Half Yearly Report

Ark Therapeutics Group plc

Interim Results for the First Half of 2012

London, UK, 29 August 2012- Ark Therapeutics Group plc, the leading viral contract development and manufacturing services company, today announces its interim results for the six months ended 30 June 2012.

Dr David Venables, CEO of Ark, commented:

"Significant milestones have been achieved in the transition of Ark into a business focused on providing contract development and manufacturing services, most notably the successful manufacturing partnership with PsiOxus Therapeutics, which is validation of the Company's strategy and viral manufacturing expertise. Our processes, people and capabilities are now fully focused on providing exceptional service, innovative science and world class manufacturing facilities for the advancement of our clients' viral products. I am delighted to be working with such a dedicated and talented team and look forward to reporting continued progress during the remainder of this year, with the ultimate goal in the short to medium term being to transform Ark into a revenue driven profitable business."

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Ark Therapeutics Group plc

Ark Therapeutics Group plc is a leading viral product focused contract development and manufacturing services company with world-class viral research, development and GMP manufacturing operations in Finland and the UK. Ark's business model is to offer product development and GMP manufacturing contract services for viral products, including the areas of viral mediated gene therapy, oncolytic viral vaccines, live and attenuated viral vaccines, viral vectored vaccines and virus like particles. Ark's capabilities span from translational research through preclinical and clinical product development, in addition to process and analytical development, GMP manufacture and sterile filling from pre-clinical through to commercial product supply. These capabilities have been established through the development of Ark's own products through to Marketing Authorisation Application registered with the European Medicines Agency. Following a change in business strategy in 2011, Ark is now building its business through contract development and manufacturing services and is seeking external partners to advance those products it previously had under development. 

Ark's shares were first listed on the London Stock Exchange in March 2004 (AKT.L).

This announcement includes "forward-looking statements" which include all statements other than statements of historical facts, including, without limitation, those regarding the Group's financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to the Group's products and services), and any statements preceded by, followed by or that include forward-looking terminology such as the words "targets", "believes", "estimates", "expects", "aims", "intends", "will", "can", "may", "anticipates", "would", "should", "could" or similar expressions or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Group's control that could cause the actual results, performance or achievements of the Group to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Group's present and future business strategies and the environment in which the Group will operate in the future. Among the important factors that could cause the Group's actual results, performance or achievements to differ materially from those in forward-looking statements include those relating to Ark's funding requirements, regulatory approvals, clinical trials, reliance on third parties, intellectual property, key personnel and other factors. These forward-looking statements speak only as at the date of this announcement. The Group expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this announcement to reflect any change in the Group's expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based. As a result of these factors, readers are cautioned not to rely on any forward-looking statement.

INTERIM MANAGEMENT REPORT

Chairman and Chief Executive's Review

The Vision

Over the last 12 months we have transitioned the business and we are now firmly focused on our ultimate goal of becoming a profitable enterprise, utilising our novel proprietary science and technology platforms to differentiate ourselves from competitors and build an increasing and sustainable services driven revenue base.

In order to minimise risk, manage our resources and thereby create long-term shareholder value our research and development initiatives will focus solely on supporting our third party clients and product partners. We will cease to undertake stand-alone product development, and limit project initiatives to those where we have the validation and funding of a third party client or partner.

In the medium term, our vision is to become the premier contract development and manufacturing ("CDMO") partner for viral drug development, fully utilising our proven capabilities from translational research through to the manufacture of clinical and commercial product.

The success of our vision will be based on a number of key factors, including:

·; our state-of-the art facilities, designed specifically for the process development, clinical and commercial manufacture and filling of viral products, and validated through client and regulatory audits; and

·; the strong science we can leverage from both our internal capabilities as well as through the relationship we have with the laboratories of Professor Seppo Ylä-Herttuala. We have the resources and expertise to address scientific and technological problems that may hinder the successful development of our clients' products, thereby adding real value, reducing risk and developing new market opportunities.

Through the development of our proprietary science and technology platforms in the viral sectorwe aim to build a world-class development and manufacturing viral services business. We are confident the business will generate a growing and sustainable revenue base in the short to medium term, but will also allow us, on specific contracts, to incorporate our proprietary technology into the development programmes of our clients' and partners' products, and, through appropriate licence and royalty arrangements, enable us to share in the sales upside of these products.

The Opportunity

With over 600 viral products currently in pre-clinical and clinical development worldwide, we estimate the total viral manufacturing market up to and including Phase III to be in excess of £1.3bn. The potential value of the contract manufacture of commercially marketed products is not included in this estimate, and represents further upside. In addition, expansion into complementary services (through organic growth, partnership or acquisition) in pre-clinical services, analytical development and clinical trials support, along with the development of novel process technologies, vectors and cell lines, represents further growth opportunities for the Company.

