MTFB.L Regulatory News (MTFB)

20 April 2016

Motif Bio plc

("Motif" or the "Company")

Final Results for the year ended 31 December 2015

Motif Bio plc (AIM: MTFB), the clinical stage biopharmaceutical company specialising in developing novel antibiotics, announces its maiden full year audited financial results as an AIM-listed company.

Corporate/operational highlights:

· AIM listing raising £2.8 million (before expenses) at 20 pence per share on 2 April 2015;

· The U.S. Food and Drug Administration (FDA) agreed to Phase III trials of iclaprim;

· QIDP designation granted by the FDA for iclaprim in ABSSSI and HABP in July 2015;

· Independent tests by JMI Laboratories showed iclaprim to be effective in vitro against a range of Gram-positive bacteria and 16 times more potent than trimethoprim; and

· Motif contracted with Covance, a global leading CRO for Phase III clinical trials of iclaprim

Financial Highlights:

· Successful placing on 22 July 2015 raising £22 million (before expenses) at 50 pence per share;

· Cash and cash equivalents as at 31 December 2015 of US $28.6 million (31 December 2014: nil)

Since Period End:

· Began dosing the first patient in the Phase III iclaprim trials in March 2016;

· Named MTS Health Partners as U.S. Corporate Financial Advisor;

· Appointed The Fulford Group Ltd. as specialist advisor; and

· Appointed Pete A. Meyers as CFO, Rajesh B. Shukla as Vice President Clinical Operations, and named Jon Gold as strategic financial consultant

The Annual Report will be posted to shareholders and made available on the Company's website www.motifbio.com by 30 April 2016 and will contain a notice of the Company's forthcoming Annual General Meeting which will be held in London on 2 June 2016.

Graham Lumsden, CEO of Motif Bio plc said: "2015 was a transformational year for Motif Bio, with admission to AIM in April, securing capital of £23 million (net of expenses) through two equity fundraisings, and achieving a number of key milestones that provides the Company with a platform for further progress in 2016.

Motif Bio is now well-positioned as an antibiotic development company with a lead compound, iclaprim, in Phase III clinical trials targeting serious and life threatening infections and with commercialisation anticipated for 2018. We are in the rare position of already having data from more than 500 patients establishing safety and efficacy of iclaprim, including activity against multi-drug resistant bacteria such as MRSA."

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Chairman's Statement

All successful pharmaceutical companies depend, in the first place, on addressing an unmet medical need with a new or a better therapy. It is quite clear that the onset of multidrug resistance in the current families of antibiotics is creating a looming crisis in healthcare. Almost all modern medical procedures depend on the availability of effective antibiotics. It is gratifying that governments and regulators are now taking steps to encourage the development of novel antibiotics to address this growing medical emergency.

Motif's lead compound, iclaprim, is just such an antibiotic, with an underutilised mechanism of action targeted at killing bacteria rather than limiting growth. While a good molecule and an unmet medical need are necessary, they are not the only factors required for success. In Motif's case, iclaprim has an established safety and efficacy profile based on previous trials but it is still necessary for an emerging specialty pharma company like Motif to be able to access the capital markets to fund the additional development programmes and clinical tests required by regulators such as the U.S. Food and Drug Administration (FDA) and the European Medicines Agency (EMA). Success further depends on the skill and hard work of the team to execute well on the clinical development programmes and to support a compelling pharmaco-economic proposition to target customers which, in the case of iclaprim, are the hospital formularies. Even a good molecule will not fulfill its potential if it is not backed up by high quality data supporting its therapeutic value. Motif is in the unusual position of being able to access a huge amount of data accumulated in the earlier clinical development of iclaprim and this has defined the design and administration of the additional trials required by the regulators.

Over the last year, Motif has managed to complete the acquisition of the iclaprim assets, list on the AIM market via a successful IPO raising £2.8 million, conclude a satisfactory review meeting with the FDA, raise an additional £22 million from blue chip institutional investors, receive Qualified Infectious Disease Product (QIDP) designation from the FDA and, most important of all, design and initiate the Phase III clinical trials that the regulatory agencies want to see completed before they will grant marketing approval. Providing Motif can successfully raise additional development capital these new Phase III trials are expected to be completed within 18 months and, if all goes well, Motif should have an application submitted to the FDA by the end of 2017.

In parallel, over the last year Motif has made progress in building the leadership team and has added specialist advisory groups to assist in two key areas. Motif has recently appointed Mr. Pete Meyers as Chief Financial Officer and Dr. Rajesh Shukla as Vice President Clinical Operations. I would like to welcome them both to the Motif team and I would like to thank Robert Bertoldi for his invaluable contribution as CFO through the AIM listing and since. In addition, we now have one firm helping the Company to explore strategic financing options including the possibility of a listing on the NASDAQ stock market in the US. And a second firm is actively soliciting interest in the potential of a partnership for the distribution of iclaprim outside the United States. There is still a lot to do and your board and management team are committed to maintaining an intense focus on good execution. We look forward to the opportunity to report further progress towards bringing this important new therapy to patients in hospitals around the world who are facing the need to deal with increasingly resistant and, in some cases, potentially life threatening infections.

