Interim results for six months ended 30 June 2011

3 August 2011

LSE: VER

Interim results for the six months ended 30 June 2011

"Significant positive pipeline development during the half year,

with further newsflow anticipated before the year end"

Vernalis plc, a revenue generating development stage pharmaceutical company with one marketed product and a broad pipeline of in-house and partnered clinical programmes, today announces its interim results for the six months ended 30 June 2011.

Highlights

Financial

·; Strong balance sheet with £27.1 million cash resources (including cash, cash equivalents and held-to-maturity financial assets) at 30 June 2011 and debt free

·; Underlying financial performance in-line with expectations:

·; Revenue (excluding milestones) £4.3 million (2010: £5.2 million)

·; Loss for the period reduced to £7.0 million (2010: £7.3 million)

·; Underlying cash burn (cash burn excluding exceptional costs) £1.7 million (2010: £0.9 million)

·; An exceptional £1.9 million cost related to an aborted acquisition of a US specialty pharmaceutical business

Frovatriptan

·; Approval received from the Ministry of Health and Social Development for Menarini to market frovatriptan in Russia

·; Underlying H1 2011 Menarini frovatriptan sales were €13.5 million (H1 2010: €16.2 million)

·; German H2 2010 price reductions continue to impact total underlying sales - H1 2011 Germany sales €1.4 million (vs H1 2010: €3.6 million, vs H2 2010: €2.2 million)

·; Underlying H1 2011 sales excluding Germany were down 4% compared to H1 2010

Pipeline

·; Tosedostat (CHR2797):

·; Licensing deal secured by Chroma Therapeutics for North, Central and South America (March 2011)

·; Orphan drug status granted for Acute Myeloid Leukaemia (AML) by the US Food and Drug Administration and European Medicines Agency (March 2011)

·; Positive Phase IIb data presented at ASCO (May 2011)

·; AUY922:

·; Included for the first time in Novartis' selected pharmaceutical pipeline projects' chart (July 2011)

·; Estimated potential peak sales updated to >$1 billion

·; V158866:

·; Phase I trial to assess safety, tolerability and FAAH inhibition initiated in healthy volunteers (March 2011)

·; Dosing Complete, results available during Q3 2011

·; V81444: 

·; Rights successfully regained to Phase I ready A2A Parkinson's programme from Biogen Idec (April 2011)

·; MHRA approval to initiate Phase I study, dosing expected Q3 2011

Board Changes

·; Following the retirement of George Kennedy from the Board, Carol Ferguson has been appointed as Senior Independent Director and Allan Baxter has been appointed Chairman of the Remuneration Committee, both positions previously held by Mr Kennedy.

·; As separately announced today Nigel Sheail, Head of Corporate Mergers & Acquisitions and Global Head of Pharma Licensing at Hoffmann-La Roche will join the Board as a Non- Executive Director with immediate effect.

Anticipated newsflow

·; V158866 (FAAH - pain): Phase I trial results (Q3 2011)

·; V81444 (A2A - Parkinson's Disease): Initiate Phase I trials (Q3 2011)

·; V85546 (MMP12 - inflammation): Possible partnering and/or start Phase II studies (2011)

·; V158411 (Chk1 - cancer): Complete pre-clinical studies (H1 2012)

·; Tosedostat (aminopeptidase inhibitor - cancer) (Chroma): Initiate Phase II/III registration- directed trials (H1 2012)

·; AUY922 (Hsp90 - cancer) (Novartis): Multiple Phase I and Phase II study results (timing not disclosed)

·; HSP990 (Hsp90 - cancer) (Novartis): Establish Maximum Tolerated Dose (timing not disclosed)

·; Secure in-licensing and/or M&A (undisclosed)

Ian Garland, Chief Executive Officer, commented: "Operational performance in the first half of 2011 has been strong within both our in-house and partnered programmes. Our in-house pipeline has been strengthened by the addition of V81444, an attractive potential novel treatment for Parkinson's Disease that we will move into Phase I during the second half of the year. Our balance sheet and trading performance remain strong and although we did not secure an in-licensing deal or acquisition, we remain highly active in this area. We are very well positioned for a successful second half of the year both operationally and financially."

