Half year results

This announcement contains inside information

Quantum Pharma Plc

('Quantum', the 'Group' or the 'Company')

Half year results for the six months to 31 July 2016

Quantum Pharma Plc (AIM: QP.), the service-led niche pharmaceutical developer, manufacturer and supplier to the health and care sectors, has today published its half year results for the six months to 31 July 2016 ('H1-FY17' or the 'period'). Comparative data relates to the six months to 31 July 2015 ('H1-FY16') unless indicated otherwise.

Financial Highlights

1 Excludes share based payments, one-off costs, acquisition costs and deferred consideration (treated as remuneration) for acquisitions.

· Revenue grew across all three divisions; with the strongest advance coming from Medication Adherence (£5.9 million increase), which made a small contribution to gross profit.

· On a like-for-like basis the Group is trading in line with performance for H1-FY16, having increased the cost base of Colonis by £1.2 million for market delivery related costs in the period as recent launches enter the market. In addition Nupharm, acquired in July 2015, has suffered losses of around £0.5 million and utilised £0.7 million of provision for rectification works in the period.

· Development expenditure decreased as a result of the cost benefit of Lamda's in-house development capability and a more focused and cost controlled development programme.

· Net debt position was well managed across H1-FY17.

· Strong working capital management across the period has enabled positive operational cash flows.

Business Highlights:

· The core Specials division performed well during the period.

· New five-year contract extension signed with AAH Pharmaceuticals Limited ("AAH"), the UK's leading pharmaceutical wholesaler, which also benefits from the supply to an additional 281 Sainsbury's in-store pharmacies acquired by Lloyds Pharmacy.

· Niche Pharmaceuticals division launched five products, including expansion of the Vitamin D range with colecalciferol and ergocalciferol capsules, and two further products in the Mucodis® range of medical devices.

· Launch timings largely in line with management expectations and products are now moving into the market access and sales delivery phase.

· Appointment of Chris Rigg as CFO in March 2016.

Post Period End Highlights:

· Launch of Glycopyrronium Bromide Oral Solution 1mg/5ml for the treatment of peptic ulcers, an important unlicensed-to-licensed product for the Group.

· Appointment of Chris Rigg as acting CEO in August 2016.

Business Review

· Following his appointment as acting CEO, Chris Rigg initiated a review of key areas of the business.

· This review has now been concluded, and its findings are as follows:

o The core specials business remains strong and cash generative.

o Market data continues to support the value of the Group's unlicensed to licensed pipeline.

o A simplified business, primarily focused on specials and the Group's unlicensed to licensed growth platform, offers the best opportunity for value creation.

o Generic, generic plus and medical device products are proving more challenging to take to market and more conservative sales assumptions are required for those products.

o Decision taken to commence consultation on closure of the underperforming and loss making NuPharm business.

o Further opportunities exist to reduce the Group's cost base.

o A lower level of net debt would help to support the further growth of the refocused business.

Chris Rigg, Chief Financial Officer and Acting Chief Executive Officer of Quantum Pharma, commented:

"The core specials business is performing well and launches from the Niche Pharmaceuticals pipeline are being brought to market largely in line with plan. The early indications are that sales of Glycopyrronium Bromide Oral Solution delivered under the core strategy of unlicensed to licensed and 'cease and desist' notifications are encouraging.

Following my appointment as Acting CEO in early August, we instigated and completed a review of a number of key areas of the business.

We found that the core specials business remains strong and cash generative and the potential still exists to deliver significant growth from our strong Niche Pharmaceuticals pipeline, including an exciting pipeline of unlicensed to licensed products where market data continues to support its potential sales value. We believe that a simplified business, primarily focused on specials and the Group's unlicensed to licensed growth platform offers the best opportunity for value creation.

Initial data from recent product launches indicates that generic, generic plus and medical device products are proving more challenging to take to market, leading us to conclude that more conservative sales assumptions are required for those types of products. We have also taken a decision to commence consultation on the closure of our underperforming and loss making NuPharm business.

Although we continue to expect to deliver strong growth in the second half of the year and beyond, given the recent performance of products other than unlicensed to licensed products and the conclusions of the business review, the Board now expects performance will be materially below market expectations. The Board is confident in the growth potential of the business from this revised base with its renewed focus on our key strategic objectives."