Richard C.E. Morgan

Chairman

20 April 2016

Chief Executive Officer's Statement

2015 was a transformational year for Motif Bio, with admission to AIM in April, securing capital of £23 million (net of expenses) through two equity fundraisings, and achieving a number of key milestones that provide the Company with a platform for further progress in 2016.

Motif Bio is now well-positioned as an antibiotic development company with a lead compound, iclaprim, in Phase III clinical trials targeting serious and life threatening infections and with commercialisation anticipated for 2018. We are in the rare position of already having data in more than 500 patients establishing the safety and efficacy of iclaprim, including activity against multi-drug resistant bacteria such as MRSA.

Iclaprim - a novel antibiotic targeting multi-drug resistant bacteria that cause serious and life-threatening infections

Through our merger with Nuprim Inc., which closed in April upon admission to AIM, we acquired the exclusive worldwide rights to develop and commercialise iclaprim, a novel antibiotic that targets the multi-drug resistant Gram-positive bacteria that cause serious and life-threatening hospital acquired infections.

Iclaprim kills bacteria using an underutilised mechanism of action (dihydrofolate reductase inhibition), meaning that iclaprim can kill bacteria that have developed resistance to other antibiotics that work by different mechanisms. Iclaprim has completed a comprehensive development programme demonstrating safety and efficacy in more than 500 patients with complicated skin and skin structure infections. In 2009, the previous developer of iclaprim received a "Complete Response Letter" from the US Food and Drug Administration (FDA) requesting an additional study to demonstrate effectiveness. The European Marketing Authorisation Approval was then withdrawn. Iclaprim was one of four antibiotics that did not gain approval around this time, shortly after another newly approved antibiotic had been found to be associated with severe liver injury and fraudulent safety data, negatively impacting the regulatory environment. The regulatory environment has subsequently become more favourable, with approval in 2014 of two of the other antibiotics that had similar requests for additional data. The Generating Antibiotic Incentives Now Act (the GAIN Act) was passed as a new law in the United States in 2012, providing several incentives for new antibiotics, including extended market exclusivity, accelerated review of the application for regulatory approval, and fast track submission of data. The previous successful development programme has meant that we were able to learn from the existing data and make several key improvements for our Phase III trials.

To have a much-needed antibiotic so close to approval and commercialisation presents a significant opportunity for the Company and our shareholders.

Iclaprim - an attractive target market

Resistance to antibiotics is a major global health threat, with so-called "superbugs" developing resistance more quickly than new effective antibiotics are being developed. Iclaprim will initially focus on two serious and life-threatening infections.

The first is Acute Bacterial Skin and Skin Structure Infections (ABSSSI), a common serious infectious disease often caused by multi-drug resistant bacteria, such as MRSA. Around 2.3 million patients in the US are affected by ABSSSI every year. Our first Phase III trials, currently underway, are in patients with ABSSSI.

The second is for Hospital Acquired Bacterial Pneumonia (HABP), one of the most common hospital acquired infections in the intensive care setting, estimated to affect 1.1 million patients in the US annually with a mortality rate of between 20% to 50% depending on how quickly and effectively it is treated. Phase II trials have already demonstrated the efficacy of iclaprim for patients with HABP and we expect to start trials for this indication in the second half of 2016. This trial is likely to take three years to complete.

Providing we can raise sufficient additional development capital, our current Phase III trials for ABSSSI are expected to conclude in 2017, and if approved iclaprim will be particularly suitable for patients with ABSSSI who also suffer from renal impairment or kidney disease. The current standard of care for treating ABSSSI is vancomycin. However, around 26% of high-risk hospitalised ABSSSI patients suffer from kidney disease and vancomycin is well known to be nephrotoxic (kidney damaging) and requires dose adjustment depending on the severity of kidney disease, therefore vancomycin is not a good option. Iclaprim is not nephrotoxic and requires no dosage adjustment, offering an appropriate alternative in these patients.

2015 - a transformational year

As part of our listing on AIM in April 2015, we raised approximately £2.5 million in net funds and concluded a further placing in July 2015 raising £20.75 million in net funds. This provided us with the funding needed to complete the preparations and start the Phase III trials that began with the first patient dosed in March 2016.

