Final Results

29th Apr 2009 07:00



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The contents of this announcement do not constitute or form part of an offer of or invitation to sell or issue or any solicitation of any offer to purchase or subscribe for any securities for sale in any jurisdiction nor shall they (or any part of them) or the fact of their distribution form the basis of, or be relied upon in connection with, or act as an inducement to enter into, and contract or commitment to do so. This announcement is an advertisement and not a prospectus for the purposes of EU Directive 2003/71/EC (the "Directive") and Part VI of the Financial Services and Markets Act 2000. A prospectus will be prepared and made available to the public in accordance with the Directive. Recipients of this announcement who intend to purchase such securities are reminded that any such purchase or subscription must be made solely on the basis of the information contained in the prospectus in its final form.

The securities may not be offered or sold in the United States, unless registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an exemption from such registration. No public offering of the securities discussed herein is being made in the United States and the information contained herein does not constitute an offering of securities for sale in the United States and the Company does not currently intend to register any securities under the Securities Act. This announcement is not for distribution directly or indirectly in or into the United States.

29 April 2009

Announcement of Results for the year ended 31 December 2008

Vernalis plc (LSE: VER), Winnersh, UK, 29 April 2009, today announces its results for the year ended 31 December 2008.

During 2008 a far-reaching restructuring of Vernalis was successfully completed. The $56m Endo loan was settled, €18.4 million was raised by financing European frovatriptan revenues, and Apokyn and the US commercial operations were divested. A substantial restructuring of the UK research, development and corporate infrastructure was completed with headcount reduced from 210 to 90. In December 2008, Ian Garland was appointed Chief Executive and in February 2009 David Mackney was appointed Chief Financial Officer.

Vernalis has separately announced today, 29 April 2009, a fully underwritten £22.1 million (net of expenses) equity fundraising.

Vernalis' pipeline has a total of ten development programmes, seven of which are in clinical development and three are in late stage research and pre-clinical. The Board has undertaken a comprehensive review of its pipeline programmes to identify those that will be key value drivers (either unpartnered or already partnered), those with more modest potential value that may be by realised through partnering and others that will be discontinued.

As a result of this portfolio review, seven programmes were identified that are key value drivers. Vernalis will continue to invest in three of these programmes (V3381 (neuropathic pain), V158866 (FAAH, chronic pain) and Chk1 (cancer)), three programmes are being progressed by partners (V2006 (Biogen Idec, Parkinson's disease), NVP-AUY922 and Hsp90 Oral (both Novartis, cancer)) and a partner will be sought for V85546 (inflammation). 

Vernalis will seek to partner and realise value from V1512 (Parkinson's disease) and V10153 (Ischaemic stroke). V24343 will not receive further investment and will be discontinued.

Highlights

Pipeline events during 2008 and since the year end

V85546 (inflammation): Exclusive worldwide rights reacquired from Merck Serono

Servier research collaboration (cancer): €0.5m milestone received

V3381 (neuropathic pain): Start of Phase IIb clinical trial

V158866 (FAAH, chronic pain): Selection of a pre-clinical candidate (March 2009)

V2006 (BIIB4014) (Parkinson's disease): Favourable Phase IIa data (March 2009)

Forthcoming Newsflow

Shareholder vote on announced equity fundraising (May 2009)

Chk1 (cancer): Enter pre-clinical (2009)

V3381 (neuropathic pain): Complete Phase IIb recruitment (2009 year-end)

V1512 (Parkinson's disease): Possible partnering (2009)

V85546 (inflammation): Possible partnering (2009-2010)

NVP-AUY922 (cancer): Start Phase II (Novartis) (Undisclosed)

Hsp90 Oral (cancer): Start Phase I (Novartis) (Undisclosed)

V2006 (BIIB4014) (Parkinson's disease): Start registrational studies (Biogen Idec) (Undisclosed)

Ian Garland, Chief Executive Officer, Vernalis commented, 

"Vernalis has significant value in its unpartnered programmes and its technologies are endorsed by collaborative partnerships with Biogen Idec, Novartis and Servier. We are committed to rebuilding shareholder value and will focus investment on the key value drivers for the company, partnering where most appropriate. Our strategy has been endorsed by our major shareholders and others in the fully underwritten equity fundraising we are announcing today."

-- ends --

Enquiries:

Vernalis plc	+44 (0) 118 977 3133
Ian Garland, Chief Executive Officer
David Mackney, Chief Financial Officer
Brunswick Group	+44 (0) 20 7404 5959
Jon Coles
Justine McIlroy
Annabel Entress

Notes to Editors

About Vernalis

Vernalis is a development stage pharmaceutical company developing a pipeline of clinical and early stage programmes. The company currently has seven product candidates in clinical development (two of which are partnered) and two programmes in pre-clinical trials (one with a partner) and other competitive research programmes. Our collaborations are with leading, global pharmaceutical companies including Biogen Idec, Novartis, Servier, Chiesi, Menarini and Endo.

Product Pipeline

Product	Indication	Late Research	Pre-clinical	Phase I	Phase II	Phase III	Marketing Rights	Peak Sales*	Next value event
Priority Programmes
V3381	Neuropathic Pain				X		Worldwide	$$$	Phase  IIb results 2010, then partner
V2006	Parkinson's Disease				X		Biogen Idec	$$	Commence registration studies undisclosed
V85546	Inflammatory Disease			X			Worldwide	$$$	Possible partnering Start Phase II 2009-2010
NVP-AUY922	Cancer			X			Novartis	$$	Enter Phase II undisclosed
Hsp90 inhib. (Oral)	Cancer		X				Novatis	See NVP-AUY922	Enter Phase I undisclosed
V158866 (FAAH)	Pain		X				Worldwide	$$$	File IND 2010
Ckh1	Cancer	X					Worldwide	$$$	Enter pre-clinical 2009
Process through partnering
V1512	Parkinson's Disease (moderate/ advanced)				X		Worldwide (excluding Italy)	$	Possible partnering 2009, then 505(b)/(2) US NDA
V10153	Ischaemic stroke				X		Worldwide	$	Possible partnering

* Peak sales:  $: < $150m; $$: $150m - $500m;  $$$: $500m+

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

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 Frova® and Apokyn® 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.

Chief Executive's Review

Future strategy

Our strategy to re-build significant value for shareholders is to take a risk-based approach to investment in high potential value novel medicines while maintaining a tight control of costs.

Partnering will be a key component of our strategy both in the near and midterm, and we will endeavour only to develop programmes that are of interest to potential partners. Some programmes will be partnered with no further investment by the Group. These will be the programmes where the risk and level of investment required is greater than could be taken on by a company of our size. We will, through such partnering, build a portfolio of development programmes in which we retain an economic upside without requiring significant further involvement or investment from the Group.

We will continue to invest in the remaining programmes potentially up to proof-of-concept to increase their value to the Group. We will partner these programmes when the value we can achieve from partnering provides a substantial return on our investment or when the risk and cost of continued in-house development is inappropriate for a company the size of Vernalis.

Our pipeline of development programmes will be sourced from both internal investment in research and through in-licensing or acquisition of early stage programmes that meet our tight criteria for investment. The costs of maintaining an in-house research capability are substantial so we will seek to fund the majority of our research infrastructure through external collaborations. We will size our research activities based upon the number of active collaborations so as to maintain its affordability to the Group.

2008 review and recent progress

During 2008, the Group implemented an extensive restructuring of its business under which it settled its loan with Endo, raised finance with Paul Capital Healthcare from its European frovatriptan royalty stream, sold Apokyn® and the Group's US operations to Ipsen SA, closed its Winnersh-based research and downsized from 210 to 90 heads. Restructuring was concluded in the second half of 2008 and achieved its goal of refocusing the Group on delivering shareholder value from its research and development activities.