For further information:

Notes to Editors

Quantum Pharma Plc is a service-led, niche pharmaceutical developer, manufacturer and supplier to the retail pharmacy, pharmaceutical wholesaler, hospital, homecare and care home markets. Quantum Pharma operates through three divisions, offering a portfolio of innovative and complementary products and services.

Specials comprises four business units (Quantum Pharmaceutical, UL Medicines, NuPharm and Quantum Aseptics Services), which manufacture, procure and supply unlicensed medicines (specials) and special obtains. In response to a request from a prescriber for a bespoke medicine or special product to optimise patient treatment, the division manufactures, procures and supplies bespoke specials; batch-made specials; aseptically prepared sterile intravenous medicines; imported medicines and special obtain products. With an expansive portfolio of products, Quantum is a trusted partner to the majority of large retail pharmacy chains in the UK, as well as pharmaceutical wholesalers, hospitals, independent pharmacies and dispensing doctors. The division offers an unrivalled and constantly expanding range of products. It has a customer-focused, service-driven business model, which aims to provide shorter lead times than any of its competitors.

Niche Pharmaceuticals comprises three business units (Colonis, Lamda and PERN Consumer Products) which develop and commercialise niche pharmaceuticals. This division is a product development and commercialisation business focusing on taking niche drugs through the regulatory pathway to achieve regulated status (licensed product or medical device). The division uses the excellent visibility of trends in the UK pharmacy and hospital markets gained through our Specials division, to supplement market data, allow early identification of the market opportunity to take products from unlicensed (special) status to licensed status. The division has a growing portfolio and pipeline of products that fit this unlicensed to licensed pathway, as well as complementary generic, generic plus or medical devices intended to meet unmet patient needs across a number of therapeutic areas.

Medication Adherence comprises two business units (Biodose® and Biodose Services®) which provide products and services to enhance the likelihood of a patient adhering to a medication regime, patient-focused homecare services and services to pharmaceutical companies. It owns Biodose®, the only medication delivery system on the market that accommodates both liquid and solid doses. Biodose Connect™ takes patient safety and adherence to the next level by enabling remote monitoring of adherence to medication regimes. The division also operates a range of specialist patient-focused homecare services to the NHS, private clinics and pharmaceutical companies across the UK and provides the Group with exposure to the homecare and supported living sectors of the care pathway complementing the focus of the remainder of the Group.

For further information, please visit www.quantumpharmaplc.com.

Overview

As a whole, the Group performed in accordance with management expectations during the period.

During the period revenue rose by 25% across the Group to £42.8 million (H1-FY16: £34.3 million), largely due to growth in homecare contracts in the Medication Adherence division, which is a lower margin business. Gross profit increased by 2% to £13.3 million (H1-FY16: £13.1 million) and adjusted EBITDA decreased by 24% to £4.2 million (H1-FY16: £5.5 million), mainly as a result of the Group incurring approximately £1.2 million for market delivery infrastructure related costs at Colonis, now that business unit has moved into its product delivery phase. In addition, NuPharm continued to suffer losses during the period. The Group has managed its debt position well across the period by intensive working capital management. The Group has available facilities of a term loan of £22.8 million and a revolving credit facility of £10 million.

The Group continued to strengthen its Specials division, which performed well, with the exception of NuPharm. The division continues to provide a stable and profitable platform for the growth of our Niche Pharmaceuticals pipeline and other areas of the Group.

During the period, the Group has completely reshaped the infrastructure and capability within the Niche Pharmaceuticals division and as a consequence is now broadly meeting our product launch timelines. During the period Quantum launched five products and post period end, a further two products were launched. Timing of these product launches is largely in line with management expectations. The Group is now moving into the market access and sales delivery phase in relation to those products.

The Niche Pharmaceuticals division has a growing portfolio of launched products and a strong pipeline of unlicensed to licensed products in development. The pipeline also includes a number of generic and generic plus products inherited through the acquisition of Lamda. The Board believes that the Group will be more successful focusing efforts on the products and sale of core unlicensed to licensed development and supplementing those with a smaller number of complimentary or niche products as appropriate.

Board Changes

During the period, Quantum announced Chris Rigg's promotion to the role of Chief Financial Officer, and to Quantum's Board. His appointment followed the resignation of Martin Such on 7 March 2016. Chris Rigg joined Quantum as the Group's Strategic Director in November 2015.