Our clinical trials are being run by Covance, our CRO. The two trials are global, multicentre, randomised, double-blind studies evaluating a total of 1,200 adult patients hospitalised with ABSSSI. Covance has considerable experience running antibiotic trials and we are confident that they are the best CRO for our programme which includes 160 clinical trial sites across the US, Europe, and Latin America.

The primary endpoint for the studies will be at least a 20% reduction in lesion size at 48 to 72 hours after initiation of antibiotic treatment. The key secondary endpoint is clinical cure at one to two weeks after antibiotic treatment ends. The successful completion of these two pivotal Phase III trials would satisfy both FDA and EMA requirements for regulatory approval.

Iclaprim has been designated as a Qualified Infectious Disease Product (QIDP) for the treatment of ABSSSI and HABP. The QIDP designation will make iclaprim eligible to benefit from certain incentives as provided under the GAIN Act. These incentives include FDA priority review, eligibility for fast-track status, and if ultimately approved by the FDA, iclaprim would be eligible for an additional five-year extension of Hatch-Waxman exclusivity, for a total of 10 years of market exclusivity, starting from the date of New Drug Application (NDA) approval. 

Additional supportive clinical data

Two important posters were accepted and presented at ID Week in San Diego, CA in October 2015. One summarised the Phase II data from trials in patients with Hospital Acquired Bacterial Pneumonia where iclaprim demonstrated safety and efficacy. The second poster described the efficacy of iclaprim at 72 hours after starting treatment in the prior Phase III complicated Skin and Skin Structure trials. Iclaprim was compared with another antibiotic, linezolid, and was shown to effectively halt the spread of skin lesions at 72 hours. This was important to show because in the current Phase III trials, the efficacy of iclaprim is being judged by measuring the size of the skin lesions at 48 to 72 hours after initiating treatment.

In addition, we announced in August 2015 that topline results of a laboratory study confirmed that iclaprim is active and highly potent against target bacteria, including Staphylococcus aureus, collected between 2012 and 2014 from patients around the world with serious, life-threatening hospital infections.

2016 - the year ahead

The main achievement for 2016 so far has been the commencement of our first Phase III studies and the first dosing of patients. In addition, in the first quarter of 2016 we also announced the appointment of two strategic advisers, which herald two developments in the Company's progress that we believe will help us to deliver significant value to shareholders.

In January 2016, we appointed US healthcare investment bank MTS Health Partners (MTS) to advise on potential future financing options within the US market. A NASDAQ listing continues to be an option for us. Not only would it open up additional avenues of funding but it would also help to align us with a number of our US listed peer companies. Initial feedback has been positive from an investor audience that is well versed in the pharmaceutical development space and recognises the advantageous position that we are currently in with a candidate at such an advanced stage and with the unusual position of having a safety database comprised of 500 patients already treated with iclaprim.

In March, we appointed Fulford Group Ltd. as a specialist adviser to identify the most appropriate strategic partner(s) for the commercialisation of iclaprim in geographies outside of the US. We intend to commercialise iclaprim in the US ourselves. Whether these partners are large companies spanning multiple geographies or individual partners for specific regions, such deals can provide the Company with additional development capital in the form of upfront payments, milestone payments, and ongoing royalty fees. We expect to be able to update shareholders on progress in this area over the course of 2016.

We also expect to be able to provide updates to our Phase III programme for our second indication, HABP, which we expect to begin in the second half of 2016.

We anticipate making progress with our oral formulation development programme for iclaprim. This has advantages when treating bone or joint infections, which often require a longer period of treatment (six weeks or more). In addition, we plan to seek additional antibiotic assets and if possible we intend to acquire such assets through in-licensing arrangements that should build incremental value for shareholders.

In recent weeks, we appointed Pete A. Meyers as Chief Financial Officer and Rajesh B. Shukla, Ph.D. as Vice President Clinical Operations. Pete's experience in capital markets, M&A, and financial operations combined with Rajesh's depth of knowledge in clinical operations will ensure strong leadership in these critical functions. I am pleased to welcome them both to the Motif team.

I would like to offer my thanks to our shareholders for their continued support and to my colleagues who continue to work with me to build value for our shareholders.

Graham Lumsden

Chief Executive Officer

20 April 2016

Strategic Report

Strategy and Business Model

The Group's business strategy is to develop novel antibiotics that are designed to be effective against serious and life-threatening infections caused by multi-drug resistant bacteria. With an initial focus on hospital infections (rather than infections handled by office-based physicians), the intention is, to commercialise directly in the United States and to partner with other companies for commercialisation in other countries. The Company expects to generate revenues from sales of its pharmaceutical products, once they are approved. In addition, the Company expects to be able to enter into distribution and marketing agreements in one or more territories outside the US, which could result in cash payments from partners in the form of upfront payments, progress-based milestone payments, and royalties on sales. This strategy is expected to result in continuing losses until revenues from these sources exceed operating costs, including investment in R&D and marketing expenses. The Board expects to be able to support its discovery and development plans for the foreseeable future and to raise sufficient capital to be able to launch and sell its products in the United States.

