Interim Results for six months ended 30 June 2012

1 August 2012

LSE: VER

Interim results for the six months ended 30 June 2012

Vernalis plc, a revenue generating development stage pharmaceutical company today announces its interim results for the six months ended 30 June 2012.

Highlights

Financial

·; Strong financial performance, in-line with expectations:

·; Revenue up 36% to £5.9 million (2011: £4.3 million) driven by a significant increase in collaboration income

·; Cost base remains in line with H1 2011

·; Loss for the period halved to £3.2 million (2011: £7.0 million)

·; Strong balance sheet with £84.5 million cash resources (including cash, cash equivalents and held-to-maturity financial assets) at 30 June 2012 and debt free:

·; £65.9 million (net of expenses) over-subscribed equity fundraising (March 2012) from new and existing shareholders

·; Underlying cash burn increased to £2.6 million (2011 £1.7 million), primarily due to increased frovatriptan royalty income receivables which will unwind in the second half of the year

·; Shares admitted to trading on AIM (April 2012)

US cough/cold strategy:

·; Licensing deal with Tris Pharma, Inc. (Tris) with Vernalis gaining exclusive rights to Tris' extended release liquid technology for use in the US prescription cough/cold market (February 2012)

·; Development work initiated (April 2012) and progressing well on three of the combination products

·; Feasibility work underway at Tris on a further three combination products

·; US cough/cold pre-marketing activities initiated and planning underway to establish US commercial infrastructure

Frovatriptan

·; H1 2012 Menarini frovatriptan sales in-line with same period 2011 (€13.3 million vs €13.5 million)

·; Underlying tablet volumes up by 2.1%

Pipeline

·; AUY922:

·; Continues in multiple Phase Ib and II studies

·; Proof-of-concept (POC) declared by Novartis (December 2011)

·; Abstracts presented at ASCO (June 2012)

·; Tosedostat (CHR2797):

·; Phase II study initiated by Cell Therapeutics Inc for elderly patients with newly-diagnosed acute myeloid leukaemia ("AML") or high-risk myelodysplastic syndrome ("MDS") (June 2012)

·; HSP990:

·; Novartis has stopped further development of the oral Hsp90 inhibitor, due to its failure to achieve clinically-meaningful responses at Maximum Tolerated Dose. HSP990 is from a chemical series unrelated to AUY922 and is oral rather than intravenous

·; V81444: 

·; Successful outcome of Phase I SAD and MAD study announced (May 2012)

·; Receptor occupancy study to start in Q3 2012

·; V158866:

·; Discussions with multiple potential partners validate initiation of a proof-of-concept study in spinal cord injury neuropathic pain

·; Results of Phase I study to be presented at the World Congress on Pain meeting in August 2012

·; RPL554: 

·; Anti-inflammatory study initiated (July 2012)

Research

·; Drug discovery collaboration signed with Genentech (Jan 2012)

·; Third oncology collaboration signed with Servier (Jan 2012)

·; Milestone achieved in Servier collaboration (April 2012)

·; GSK collaboration now completed (June 2012)

Anticipated Newsflow

·; Progression of cough/cold pipeline through POC and to NDA filings (2013)

·; V158866 (FAAH - pain): Initiate Phase II POC studies (IND filing by end of 2012)

·; V81444 (A2A - Central Nervous System Diseases): Initiate Receptor Occupancy Study (2012)

·; V158411 (Chk1 - cancer): Possible partnering and initiate Phase I (2013)

·; RPL554 (Asthma/Allergic Rhinitis) (Verona): Results of anti-inflammatory study (Expected to complete end 2012)

·; Tosedostat (aminopeptidase inhibitor - cancer) (Chroma): Results of Phase II study (timing not disclosed)

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

·; Milestones under existing collaborations (undisclosed)

·; Securing new research collaborations (undisclosed)

Ian Garland, Chief Executive Officer, commented: "We had a very successful start to the first half of 2012, with the previously announced exclusive Tris licensing deal and associated fundraising. Since then Tris has initiated development work and the first three programmes are advancing well. We have progressed well in research where we secured further new collaborations and achieved an increase in revenues. The outlook for the remainder of 2012 and beyond is positive, underpinned by our Tris collaboration, strong balance sheet, royalty stream, NCE pipeline and research platform."

Presentation & Conference Call

Vernalis management will host a webcast and conference call for analysts and investors at 09.30 am (UK) today. It will be available 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 0668.

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Enquiries:

Notes to Editors

About Vernalis

Vernalis is a revenue generating development stage pharmaceutical company with one marketed product, frovatriptan for the acute treatment of migraine and an exclusive licensing agreement to develop and commercialise multiple novel products focussed on the US prescription cough/cold market as well as seven programmes in its NCE development pipeline. Vernalis has significant expertise in fragment and structure based drug discovery which it leverages to enter into collaborations with larger pharmaceutical companies. The Company's technologies, capabilities and products are endorsed by collaborations with Endo, Genentech, Lundbeck, Menarini, Novartis, Servier and Tris.