Quantum also announced that Andrew Scaife, the Chief Executive Officer, tendered his resignation on 12 July 2016. Post period end, following an orderly handover of responsibilities, Andrew Scaife resigned from the Board on 1 August 2016 and the Board then appointed Chris Rigg to Acting Chief Executive Officer.

A formal search process for a permanent CEO is at an advanced stage and the Company anticipates making an announcement on the appointment of a permanent CEO in the near future. In the interim, the Board is confident and fully supportive of Chris Rigg's ability to lead the Group in his combined role.

Quantum is also engaged in a process to strengthen the Board. The appointment of an additional non-executive director with pharmaceutical industry experience is also at an advanced stage and the Board anticipates making an announcement shortly. Following this appointment, the Board will seek to appoint a further non-executive director with relevant financial experience.

Business Review

Following the appointment of Chris Rigg as acting CEO and post the period end, Chris led a business review of key areas of the Group including:

Focus on specials and unlicensed to licensed

The Board believes that Quantum continues to have a strong core in its market leading Specials division, and that the potential exists to deliver significant growth from its Niche Pharmaceutical pipeline.

The review confirmed that the available data continues to support the potential sales value of the unlicensed to licensed products, assuming first to market.

The review also identified that generic, generic plus and medical device products are proving more challenging to take to market than anticipated. Therefore the Board expects future revenue from these activities to grow more slowly than previously anticipated for those categories of products and has revised its sales assumptions accordingly.

The review has also concluded that going forward the focus of development should be on the core pipeline of unlicensed to licensed products. As such, the pipeline has been rationalised with development of some generic and generic plus products stopped. Other generic or generic plus products that remain in the pipeline will continue to be developed with the business opportunity regularly assessed on a case by case basis.

The Board believes that a lower level of net debt would provide greater operational freedom to grow the core specials business and create further value in the Niche Pharmaceuticals pipeline, with a focus on unlicensed to licensed development.

Closure plan for NuPharm

Despite continued investment and the dedication of management time since its acquisition in July 2015, NuPharm has suffered £0.5 million trading losses as well as utilising £0.7 million provision for rectification works in the period. In addition, NuPharm absorbed significant group management resources and remains subject to MHRA manufacturing restrictions.

The Board has concluded that it would take unacceptable further cash losses and management time to try to address the operational issues and that NuPharm is not capable of becoming an earnings enhancing business. Other alternatives were examined but were not considered viable. The Board believes that the best available course of action is to commence a closure plan in an orderly fashion. Therefore, Quantum is commencing the consultation process with staff regarding the proposed closure of the NuPharm business. The proposed closure plan will also be communicated to customers, suppliers and the MHRA today. Under that proposed plan, the Board envisages that NuPharm will cease trading by the end of December 2016.

Current Trading and Outlook

As previously indicated, the Group's performance for the financial year is second half weighted and will be dependent on the level of sales achieved by recent product launches as well as the timing and sales of further product launches due to be delivered in the remainder of the year.

The Specials division continues to trade strongly with the exception of NuPharm. Current trading for this division has continued to be in line with management expectations and is expected to remain in line with our expectations for the full year.

The launch of Glycopyrronium Bromide Oral Solution 1mg/5ml under the core strategy of unlicensed to licensed under 'cease and desist' notices, has been very encouraging and in line with our expectations at this early stage.

The early second half year indications on the other products are not as promising and as a result of further sales and revenue data gathered during September, in particular on Mucodis®, our in-licensed patented range of medical devices and our range of Vitamin D products, the Board believes that the sales and revenue assumptions for products other than unlicensed to licensed products held until now are no longer deliverable. Accordingly more conservative assumptions are required on those products which reflect lower and / or slower market penetration, or greater price competition and an overall lower sales build.

Although the Board still anticipates strong growth for the second half of the current financial year and beyond, given the recent performance of products other than the unlicensed to licensed products and the conclusion of the business review, it considers that performance will be materially below market expectations. However, the Board is confident that the continuing growth opportunities available to a focused business from this revised base remain substantial.