Presentation & Conference Call

Vernalis management will host a presentation at09.00am (UK) at Brunswick's offices, 16 Lincoln's Inn Fields, London WC2A 3EDtoday. It will also be available via webcast at http://www.vernalis.com/investor-centre/presentations-and-webcasts and www.cantos.com and via conference call, which can be joined by dialling + 44 (0)20 3140 0723.

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Enquiries:

Notes to Editors

About Vernalis

Vernalis is a revenue generating development stage pharmaceutical company with significant expertise in taking promising product candidates along a commercially-focused path to market. The Group has one marketed product, frovatriptan for the acute treatment of migraine, and eight candidates in development, seven of which are designated priority programmes. Four of these priority development programmes are currently unpartnered and three are partnered. Pipeline programmes are derived from both our own research activities where we have significant expertise in fragment and structure based drug discovery, as well as from collaborations. Our technologies, capabilities and products are endorsed by collaborations with Endo, GSK, Lundbeck, Menarini, Novartis and Servier.

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

Vernalis Forward-Looking Statement

This news release may contain forward-looking statements that reflect the Company's current expectations regarding future events including the clinical development and regulatory clearance of the Company's products, the Company's ability to find partners for the development and commercialisation of its products, as well as the Company's future capital raising activities. Forward-looking statements involve risks and uncertainties. Actual events could differ materially from those projected herein and depend on a number of factors including the success of the Company's research strategies, the applicability of the discoveries made therein, the successful and timely completion of clinical studies, the uncertainties related to the regulatory process, the ability of the Company to identify and agree beneficial terms with suitable partners for the commercialisation and/or development of its products, as well as the achievement of expected synergies from such transactions, the acceptance of frovatriptan and other products by consumers and medical professionals, the successful integration of completed mergers and acquisitions and achievement of expected synergies from such transactions, and the ability of the Company to identify and consummate suitable strategic and business combination transactions.

Strategic and operational review

We continue to pursue our three-tiered strategy to create value for our shareholders: realising value from the Company's pipeline; expanding that pipeline through in-licensing and acquisition; and maintaining a balanced investment in research.

This strategy is underpinned by a robust financial position, with a marketed product on which we receive substantial royalties and a strong balance sheet, as well as a dynamic and experienced management team supported by leading institutional investors.

Robust financial position

We have continued to perform well financially since regaining full rights to the Menarini frovatriptan royalty stream at the beginning of 2010, and ended June 2011 with £27.1 million of cash resources and no debt. These cash resources plus ongoing frovatriptan royalties provide a cash runway through to the end of 2013, without assuming receipt of further milestone income but maintaining our discretionary investment in pre-clinical and clinical development at approximately £4 million per annum.

A robust financial position is critical to our strategy as it provides the runway over which we will continue to transition the Company from a cash-burning development stage company into a diversified self-sustaining pharmaceutical company, whilst also providing the resources to invest in the in-house pipeline.

In addition, the frovatriptan royalty provides the Company with income beyond 2013, with the core composition of matter frovatriptan patents expiring at the end of 2015, and additional patents extending beyond this date.

Frovatriptan

The 2010 decision to reacquire full rights to the Menarini frovatriptan royalties was based on a robust financial return, assuming flat frovatriptan sales, together with the strategic benefit of having an ongoing revenue stream. The impact of this decision can be clearly seen in our 2010 and first half 2011 financial performance with substantially reduced cash burn compared to 2009 when we held only a 10% interest in that royalty income.

Since an enforced price reduction in Germany in the second half of 2010, Menarini has seen a significant reduction in sales in that country. The financial performance elsewhere has remained in-line with Menarini's expectations. Strategically, Menarini continues to explore launches in new markets and has recently received marketing approval from the Russian Ministry of Health and Social Development. In addition, we are working with Menarini to evaluate opportunities to extend the life of frovatriptan beyond the various patent expiries.

Underlying Menarini frovatriptan sales were €13.5 million in the first half of 2011, compared to €16.2 million in the same period of 2010 and €15.1 million in the second half of 2010. Excluding the impact of reductions in sales in Germany, underlying sales in the first half of 2011 were down 4% compared to the same period of 2010 and were down 6% compared to the second half of 2010.

