Final Results

10 March 2017

Oxford Pharmascience Group plc

("Oxford Pharmascience" or the "Company")

Final Results for the year ended 31 December 2016

Oxford Pharmascience Group plc (AIM: OXP), the speciality pharmaceutical company that redevelops medicines to make them better, safer and easier to take, today announces its results for the year ended 31 December 2016.

The Company also gives notice of its annual general meeting (the "AGM") to be held on 19 June 2017 at 10 a.m. at the offices of Fladgate LLP, Ninth Floor, 16 Great Queen Street, London, WC2B 5DG. The Report and Accounts incorporating the Notice of AGM will be posted to shareholders today and will be available to download at the Company's website at www.oxfordpharmascience.com.

HIGHLIGHTS

· Completion of technical programme to improve release properties and successful in vivo demonstration that the technology modifications can make OXPzero Ibuprofen™ bioequivalent to the reference product and also potentially faster acting

· Pre-IND meeting packages submitted to the FDA for both the OXPzero Ibuprofen™ over-the-counter ("OTC") and prescription ("Rx") programmes. FDA feedback expected during the first quarter of 2017

· IP portfolio strengthened by filing a new patent on control of release properties in addition to the in-licensing of two further patent families that provide protection on specific aspects of the manufacture of the OXPzero™ materials

· The Group continues to hold discussions with prospective partners for OTC as well as prescription pain products with a view to agreeing a commercial partnership agreement for its OXPzero™ assets

· Cash, cash equivalents and short-term investments at 31 December 2016 of £21.9m (2015: £23.1m), affording flexibility to take selected products through to registration if deemed more likely to create greater shareholder value

· Loss before tax £1.9m (2015: £3.9m), reflecting lower number of clinical trials performed in the year, offset by a second year of growth in revenue from calcium chew sales and the Group continues to explore further business development opportunities

Marcelo Bravo, Chief Executive Officer of Oxford Pharmascience Group plc, commented:

"The Group remains focused on activities that support the progression to market for OXPzero NSAIDs. We were particularly pleased to confirm in the clinic earlier this year the outcome of the technical programme conducted throughout 2016 to modify the OXPzeroTM technology, demonstrating we can achieve faster absorption and bioequivalence against standard ibuprofen.

We continue with ongoing partnering discussions with OTC drug companies both in North America and Europe as well as outreach to companies operating in pain management to advance our prescription product strategy, initially with a focus on the US market.

The Group remains well-funded to complete this next stage of work and looks forward to providing further updates."

Contacts:

About Oxford Pharmascience Group Plc

Oxford Pharmascience Group Plc uses a range of proprietary technology platforms to re-develop existing medicines to make them better, safer or easier to take. The Company does not manufacture or sell its own pharmaceutical products direct to consumers, but instead seeks to license its technologies and dossiers to a network of partners, mainly leading pharmaceutical companies with Rx (prescription) and OTC (over the counter) branded portfolios. 

Oxford Pharmascience Group Plc focuses on existing medicines that are proven to be safe and effective but nevertheless still have associated issues and side effects often affecting compliance. By working with such medicines, the Company is able to develop new innovative products for a fraction of the cost, in much quicker timescales and without the high risk of failure associated with developing new drugs.

CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S JOINT REVIEW

During the past year the Group has been primarily focused on commercialisation efforts for its lead compounds OXPzero Ibuprofen™ and OXPzero Naproxen™ and in regulatory, technical and clinical activities in support of these assets.

Commercial Activities

As reported in July 2016, during the first half of 2016 the Group held discussions with several global over-the-counter (OTC) drug companies with strategic interest in the NSAIDs (non-steroidal anti-inflammatory drugs) market. These discussions confirmed to the Group that the OXPzero™ technology platform would be a potentially disruptive, differentiated and very valuable asset in OTC markets. Feedback received, however, indicated that these OTC drug companies would prefer to see the assets further developed and, importantly, to have more clarity on the regulatory pathway(s) for OTC product approval before committing to a partnership agreement on either individual assets or on the platform as a whole.

In the autumn of 2016 the Group began reaching out to select companies operating in the prescription (Rx) sector, initially with focus on the US market and this process is currently ongoing. During discussions with prospective partners, it has also become clear that clarity on the regulatory pathway for the Rx market is a key milestone to facilitate and progress discussions. The Group continues dialogue with prospective partners regarding these developments with a view to agreeing a commercial partnership agreement for its OXPzero™ assets. Updates will be provided in due course.

