Final Results

Verona Pharma plc ("Verona Pharma" or the "Company") Financial results for the year ended 31 December 2014 Significant funding underpins RPL554 progress 12 May 2015, Cardiff - Verona Pharma plc (AIM: VRP), the drug developmentcompany focused on first-in-class medicines to treat respiratory diseases,today announces its audited results for the twelve months ended 31 December2014. 2014 OPERATIONAL HIGHLIGHTS * Developed a novel commercial formulation for lead compound RPL554 (a first-in-class, dual PDE3/PDE4 inhibitor with both bronchodilator and anti-inflammatory activities) * Began phase 1/2 clinical trial with the new formulation of RPL554, initially in healthy subjects, to confirm safety and tolerability at high drug doses. Second part of study, in COPD patients, to report later this year * Filed multiple patent applications on RPL554 to extend IP coverage * Published data on RPL554 suggesting its potential as a treatment for patients with cystic fibrosis. Obtained a Venture and Innovation Award from the Cystic Fibrosis Trust, the first biotech company to have received such an award * Appointed Dr. David Ebsworth as Non-Executive Chairman and Mr. Biresh Roy as Chief Financial Officer 2014 FINANCIAL HIGHLIGHTS * Completed a placing in March 2014 raising gross proceeds of £14.0 million * Loss after tax of £2.76 million (2013: £2.52 million) equivalent to 0.32 pence (2013: 0.74 pence) per ordinary share * Net cash outflows from operating activities during the year of £3.83m (2013: £2.34m), with cash and cash equivalents as at 31 December 2014 of £ 9.97m (2013: £0.60m) POST PERIOD HIGHLIGHTS * In its on-going clinical trial, RPL554 demonstrated excellent tolerability at the highest dose studied, a 16 times higher dose than the previously used bronchodilator dose. Interim pharmacokinetic data with new formulation also suggests suitability for dosing twice daily * Appointed Dr. Kenneth Newman as Chief Medical Officer Jan-Anders Karlsson, Chief Executive Officer of Verona Pharma, commented: "During the period, Verona Pharma completed a £14 million fundraising, thedevelopment of a novel nebulised formulation of RPL554 suitable for commercialdeployment and initiated a phase 1/2 clinical trial using this new formulation.Interim data from healthy volunteers, published post period, demonstrated thatthis RPL554 formulation has excellent tolerability at the highest dose studied,which was a 16 times higher dose than the previously used bronchodilator doseand also suggests the drug could be dosed twice daily. We await results fromthe second part of trial later this year in COPD patients. The Company has alsomade valuable progress in broadening the potential indications for RPL554 toinclude cystic fibrosis. "Important appointments made during the year to broaden the management team andBoard mean that we now have a team in place with deep respiratory developmentexpertise to exploit fully the potential of RPL554. Our initial focus is onspecific patient groups that are currently under-treated and for which there islimited competition. We remain confident that with multiple potentialapplications, each representing an attractive commercial opportunity, RPL554has the potential to generate significant value for shareholders." -Ends- For further information please contact: Verona Pharma plc Tel: +44 (0) 20 3283 4200 Jan-Anders Karlsson, Chief ExecutiveOfficer N+1 Singer Tel: +44 (0)20 7496 3000 Aubrey Powell / Jen Boorer FTI Consulting Tel: +44 (0)20 3727 1000 Julia Phillips / Simon Conway Notes to Editors About Verona Pharma plc Verona Pharma plc is a UK-based clinical stage biopharmaceutical companyfocused on the development of innovative prescription medicines to treatrespiratory diseases with significant unmet medical needs, such as chronicobstructive pulmonary disease (COPD), asthma and cystic fibrosis. Verona Pharma's lead drug, RPL554, is a first-in-class drug currently in phaseII trials as a nebulised treatment for acute exacerbations of COPD in thehospital setting. The drug is a dual phosphodiesterase (PDE) 3/4 inhibitor andtherefore has both bronchodilator and anti-inflammatory effects, which areessential to the improvement of patients with COPD and asthma. Verona Pharma is also building a broader portfolio of RPL554-containingproducts to maximise its benefit to patients and its value. This includes thevery significant markets for COPD and asthma maintenance therapy. The Companyis also exploring the potential of the drug in different diseases, such ascystic fibrosis, where it is in pre-clinical testing and has recently receiveda Venture and Innovation Award from the Cystic Fibrosis Trust. About Chronic Obstructive Pulmonary Disease (COPD) Sixty-five million people worldwide suffer from moderate to severe COPD and theWorld Health Organisation (WHO) expects COPD to be the 3rd leading cause ofdeath globally by 2020. It is the only major chronic disease with increasingmortality. Currently available drugs are aimed at long-term maintenancetherapy, with the market dominated by large pharma. Despite the wideavailability of these therapies, COPD patients suffer acute periods ofworsening symptoms (exacerbations), which cause, in the US alone, some 1.5million A&E visits, 726,000 hospitalisations and 120,000 deaths per annum. Bronchodilating therapy is considered to be the standard of care, and agentscan be administered via handheld devices such as metered dose inhaler (MDI),dry powder inhaler (DPI) and by nebulisers. The nebulised bronchodilator marketwas worth about $1 billion in 2014 in the US.1 RPL554 is being developed byVerona Pharma as an add-on therapy to the "Standard of Care" with theobjectives of providing rapid and pronounced improvement in lung function,reduced symptoms and both shortened duration of hospital stays and reducedre-admission rates 30 days after discharge from hospital. Studies to date onRPL554 have demonstrated that it has a strongly differentiated 3-way mode ofaction, being: (1) bronchodilation (the relaxation of smooth muscle in theairway); (2) anti-inflammatory effects on cells and (3) ion channel activationin epithelial cells, with increased mucociliary clearance of the airway. 1 IMS Consulting Group market research 2014 CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S JOINT STATEMENT INTRODUCTION Verona Pharma is a biopharmaceutical company developing high value,first-in-class drugs for patients with chronic, debilitating respiratorydiseases that are not well treated by existing medicines. The Company continuedto implement its strategy to accelerate shareholder value creation, by focusingits resources on its lead programme RPL554, an innovative inhaled, dualphosphodiesterase (PDE) 3 and 4 inhibitor, as a nebulised treatment forpatients in hospital with acute exacerbation of Chronic Obstructive PulmonaryDisease (COPD) to facilitate and speed up recovery and reduce the risk of earlyrecurrence of symptoms after discharge from hospital. Many of these patientsbecome hospitalised as a result of an acute worsening of their disease thatcannot be prevented or treated by their current medications and they aretherefore in need of more intensive care and treatment. RPL554's unique andvery attractive properties, being both an effective bronchodilator andanti-inflammatory agent in the same compound, should be very beneficial tothese patients. RPL554's unique combination of properties could also translateinto activity in other respiratory disorders. The Company is currentlyexploring the potential of the drug in cystic fibrosis, where it is inpre-clinical testing. Cystic fibrosis is a genetic disease with a shortenedlifespan in need of new and effective treatments. In addition, RPL554 could bebeneficial as a chronic maintenance treatment for patients with COPD, althoughsuch development is long and costly