Dividend

At the Annual General Meeting on 12 July 2016, shareholders approved a final dividend for the financial year ended 31 January 2016 of 1 pence per ordinary share, to be paid on 7 November 2016 to shareholders on the register at the close of business on 21 October 2016. This brings the total dividend for the financial year ended 31 January 2016 to 1.5 pence per ordinary share. The Board has decided not to declare an interim dividend in respect of the current financial year.

Divisional Review

Specials division

The Specials division continues to generate a core and stable level of earnings and cash generation for other parts of the Group. It also continues to provide valuable data and insight into potential unlicensed to licensed developments for our Niche Pharmaceuticals pipeline.

Revenue increased by 5% to £28.7 million (H1-FY16: £27.4 million) and gross profit decreased to £10.6 million (H1-FY16: £11.5 million). This was in line with expectations and a solid performance that saw growth in the number of specials orders. Such performance is encouraging in the current climate as the retail specials sector continues to come under pressure due to prescribing volume, the drug tariff and product licensing. Adjusted EBITDA has decreased for the division to £5.0 million (H1-FY16: £5.8 million), impacted by the losses in NuPharm. On an underlying basis, the core specials business is growing.

The core specials business, which supplies retail pharmacies and wholesalers, performed well during the period. Quantum continues to deliver on its strategy of signing exclusive deals with its customers and during the period the Group signed a new five-year contract extension with AAH Pharmaceuticals Limited ('AAH') the UK's leading pharmaceutical wholesaler, to exclusively supply specials and special obtains. AAH, a long term partner of Quantum, serves the growing number of Lloyds Pharmacy and other pharmacies in the Celesio UK Group.  Post period end on 1 September 2016 Lloyds Pharmacy, which operates over 1,500 stores throughout the UK, completed its acquisition of Sainsbury's 281 in-store pharmacies. The Group's core specials business has seen an immediate increase in orders following the acquisition.

Not only is this partnership with AAH important for Quantum financially, such strategic relationships with our Specials division also provide a further route to market for our Niche Pharmaceutical division's licensed products. The core specials business also has contracts with three of the four largest national pharmacy chains, which helps strengthen this route to market.

The Group's business supplying the hospital sector saw some volume pressure in the period, but this was offset by the performance of the core business. However, it continues to be well placed in the market having accounts with nearly all UK hospital trusts.

The aseptics business continues to progress well, winning new customers, driving growth and improving profitability. During the period we entered into a contract with a large pharmaceutical company to compound and distribute a cancer treatment; this was our first business to business agreement in aseptics.

In July 2015, the Group acquired NuPharm for net consideration of £8.8 million. Strategically it was thought that NuPharm would complement the Group's activities by offering unique manufacturing services to third parties in the UK, in addition to providing the opportunity for the for the Group to increase efficiencies and drive operational growth in the medium term. At the time of acquisition, NuPharm was under MHRA manufacturing restrictions. Following the acquisition, the Group identified further operational issues to address. This resulted in a further investment in NuPharm since acquisition including work to significantly upgrade the facility, overhaul NuPharm's systems and new equipment and resources. During the period, NuPharm has suffered losses of £0.5 million as well as utilising £0.7 million provision for rectification works, bringing the operational investment in the period to approx. £1.2 million. Previously the expectation was that NuPharm would make a positive contribution to the Group's profitability in the second half of the current financial year.

Despite the additional investment, the operational issues have not been capable of adequate remedy and further issues continue to be identified. NuPharm remains subject to MHRA manufacturing restrictions, continues to generate significant cash losses each month and causes significant management distraction. Following a review of the options open to the Group, the Board has not been able to develop a positive business case for NuPharm.

Therefore, regrettably a decision has been taken to consult with staff regarding the proposed closure of NuPharm, in order to eliminate further losses and investment and to allow management to focus on the core profitable specials business which produces the platform for Niche Pharmaceuticals product growth.

Overall, Quantum's specials business, excluding NuPharm, continues to be well placed in the market and management believes that it continues to outperform its competition.

Niche Pharmaceuticals division

Revenue in the period grew 87% to £2.8 million (H1-FY16: £1.5 million) through the launch of new products and third party development projects. Adjusted EBITDA decreased to break even (H1-FY16: £0.4 million), due to the £1.2 million cost base increase for market delivery infrastructure related costs, in advance of sales, during this period.

