Announcement of Results year ended 31 Dec 2011

3 April 2012

LSE: VER

Announcement of Results for the year ended 31 December 2011

Transformational deal completed, the evolution continues…

Vernalis plc (LSE: VER) today announces its results for the year ended 31 December 2011 and subsequent events.

Operational Highlights

Licensing deal and Fundraising

• Licensing deal with Tris Pharma, Inc. completed February 2012, giving Vernalis exclusive rights to Tris' extended release technology for use in the US prescription (Rx) cough/cold market

• £65.9 million (net of expenses), over subscribed, equity fund raising

• 80% for the Tris deal

• Remaining funds available for further late-stage in-licensing

• Vernalis will pay Tris to develop up to six unique extended release (ER) equivalents to existing immediate release (IR) prescription cough/cold treatments

• Vernalis will own all approved products and will commercialise them in a US market with approximately 35 million prescriptions annually, potentially worth over $2 billion

• Development work already initiated on three combination products

• Accelerates Vernalis' evolution to self-sustained specialty pharma company

Pipeline Activity

Frovatriptan (marketed) (Migraine):

• Royalty income £6.5 million (2010: £7.0 million)

• Approval received to market frovatriptan in Russia

• Launch of frovatriptan in South Korea by SK Chemicals

• Three batches of API anticipated for shipment to Menarini in 2012, consistent with 2011

Tosedostat - CHR2797 (Cancer):

• Licensing deal signed by Chroma Therapeutics for North, Central and South America (March 2011)

• Orphan drug status for AML granted by the FDA and EMA (March 2011)

• Positive Phase IIb data presented at ASCO (May 2011)

• Phase III study in myelodysplastic syndrome to be initiated in H2 2012

AUY922 (Cancer):

• Continues in multiple Phase I & Phase II studies

• Included for the first time in Novartis' selected pharmaceutical pipeline projects chart (July 2011)

HSP990 (Cancer):

• Continues in maximum tolerated dose (MTD) Phase I study

 V158866 (Pain):

• Phase I trial initiated (March 2011) and successfully completed with positive results (September 2011)

• Aim to publish Phase I results at pain conference this year

V81444 (Parkinson's Disease):

• Rights successfully regained to A2A Parkinson's programme from Biogen Idec (April 2011)

• Phase I study initiated (August 2011)

V158411 (Cancer):

• Phase I enabling pre-clinical studies in cancer completed (February 2012)

• Partnering process initiated and ongoing

RPL554 (Asthma/Allergic Rhinitis):

• Verona to initiate Phase II anti-inflammatory study with results expected Q4 2012

Research collaborations:

• New collaboration announced with Genentech (January 2012)

• New collaboration announced with Servier, in addition to two existing collaborations (January 2012)

• Two milestones earned from the collaboration with Lundbeck (September and December 2011)

• Extension and expansion of the first collaboration with Servier and milestone achieved (October 2011)

Financial Highlights

·; Revenues remain robust

o £12.2 million of revenues (2010: £14.2 million)

o Menarini frovatriptan royalties £6.5 million (2010: £7.0 million)

o Underlying sales of frovatriptan €27.1 million (2010: €31.3 million) down 13.4% due to price reductions in Germany in H2 2010, (excluding Germany sales down 4.3%)

o Collaboration and deferred income excluding clinical milestones £5.7 million (2010: £5.0 million) including £1.1 million of research collaboration milestones (2010: £0.6 million)

§ No clinical milestones in 2011 (2010: £2.0 million with AUY922 progressing into Phase II)

·; Focused spend and tight control of overheads

o R&D costs increased to £13.6 million (2010: £11.7 million) primarily due to investments in V158866 and V81444

o Underlying G&A costs decreased by £0.4 million.