The Company's lead product candidate, iclaprim, is being developed for the treatment of the most common and serious bacterial infections such as acute bacterial skin and skin structure infections (ABSSSI) and hospital acquired bacterial pneumonia (HABP), including those caused by resistant strains such as MRSA (methicillin-resistant Staphylococcus aureus). Two pivotal Phase III ABSSSI clinical trials, designed to meet regulatory requirements for approval in the United States and Europe, are on track to be completed in 2017 and if approved, iclaprim could be ready for commercialisation in 2018. A Phase III clinical trial to determine the efficacy of iclaprim in HABP is planned to start in 2016.

In addition, the Company is in discussions with pharmaceutical companies and universities to build a pipeline of innovative antibiotics targeting Gram-positive and Gram-negative bacteria.

Principle Risks and Uncertainties

The principle risks faced by the Group, and the actions taken to mitigate them, are shown in the table below:

Business review

The Group's results for the year are set out in the consolidated income statement on page 19. A review of the Group's performance during the year, together with its position at the end of the year, is given in the CEO's Statement on page 2.

Selected peer companies developing antibiotics, including Allergan, Cempra, Nabriva, Paratek, and Tetraphase, are regularly followed and studied as benchmarks for clinical development timelines, product pricing, capital requirements, financial metrics, and market positioning. Qualitative and quantitative market research is used to identify and assess market opportunities for novel antibiotics.

Going concern basis

Information on the Group's business activities and financial position, together with the factors most likely to affect its future development, performance, and position, is set out above. In addition, note 3 to the financial statements includes the Group's objectives, policies, and processes for managing its capital, its financial risk management objectives, and its exposure to credit risk and liquidity risk.

During the year, the Group met its day-to-day working capital requirements through cash reserves obtained through fundraising. The Directors consider that the current position of the Group is not unusual for a drug discovery and development company.

The Group has prepared detailed financial forecasts extending at least 12 months from the date of approval. These forecasts assume no sales and the continuation of costs associated with drug discovery and development. The forecasts show that the Group should be able to operate for at least the next 12 months from the date of these financial statements. The Directors acknowledge that uncertainty remains over the ability of the Group to have the resources to fully support the iclaprim trials. However, the Directors believe the Group will be able to secure financing through public markets, private financing, and partnering opportunities. In addition, since the majority of costs are associated with the clinical trials of iclaprim, the Directors believe the trials could be, if necessary, slowed or stopped. Although these measures would have an adverse effect on the commercialisation of iclaprim, the cost savings would extend the Group's ability to maintain itself as a going concern.

Approved by the Board and signed on its behalf by:

Richard C.E. Morgan

Chairman

20 April 2016

The notes are an integral part of these consolidated financial statements.

The notes are an integral part of these consolidated financial statements.

The notes are an integral part of these consolidated financial statements.

The notes are an integral part of these consolidated financial statements.

The notes are an integral part of these consolidated financial statements.

The notes are an integral part of these consolidated financial statements.

The notes are an integral part of these consolidated financial statements.

1. General information

Motif Bio Limited ("the Company") was incorporated in England and Wales on 20 November 2014 with company registration number 09320890. The Company's registered office is at One Tudor Street, London, EC4Y 0AH, UK. On 1 April 2015 the Company was re-registered as a public company limited by shares and changed its name to Motif Bio plc. Motif BioSciences Inc. was incorporated in the US State of Delaware on 2 December 2003 and has its registered office at 160 Greentree Drive, Suite 101, Dover, Delaware, 19904. On 1 April 2015, Motif BioSciences Inc. became a wholly owned subsidiary of the Company by way of a group reorganisation by plan of merger. The principal place of business is 125 Park Avenue, 25th Floor, New York, NY, 10017, USA. The Company's country of domicile is the UK.

Motif Bio plc is a clinical stage biopharmaceutical company which specialises in developing novel antibiotics designed to be effective against serious and life-threatening infections caused by multi-drug resistant bacteria. The consolidated financial statements include the accounts of Motif Bio plc and its wholly owned subsidiary, Motif BioSciences Inc. ("the Group").

The financial statements were approved by the Board of Directors on 20 April 2016.