The Niche Pharmaceuticals division has now launched 15 products and has received marketing authorisations for a further seven generic or generic plus products, which have not yet launched. Following the business review and consequent pipeline rationalisation of some generic and generic plus products in development, it has a pipeline of 47 regulated products, with 15 of these currently in assessment with the MHRA and other authorities. Of the pipeline, 27 products are unlicensed to licensed developments, of which four are currently in assessment with the MHRA.

During the period, the Group has completely reshaped the infrastructure and capability within the Niche Pharmaceuticals division and is confident of its ability to meet product launch timelines. The Group launched a number of products, particularly in the second quarter, with the timing of product launches largely in line with management expectations. The Group is now moving into the market access and sales delivery phase in relation to those products.

The Vitamin D product portfolio was extended by launching colecalciferol 800 IU capsules and 1000 IU capsules in both branded (Aviticol®) and generic versions, as well as ergocalciferol 50 000 IU capsules. The 1000 IU and 50 000 IU capsules represented the first unlicensed to licensed development of their kind to be made available in the UK. The Vitamin D market is highly competitive and includes nutritionals as well as licensed products. During the period the Group has seen some uptake as a result of engagements with Clinical Commissioning Groups ('CCGs'), which we believe we will see increased take up as a result of us now offering a broader product range.

The Group launched a further two products, Mucodis® Dermal Spray and Mucodis® Rectal Gel, in its branded range of in-licensed patented medical devices during the period and post period end completed the initial range by launching Mucodis® Vaginal Cream. These join the Mucodis® Oromucosal Spray and Mucodis® Mouthwash launched during Q4-FY16. The range of five products provides the NHS with prescribable products to address a number of the side effects associated with cancer treatments. These are new products and the Group is still in the market access phase. Although the initial response from nursing teams at hospitals has been encouraging in relation to our Mucodis® branded range and product use has provided favourable patient feedback, this has not yet translated into material sales. This has been, in part, due to a low willingness to treat Mucositis due to a lack of recognition of Mucositis as a serious condition and in part due to lengthy product listing processes. The listing by NHS Supply Chain procurement, which would allow the products to be ordered and stored on wards in hospitals, is taking longer than expected. The two oral and highest potential products in the range were added to the Drug Tariff on 1 September 2016 following which the Group expected pull through from wholesalers to begin with immediate effect, which the Group has not seen. The early evidence suggests that sales will take longer to materialise for the range and will likely be materially lower than anticipated.

Post the period end, the Group successfully launched its licensed Glycopyrronium Bromide Oral Solution 1mg/5ml. The solution is licensed in adults as an add-on therapy in the treatment of peptic ulcers. This was the first unlicensed to licensed liquid formulation of this product in the UK and was launched by way of 'cease and desist' notices, which means that the equivalent unlicensed medicinal products ('specials'), which are used for a number of chronic conditions, cannot now be supplied by any party. Glycopyrronium Bromide Oral Solution is one of the most important launches of the current financial year for Quantum's Niche Pharmaceuticals division. Early signs from the launch mirror the Group's sales assumptions and reinforce the core strategy of unlicensed to licensed development and 'cease and desist'.

The Board believes that the Group will be more successful focusing efforts on the development and sale of unlicensed to licensed products and supplementing those with a smaller number of complementary or niche products as appropriate. The Board also believes that more conservative sales assumptions are required for products other than unlicensed to licensed products, to assume greater price competition and/or significantly lower market penetration than previously envisaged.

The Niche Pharmaceuticals division will continue to seek market authorisations on certain generic or generic plus products and a decision will be made on a case-by-case basis whether to launch the product or seek an out-licensing partner to maximise the value of the marketing authorisation to the Group. In this respect, during the period and post period, the Group received marketing authorisations for Memantine Soluble tablets 10mg, 20mg and a titration pack (5mg, 10mg, 15mg, 20mg), Donepezil Oral Solution 10mg/5ml (both in the field of Alzheimer's) and Metformin Oral Solution 500mg/5ml, 850mg/5ml and 1,000mg/5ml (in the area of type 2 diabetes). The Group anticipates that the Metformin range will be launched during H2-FY17, whilst the Group is seeking out-licensing partners for the Memantine range and Donepezil. The granting of these seven marketing authorisations, received in close succession, demonstrates the ability of the division to deliver licensed products through the development process.

