rigidity, tremor and a slowing of physical movement (bradykinesia) and, in extreme cases, a loss of physical movement (akinesia).The primary symptoms are the result of altered signalling of an area of the brain, the striatum, responsible for the control of movement. This is caused by degeneration of dopaminergic neurones between the substantia nigra and the striatum parts of the brain, leading to insufficient formation and action of dopamine. Parkinson's disease is therefore termed a neurodegenerative disease. The disease is slow in onset and the appearance of symptoms reflects the gradual loss of dopaminergic neurones.

The prevalence of Parkinson's disease is estimated at being 0.3% in the whole population in industrialised countries, rising to 1% in those over 60 years of age and to 4% of the population over 80. The market size for Parkinson's disease was $3.2 billion in 2009 and is forecast to grow to $4.6 billion by 2012.

Mode of action

Glial derived neurotrophic factor ("GDNF") and brain derived neurotrophic factor ("BDNF") have been shown to be effective in re-growing damaged nerves. Since they are proteins, they cannot be given orally (in tablet or liquid form) because they are degraded in the stomach and intestine, and also do not readily cross the blood-brain barrier. GDNF and BDNF can work only when injected into, or when produced inside, the brain. Direct injection of GDNF into the area of the brain involved in Parkinson's disease has shown evidence of being clinically effective in restoring the control of movement but requires highly complex and difficult surgical procedures. Cogane ™ has the potential to overcome many of the difficulties associated with GDNF administration.

In preclinical models, CoganeTM stimulated the release of GDNF and BDNF in the brain and increased neurite outgrowth. When administered orally in several different preclinical models of Parkinson's disease CoganeTM reversed the decrease of neurotrophic factors and reversed the loss of dopaminergic neurones in the striatum, the area of the brain most affected in Parkinson's disease.

Progress to date

We have made significant progress demonstrating that in preclinical models of Parkinson's disease CoganeTM reverses the damage to dopamine-containing neurones and elevates GDNF and BDNF in the area of the brain involved in Parkinson's disease. In a recently completed preclinical study, oral administration of CoganeTM over eighteen weeks significantly reduced parkinsonian disability by 43% in the gold standard preclinical model of Parkinson's disease research (MPTP-induced Parkinson's disease model), which will be clinically highly relevant if repeated in Parkinson's disease patients. Encouragingly, in this study a statistically significant reduction in parkinsonian symptoms was reached after nine weeks of administration with CoganeTM. The magnitude of the effect increased over the subsequent nine weeks of administration and was still increasing at the end of the study (week eighteen). Data from this study suggests that the mechanism underlying these effects is considerably more complex than originally envisaged. This study was supported by the Michael J Fox Foundation and further work in this area is ongoing.

We have also shown in preclinical models that administration of CoganeTM in conjunction with L-dopa (the standard treatment for Parkinson's disease) resulted in improved control of symptoms compared to those treated with L-dopa alone. These data continue to support the development of CoganeTM as an exciting new and potentially disease-modifying therapy for Parkinson's disease.

In addition to its effects in preclinical models of Parkinson's disease, CoganeTM has shown efficacy in preclinical models of cognitive impairment and so may have utility in treating the non-motor symptoms of Parkinson's disease. 

Clinical

Four Phase I studies have evaluated CoganeTM in healthy adults and Parkinson's disease patients for up to 28 days. In these studies, daily, oral administration of CoganeTM was well tolerated with a good overall safety profile. In a recently completed Phase Ib safety, tolerability and pharmacokinetic clinical study in both healthy volunteers and Parkinson's disease patients, CoganeTM was shown to be safe and generally well tolerated over the 28 day study period. Importantly at day 28, plasma levels of Cogane™ in Parkinson's disease patients reached levels associated with efficacy in the preclinical efficacy study.

CoganeTM is currently being evaluated in a 400 patient multi-national Phase II, randomised, double blind, placebo controlled, dose ranging study (CONFIDENT-PD). The study is comparing the safety, tolerability and efficacy of three doses of CoganeTM and placebo when administered for 28 weeks to untreated patients with early stage Parkinson's disease. 