Significant events

Nuprim merger

On 31 December 2014, Motif BioSciences Inc. entered into the Nuprim Merger agreement with Nuprim Inc. and the former Nuprim shareholders pursuant to which Nuprim Inc. would merge with and into Motif BioSciences Inc., which would be the surviving corporation. Under the terms of the Nuprim merger procedure Motif BioSciences Inc. obtained the exclusive worldwide rights to the assets owned by Nuprim, including the iclaprim assets, and the rights to acquire certain ancillary materials over a period ending 31 December 2017. Motif BioSciences Inc. issued 1,513,040 (post reverse stock split) shares of common stock to the shareholders of Nuprim Inc. that were held in escrow until the closing of the reorganisation. These shares of common stock in Motif BioSciences Inc. were converted into ordinary shares in Motif Bio plc upon admission to the AIM market of the London Stock Exchange on 2 April 2015 (admission). Upon admission, 9,805,400 ordinary shares of Motif Bio plc and 9,432,033 warrants were issued to the former Nuprim shareholders (note 9).

Group reorganisation by plan of merger and initial public offering

On 18 February 2015, Motif Bio Limited incorporated a Delaware subsidiary, Motif Acquisition Sub, Inc. On 27 March 2015 Motif BioSciences Inc., Motif Bio Limited, and Motif Acquisition Sub, Inc. entered into a plan of merger where, upon admission, Motif Acquisition Sub, Inc. merged with and into Motif BioSciences Inc. and Motif BioSciences Inc. continued as the surviving entity and became a wholly owned subsidiary of Motif Bio plc. Prior to the merger, Motif BioSciences Inc. completed a reverse stock split in order to increase the share price of Motif BioSciences Inc. so that it was closer to the Motif Bio plc admission price. The former Motif BioSciences Inc. shareholders were issued with 36,726,242 ordinary shares in Motif Bio plc in a share-for-share exchange for their common stock in Motif BioSciences Inc. so that immediately following the merger the former Motif BioSciences Inc. shareholders owned an equivalent number of ordinary shares in Motif Bio plc as the number of shares of common stock that they had previously owned in Motif BioSciences Inc. All outstanding, unexercised, and vested stock options over shares of common stock in Motif BioSciences Inc. were converted into options over ordinary shares in Motif Bio plc (note 17).

Although the share-for-share exchange resulted in a change of legal ownership, this was a common control transaction and therefore outside the scope of IFRS 3. The transaction has therefore been accounted for as a group reorganisation, and not a business combination. By applying merger or pooling principles, as opposed to acquisition accounting, the Group is presented as if Motif Bio Plc has always owned Motif BioSciences Inc. The comparatives presented in these financial statements therefore represent the results and capital structure of Motif Biosciences Inc. The reserve on consolidation represents the difference between the nominal value of the shares in Motif Bio plc issued to the former shareholders of Motif BioSciences Inc. and the share capital and share premium of Motif BioSciences Inc at the date of the transaction. As stated, the nominal value of the Motif Bio plc shares were used in the calculation of the reorganisation reserve. This is due to the application of merger relief, a relief under section 612 of the Companies Act 2006, which relieves the requirement to transfer the difference between the nominal and fair value of the issued shares to a share premium account.

The consolidated statement of changes in equity on page 22 and the additional disclosures in note 15 explain the accounting for the share-for-share exchange in more detail.

2. Significant accounting policies

a. Basis of preparation

On 2 April 2015, the Company was admitted to AIM, a market operated by the London Stock Exchange, and issued 14,436,140 of its ordinary shares at a price of £0.20 per share.

On 21 July 2015, the Company had a subsequent placing of 44,000,000 ordinary shares at a price of £0.50 per share.

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in this financial information.

The financial statements have been prepared in accordance with the Companies Act 2006 as applicable to companies under IFRS and the requirements of the AIM Rules for Companies and in accordance with this basis of preparation. This basis of preparation describes how the financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU). The financial statements have been prepared under the historical cost convention. A summary of the more important company accounting policies is set out below.

The comparative information for the year ended 31 December 2014 has been extracted from the audited non-statutory financial statements of Motif BioSciences Inc. for the year then ended. The auditors' report on these financial statements, from Motif BioSciences Inc.'s former auditors, was unqualified.

The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial information and the reported amounts of revenue and expenses during the period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.

The Group's business activities, together with factors likely to affect its future development, performance, and financial position are set out in the Chairman's Statement, the CEO's Statement and the Strategic Report on pages 2-7.

Going Concern

These consolidated financial statements of the Group are prepared on a going concern basis taking into account the successful completion of its admission to AIM on 2 April 2015 generating net proceeds of £2.5 million and a subsequent placing on 21 July 2015 generating net proceeds of £20.7 million.

The Directors have prepared cash flow forecasts extending at least 12 months from the date of approval. These forecasts assume no sales and the continuation of costs associated with drug discovery and development. The forecasts show that the Group should be able to operate for at least the next 12 months from the date of these financial statements. The Directors acknowledge that uncertainty remains over the ability of the Group to have the resources to fully support the iclaprim trials. However, the Directors believe the Group will be able to secure financing through public markets, private financing, and partnering opportunities. In addition, since the majority of costs are associated with the clinical trials of iclaprim, the Directors believe the trials could be, if necessary, slowed or stopped. Although these measures would have an adverse effect on the commercialisation of iclaprim, the cost savings would extend the Group's ability to maintain itself as a going concern.