Opportunities to populate the product pipeline are continually being identified by the Group product development team, utilising market knowledge and intelligence from the Specials division. During the period, the Group concluded a number of small out-licensing deals in Europe and continues to actively pursue out-licensing opportunities for products in its portfolio/pipeline.

Lamda, the division's fully outsourced research and development service to companies looking to license medicinal products, performed well and was earnings enhancing during the period, as expected. Lamda, which has development experience of successfully completing over 100 projects for third parties, has significantly contributed to the improvement in the delivery of the Niche Pharmaceuticals pipeline and reduced product development costs for the Group. This has seen the Group extract cost savings during the period as the outsourcing of third party development projects has reduced.

Medication Adherence division

Revenue for the half year increased by 109% to £11.3 million (H1-FY16: £5.4 million) as a result of growth in the Group's specialist homecare offering and adjusted EBITDA loss in the period reduced to (£0.2) million (H1-FY16: (£0.3) million).

During the period, the Group's innovative telemedicine technology, branded Biodose Connect™ by Vaica, successfully completed formal validation testing and now has Class I medical device status. It is very early in the commercialisation of Biodose Connect™ and, as with any new innovative product or service, there is work to do to convert interest to sales. A key part of this will be developing and securing strategic partnerships over time to help access the relevant target markets.

The Group believes that Biodose Connect™ is a product that could provide a significant benefit to the NHS, social care providers and pharmaceutical companies, not only by reducing the burden created by medication non-adherence, but also in allowing patients to be treated at home. With the appropriate commercialisation strategy and strategic partners to help access markets, the Group believes it could provide high margin income for the Group in the medium term, although some further investment will be required to exploit its full potential.

The homecare business has performed well to reduce its losses. During the period, the Group commenced supplies under the contract with Yorkshire and Humber NHS Pharmaceutical Purchasing Consortium to supply nearly 3,000 patients taking antiretrovirals, anti-tuberculosis medication, medicines for cystic fibrosis, and oral chemotherapy medication. At full capacity this will require 9,500 deliveries per annum. The business also commenced supply to two pharmaceutical company funded homecare services for patients who are self-injecting biologic medication.

Stork Fertility Services continues to grow with new service level agreements signed with fertility clinics in the UK and in Europe. The Group estimates that Stork Fertility Services now provides 50% of the fertility homecare deliveries in the UK.

Condensed Consolidated Income Statement

for period ended 31 July 2016

Condensed Consolidated Statement of Comprehensive Income

for period ended 31 July 2016

Condensed Consolidated Balance Sheet

as at 31 July 2016

Condensed Consolidated Statement of Changes in Equity

Condensed Consolidated Statement of Changes in Equity

Condensed Consolidated Cash Flow Statements

for period ended 31 July 2016

Notes to the condensed consolidated financial statements

(forming part of the financial statements)

1 Accounting Policies

1.1 Basis of preparation

The interim financial information set out in this statement for the six months ended 31 July 2016 and the comparative figures for the six months ended 31 July 2015 are unaudited. This financial information does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. It does not comply with IAS 34 'Interim Financial Reporting' as is permissible under the rules of the AIM market ("AIM").

This interim statement, which is neither audited nor reviewed, has been prepared in accordance with the measurement and recognition criteria of Adopted IFRS's. This statement does not include all the information required for the full annual financial statements and should be read in conjunction with the financial statements of the Group as at and for the year ended 31 January 2016.

The half year results were approved by the Board of Directors on 3 October 2016.

1.2 Accounting policies

The accounting policies applied in preparing these interim financial statements are the same as those applied in the preparation of the annual financial statements for the year ended 31 January 2016, as described in those financial statements.

1.3 Status of financial information

The comparative figures for the financial year ended 31 January 2016 are not the company's statutory financial statements for that financial year. Those accounts have been reported on by the company's auditor and delivered to the Registrar of Companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

1.4 Principal risks and uncertainties

The principal risks and uncertainties associated with the Group's business can be divided into the following main areas:

• Key competitors

• Key customers

• Regulatory clearance

• Marketing Authorisations (licences for new products)

• Facilities

• Reputation

• Changes in legislation

• Drug tariff and prescription pricing practice

• Loss of key employees

• Cash flow in high value contracts

Information on these risks and how they are managed is given on page 22 in the Annual Report. In the view of the Board these principal risks and uncertainties are as applicable to the remaining six months of the financial year as they were to the six months under review.