and would therefore require a partnership. RPL554 provides an opportunity to treat patients with respiratory diseases thatare not optimally treated with currently available drugs. The Board believesthere is no other compound which demonstrates RPL554's unique mechanism ofaction, or any other novel type of bronchodilator currently in clinicaldevelopment. The market for nebulized bronchodilators in the US is about $1billion providing a commercially very attractive opportunity. Additionally, thecystic fibrosis market and the market for maintenance treatment of COPDpatients are both very large and provide significant upside sales potential forRPL554. In March 2014, Verona Pharma competed a £14.0 million fundraising. These fundsare being used to complete the RPL554 phase 2a development programme. During 2014, the Company completed the development and manufacture of clinicaltrial materials for the Company's new formulation of RPL554 for use in anebuliser. The first phase 1/2 clinical trial with the new formulation ofRPL554 started in December 2014 at MEU, Manchester, UK. The study expects toenrol and complete by 2H 2015 and an interim report on the excellenttolerability of the new inhaled formulation has already been published. Basedon these very positive data, the Board has decided to accelerate thedevelopment programme, as announced on 3 March 2015. During the period,scientific data on the bronchodilator effects of RPL554 in COPD and asthma werepresented at the American Thoracic Society's annual conference in San Diego inMay, and at the European Respiratory Society meeting in Munich in September. Most importantly, the fund raising has also allowed Verona Pharma to strengthenits senior management team with a new CFO, Mr. Biresh Roy, from September 2014,a new Chairman of the Board, Dr. David Ebsworth, from December 2014, and a CMO,Dr. Kenneth Newman from January 2015. In September, Verona Pharma published very promising pre-clinical data in amodel of cystic fibrosis demonstrating that RPL554 activates the ion channelthat is dysfunctional in cystic fibrosis patients and responsible for theirrespiratory symptoms. A Venture and Innovation Award was obtained from theCystic Fibrosis Trust, UK, to continue these studies, making Verona Pharma thefirst biotech company to receive such a grant. The new data in cystic fibrosiswas presented in Atlanta, US, in October, further enhancing the profile ofRPL554. Additionally, the Company filed a number of patent applications on RPL554 tofurther strengthen the patent portfolio and extend the patent life of thecompound. RPL554 RPL554 is a novel inhaled dual PDE3/PDE4 inhibitor that was selected forclinical development following pre-clinical studies that demonstrated bothpotent bronchodilator and anti-inflammatory properties. RPL554 is currentlybeing developed as a very promising first-in-class treatment for patients withchronic respiratory diseases such as COPD and potentially cystic fibrosis.Future studies may also reveal a role in the treatment of asthmatics. With the original proof-of-concept formulation, RPL554 successfully completed anumber of early phase 1 and 2 clinical studies in over 100 subjects. To date,RPL554 has been administered to more than 150 human subjects. These single andmultiple dose studies suggest that RPL554, when inhaled across a range ofdoses, is an effective bronchodilator in patients with COPD or asthma and is anexcellent candidate for further development as a new class of bronchodilator.The Company is strongly encouraged by recent data showing a synergistic effectbetween RPL554 and anti-muscarinic drugs (an important drug class currentlyused in the treatment of patients with COPD) on human airway smooth musclesuggesting that RPL554 could be both a stand-alone treatment as well as a veryattractive combination partner to existing treatments for COPD. RPL554 was welltolerated in these studies. Importantly for the future commercialisation of RPL554 as a novel inhaledtreatment for patients with COPD, the effect of RPL554 in a human model ofCOPD-like inflammation was examined after 6 days of treatment with the originalformulation of the compound before being challenged on the last day by anirritant agent that provokes a COPD-like inflammatory response in theirairways. RPL554 significantly reduced the number of neutrophils (aninflammatory cell type recognised for its central role in COPD, cystic fibrosisand severe asthma) in the sputum. There was a highly significant reduction inthe numbers of inflammatory cells, with no clinically significant adverseevents reported. These data indicate that RPL554 has anti-inflammatoryproperties, most likely due to inhibition of PDE4 (or perhaps the combinedinhibition of PDE3 and 4), and it is believed that this adds to the directbronchodilator effect of the drug and contributes to the improvement ofsymptoms of COPD. A novel formulation of RPL554 has been developed for use in a nebuliser for thefurther clinical development of the compound. The manufacture of this newformulation is scalable and shows stability suitable for commercialisation. Thefirst phase 1/2 clinical trial with the new formulation of RPL554 started inDecember 2014 at MEU, Manchester, UK. The study expects to enrol and completeby 2H 2015. An interim report on the first part of the study comprising 50healthy subjects having received single doses by inhalation was recentlycompleted. The new formulation was very well tolerated having been given at adose 16 times higher than the previously used bronchodilator dose. In thesingle dose phase of the trial, the maximum tolerated dose was not reached. Theabsorption of the inhaled drug from the lung was slower than from the originalformulation producing a more attractive profile most likely suitable for twicedaily dosing. A series of experiments were conducted in cells obtained from the airways ofcystic fibrosis patients to demonstrate that RPL554 is an activator of CFTR(Cystic Fibrosis Transmembrane Conductance Regulator), the ion channel that isdysfunctional and causes the respiratory problems in patients with cysticfibrosis. These data were presented at the North America Cystic Fibrosisconference in Atlanta, US, in October 2014. This work continues with thesupport of a Venture and Innovation Award from the UK Cystic Fibrosis Trust,the first to be granted to a biotech company by the Trust. Cystic fibrosis is arare, orphan disease, and therefore provides a very attractive development andmarket opportunity for the Company. Further work was performed to extend and prolong patent protection of RPL554through new patent filings and scientific abstracts were published during theyear to increase the awareness of RPL554 in the medical and pharmaceuticalcommunities. VRP700 An earlier exploratory clinical trial of VRP700 at the University of Florence,Italy, showed a very strong positive response in a small group of patients withvarious forms of severe lung disease. Subsequently, a follow-on study inpatients with interstitial pulmonary fibrosis (IPF) was undertaken at theUniversity of Manchester, UK. However, in contrast to the first exploratorystudy, in this randomised, double-blind, placebo-controlled clinical study withinhaled VRP700, there was no effect of VRP700 on coughing. Based on these twosingle dose anti-cough studies, it is possible that longer and more frequenttreatment with VRP700 would be required for consistent activity, or that itcould be more effective in other types of lung diseases with chronic cough,such as lung cancer. The project is not being further developed internally andVRP700 is available for licensing. NAIPs No further work was undertaken in this project pending a review of dataobtained to date. FINANCIALS The loss from operations for the year ended 31 December 2014 was £2.76m (2013:£2.52m). Research and development