Regulatory, Technical and Clinical

To clarify the regulatory pathway in the key US market, the Group assembled a team of advisers and prepared and submitted pre-IND (Investigational New Drug) meeting packages to the FDA in December 2016 for both the OXPzero™ Ibuprofen OTC and Rx programmes. As recently announced, the FDA has indicated that its formal feedback will be provided during the first quarter of 2017. Clarity on the regulatory pathway will be a significant milestone for the Group and is expected to further facilitate partnering discussions for the key US market. We look forward to receiving this feedback in the coming weeks.

An important area of technical and clinical activity for the Group throughout last year has been the laboratory work to identify modifications to the OXPzero™ technology platform to alter the release properties and enable faster release of the NSAID. Successful completion of laboratory work has led to the filing of a new patent on the modification and control of release properties. The technology modifications identified are currently being tested in vivo through an exploratory pharmacokinetic (PK) study. The study, a phase I exploratory PK study amongst healthy subjects, "OAT-01", is a three-part, open label, active controlled, crossover study designed to assess the PK profile of the lead OXPzero™ Ibuprofen technology modifications against licensed ibuprofen products to verify that the improvements in speed of ibuprofen release seen in the lab studies translate into in vivo improvements.

The Group is very pleased with the results from the first part of the study, which demonstrate that the technology modifications can not only make OXPzero™ Ibuprofen bioequivalent to the ibuprofen free acid reference product, but also potentially faster acting. Achieving a product that is bioequivalent to the reference product is highly important to the Group as the regulatory pathway to gaining product approval generally becomes faster, simpler and therefore less costly for bioequivalent products. The potential to accelerate speed of action or to extend the duration of effect is expected to further differentiate prospective OXPzeroTM products. The OAT-01 study will have two further parts to help the Group further optimise formulations for different applications and provide data to support its patent application (as mentioned above).

Importantly, the evaluation of the technology modifications in an in vitro gastric cell model developed by the University of Newcastle has shown that the release modifications do not cause diminution in the viability of gastric cells. Therefore it is considered likely that the beneficial gastrointestinal effect of the OXPzero™ technology seen in earlier endoscopy trials will be preserved with the modified formulation(s).

Working with its manufacturing partner, Dipharma Francis Srl, the Group has successfully developed and optimised the manufacturing process, initially for OXPzero™ Ibuprofen, increasing process efficiency and robustness. The process has been validated at an intermediate scale which will support the production of sufficient materials for future development requirements and allow progression of the manufacturing process to commercial scale batch production.

The Group was also pleased to announce in January 2017 that it had successfully synthesised a further NSAID molecule, ketorolac, at laboratory scale. Ketorolac is an NSAID in the family of heterocyclic acetic acid derivatives which is used for moderate-to-severe pain relief, often prescribed in place of opioids. The use of ketorolac is heavily restricted (to not more than five days) due to the potential of increasing the frequency and severity of adverse reactions which include gastro-intestinal bleeding. The Group believes that a safer version of ketorolac would be an effective alternative or complement to opioids in certain clinical settings.

Intellectual Property

The Group has also worked to strengthen its IP portfolio by not only filing a new patent on control of release properties (discussed above) but also by in-licensing two further patent families that provide protection on specific aspects of the manufacture of the OXPzeroTM materials. All of these patents are early in the patent life cycle and if granted will provide robust protection over close to full patent life.

Other programmes

While the primary focus has been on the OXPzeroTM NSAIDs platform, the company also carried out development work to further its cardiovascular pipeline.

Following extensive process development work, OXPzero AspirinTM has been successfully manufactured at laboratory scale. However, as the material produced by this process has not attained the required stability profile, a decision has been taken not to progress this programme further at this time

In our statins portfolio, development of a new colonic release formulation of atorvastatin is ongoing. The aim of this programme is to reduce the side effects such as myalgia (muscle pain) associated with statin use. A new formulation development and manufacturing contract facility has been appointed and development of a new salt form of atorvastatin with anticipated improved acid stability is ongoing.

Financial Results

Revenue from the calcium chew business grew for the second consecutive year with sales of £796k (2015: £749k). We continue to work with our main partner, Ache Laboratorios in Brazil and have engaged business development resource to seek to grow product sales in other territories going forward.

The Group continues to implement a lean and agile, low cost business model which allows the execution of its R&D plan in the most efficient manner. Administrative expenses, including R&D expenditure were £2.2m versus £4.1m in 2015, the decrease mainly due to the reduced number of clinical trials performed in the year. The loss before tax was £1.9m versus a loss of £3.9m in the prior year.

The Group remains well-funded with cash and short-term investment balances at 31 December 2016 of £21.9m (2015: £23.1m). This allows the Group the flexibility it requires to deliver its R&D programme and to retain the ability to take selected products through to registration if deemed more likely to create greater shareholder value.

