Ixico Regulatory News (IXI)

29 May 2008 07:00



29 May 2008

Phytopharm plc

Interim Results

Phytopharm plc (PYM: London Stock Exchange) ("Phytopharm" or the "Company", or the "Group") today announces its interim results for the six months ended 31 March 2008.

Portfolio Highlights

Cogane™

Successful grant of $1.16 million non-dilutive funding from The Michael J. Fox Foundation in January 2008 to support the development of Cogane™ as a treatment for Parkinson's disease 

Myogane™

European Union Orphan Medicinal Product Designation for ALS granted in May 2008

Hoodia extract

Phytopica®

Preparation for launch by Schering-Plough into additional territories

Key Financials

£8.6 million (£7.4 million net) raised in March 2008 through a Placing and Open Offer 

Revenue of £1.4 million (H1 2007 £1.6 million)

Loss after tax of £1.8 million (H1 2007 £2.9 million)

Cash balance of £8.8 million (FY 2007 £2.2 million; H1 2007 £3.4 million) 

Dr Daryl Rees, Chief Executive commented: "Hoodia extract, our weight management product partnered with Unilever, one of the world's leading food companies, continues to progress towards FDA submission anticipated in late 2009. Our canine skin health product, Phytopica®, partnered with Schering-Plough is nearing towards launch in additional territories. Our pharmaceutical products Cogane™ and Myogane™ continue to make good progress and are now benefiting from the strategic financial support of charitable organisations. We are very pleased with the strong support from both our existing and new institutional investors for the Placing and Open Offer. With a strengthened balance sheet we look forward with confidence to reporting on continued progress with our product pipeline in H2 2008."

Kevin Povey, R&D Programme Director, Unilever, commented: "We are satisfied with the good progress to date with Hoodia and anticipate submitting our GRAS notification to FDA in late 2009, subject to the programme continuing to advance in line with our current expectations." 

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

Chief Executive's statement

I am pleased to report that Phytopharm continues to advance the development of a broad, balanced portfolio of products with diversified risk and substantial potential value. Over the period we have make good progress with our weight management product, Hoodia extract, through the various stages of the development programme with our partner Unilever. We anticipate submitting our GRAS (Generally Recognised As Safe) notification to FDA in late 2009, subject to the programme continuing to advance in line with our current expectations. Our partnership with Unilever, one of the world's leading food companies, provides a fully funded programme and we look forward to generating royalty income from our partner's globally recognised brands on product launch. Our canine skin health product, Phytopica®, partnered with Schering-Plough is progressing towards launch in additional territories.

Our pharmaceutical product Cogane™ is now benefiting from the strategic financial support from The Michael J. Fox Foundation for Parkinson's Research (MJFF). The funding of $1.16 million over a two year period will support further development of Cogane™ as a treatment for Parkinson's disease, in particular for studies to determine the optimal dosing requirements for Cogane™. This non-dilutive funding reflects one of our strategic objectives of reducing our net development cost and cash burn while increasing long term shareholder value. 

We have continued to advance the development of our pharmaceutical product, Myogane™. The European Agency for the Evaluation of Medicinal Products ("EMEA") recently awarded Orphan Medicinal Product Designation for Myogane™, as a treatment for amyotrophic lateral sclerosis (ALS, also known as Lou Gehrig's disease), the most prevalent form of motor neurone disease. The Orphan Medicinal Product Designation provides Phytopharm with market exclusivity in the European Union for 10 years following Myogane's™ market authorisation. In addition, incentives relating to the designation include protocol assistance from the EMEA to maximise the chance of success in achieving market authorisation, fee reductions relating to the application for marketing authorisation, and eligibility for grants from the European Union and member states supporting research and development.

In March 2008, we raised approximately £8.6 million before expenses (£7.4 million after expenses) by way of a placing of new Ordinary Shares in the Company. We are very pleased with the strong support from both our existing and new institutional investors for the Placing and Open Offer. The new funds will enable the Company to progress a Phase II trial with Cogane™ for Parkinson's disease and alongside additional support from charitable organisations to progress a Phase II trial with Myogane™ for motor neurone disease. With a strengthened balance sheet, I believe that the Company can deliver significant value for shareholders and we look forward to reporting on the continued progress of our pipeline during calendar H2 2008.