Cogane™ in motor neurone disease / ALS

ALS, also known as Lou Gehrig's disease, is the most prevalent form of motor neurone disease which generally strikes people between 40 and 60 years of age. It is characterised by progressive loss of both lower (spinal cord and brain stem) and upper (cerebral cortex) motor neurones, which leads to severe muscle weakness and wasting, followed by paralysis and death, generally caused by respiratory failure. There is an urgent need for the development of new approaches to this devastating condition.

It is estimated that over 30,000 patients are diagnosed with ALS in the seven major markets. ALS is classified as an orphan disease and, as such, offers the potential for expedited development.

Progress to date

In preclinical studies, CoganeTM protects spinal motor neurones from glutamate-induced neuronal damage, increases neurite outgrowth and has also been shown to increase lifespan and improve muscle strength and coordination in several different models of ALS. With the support of the Motor Neurone Disease Association, a leading UK charity, we are undertaking work in additional preclinical models of ALS. If positive, these studies will facilitate rapid progression to clinical trials.

As noted in the Parkinson's disease section, CoganeTM has been evaluated in a number of Phase I studies and shown to be generally safe, well tolerated and orally bioavailable.

Glaucoma

Glaucoma is a multifactoral, progressive optic neuropathy that is characterised by a loss of retinal ganglion cells ("RGCs") beyond typical age related baseline loss.

Glaucoma is the second most common cause of worldwide blindness (after cataracts) with approximately 60 million sufferers worldwide. This figure is expected to rise to 80 million by 2020. In the USA, the prevalence of primary open-angle glaucoma, the most common form of glaucoma, in people over 40 years of age is 1.86%.

Elevated intraocular pressure ("IOP") is an important risk factor for glaucoma and has remained a clinical focus for several years; however, 20-30% of patients with glaucoma have a normal IOP. Additionally, there are people who have raised IOP who do not develop glaucoma. Even in patients treated with IOP-lowering therapies the annual progression rate of the disease is ~10%. Therefore, drugs that treat the underlying neuropathy are needed. 

Published preclinical studies have shown that both BDNF and GDNF can protect RGCs both in vitro and in vivo. Furthermore, co-application of BDNF and GDNF provided a better level of protection than either factor used individually. As CoganeTM and MyoganeTM stimulate the release of BDNF and GDNF, they are potential treatments for glaucoma.

Alzheimer's disease

CoganeTM and MyoganeTM protect cortical neurones from glutamate and β-amyloid induced neuronal damage and increase neurite outgrowth in vitro.  CoganeTM and MyoganeTM also increase the density of muscarinic receptors both in vitro and in vivo. In vivo, CoganeTM and MyoganeTM improve cognition in the aged rat and β-amyloid/ibotenic acid rat model of Alzheimer's disease.

The safety, tolerability and pharmacokinetics of orally administered Cogane™ in patients with Alzheimer's disease has previously been assessed in a 12 week study. Cogane™ was generally well tolerated in this patient group. Further work may be undertaken in this area if additional resources become available.

P61 Programme

The P61 programme was established by Phytopharm to investigate the known pharmacological properties of curcumin and gingerol. A medicinal chemistry programme has produced a series of synthetic new chemical entities ("NCEs") with a range of attractive pharmacological properties. As with other compounds in the Phytopharm portfolio, this series has its origins based around compounds extracted from a plant source, but is now entirely synthetic in nature. 

The chemical series contains molecules which exhibit the following activities:

·; Anti-inflammatory

·; Anti-spasmodic

·; Anti-remodelling

·; TRPV1 modulatory activity

These activities have potential utility in a number of inflammatory indications including chronic obstructive pulmonary disease, asthma, atopic dermatitis, psoriasis, gastrointestinal inflammatory conditions and pain.

We are conducting preclinical studies on this series of compounds with a view to establishing one or more compounds for progression into development.

Legacy Products

Hoodia programme

The Council for Scientific and Industrial Research ("CSIR"), one of the leading research & development, technology and innovation institutions in Africa, is now responsible for the further development and commercialisation of Hoodia gordonii ("Hoodia") for the management of obesity. The CSIR will collaborate with national and regional stakeholders, and has the full support of the South African San Council for future developments. Phytopharm is committed to support this development effort through the contribution of supporting intellectual property and the transfer of technical know-how. In return, Phytopharm will receive a share of future commercialisation income.