The Group expanded its pipeline during 2008 with the October 2008 reacquisition from Merck Serono of exclusive worldwide rights to V85546, a Phase II-ready novel selective anti-inflammatory that targets MMP12 and has in-vivo efficacy in pre-clinical models of Chronic Obstructive Pulmonary Disease (COPD), Multiple Sclerosis (MS) and liver fibrosis. Since the end of the year the pipeline has been expanded further with the selection of a pre-clinical candidate, V158866, from our late-stage research programme targeting FAAH, a novel target with potential application in a wide range of chronic pain conditions. In December 2008 the Group commenced recruitment of patients into a Phase IIb study of V3381 in neuropathic pain. We anticipate full recruitment of the 150 patients in this study by the end of 2009 and data becoming available in 2010.

Final study data from the V10153 Phase II open label stroke study has now been received and confirms that 5 mg/kg is the appropriate dose to take forward into future studies. We will review the final data from this study with key opinion leaders during 2009 to determine the most appropriate path for further development of this compound. We will not make any further investment in V10153 in-house and instead will seek to progress this programme in collaboration with a partner. Our CB1 antagonist, V24343, is being evaluated in an ongoing dose ranging Phase I study which is expected to report during the first half 2009. During late 2008, the class-leading CB1 receptor antagonist marketed by Sanofi-Aventis was withdrawn from the market in the EU following the decision by the EMEA that the benefits of the drug no longer outweighed its risks. Other companies with CB1 receptor antagonists in development have halted their programmes because of the uncertain path to marketing approval. We will not undertake any further in-house investment in V24343 and this programme will be discontinued.

The Group's partnering activities in 2008 were focused on V1512, our treatment for Parkinson's disease. Despite a significant effort and very broad interest in this late-stage programme, partnering has not yet been concluded with the commercial opportunity, timeline and cost of pursuing a Phase III programme all being cited as key considerations. To address these issues, we have evaluated an alternative 505(b)(2) filing strategy in the US and are exploring partnering on this revised approach. The Group acquired rights to this programme through its acquisition of Cita, which had licensed it from Chiesi and, consequently, the Group's potential economic interest in the programme is substantially lower than for other programmes in its pipeline because of milestone and revenue shares payable. 

Two of the Group's programmes are being developed by partners. V2006, which is partnered under the name BIIB014 with Biogen Idec, is in clinical development for Parkinson's disease and NVP-AUY922, which is partnered with Novartis, is currently in a Phase I oncology study. Since the end of the year, Biogen Idec has highlighted favourable top-line data from its two Phase IIa studies of V2006 and has noted that it is now developing a package to support registrational studies. Neither we nor Biogen Idec has publicised a target date for full study data becoming available nor the planned timing of progressing the programmes into later-stage studies. We expect an update from Novartis on progression of NVP-AUY922 in 2009.

Excellent progress has been made in 2008 in our late-stage research programmes where, since the year end, one pre-clinical candidate (V158866) has been selected from our FAAH programme, and during 2009 we plan to select a pre-clinical candidate from our Chk1 programme. We have also made good progress against our stated goal of substantially funding our research infrastructure with collaborations. In October 2008 we earned a €0.5 million milestone under our existing three-year collaboration with Servier against two undisclosed oncology targets. This collaboration provides staff funding, research and development milestones and royalties.

During 2008, a significant headcount reduction was implemented that consolidated research into Cambridge and reduced the size of the corporate infrastructure. A key element of our strategy to rebuild shareholder value is to maintain a tight control on costs and to be as efficient as possible. Since the end of the year we have reviewed further the size of the corporate infrastructure, including the costs of being a public company. The outcome of that further review is that some additional heads will be eliminated from our corporate functions, savings will be made in external costs and we will reduce the size of our Board. We will continually evaluate the size of our infrastructure and adapt it to the business needs as necessary.

Today we also announced a £22.1 million fundraising (net of expenses) through a fully underwritten placing and open offer of 799,112,129 ordinary shares at 3 pence per share. The proceeds from the equity financing, which are dependent upon approval by shareholders at a meeting on 18 May 2009, coupled with our cost containment efforts provide us with sufficient cash resources for the foreseeable future. 

Looking forward to 2009, a key priority will be V3381 where we aim to complete recruitment of the Phase IIb neuropathic pain study by the end of the year and to make data available in 2010. We plan to partner V3381 following that Phase IIb data becoming available but will explore partnering options in parallel with the ongoing study. The other key programmes for in-house investment in 2009 are V158866, our novel pain compound targeting FAAH, and our late stage Chk1 oncology research programme where we expect to announce a pre-clinical development candidate during this year.

Our 2009 partnering efforts will focus on V85546 and V1512 where we see the greatest potential to secure deals. We will also seek to partner V10153 but partnering this programme will be challenging.

Outlook

The outlook for the Group in 2009 is transformed from that faced at the end of 2008. We have a new management team, a strong cash position and a clear strategy to re-build shareholder value. The 2009 goals and priorities are clear and we are focused on executing the plan to achieve them.

Business review

Overview

 

There has been tremendous change in Vernalis' business during 2008 following the failure to gain approval of Frova® for menstrual migraine in 2007. That change was essential if Vernalis was to survive the Frova® disappointment and 12 months on the benefits are now clear to see. 

During the first half of 2008, the Group negotiated settlement of its US$56 million outstanding loan balance with Endo Pharmaceuticals Inc, raised €18.4 million from the sale of its European Frovatriptan royalties to Paul Capital Healthcare and sold its US business and marketed product Apokyn® to Ipsen. 

Also during the second half of 2008, a substantial restructuring of its UK research, development and corporate infrastructure was completed, resulting in a reduction in total headcount from 210 to 90.

Entering the second half of 2008, the Group was successfully repositioned as a development stage company. Since the year end we have further refined the Group's strategy, identifying those programmes which will be partnered and those where further investment will be made by the Group. This strategy is set out in more detail in the Chief Executive's review.

Our strategy is to seek validation from potential partners of their interest in our programmes at an early stage, but not necessarily to partner programmes at that time if the terms could be improved substantially following further modest investment at modest risk in-house. Taking this risk balanced approach, we aim to build a growing portfolio of programmes that are partnered and in which we retain an economic participation but with limited in-house involvement and investment. In this way we will be able to maintain a tight control of costs, minimise overheads and retain flexibility to adapt to the inherent uncertainties in developing novel medicines.

Product development pipeline

V3381 (Indantadol) - Neuropathic pain (Unpartnered)

 Indantadol is a novel small molecule with a dual mechanism of action in development for the treatment of neuropathic pain. It is both an NMDA antagonist and MAOA inhibitor, which gives it the potential to moderate pain at both central and peripheral sites by two different but complimentary mechanisms. Indantadol has successfully completed a Phase IIa trial in patients suffering neuropathic pain from long-standing diabetes. A Phase II trial (the IN-STEP study) to evaluate further the safety and efficacy of indantadol in patients with neuropathic pain due to diabetes has been initiated. The study, which is being conducted at sites in the US, Canada, UK and Czech Republic, is scheduled to enrol 150 patients  by the end of 2009 and report data in 2010.

V85546 - Inflammation (Unpartnered)

V85546 is a selective MMP 12 (macrophage elastase) inhibitor which has been developed by Serono under a collaboration initiated in 2000. Following the merger of Serono with Merck KGA exclusive worldwide rights to the MMPI programme have been reacquired by Vernalis. V85546 has completed Phase I studies and is supported by an extensive pre-clinical toxicology and pharmacology package. There are several high value potential indications for V85546, including COPD, MS and rheumatoid arthritis and Vernalis is determining the optimal indication in which to take it forward. In addition to the lead molecule, there is also a back-up candidate ready to enter pre-clinical development. It is likely that further development would be conducted in collaboration with a partner, although options for adding value by conducting a focussed proof-of-concept study in one or more indications are being evaluated.