·; Strong balance sheet positions the Company for future growth

o Cash resources (including cash, cash equivalents and held-to-maturity financial assets) of £24.7 million at 31 December 2011 (2010: £30.9 million)

o Further £65.9 million (net of expenses) raised via Firm Placing, Placing and Open Offer in February 2012

·; Loss before exceptional items for 2011 increased to £6.4 million (2010: £2.8 million)

·; Loss after exceptional items for 2011 decreased to £7.7 million (2010: £19.7 million)

·; £1.2 million milestone from Ipsen as final consideration on sale of US commercial business in 2008 (shown as exceptional income from discontinued operations)

·; Underlying annual net cash burn increased to £6.0 million from £4.4 million

·; Move to AIM announced March 2012 following the Firm Placing and Placing and Open Offer

Expected Newsflow

·; Initiate multiple cough/cold pipeline programmes with Tris

·; V158866 (Pain) - initiate partnering or Phase II POC studies

·; Tosedostat - CHR2797 (Cancer) - initiate Phase III

·; V81444 (Parkinson's disease) - complete Phase I & initiate receptor occupancy study

·; AUY922 (Cancer) - Multiple Phase I & II study results (Novartis) (timing not disclosed)

·; HSP990 (Cancer) - establish MTD and start Phase II (Novartis) (timing not disclosed)

Ian Garland, Chief Executive Officer, commented, "The transformation of Vernalis has continued. Our licensing deal with Tris, announced in February, together with the £65.9 million equity fundraising are important steps to transform the company into a diversified, profitable and self-sustaining specialty pharmaceutical company. The outlook for 2012 remains very positive with progress expected under the Tris collaboration, where development work has already started on three combination products, as well as our existing programmes and research collaborations."

Presentation & Conference Call

Vernalis management will host a presentation at 09.00am (UK) at Brunswick's offices, 16 Lincoln's Inn Fields, London WC2A 3ED today. It will also be available via webcast at http://www.vernalis.com/investor-centre/presentations-and-webcasts  and www.cantos.com and via conference call, which can be joined by dialling: 020 3140 0668, Passcode: 226634#.

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Enquiries:

Notes to Editors

About Vernalis

Vernalis is a revenue generating development stage pharmaceutical company with significant expertise in drug development. The Group has one marketed product, frovatriptan for the acute treatment of migraine, an exclusive licensing agreement to develop and commercialise multiple novel products focussed on the US prescription cough/cold market as well as eight programmes in its NCE development pipeline. Vernalis has significant expertise in fragment and structure based drug discovery which it leverages to enter into collaborations with larger pharmaceutical companies. The Company's technologies, capabilities and products are endorsed by collaborations with Endo, Genentech, GSK, Lundbeck, Menarini, Novartis, Servier and Tris.

For further information about Vernalis, please visit www.vernalis.com

Vernalis Forward-Looking Statement

This news release may contain forward-looking statements that reflect the Company's current expectations regarding future events including the clinical development and regulatory clearance of the Company's products, the Company's ability to find partners for the development and commercialisation of its products, as well as the Company's future capital raising activities. Forward-looking statements involve risks and uncertainties. Actual events could differ materially from those projected herein and depend on a number of factors including the success of the Company's research strategies, the applicability of the discoveries made therein, the successful and timely completion of clinical studies, the uncertainties related to the regulatory process, the ability of the Company to identify and agree beneficial terms with suitable partners for the commercialisation and/or development of its products, as well as the achievement of expected synergies from such transactions, the acceptance of frovatriptan and other products by consumers and medical professionals, the successful integration of completed mergers and acquisitions and achievement of expected synergies from such transactions, and the ability of the Company to identify and consummate suitable strategic and business combination transactions.

Operational Review

Since last year's annual report we have continued to pursue our three-tier strategy to transform Vernalis from a cash-burning development stage company into a diversified, self-sustaining pharmaceutical company. We continue to make excellent progress against all three elements, and in February announced a transformational licensing agreement and accompanying £68.5 million equity fundraising.

To transform our business and become self sustaining, it is critical that we have a significant revenue stream. Our strategy to accomplish this goal has been to pursue in-licensing or acquisition of late-stage low risk drugs that we can develop and market, thereby building a profitable and cash generative component of our business. Having spent almost 18 months searching for the right opportunity, we have now concluded such a late-stage low risk licensing deal with Tris Pharma, Inc, a private US company, with a track record of both technological and regulatory success. The licensing agreement is to develop up to six novel extended release products that we will commercialise in the US prescription cough/cold market. The low risk and late-stage nature of this deal could allow new drug applications to be filed in as little as 12 to 24 months and we could be commercialising just 12 months later.

We have accompanied this late-stage licensing deal with an over-subscribed £68.5 million equity fundraising which completed in March 2012. The £65.9 million proceeds (net of expenses) together with our year-end cash resources of £24.7 million and our ongoing royalty stream from frovatriptan should provide sufficient cash resources to develop and commercialise all potential products envisaged under the Tris deal, with the Company then becoming self-sustaining.