Realising value from the pipeline

The Company's pipeline at June 2011 comprises seven priority programmes in pre-clinical and clinical development. Three of those programmes are partnered, two with Novartis and one with Chroma Therapeutics.

During the first half of 2011 we regained rights to V81444, a Parkinson's Disease programme targeting the A2A receptor, from Biogen Idec. This programme is expected to enter a Phase I study in healthy volunteers in Q3 2011. The A2A target is already validated by Parkinson's Disease programmes in other companies and in the last 12 months there have been a number of licensing deals and growing interest in CNS indications beyond Parkinson's Disease. We plan to complete Phase I development and undertake a receptor occupancy study to confirm V81444's mechanism of action in man. We will evaluate whether to partner the programme or to take it further in-house when those studies are completed during 2012.

Our most advanced in-house programme, V158866, a FAAH inhibitor, entered Phase I during the first half of 2011. In addition to assessing the safety, tolerability and pharmacokinetic profiles, this study will test mechanism of action by measuring FAAH inhibition and endocannabinoid elevation. Dosing of healthy volunteers is now completed and study results will be available during Q3 2011.

Our other active in-house programme, V158411, a Chk1 inhibitor for cancer, continues to be progressed in pre-clinical studies following a re-formulation. Pre-clinical testing should be completed in H1 2012 when we will assess whether to progress this in-house or to seek a partner.

The most advanced of our partnered programmes is tosedostat which is partnered with Chroma Therapeutics. During the first half 2011, Chroma sub-licensed rights to tosedostat in North, Central and South America to Cell Therapeutics Inc. Positive Phase IIb data was published at ASCO in May and Cell Therapeutics has indicated that it aims to initiate Phase II/III registration-directed studies in AML in H1 2012. Tosedostat was also granted orphan drug designation status as a treatment for AML in both the US and Europe in March 2011.

Our two Hsp90 inhibitors are partnered with Novartis. The most advanced, AUY922, is being evaluated in a wide range of Phase I and Phase II studies and in its Q2 results update in July, Novartis indicated that the programme is now formally recognised in Novartis' clinical pipeline. Based on information provided by Novartis in its Q2 results update, we have reassessed the market potential of AUY922 and now assess it to be a potential blockbuster, having potential peak sales in excess of $1 billion. The second programme, HSP990, continues to be assessed in a Phase I maximum tolerated dose study.

The Vernalis pipeline continues to progress and includes a number of programmes with significant market potential. Further newsflow is expected in the second half of the year and during 2012.

Expanding the pipeline through in-licensing and acquisition

In-licensing and acquisitions are a key element of our strategy to transition into a diversified self sustaining pharmaceutical company. Although over time the existing pipeline may progress to a later stage, that will take a number of years. In-licensing and acquisition can accelerate the transition of the company and it is with this goal that we are focusing our efforts on transactions that not only expand the pipeline but also accelerate that transition.

During late 2010 and the first half 2011 we pursued the acquisition of a US specialty pharmaceutical company. That deal ultimately was unsuccessful but did result in a substantial exceptional charge for aborted deal costs. We continue to evaluate a number of opportunities that would meet our strategic goals. However, securing licensing deals and acquisitions remains highly unpredictable.

Maintaining a balanced investment in research

During the first half of 2011 we have continued our research collaborations, two with Servier, one with GSK and one with Lundbeck. We will continue with our previously stated strategy of substantially funding our research activities through these external collaborations. Although no research milestones were earned during the first half of 2011 we do have the potential to earn multiple milestones in the next 12 months.