Outlook

In the near term, the Group will continue to focus on activities that support the progression to market for OXPzero Ibuprofen™ and OXPzero Naproxen™ while at the same time proceeding with development of its pipeline assets.

Partnering discussions for taste masked applications of NSAIDs are ongoing with large OTC drug companies both in North America and Europe and they will be reinvigorated with the recent results demonstrating the faster acting benefit/bioequivalence of the technology. The Group's objective is to establish a small number of quality commercial partnerships that demonstrate the commercial feasibility of the technology, allowing the Group to progress the platform further in terms of generating additional applications and building greater value.

On the Rx front, the Group will continue its out-reach to companies operating in pain management, initially with focus in the US market where we are most advanced in terms of understanding clinician and payor acceptance as well as being near to clarifying the regulatory pathway to product approval.

Separately, now that the Group has established that it can develop a bioequivalent OXPzeroTM Ibuprofen product, we see opportunity to further advance the development of an NSAID based cough & cold hot drink product. This is an area where we see major market opportunity and one in which the Group could get a product developed and approved for sale in a major geography with relatively low levels of investment.

The Group remains well-funded to complete this next stage of work, with cash, cash equivalents and money held on deposit as at 31 December 2016 of £21.9 million.

STRATEGIC REPORT

Strategy and business objectives

The Group's objectives in 2016 were to continue with clinical work of its main platform, OXPzeroTM, and attempt to gain commercial partnership for the various platform assets. The Group began an outreach programme in early 2016, in conjunction with its investment banking adviser. As reported to shareholders in July 2016, despite wide interest from potential partners, the Group was unable to conclude a deal. The feedback received from potential partners however, gave the Group a good insight in to the commercial appeal of the platform and also gave clear direction of future work streams for the Group to pursue in order to make the OXPzeroTM platform more appealing. This work has been on-going and the results will be reported to the market in due course.

Going in to 2017, the Group continues to engage with potential partners to seek collaboration for the OXPzeroTM platform assets as well as continuing development work across its other programmes. Further details of this are included in the Chairman's Statement.

Development and performance

2016 was a quieter year in comparison to 2015 during which the Group conducted proof of concept trials with two different NSAIDs. Accordingly, the Research and Development costs incurred in the year were lower than previous years. Research and Development spend (included within operating expenses) was £1.0m in 2016, compared to £2.5m in 2015. The Group continues to operate a flexible, outsourced approach that can be expanded as required - this enables us to maintain our low cost operating base.

Sales in the year to 31 December 2016 were £796k compared to £749k in the previous year. We continue to work with our main partner, Ache Laboratorios in Brazil and have engaged business development resource to try and grow product sales in other territories going forward. The Group has recently signed a distribution agreement with Deutsche Pharma S.A.C to allow product to be sold in Peru. The loss for the year after tax of £1.4m (2015: £3.1m) is in line with expectation.

Position at year end

The Group finished the year with cash and short-term investment balances of £21.9 million (2015: £23.1 million). Net assets at 31 December 2016 were £22.6 million compared to £23.8 million at 31 December 2015.

Events since the end of the financial year

There are no events to report which have occurred since the end of the financial year.

Key performance indicators

The key indicators of performance for the business in its current stage of development are the successful conclusion of clinical trials and the winning of commercial contracts and license agreements to commercialise the Group's products.

In addition, the control of capital allocated to the Group's development projects is a priority for management. Budgets are monitored closely to ensure adequate financial resources are available to meet financial commitments as they arise.

At this stage in its development, quantitative key performance indicators are not an effective way of measuring the Group's performance.

Principal risks and uncertainties

The Group considers that the principal risks to achieving its business objectives are as follows:

Clinical trial data

The Group is reliant on positive data arising from trials scheduled for 2017 and beyond. The Group cannot guarantee that results will match expectations but has tried to minimise this risk through non-clinical and pre-clinical work and detailed trial programme design and close consultation with Key Opinion Leaders (KOLs), scientific advisers and regulatory bodies.

Regulatory risk

The Group's strategy depends on being able to develop products which generate an economic return on the investment required. If the pathway to gaining regulatory approval determined by regulatory bodies is too onerous there is no guarantee that the Group will be able to complete its development programmes. The Group seeks to reduce this risk by developing products using safe, well-known, existing drugs and by seeking advice from regulatory advisers, and holding timely consultations with regulatory approval bodies.

Customers

The Group's success is dependent upon generating revenue from licensing its Intellectual Property (IP) to customers. As the Group's development programmes proceed, the Group will seek to form relationships and sign commercial contracts with larger pharmaceutical companies on terms that generate an economic return.

Intellectual property

The success of the Group's strategy depends in part on the ability to protect and defend its rights over its IP portfolio. The Group has procedures in place to monitor and guard its IP and also has specialist lawyers to defend against potential breaches should they arise.