We continue to realise value from our in-house and already partnered higher risk early- to mid-stage pipeline of novel small molecules. During 2011 and since the end of the year we have achieved significant progress in multiple areas. This includes regaining V81444 from Biogen Idec and commencing a Phase I study, initiating and successfully completing a Phase I study of V158866, our FAAH inhibitor for pain and completing Phase I enabling studies of V158411, our Chk1 inhibitor for cancer. Our partners have made good progress also, with Novartis including AUY922 for the first time in its selected pharmaceutical pipeline projects chart in July and continuing its development in multiple Phase II studies against solid tumours, and Chroma partnering tosedostat (CHR2797) and publishing positive Phase IIb data in acute myeloid leukaemia (AML) at key oncology conferences.

We have continued to take a balanced approach to early-stage discovery research and have secured an extension to an existing collaboration, multiple new collaborations and earned several milestone receipts over the last year. We are well positioned to achieve our aim of substantially funding our research infrastructure through collaboration income from a diverse group of partners with potential upside from further milestones and royalties.

We entered 2011 with optimism that we would be able to deliver the transactions necessary to redefine our business. One year on, the transactions have been delivered, the balance sheet has been strengthened following the equity fundraising and the transformation of Vernalis is now well under way. In 2012 we expect to build on these successes and to continue delivering against all three components of the strategy.

We have seen a number of changes to our Board in 2011 with George Kennedy stepping down, Carol Ferguson succeeding him as our Senior Independent Director and in August 2011 the appointment of Nigel Sheail, as a non-executive director. Nigel is head of business development at Bayer AG,. We would like to thank all of the Board members, both current and former, as well as the staff for their contributions during the year, and our shareholders for their continued support.

Financial Review

Strong cash management has been a key component of our strategy over the last three years as we have restructured and refocused the underlying activities of the business. In 2008 the underlying cash burn (excluding one-off items, , discontinued operations and milestone income) at £16.5 million was unsustainable. In 2009, through a tight control of costs, this burn was reduced to £14.5 million. Our reacquisition in 2010 of the frovatriptan royalty stream from Paul Capital Healthcare structurally changed the Company's cash profile by providing approximately £6.0 million of additional cash income per annum as well as settling all outstanding debt.

In 2010, we also further reduced our cost base and increased our research collaboration income. The 2010 underlying cash burn reduced to £4.4 million for the year as a consequence. Although in 2011 our underlying cash burn has increased to £6.0 million, this is as a result of focussed investment in our development pipeline. The 2011 financial results show a stable income stream from frovatriptan royalties, which underpins our corporate costs and development activities, and continued success of our balanced investment approach to research.

Income statement

Revenues

Revenue from continuing operations for the year was £12.2 million (2010: £14.2 million). Revenue included £6.5 million from the supply of frovatriptan (2010: £7.2 million) and £5.7 million (2010: £7.0 million) in respect of collaborations and the release of deferred revenue. Underlying sales of frovatriptan by Menarini in Europe and Central America were €27.1 million (2010: €31.3 million), down 13.4 per cent compared to 2010. The decrease in underlying frovatriptan sales remains largely due to the H2 2010 price cuts in the German market as a result of a new reference price introduced for all triptans. Excluding the impact of the German market, underlying sales were down 4.3 per cent. Underlying tablet sale quantities in 2011 were flat compared to 2010 at 8.55 million compared to 8.63 million. Vernalis receives 25.25 per cent of Menarini sales via a royalty linked to the supply of active pharmaceutical ingredients (API) and so the reported royalties do not necessarily track the underlying performance of Menarini in the market. The reported Menarini frovatriptan royalties of £6.5 million were 7.9 per cent below 2010 (£7.0 million). Included in both years were three batches of bulk API; in 2011 there was also one batch of tablets shipped to Menarini for the Central American markets whereas in 2010 there were two batches. A combination of foreign exchange (as the sales are made in euros) as well as the price impact of the German market accounts for the remaining difference in reported royalties from Menarini compared to 2010. In 2010 there was also a £0.2 million supply of frovatriptan to SK Chemicals for the South Korean market in anticipation of launch.