expenditure amounted to £2.63m (2013: £1.66m)and reflected an increase in expenditures on the RPL554 programme by £1.17m to£2.27m (2013: £1.10m) offset by a reduction in expenditure on the VRP700programme by £0.19m to £0.36m (2013: £0.55m). The increase in expenditure onthe RPL554 programme was primarily due to an acceleration of the development ofthe new nebulised formulation programme made possible by the March 2014fundraising. The decrease in expenditure on the VRP700 programme was the resultof the programme being placed on hold following the results of the clinicaltrials disclosed in June. Administrative expenses for the year were £1.16m (2013: £1.16m). On 24 March 2014 the Company announced that it had raised £14.0 million ingross proceeds from a placing, subscription and open offer. These funds will beused primarily to support the development of RPL554 in severe COPD as well ascorporate and general administrative expenditures. As at 31 December 2014, the Company had approximately £9.97 million in cash andcash equivalents. MANAGEMENT AND STAFF In September 2014, the Company appointed Biresh Roy as Chief Financial Officerand member of the Board of Directors. Mr Roy has a strong track record infinancing international M&A deals and company turnarounds, mainly in thebiotech sector. Mr Roy has advised a number of venture capital and privateequity firms, and acted as Chief Financial Officer for several biotech andmedical device companies, including Enigma Diagnostics, Xytis, Morphochem andSanthera. Prior to this, Mr Roy was a management consultant at AT Kearney andPWC, leading international assignments in the pharmaceutical sector. Mr Royqualified as a Chartered Accountant with Price Waterhouse. In December 2014, the Company appointed Dr. David Ebsworth as Chairman of theBoard. Dr. Ebsworth has experience as a Board Chairman, as a Chief ExecutiveOfficer and as Chairman or member of remuneration and audit committees ininternational public and private pharma, biotech and venture capital companies.Previously, Dr Ebsworth served as CEO of Vifor Pharma, based in Zürich, theSpecialty Pharma division of Galenica AG Group. Dr Ebsworth was also named asCEO of Galenica AG in 2011. He continues as advisor to the CEO of Vifor Pharmaand Galenica Santé. Prior to that, Dr Ebsworth worked with Bayer for over 19years, heading the Canadian, North American and global pharmaceutical business.He also served as CEO of Oxford Glycosciences. In January 2015, the Company appointed Dr Kenneth Newman as Chief MedicalOfficer. Dr. Newman is an experienced pharmaceutical and biotechnology industryexecutive with extensive experience in clinical development, particularly forthe treatment of respiratory disease. Prior to joining Verona Pharma, Dr.Newman was Chief Development Officer at Mesoblast Inc. Previously, Dr. Newmanheld the positions of Chief Medical Officer at Acton Pharmaceuticals, VP,Medical Affairs at Boehringer Ingelheim and several positions at ForestLaboratories (now Activis). Dr. Newman began his professional career at theNational Jewish Medical and Research Center, Denver, Colorado. These appointments will be invaluable as the Company seeks to grow and developthe full potential of RPL554 in respiratory disease to create significantshareholder value. OUTLOOK Verona Pharma is focused on implementing the strategy of creating abiopharmaceutical company focused on the development of high value,first-in-class drugs for chronic, debilitating specialist-treated respiratorydiseases. The initial focus of the lead pipeline drug, RPL554, is to develop anebulised treatment for hospitalised patients with acute exacerbations of COPDto provide immediate relief and, when used for an additional 30 days afterdischarge from hospital, reduce the rate of recurrence of COPD symptoms andsubsequent re-admittance to hospital. RPL554's three-fold mechanisms of action,bronchodilation, anti-inflammatory and CFTR activation, means that the drugultimately has the potential to benefit wider groups of patients withrespiratory disorders not optimally treated with existing drugs, such as thosewith cystic fibrosis, and in the longer term potentially asthma. The compoundcould be used either alone or in combination with existing medicines. RPL554could become a particularly attractive combination partner to currently usedanti-muscarinic drugs, the mainstay treatment for COPD patients, as the Companyhas demonstrated a synergistic effect when these two drugs are used incombination. The funds raised in March 2014 will enable Verona Pharma to accelerate thedevelopment programme for RPL554 over the next 12 to 18 months in a series ofclinical phase 1 and 2 studies with the new formulation that has shownattractive properties. Complemented with pre-clinical activities these studiesshould position the drug as ready for phase 2b in 2016. Importantly,strengthening of the IP coverage around RPL554 has provided longer patentprotection and adds very significant value to the programme. The Board believes that RPL554, with its unique bronchodilator,anti-inflammatory and CFTR activator properties, is capable of addressingspecific patient groups that are currently under-treated and for which there islimited competition in the form of new types of bronchodilator drugs, andtherefore presents a very attractive commercial opportunity for generatingsignificant value for shareholders. The Board also recognises that an experienced and resourceful commercialpartner could bring significant value to the development of RPL554 for chronicmaintenance treatment in COPD and potentially other respiratory diseases andtherefore continues to be involved in business development discussions aroundthe RPL554 programme. However, the Company intends to partner its drugcandidates only when it can extract a commercially attractive return for theCompany and its shareholders. The Company will continue to operate with a strong focus and financialdiscipline, and remains very positive about its progress to date and theopportunities for its lead drug development programme. We would like to thank the staff and Board members for all their contributionsand shareholders for their continued support during a successful year. Dr. David Ebsworth Dr. Jan-Anders Karlsson Chairman Chief Executive Officer 11 May 2015 11 May 2015 GROUP STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2014 Notes Year ended 31 Year ended 31 December 2014 December 2013 £ £ Continuing operations Revenue - - Cost of sales - - Gross profit - - Research and development (2,634,848) (1,656,490) Administration expenses (1,157,925) (1,160,294) Operating loss 4 (3,792,773) (2,816,784) Finance revenue 6 29,978 2,632 Loss before taxation (3,762,795) (2,814,152) Taxation - credit 7 1,004,065 289,400 Loss for the year (2,758,730) (2,524,752) Other comprehensive income - - Total comprehensive loss for (2,758,730) (2,524,752)the year Loss per ordinary share - 2 (0.32)p (0.74)pbasic and diluted (pence) The results shown above relate entirely to continuing operations and areattributable to equity holders of the Company. GROUP STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2014 Notes 31 December 2014 31 December 2013 £ £ ASSETS Non-current assets Plant and equipment 12 21,847 27,647 Intangible assets - patents 13 380,540 207,144 Goodwill 14 1,469,112 1,469,112 1,871,499 1,703,903 Current assets Trade and other receivables 9 1,287,535 249,639 Cash and cash equivalents 10 9,969,759 603,791 11,257,294 853,430 Total assets 13,128,793 2,557,333 EQUITY AND LIABILITIES Capital and reservesattributable to equity holders Share capital 15 1,009,923 372,598 Share premium 26,650,098 14,184,412 Share-based payment reserve 677,946 640,579 Retained losses (15,733,487) (13,129,576) Total equity 12,604,480 2,068,013 Current liabilities Trade and other payables 11 524,313 