Attraction and retention of key employees

Attracting and retaining key personnel is critical to the long-term success of the business. The Group aims to provide remuneration and working conditions that will both attract and retain high calibre employees. The Group operates a share option scheme for certain senior staff which allows them to benefit from future improvements in the Group's share price.

Funding

The Group has £21.9 million of cash and short-term investments as at 31 December 2016. The Directors believe that this is sufficient to take key development programmes through to commercialisation. However, were the development programmes to be delayed or suffer cost over-runs, additional finance may be required. The Board tries to manage and mitigate this risk by regularly reviewing budgets and analysing future cash requirements.

Christopher Hill

Chief Financial Officer

Consolidated Statement of Comprehensive Income for the year ended 31 December 2016

The loss for the year arises from the Group's continuing operations.

Consolidated Statement of Changes in Equity for the year ended 31 December 2016

Consolidated Statement of Financial Position as at 31 December 2016

Consolidated Statement of Cash Flows for the year ended 31 December 2016

Notes to the Consolidated Financial Results for the year ended 31 December 2016

The following notes have been extracted from the full notes to the audited report and accounts available on the Company's website www.oxfordpharmascience.com.

1. Authorisation of financial statements and statement of compliance with IFRSs

The financial statements of Oxford Pharmascience Group Plc and its subsidiaries (the "Group") for the year ended 31 December 2016 were authorised for issue by the Board of Directors on 9 March 2017 and the Statement of Financial Position was signed on the board's behalf by Marcelo Bravo and Christopher Hill.

Oxford Pharmascience Group Plc ("the Company") is an AIM quoted company incorporated and domiciled in the UK.

The Company is a specialty pharmaceutical company re-developing medicines to make them better, safer and easier to take. The Company primarily engages in Research and Development activities based around its core technology platforms and seeks to commercialise the related products to pharmaceutical organisations.

The principal accounting policies adopted by the Group and parent company are set out in note 2.

2. Accounting policies

Basis of preparation

The Company's financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS") and IFRS interpretations as they apply to the financial statements of the Group for the year ended 31 December 2016 and applied in accordance with the Companies Act 2006.

The accounting policies which follow set out those policies which apply in preparing the financial statements for the year.

The financial statements are prepared under the historical cost convention, except where otherwise stated, and remain unchanged from the previous years.

The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the Parent Company's statement of comprehensive income. The Parent Company's result for the year ended 31 December 2016 was a loss of £1.9m (2015: loss of £3.6m).

The Group financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£'000) except where otherwise indicated.

Basis of consolidation

The Group financial statements consolidate the financial statements of Oxford Pharmascience Group Plc and the entities it controls (its subsidiaries) drawn up to 31 December each year.

Oxford Pharmascience Group Plc was incorporated on 7 October 2009. The Company was specifically created to implement a re-organisation in relation to Oxford Pharmascience Limited which would permit admission of the Group to the AIM market. Under the re-organisation, Oxford Pharmascience Limited became a wholly owned subsidiary of Oxford Pharmascience Group Plc on 27 January 2010.

Shareholders in the Company at the time of re-organisation received shares in Oxford Pharmascience Group Plc in the same proportionate interest as they had in Oxford Pharmascience Limited. The business, operations, assets and liabilities of the Oxford Pharmascience Group under the new holding company immediately after the re-organisation were no different from those immediately before the re-organisation. This was not a business combination per IFRS 3 and the Directors have therefore treated this combination as a simple re-organisation using the pooling of interests method of accounting.

Pooling of interests method of consolidation

The purchase of Oxford Pharmascience Limited by Oxford Pharmascience Group Plc on 27 January 2010 has been treated as a re-organisation using the pooling of interests method of accounting. It has therefore been presented as if the entities had always been combined. Therefore, on consolidation the assets and liabilities were reflected at carrying value rather than fair value. No goodwill arose on the combination, and the difference between the nominal value of shares issued by Oxford Pharmascience Group Plc and the nominal value of the ordinary shares of Oxford Pharmascience Limited, together with the capital and reserves of Oxford Pharmascience Limited at the time of the pooling of interests, are shown as "merger reserve" in the consolidated financial statements.

Subsidiaries

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than half of the voting rights. The existence and effects of potential voting rights are considered when assessing whether the Group controls the entity. Subsidiaries are fully consolidated from the date control passes.

All intra-group transactions, balances, and unrealised gains on transactions between group companies are eliminated on consolidation. Subsidiaries' accounting policies are amended where necessary to ensure consistency with the policies adopted by the Group. All financial statements are made up to 31 December 2016.