Collaboration income and the release of deferred revenue of £5.7 million (2010: £7.0 million) includes research collaboration income and associated milestones as well as milestones from already out-licensed development programmes. Our 2011 research collaboration income and deferred revenue was relatively stable when compared to 2010. Research milestones earned from our collaborations with Servier and Lundbeck totalled £1.1 million in 2011 (2010: £0.6 million). The higher 2010 income was due to a US$3.0 million development milestone (£2.0 million) received from Novartis on the first dosing of AUY922 in a Phase II study.

Cost of sales

Cost of sales from continuing operations for the year amounted to £2.0 million (2010: £2.9 million). In both 2011 and 2010, £1.4 million of the costs related to the amortisation of the frovatriptan intangible assets. The reduction in cost year-on-year reflects the ICR's share of AUY922 milestone income included in 2010, and improvements in our frovatriptan supply chain costs in 2011.

R&D expenditure

Pre-exceptional research and development expenditure from continuing operations increased to £13.6 million (2010: £11.7 million) and comprised £10.9 million (2010: £10.0 million) of internally funded research and development costs and £2.7 million (2010: £1.7 million) of external costs associated with the development pipeline. The increase in external costs was due to clinical expenditure on V158866 which completed a Phase I study during 2011, and V81444 which was also in a Phase I study. The other development pipeline activities were restricted to V158411, our Chk1 inhibitor, which completed the remaining pre-clinical activities planned for 2011. The exceptional charge in 2010 of £9.8 million reflects a write-off of the carrying value of a terminated development programme (V3381) following its failure in clinical studies.

G&A expenditure

Pre-exceptional general and administrative expenditure from continuing operations was £4.8 million (2010: £3.8 million), an increase of £1.0 million. Included in the 2010 costs was a realised foreign exchange gain of £0.7 million whereas in 2011 there was a foreign exchange loss of £0.1 million. In 2011 the expenditure included an accrued bonus of £0.6 million (2010: £0.3 million) for corporate staff as well as due diligence costs associated with the Tris pharma licensing deal of £0.3 million. Adjusting for these items, the underlying costs decreased by £0.4 million to £3.8 million in the year, as a result of our continued tight cost control.

The 2011 exceptional item of £2.4 million includes £1.9 million related to the aborted acquisition costs highlighted at the half year as well as an adjustment to the existing vacant lease provision of £0.5 million (2010: £0.5 million). We have agreed to surrender the lease on our Winnersh office by 9 May 2012. We will move before then, to a new office, also in Winnersh, which will result in an annual cash reduction in rent costs of approximately £0.5 mllion per year.

Operating loss

The operating loss for the year from continuing operations before exceptional items was £8.3 million (2010: £4.2 million). The operating loss from continuing operations after exceptional items was £10.7 million (2010: £14.5 million).

Finance income

Finance income decreased to £0.3 million (2010: £0.4 million) and represents interest received on cash deposits.

Finance expense

Finance expense for the year before exceptional items decreased to £0.2 million (2010: £1.5 million). Included in 2010 was a finance charge of £1.0 million in respect of the Paul Capital Healthcare loan up to 8 March 2010 when the loan was repaid. In 2011 the expense included a finance charge of £0.2 million (2010: £0.2 million) on the unwinding of the discount on the onerous lease provision. In 2010 there were also exchange losses of £0.2 million on the Paul Capital Healthcare liability and unrealised exchange loss of £0.1 million on the retranslation of foreign cash balances into sterling.

The exceptional charge of £6.6 million in 2010 related to the termination of the Paul Capital Healthcare agreement and comprised the difference between the cash payment of £21.6 million together with the fair value of the warrants issued (£1.1 million) and the carrying value of the Paul Capital Healthcare loan when the loan was repaid.

Taxation

The tax credit of £1.7 million (2010: £2.5 million) represents amounts that are expected to be received under current legislation on research and development tax credits for small and medium-sized companies. The tax credit for the year was £1.6 million (2010: £1.4 million) and the balance of £0.1 million (2010 £1.1 million) represents claims in relation to prior years.

Loss for the year from continuing operations

The loss for the year from continuing operations before exceptional items was £6.4 million (2010: £2.8 million). The loss for the year from continuing operations after exceptional items was £8.9 million (2010: £19.7 million).

Profit from discontinued operations

During the year we received US$1.9 million (£1.2 million) from Ipsen as final consideration from the sale of Apokyn and Vernalis' US Commercial Operations that was announced in June 2008. As the transaction was treated as a discontinued operation in 2008, this subsequent receipt is also shown in this discontinued operations line of the income statement as an exceptional item.