Phytopica®

Phytopica® is a natural, three plant marketed product for canine skin health that provides a novel three in one approach to help maintain a normal healthy immune system, support normal white cell function and provide antioxidant benefits. Intervet/Schering-Plough Animal Health will continue to market Phytopica® until 31 December 2010. Discussions are ongoing with potential partners regarding the future commercialisation of Phytopica.

Financial Review

The financial performance for the year ended 30 September 2010 reflects the Group's ongoing pharmaceutical development and residual functional food activities.

Cash flow

The Company ended the year with £23.61 million of cash and money market investments. The £24.09 million (net of expenses) fundraising approved by shareholders in December 2009 strengthened our balance sheet significantly and has provided the resources to progress the development of our pharmaceutical programmes.

The net cash used in operating activities for the year ended 30 September 2010 was £4.44 million, an increase from £3.40 million in the prior year reflecting the Group's continuing focus on the development of its lead programme, Cogane™ in Parkinson's disease. The Group's focus remains on building shareholder value by effective progression of its innovative pharmaceutical programmes. We expect our net cash outflow to increase in 2011 to continue the development of our pharmaceutical programmes, primarily Cogane™ in a Phase II proof of concept and dose range finding clinical study. We also intend to maintain our strong links with disease specific charities which may result in additional charitable funding being available.

Income statement

The revenue from continuing operations for the year of £0.70 million (2009: £0.87 million) was principally generated from our residual functional food programmes.

Under certain collaboration agreements, funding was provided for development activities and certain of our employees. The majority of these activities are now completed resulting in revenue for the year of £0.51 million (2009: £0.57 million).

Sales of Phytopica® continue to be disappointing and during the year we agreed with Intervet/Schering-Plough to terminate our agreement for the product and we are exploring further opportunities for the product. Revenue from Intervet/Schering-Plough during the year amounted to £0.06 million. Sales of Phytopica® during the year amounted to £0.01 million (2009: £0.14 million).

We continued to reduce our inventory of raw materials during the year realising revenue of £0.12 million (2009: £0.16 million).

Other income during the year represents funding from the Michael J Fox Foundation for preclinical development work on Cogane™ completed during the year.

Cost of sales for the year amounted to £0.09 million (2009: £0.19 million) and comprised the costs of the inventories sold during the period and the costs of the raw materials and the manufacture of Phytopica®.

Research and development costs for the year amounted to £4.01 million compared to £3.91 million in the previous year reflecting the focus on progressing Cogane™ into the next stage of development following the successful fundraising during the year.

Our administrative costs before exceptional items remained constant at £1.12 million for the year (2009: £1.12 million). Administrative costs for the year were also £1.12 million (2009: £1.39 million). Exceptional costs of £0.41 million were recognised in the year ended 30 September 2009 in respect of former executive directors and restructuring costs.

Our overall operating loss before tax was £4.50 million compared to £4.38 million for the previous year.

Our interest received increased to £0.29 million compared to £0.18 million for the year ended 30 September 2009 due to increased cash balances following the fundraising activities during the year.

The tax credit of £0.41 million (2009: £0.29 million) represents amounts that are expected to be received under current legislation on research and development tax credits. The increase for the year is due to increased expenditure on the unfunded development activities primarily in relation to the Cogane™ programme.

Balance Sheet

Non-current assets representing property, plant and equipment and intangible assets decreased from £0.20 million at 30 September 2009 to £0.11 million at 30 September 2010. Property, plant and equipment amounted to £0.11 million at 30 September 2010 (2009: £0.10 million).

Intangible assets represent patent and know-how licences acquired externally that have been recognised as an asset at cost. At each balance sheet date we review the carrying amount of our intangible assets to determine whether there are any indications that these assets have suffered an impairment loss. Following a review at 31 March 2010, an impairment charge of £0.10 million was recorded to write down to £nil the carrying value of the intangible assets (2009: £0.10 million). These assets were fully impaired as a result of our strategic focus on specific chemical entities as pharmaceutical products.