V1512 (Levodopa methyl ester/carbidopa) - Parkinson's disease (Unpartnered)

The cornerstone of Parkinson's disease treatment is the oral administration of L-dopa. Parkinson's disease sufferers experience impaired functioning of the gastrointestinal tract which worsens as the disease advances and this causes erratic absorption of L-dopa into the bloodstream.

V1512 is the same active drug substances as L-Dopa/ carbidopa, the most widely prescribed form of L-dopa therapy in the US, but is fully soluble in water and therefore should be better absorbed by Parkinson's disease sufferers with impaired gastrointestinal motility. V1512 combines the methyl ester of L-dopa, a pro-drug of L-dopa with significantly enhanced solubility, with carbidopa in a patented effervescent formulation. It is expected that this product could provide a valuable clinical advantage in patients with advanced Parkinson's disease, many of whom suffer from gastrointestinal dysfunction and, as a result, experience unreliable absorption of L-dopa. Data from a pharmacokinetic study in patients with Parkinson's disease have demonstrated the improved reproducibility and reliability of L-dopa absorption from V1512 compared with standard L-dopa therapy.

As a result of a detailed commercial assessment, Vernalis has re-evaluated the strategy for V1512 and has determined that the original plan, which was to conduct two Phase III superiority studies comparing V1512 with Sinemet, was not commercially optimal. Instead, Vernalis is undertaking a commercial and partnering review with a view to using the existing data package to file for early approval in the US using the 505(b)(2) filing process.

V2006 (BIIB014) - Parkinson's disease (Partnered)

V2006 is an adenosine A2A receptor antagonist in development as a novel treatment for Parkinson's disease.  V2006 has been licensed to Biogen Idec which is conducting the development programme. Vernalis will receive milestones as V2006 progresses through development and, subsequently, royalties on future sales. Since the end of the year Biogen Idec has highlighted favourable top-line data from Phase IIa studies. In a study of late-stage Parkinson's disease patients in combination with L-dopa, top-line data showed V2006 to be well tolerated and to have a dose-dependent clinically relevant effect on "off" time and "on" time from the symptoms of the disease, including tremor, slowness, stiffness and difficulty walking. In a monotherapy, placebo-controlled study in early Parkinson's disease patients, top-line data also showed V2006 to be well tolerated and to cause a dose-dependent clinically-relevant decrease in the Unified Parkinson's Disease Rating Score Part III (Motor). Biogen Idec is now developing a data package to support registrational studies.

NVP-AUY922 - Cancer (Partnered)

NVP-AUY922 is a novel Hsp90 inhibitor for the treatment of a range of cancers and is being developed by Novartis. It is the first compound from a collaboration with Novartis to enter clinical testing and is currently being evaluated in a Phase I programme in patients in a variety of solid tumours and haematological cancers. Vernalis will receive milestone payments, as it progresses through development and royalty payments upon commercialisation.

In addition to the intravenous agent NVP-AUY922, Novartis is also advancing an oral Hsp90 inhibitor through pre-clinical development as part of the collaboration on which Vernalis is also entitled to milestone payments and royalties.

V158866 FAAH inhibitor - Pain (Unpartnered)

Fatty Acid Amide Hydrolase (FAAH) has been the target for a late-stage research programme for the management of pain and has resulted in a lead molecule, V158866, advancing into pre-clinical development in March 2009. FAAH is the enzyme responsible for metabolism of the endocannabinoid anandamide and its inhibition results in elevated anandamide. Anandamide is a central and peripheral neurotransmitter which, amongst other actions, can interact with the CB1 and CB2 cannabinoid receptors.

In man, stimulation of these receptors has been shown to relieve chronic pain in patients with spinal cord injuries and multiple sclerosis. As FAAH inhibitors are thought to selectively increase anandamide in tissues mediating pain responses, they cause a powerful analgesic response in the absence of the side effects associated with more widespread cannabinoid receptor activation.

The Group anticipates V158866 will enter clinical development in 2010 and Phase I is expected to include evaluation of the effects of the compound in one or more experimental models of pain.

V10153 - Ischaemic Stroke (Unpartnered)

V10153 is a novel recombinant human thrombolytic protein which is being developed for the treatment of acute ischaemic stroke. Current therapeutic options for stroke sufferers are limited since the only approved drug therapy, recombinant tissue plasminogen activator (rt-PA), must be administered within three hours of a stroke occurring.

V10153 has been evaluated in a Phase IIa safety study in 49 patients. This trial was a dose escalation safety study, designed to identify an appropriate dose to take forward into future trials. The study was discontinued at a dose of 7.5 mg/kg following the occurrence of several bleeding events and consequently the previous dose level (5 mg/kg) was identified as the appropriate dose to study in the next series of studies.

Plans are being developed for additional studies to assess V10153 in a broader range of patients, including patients in the early time window who currently receive rt-PA, since V10153 has potential clinical advantages over rt-PA. These advantages include a prolonged plasma half-life which may reduce the re-occlusion rate and allows administration by bolus injection rather than infusion. Partners are being sought for this programme and further studies with V10153 will only be conducted in collaboration with a partner, but partnering of this programme will be challenging.

V24343 - Obesity (Unpartnered)

V24343 is a cannabinoid type 1 receptor (CB1) antagonist which is a potential treatment for obesity, diabetes and related disorders. V24343 has successfully completed a series of Phase I studies which showed that V24343 produced significant weight loss in overweight and mildly obese volunteers while being generally well tolerated and without any serious adverse events. A further Phase I study to evaluate the safety and efficacy of lower doses is ongoing and will complete in H1 2009. The pre-clinical and clinical data indicate a wide safety margin and suggest that the centrally mediated side effects seen with other CB1 antagonists may be less problematic with V24343. Following the withdrawal of rimonabant in Europe late in 2008 and cessation of active programmes by other companies developing CB1 antagonists for obesity, we will not undertake any further in-house investment in V24343 and this programme will be discontinued.

Discovery programmes

The Vernalis Research team has established a track record in innovation in drug discovery by building and applying a proprietary structure and fragment-based platform which has not only underpinned the Group's research by delivering drug candidates but also formed the basis of a number of collaborations. Currently the Group is actively involved in an ongoing multi-target collaboration with Servier in oncology for protein-protein interactions. 

The platform employs leading fragment-based hit identification strategies together with structure-guided medicinal chemistry to generate novel compounds for optimisation as drug candidates. This process has successfully delivered clinical candidates to a number of internal and collaboration programmes. Current internal research effort is centred on a range of oncology targets, exploiting the inherent structure-based drug design expertise and chemical templates. Targets include established protein kinases as well as protein-protein interactions and metabolic targets critical to cancer cell growth.

Key late-stage discovery programmes

Checkpoint Kinase 1 (Chk1) inhibitors - Cancer 

Some cancer cells use the Chk1 pathway to increase cell survival by pausing DNA replication and allowing repair of the damaged DNA before completing cell division. Inhibition of Chk1 blocks this pathway, forcing cells to undergo cell division (mitosis) with substantial DNA damage that results in their death. The aim of this programme is to identify product candidates that increase the anti-tumour efficacy of current cytotoxic agents without increasing their toxicity to non-cancerous tissues. A pre-clinical development candidate is expected to be declared in 2009, subject to the satisfactory outcome of a range of in-vivo efficacy models.

Other discovery programmes

Vernalis research has established a portfolio of new programmes and expects that two of these will have reached the lead optimisation stage during the year.

Marketed products

Frovatriptan - Acute Migraine

Vernalis maintains a partial economic interest in frovatriptan, a selective 5-HT1B/1D receptor agonist, which is approved as an acute oral treatment for migraine headache and its associated symptoms. Commercialisation rights to frovatriptan are licensed to Endo for North America and to Menarini for Europe and Central America.