Loss for the year

The loss for the year before exceptional items was £6.4 million (2010: £2.8 million). The loss for the year after exceptional items was £7.7 million (2010: £19.7 million).

Balance sheet

Non-current assets decreased to £4.3 million (2010: £5.7 million) due to the amortisation of the frovatriptan intangible asset.

Current assets decreased to £32.4 million (2010: £37.7 million) primarily due to the cash utilised in the business in the year which has decreased by £6.2 million. Trade receivables have increased by £0.6 million primarily due to a £0.4 million Lundbeck milestone that was still outstanding at year end. Prepayments and accrued income were £0.7 million higher than 2010, primarily as a result of the fundraising and Tris licensing related costs that were incurred prior to the year end.

Total liabilities increased slightly to £12.7 million (2010: £12.2 million) and, importantly, we are debt free.

Cash resources

Cash resources, comprising held-to-maturity financial assets and cash and cash equivalents decreased by £6.2 million to £24.7 million (2010: £30.9 million). The underlying net cash burn for the year was £6.0 million (2010: £4.4 million), the increase primarily representing increased investment in the development pipeline during 2011. Milestone income from Ipsen and the research collaborations generated £1.9 million in cash receipts but this was offset by £2.1 million of aborted deal costs which were announced at the half year.

Outlook for 2012 and beyond

With year-end cash resources of £24.7 million, a stable, annual royalty income stream of around £6.0 million and being debt free, the Company is well positioned to execute its growth strategy. The post-year-end licensing deal with Tris and associated fundraising of £65.9 million (net of expenses), announced in February 2012, provides both the technology platform and the capital required to transform the Company from a cash burning development stage entity to profitability over the coming years.

Risks and Uncertainties

Like all businesses we face risks and uncertainties, many of which are inherent within any pharmaceutical development company. Below are those principal risks and uncertainties that we consider could have a material impact on our operational results, financial condition and prospects. These risks are not in any particular order of priority and there may be other risks that are either currently unknown or not considered material which could have a similar impact on our business in the future. Our risk management process is explained in the corporate governance report.

Clinical and regulatory risk

There are significant inherent risks in developing drugs for commercialisation due to the long and complex development process. Any drug which we or our partners wish to offer commercially to the public must be put through extensive research, pre-clinical and clinical development all of which takes several years and is extremely costly. We may fail to successfully develop a drug candidate because of:

·; The failure of the drug in pre-clinical studies.

·; The inability of clinical trials to demonstrate the drug is safe and effective in humans.

·; The failure to find a collaborator to take the drug candidate into expensive later stage studies.

·; The failure to manufacture the drug substance in sufficient quantities and at commercially acceptable prices.

In addition, the complexity and multijurisdictional nature of the regulatory processes could result in either delays in achieving regulatory approval or non-approval. If a product is approved, the regulators may impose additional requirements, for example, restrictions on the products' indicated uses or the levels of reimbursement receivable, that could impact on the commercial viability of the drug. Once approved, the product and its manufacture will continue to be reviewed by the regulators and may be withdrawn or restricted in the future.

Competition and intellectual property

Our business faces intense competition from major pharmaceutical companies and specialised biotechnology companies developing drugs for the same market opportunities. This may impact the commercial success of any drug candidate that obtains regulatory approval. Our partnering strategy, for our NCE pipeline, of out-licensing later stage programmes to pharmaceutical companies with significant commercial expertise in the relevant market, should ensure that commercial products receive the level of investment required to maximise their potential success.

Intellectual property protection remains fundamental to our strategy of developing novel drug candidates. Our ability to stop others making a drug, using it or selling the invention or proprietary rights by obtaining and maintaining protection is critical to our success. We own a portfolio of patents and patent applications which underpin our research and development programmes. We invest significantly in maintaining and protecting this intellectual property to reduce the risks over the validity and enforceability of our patents. However, the patent position is always uncertain and often involves complex legal issues. Therefore, there is a risk that intellectual property may become invalid and/or expire before, or soon after, commercialisation of a drug product and we may be blocked by other companies' patents and intellectual property.