Current assets comprise inventories, trade and other receivables, tax receivable, money market investments and cash and cash equivalents which increased from £4.68 million at 30 September 2009 to £24.50 million at 30 September 2010.

Money market investments together with cash and cash equivalents at 30 September 2010 increased by £19.70 million due to the equity fundraising completed during the year offset by cash outflows from operating and investing activities. Money market investments represent fixed-rate, short-term deposits placed with a range of banks at fixed terms with a maturity date of more than three months. Cash and cash equivalents are invested for a period of 90 days or less.

During the year we have completed the sale of all our existing inventory of raw materials. In addition, we have written off our inventory of work in progress to the value of to £0.13 million (2009: £nil) resulting in a carrying value of £nil (2009: £0.13 million), due to the disappointing sales of Phytopica® and the termination of our agreement with Intervet/Schering-Plough.

Current tax receivable has increased from £0.29 million at 30 September 2010 to £0.41 million at 30 September 2010 due to increased expenditure on our qualifying pharmaceutical programmes.

Current liabilities decreased to £1.13 million at 30 September 2010 (2009: £1.75 million) principally due to the recognition as revenue of previously deferred revenue during the year.

The increase in ordinary shares and share premium reflects the equity fundraising completed in December 2009.

Outlook

In line with our virtual operational structure, we continue to outsource the majority of our operations to specialist external organisations enabling us to operate with a low headcount and minimal infrastructure. This lean operational structure confers substantial cost and technical benefits as the nature and range of our activities change as our programmes progress through the various stages of development. Efficiency and cost control continue to be a key focus.

Forward-looking statements

Certain information included in these statements is forward-looking and involves risk and uncertainties that could cause results to differ materially from those expressed or implied by the forward-looking statements. 

Forward-looking statements include, without limitation, projections relating to results of operations and financial conditions, market estimates, the Company's plans and objectives for future operations, including future revenues, financial plans and expected expenditures and divestments. All forward-looking statements in this report are based on information known to the Company on the date of this release. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

It is not reasonably possible to itemise all of the many factors and specific events that could cause the Company's forward looking statements to be incorrect or that could otherwise have a material adverse effect on the future operations or results of the Company.

Principal risks and uncertainties

The nature of pharmaceutical development is such that there are significant inherent risks due to the long and complex development process.

Below are those principal risks and uncertainties that the Board considers could have a material impact on the Group's operational results, financial condition and prospects. These risks are not in any particular order of priority and there may be other risks that are either currently unknown or not considered material which could have a similar impact on the Group's business in the future.

The Board reviews each area of the business at least annually to identify material risks and the controls in place to manage these risks.

Industry risk

In common with other research and development stage businesses, Phytopharm's business risks relate principally to the success of its development programmes and to the need to fund its operations through these. The progress of the development programmes therefore represents the best indicator of the Group's performance. 

Financial risk

The Group expects to continue to make losses until it is able to increase its revenues sufficiently. Additional funds such as charitable income, collaboration deals and/or further financing may be required to allow further scope for product development. The availability and timing of such additional external funds represent a material uncertainty, although the Group has sufficient funds to finance its operational activities for at least the next twelve months.

Clinical and regulatory risk

Successful commercialisation of the Group's products is likely to depend on successful progress through clinical studies and registration. Development of product candidates involves a lengthy and complex process, and products may not meet the necessary requirements in terms of toxicity, efficacy or safety, or the relevant regulators may not agree with the results of the Group's research and may require further testing or withhold approval altogether.

Competition risk

The Group's success depends on acceptance of the Group's products by the markets, including physicians and third party payers, and consequently the Group's progress may be adversely affected if it is unable to achieve market acceptance of its products. Factors which may affect the rate and level of market acceptance of any of the Group's products include the existence or entry on to the market of superior competing products or therapies and the price of the Group's products compared to competing products.

Intellectual property risk

The Group's success depends in part on its ability to obtain and maintain protection for its intellectual and proprietary information, so that it can stop others from making, using or selling its inventions or proprietary rights. The Group's patent applications may not be granted and its existing patent rights may be successfully challenged and revoked.