From 1 January 2008, pursuant to a loan settlement with Endo, Vernalis will only earn royalties on sales of Frova® (frovatriptan) in the US above US$85 million per annum. Endo reported that North American net sales of Frova® in 2008 were US$58.0 million (2007: US$52.4 million). 

From 1 January 2008, Paul Capital Healthcare acquired an interest in 90 per cent of Vernalis Development Limited's revenues under its collaboration with its European partner, Menarini. In Europe and Central America, Menarini reported net sales for 2008 of €28.9 million (2007: €22.1 million). 

SK Chemicals, with whom Vernalis signed an agreement to distribute frovatriptan in South Korea in September 2004, filed for approval with the Korean FDA in July 2008 and approval is expected mid-year in 2009.

Apokyn® - Advanced Parkinson's disease

In June 2008, the Group announced the sale of Apokyn®, the only acute, intermittent therapy available in the US for the treatment of "off" episodes (re-emergence of Parkinson's disease symptoms) associated with advanced Parkinson's disease, together with the Group's US commercial operations to Ipsen.

Financial review

Vernalis has been substantially restructured during the year following the decision by the FDA not to approve Frova® for the short-term prevention of menstrual migraine in September 2007.

At the end of 2007 the Group had cash resources (being cash and cash equivalents and held-to-maturity financial assets) of £20.5 million but a business that was burning significant amounts of cash each year. The Group also had a US$56 million outstanding loan balance from Endo Pharmaceuticals Inc. that was due to be repaid in full in September 2009. As a consequence Vernalis was forced to restructure the business during 2008 as well as raise cash from product divestments and licensing arrangements.

Vernalis had out-licensed the marketing rights to Frova® in North America to Endo for US$60 million in 2004, retaining royalties on future sales whilst also entering into a loan agreement with Endo, borrowing US$50 million. On 19 February 2008 Vernalis reached agreement with Endo for an early settlement of this loan, making a US$7 million payment as well as foregoing future royalties on annual US net sales until US sales exceed US$85 million per annum.

Soon after this agreement was signed, Vernalis announced a business restructuring which included the divestment of Apokyn® together with its US commercial operations to Ipsen. The sale was for an initial consideration of US$6.5 million with up to a further US$6 million of milestones payable. Since the sale completed the Group has received US$1 million of the additional milestones but there is uncertainty at this time as to whether more of these milestones will be received because they are dependent upon performance-related activities. Ipsen also subscribed for US$5.0 million of Vernalis shares at a 20 per cent premium as part of this divestment.

The sale and restructuring were completed as scheduled by the third quarter, reducing the Group headcount from 210 to 90.

On 20 April 2008, Vernalis also realised its European income stream from frovatriptan, via an agreement with Paul Capital Healthcare. €18.4 million was received from Paul Capital Healthcare in return for the rights to 90 per cent of the income due from Menarini under the collaboration agreement. The Group has ongoing obligations to supply Menarini with active pharmaceutical product, the cost of which will approximate to the 10 per cent of income retained by the Group.

As a result of these actions Vernalis has managed to strengthen its balance sheet as well as reduce its ongoing operating expenditure but has had to sell its income streams from its two marketed products, Apokyn® and frovatriptan to achieve this goal. 

Income statement

Revenue from continuing operations for the year was £54.8 million (2007: £19.8 million) which included £44.6 million of exceptional revenue (2007: nil) as a result of the Endo loan settlement. £24.2 million of the exceptional revenue was recognised as an advance payment of royalties which effectively discharged the balance of the loan that was still owed to Endo. The remaining £20.4 million related to the release of deferred income from the initial US$60 million payment received from Endo for the rights to Frova. This deferred income was being recognised in the income statement on a straight line basis over the life of the patent to 2014.

Pre-exceptional revenues from continuing operations for the year were £10.2 million (2007: £19.8 million) and included £6.3 million (2007: £9.4 million) in respect of European revenues from the supply of frovatriptan to Menarini and £3.9 million (2007: £6.5 million) in respect of collaboration income and deferred revenue. The supply of frovatriptan in 2007 included a stock build of active pharmaceutical product as a result of Menarini taking the dosage manufacture and packaging of frovatriptan in-house. Previously, Vernalis had been responsible for the manufacture and supply of packaged drug product for each European market. The 2007 collaboration income included £3.2 million of deferred revenue arising on the initial licensing of Frova® to Endo for the US market. In 2007, Vernalis also received £3.9 million in respect of North American royalties from Frova® but this income stream was used to settle the Endo loan at the start of the year and so no income was recognised in 2008.

Cost of sales from continuing operations for the year amounted to £15.6 million (2007: £5.8 million) and comprised £13.6 million of exceptional cost (2007: nil) in respect of the accelerated amortisation of the US Frova® marketing rights as a result of the transaction with Endo.

Of the remaining costs of sales, £0.6 million related to the supply of frovatriptan to Menarini (2007: £1.8 million) and £1.4 million related to amortisation of intangible assets (2007: £3.5 million).

Research and development expenditure from continuing operations, before exceptional items, reduced to £16.1 million (2007: £21.6 million) and comprised £14.0 million (2007: £17.1 million) of internally funded research and development costs and £2.1 million (2007: £4.5 million) of external costs associated with development of the product portfolio. The decrease in external costs is due to lower clinical costs on V24343 and V10153 in the year. The exceptional charge of £11.3 million (2007: £16.3 million) reflects the write down of the intangible assets relating to V1512 and Pin1 of £9.9 million and £1.4 million of staff related restructuring expenses. The 2007 exceptional charge was a result of changes made to the product portfolio development plan following the non-approvable letter from the FDA in respect of Frova® for menstrual migraine. 

General and administrative expenditure from continuing operations, before exceptional items, was £4.7 million (2007: £6.2 million). The reduction was due to lower levels of staff and infrastructure costs following the 2008 restructuring. The exceptional credit of £5.3 million (2007: charge of £1.5 million) comprises the release of the liability for deferred consideration of £10.3 million in relation to the acquisition of Cita, partially offset by a £3.3 million increase in the vacant lease provision and £1.8 million of staff-related restructuring expenses. The 2007 exceptional costs resulted from a goodwill impairment of £3.0 million offset by a reduction in the vacant lease provision of £1.5 million.

Staff-related restructuring costs of £3.2 million within research and development expenditure and general and administrative expenditure resulted in cash outflows of £2.5 million with the remainder being an accelerated share-based payment charge.

The operating loss for the year from continuing operations, before exceptional items, was £12.5 million (2007: £13.8 million). The total operating profit for the year from continuing operations was £12.4 million (2007: operating loss £31.7 million) reflecting the exceptional profit created on the settlement of the Endo loan release of the deferred consideration on the Cita acquisition of £10.3 million only partially offset by 2008 restructuring costs and the £9.9 million write down of V1512 and Pin1.

Finance income decreased to £1.4 million (2007: £2.3 million). The reduction is primarily due to lower average cash balances during the year, lower interest rates and a translational exchange gain in 2007 due to the strengthening of sterling against the dollar during that year.

Finance expense increased to £11.2 million (2007: £2.2 million). The increase included £3.3 million in relation to the finance cost of the Paul Capital Healthcare loan, a £3.1 million translational exchange loss on the Paul Capital Healthcare loan and a £2.8 million exchange loss on contingent deferred consideration. This was offset by a reduction in the interest relating to the loan agreement with Endo of £1.4 million.

The tax credit of £1.3 million (2007: £2.6 million) represents amounts that are expected to be received under current legislation on research and development tax credits. 