In the event that we do not have adequate capital to maintain or develop our business, additional capital may not be available to us on a timely basis, on favorable terms, or if at all, which could have a material and negative impact on our business and results of operations.

2. Significant accounting policies, continued

New and amended standards adopted by the group

The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2015:

· Annual Improvements to IFRSs - 2010-2012 Cycle and 2011-2013 Cycle

The Group also elected to adopt the following two amendments early:

· Annual Improvements to IFRSs 2012-2014 Cycle, and

· Disclosure Initiative: Amendments to IAS 1.

As these amendments merely clarify the existing requirements, they do not affect the Group's accounting policies or any of the disclosures.

New standards and interpretations not yet adopted

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2015 reporting periods and have not been early adopted by the Group. The Group's assessment of the impact of these new standards and interpretations is set out below.

The expected effective date of IFRS 9 and IFRS 15 is 1 January 2018 and for IFRS 16, it is 1 January 2019. The standards have not yet been endorsed by the EU and the effective date for the Group would actually depend on the EU endorsement effective date. Management has not yet assessed the potential impact of these new standards. These changes could have a substantial impact on the Group's financial statements in the coming years.

Principles of consolidation

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

Intercompany transactions, balances, and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

When the Group ceases to consolidate because of a loss of control, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture, or financial asset.

b. Segment reporting

The chief operating decision-maker is considered to be the Board of Directors of Motif Bio plc. The chief operating decision-maker allocates resources and assesses performance of the business and other activities at the operating segment level. In addition, they review the IRFS consolidated financial statements.

The chief operating decision-maker has determined that Motif has one operating segment - the development and commercialisation of pharmaceutical formulations. All activities take place in the USA.

2. Significant accounting policies, continued

c. Foreign currency translation

(a) Functional and Presentation Currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The consolidated financial statements are presented in United States Dollars (US $), which is Motif Bio plc's functional and presentation currency.

 (b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in profit or loss. They are deferred in equity if they relate to qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation.

Foreign exchange gains and losses that relate to borrowings are presented in the statement of profit or loss, within finance costs. All other foreign exchange gains and losses are presented in the statement of profit or loss on a net basis within other income or other expenses.

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss and translation differences on non-monetary assets such as equities classified as available-for-sale financial assets are recognised in other comprehensive income.

d. Research and development costs

Expenditure on drug development activities is capitalised only if all of the following conditions are met:

· it is probable that the asset will create future economic benefits;

· the development costs can be measured reliably;

· technical feasibility of completing the intangible asset can be demonstrated;

· there is the intention to complete the asset and use or sell it;

· there is the ability to use or sell the asset; and

· adequate technical, financial, and other resources to complete the development and to use or sell the asset are available.

These conditions are generally met when a filing is made for regulatory approval for commercial production. Otherwise, costs on research activities are recognised as an expense in the period in which they are incurred.

At this time Motif does not meet all conditions and therefore development costs are recorded as expense in the period in which the cost is incurred.

e. Intangible assets

Intangible assets are stated at cost, net of any amortisation and any provision for impairment. Where a finite useful life of the acquired intangible asset cannot be determined, the asset is not subject to amortisation but is tested for impairment annually

2. Significant accounting policies, continued

or more frequently whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

f. Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. In the year ended 31 December 2015, management reviewed the carrying amount of these assets and determined that no adjustments to carrying values were required.

g. Financial instruments-initial recognition and subsequent measurement

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

a) Financial assets, initial recognition and measurement

All financial assets, such as receivables and deposits, are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset.

The Company assesses, at each reporting date, whether there is objective evidence that a financial asset or a company of financial assets is impaired. An impairment exists if one or more events that has occurred since the initial recognition of the asset (an incurred "loss event"), has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

b) Financial liabilities, initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, and payables, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

The Company's financial liabilities include trade and other payables and loans and borrowings.

c) Subsequent measurement

The measurement of financial liabilities depends on their classification. Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortised cost using the effective interest method.

h. Financial assets and liabilities

Financial assets and financial liabilities are included in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership.

2. Significant accounting policies, continued

Non-derivative financial instruments

Cash and cash equivalents

Cash and cash equivalents include bank balances, demand deposits, and other short-term, highly liquid investments (with less than three months to maturity) that are readily convertible into a known amount of cash and are subject to an insignificant risk of fluctuations in value.

Financial liabilities and equity

The Group classifies an instrument, or its component parts, on initial recognition as a financial liability or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability and an equity instrument.