Business Review

Phytopharm is a pharmaceutical development and functional food company. Our products are developed from medicinal plants, thereby reducing the development risk, cost and time to market. As a virtual company, Phytopharm's model is centred on a lean cash burn with all laboratory, manufacturing and clinical work out-sourced to specialists, while core competencies such as strategy and management are maintained in-house. Close collaboration with charitable organisations enhances our interaction with worldwide specialists and accelerates our development programmes increasing their value.

Pharmaceutical Products

The progress of our pharmaceutical products over the period is described below.

Cogane™ is in clinical development as a treatment for Parkinson's disease. In pre-clinical models, Cogane™ reverses the changes in the area of the brain involved in Parkinson's disease by inducing the body's own production of proteins known as neurotrophic factors. In particular, one of these factors known as glial derived neurotrophic factor (GDNF) has been shown to be particularly effective in re-growing damaged nerves. Since GDNF is a protein, it cannot be given orally (in tablet or liquid form) because it is degraded in the stomach and intestine, and also does not readily cross the blood-brain barrier. GDNF 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 substantial beneficial effects in small-scale clinical studies but requires highly complex and difficult surgical procedures. Cogane™, which can be taken orally, readily crosses the blood-brain barrier and in pre-clinical models has been shown to stimulate the release of GDNF in the brain and therefore has the potential to overcome many of the difficulties associated with GDNF administration.

In January 2008, The Michael J. Fox Foundation for Parkinson's Research (MJFF) granted funding of $1.16 million to support the development of Cogane™ as a treatment for Parkinson's disease. The MJFF funding is supporting pre-clinical studies to determine the optimal dosing requirements for Cogane™ and is being carried out by Dr Jonathan Brotchie, a senior scientist at the Toronto Western Hospital and part of the University Health Network (UHN) in Toronto, Canada. Dr Brotchie is a recognised world expert in the field of Parkinson's disease and, at UHN, runs one of the world's premier research laboratories for the identification of novel treatments, diagnostics and cures for Parkinson's disease and related disorders. The estimated market size in 2010 is approximately $4bn per annum for Parkinson's disease (Source: Business Insights).

The neuroprotective, neurorestorative and neurotrophic actions of Cogane™ suggest potential beneficial effects in other neurodegenerative diseases including Alzheimer's disease. In our Phase IIa clinical study of Cogane™ in mild and moderate Alzheimer's disease patients, the more moderate Alzheimer's disease patients showed a decline in cognition in the placebo group with an encouraging trend for slower disease progression in the Cogane™ treated group. Patients with a mild form of the disease showed no decline in cognitive function and therefore, there was no effect detectable with Cogane™. The benefits to the moderate Alzheimer's disease patients, coupled with Cogane's™ good safety profile and tolerability, provides positive data for longer term studies for efficacy determination in both Parkinson's disease and Alzheimer's disease.

Dysregulation of neurotrophic factors has been implicated in a number of neuropsychiatric disorders suggesting that Cogane™ may have utility in schizophrenia, depression and anxiety, which together with Alzheimer's disease have an estimated aggregate market size of $50bn (Source: Business Insights).

Myogane™ is in clinical development as a treatment for ALS (also known as Lou Gehrig's disease). ALS is the most prevalent motor neurone disease and results from progressive degeneration of motor neurones which lead to severe muscle weakness and wasting followed by paralysis. Myogane™ induces the body's own production of proteins known as neurotrophic factors. In particular, one of these factors known as brain derived neurotrophic factor (BDNF) has been shown to be particularly effective in re-growing damaged motor neurones. Myogane™ readily crosses the blood-brain barrier and in pre-clinical models has been shown to stimulate the release of BDNF in the brain and protect against neuronal damage and when administered orally to pre-clinical models of ALS, delays the loss of muscle strength and extends survival time.