Discontinued operations

The loss for the year from discontinued operations amounted to £3.9 million (2007: £16.5 million). The discontinued operations comprise the Group's commercialisation and development activities on Apokyn® and the revenues and expenditures of the US commercial operation.

Balance sheet

Non-current assets decreased to £17.3 million (2007: £40.7 million) due principally to the reduction of intangible assets from £39.5 million to £16.4 million. In addition to the regular annual amortisation charge, an additional charge of £13.6 million was recognised as accelerated amortisation on the sale of future royalties following the sale of the US marketing rights to Endo and £9.9 million in relation to the write down of V1512 and Pin1. These charges were offset by an exchange gain of £1.8 million on the retranslation of balances denominated in foreign currencies.

Current assets decreased to £23.5 million (2007: £29.3 million). Cash resources, comprising held-to-maturity financial assets of £2.5 million (2007: £0.4 million) and cash and cash equivalents of £14.7 million (2007: £20.1 million) decreased by £3.3 million. The remainder of the decrease in current assets is principally due to a lower tax receivable of £1.6 million (2007: £2.4 million) reflecting lower spend on research and development in the year, and a lower trade and other receivable of £4.4 million (2007: £6.0 million) due to the timing of shipments of active pharmaceutical product to Menarini.

Total liabilities decreased to £34.1 million (2007: £72.6 million). Borrowings decreased due to the repayment of the Endo loan, which was in part replaced by the loan with Paul Capital Healthcare (a net decrease of £10.1 million). The reduction of deferred income of £21.8 million was principally due to the release of £20.4 million of deferred income on the Endo initial licensing agreement. The provision for vacant property increased by £2.7 million (2008: £7.1 million, 2007: £4.4 million) due to the 2008 restructuring of operations and the opening returns and rebates provision of £0.6 million was utilised and released. The deferred consideration liability was released in the year, a reduction of £7.0 million. The remaining trade and other liabilities decreased by £1.4 million, due to a decrease in accruals resulting from a reduction in external research and development activity as well as a reduction in the overall operational cost base. This was partially offset by an increase in the royalty payment due to GSK as a result of the retranslation of this foreign currency denominated balance.

Cash flow

Cash resources, comprising held-to-maturity financial assets and cash and cash equivalents decreased by £3.3 million to £17.2 million (2007: £20.5 million). £14.7 million was received from Paul Capital Healthcare. The sale of Apokyn® and the US operations generated £5.2 million net of expenses including proceeds from the issue of shares to Ipsen as part of this transaction. Restructuring costs of £2.5 million were paid in the year and £3.5 million (US$7 million) was also paid to Endo as part of the early settlement of the loan. £3.5 million of cash outflows also related to discontinued operations.

Outlook for 2009

Today the Group announced that it proposed to raise approximately £22.1 million (net of expenses), by way of a fully underwritten Placing and Open Offer. This fundraising, which is subject to shareholder approval, together with existing cash resources, will successfully fund the business for the foreseeable future, allowing management to deliver data from the V3381 Phase IIb neuropathic pain study, to progress V158866 and the Chk1 candidate through pre-clinical studies and to execute its out-licensing strategy for V85546 and V1512 in particular. Efficiency and cost control will be paramount to ensure that cash is very tightly managed.

Risks and Uncertainties

As with any business, risk assessment and the implementation of mitigating actions and controls are vital to successfully achieving the Group's strategy. The Vernalis Board has overall responsibility for risk management and internal control within the context of achieving the Group's objectives. The key risks and mitigating factors that have not changed from those previously reported are:

The Group cannot guarantee that its collaborators will devote sufficient resources to collaborations with the Group or that the Group's drug candidates can be developed and commercialised without these collaborators.

The Group has a history of operating losses and negative cash flow and may never become profitable.

The Group may be unable to retain certain important employees which could weaken the Group's scientific and management capabilities.

No assurance can be made that the Group will be able to bring any of the drug candidates it is developing to market.

The drugs that the Group brings to the market may not be commercially successful.

There can be no assurance that the Group's products will receive and maintain regulatory approval. The complexity and multi-jurisdictional nature of the applicable regulatory processes could result in delays in achieving such regulatory approval.

Even if the Group's products are approved, they may still face later regulatory difficulties.

The Group's business faces intense competition from major pharmaceutical companies and specialised biotechnology companies engaged in the development of drugs directed at the conditions and disorders that are the focus of the Group's drug programmes.

Technological changes could overtake the products being developed by the Group.

The Group may not be able to sell its drugs profitably if reimbursement from third party payers, including government and private health insurers, is unavailable or limited.

The Group may be unable to successfully establish and protect its intellectual property which is significant to the Group's competitive position. 

The Group may incur substantial costs as a result of disputes relating to intellectual property.

Foreign exchange rate fluctuations may adversely affect the Group's results of operations and financial condition.

The Group is dependent on single sources of supply for its compounds in research and development and for frovatriptan and some of their components.

The Group's suppliers may encounter unexpected difficulties in the design and construction of manufacturing processes and the scale-up of production to viable commercial levels.

The Group may be unable to secure adequate insurance at an acceptable cost.

Competition regulation may have an impact on the way the Group conducts its business and its dealings with private counterparties and government collaborators.

The use of hazardous materials may subject the Group to additional compliance costs and/or liability in the event of a hazardous waste spill or other accident.

The Group may face product liability claims. The Group may become subject to shareholders' action.

The Group may be subject to special interest groups and adverse public opinion.

The key risks and mitigating factors that have changed or are newly reported are:

The Group may require additional funding in the longer term (being not less than 12 months from the date of this document).

Vernalis has a high degree of product concentration and the failure of any one product could have a significant impact on the Company's share price.

Failure by Vernalis Development Ltd, a wholly owned subsidiary of the Group, to meet its obligations under the Paul Capital Healthcare Agreements relating to frovatriptan could adversely impact the Group's financial position.

The Group's success will continue to be highly dependent on collaborators.

If the Group fails to maintain existing research collaborations, or sign future research collaborations, it will reduce its research activities appropriately.

The Company does not expect to pay dividends in the near future.

If the Group fails to maintain its computer hardware, software and related infrastructure, progress in research and development could be delayed and revenues lost.

Investors should consider the Group's business and prospects in light of the heightened risks and unexpected expenses and problems the Group may face as a business in an early stage of development in a rapidly evolving industry.

Statement of Directors' Responsibilities

The Directors confirm that to the best of their knowledge this preliminary consolidated financial information has been prepared in accordance with the Disclosure and Transparency Rules of the UK Financial Services Authority, International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretation Committee (IFRIC) interpretations, as endorsed by the European Union (EU). The accounting policies applied are consistent with those described in the Annual Report 2007. In preparing the preliminary consolidated financial information, the Directors have also made reasonable and prudent judgements and estimates and prepared the preliminary consolidated financial information on the going concern basis. The preliminary consolidated financial information and management report contained herein give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group.