Outlook and anticipated newsflow

Expected newsflow over the remainder of 2011 and in 2012 is as follows:

·; V158866 (FAAH - pain): Phase I trial results (Q3 2011)

·; V81444 (A2A - Parkinson's Disease): Initiate Phase I trials (Q3 2011)

·; V85546 (MMP12 - inflammation): Possible partnering and/or start Phase II studies (2011)

·; V158411 (Chk1 - cancer): Complete pre-clinical studies (H1 2012)

·; Tosedostat (aminopeptidase inhibitor - cancer) (Chroma): Initiate Phase II/III registration-directed trials (H1 2012)

·; AUY922 (Hsp90 - cancer) (Novartis): Multiple Phase I and Phase II study results (timing not disclosed)

·; HSP990 (Hsp90 - cancer) (Novartis): Establish Maximum Tolerated Dose (timing not disclosed)

·; Secure in-licensing and/or M&A (undisclosed)

Financial Review

Income statement

Revenue for the six months ended 30 June 2011 was £4.3 million (2010: £7.2 million). These revenues comprised income from frovatriptan of £2.1 million (2010: £2.7 million) from the supply of active pharmaceutical ingredient to Menarini and collaboration income (including deferred revenue) of £2.2 million (2010: £4.5 million).

Frovatriptan revenue for the first six months of 2010 benefited from the shipment of frovatriptan tablets to Menarini for Central America as well as a shipment to SK Chemicals for South Korea. In 2011, Menarini have ordered frovatriptan tablets for delivery in the second half of the year. Collaboration income in 2010 included a $3.0 million (£2.0 million) milestone from Novartis in relation to the start of dosing AUY922 in a Phase II study. We continue to have two active research collaborations with Servier, and one each with GSK and Lundbeck.

Cost of sales for the six months ended 30 June 2011 was £0.9 million (2010: £1.5 million) and included supplies of frovatriptan and the continued amortisation of the frovatriptan intangible asset.

Research and development expenditure for the six months ended 30 June 2011 was £6.6 million (2010: £5.8 million). External expenditure of £1.3 million (2010: £1.1 million) related predominantly to the V158866 (FAAH) Phase I study and continued preclinical work on V158411 (Chk1). Expenditure on internal R&D activities increased to £5.3 million (2010: £4.7 million), and reflects increased activity with V158866 in Phase I, V81444 about to commence Phase I and V158411 in preclinical studies, in addition to the four active research collaborations.

General and administrative expenses before exceptional items were £2.6 million compared to £0.9 million in 2010. Included within the costs for 2010 was a foreign exchange gain of £1.1 million on hedging instruments whereas, due to movements in exchange rates, there was a loss of £0.4 million in 2011. Adjusting for these foreign exchange movements as well as a £0.2 million bonus provision in 2011 (no bonus was provided in the six months to 30 June 2010), the underlying costs are consistent year-on-year.

The exceptional charge for the six months to 30 June 2011 of £2.3 million includes £1.9 million in relation to aborted transaction costs as well as an increase to our provision for vacant leases of £0.4 million.

The operating loss for the year, before exceptional items was £5.9 million (2010: £1.1 million) and £8.2 million after exceptional items (2010: £1.1 million).

Finance income increased to £0.4 million (2010: £0.2 million) due to foreign exchange gains on the retranslation of cash balances into sterling. Interest received on cash balances was £0.2 million, consistent with 2010.

Finance expenses before exceptional items decreased significantly to £0.1 million (2010: £1.4 million) following the settlement of the Paul Capital Healthcare loan in March 2010. An exceptional charge (£6.6 million) arose in the six months to 30 June 2010 following the loan settlement and termination of the related agreements.

The tax credit of £0.9 million (2010: £1.6 million) represents amounts recoverable under current legislation for research and development tax credits. Included within the amount for the six months to 30 June 2010 was £0.9 million relating to prior years, following new guidance on the interpretation of existing legislation.

The loss before exceptional charges for the six month period to 30 June 2011 was £4.7 million (2010: £0.7 million). The loss after exceptional charges for the six month period to 30 June 2011 was £7.0 million (2010: £7.3 million).

Balance Sheet

Non-current assets at 30 June 2011 were £5.2 million (31 December 2010: £5.7 million). The reduction in value was due to amortisation of the frovatriptan intellectual property, offset by fixed asset additions within our research facility.

Current assets at 30 June 2011 amounted to £30.7 million (31 December 2010: £37.7 million). Current assets have decreased primarily due to utilisation of cash resources within the business (£3.8 million) and a reduction to the receivables balances (£3.6 million) following receipt of cash from Menarini for the December 2010 shipment and from HMRC for prior year R&D tax claims.