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

Implementation of our strategy to transform Vernalis into a diversified, self-sustaining pharmaceutical company continues. The licensing deal with Tris announced in February this year has added a later stage lower risk commercial pipeline of differentiated programmes to our existing higher risk pipeline of novel potential treatments in the oncology, CNS and respiratory fields as well as our drug discovery operations. Our key priority is to advance the Tris commercial pipeline and accelerate the Company to profitability. We will continue to exploit the potential in our novel drug pipeline and research capabilities but with only modest investment and taking only low levels of risk.

Late stage low-risk development and commercialisation

The licensing deal with Tris provides Vernalis with exclusive rights to Tris' extended release liquid technology for the US prescription cough/cold market. This technology together with our management team's substantial experience in the US cough/cold sector provides us with an exciting, high potential value yet low-risk commercial pipeline with multiple near-term product opportunities. Tris will develop up to six drug candidates under the deal which will be low-risk extended release liquid formulations of existing short acting prescription cough/cold products. There are significant technical barriers to developing extended release liquids but Tris has validated its capability through a number of regulatory approvals, the most recent of which was in May this year. Under the collaboration, we will establish a commercial infrastructure in the US through which these products will be marketed once approved.

Tris has already commenced full development work on three combination products, progressing all three in parallel, and is undertaking feasibility work on the next three potential combination products. Tris remains on track with the timelines previously communicated, with the first NDA filings estimated to be within 12-24 months of the deal announcement and approval around 12 months thereafter.

Since concluding the deal we have undertaken further market research in the US cough/cold market and initiated certain pre-marketing activities for the products being developed for us by Tris. We will continue these activities in parallel with Tris' ongoing development work. We remain extremely excited about the size and accessibility of the prescription cough/cold market and continue to monitor the market dynamics closely.

Frovatriptan

Underlying frovatriptan sales made by Menarini were €13.3 million in the first half of the year compared to €13.5 million in 2011. Menarini is anticipating sales to remain flat for 2012 although European pricing pressures remain a risk in the second half of the year. There has been some price erosion in 2012 but nothing comparable with that experienced in Germany during the second half of 2010. Importantly, tablet volumes are up 2.1% underpinning demand for three batches of frovatriptan per annum.

The weakening of the Euro against sterling has led to a reduction in the value of the frovatriptan royalty stream over the last six months. The royalties are paid in Euros so cash hedging instruments are used to help protect the sterling value of royalty receipts however our reported Menarini frovatriptan royalty revenue will continue to fluctuate to some extent, in-line with changes in foreign exchange rates. Royalties included in revenue for the period to 30 June 2012 were £2.0 million compared to £2.1 million for the first half of 2011 with the decline driven by a small price reduction, but the majority due to the Euro weakening.

Clinical stage activities

The pipeline at 30 June 2012 comprised eight development programmes focusing on central nervous disorders, cancer and inflammation. Four of these programmes are partnered, two with Novartis, one with Chroma and one with Verona Pharma. This pipeline continues to progress and importantly includes several products with significant commercial potential.

During the first half of 2012 we announced a positive Phase I study for our in-house programme V81444, an A2A receptor antagonist which is being investigated in central nervous system diseases. The double-blind, placebo controlled study investigated single and multiple ascending doses and was conducted in healthy male volunteers. The pharmacokinetics of the compound were found to be uncomplicated, and the range of doses were well tolerated with no unexpected safety findings. The Phase I study also identified the dose-range which will be evaluated in the receptor occupancy (RO) study, due to start in Q3 2012. The aim of this RO study is to demonstrate A2A activity in man. We will evaluate whether to partner the programme or to invest further in it, in-house when the results of the receptor occupancy study are known.

We have evaluated the most appropriate route forward for our other in-house programme V158866 and will continue to invest in it ourselves. Discussions with potential partners have validated the potential value of undertaking a Phase II proof-of-concept study in neuropathic pain as a result of spinal cord injury and we plan to initiate this study towards the end of the year. Positive data from our Phase I study will be presented at the Annual World Congress on Pain which takes place in August 2012.

Preclinical studies to enable the filing of an IND or CTA for V158411, our Chk1 inhibitor for cancer, were completed in the first quarter of 2012 and the compound is now Phase I ready. We intend to progress development of this programme with a partner and the search for a partner continues.