489,320 Total liabilities 524,313 489,320 Total equity and liabilities 13,128,793 2,557,333 The financial statements were approved by the Board of Directors on 11 May 2015and signed on its behalf by: Dr. Jan-Anders Karlsson Biresh Roy Chief Executive Chief Financial Officer Company Number: 05375156 COMPANY STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2014 Notes 31 December 2014 31 December 2013 £ £ ASSETS Non-current assets Plant and equipment 12 21,847 27,647 Intangible assets - patents 13 380,540 207,144 Goodwill 14 1,453,569 1,453,569 Investment 8 2 1 1,855,958 1,688,361 Current assets Trade and other receivables 9 1,287,535 248,917 Cash and cash equivalents 10 9,968,483 602,503 11,256,018 851,420 Total assets 13,111,976 2,539,781 EQUITY AND LIABILITIES Capital and reserves attributableto equity holders Called up share capital 15 1,009,923 372,598 Share premium account 26,650,098 14,184,412 Share-based payment reserve 677,946 640,579 Retained losses (15,750,305) (13,147,128) Total equity 12,587,662 2,050,461 Current liabilities Trade and other payables 11 524,314 489,320 Total liabilities 524,314 489,320 Total equity and liabilities 13,111,976 2,539,781 The financial statements were approved by the Board of Directors on 11 May 2015and approved on its behalf by: Dr. Jan-Anders Karlsson Biresh Roy Chief Executive Chief Financial Officer Company Number: 05375156 GROUP STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2014 Notes Year ended 31 Year ended 31 December 2014 December 2013 £ £ Net cash outflow from operating 16 (3,833,926) (2,343,944)activities Cash inflow from taxation 293,263 289,400 Cash flow from investing activities Interest received 24,178 2,642 Purchase of plant and equipment (4,882) (2,033) Payment for patents (215,676) (105,587) Net cash outflow from investing (196,380) (104,978)activities Cash flow from financing activities Financing costs - - Net proceeds from issue of shares 13,103,011 1,802,443 Net cash inflow from financing 13,103,011 1,802,443activities Net increase/(decrease) in cash and 9,365,968 (357,079)cash equivalents Cash and cash equivalents at the 603,791 960,870beginning of the year Cash and cash equivalents at the end 10 9,969,759 603,791of the year COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2014 Notes Year ended 31 Year ended 31 December 2014 December 2013 £ £ Net cash outflow from operating 16 (3,833,914) (2,332,329)activities Cash inflow from taxation 293,263 289,400 Cash flow from investing activities Interest received 24,178 2,642 Purchase of plant and equipment (4,882) (2,033) Payments for patents (215,676) (105,587) Advance to subsidiary - (9,188) Net cash outflow from investing (196,380) (114,166)activities Cash flow from financing activities Financing cost - - Net proceeds from issue of shares 13,103,011 1,802,443 Net cash inflow from financing 13,103,011 1,802,443activities Net increase/(decrease) in cash and 9,365,980 (354,652)cash equivalents Cash and cash equivalents at the 602,503 957,155beginning of the year Cash and cash equivalents at the end 10 9,968,483 602,503of the year GROUP STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2014 Share Share Option Retained Total capital premium reserve losses £ £ £ £ £ Balance at 1 January 307,203 12,447,364 470,577 (10,621,672) 2,603,4722013 Loss for the year - - - (2,524,752) (2,524,752) Other comprehensive - - - - -income Total comprehensive - - - (2,524,752) (2,524,752)loss for the year Issue of shares 65,395 1,894,767 - - 1,960,162 Share issue costs - (157,719) - - (157,719) Share-based payments - - 186,850 - 186,850 Transfer of previously - - (16,848) 16,848 - expensed share basedpayment charge upon lapse of options Balance at 31 December 372,598 14,184,412 640,579 (13,129,576) 2,068,0132013 Balance at 1 January 372,598 14,184,412 640,579 (13,129,576) 2,068,0132014 Loss for the year - - - (2,758,730) (2,758,730) Other comprehensive - - - - -income Total comprehensive - - - (2,758,730) (2,758,730)loss for the year Issue of shares 637,325 13,383,821 - - 14,021,146 Share issue costs - (918,135) - - (918,135) Share-based payments - - 192,186 - 192,186 Transfer of previously - - (154,819) 154,819 - expensed share basedpayment charge upon lapse of options Balance at 31 December 1,009,923 26,650,098 677,946 (15,733,487) 12,604,4802014 COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2014 Share Share Option Retained Total capital premium reserve losses £ £ £ £ £ Balance at 1 January 307,203 12,447,364 470,577 (10,641,741) 2,583,4032013 Loss for the year - - - (2,522,235) (2,522,235) Other comprehensive - - - - -income Total comprehensive - - - (2,522,235) (2,522,235)loss for the year Issue of shares 65,395 1,894,767 - - 1,960,162 Share issue costs - (157,719) - - (157,719) Share-based payments - - 186,850 - 186,850 Transfer of previously - - (16,848) 16,848 - expensed share basedpayment charge upon lapse of options Balance at 31 December 372,598 14,184,412 640,579 (13,147,128) 2,050,4612013 Balance at 1 January 372,598 14,184,412 640,579 (13,147,128) 2,050,4612014 Loss for the year - - - (2,757,996) (2,757,996) Other comprehensive - - - - -income Total comprehensive - - - (2,757,996) (2,757,996)loss for the year Issue of shares 637,325 13,383,821 - - 14,021,146 Share issue costs - (918,135) - - (918,135) Share-based payments - - 192,186 - 192,186 Transfer of previously - - (154,819) 154,819 - expensed share basedpayment charge upon lapse of options Balance at 31 December 1,009,923 26,650,098 677,946 (15,750,305) 12,587,6622014 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 1. Accounting policies A summary of the principal accounting policies, all of which have been appliedconsistently throughout the year, is set out below. 1.1 Basis of preparation The financial statements have been prepared using the historical costconvention. In addition, the financial statements have been prepared inaccordance with International Financial Reporting Standards ("IFRSs"). 1.2 Going concern During the year ended 31 December 2014 the Group made a loss of £2,758,730(2013: a loss of £2,524,752). At the year-end date the Group had net assets of£12,604,480 (2013: £2,068,013) of which £9,969,759 was cash and cashequivalents. The operation of the Group is currently being financed from fundsthat the Company raised from private and public share placings. On 24 March2014 the Company announced that it had raised £14.0 million in gross proceedsfrom a placing, subscription and open offer. These funds will be used primarilyto support the development of RPL554 in severe COPD as well as corporate andgeneral administrative expenditures. The Group's capital management policy is to only raise sufficient funding tofinance the Group's near term research objectives. Upon completion ofobjectives, or identification of new projects, the Directors will seek newfunding to finance the next stage of the research programme or the newprojects. The Directors believe that the Group has sufficient funds for it tocomply with its foreseeable commitments and, accordingly, are satisfied thatthe going concern basis remains appropriate for the preparation of thesefinancial statements. 1.3 Basis of consolidation These group financial statements include the accounts of Verona Pharma plc andits wholly-owned subsidiaries Rhinopharma Limited and Verona Pharma Inc. Thepurchase method of accounting is used to account for the acquisition ofRhinopharma Limited. The cost of an acquisition is measured as the fair value of the assets given,equity instruments issued and liabilities incurred or assumed at the date ofexchange, plus costs directly attributable to the acquisition. Identifiableassets acquired and liabilities and contingent liabilities assumed in abusiness combination are measured initially at their fair values at theacquisition date, irrespective of the extent of any minority interest. Theexcess of the cost of acquisition over the fair value of the Group's share ofthe identifiable net assets acquired is recorded as goodwill. Goodwill arisingon acquisitions is capitalised and subject to an impairment review, bothannually and when there are indications that the carrying value may not berecoverable. Inter-company transactions, balances and unrealised gains on transactionsbetween group companies are eliminated. Rhinopharma Limited and Verona Pharma Inc. adopt the same accounting policiesas the Company. 