Counterparty risk

The Group relies on third party organisations to conduct its clinical trials and to manufacture its products. If the relationship with, or performance of, any of these partners is adversely affected, the Group's results or operations may be adversely impacted.

The Group also derives revenue or financial support from its collaborators and expects to derive additional support from partnering with certain charitable organisations. If these relationships are adversely affected, or if the products involved fail to continue to make satisfactory progress, the Group's results or operations may be adversely impacted.

Unaudited consolidated statement of comprehensive income

For the year ended 30 September 2010

All revenues and expenses shown above were generated from continuing operations.

Unaudited consolidated balance sheet

As at 30 September 2010

Unaudited consolidated statement of changes in equity

Unaudited consolidated cash flow statement

For the year ended 30 September 2010

Notes to the unaudited financial information

For the year ended 30 September 2010

1. General information, accounting policies and basis of preparation

Phytopharm plc is a public limited company with a listing on the London Stock Exchange.

The preliminary announcement for the year ended 30 September 2010 is unaudited and has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union as at 30 September 2010.

The financial information in this preliminary statement does not constitute the Group's statutory accounts for the year ended 30 September 2010 within the meaning of Section 434 of the Companies Act 2006. The comparative information is derived from the Group's statutory accounts for the year ended 30 September 2009.

The Group's statutory accounts for the year ended 30 September 2009 were approved by the Board of Directors on 2 December 2009 and have been delivered to the Registrar of Companies; the report of the auditors on these accounts was unqualified and did not contain an emphasis of matter paragraph or any statement under Section 498 of the Companies Act 2006.

Going concern

At 30 September 2010, the Group had cash resources (being cash and cash equivalents and money market investments) of £23,608,171.

After making enquiries and taking into account management's estimate of future expenditure, the Directors have a reasonable expectation that the Group will have adequate financial resources to continue in operation for the foreseeable future.

Accounting policies

The accounting policies adopted are consistent with those of the financial statements for the year ended 30 September 2009, as described in those financial statements on pages 42 to 46, except for those matters relating to the adoption of new Standards as set out below.

The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning 1 October 2009.

IFRS 8, "Operating segments" (effective 1 January 2009). IFRS 8 replaces IAS 14, 'Segment reporting'. It requires a 'management approach' under which segment information is presented on the same basis as that used for internal reporting purposes. Management considers that there is only one reportable segment: research and development programmes including pharmaceutical products and residual functional foods.

IAS 1 (revised). "Presentation of financial statements" (effective 1 January 2009). The revised standard prohibits the presentation of items of income and expenses (that is non-owner changes in equity) in the statement of changes in equity, requiring "non-owner changes in equity" to be presented separately from owner changes in equity. All "non-owner changes in equity" are required to be shown in a performance statement. Entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and a statement of comprehensive income). The Group has elected to present one statement: the statement of comprehensive income. The interim financial statements have been prepared under the revised disclosure requirements.

IFRS 2 (amendment), "Share based payment" (effective 1 January 2009). The revised standard deals with vesting conditions and cancellations. It clarifies that vesting conditions are either service or performance conditions only. Other features of a share-based payment would need to be included in the grant date fair value calculation for transactions with employees and others providing similar services; they would not impact the number of awards expected to vest or valuation thereof subsequent to grant date. Prior to the adoption of the amendment to IFRS 2, any cancellations made by employees under the Group's save as you earn plan resulted in the reversal of all charges to date. The amendment requires that cancellations are treated as accelerated vestings and all remaining charges are immediately recognised in the income statement with the credit recognised in equity. There have been no cancellations of options under the save as you earn plan and therefore there is currently no impact of the amendment to this standard.

IFRS 7 (amendment), 'Financial instruments - Disclosures' (effective 1 January 2009). The amendment increases the disclosure requirements about fair value measurement and reinforces existing principles for disclosure about liquidity risk. The amendment introduces a three-level hierarchy for fair value measurement disclosure and requires some specific quantitative disclosures for financial instruments in the lowest level in the hierarchy. In addition, the amendment clarifies and enhances existing requirements for the disclosure of liquidity risk primarily requiring a separate liquidity risk analysis for derivative and non-derivative financial liabilities.