The Implementation 

During the period our sales base from third party clients has increased significantly and we identified and generated an increasing number of leads and discussions. In the second half, management will focus on accelerating this progress further. Accordingly, we have attracted new leadership with the experience and track record of building this type of business. Dr David Venables was appointed to the Board in April and took over as CEO on 1 August 2012.

In line with our goal of becoming a profitable services-focused business, we have announced a number of significant steps:

·; During the period, Kassim Kolia was appointed as Head of Business Development and is now actively building Ark's profile as a CDMO and expanding our customer base in the key markets of Europe, North America and Asia.

·; Post-period we announced a new manufacturing contract with a leading European gene therapy company, further validation of our viral manufacturing expertise.

·; Earlier this month, we announced the signing of a Letter of Intent with EMD Millipore Corporation, USA (a division of Merck KGaA, Darmstadt, Germany) ("EMD") to enter into a collaborative agreement to mutually exploit each of the parties' expertise and capabilities in the field of viral-based bioengineered vaccines and other live viral products manufacturing. This partnership is expected to expand our service offering to clients by combining the process technologies and equipment developed by EMD with Ark's process development and manufacturing capability.

Concurrent with the change in leadership earlier this month, and in line with our strategy to become the premier CDMO partner for viral drug development, we have taken the strategic decision to cease development of the Company's product pipeline. Whilst we understand the inherent value in these programmes, we also recognise the financial risk of product development and, as a consequence, we are pursuing a number of opportunities to out-license/partner these programmes with a view to retaining partial ownership and potential financial upside. We anticipate making further announcements over the next few months in respect of Cerepro®, NRP-1 and our VEGF-D programmes in fetal growth retardation, refractory angina and peripheral vascular disease.

This acceleration and further refinement in strategic emphasis will allow us to reduce our cost base and refocus our organisation on profitable revenue-generating services. As a consequence, in seeking to ensure we have sufficient funds whilst we focus upon building our revenue-generating initiatives, we have significantly reduced staff numbers in London and closed down a number of non-core product initiatives, which will save approximately £2m on an annualised basis.

Board & Management

In April, in addition to appointing Dr David Venables to the Board, we were pleased to appoint Charles Spicer as a non-executive director to replace Peter Keen, who after 14 years' service decided not to seek re-election at the Annual General Meeting in May 2012. Also, on 31 July 2012, Martyn Williams resigned as CEO after 14 years as a Director, the last two of which he was the CEO and played a role in the initiation of the Company's transformation. On behalf of the Board and management we would like to thank both Peter and Martyn for their service and contribution to the business and wish them both every success in the future.

Financial Review

Excluding the effect of the £1.1m impairment of intangible assets, the loss before tax of £5.2m was in line with the comparable six months ended 30 June 2011. The loss before tax is expected to decrease over the next 12 months as we expect to further grow development manufacturing revenue and receive the cost benefit from curtailing product related expenditure.

Revenues totalled £0.8m for the six months ended 30 June 2012 (six months ended 30 June 2011: £0.4m) arising from development and manufacturing contracts. With a number of potential development manufacturing contracts in late stage discussions, we expect revenues to increase accordingly over the next 12 months.

Expenditure on research and development for the period totalled £3.9m (six months ended 30 June 2011: £4.3m). The decrease in the period was principally due to the cessation of product related expenditure.

Selling, marketing and distribution costs for the period were negligible but are expected to increase over the next 12 months as we increase both business development and marketing initiatives.

Other administrative expenses for the period totalled £1.8m (six months ended 30 June 2011: £1.8m).

Share-based compensation charge for the period was £46,000 (six months ended 30 June 2011: £48,000).

Total net assets decreased from £14.6m at 30 June 2011 to £9.4m. Property, plant and equipment at 30 June 2011 totalled £5.5m (30 June 2011: £8.4m) and cash and cash equivalents and money market investments £4.9m at 30 June 2012 versus £5.4m at 30 June 2011.

Net cash outflow from operating activities for the period was £4.6m (six months ended 30 June 2011: £5.7m).

As a result of the changes in our business model it is not unexpected that there is 'an emphasis of matter' in respect of these accounts. The Board recognises that the timing of contract and partnership revenues in the early stages is inevitably uncertain and therefore recognises that the Company may seek to raise additional equity finance to ensure sufficient funding through to optimal implementation of the strategic plan. As a consequence, we continue to review all options and have been in regular dialogue with our shareholders in respect of the general terms of the transition and are pleased to report they remain extremely supportive.