1.4 Foreign currency translation Items included in the Group's financial statements are measured using thecurrency of the primary economic environment in which the Group operates ("thefunctional currency"). The financial statements are presented in poundssterling ("£"), which is the functional and presentational currency of theCompany and the presentational currency of the Group. Transactions in foreign currencies are recorded using the rate of exchangeruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies are translated using the rate of exchangeruling at the balance sheet date and the gains or losses on translation areincluded in the profit and loss account. Non-monetary items that are measuredin terms of historical cost in a foreign currency are translated using theexchange rates as at the dates of the original transactions. Non-monetary itemsmeasured at fair value in a foreign currency are translated using the exchangerates at the date when the fair value was determined. The assets and liabilities of foreign operations are translated into sterlingat the rate of exchange ruling at the balance sheet date. Income and expensesare translated at weighted average exchange rates for the period. The resultingexchange differences are recognised in other comprehensive income. 1.5 Cash and cash equivalents The Company considers all highly liquid investments, with a maturity of 90 daysor less to be cash equivalents, carried at the lower of cost or market value. 1.6 Deferred Taxation Deferred tax is provided in full, using the liability method, on temporarydifferences arising between the tax bases of assets and liabilities and theircarrying amounts in the financial statements. Deferred tax is determined usingtax rates (and laws) that have been enacted or substantially enacted by thebalance sheet date and expected to apply when the related deferred tax isrealised or the deferred liability is settled. Deferred tax assets are recognised to the extent that it is probable that thefuture taxable profit will be available against which the temporary differencescan be utilised. 1.7 Research and development costs Research costs are charged as an expense in the period in which they areincurred. Development costs are charged as an expense in the period incurredunless the Company believes a development project meets generally acceptedaccounting criteria for capitalisation and amortisation. At 31 December 2014 nodevelopment costs have been capitalised. 1.8 Plant and equipment Plant and equipment are recorded at cost less accumulated depreciation.Depreciation is provided on a straight-line basis over the expected usefullives as follows: Computer hardware 3 years Computer software 2 years Office furniture and 5 yearsequipment 1.9 Intangible assets Patent costs associated with the preparation, filing, and obtaining of patentsare capitalised and amortised on a straight-line basis over the estimateduseful lives of the patents of ten years. 1.10 Impairment of intellectual properties The carrying value of patents and goodwill do not necessarily reflect presentor future values and the ultimate amount recoverable will be dependent upon thesuccessful development and commercialisation of products based on theseintellectual properties. Management reviews the intellectual properties forimpairment whenever events or changes in circumstances indicate that fullrecoverability is questionable, and such review is performed on at least anannual basis. Management measures any potential impairment by comparing thecarrying value to the discounted amounts of expected future cash flows. 1.11 Share based payments The Company made share-based payments to certain directors and advisers by wayof issue of share options. The fair value of these payments is calculated bythe Company using the Black-Scholes option pricing model. The expense isrecognised on a straight line basis over the period from the date of award tothe date of vesting, based on the Company's best estimate of shares that willeventually vest. 1.12 Critical accounting judgements and estimates The preparation of financial statements in conformity with InternationalFinancial Reporting Standards requires the use of accounting estimates andassumptions that affect the reported amounts of assets and liabilities at thedate of the financial statements and the reported amounts of income andexpenses during the reporting period. Although these estimates are based onmanagement's best knowledge of current events and actions, actual resultsultimately may differ from those estimates. IFRSs also require management toexercise its judgement in the process of applying the Group's accountingpolicies. The areas involving a higher degree of judgement or complexity, or areas whereassumptions and estimates are significant to the financial statements are asfollows: (a) Impairment of intangible assets Determining whether an intangible asset is impaired requires an estimation ofwhether there are any indications that its carrying value is not recoverable. At each reporting date, the Company reviews the carrying value of its tangibleand intangible assets to determine whether there is any indication that thoseassets have been impaired. If such an indication exists, the recoverable amountof the asset, being the higher of the asset's fair value less costs to sell andvalue in use, is compared to the asset's carrying value. Any excess of theasset's carrying value over its recoverable amount is expensed to the incomestatement. (b) Valuation of goodwill Management values goodwill after taking into account the results of researchefforts and estimated future sales and costs. If the assumed factors vary fromactual occurrence, this will impact on the amount of the asset that should becarried in the statement of financial position. Further details of the Group'sassessment of the carrying value of goodwill are disclosed in note 14. (c) Share based payments The Group records charges for share based payments. For option based sharebased payments management estimate certain factors used in the option pricingmodel, including volatility, vesting date of options and number of optionslikely to vest. If these estimates vary from actual occurrence, this willimpact on the value of the equity carried in the reserves. Further details ofthe Group's estimation of share based payments are disclosed in note 18. 