The amendment has not had a significant impact on the disclosures about fair value measurement as the Group does not have any derivative financial instruments. The Group has elected not to provide comparative information for these expanded disclosures in the current year in accordance with the transitional reliefs offered in these amendments.

2. Business and geographical segments

The Group's development and other functions operating across all the Group's research programmes are managed centrally and are reported internally as a single business. This also applies to the Group's marketed products. The chief operating decision-maker has been identified as the Executive Directors of Phytopharm plc. The Executive Directors review the Group's internal reporting in order to assess performance and allocate resources. Management has determined the operating segment based on these reports. Accordingly, the Directors consider that there is only one reporting segment.

Revenue by final destination of the sale is as follows:

(i) Represents grant income received

All non-current assets are located in the United Kingdom (2009: all).

3. Operating expenses

4. Exceptional items

Exceptional items represent significant items of income or expense which, due to their nature or the expected infrequency of the events giving rise to them, are presented separately on the face of the income statement to assist the reader of the financial statements.

Exceptional items in the year ended 30 September 2009 comprise the restructuring costs following the Group's business strategy review of £100,619 together with the costs of the contractual notice periods and certain post termination payments for the former CEO of £135,985 and the former CFO of £169,613. These exceptional items comprised £130,992 of research and development costs and £275,225 of administrative expenses.

5. Taxation

There is no corporation tax charge because of the incidence of tax losses (2009: £nil). The Company has taken advantage of the Research and Development corporation tax credits introduced in the Finance Act 2000 whereby a Company may surrender corporation tax losses incurred on research and development expenditure for a corporation tax refund at the rate of 24.5 pence in the pound of actual expenditure.

6. Loss per ordinary share

The calculation of basic and diluted loss per share on the net basis is based on the loss on ordinary activities after taxation, namely £3,801,514 (2009: £3,910,688) and on 284,234,443 (2009: 94,548,391) ordinary shares, being the weighted average number of ordinary shares in issue, after the deduction of the ordinary shares held by the employee benefit trust, and ranking for dividend during the period.

For diluted loss per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. Since the Group is loss making there is no such dilutive impact.

7. Intangible assets

Intangible assets represent patent and know-how licences acquired externally that have been recognised as an asset at cost. At each balance sheet date the Group reviews the carrying value of its intangible assets to determine whether there is any indication that these assets have suffered an impairment loss.

Following the review at 31 March 2010, an impairment charge of £0.10 million was recorded to write down to £nil the carrying value of the intangible assets (30 September 2009 £0.10 million). The intangible assets were fully impaired as a result of the Group's strategy of focusing on specific chemical entities as pharmaceutical products, which means that the intangible assets are no longer expected to be utilised.

8. Inventories

9. Trade and other receivables

10. Trade and other payables

11. Ordinary shares

In the year ended 30 September 2010 the Company issued 252,129,042 new Ordinary Shares of one penny each for a total cash consideration of £24,090,351 after the expenses of the issue. The nominal value of these shares was £2,521,290.

Purchase in shares of Phytopharm plc relate to the Phytopharm Share Incentive Plan whereby the Company issued one "Matching Share" for every one "Partnership Share" purchased by the employee. All shares are held by the scheme Trustees until the shares vest unconditionally with the Employee.

In the year ended 30 September 2009 no shares were issued for cash consideration. During the year ended 30 September 2009 the Company received reimbursement of £37,913 in respect of value added tax on previous share issues.

12. Post balance sheet events

A number of changes to the UK corporation tax system were announced in the June 2010 Budget Statement. Certain of these tax changes were substantively enacted in the Finance Bill 2010-11 on 20 July 2010. The impact of these changes have been reflected in the unrecognised potential deferred tax asset.

Certain other changes are expected to be enacted in future Finance Bills, including further reductions to the main rate of corporation tax by 1% per annum to 24% by 1 April 2014. The overall effect of the further changes from 27% to 24% if these applied to the potential deferred tax asset balance at 30 September 2010 would be to reduce the potential deferred tax asset by £1,308,000 (being £436,000 recognised in the year ending 30 September 2011, £436,000 recognised in the year ending 30 September 2012 and £436,000 recognised in the year ending 30 September 2013).

13. Related party transactions

There are no material related party transactions.