Manufacturing risk

The supply of frovatriptan API to Menarini for the EU and Central American markets is a substantial proportion of our income and so our ability to manufacture and supply this product on schedule is critical. In addition, our ability to successfully scale-up production processes to viable clinical trial or commercial levels is vital to the commercial viability of any product. Availability of raw materials is extremely important to ensure that manufacturing campaigns are performed on schedule and therefore dual sourcing is used where possible. Product manufacture is subject to continual regulatory control and products must be manufactured in accordance with good manufacturing practice. Any changes to the approved process may require further regulatory approval which may incur substantial cost and delays. These potential issues could adversely impact on the results from operations and our cash liquidity.

Financial risks

Cash flow

We have a history of operating losses which are anticipated to continue in the near term. Following the £65.9 million (net of expenses) equity fundraising announced in February 2012, the Company is well capitalised to execute its transition into a profitable and cash generative pharmaceutical company over time. However, the Group may need to seek further capital through equity or debt financings in the future and if this is not successful, the financial condition of the Group may be adversely affected.

Counterparty credit risk

The Company is exposed to credit-related losses on cash deposits in the event of non performance by counterparties.

With the current economic uncertainty, counterparty credit risk is a key consideration when placing cash funds on deposit. The creditworthiness of counterparties is assessed prior to placing funds on deposit and is monitored through to maturity. Under the treasury policy there is a maximum amount that can be placed with any one counterparty. If any counterparty were to experience financial difficulties this may impact the Company's liquidity in the future.

Foreign exchange

We record our transactions and prepare our financial statements in sterling but almost all of our revenue is from licensing and collaborative agreements and frovatriptan royalties which are received in US dollars or euros. A proportion of our expenditure is incurred in US dollars and other currencies, relating principally to clinical trials. Our cash balances are predominantly held in sterling, US dollars and euros. To the extent that income and expenditure in currencies other than sterling are not matched, fluctuations in exchange rates between sterling and these currencies, principally US dollars and euros, may result in realised or unrealised foreign exchange gains and losses. Simple derivative contracts have been used to mitigate the risk of fluctuations in exchange rates where there has been certainty over the amount and timing of the income. Where the timing and/or the amount to be received is uncertain, risk management is more difficult but the Group has used derivatives where possible and will continue to do so. To the extent that derivative instruments are considered too costly, because of the flexibility required or the time over which protection is sought, any fluctuations in foreign exchange movements may have a material adverse impact on the results from operations and our cash liquidity in the future.

Return on investment

As already mentioned, the drug development process is inherently risky and is conducted over several years and consequently is extremely costly. Many drug candidates fail in development due to the clinical and regulatory risks, and even in those circumstances where drugs are approved, sales levels can be disappointing due to competition, healthcare regulation and/or intellectual property challenges. As a result the returns achieved may be insufficient to cover the costs incurred. The Group looks to mitigate the development and commercial risk of its NCE pipeline by partnering drug candidates at an appropriate stage. This partnering event crystallises part of the programme's value, with the goal of retaining an attractive proportion of the commercial upside through future milestones and an ongoing royalty interest from commercial sales.

Related Parties

Related parties disclosures are given in note 10.

Statement of directors' responsibilities

The directors are responsible for preparing the annual report, the remuneration report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the Group and parent company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the directors are required to:

·; select suitable accounting policies and then apply them consistently;

·; make judgements and accounting estimates that are reasonable and prudent;

·; state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; and

·; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the directors, whose names and functions are listed in the management and governance section of this annual report, confirm that, to the best of their knowledge:

·; the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and loss of the Group; and

·; the directors' report contained on pages 24 to 27 includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that they face.

Consolidated income statement

For the year ended 31 December 2011

Consolidated statement of comprehensive income

for the year ended 31 December 2011

Balance sheet

As at 31 December 2011

Statements of changes in shareholders' equity

Cash flow statement

for the year ended 31 December 2011

Notes to the financial statements

1 Accounting policies and basis of preparation

This financial information for the years ended 31 December 2011 and 31 December 2010 does not comprise statutory financial statements but is derived from these financial statements. This financial information and announcement was approved for issue on 2 April 2012 and has been extracted from the 31 December 2011 audited statutory financial statements that were also approved by the Board on the same date and are available on the Company's website www.vernalis.com. These statutory financial statements have not yet been delivered to the Registrar of Companies. Statutory financial statements for the year ended 31 December 2010 were approved by the Board of directors on 11 April 2011 and delivered to the Registrar of Companies. The auditors reports on the financial statements for the years ended 31 December 2011 and 31 December 2010 were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The financial statements have been prepared in accordance with EU endorsed International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations and with the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements are prepared in accordance with the historical cost convention as modified by revaluation of available-for-sale financial assets and derivative financial instruments. Whilst the financial information included in this announcement has been prepared in accordance with IFRSs adopted for use in the European Union, this announcement does not itself contain sufficient information to comply with IFRSs.