Myogane™ has successfully completed a Phase Ia clinical study that evaluated the safety, tolerability and pharmacokinetic profile of Myogane™. This residential clinical study was conducted under an investigational new drug (IND) filed with the United States Food and Drug Administration (FDA). In July 2007, Phytopharm successfully completed a Phase Ib study with Myogane™, conducted in the UK under a clinical trial authorisation (CTA) from the Medicines and Healthcare Products Regulatory Agency (MHRA). The study used a new liquid formulation suitable for ALS patients and demonstrated a good safety, tolerability and pharmacokinetic profile following single oral doses escalated across groups of healthy adult subjects.

In May 2008 the European Agency for the Evaluation of Medicinal Products ("EMEA") awarded Orphan Medicinal Product Designation for Myogane™, as a treatment for ALS. The Orphan Medicinal Product Designation provides Phytopharm with market exclusivity in the European Union for 10 years following Myogane's™ market authorisation. The EMEA grants the Orphan Medicinal Product Designation for products that diagnose, prevent or treat life-threatening or very serious conditions affecting no more than five out of every 10,000 people in the European Union. Approximately 350,000 patients suffer from ALS worldwide, of which 50% die within 18 months of diagnosis. This condition has a high unmet medical need (source: Datamonitor). 

Myogane™ has previously been granted Orphan Drug status and Fast Track Designation for the treatment of ALS by the United States Food and Drug Administration (FDA).

The neuroprotective, neurorestorative and neurotrophic actions of Myogane™ suggest potential beneficial effects in other orphan neurodegenerative diseases including Huntington's disease, Friedrich's ataxia, progressive supranuclear palsy and multiple system atrophy. The aggregate market size for these orphan diseases, including ALS, is estimated at in excess of $1b (Source: Datamonitor). 

Functional Foods

Hoodia extract is in development as a weight management functional food product based on an extract of the succulent plant, Hoodia, which contains a novel satiety stimulator that reduces calorie intake in overweight subjects, as demonstrated in a double-blind, placebo-controlled clinical study. Extracts of Hoodia and the active molecules therein are the subject of a global patenting programme, with major patents granted in the US, UK, Europe and Japan and pending in all other major territories.

Over the period, we have continued to make good progress with Hoodia extract through the various stages of the development programme with our partner Unilever. We anticipate submitting GRAS notification to FDA in late 2009, subject to the programme continuing to advance in line with our current expectations. The development stages prior to submission for GRAS notification include supply chain expansion and consumer studies that will evaluate reductions in calorie intake as part of a weight management programme in the general population. As part of the agreement, Unilever is committed to fully funding the development programme. In addition, Phytopharm will receive an undisclosed royalty on sales of all products containing the extract. Separately, Unilever is also managing the agronomy programme, including scale up for launch, undertaking manufacturing and market research activities, and supporting the international patent programme for the products.

Phytopica® is a natural, three plant product for canine skin health that provides a novel 3 in 1 approach to help maintain a normal healthy immune system, support normal white cell function and provide anti-oxidant benefits. The beneficial effects and excellent safety profile of Phytopica® have been proven extensively in clinical trials and the product has been found to be suitable for all dogs whatever size or breed. Canine dermatological disorders are well recognised by veterinarians to be a major problem, with an estimated 15% of the UK dog population (around 900,000 dogs) affected by skin conditions. Maintenance of a healthy skin and coat and alleviation of itching are of major importance to canine general health and quality of life.

In January 2006, Phytopharm entered into an exclusive global agreement with Schering-Plough Animal Health ("Schering-Plough") for Phytopica®. Under the terms of the agreement, Phytopharm is responsible for manufacturing Phytopica® whilst Schering-Plough is responsible for the global sales, marketing and distribution. Schering-Plough launched Phytopica® in the UK in April 2006 and in Italy and France in March and April 2007, respectively. The product has enjoyed firm support from veterinary dermatologists. Preparation continues with Schering-Plough for launching into additional territories worldwide.