The Directors of Vernalis Plc as at the date of this announcement are as set out below:

Executive

Dr P J Fellner 

I R Garland 

D Mackney

J A D Slater 

Non-executive

G M Kennedy 

Dr P R Read 

C C Ferguson

Dr A Baxter

I Clark

Consolidated income statement

for the year ended 31 December 2008

		2008			2007
	Note	Pre-exceptional items	Exceptional items  (note 3)	Total	Pre-exceptional items	Exceptional items  (note 3)	Total
		£000	£000	£000	£000	£000	£000
Revenue	2	10,220	44,595	54,815	19,795	-	19,795
Cost of sales		(1,995)	(13,562)	(15,557)	(5,827)	-	(5,827)
Research and development expenditure		(16,056)	(11,342)	(27,398)	(21,585)	(16,255)	(37,840)
General and administrative expenditure		(4,690)	5,269	579	(6,238)	(1,543)	(7,781)
Operating (loss)/profit		(12,521)	24,960	12,439	(13,855)	(17,798)	(31,653)
Finance income	4	1,350	-	1,350	2,315	-	2,315
Finance expense	4	(11,221)	-	(11,221)	(2,242)	-	(2,242)
(Loss)/profit on ordinary activities before taxation		(22,392)	24,960	2,568	(13,782)	(17,798)	(31,580)
Tax credit on loss on ordinary activities		1,293	-	1,293	2,614	-	2,614
(Loss)/profit for the year from continuing operations		(21,099)	24,960	3,861	(11,168)	(17,798)	(28,966)
Loss for the year from discontinued operations	6	(3,728)	(182)	(3,910)	(8,536)	(7,916)	(16,452)
(Loss)/profit for the year		(24,827)	24,778	(49)	(19,704)	(25,714)	(45,418)
(Loss)/profit per share (basic and diluted)	5	(7.2)p	7.2p	(0.0)p	(6.3)p	(8.2)p	(14.5)p

Balance sheet

as at 31 December 2008

		2008	2007
	Note	£000	£000
Assets
Property, plant and equipment		818	1,128
Intangible assets	7	16,448	39,527
Available-for-sale financial assets		6	32
Non-current assets		17,272	40,687
Inventories		351	386
Trade and other receivables		4,394	5,973
Tax receivable		1,593	2,440
Held-to-maturity financial assets		2,500	380
Cash and cash equivalents		14,652	20,076
Current assets		23,490	29,255
Non-current assets of disposal group held for sale	6	-	3,568
Total assets		40,762	73,510
Liabilities and shareholders' equity
Liabilities
Borrowings	8	13,813	23,377
Trade and other liabilities		-	6,476
Deferred income		755	19,150
Provisions	9	6,168	3,983
Non-current liabilities		20,736	52,986
Borrowings	8	3,572	4,144
Trade and other liabilities		7,805	9,705
Deferred income		1,019	4,385
Provisions	9	955	1,097
Derivative financial instruments		-	40
Current liabilities		13,351	19,371
Liabilities directly associated with non-current assets of disposal group held for sale	6	-	278
Total liabilities		34,087	72,635
Shareholders' equity
Share capital		49,869	48,106
Share premium		370,390	369,633
Other reserves		189,016	185,687
Retained deficit		(602,600)	(602,551)
Total shareholders' equity		6,675	875
Total liabilities and shareholders' equity		40,762	73,510

Statement of changes in shareholders' equity

	Share capital	Share premium	Other reserves	Retained deficit	Total
	£000	£000	£000	£000	£000
Balance at 1 January 2007	47,372	369,633	177,941	(557,133)	37,813
Revaluation of assets available for sale	-	-	(103)	-	(103)
Exchange gain on translation of overseas subsidiaries	-	-	4,586	-	4,586
Net income recognised directly in equity	-	-	4,483	-	4,483
Loss for the year from continuing operations	-	-	-	(28,966)	(28,966)
Loss for the year from discontinued operations	-	-	-	(16,452)	(16,452)
Total recognised income and expense for the year	-	-	4,483	(45,418)	(40,935)
Issue of equity share capital	734	-	2,007	-	2,741
Share-based payments charge	-	-	1,256	-	1,256
Balance at 31 December 2007	48,106	369,633	185,687	(602,551)	875
Revaluation of assets available for sale	-	-	(26)	-	(26)
Exchange gain on translation of overseas subsidiaries	-	-	1,810	-	1,810
Net income recognised directly in equity	-	-	1,784	-	1,784
Profit for the year from continuing operations	-	-	-	3,861	3,861
Loss for the year from discontinued operations	-	-	-	(3,910)	(3,910)
Total recognised income and expense for the year	-	-	1,784	(49)	1,735
Issue of equity share capital	1,763	370	-	-	2,133
Refunded expenses on issue of share capital	-	387	-	-	387
Share-based payments charge	-	-	1,545	-	1,545
Balance at 31 December 2008	49,869	370,390	189,016	(602,600)	6,675

Cash flow statement

for the year ended 31 December 2008

	2008	2007
	£000	£000
Cash flows from operating activities
Profit/(loss) for the year from continuing operations	3,861	(28,966)
Loss for the year from discontinued operations	(3,910)	(16,452)
Loss for the year from continuing and discontinued operations	(49)	(45,418)
Taxation	(1,267)	(2,248)
Depreciation	317	670
Loss on disposal of property plant and equipment	247	2
Amortisation, impairment and disposal of intangible fixed assets and investments	24,829	23,952
Movement in provision for loss on sale of discontinued operations	182	7,916
Movement in provisions	1,795	(2,222)
Royalty off set against US dollar secured loan	-	(1,952)
Decrease in deferred income	(21,761)	(3,414)
Decrease in deferred consideration	(10,332)	-
Share-based payments charge	1,545	1,256
Finance income	(1,362)	(2,370)
Finance expense	11,233	2,280
Exchange (gain)/loss	(423)	(136)
	4,954	(21,684)
Changes in working capital
(Increase)/decrease in inventories	(178)	237
Decrease/(increase) in receivables	2,444	513
Decrease in liabilities	(1,825)	(2,396)
Cash generated from/(used in) operations	5,395	(23,330)
Taxation received	2,050	5,347
Taxation paid	(85)	(530)
Interest paid	-	(38)
Net cash generated from/(used in) operating activities	7,360	(18,551)
Cash flows from investing activities
Purchase of property plant and equipment	(254)	(381)
Fees incurred on assets held for sale	(1,178)	-
Loans to subsidiary undertakings	-	-
Proceeds on disposal of assets held for sale	4,548	-
Cash disposed of within assets held for sale	(305)	-
Interest received on cash and cash equivalents	938	961
Interest received on financial assets held-to-maturity	261	989
Net cash generated from/(used in) investing activities	4,010	1,569
Cash flows from financing activities
Receipt of funds from Paul Capital	14,669	-
Repayment of Paul Capital funding liability	(3,732)	-
Repayment of US dollar secured loan	(27,681)	-
Movement in held-to-maturity financial assets	(2,381)	15,707
Issue of shares on assets held for sale	2,133	-
Share issue refunds	133	-
Capital element of finance lease payments	(104)	(177)
Net cash (used in)/generated from financing activities	(16,963)	15,530
Foreign exchange gain on cash and cash equivalents	169	59
Movements in cash and cash equivalents in the year	(5,424)	(1,393)
Cash and cash equivalents at the beginning of the year	20,076	21,469
Cash and cash equivalents at the end of the year	14,652	20,076

Notes to the Financial Information

For the year ended December 2008

1 Accounting policies and basis of preparation

This announcement was approved for issue on 29 April 2009.

This financial information for the years ended 31 December 2008 and 31 December 2007 does not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985 it is an extract from the financial statements. This financial information was approved for issued on 29 April 2009 and has been extracted from the 31 December 2008 audited statutory accounts that were also approved by the Board on the same date and are available on the Company's website www.vernalis.com. These statutory accounts have not yet been delivered to the Registrar of Companies. Statutory accounts for the year ended 31 December 2007 were approved by the Board of directors on 12 May 2008 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified and did not contain any statement under section 237 of the Companies Act 1985.

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 1985 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. Whilst the financial information included in this preliminary 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 2007 and 31 December 2008, as described in those annual financial statements.

2 Segmental information

The Group's primary segment is geographical location of assets. The Group's operations are split into two geographical areas and are based on the selling entity location. The UK is the home country of the parent. The Group operates one business 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 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.