The accounting policies applied are consistent with those of the audited financial statements for the year ended 31 December 2011 and 31 December 2010, as described in those annual financial statements.

In accordance with Listing Rule 9.6.1 and 9.6.3, a copy of the Annual Report and Accounts are available on the investor's section of the Company's website at www.vernalis.com; and has been submitted to the National Storage Mechanism and will shortly be available for inspection at: www.hemscott.com/nsm.do.

In accordance with Disclosure and Transparency Rule 6.3.5, extracted from the Annual Report and Accounts in full unedited text and detailed in this release is a condensed set of financial statements, a management report which contains: important events and their impact on the financial statements; principal risks; and related party transactions, and directors responsibility statements. Accordingly, page numbers refer to those in the Annual Report and Accounts.

The Group's Annual Report and Accounts will be posted to shareholders on 18 April 2012.

2 Segmental information

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Executive Committee. The Group has only one segment, being the research, development and commercialisation of pharmaceutical products for a range of medical disorders. All costs to acquire property, plant, equipment and intangible assets as well as all related depreciation, impairment and amortisation expense borne by the Group relate to this one segment. In addition, all other non-cash expenses incurred by the Group relate to this one segment.

Revenue analysis

The revenue analysis in the table below is based on the country of registration of the fee-paying party:

An analysis of revenue by category is set out in the table below:

3 Exceptional items

Exceptional items represent significant items of income and expense, which, due to their size, nature or the expected infrequency of the events giving rise to them, are presented separately on the face of the income statement to give a better understanding to shareholders of the elements of financial performance in the year, so as to facilitate comparison with prior periods and to better assess trends in financial performance. Exceptional items include, but are not limited to, impairments of goodwill and intangible assets, restructuring costs and the provision for vacant leases. In 2011 an exceptional £1,921,000 cost related to an aborted acquisition of a US specialty pharmaceutical business.

4 Finance income/expense

5 Loss per share

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

For diluted loss per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion for all dilutive potential ordinary shares.

For diluted loss per share, all potential ordinary shares including options and deferred shares are antidilutive as they would decrease the loss per share.

6 Discontinued operations

On 1 July 2008, the Group announced that it had completed the sale of Apokyn® and Vernalis Pharmaceuticals Inc., its US commercial operations, to Ipsen SA for an initial consideration of US$6.5 million with up to a further US$6.0 million of milestones payable. Ipsen SA also subscribed for US$5.0 million of Vernalis plc shares at a 20 per cent premium.

Since the sale completed the Group received US$1.0 million of the additional milestones in 2008 and US$0.7 million in 2009. There will be no further milestones from this transaction.

A profit of £1,208,000 was recognised in the year to 31 December 2011 due to the receipt of US$1.9 million milestone. This was the only income statement item and cash flow relating to discontinued operations in 2011.

There was no income statement item or cash flow relating to discontinued operations in the year to 31 December 2010.

Earnings per share relating to discontinued operations are shown below:

Discontinued operations 2011 2010

Attributable loss before exceptional items (£000) - -

Exceptional items (£000) 1,208 -

Attributable profit (£000) 1,208 -

Weighted average number of shares in issue (000) 99,579 92,985

Loss per ordinary share before exceptional items 0.0p 0.0p

Exceptional items 1.2p 0.0p

Earnings per share (basic and diluted) 1.2p 0.0p

7 Intangible assets

Useful life and net book value of intangible assets

In accordance with IAS 21 "The effects of changes in foreign exchange rates", goodwill and other intangible assets that are created in relation to the acquisition of a foreign subsidiary are maintained in the functional currency of that subsidiary. During the year, the Group had a net exchange gain of £nil million (2010: £0.5 million) on assets not yet in use relating to the acquisition of Cita.

Disposal

The disposal in the year relates to V3381 and V1003. The rights of V3381 have been returned to Chiesi. During the year the Group reacquired the rights of V1003 from Reckitt Benckiser, in order to return them to Archimedes which was completed on 21 February 2012. The disposal in 2010 relates to the return of V1512 rights to Chiesi.