The UK canine dermatitis end-user market is approximately £5 million per annum (Source: GfK AH UK Ltd). The UK comprises 6.4 per cent. of the global Companion Animal Health market (Source: Animal Pharm)

Financial review

The financial performance for the six months ended 31 March 2008 reflects the Group's ongoing pharmaceutical development and functional foods activities. During the previous financial period, the company changed its financial year end from 31 August to 30 September, and accordingly the comparable six month period is the six months ended 28 February 2007.

Income statement

Revenue and other income of £1.39 million for the period was generated from our collaboration agreements: firstly with Unilever for the development of Hoodia extract for dietary weight management; secondly with Schering-Plough for the global sales, marketing and distribution of Phytopica® for canine skin health; and most recently through our collaboration with Michael J Fox Foundation for the development of Cogane™. Revenue for the comparable period to 28 February 2007 amounted to £1.59 million. Revenue from Unilever represents reimbursement to the Group of development expenditure relating to the Hoodia extract programme, together with funding of certain Phytopharm staff, and therefore the level of revenue in each period depends on the nature of the ongoing activities and level of related expenditure at that particular time. Revenue from Schering-Plough comprises the sale of Phytopica® by Phytopharm to Schering-Plough for onward distribution and eventual sale to end users. Of the revenue in the period to 31 March 2008, £1.18 million represents stage payments from Unilever, £0.16 million represents product sales to Schering-Plough and £0.05 million represents stage payments from Michael J Fox Foundation in respect of pre-clinical development work on Cogane™; for the corresponding period to 28 February 2007 stage payments from Unilever amounted to £1.58 million and product sales to Schering Plough amounted to £0.01 million; there was no income from Michael J Fox Foundation.

Expenditure on research and development has continued during the six months ended 31 March 2008; however the mix of expenditure between programmes differed from the previous period. Expenditure on the Hoodia extract programme was higher than in the previous period, whereas expenditure on the Group's pharmaceutical programmes, which for substantially the whole of the period under review were not covered by any collaborations, was at a lower rate than in the previous period, pending the successful fund raising which completed on 28 March 2008. A total of £2.48 million was spent during the period, compared to £3.84 million for the six months ended 28 February 2007. Of this expenditure, 84% related to the Hoodia extract functional food programme, and 12% on the pharmaceutical development of Cogane™ and Myogane™. The Hoodia extract programme for dietary weight management continues to progress towards FDA submission, which Unilever expects to occur in late 2009, and Unilever continues to make substantial further investment in this programme, in addition to the funding it pays to Phytopharm.

Expenditure on selling, general and administrative expenses for the six months ended 31 March 2008 reduced slightly to £0.75 million from £0.94 million in the six months ended 28 February 2007. 

Interest receivable for the six months ended 31 March 2008 amounted to £0.04 million, compared to £0.11 million for the comparable period to 28 February 2007.

The reduced overall net loss for the period to 31 March 2008 was £1.77 million compared to £2.86 million for the period ended 28 February 2007.

Balance sheet

Non-current assets comprise property, plant and equipment, together with intangible assets. At 31 March 2008 non-current assets amounted to £0.25 million compared to £0.20 million at 30 September 2008 and £0.21 million at 28 February 2007. Of these amounts, as at 31 March 2008, £0.10 million represented intangible assets, being licence payments made to the Beijing Institute in respect of the acquisition of intellectual property rights under the agreement entered into in June 2007; as at 28 February 2007, the corresponding amount was £nil. Other non-current assets represent property, plant and equipment.

Current assets amounted to £10.38 million at 31 March 2008 (30 September 2007 £3.95 million; 28 February 2007 £5.47 million), and comprised inventories of £0.62 million, amounts receivable of £0.96 million (of which £0.09 million related to R&D tax credits), and cash resources of £8.80 million. Inventories declined slightly in the six months ended 31 March 2008 as the Group continues to utilise these for manufacture and sale of Phytopica® to Schering Plough. Amounts receivable excluding R&D tax credits have risen to £0.87 million from £0.38 million at 28 February 2007 (30 September 2007 £0.51 million).