1.13 New standards and interpretations The following new standards and amendments are mandatory for the first time forfinancial periods commencing on or after 1 January 2014: IFRS 10 - Consolidated Financial Statements The standard sets out the requirements for the preparation and presentation ofconsolidated financial statements, requiring the Company to consolidateentities that it controls. Transitional guidance applies. IFRS 11 - Joint Arrangements The standard sets out the accounting by entities that jointly control anarrangement. Joint control involves the contractual agreed sharing of controland arrangements subject to joint control are classified as either a jointventure (representing a share of net assets and equity accounted) or a jointoperation (representing rights to assets and obligations for liabilities,accounted for accordingly). Transitional guidance applies. IFRS 12 - Disclosure of Interests in Other Entities This is a consolidated disclosure standard requiring a wide range ofdisclosures about an entity's interests in subsidiaries, joint arrangements,associates and unconsolidated 'structured entities'. Disclosures are presentedas a series of objectives, with detailed guidance on satisfying thoseobjectives. Transitional guidance applies. IAS 27 - Separate Financial Statements (2011) The standard outlines the accounting and disclosure requirements for 'separatefinancial statements', which are financial statements prepared by a parent, oran investor in a joint venture or associate, where those investments areaccounted for either at cost or in accordance with IAS 39 FinancialInstruments: Recognition and Measurement or IFRS 9 Financial Instruments. Thestandard also outlines the accounting requirements for dividends and containsnumerous disclosure requirements. IAS 28 - Investments in Associates and Joint Ventures (2011) The standard outlines how to apply, with certain limited exceptions, the equitymethod to investments in associates and joint ventures. Amendments to IAS 32 - Offsetting financial assets and financial liabilities The amendments to the standard apply to presentation in order to clarifycertain aspects because of the diversity in the application of the requirementson offsetting. Amendments to IAS 36 - Recoverable amount disclosures for non-financial assets The amendments remove the requirement to disclose the recoverable amount when acash generating unit (CGU) contains goodwill or indefinite life intangibleassets where there has been no impairment. Where an impairment loss has beenrecognised or reversed, disclosure of the recoverable amount or how fair valueless costs of disposal have been measured is required. 1.14..New standards and interpretations not applied during the year During the year the IASB and IFRIC have issued new standards, amendments andinterpretations with an effective date in the EU after the date of thesefinancial statements. Of these, only the following are expected to be relevantto the Group: Standard Subject Effective from IFRS 9 Financial Instruments 1 January 2018 IFRS 15 Revenue from Contracts with 1 January 2017 Customers Annual Improvements to IFRSs (2010 - 2012) 1 July 2014 Annual Improvements to IFRSs (2011 - 2013) 1 July 2014 Annual Improvements to IFRSs (2012 - 2014) 1 January 2016 2. Earnings per share Basic loss per share of 0.32p (2013: loss of 0.74p) for the Group is calculatedby dividing the loss for the period by the weighted average number of ordinaryshares in issue of 866,743,656 (2013: 341,564,623). Diluted loss per share for the current period has not been presented since theCompany's share options are anti-dilutive. 3. Segmental information The Group has determined that its operating segments be reported on a productpipeline basis as this best reflects the Group's activity cycle. Operatingsegments are reported in a manner consistent with the internal reportingprovided to the chief operating decision-maker. The chief operatingdecision-maker has been identified as the Board of Directors. The Group's product pipeline is dedicated to the research, discovery anddevelopment of new therapeutic drugs for the treatment of acute and chronicrespiratory diseases. During 2014 there were three products: RPL554, VRP700 andNAIPs. RPL554 and VRP700 having reached the clinical stage, with RPL554 havingsuccessfully completed phase 1 and 2 trials. VRP 700 having completed two phase2 trials. NAIPs were in the basic research phase. Segment information by operating segment is as follows: Clinical Clinical Basic Basic research research 2014 2013 2014 2013 £ £ £ £ Income statementinformation Research and (2,634,848) (1,648,083) - (8,407)development Amortisation of patent (38,046) (19,951) (4,233) (3,772) Segment loss (2,672,894) (1,668,034) (4,233) (12,179) Assets information Patent 356,244 187,379 24,296 19,765 Goodwill 1,469,112 1,469,112 - - Segment assets 1,825,356 1,656,491 24,296 19,765 2014 2013 £ £ Reconciliation of segment result Loss per reportable segment - Clinical (2,672,894) (1,668,034) Loss per segment - Basic research (4,233) (12,179) Total loss for reportable segments (2,677,127) (1,680,213) Amortisation of non-segment assets (10,683) (13,870) Unallocated administration expense (1,104,963) (1,122,701) Group operating loss (3,792,773) (2,816,784) At the end of the financial year, the Group was still in the early developmentstage and therefore had no turnover in either 2013 or 2014. Reconciliation of segment assets Assets per reportable segment - Clinical 1,825,356 1,656,491 Assets per reportable segment - Basic research 24,296 19,765 Total assets for reportable segments 1,849,652 1,676,256 Unallocated non-current assets 21,847 27,647 Unallocated current assets 11,257,294 853,430 Group total assets 13,128,793 2,557,333 Segment information by geographical segment for 2014 is as follows: Geographical segment (Group) United North America Total Kingdom £ £ £ Research and development (2,634,848) - (2,634,848) Administration expenses (1,157,191) (734) (1,157,925) Finance revenue 29,978 - 29,978 Loss before taxation (3,762,061) (734) (3,762,795) Tangible assets 21,847 - 21,847 Intangible assets 380,540 - 380,540 Trade and other receivables 1,287,535 1 1,287,536 Cash and cash equivalents 9,968,483 1,276 9,969,759 Goodwill 1,469,112 - 1,469,112 Trade and other payables (524,314) - (514,314) Net assets 12,603,203 1,277 12,604,480 Segment information by geographical segment for 2013 is as follows: Geographical segment (Group) United North America Total Kingdom £ £ £ Research and development (1,656,490) - (1,656,490) Administration expenses (1,148,589) (11,705) (1,160,294) Finance revenue 2,632 - 2,632 Loss before taxation (2,802,447) (11,705) (2,814,152) Tangible assets 27,647 - 27,647 Intangible assets 207,144 - 207,144 Trade and other receivables 248,917 722 249,639 Cash and cash equivalents 602,503 1,288 603,791 Goodwill 1,469,112 - 1,469,112 Trade and other payables (489,320) - (489,320) Net assets 2,066,003 2,010 2,068,013 4. Operating loss 2014 2013 £ £ Group This is stated after charging/(crediting): Foreign exchange loss 1,571 4,746 Profit on disposal of fixed assets - (3,632) Research and development costs 2,634,848 1,656,490 Share-based payments 192,186 186,850 Auditors' remuneration for audit services - Group and Company audit 22,750 18,750 Auditors' remuneration for non audit services - Taxation consultancy 2,500 3,250 Total auditors' remuneration 25,250 22,000 5. Employee costs 2014 2013 £ £ Group Wages and salaries 254,935 147,296 Social security costs 28,582 9,854 283,517 157,150 Remuneration of Directors is separately disclosed in the Report on Directors'remuneration. 2014 2013 Number Number Group The average number of employees 11 10including directors during the year was: 6. Finance revenue 2014 2013 £ £ Group Bank interest 29,978 2,631 7. Taxation 2014 2013 £ £ Analysis of tax credit for the year Current tax: UK corporation tax at 21.5% (2013: (641,652) -23.25%) Prior year adjustment (362,413) (289,400) Current tax credit (1,004,065) (289,400) Factors affecting the tax charge for theyear Loss on ordinary activities before (3,762,795) (2,814,152)taxation Multiplied by standard rate ofcorporation tax of 21.5% (2013: 23.25%) (809,001) (654,290) Effects of: Non deductible expenses 2,194 46,430 Research & Development Incentive (201,938) - Timing differences not recognised 38,026 3,225 Tax losses carried forward 329,067 604,635 Prior year adjustment (362,413) (289,400) Current tax credit (1,004,065) (289,400) The current year tax credit represents the research and development tax creditreceivable on qualifying expenditure incurred during the year, £641,652,coupled with a prior year adjustment of £362,413. Factors that may affect future tax charges At the year-end date, the Group has unused United Kingdom tax losses availablefor offset against suitable future profits in the United Kingdom. A deferredtax asset has not been recognised in respect of such losses due to uncertaintyof future profit streams. The contingent deferred tax asset at 20% (2013: 20%)is estimated to be £2,464,229 (2013: £2,748,000). 