Total liabilities at 30 June 2011 totalled £11.5 million (31 December 2010: £12.2 million). The decrease relates to the release of deferred income (£0.3 million) and a reduction to trade and other liabilities (£0.7 million), offset by an increase in the derivative financial instrument liability (£0.4 million).

At 30 June 2011 the Group had net assets of £24.4 million (31 December 2010: £31.1 million).

Cash flow

Cash resources comprising held-to-maturity financial assets and cash and cash equivalents, at 30 June 2011 totalled £27.1 million (31 December 2010: £30.9 million). The decrease in cash resources over the six months to 30 June 2011 was £3.8 million but included £2.1 million in relation to aborted transaction costs. The underlying cash burn was £1.7 million compared to £0.9 million for the first six months of 2010. The increase in cash spend of £0.8 million during the period relates primarily to the reduction in frovatriptan revenues as well as additional spend across our R&D activities, offset by increased R&D tax credits received and working capital movements. The six months to 30 June 2011 included the cash receipts from two shipments of active pharmaceutical ingredient to Menarini, consistent with the six months to 30 June 2010.

Outlook

Vernalis intends to continue to expand the development pipeline through in-licensing and acquisition leveraging the group's current strong financial position. Pricing and volume reductions in Germany will delay the third 2011 shipment of frovatriptan into February 2012. As a consequence, 2011 revenue will now include two shipments of frovatriptan to Menarini and not three. The cash runway, however, remains through to the end of 2013 without the inclusion of milestone income.

Principal Risks

Vernalis considers strategic, operational and financial risks and identifies actions to mitigate risks. The principal risks and uncertainties for the remaining six months of the financial year are discussed below. Further details of the Group's risk profile can be found in the Annual Report for the year ended 31 December 2010, available on the website www.vernalis.com. There are no changes to these principal risks.

Vernalis is a revenue generating development stage pharmaceutical company with a portfolio of research programmes and several product candidates in the clinic. Across the pharmaceutical industry as a whole, more product candidates fail in clinical studies than produce successful marketed products. Success or failure with Vernalis' product candidates will have a significant impact on the Company's prospects including the ability to secure licensing agreements on existing products, to successfully execute on M&A, and to secure further finance in the future.

Related Parties

Related party disclosures are given in note 9.

Going concern

At 30 June 2011, the Group had cash resources (being cash and cash equivalents and held-to-maturity financial assets) of £27.1 million.

After making enquiries and taking into account management's estimate of future revenues and expenditure, the directors have a reasonable expectation that the Group will have adequate financial resources to continue in operation for the foreseeable future.

Independent review report to Vernalis plc

Introduction

We have been engaged by the company to review the condensed consolidated financial information in the half-yearly financial report for the six months ended 30 June 2011, which comprises the unaudited condensed consolidated balance sheet, unaudited condensed consolidated income statement, unaudited condensed statement of comprehensive income, unaudited condensed statement of changes in equity, unaudited condensed statement of cash flows and related notes. 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.

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 1, 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. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

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 enquiries, 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 2011 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.

PricewaterhouseCoopers LLPChartered AccountantsReading

2 August 2011

Unaudited condensed consolidated balance sheet

As at 30 June 2011

The notes form part of this condensed financial information.Unaudited condensed consolidated income statement

For the six months ended 30 June 2011

The notes form part of this condensed financial information.

Unaudited condensed statement of comprehensive income

For the six months ended 30 June 2011

The notes form part of this condensed financial information.Unaudited condensed statement of changes in equity

For the six months ended 30 June 2011

Unaudited condensed statement of cash flows

For the six months ended 30 June 2011

Notes to the unaudited condensed financial statements for the six months ended 30 June 2011

1 Accounting policies and basis of preparation

This condensed consolidated financial information for the six months ended 30 June 2011 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The condensed consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2010, which have been prepared in accordance with IFRSs as adopted by the European Union.

This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2010 were approved by the Board of directors on 11 April 2011 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

Exceptional items are disclosed and described separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group. They are material items of income or expense that have been shown separately due to the significance of their nature or amount.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual results.