Foreign currency translation

Items included in the financial statements of each entity are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The financial statements are presented in sterling, being the Group's presentational currency.

Transactions in foreign currencies are initially recorded in the functional currency by applying the spot rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. All differences are taken to the profit or loss.

Segment reporting

An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. As at the reporting date the Group operated with only a single segment.

Revenue recognition

Revenue is recognised to the extent that it is probable that economic benefits will flow to the group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable for the sale of goods or services, excluding discounts, rebates, VAT and other sales taxes or duties.

The Group's income consists of sales of goods, licence fees, milestone and option payments.

Sale of goods is recognised when the Group has transferred to the buyer the significant risks and rewards of ownership.

Licence fees, option and milestone payments are recognised in full on the date that they are contractually receivable in those circumstances where:

· The amounts are not time related

· The amounts are not refundable

· The licensee has unrestricted rights to exploit the technology within the terms set by the licence

· The group has no further contractual duty to perform any future services

Where such fees or receipts are dependent upon future performance or financial commitments on behalf of the group, the revenue is recognised pro rata to the services or commitments being performed. Funds received which have not been recognised as revenue are treated as deferred revenue and recognised in trade and other payables.

Interest income

Interest income is recognised as interest accrues using the effective interest rate method.

Research and development

Research costs are charged to profit and loss as they are incurred. Certain development costs are capitalised as intangible assets when it is probable that the future economic benefits will flow to the Group. Such intangible assets are amortised on a straight-line basis from the point at which the assets are ready for use over the period of the expected benefit, and are reviewed for impairment at each year end date. Other development costs are charged against profit or loss as incurred since the criteria for their recognition as an asset are not met.

The criteria for recognising expenditure as an asset are:

· it is technically feasible to complete the product;

· management intends to complete the product and use or sell it;

· there is an ability to use or sell the product;

· it can be demonstrated how the product will generate probable future economic benefits;

· adequate technical, financial and other resources are available to complete the development, use and sale of the product; and

· expenditure attributable to the product can be reliably measured.

The costs of an internally generated intangible asset comprise all directly attributable costs necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management. Directly attributable costs include employee costs incurred on technical development, testing and certification, materials consumed and any relevant third party cost. The costs of internally generated developments are recognised as intangible assets and are subsequently measured in the same way as externally acquired intangible assets. However, until completion of the development project, the assets are subject to impairment testing only.

Leases

Rentals payable under operating leases, which are leases where the lessor retains a significant proportion of the risks and rewards of the underlying asset are charged to profit or loss on a straight line basis over the expected lease term.

At the year end the Group had no obligation, which required a provision to be recognised (2015: nil).

Financial assets and liabilities

Financial assets and liabilities are recognised when the Group becomes party to the contracts that give rise to them and are classified as financial assets at fair value through the profit and loss; loans and receivables; held-to-maturity investments; or as available-for-sale financial assets, as appropriate. The Group determines the classification of its financial assets at initial recognition and re-evaluates this designation at each financial year end.

At the year end, the Group has Trade and other receivables and cash and cash equivalents held as loans and receivables and trade and other payables held as financial liabilities at amortised cost. The Group had no financial assets or liabilities designated as at fair value through the profit and loss, held-to-maturity investments or available-for-sale financial assets (2015: nil).

De-recognition of financial assets and liabilities

A financial asset or liability is generally derecognised when the contract that gives rise to it is settled, sold, cancelled or expires.

Taxation

Current income tax

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.

Deferred tax

Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements, except to the extent that the directors do not anticipate that the timing differences will crystallise in the foreseeable future, and with the following exceptions:

· where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss; and

· in respect of taxable temporary differences associated with investments in subsidiaries where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets and liabilities are measured on an undiscounted basis using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date and which are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which differences can be utilised. An asset is not recognised to the extent that the transfer or economic benefits in the future is not probable.

Investments in subsidiaries

Investments in subsidiaries are stated in the Company balance sheet at cost less provision for any impairment.

Plant and equipment

Plant and equipment is recognised initially at cost. After initial recognition, these assets are carried at cost less any accumulated depreciation and any accumulated impairment losses. Cost comprises the aggregate amount paid and the fair value of any other consideration given to acquire the asset and includes cost directly attributable to making the asset capable of operating as intended.

Depreciation is computed by allocating the depreciable amount of an asset on a systematic basis over its useful life and is applied separately to each identifiable component.

Plant and machinery - 25% per annum on a reducing balance basis

Computer equipment - straight line over 3 years

The carrying values of plant and equipment are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable, and are written down immediately to their recoverable amount. Useful lives and residual values are reviewed annually and where adjustments are required these are made prospectively.

An item of plant and equipment is derecognised on disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on de-recognition of the asset is included in profit or loss in the period of de-recognition.