8. Subsidiary entities The Company currently has two wholly owned subsidiaries, Rhinopharma Limitedand Verona Pharma Inc. Rhinopharma Limited is incorporated under the laws ofthe Province of British Columbia, Canada. Rhinopharma Limited was a drugdiscovery and development company focused on developing proprietary drugs totreat allergic rhinitis and other respiratory diseases prior to its acquisitionby the Company on 18 September 2006. Verona Pharma Inc. was incorporated on the 12 December 2014 under the laws ofthe State of Delaware, USA. 9. Trade and other receivables 2014 2013 £ £ Group Other receivables 922,934 107,235 Deferred financing costs - - Prepayments and accrued income 364,601 142,404 1,287,535 249,639 Company Other receivables 922,934 107,235 Deferred financing costs - - Prepayments and accrued income 364,601 141,682 1,287,535 248,917 10. Cash and cash equivalents 2014 2013 £ £ Group Cash at bank and in hand 9,969,759 603,791 Cash equivalents - - 9,969,759 603,791 Company Cash at bank and in hand 9,968,483 602,503 Cash equivalents - - 9,968,483 602,503 11. Trade and other payables 2014 2013 £ £ Group Trade payables 366,626 329,757 Other payables 31,493 18,800 Accruals 126,194 140,763 524,313 489,320 Company Trade payables 366,626 329,757 Other payables 31,494 18,800 Accruals 126,194 140,763 524,314 489,320 12. Plant and equipment Group and Company Computer Computer Office Total hardware software equipment £ £ £ £ Cost At 1 January 2013 42,114 23,684 36,461 102,259 Additions in 2013 2,033 - - 2,033 Disposals in 2013 (7,477) - - (7,477) At 31 December 2013 36,670 23,684 36,461 96,815 Depreciation At 1 January 2013 39,972 16,693 6,110 62,775 Charge for 2013 1,750 5,039 7,081 13,870 Disposals in 2013 (7,477) - - (7,477) At 31 December 2013 34,245 21,732 13,191 69,168 Net book value At 31 December 2013 2,425 1,952 23,270 27,647 Net book value At 31 December 2012 2,142 6,991 30,351 39,484 Cost At 1 January 2014 36,670 23,684 36,461 96,815 Additions in 2014 4,632 250 - 4,882 Disposals in 2014 - - - - At 31 December 2014 41,302 23,934 36,461 101,697 Depreciation At 1 January 2014 34,245 21,732 13,191 69,168 Charge for 2014 1,645 2,014 7,023 10,682 Disposals in 2014 - - - - At 31 December 2014 35,890 23,746 20,214 79,850 Net book value At 31 December 2014 5,412 188 16,247 21,847 Net book value At 31 December 2013 2,425 1,952 23,270 27,647 13. Intangible assets Group and Company Patents £ Cost At 1 January 2013 194,306 Additions in 2013 105,587 At 31 December 2013 299,893 Amortisation At 1January 2013 69,026 Charge for 2013 23,723 Impairment during 2013 - At 31 December 2013 92,749 Net book value At 31 December 2013 207,144 Net book value At 31 December 2012 125,280 Cost At 1 January 2014 299,893 Additions in 2014 215,676 At 31 December 2014 515,569 Amortisation At 1 January 2014 92,749 Charge for 2014 42,280 Impairment during 2014 - At 31 December 2014 135,029 Net book value At 31 December 2014 380,540 Net book value At 31 December 2013 207,144 14. Goodwill 2014 2013 £ £ Group Goodwill 1,469,112 1,469,112 Company Goodwill 1,453,569 1,453,569 Goodwill represents the excess of the purchase price over the fair value of thenet assets acquired in connection with the acquisition of Rhinopharma Limitedin September 2006. Goodwill is capitalised and allocated to appropriateresearch projects, in Verona's case RPL554. They are deemed to have indefiniteuseful life and so are not amortised. Annual impairment test of the researchprojects (`RPs') is performed by comparing the expected recoverable amount ofthe RPs to the carrying amount of the RPs. The recoverable amount of the RPs is based on value in use calculations. Theuse of this method requires the estimation of risk-adjusted future cash flowsdiscounted using suitable pre-tax discount rate, and a pre-tax discount rate of10% has been used. The key assumptions on which the cash flow projections werebased include market size, market penetration, pre-tax discount rate,probability, estimated revenue and royalties. Sources of information for thesekey assumptions have been determined by using a combination of external marketinformation, industry forecasts and management's expectations of future eventsthat are believed to be reasonable under the circumstances. Actual results maydiffer from these estimates. Management has performed sensitivity analysis on the key assumptions includingreducing the estimated revenue and probability by 50%. However, the changeswould not cause the carrying amount to exceed their recoverable amount. Hence,the Company concluded that no impairment was required as at 31 December 2014. 15. Called up share capital The movements in the share capital are summarised below: Number of shares £ Authorised: 10,000,000,000 Ordinary shares of 0.1p 10,000,000,000 10,000,000each Allotted, called up and fully paid: Ordinary shares as at 1 January 2013 307,204,395 307,203 Ordinary shares issued from share 65,394,255 65,395placement As at 31 December 2013 372,598,650 372,598 Ordinary shares issued from share 298,750,000 298,750placement Ordinary shares issued from share 292,000,000 292,000subscription Ordinary shares issued from share open 46,574,831 46,575offer As at 31 December 2014 1,009,923,481 1,009,923 The following issues of new shares took place during the year ended 31 December2014: On the 24 March 2014 the Company raised £14.0 million in gross proceeds from aplacing, subscription and open offer on 24 March 2014. 637,324,831 new Ordinaryshares of 0.1p each in the Company were issued fully paid for 2.2 pence pershare. 16. Net cash outflow from operating activities 2014 2013 £ £ Group Operating loss (3,792,773) (2,816,784) Cost of issuing share options 192,186 186,850 Increase in trade and other (321,294) (41,598)receivables Increase in trade and other payables 34,993 289,995 Depreciation of plant and equipment 10,682 13,870 Amortisation of intangible assets 42,280 23,723 Net cash outflow from operating activities (3,833,926) (2,343,944) Company Operating loss (3,792,039) (2,814,267) Cost of issuing share options 192,186 186,850 Increase in trade and other (322,016) (41,902)receivables Increase in trade and other payables 34,993 290,209 Provision for amounts advanced to - 9,188subsidiary Depreciation of plant and equipment 10,682 13,870 Amortisation of intangible assets 42,280 23,723 Net cash outflow from operating activities (3,833,914) (2,332,329) 17. Related parties transactions The Company was charged £49,500 (2013: £27,000) by Gryon Consulting Limited, acompany of which Prof. Clive Page is a Director. At the year end, the Companyowed £Nil (2013: £Nil) to this related party. The Company was charged £204,267 by Arthurian Life Sciences Limited, a companyof which Prof. Trevor Jones is a Director. At the year end, the Company owed £23,040 to this related party (2013: £Nil). Arthurian Life Sciences Limited actsas General Partner for the Wales Life Sciences Investment Fund, which itself isa substantial shareholder in the Company. The Company was charged £154,524 by Simbec-Orion, a company of which Prof.Trevor Jones is a Director. At the year end, the Company owed £Nil to thisrelated party (2013: £Nil). 