	Continuing	Discontinued	Total	Continuing	Discontinued	Total
	2008	2008	2008	2007	2007	2007
	£000	£000	£000	£000	£000	£000
United Kingdom	69	-	69	55	-	55
Rest of Europe	9,136	-	9,136	10,243	-	10,243
North America	45,598	1,139	46,737	9,465	4,876	14,341
Rest of the World	12	-	12	32	-	32
	54,815	1,139	55,954	19,795	4,876	24,671

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

	Continuing	Discontinued	Total	Continuing	Discontinued	Total
	2008	2008	2008	2007	2007	2007
	£000	£000	£000	£000	£000	£000
Product sales	30,919	967	31,886	9,379	3,649	13,028
Royalties	100	-	100	3,996	-	3,996
Collaborative	23,796	172	23,968	6,420	1,227	7,647
	54,815	1,139	55,954	19,795	4,876	24,671

3 Exceptional items

Exceptional items represent significant items of income and expense, which, due to their nature or the expected infrequency of the events giving rise to them, are presented separately on the face of the income statement to 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, the settlement of the Endo loan, impairments of goodwill and intangible assets, restructuring costs and the provision for vacant leases.

	2008	2007
	£000	£000
Settlement with Endo:
Sale of future US frovatriptan royalties	24,160	-
Release of Endo deferred income	20,435	-
	44,595	-
Accelerated amortisation of related US frovatriptan intangible asset (see note 7 )	(13,562)	-
	31,033	-
Restructuring costs in research and development expenditure	(1,424)	-
Restructuring costs in general and administrative expenditure	(1,783)	-
Intangible asset impairment (see note 7)	(9,918)	(16,255)
Goodwill impairment (see note 7)	-	(3,044)
Release of liability for deferred consideration	10,332	-
Provision for vacant leases (see note 9)	(3,280)	1,501
Exceptional items from continuing operations	24,960	(17,798)
Loss on sale of discontinued operations (see note 6)	(182)	(7,916)
Exceptional items from continuing and discontinued operations	24,778	(25,714)

4 Finance charge

	2008	2007
Continuing operations	£000	£000
Finance income
Interest on cash, cash equivalents and held-to-maturity assets	798	1,357
Exchange gains on cash	169	59
Exchange gains on royalty buy-out from GSK	-	42
Exchange gains on long-term loan	-	496
Exchange gains on contingent deferred consideration	-	331
Other interest	383	30
	1,350	2,315
Finance expense
Finance costs on the Paul Capital funding liability	3,307	-
Loans repayable wholly or partly within five years	123	1,498
Exchange loss on other receivables	-	19
Exchange loss on long-term loan	37	-
Exchange loss on royalty buy-out from GSK	965	-
Exchange loss on contingent deferred consideration	2,796	-
Exchange loss on Paul Capital funding liability	3,141	-
Unwinding of discount on contingent deferred consideration on purchase of intangible assets	553	476
Unwinding of discount on royalty buy-out from GSK	24	23
Unwinding of discount on provision	275	226
	11,221	2,242

5 Profit/(loss) per share

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

For diluted earnings 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.

Continuing operations	2008	2007
Attributable loss before exceptional items (£000)	(21,099)	(11,168)
Exceptional items (£000)	24,960	(17,798)
Attributable profit/(loss) (£000)	3,861	(28,966)
Weighted average number of shares in issue (000)	345,606	313,341
Loss per ordinary share before exceptional items	(6.1)p	(3.6)p
Exceptional items	7.2p	(5.7)p
Profit/(loss) per share (basic and diluted)	1.1p	(9.2)p
Continuing and discontinued operations	2008	2007
Attributable loss before exceptional items (£000)	(24,827)	(19,704)
Exceptional items (£000)	24,778	(25,714)
Attributable loss (£000)	(49)	(45,418)
Weighted average number of shares in issue (000)	345,606	313,341
Loss per ordinary share before exceptional items	(7.2)p	(6.3)p
Exceptional items	7.2p	(8.2)p
Loss per share (basic and diluted)	(0.0)p	(14.5)p

6 Assets held for sale and 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 million of milestones payable. Ipsen SA also subscribed for US$5 million of Vernalis plc shares at a 20 per cent premium.

Since the sale completed the Group has received US$1 million of the additional milestones. There is uncertainty over the receipt of the other milestones and therefore they have not been recognised at this time. 

The sales and marketing operations form a separate major line of business and geographical area of operations. The operations were held for sale at the end of 2007 and therefore were classified as discontinued operations.

Results of discontinued operations

	Year to 31 December 2008			Year to 31 December 2007
	Pre-exceptional items	Exceptional items  (note 3)	Total	Pre-exceptional items	Exceptional items (note 3)	Total
	2008	2008	2008	2007	2007	2007
Discontinued operations	£000	£000	£000	£000	£000	£000
Revenue	1,139	-	1,139	4,876	-	4,876
Cost of sales	(482)	-	(482)	(2,025)	-	(2,025)
Research and development expenditure	(478)	-	(478)	(1,185)	-	(1,185)
Selling and marketing expenditure	(2,737)	-	(2,737)	(7,784)	-	(7,784)
General and administrative expenditure	(1,144)	(182)	(1,326)	(2,069)	(7,916)	(9,985)
Operating loss	(3,702)	(182)	(3,884)	(8,187)	(7,916)	(16,103)
Finance income	12	-	12	55	-	55
Finance expense	(12)	-	(12)	(38)	-	(38)
Loss on ordinary activities before taxation	(3,702)	(182)	(3,884)	(8,170)	(7,916)	(16,086)
Tax charge on loss on ordinary activities	(26)	-	(26)	(366)	-	(366)
Loss for the year from discontinued operations	(3,728)	(182)	(3,910)	(8,536)	(7,916)	(16,452)

Assets and Liabilities classified as held for sale

	2008	2007
	£000	£000
Assets
Property, plant and equipment	-	142
Intangible assets	-	2,875
Non-current assets	-	3,017
Inventories	-	304
Trade and other receivables	-	247
Current assets	-	551
Assets of disposal group	-	3,568
Liabilities
Borrowings - Non current	-	(131)
Borrowings - Current	-	(147)
Liabilities of disposal group	-	(278)

7 Intangible assets

	Goodwill	Assets in use	Assets not yet in use	Total
	£000	£000	£000	£000
Cost
At 1 January 2008	10,355	37,408	43,343	91,106
Exchange difference	-	-	3,487	3,487
At 31 December 2008	10,355	37,408	46,830	94,593
Aggregate amortisation
At 1 January 2008	(10,355)	(15,188)	(26,036)	(51,579)
Accelerated amortisation on sale of future royalties	-	(13,562)	-	(13,562)
Impairment	-	-	(9,918)	(9,918)
Amortisation charge in the year	-	(1,349)	-	(1,349)
Exchange difference	-	-	(1,737)	(1,737)
At 31 December 2008	(10,355)	(30,099)	(37,691)	(78,145)
Net book value at 31 December 2008	-	7,309	9,139	16,448
Cost
At 1 January 2007	10,703	50,400	39,026	100,129
Reclassified as held for sale asset (see note 6)	-	(12,992)	(167)	(13,159)
Adjustments	(479)	-	-	(479)
Exchange difference	131	-	4,484	4,615
At 31 December 2007	10,355	37,408	43,343	91,106
Aggregate amortisation
At 1 January 2007	(7,311)	(13,242)	(9,781)	(30,334)
Impairment	(3,044)	-	(16,255)	(19,299)
Amortisation charge in the year	-	(4,653)	-	(4,653)
Reclassified as held for sale asset (see note 6)	-	2,707	-	2,707
At 31 December 2007	(10,355)	(15,188)	(26,036)	(51,579)
Net book value at 31 December 2007	-	22,220	17,307	39,527

Accelerated amortisation on sale of future royalties

Following the Group's early settlement of the amount due to Endo Pharmaceuticals Inc (Endo) under the loan agreement between the two companies, the Group agreed to forego future royalties on US sales of Frova® until annual US net sales exceed a threshold of US$85 million per annum. Due to the sale of future Frova® revenues an accelerated amortisation of £13.6 million has been recorded. 