Intangible assets

Intangible assets acquired either as part of a business combination or from contractual or other legal rights are recognised separately from goodwill provided they are separable and their fair value can be measured reliably.

Where intangible assets recognised have finite lives, after initial recognition their carrying value is amortised on a straight line basis over those lives. The nature of those intangibles recognised and their estimated useful lives are as follows:

Development costs - straight line over 10 years

Patent costs and trademarks - straight line over 10 years

Impairment of assets

At each reporting date the Group reviews the carrying value of its plant, equipment and intangible assets to determine whether there is an indication that these assets have suffered an impairment loss. If any such indication exists, or when annual impairment testing for an asset is required, the group makes an assessment of the asset's recoverable amount. Intangible assets not yet ready to use are subject to an annual impairment test.

An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying value of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used, these calculations corroborated by valuation multiples, or other available fair value indicators. Impairment losses on continuing operations are recognised in profit or loss in those expense categories consistent with the function of the impaired assets.

An assessment is made at each reporting date in respect of the Group's assets, with the exception of goodwill, as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a valuation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost includes all costs incurred in bringing each product to its present location and condition. Net realisable value is based on estimated selling price less any further costs expected to be incurred to disposal. Provision is made for slow moving or obsolete items.

Trade and other receivables

Trade receivables, which generally have 30 to 90 day terms, are recognised and carried at the lower of their original invoiced value and recoverable amount. The time value of money is not material.

Provision is made when there is objective evidence that the Group will not be able to recover balances in full. Significant financial difficulties faced by the customer, probability that the customer will enter bankruptcy or financial reorganisation and default in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying value of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in profit or loss within administrative expenses.

When a trade receivable is uncollectable, it is written off through profit or loss.

Cash, cash equivalents and short term investments

Cash and cash equivalents comprise cash at hand and deposits with an original term of not greater than 3 months. Short-term investments comprise deposits with maturities of more than three months, but no greater than 12 months.

Trade and other payables

Trade and other payables are not interest bearing and are initially recognised at fair value. They are subsequently measured at amortised cost using the effective interest rate method.

Equity and reserves

Share capital represents the nominal value of shares that have been issued.

Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits.

Merger reserve represents the fair value of the consideration given in excess of the nominal value of the ordinary shares issued on the acquisition of Oxford Pharmascience Limited to allow admission of the Group to the AIM market made by the issue of shares. 

Share based payment reserve includes all current and prior period share-based employee remuneration expense.

Revenue reserve includes all current and prior period retained profits/(losses).

Share-based payments

The Company undertakes equity settled share-based payment transactions with certain employees. Equity settled share-based payment transactions are measured with reference to the fair value at the date of grant, recognised on a straight line basis over the vesting period, based on the company's estimate of shares that will eventually vest. Fair value is measured using the Black Scholes model.

At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management's best estimate of the achievement or otherwise of non-market conditions and the number of equity instruments that will ultimately vest. The movement in cumulative expense since the previous balance sheet date is recognised in profit or loss, with a corresponding entry in equity.

Where the terms of an equity-settled award are modified or a new award is designated as replacing a cancelled or settled award, the cost based on the original award terms continues to be recognised over the original vesting period. In addition, an expense is recognised over the remainder of the new vesting period for the incremental fair value of any modification, based on the difference between the fair value of the original award and the fair value of the modified award, both as measured on the date of the modification. No reduction is recognised if this difference is negative.

Accounting standards and interpretations issued but not yet effective

At the date of authorisation of these financial statements, the following standards and interpretations relevant to the Group that have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been endorsed by the EU):

The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group.

3. Judgements and key sources of estimation uncertainty

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the year. The nature of estimation means that actual amounts could differ from those estimates. Estimates and assumptions used in the preparation of the financial statements are continually reviewed and revised as necessary. While every effort is made to ensure that such estimates and assumptions are reasonable, by their nature they are uncertain and, as such, changes in estimates and assumptions may have a material impact on the financial statements.

The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below.

Equity settled share-based payments

The estimation of share-based payment costs requires the selection of an appropriate valuation method, consideration as to the inputs necessary for the valuation model chosen and the estimation of the number of awards that will ultimately vest, inputs for which arise from judgements relating to the future volatility of the share price of comparable companies, the Company's expected dividend yields, risk free interest rates and expected lives of the options. The Directors draw on a variety of sources to aid in the determination of the appropriate data to use in such calculations.

Research and development costs

Careful judgement by the Directors is applied when deciding whether the recognition requirements for capitalising development costs have been met. This is necessary as the economic success of any product development is uncertain and may be subject to future technical problems. Judgements are based on the information available at each reporting date which includes the progress with testing and certification and progress on, for example, establishment of commercial arrangements with third parties. In addition, all internal activities related to research and development of new products is continually monitored by the Directors.