2 Segmental reporting

The following analysis by segment is presented in accordance with IFRS 8 on the basis of those segments whose operating results are regularly reviewed by the Board of Directors (the Chief Operating Decision Maker as defined by IFRS 8) to assess performance and make strategic decisions about allocation of resources.

The sectors distinguished as operating segments are Specials, Niche Pharmaceuticals and Medication Adherence. A short description of these sectors is as follows:

· Specials - Manufacture, source and supply specials to pharmacies, pharmaceutical wholesalers, hospitals (NHS and private) and other specials suppliers throughout the UK and overseas.

· Niche Pharmaceuticals (Niche) - develop and supply nice pharmaceuticals, provide development and regulatory services and out-license products and dossiers to third parties across Europe.

· Medication adherence (MA) - provide products and services designed to enhance adherence to medication regimes.

These segments have separate management teams and offer different products and services. These operating segments are reportable segments. The segment results, as reported to the Board of Directors, are calculated under the principles of IFRS. Performance is measured on the basis of Adjusted EBITDA which comprises the segment result before non-cash items (amortisation, depreciation and share based payments) and other items that are excluded when the Board assess performance. This includes 'One-off' costs, as termed in the tables below, which include restructuring and professional fees. A reconciliation between Adjusted EBITDA and Profit before tax is included in the tables below:

31 July 2016 (Unaudited)

Segmental reporting continued

Unallocated net assets include goodwill and intangibles (£23.9 million), trade and other payables (£2.9 million), bank term loans (£29.4 million) and net inter-group loan receivables (£40.3 million).

31 July 2015 (Unaudited)

Unallocated net assets include goodwill and intangibles (£23.8 million), cash and cash equivalents (£3.0 million), trade and other payables (£2.7 million), bank term loans (£29.9 million) and net inter-group loan receivables (£39.3 million).

3 Earnings per share

Basic weighted average number of shares includes those shares in the EBT to which the beneficiaries are unconditionally entitled. The dilutive potential shares relate to the share options. There were no potentially dilutive shares or other instrument that have been excluded from Diluted EPS because they are antidilutive.

The adjusted EPS, based on the following earnings figure for the year and number of shares in issue of 125,000,000 (31 July 2015: 125,000,000) is 2.2 pence (31 July 2015: 3.2 pence).

The adjusted diluted earnings per share based on the weighted average number of shares of 125,000,000 (31 July 2015: 126,532,000) is 2.2 pence (31 July 2015: 3.1 pence).

4 Dividends

A final dividend in relation to the year ended 31 January 2016 of 1 pence per ordinary share was approved at the Annual General meeting on 12 July 2016. The dividend totalling £1,250,000 is payable on 7 November 2016.

5 Intangible assets

5 Intangible assets (continued)

6 Net Debt

The Group's banking facilities comprise a £25 million term loan and a £10 million revolving credit facility, of which £7 million was drawn at 31 July 2016. The term loan is repayable by quarterly instalments.

7 Subsequent Events

The Group has commenced the consultation process with staff regarding the proposed closure of its subsidiaries, NuPharm Laboratories Limited and NuPharm Group Limited. The proposed closure plan envisages that the business will cease trading by 31 December 2016 and will be disclosed as a discontinued operation in the 31 January 2017 financial statements.

8 Forward Looking Statements

This announcement and the half year results contain certain projections and other forward‐looking statements with respect to the financial condition, results of operations, businesses and prospects of Quantum Pharma plc ("Quantum"). Whilst these statements are made in good faith based on the current expectation and beliefs of the Directors of Quantum, they involve risk and uncertainty because they relate to events and depend upon circumstances that may or may not occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward‐looking statements. Any of the assumptions underlying these forward‐looking statements could prove inaccurate or incorrect and therefore any results contemplated in the forward‐looking statements may not actually be achieved. Recipients are cautioned not to place undue reliance on any forward‐looking statements contained herein. Quantum undertakes no obligation to update or revise (publicly or otherwise) any forward‐looking statement, whether as a result of new information, future events or other circumstances. Nothing in this announcement or half year forecasts should be construed as a profit forecast.

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