Risks and Uncertainties

There are a number of potential risks and uncertainties that could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. The risks which were identified and outlined in the Annual Report and Accounts 2011 in the Directors' Report on pages 25 and 27, which does not form part of this interim statement, and which include industry risk, clinical and regulatory risk, competition and intellectual property risk, and economic, financial and counterparty risk, have not changed and therefore remain relevant for the remaining six months of 2012.

Summary and Outlook

As of the date of publication of these results the transition to a services orientated revenue-generating business is largely complete and the task over the next 12 months will be to deliver against the financial goals for the new business model by securing an increasing number of high quality development and manufacturing contacts and partnerships and strengthen our balance sheet. We would like to thank management, staff and shareholders for their continued support. We look forward to taking the business through its next stage of growth and to reporting continued success at the year-end.

29 August 2012

Condensed consolidated income statement

For the six months ended 30 June 2012 (unaudited)

Condensed consolidated statement of comprehensive income

For the six months ended 30 June 2012 (unaudited)

All results for the six months ended 30 June 2012 relate wholly to continuing activities. All results are attributable to equity holders of the parent.

Condensed consolidated balance sheet

As at 30 June 2012 (unaudited)

Condensed consolidated statement of changes in equity

For the six months ended 30 June 2012 (unaudited)

Condensed consolidated cash flow statement

For the six months ended 30 June 2012 (unaudited)

Notes to the financial information

1 General information

This interim financial information was authorised for issue on 29 August 2012. The information for the year ended 31 December 2011 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for the year ended 31 December 2011 has been delivered to the Registrar of Companies. The Auditor's report on those accounts was not qualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

A copy of the interim results for the six months ended 30 June 2012 can be found on the Company's website at www.arktherapeutics.com.

2 Basis of preparation

The annual financial statements of Ark Therapeutics Group plc are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed set of financial statements included in this half-yearly report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union.

In determining the appropriate basis of presentation of the interim financial statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future, this being a period of not less than 12 months from the date of the approval of the interim financial statements. The business model for the Company is articulated in the Chairman and Chief Executive's Review and as the business transitions to becoming a profitable revenue generating enterprise the Directors believe that through a combination of revenue generating initiatives, cost base adjustments and, as necessary, equity financing the business will have sufficient funds to realise its business goals.

At 30 June 2012, the Group had net assets of £9.4m (31 December 2011: £15.4m) and cash and cash equivalents of £4.9m (31 December 2011: £9.5m).

In order to minimise risk and ensure the Group has sufficient available resources to continue to operate as a going concern for the foreseeable future, the Directors have refocused the business according to a revenue-generating contract development and manufacturing services model, and put in place the necessary business development function to convert the pipeline of identified opportunities into revenue in the short and medium term. Validation of this model has been demonstrated through contracts already signed, and partnerships developed with industry leaders. A strategic decision to no longer fund in-house product development has been taken, and resultant cost savings identified and operating cash outflow reduced.

The Directors' cash flow forecasts, which consider a period of at least 12 months from the date of approval of the interim financial statements, show that in order for the Group to continue to operate as a going concern and meet all its financial obligations over the next 12 months it must either convert the contracts and partnerships currently under discussion into manufacturing revenue to cover its reduced operating cost base and/or raise additional finance to enable the Group to meet its liabilities as they fall due.

There is material uncertainty over the ability of the Group to secure sufficient new contract development and manufacturing revenues within the next 12 months and/or raise additional finance which may cast significant doubt about the Company's ability to continue as a going concern. After reviewing the cash flow forecasts and making an assessment of the Group's ability to secure sufficient new contract development and manufacturing revenues and/or raise further funds, the Directors have a reasonable expectation that the Group can secure sufficient new contract development and manufacturing revenues and/or raise further funds and therefore they continue to adopt the going concern basis of presentation of the interim financial statements.

The same accounting policies, presentation and methods of computation have been followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements for the year ended 31 December 2011. Seasonal changes to the Group's operations are not material.

3 Business and geographical segments

In accordance with IFRS 8, the Group is required to define its operating segments based on, inter alia, the internal reports presented to its chief operating decision maker in order to allocate resources and assess performance. These reports focus on the Group's only business activity, being the discovery, development and commercialisation of products in areas of specialist medicine, with particular focus on vascular disease and cancer, and therefore no segmental information has been shown.

The principal sources of revenue for the Group are as follows:

Information on major customers

Revenues from transactions with a single customer of contract manufacturing represents £479,000 (61% of the Group's total revenues).