Provisions for irrecoverable receivables

Provisions for irrecoverable receivables are based on historical evidence, and the best available information in relation to specific issues, but are nevertheless inherently uncertain.

4. Segmental information

At 31 December 2016 the Group operated as one segment, being the development and commercialisation of drug products from proprietary technology platforms. This is the level at which operating results are reviewed by the chief operating decision maker (the CEO) to make decisions about resources, and for which financial information is available. All revenues have been generated from continuing operations and are from external customers.

The Group operates in three main geographic areas, although all are managed in the UK. The Group's revenue per geographical area is as follows:

* 2016: 100% (2015: 100%) of Brazil revenue is generated from one customer

All the Group's assets are held in the UK and all of its capital expenditure arises in the UK.

5. Operating loss

6. Staff costs

The average number of employees during the year (including directors) and aggregate remuneration, including directors was as follows:

Details of directors' remuneration and the highest paid Director can be found in the directors' report within the Annual Report and Accounts. Key management personnel comprise only the Directors of the Company.

7. Finance income

8. Taxation

The Group has accumulated losses available to carry forward against future trading profits of £6.7 million (2015: £6.6 million). No deferred tax asset has been recognised in respect of tax losses since it is uncertain at the balance sheet date as to whether future profits will be available against which the unused tax losses can be utilised. The estimated value of the deferred tax asset not recognised, measured at a standard rate of 17% is £1.1m (2015: 20% is £1.3m).

At the Summer Budget 2015, the Government announced a reduction in the main rate of corporation tax to 19% from April 2017 and 18% from April 2020. At the Budget 2016, the Government announced a further reduction to the main rate of corporation tax from 2020, setting the rate at 17%.

9. Loss per share

Basic loss per share is calculated by dividing the loss attributable to equity holders of the parent by the weighted average number of ordinary shares in issue during the period. Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares in issue during the period to assume conversion of all dilutive potential ordinary shares.

The Company has issued employee options over 99,700,000 (2015: 95,200,000) ordinary shares which are potentially dilutive. There is, however, no dilutive effect of these issued options as there is a loss for each of the periods concerned.

10. Intangible assets

11. Property, plant and equipment

12. Inventories

The inventory expensed to cost of sales during the year is £534k (2015: £591k) and there has been no write off of stock in the year (2015: nil). Manufacturing is outsourced to third party suppliers.

13. Trade and other receivables

The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.

Trade receivables are all denominated in sterling.

At 31 December the analysis of trade receivables that were past due but not impaired was as follows:

At the year ended 31 December 2016 there was no requirement for a provision for doubtful debts (2015: nil) and there were no movements in the year (2015: nil).

14. Cash, cash equivalents and short term investments

An analysis of cash, cash equivalents and short term investments by currency is provided in note 20.

15. Trade and other payables

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

16. Issued equity capital and reserves

The acquisition of Oxford Nutrascience Limited (now Oxford Pharmascience Limited) in 2010 was accounted for as a re-organisation using the pooling of interests method of accounting as set out in note 2 to these financial statements and under which the shares issued by the company were recorded at nominal value together with an amount established as Merger reserve in order to replicate the total issued capital of Oxford Pharmascience Limited as at the acquisition date.

17. Share based payments

The Group operates a share option plan, under which certain directors have been granted options to subscribe for ordinary shares. All options are equity settled. New options of 7,000,000 ordinary shares were granted in the year. The options granted in the current year have exercise prices of 4.63p (those granted in previous years 3.8p - 11.9p) and the vesting period was generally 1 or 3 years. If the options remain unexercised after a period of 10 years from the date of grant, the options expire. The Group has no legal or constructive obligation to repurchase or settle the options in cash. The number and weighted average exercise prices of share options are as follows:

On 27 January 2010, the Company acquired 100 per cent. of the issued share capital of Oxford Nutrascience Limited in a share for share exchange on the basis of 25 for 1 exchange ratio. As part of the re-organisation and share for share exchange, share options in Oxford Nutrascience Limited were substituted by share options in the Company as increased by a multiple of 25 and at an exercise price reduced by a multiple of 25.

There were 15,733,333 (2015: 12,066,666) share options outstanding at 31 December 2016 which were eligible to be exercised. During the year ended 31 December 2016, no options were exercised (2015: nil) and 2,500,000 options lapsed (2015: nil). There are market based vesting conditions attached to 86,700,000 of the share options outstanding at 31 December 2016 (2015: 82,200,000).