An instrument is classified as a financial liability when it is either (i) a contractual obligation to deliver cash or another financial asset to another entity; or (ii) a contract that will or may be settled in the Group's own equity instruments and is a non-derivative for which the Group is, or may be, obliged to deliver a variable number of the Group's own equity instruments or a derivative that will, or may be, settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Group's own equity instruments.

Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

An equity instrument is defined as any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. An instrument is an equity instrument only if the issuer has an unconditional right to avoid settlement in cash or another financial asset.

Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received. Direct issuance costs are processed as a deduction on equity.

Derivative financial instruments

The Group does not have a policy of engaging in speculative transactions, nor does it issue or hold financial instruments for trading purposes.

The Group has entered into various financing arrangements with its investors, including convertible loans. These convertible loans each include embedded financial derivative elements (being the right to acquire equity in the Group at a future date for a pre-determined price). Therefore, while the Group does not engage in speculative trading of derivative financial instruments, it may hold such instruments from time to time as part of its financing arrangements.

2. Significant accounting policies, continued

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The resulting gain or loss is recognised in the consolidated income statement, as the Group currently does not apply hedge accounting.

Impairment of financial assets

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a "loss event") and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

For loans and receivables category, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated income statement. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument's fair value using an observable market price.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor's credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated income statement.

i. Offsetting financial instruments

Financial assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency, or bankruptcy of the Company or the counterparty.

j. Share-based payment transactions

The fair value of options and warrants granted to employees, directors, and consultants is normally recognised as an expense, with a corresponding increase in equity, over the period in which the option and warrant holders become unconditionally entitled to the options and warrants unless incremental and directly attributable to an equity transaction in which case it is deducted from equity. The fair value of the options and warrants granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options and warrants that vest except where forfeiture is due only to share prices not achieving the threshold for vesting.

Where a third party has provided goods or services in exchange for a compound financial instrument, such as a convertible promissory note, and where the fair value of the goods of services is measured directly, the fair value of the equity component is measured as the differences between the fair value of the goods or services received and the fair value of the debt component.

k. Financial income and expenses

Financial income comprises interest receivable on funds invested. Financial expenses comprise interest payable.

2. Significant accounting policies, continued

Interest income and interest payable are recognised in the income statement as they accrue, using the effective interest method.

l. Taxation

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the balance sheet date and any adjustment to tax payable in respect of previous years.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised.

m. Earnings per share

The Company presents basic and diluted earnings per share (EPS) data for its shares. Basic EPS is calculated by dividing the profit or loss attributable to shares of the Company by the weighted average number of shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to shareholders and the weighted average number of shares outstanding for the effects of all dilutive potential shares, which comprise share options and warrants granted to employees and non-employees. Where the Company makes a loss, diluted EPS equates to basic EPS.

n. Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method.

Debt issuance costs on loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.

o. Equity

The Company classifies an instrument, or its component parts, on initial recognition as a financial liability or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability and an equity instrument.

An instrument is classified as a financial liability when it is either (i) a contractual obligation to deliver cash or another financial asset to another entity; or (ii) a contract that will, or may be, settled in the Company's own equity instruments and is a non-derivative for which the Company is, or may be, obliged to deliver a variable number of the Company's own equity instruments or a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company's own equity instruments.

2. Significant accounting policies, continued

Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

An equity instrument is defined as any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. An instrument is an equity instrument only if the issuer has an unconditional right to avoid settlement in cash or another financial asset.

Ordinary Shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds, net of tax.

p. Critical accounting estimates and judgements

In preparing the financial information, the Directors have to make judgments on how to apply the Company's accounting policies and make estimates about the future. The critical judgments that have been made in arriving at the amounts recognised in the financial information and the key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying value of assets and liabilities in the next financial year, are discussed below:

Acquisition and valuation of the iclaprim assets

The directors, on assessing if the acquisition of the Nuprim iclaprim assets was of a business or of a group of assets, considered:

· the identified elements of the acquired group;

· the capability of the acquired group to produce outputs; and

· the impact that any missing elements have on a market participant's ability to produce outputs with the acquired group.

As the acquired group was not accompanied by any associated processes and because the acquired assets do not have planned principal activities, or a plan to produce outputs, the Directors considered the acquisition to be of a group of assets, not a business.

The Directors use their judgement to identify the separate intangible assets and then determine a fair value for each based upon the consideration paid, the nature of the asset, industry statistics, future potential, and other relevant factors. These fair values are tested for impairment annually.

Research and development expenditures

Research expenditures are currently not capitalised because the criteria for capitalisation are not met. At each balance sheet date, the Group estimates the level of service performed by the vendors and the associated costs incurred for the services performed.

Although we do not expect the estimates to be materially different from amounts actually incurred, the understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in reporting amounts that are too high or too low in any particular period.