An analysis of the Group's geographical non-current assets is shown below:

Non-current assets comprise goodwill, property, plant and equipment, other intangible assets and inter-company loans and are attributed to the location where they are situated.

4 Discontinued operations

Disposal of woundcare business

On 8 February 2011 the Group entered into an agreement to dispose of certain assets which represented its woundcare business.

The major classes of assets and liabilities that comprised the operations classified as held for sale at 31 December 2010 were as follows:

The fair value of net assets at the effective date of disposal and the gain on the disposal were as follows:

In addition to the consideration recognised above, the Group is due additional contingent consideration depending on the achievement of certain revenue levels by the woundcare business disposed of. Management has decided that it is not appropriate to recognise any element of this contingent amount on the basis that achievement of the necessary revenue targets cannot be considered virtually certain, in accordance with IAS 37 "Provisions, Contingent Liabilities and Contingent Assets".

5 Exceptional items

During the six months ended 30 June 2012 exceptional items comprised impairment of goodwill of £1,089,000 (30 June 2011: nil, 31 December 2011: nil). Goodwill that arose on the acquisition of Lymphatix Oy has been fully impaired due to cessation of product development in this area.

6 Loss per share

International Accounting Standards require presentation of diluted earnings per share when a company could be called upon to issue shares that would decrease net profit or increase net loss per share. Since the Group is loss making, there is no such dilutive impact.

The calculation of basic and diluted loss per ordinary share is based on the loss of £6,022,000 for the six months ended 30 June 2012 (six months ended 30 June 2011: loss of £4,299,000 and a loss from continuing operations of £4,697,000; year ended 31 December 2011: loss of £3,450,000 and a loss from continuing operations of £3,737,000) and on 209,276,676 ordinary shares (June 2011: 209,276,676; December 2010: 209,276,676) being the weighted average number of ordinary shares in issue.

7 Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

The following transactions with Company Directors took place during the period at arm's length:

Professor S Ylä-Herttuala is a director and shareholder of the Finnish registered company FKD Therapies OY ("FKD").

Subsequent to the year end, Ark Therapeutics Oy ("ATO") entered into further projects with FKD for the value of €132,500. At 30 June 2012, €96,750 has been received from FKD with respect to these projects, with the remaining of the contract €35,750 to be received after the period ended 30 June 2012.

In 2011, Ark Therapeutics Limited ("ATL") entered into a Material Transfer and Evaluation Agreement with FKD dated 14 November 2011 under which ATL agreed to perform certain scientific evaluation services in return for a fee of €38,000 paid by FKD to ATL. As of 31 December 2011, €19,000 has been received from FKD with respect to this agreement, with the remaining €19,000 received after the period ended 31 December 2011.

Statement of Directors' responsibilities

We confirm to the best of our knowledge:

(a) the condensed set of financial statements which has been prepared in accordance with IAS 34 "Interim Financial Reporting" gives a true and fair view of the assets, liabilities, financial position and loss for the period;

(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

The Directors of Ark Therapeutics Group plc are listed in the Ark Therapeutics Group plc annual report for the year ended 31 December 2011, save that Dr David Venables was initially appointed to the Board on 16 April 2012 and Peter Keen and Martyn Williams resigned from the Board on 17 May 2012 and 31 July 2012 respectively. Due to statutory time limits on notice periods for shareholder meetings, it was not possible for shareholder approval to be sought to ratify Dr Venables' initial appointment at the Company's annual general meeting held on 17 May 2012. As a result, Dr David Venables stood down at the annual general meeting but was immediately re-appointed as a Director by the Board. His re-appointment will be put to shareholders at the Company's annual general meeting to be held in 2013.

A list of current Directors is maintained on the Company's website: www.arktherapeutics.com.

By order of the Board

Dr David Venables

Chief Executive Officer

29 August 2012

Independent review report to Ark Therapeutics Group plc

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2012 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement and related notes 1 to 7. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Emphasis of matter - going concern

Without modifying our conclusion, we draw attention to the disclosures made in note 2 of the condensed financial statements concerning the Group's ability to continue as a going concern. These include the requirement to secure sufficient new contract development and manufacturing revenues within the next 12 months and/or raise additional finance to enable the Group to continue as a going concern.

These events and conditions, along with other matters as set forth in note 2, indicate the existence of material uncertainties which may cast significant doubt about the Group's ability to continue as a going concern. The condensed financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

Deloitte LLP

Chartered Accountants and Statutory Auditor

Cambridge, United Kingdom

29 August 2012