8 Provisions

Onerous lease provision

Where leasehold properties become vacant the Group provides for all costs, net of anticipated income, to the end of the lease or the anticipated date of the disposal or sublease. This provision relates to properties in Winnersh, Oxford and Cambridge and is expected to be utilised over the life of the related leases to 2012, 2015 and 2019 respectively and has been discounted to fair value at the balance sheet date. Discount rates are based on Bank of England risk-free rates over the period of each lease. Included in the onerous lease provision is a dilapidation provision which principally relates to costs associated with the Group's obligation to reinstate leased buildings to their original state. A net additional income statement exceptional charge of £518,000 (2010: £476,000) and an addition to short leasehold buildings of £150,000 (2010: £nil) has been provided following a reassessment of the assumptions used to calculate the provision.

9 Share capital

Issue of shares - 2011

During 2011 shares were issued following the exercise of an option under the Long Term Incentive Plan.

Placing and Open Offer, Share Capital Reorganisation and Share Consolidation - 2010

On 2 March 2010, the Group completed a Placing and Open Offer combined with a Share Capital Reorganisation and removal of the share capital limits.

Removal of share capital limits

An ordinary resolution to remove the limit on the Company's ability to issue shares in the capital of the Company was passed at the General Meeting on 1 March 2010.

Share Capital Reorganisation

Under the Share Capital Reorganisation each issued existing ordinary share of 20 pence in nominal value was subdivided into one ordinary share of 1 pence in nominal value and one B deferred share of 19 pence in nominal value. The ordinary shares of 1 pence each continue to carry the same rights as prior to the reorganisation (save for the reduction in nominal value).

The B deferred shares were all repurchased by the Company for 1 pence in aggregate and, following the repurchase were cancelled. The repurchase of the B deferred shares was financed out of the proceeds of the issue of one new ordinary share to an existing shareholder at a subscription price equal to the nominal value of these shares. This has resulted in the increase in the capital redemption reserve to maintain capital.

Placing and Open Offer

The Group issued 39,413,722 new ordinary shares fully paid at a price of 76 pence per share on 2 March 2010.

Firm Placing and Placing and Open Offer

As detailed in note 11 the Group issued 342,528,564 new ordinary shares fully paid at a price of 20 pence per share on 2 March 2012.

10 Related party transactions

Identity of related parties

The Group consists of a parent, Vernalis plc and two wholly owned trading subsidiaries. The main trading company is Vernalis (R&D) Limited.

Group

At 31 December an amount of £17,269 (2010: £11,395) was due from Dr Peter Fellner and companies where Dr Peter Fellner is a board member, in respect of certain travel costs. Of the amount due at 31 December 2011, £9,838 had been repaid at 29 February 2012. The amount due at 31 December 2010 was repaid in full by 31 May 2011.

11 Post-balance sheet events

On 4 January 2012, the Group announced that it had entered into a drug discovery collaboration with Genentech, a member of the Roche Group, utilising Vernalis' fragment and structure-based discovery platform against an undisclosed target.

On 17 January 2012, the Group announced it had entered into a new three-year joint oncology collaboration with Servier.

On 10 February 2012, the Group announced that it has entered into an agreement with Tris Pharma, Inc., a private US specialty pharmaceutical company, to develop up to six novel formulations of existing products sold in the US prescription cough/cold market. Vernalis also announced that it proposed to raise approximately £68.5 million (gross proceeds), by way of a Firm Placing and Placing and Open Offer of 342,528,564 new ordinary shares. The Firm Placing and Placing and Open Offer was approved by shareholders on 28 February 2012.

On 28 March the Company announced that it has requested the cancellation of its listing on the Official List of the FSA. Following Admission of the New Ordinary Shares pursuant to the Firm Placing and Placing and Open Offer as described in the Prospectus sent to Shareholders on 10 February 2012, the Company confirms it is in breach of Listing Rule 6.1.19 (the "Free Float requirement"). Notice has been given to the UKLA to cancel its listing on the Official List and to the LSE to cancel its Ordinary Shares from trading on the LSE's main market for listed securities. LSE notified to RNS a Schedule One pre-admission announcement of the Company's application for admission to AIM. The Company's listing on the Official List will be cancelled effective at 08.00 on 27 April 2012 and it is anticipated that admission to trading on AIM will occur at the same time and on the same date.