The level of R&D tax credit receivable by the Group, at £0.09 million represents a decrease on previous period of £0.85 million for the six months ended 28 February 2007 (30 September 2007 £0.86 million). This lower level reflects the reduction in R&D expenditure on programmes which are not covered by the Company's collaborations. Cash resources, described as cash and cash equivalents, are invested for periods of 90 days or less. The cash resources of £8.80 million at 31 March 2008 included the net proceeds of the fund raising which completed on 28 March 2008, and compared to £3.38 million as at 28 February 2007 (30 September 2007 £2.24 million).

Current liabilities at 31 March 2008 have risen to £1.94 million from £1.73 million at 28 February 2007 (30 September 2007 £1.35 million), reflecting the accrual for certain ongoing activities in connection with the Hoodia extract programme, together with accrual of professional expenses in connection with the Placing and Open Offer.

The increases on the Share Capital and Share Premium accounts for the period ended 31 March 2008 reflects the issue of new shares in relation to the Placing and Open Offer which completed on 28 March 2008.

Cash flow

The net cash used in operating activities for the six months ended 31 March 2008 was £1.27 million, compared to £2.73 million in the period ended 28 February 2007.

Outlook

Throughout the remainder of 2008 we look forward to continuing to implement our strategic plan, which includes progressing Hoodia extract towards FDA submission, anticipated to be in late 2009. We also look forward to advancing our canine skin health product, Phytopica® towards launch in additional territories with our partner, Schering-Plough. With a strengthened balance sheet the new funds will enable the Company to progress clinical studies with Cogane™ for Parkinson's disease and subject to additional support from charitable organisations to progress a clinical study with Myogane™ for motor neurone disease. We look forward to reporting on the continued progress of our pipeline during calendar H2 2008.

Risks and uncertainties

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results.

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 and a full review of the programmes is given in the Business review on pages 2 to 5. 

Financial risk

The Group has one product, Phytopica®, on the market. However the revenues currently being generated by this programme are not yet significant to offset the Company's research and development expenditure, and the Group expects to continue to make losses until it is able to increase its revenues sufficiently. This may require commercialisation of additional products. Until this can be achieved the Group may remain dependant on the continuing support of its investors.

Clinical and regulatory risk

Successful commercialisation of the Group's products is likely to depend on continuing successful progress through clinical and consumer studies, and registration as applicable. 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 will 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.

Economic risk

As a consequence of the international nature of its business, the Group is exposed to risks associated with changes in foreign currency rates. The Group is headquartered in the United Kingdom, and substantially all its cash resources are in pounds sterling. An adverse change in exchange rates may lead to either an increase in certain of the Group's costs or a decrease in the pounds sterling value of its revenues, and hence a significant impact on the Group's reported results of operations, financial position and cash flow. Phytopharm has no debt and therefore does not face any refinancing issues even in the current adverse credit environment.

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 of 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 of operations may be adversely impacted.

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 upon 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 of 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.

Responsibility statement

The directors confirm that this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8.

The directors of Phytopharm plc are listed in the Phytopharm plc Annual Report for the period ended 30 September 2007 and there has been no change in the interim period.

By order of the Board

Independent review report to Phytopharm plc

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2008, which comprises the income statement, statement of changes in equity, balance sheet, cash flow statement and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Notes:

The maintenance and integrity of the Phytopharm plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim report since it was initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.

Unaudited consolidated income statement

For the six months ended 31 March 2008

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

Unaudited consolidated statements of changes in shareholders' equity

Unaudited consolidated balance sheets

As at 31 March 2008 

Unaudited consolidated cash flow statement

For the six months ended 31 March 2008 

Notes to the unaudited condensed consolidated interim financial information for the six months ended 31 March 2008

1. General information, accounting policies and basis of preparation

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

This condensed consolidated financial information was approved for issue on 28 May 2008 and comprises the consolidated interim balance sheets as at 31 March 2008 and 28 February 2007 and the period end balance sheet at 30 September 2007 together with the related consolidated interim statements of income, cash flows and changes in shareholders' equity for the 6 and 13 month periods then ended of Phytopharm plc.