18. Share-based payments charge Included within administration expenses is a charge of £192,187 (2013: £186,850) for issuing share options. The share based payment charge representsthe current year's allocation of the expense for relevant share options between2012 and 2014. All options issued prior to 2012 are fully expensed. The Companygrants share options under an unapproved share option plan (the 'UnapprovedPlan') and under tax efficient Enterprise Management Incentive arrangements(the 'EMI Plan'). Under the Unapproved Plan, options are granted to employees,directors and consultants to acquire shares at a price to be determined by theBoard. In general, options are granted at a premium to the share price at thedate of grant, vest over three years and are exercisable during a period endingten years after the date of grant. Options are also issued to advisors underthe Unapproved Plan: such options generally vest immediately and areexercisable between one and two years after grant. Under the EMI Plan, optionsare granted to employees and directors who are contracted to work at least 25hours a week for the Company or for at least 75% of their working time. Theoptions granted under the EMI Plan will be exercisable at a price and inaccordance with a vesting schedule determined by the Board at the time of grantand will have an exercise period of 10 years from the date of grant. The Company granted 9,500,000 (2013: 2,500,000) share options under the EMIPlan and 15,500,000 (2013: 18,655,717) share options under the Unapproved Planduring the current year with total fair values estimated using theBlack-Scholes option-pricing model of £240,163 (2013: £352,616). The cost isamortised over the vesting period of the options on a straight-line basis and £84,670 is included in the charge to administration expenses noted above. Thefollowing assumptions were used for the Black-Scholes valuation of shareoptions granted in 2014, 2013, and 2012. EMI Plan Unapproved Plan Issued in 2014 Issued in 2014 Year/Type Employees Employees Advisors Options granted 9,500,000 5,500,000 10,000,000 Risk-free interest 2.46-2.53% 2.53% 1.71%rate Expected life of 10 years 10 years 4 yearsoptions Annualised 70.6-78.9% 70.6% 89.5%volatility Dividend rate 0.00% 0.00% 0.00% EMI Plan Unapproved Plan Issued in 2013 Issued in 2013 Year/Type Employees Employees Advisors Options granted 2,500,000 13,000,000 5,655,717 Risk-free interest 2.0-2.8% 1.7-2.3% 0.4-0.5%rate Expected life of 10 years 10 years 2 -3yearsoptions Annualised 53.3-72.4% 80.0-81.9% 70.5-122.1%volatility Dividend rate 0.00% 0.00% 0.00% EMI Plan Unapproved Plan Issued in 2012 Issued in 2012 Year/Type Employees Employees Consultants Options granted 5,000,000 300,000 300,000 Risk-free interest 0.97% 0.97% 0.97%rate Expected life of 10 years 10 years 5 yearsoptions Annualised 75.56% 82.36% 82.36%volatility Dividend rate 0.00% 0.00% 0.00% The Company had the following share options movements in the year: Number of options Year Exercise At 1 Options Options Options At 31 Expiry of price January granted exercised lapsed December dateissue (pence) 2014 2014 2006 5 10,000,000 - - - 10,000,000 18 September 2016* 2009 4 200,000 - - (200,000) - 8 January 2014 2009 17.5 1,000,000 - - (1,000,000) - 11 September 2014 2010 9 800,000 - - (300,000) 500,000 15 June 2015 2012 5 - - - - - 7 December 2013** 2012 5-15 5,000,000 - - - 5,000,000 1 June 2022*** 2012 5 600,000 - - (600,000) - 23 October 2022 2013 4.8 5,000,000 - - - 5,000,000 31 January 2016** 2013 4 655,717 - - - 655,717 31 January 2015** 2013 4 5,000,000 - - - 5,000,000 15 April 2023 2013 4 1,000,000 - - - 1,000,000 1 June 2023*** 2013 4 8,000,000 - - - 8,000,000 29 July 2023 2013 4 500,000 - - (500,000) - 21 August 2023*** 2013 4 1,000,000 - - (1,000,000) - 1 September 2023*** 2014 3.5 - 5,500,000 - - 5,500,000 15 May 2024 2014 3.5 - 3,500,000 - - 3,500,000 15 May 2024*** 2014 2.2 - 6,000,000 - - 6,000,000 26 September 2024*** 2014 2.2-3.5 - 10,000,000 - - 10,000,000 6 August 2018 Total 38,755,717 25,000,000 - (3,600,000) 60,155,717 *10,000,000 directors' options with expiry date on 18 September 2011 wereextended for five years to 18 September 2016. **options granted to agents upon closing of a Placing or financing facility. ***options granted under the EMI Plan. Outstanding and exercisable share options by Plans at 31 December 2014 Plan Outstanding Exercisable WAEP (pence) Unapproved 44,655,717 30,489,054 4.0 EMI 15,500,000 3,666,669 4.9 Total 60,155,717 34,155,723 4.2 The weighted average exercise price (WAEP) of options at the year-end is asfollows: Number of Weighted average options exercise price (pence) As at 1 January 2013 19,600,604 6.9 Options granted in 2013: Employees and consultants 2,500,000 4.0 Directors 13,000,000 4.0 Placing agent 5,655,717 4.7 Options lapsed in the year (2,000,604) 4.0 As at 31 December 2013 38,755,717 5.5 Options granted in 2014: Employees 3,500,000 3.5 Directors 11,500,000 2.8 Advisor 10,000,000 2.6 Options lapsed in the year (3,600,000) 8.3 As at 31 December 2014 60,155,717 4.2 Exercisable at 31 December 2014 34,155,723 4.6 19. Loss of the parent company The Parent has taken advantage of the exemption permitted by Section 408 of theCompanies Act 2006 not to present an income statement for the year. The ParentCompany's loss for the year was £2,757,996 (2013: loss of £2,522,235), whichhas been included in the Group's income statement. 20. Control The Company is not under the control of any individual or group of connectedparties. 21. Financial commitments As at 31 December 2014 the Group and Company were committed to making thefollowing payments under non-cancellable operating leases in the year to 31December 2014. Land and Buildings 2014 2013 Operating leases which expire: £ £ Within one year 151,248 22,640 22. Financial instruments (a) Fair values The carrying amounts of cash and cash equivalents, short-term investments,receivables, and accounts payable and accrued liabilities, approximate to fairvalue due to their short-term nature. b. Credit risk Credit risk reflects the risk that the Group may be unable to recovercontractual receivables. The Group is still in the development stage;therefore, no policies are required at this time to mitigate this risk. c. Currency risk Foreign currency risk reflects the risk that the Group's net assets will benegatively impacted due to fluctuations in exchange rates. The Group has notentered into foreign exchange contracts to hedge against gains or losses fromforeign exchange fluctuations. At 31 December 2014, cash and cash equivalentsinclude €8,520 and CAD$2,304, and accounts payable and accrued liabilitiesinclude balances of €84,979, US$13,967 and SEK24,000. d. Financial risk management The Directors recognise that this is an area in which they may need to developspecific policies should the Group become exposed to further financial risks asthe business develops. e. Management of capital The Group considers capital to be its equity reserves. At the current stage ofthe Group's life cycle the Group's objective in managing its capital is toensure funds raised meet the research and operating requirements until the nextdevelopment stage of the Group's suite of projects. The Group ensures it is meeting its objectives by reviewing its Key PerformanceIndicators ("KPIs") to ensure its research activities are progressing in linewith expectations, controlling costs and placing unused funds on deposit toconserve resources and increase returns on surplus cash held. f. Interest rate risk At 31 December 2014, the Group had cash deposits of £9,969,759 (2013: £603,791). The Group's exposure to interest rate risk, which is the risk that afinancial instrument's value will fluctuate as a result of changes in marketinterest rates on classes of financial assets and financial liabilities, was asfollows: Financial Asset Floating Fixed Floating Fixed interest rate interest rate 2014 Interest rate 2013 interest rate 2014 2013 £ £ £ £ Cash deposits 101,508 9,868,251 603,791 - 23. Subsequent events There were no material events post balance sheet date that management are awareof that would give rise to a contingent liability.