The fair value of equity settled share options granted is estimated at the date of grant based on the Black Scholes model which is considered most appropriate considering the effects of the vesting conditions, expected exercise price and the payment of the dividends by the Company. The following table lists the inputs to the model used for the year ended 31 December 2015 and the year ended 31 December 2016, market conditions are assumed to be met during the vesting period:

*expected volatility is based on the rate used by similar start-up technology companies

A share based payments charge has been recognised in the statement of comprehensive income of £163k for the year (year to 31 December 2015: £140k). The share based payment reserve at the year end is £541k (2015: £378k).

18. Commitments

Operating lease commitments

The Group has no commitments under non-cancellable operating lease agreements.

19. Subsidiary Companies

At 31 December 2016 the Company has investments in subsidiaries where it holds 50 per cent. or more of the issued ordinary share capital of the following companies:

20. Risk management of financial assets and liabilities

The Group's activities expose it to a variety of financial risks: market risk (specifically interest rate risk), credit risk, liquidity risk and foreign currency risk. The Group's risk management programme seeks to minimise potential adverse effects on the Group's financial performance. The management of these risks is vested in the Board of Directors.  The policies for managing each of these risks are summarised below:

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders. The capital structure of the Group consists of equity attributable to equity holders of the parent, comprising issued share capital, reserves and retained earnings as disclosed in note 16 and in the Group Statement of Changes in Equity. Total equity was £22,564,000 at 31 December 2016 (2015: £23,785,000).

The Group's principal financial liabilities comprise trade payables. The main purpose of these financial liabilities is to raise finance for the Group's operations. The Group has various financial assets such as trade receivables and cash, which arise directly from its operations.

The Group does not currently enter into derivative transactions such as interest rate swaps and forward currency contracts.

Liquidity risk

The Group's approach to managing liquidity is to ensure that, as far as possible, it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

The Group manages all of its external bank relationships centrally and in accordance with its treasury policies which include minimum acceptable credit ratings and maximum holdings limits. The Group seeks to limit the risk of banking failure losses by ensuring that it maintains relationships with a number of institutions.

At the reporting date, the Group was cash positive and had no outstanding borrowings.

Categorisation of financial instruments

The group had no financial instruments measured at fair value through profit and loss.

The main risks arising from the Group's financial instruments are credit risk and interest rate risk. The Board of Directors reviews and agrees policies for managing risks which are summarised below.

Maturity profile

The Group's policy regarding liquidity risk is set out above. As all of the Group's financial assets and liabilities are expected to mature within the twelve months an aged analysis of financial assets and liabilities has not been presented.

Credit risk

The Group's principal financial assets are cash and short-term investments. The Group seeks to limit the level of credit risk on the cash balances by only depositing surplus liquid funds with counterparty banks that have high credit ratings.

The company trades only with recognised, creditworthy third parties. Receivable balances are monitored on an ongoing basis with the result that the group's exposure to bad debts is not significant. The Group's maximum exposure is the carrying amount as disclosed in note 13.

Interest rate risk

As the Group has no external financing facilities interest rate risk is limited to the reduction of interest received on cash surpluses held at bank which receive a floating rate of interest. Interest rate risk is managed in accordance with the liquidity requirement of the Group, with a minimum of 30 per cent. of its cash surpluses held within an instant access account, which has a variable interest rate attributable to it, to ensure that sufficient funds are available to cover the working capital requirements of the Group.

The principal impact to the Group is the result of interest-bearing cash and short-term investment balances held as set out below:

At 31 December 2016, the impact of a 10 per cent increase or decrease in interest rates would have decreased/increased loss for the year by £22k (2015: £23k) as a result of higher/lower interest received on floating rate cash deposits.

Foreign currency risk

The Group is exposed to currency risk on sales and purchases that are denominated in a currency other than sterling (£). These are primarily made in Euros including sales to Brazil. Transactions in other currencies are limited.

A majority of the Group's sales are denominated in Euros. The Group purchases raw materials and certain associated services in Euros which partly offsets the Euro denominated revenue, thereby reducing net foreign exchange exposure.

The split of Group assets between Sterling and other currencies at the year-end is analysed as follows:

Sensitivity analysis to movements in exchange rates

The following table demonstrates the sensitivity to a reasonably possible change in the Sterling against Euro exchange rate with all other variables held constant, on the Group's loss before tax (due to foreign exchange translation of monetary assets and liabilities) and the Group's equity.

21. Related party transactions

Terms and conditions of transactions with related parties:

The Group:

There are no sales or purchases to or from related parties.

Directors' remuneration.

The remuneration of the individual Directors is provided in the Directors' Remuneration Report within the Directors' Report and disclosed in note 6 of the financial statements.

22. Ultimate Controlling Party

The directors do not believe an ultimate controlling party exists.