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 £1.8 million on assets not yet in use relating to the acquisition of Cita.

Impairment

The Group has been actively pursuing an out-licensing strategy for V1512 during 2008 and in parallel exploring options to advance the clinical development of the programme. Despite a significant effort and a broad level of interest in this late stage programme it has not yet been partnered. We continue to pursue out-licensing of V1512 and have investigated a faster and lower cost path to US registration under the 505(b)(2) filing process. The potential economic interest to the Group in this programme is substantially lower than previously expected with royalty and milestone obligations payable to third parties. Taking these factors into account, we concluded that the carrying value of V1512 was impaired and a charge of £9.3 million has been recorded. We have also released the deferred consideration payable on this programme of £10.3 million due to the uncertainty over its clinical development path.

8 Borrowings

		2008	2007
		£000	£000
US dollar secured loan		-	23,377
Paul Capital Healthcare funding liabilities		13,813	-
Non-current borrowings		13,813	23,377
US dollar secured loan		-	4,144
Paul Capital Healthcare funding liabilities		3,572	-
Current borrowings		3,572	4,144
Total borrowings		17,385	27,521

Paul Capital Healthcare funding liabilities

The Group entered into a transaction with Paul Capital Healthcare on 21 April 2008. Under the terms of the transaction Paul Capital Healthcare provided €18.4 million which will be repaid out of the potential future revenue stream under the licence agreement with Menarini to market Frovatriptan in Europe. 

Whilst the contractual arrangements with Paul Capital Healthcare are royalty agreements under which royalties are payable on revenues earned and payments received, the proceeds received from Paul Capital  Healthcare meet the definition of a financial liability under IAS 39 "Financial Instruments: Recognition and Measurement" and are treated as financial liabilities accordingly. Royalties paid to Paul Capital Healthcare are treated as repayments of the liabilities and notional interest is charged on the liability using the effective interest rate at inception of the agreement. The effective interest rate is 42.5 per cent. Any change in the estimated future payments to Paul Capital Healthcare is recognised as income or expense in the income statement. The future amount payable to Paul Capital Healthcare is secured on the intangible assets relating to Frova®. 

The Group is committed to ensuring that Paul Capital Healthcare receives minimum payments in respect of years 2008-2010 calculated based upon delivery to Menarini of specified quantities of frovatriptan for such years. 

Under the terms of the agreement Paul Capital Healthcare have the right (but not the obligation) to exercise an early repayment option should certain adverse events occur. The Group would then be required to pay to Paul Capital Healthcare the loan amount of €18.4 million plus an additional amount as specified in the financing agreement.

US dollar secured loan

On the 20 February 2008 the Group announced that it had agreed to the early settlement of the amount due to Endo Pharmaceuticals Inc (Endo) under the loan agreement between the two companies. To give effect to this early settlement the Group paid Endo US$7 million in cash and agreed to forego future royalties on US sales of Frova® until annual US net sales exceed a threshold of US$85 million per annum. The outstanding balance on the loan together with the accrued interest, which was originally due for repayment in August 2009, was US$56 million.

9 Provisions

	Restructuring provision	Onerous lease provision	Returns and rebates	Total
	£000	£000	£000	£000
At 1 January 2008	-	4,444	636	5,080
Charged during the year	2,529	3,280	-	5,809
Reversed during the year	-	-	(524)	(524)
Utilised during the year	(2,529)	(876)	(85)	(3,490)
Amortisation of discount	-	275	-	275
Reclassified as held for sale asset (see note 6)	-	-	(137)	(137)
Movements on exchange	-	-	110	110
At 31 December 2008	-	7,123	-	7,123

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 2023 respectively and has been discounted to fair value at the balance sheet date.

The charge in the onerous lease provision in the year to 31 December 2008 is due to a portion of the Winnersh property becoming vacant as a result of the restructuring and a change to the discount rate. 

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. The provision is expected to be utilised on vacation of the relevant properties by 2012, 2015 and 2023 and has been discounted to fair value at the balance sheet date.

Returns and rebates provision

On acquiring the North American Frova® rights from Elan, the Group took on an obligation for certain product returns, estimated at £1.9 million.

In addition the Group is responsible for product returns, rebates and chargebacks from the date it re-acquired the rights from Elan through to the date of the out licence to Endo. There are no further obligations to the Group in respect of these for sales made after the Group out-licensed the rights of Frova® to Endo. The opening provision was utilised and released in the year and no further liability exists.

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. The second trading subsidiary Vernalis Development Limited provided services in the US to Vernalis Pharmaceuticals Inc under a transfer pricing agreement. Vernalis Pharmaceuticals In was sold in July 2008. 

The parent company is responsible for financing and setting Group strategy. Vernalis (R&D) Limited carries out the Group strategy, employs all the UK staff including the directors, and owns and manages all of the Group's intellectual property (excluding Frova®). The proceeds of the issue of shares by the parent are passed from Vernalis plc to Vernalis (R&D) Limited as a loan, and Vernalis (R&D) Limited manages Group funds and makes payments, including the expenses of the parent company.

Group

The Group had no related party transactions during the year (2007: none).

Company

The Company has issued share options to employees of subsidiary undertakings and in accordance with IFRS 2 has made a charge of £1,242,000 (2007: £1,007,000) to continuing operations, and £303,000 (2007: £249,000) to discontinuing operations.

The Company has been charged for corporate services provided by subsidiary undertakings £1,119,000 (2007: £1,317,500).

The Company provides financing to its operating subsidiary undertakings. 

Key management compensation:

		2008	2007
		£000	£000
Salaries and short-term employee benefits		1,271	1,402
Post-employment benefits		105	182
Compensation for loss of office		517	-
Share-based payments		716	461
		2,609	2,045

The key management includes executive directors.

At 31 December 2008 an amount of £2,529 (2007: £2,851) was due from Dr Peter Fellner in respect of his personal contribution to certain travel costs. This was repaid in full in January 2009.

11 Post-balance-sheet events

On 29 April the Group announced a £22.1 million fundraising (net of expenses), by way of a fully underwritten Placing and Open Offer. The Placing and Open Offer will be voted on by shareholders at the General Meeting on 18 May 2009.

The distribution of this announcement in certain jurisdictions may be restricted by law and such distribution could result in violation of the laws of such jurisdictions. In particular, this announcement is not for publication or distribution directly or indirectly to persons in the United States, Australia, Canada, Japan or South Africa.

This announcement is not an offer of securities for sale in the United States or an invitation or offer to the public or form of application to subscribe for securities. The Placing and Open Offer Shares have not been and will not be registered under the Securities Act, or qualified for sale under the applicable securities laws of any state or other jurisdiction of the United States or qualified for distribution under any applicable securities laws in Canada, Australia, South Africa or Japan. The Placing and Open Offer Shares may not be offered or sold, directly or indirectly, within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of the states of the United States. No public offering of the securities discussed herein is being made in the United States and the information contained herein does not constitute an offering of securities for sale in the United States, Canada, Australia, Japan or South Africa. 

Neither the Placing and Open Offer Shares, the related Prospectus, this announcement nor any other document connected with this Placing and Open Offer have been or will be approved or disapproved by the United States Securities and Exchange Commission or by the securities regulatory bodies of any state or other jurisdiction of the United States, nor by any securities regulatory body of any other country or political subdivision thereof, nor have any of the foregoing authorities or any securities commission passed upon the accuracy or adequacy of the contents of this announcement or endorsed the merits of the offering of the Placing and Open Offer Shares. Any representation to the contrary is a criminal offence.

ENDFR LVLLLKZBXBBF

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Related Shares:

Vernalis PLC