Share based payments

The Directors have to make judgments when deciding on the variables to apply in arriving at an appropriate valuation of share based compensation and similar awards including appropriate factors for volatility, risk free interest rate, and applicable future performance conditions and exercise patterns.

2. Significant accounting policies, continued

q. Investments in subsidiaries

Investments in subsidiaries are shown in the Company balance sheet at cost and are reviewed annually for impairment.

3. Financial risk management

This note explains the Group's exposure to financial risks and how these risks could affect the Group's future financial performance.

a. Credit risk

Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, and if a counterparty will default on its contractual obligations resulting in financial loss to the Group.

The credit risk on liquid funds is limited because cash balances are held with bank and financial institutions with credit-ratings assigned by international credit-rating agencies. All deposits are held with banks with S&P ratings of A-2 and AA- for short term deposits.

At 31 December 2015, no current asset receivables were aged over three months. No receivables were impaired.

b. Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The principal risk to which the Group is exposed is liquidity risk.

The Group finances its operations using cash raised through the issue of equity. The Group manages its liquidity risk by monitoring cash flows against forecast requirements based on an 18 month cash forecast. The Directors acknowledge that uncertainty remains over the ability of the Group to have the resources to fully support the iclaprim trials. However, the Directors believe the Group will be able to secure financing through public markets, private financing, and partnering opportunities. In addition, since the majority of costs are associated with the clinical trials of iclaprim, the Directors believe the trials can be slowed or stopped. Although these measures would have an adverse effect on the commercialisation of iclaprim, the cost savings would extend the Group's ability to maintain itself as a going concern.

The Group would also like to begin clinical trials of iclaprim in other disease indications. In order to commence these trials, the Group would need to obtain additional financing. A delay in beginning these additional trials could lead to a decrease in the Group's prospects for the commercialisation of iclaprim. In order to continue the current clinical trials of iclaprim and commence new clinical trials the Group is heavily dependent on the public markets both in the UK and US. A downturn in the public markets, especially in biotech, may make it difficult for the Group to obtain sufficient funds to continue its clinical trials and the commercialisation of iclaprim. The current clinical trials of iclaprim have just commenced and the outcome of the trials will not be known until the third quarter of 2017. Should the clinical trial results be unfavorable, the Group's ability to raise additional funds and the commercialisation of iclaprim would be severely diminished.

In the event that we do not have adequate capital to maintain or develop our business, additional capital may not be available to us on a timely basis, on favorable terms, or at all, which could have a material and negative impact on our business and results of operations.

3. Financial risk management, continued

Contractual maturities of financial liabilities:

c. Market risk

Foreign currency risk

The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed by minimising the balance of foreign currencies to cover expected cash flows during periods where there is strengthening in the value of the foreign currency. The Group holds part of its cash resources in US dollars and British pound sterling. The valuation of the cash fluctuates along with the US dollar/sterling exchange rate. No hedging of this risk is undertaken.

The carrying amounts of foreign currency denominated monetary net assets at the reporting date are as follows:

At 31 December 2015, if pounds sterling had weakened/strengthened by 5% against the US dollar with all other variables held constant, the loss for the year would have been US $131,000 (2014: US $0) higher/lower.

Interest rate risk

The Group's exposure to interest rate risk is limited to the cash and cash equivalent balance of US $28,594,347 and its financing exposures that are at fixed rates of interest. Changes in interest rates would have no significant impact on the profit or losses of the Group.

d. Capital risk management

The Directors define capital as the total equity of the Company. The Directors' objectives when managing capital are to safeguard the Company's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal structure to reduce the cost of capital. In order to maintain an optimal capital

3. Financial risk management, continued

structure, the Directors may adjust the amount of dividends paid to shareholders, return capital to shareholders and issue new shares to reduce debt.

4. Other income and expense items

This note provides a breakdown of the items included in other income, finance income, and costs and an analysis of expenses by nature.

a. Other income

b. Breakdown of expenses by nature

c. Finance income and costs

5.  Employee numbers and costs

The monthly average number of persons employed by Motif (including Executive Directors but excluding Non-executive Directors) and key management personnel during the year, analysed by category, was as follows:

The aggregate payroll costs of Executive Directors and key management personnel were as follows:

6. Directors' remuneration

The highest paid director's aggregate emolument was US $557,180 for the year. The director did not exercise share options during the year.

(1) Bonuses were awarded to Executive Directors and the Chairman in recognition of their extraordinary service in successfully completing the merger with Nuprim Inc., the AIM listing, a secondary fund raising, QIDP designation from the FDA, and the initiation of the Phase III clinical trials.

6. Directors' remuneration, continued

Directors of the Company have been awarded rights to subscribe for shares in the Company as set out below.