This condensed consolidated financial information has been reviewed but not audited and was approved for issue on 2 August 2011.

The Company is a public limited liability company incorporated and domiciled in the UK. The address of its registered office is Oakdene Court, 613 Reading Road, Winnersh, Berkshire, RG41 5UA and its primary listing is on the London Stock Exchange.

Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2010, as described in those annual financial statements.

The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2011 or have been issued and early adopted.

·; Revised IAS 24, 'Related party disclosures', issued in November 2009. It supersedes IAS 24, 'Related party disclosures', issued in 2003. The revised IAS 24 is required to be applied from 1 January 2011.

The following new standards, amendments to standards and interpretations are mandatory for the first time for the financial year beginning 1 January 2011, but are not currently relevant for the Group.

·; 'Classification of rights issues' (Amendment to IAS 32), issued in October 2009. There have been no rights issued denominated in a foreign currency and so this will have no impact on the Group.

Notes to the unaudited condensed financial statements for the six months ended 30 June 2011 (continued)

1 Accounting policies and basis of preparation (continued)

·; 'Prepayments of a minimum funding requirement' (Amendments to IFRIC 14), issued in November 2009 is effective for annual periods beginning 1 January 2011. The standard is not applicable to the Group as there is no defined benefit pension scheme.

The following new standards, new interpretations and amendments to standards and interpretations have been issued but are not effective for the financial year beginning 1 January 2011 and have not been early adopted:

·; IFRS 9, 'Financial instruments', issued in December 2009. This addresses the classification and measurement of financial assets. The Group is assessing whether there will be any impact on the accounting for its financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption.

2 Segmental information

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Executive Committee.

The Group has only one segment, being the research, development and commercialisation of pharmaceutical products for a range of medical disorders. All costs to acquire property, plant, equipment and intangible assets as well as all related depreciation, impairment and amortisation expense borne by the Group relate to this one segment. In addition, all other non-cash expenses incurred by the Group relate to this one segment.

3 Exceptional items

Exceptional items represent significant items of income and expense, which, due to their nature or the expected infrequency of the events giving rise to them, are presented separately on the face of the income statement to give a better understanding to shareholders of the elements of financial performance in the period, so as to facilitate comparison with prior periods and to better assess trends in financial performance.

Notes to the unaudited condensed financial statements for the six months ended 30 June 2011 (continued)

4 Finance income / expense

5 Loss per share

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

For diluted loss per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion for all dilutive potential ordinary shares.

For diluted loss per share, all potential ordinary shares including options are antidilutive as they would decrease the loss per share.

6 Property, plant and equipment

Additions of £225,000 were purchased during the six months ended 30 June 2011.

There were capital commitments of £17,000 at 30 June 2011 (30 June 2010: Nil).

Notes to the unaudited condensed financial statements for the six months ended 30 June 2011 (continued)

7 Share capital

On 1 June 2011 the Group issued 12,695 ordinary shares of 1 pence each in connection with an exercise of options under the Group's Long Term Incentive Plan.

8 Other reserves

9 Related party transactions

Key management compensation amounted to £513,000 for the six months ended 30 June 2011 (30 June 2010: £488,000). The key management includes only executive and non-executive directors.

Notes to the unaudited condensed financial statements for the six months ended 30 June 2011 (continued)

10 Seasonality

The Group's financial results have not historically been subject to significant seasonal trends. However the revenue recognised in relation to royalties received for the supply of product to Menarini is dependant upon the timing when orders are received. In addition milestone revenue is dependent upon progression of the related clinical trials.

Statement of directors' responsibilities

The directors confirm, to the best of their knowledge, that these condensed interim consolidated financial statements have been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

·; An indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·; Material related party transactions in the first six months of the financial year and any material changes in the related party transactions described in the last annual report.

The directors of Vernalis Plc are listed in the Vernalis Plc annual report for 31 December 2010. A list of current directors is maintained on the Vernalis Plc website: www.vernalis.com.

The directors are responsible for the maintenance and the integrity of the Group's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

By order of the Board

David Mackney

Chief Financial Officer

2 August 2011