In preparing this condensed consolidated financial information in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, "Interim financial reporting" as adopted by the European Union, management has used the principal accounting policies set out in the Group's annual financial statements for the period ended 30 September 2007, which have been prepared in accordance with IFRSs as adopted by the European Union.

The condensed consolidated interim financial information has not been audited and does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985 but has been reviewed by the auditors in accordance with ISRE 2410 (UK and Ireland) issued by the Auditing Practices Board. The Company's statutory accounts for the year ended 30 September 2007 have been delivered to the Registrar of Companies; the report of the auditors on these accounts was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985.

The Company changed its year end to 30 September during the financial period ended 30 September 2007 for administrative reasons. The financial results therefore comprise thirteen months of trading for the period ended 30 September 2007.

Going concern

This interim financial information has been prepared on a going concern basis which assumes that the Company will continue in operational existence for the foreseeable future. As at 31 March 2008 the Company had cash resources of £8,799,571.

Phytopharm is a pharmaceutical and functional food development company with a marketed product, Phytopica™, which is generating revenues. In addition the Company received reimbursement from Unilever in respect of its development expenditure, including staff costs, for its Hoodia extract product.

On 28 March 2008 the Company concluded a Placing and Open Offer and issued 38,929,048 new ordinary shares of one pence each for total cash consideration of £7,365,220 after the expenses of the issue.

The Directors have reviewed the working capital requirements of the Group over the next twelve months. In order to support the research and development of the Company's product candidates, the Company plans to incur future expenses which may be considerably in excess of revenue, thereby incurring operating losses. The Directors expect that net cash outflows will continue in the short term, but thereafter the Company's net financial position may be significantly improved depending on the commercial success of the Hoodia programme. Additional external funds may be required to fund development of the Company's products in future years which may include charitable income, collaborations deals and / or further financing.

Critical accounting policies

The preparation of the consolidated interim financial statements requires the Directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The main accounting judgements relate to inventory valuation, the share option charge and the underlying assumptions. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods.

Accounting policies

The accounting policies adopted are consistent with those of the financial statements for the period ended 30 September 2007, as described in those financial statements.

The IASB and IFRIC issued additional standards and interpretations which are effective for the period ending 30 September 2008.

As IFRS7 is a disclosure standard, there is no impact of that change in accounting policy in the interim financial statements. The full IFRS7 disclosures will be given in the annual financial statements. The Group does not anticipate that the remaining standards and interpretations will have a material effect on its financial statements.

The following additional standards and interpretations have been issued but are not effective for the financial year ending 30 September 2008 and have not been early adopted:

The Group does not anticipate that these standards and interpretations will have a material effect on its financial statements.

2. Business and geographical segments

The Group's development and other functions operate across both pharmaceutical products and functional foods, are managed centrally and are reported internally as a single business. This also applies to the Group's marketed products. Accordingly, the Directors consider that there is only one primary reporting segment. Geographic segments are secondary as neither geographical origin nor destination is central to management's assessment of risk and return.

(i) Represents grant income received 

3. Tax on loss on ordinary activities

There is no corporation tax charge because of the incidence of tax losses. 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 pence on the pound of actual expenditure.

4. Loss per ordinary share

Basic loss per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding 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.

5. Intangible assets

Patents and know how licences acquired have been recognised as an asset at cost.

6. Inventories

7. Trade and other receivables

8. Trade and other payables

9. Share capital

On 28 March 2008, the Company issued 38,929,048 new ordinary shares of 1 pence each at a price of 22 pence per share for a total cash consideration of £7,365,219 after the expenses of the issue. The nominal value of these shares was £389,290.

The remaining 8,681 shares issued related to the Phytopharm Share Incentive Plan 2007 whereby the Company issues one "Matching Share" for every "Partnership Share" purchased. The nominal value of these shares was £87.

In the period to 28 February 2007 no shares were issued for cash. In the period ended 30 September 2007 4,425,416 were issued for cash consideration of £1,681,658. The nominal amount of these shares was £44,254.

The Group had no related party transactions requiring disclosure.

There are no post balance sheet events of significance.