The most advanced of our partnered programmes is tosedestat. Development is being undertaken by our partner's sub-licensee (Cell Therapeutics). A Phase II study was initiated in June 2012 testing tosedestat in combination with either cytarabine or decitabine in elderly patients with newly diagnosed acute myeloid leukaemia or high risk myelodysplastic syndrome. We anticipate results of this study will be published in 2014. The cost of this study will be borne by Cell Therapeutics and our economic interest in this product is via a royalty should it gain approval and reach the market.

AUY922, our Hsp90 inhibitor, partnered with Novartis continues to be evaluated in a wide range of Phase Ib and Phase II studies. Novartis declared a proof-of-concept for this programme in a public presentation in December 2011. We remain excited about the commercial potential of this product. We can potentially receive clinical milestones and royalties on sales as this programme progresses.

We have been informed by Novartis that it will undertake no further development of the oral Hsp90 inhibitor, HSP990, which was at an earlier stage of development than the lead compound, AUY922. HSP990 had failed to achieve clinically-meaningful responses at its MTD. HSP990 is from a chemical series unrelated to AUY922 and is oral rather than intravenous.

Our other partnered programme, RPL554 which is partnered with Verona, started an additional study in July 2012 to investigate its anti-inflammatory properties. We anticipate results will be announced in 2013.

Maintaining a balanced approach to research

Since pursuing a lower risk collaborative research strategy, leveraging our expertise and strong track-record in fragment and structure based drug design, Vernalis has successfully built a portfolio of collaborations with leading global pharmaceutical partners. Our success has continued in the first half of 2012 during which we increased our active collaborations to six, securing a third collaboration with Servier and our first with Genentech, and earned a €0.5 million (£0.4 million) milestone from Servier. These operational successes have resulted in our collaboration income climbing by 77% from £2.2 million to £3.9 million. During the first half of 2012 our collaboration with GSK came to an end following an almost three year research phase but five remain active, with all offering the potential to earn milestones and royalties whilst receiving headcount funding.

Our robust financial position has been further strengthened

The equity fundraising announced in February, in conjunction with the Tris licensing deal, provided £65.9 million, after expenses and consequently increased our cash resources to£84.5 million at the end of the half year. The majority of the funds raised were specifically for the Tris licensing deal but approximately £13 million of additional funds were raised to pursue other in-licensing opportunities which we are actively pursuing. With the current economic uncertainty, we have minimised our exposure to foreign exchange movements by matching the currency in which our cash is held with our future obligations. We purchased US$100 million, immediately following receipt of the equity issue to match our Tris and US Commercial financing requirements. As a consequence of holding these foreign currency deposits, we will have a financial reporting foreign exchange exposure on the retranslation of the US dollar cash balances back into sterling at each reporting date, but critically any changes in foreign exchange rates between sterling and the US dollar will not impact our ability to execute on the US commercial plan. These cash resources, together with income from the frovatriptan royalty stream and our development and research collaborations, should now see us through to profitability and cash generation.

Financial Review

Income statement

Revenue for the six months ended 30 June 2012 was £5.9 million (2011: £4.3 million). Revenues comprised income of £2.0 million (2011: £2.1 million) from the supply of frovatriptan active pharmaceutical ingredient to Menarini and collaboration income (including deferred revenue) of £3.9 million (2011: £2.2 million).

Frovatriptan revenue for the first six months of 2012 decreased by 9% over the period due largely to a weakening of the Euro against sterling over the period.

Collaboration income in 2012 increased by £1.7 million due to a €0.5 million milestone from one of the Servier collaborations, together with revenue from additional research collaborations secured at the beginning of 2012. In the first six months of 2011 we had four active collaborations and we increased that number to six for the first six months of 2012.

Cost of sales for the six months ended 30 June 2012 was flat at £0.9 million (2011: £0.9 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 2012 was £6.4 million (2011: £6.6 million). External R&D expenditure decreased to £0.6 million (2011: £1.3 million). In 2012 we had V81444 in a Phase I study and in 2011 we had V158866 in a Phase I study together with V158411 in preclinical studies. Expenditure on internal R&D activities increased to £5.8 million (2011: £5.3 million), and reflects increased activity under the six research collaborations.

General and administrative expenses before exceptional items were £2.8 million compared to £2.6 million in 2011. Included within costs for 2012 were £0.5 million of one off Tris related expenditure including due diligence fees and a foreign exchange option, that was used to protect fundraising proceeds against an adverse swing in foreign exchange rates between announcing the deal and receipt of cash from investors. In 2011, a foreign exchange loss of £0.4 million inflated the cost base. Adjusting for these items the underlying costs remain consistent year-on-year.

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

The operating loss for the period, before and after exceptional items was £4.3 million (2011: £5.9 million before exceptional items and £8.2 million after exceptional items).

Finance income has decreased to £0.3 million (2011: £0.4 million) due to lower foreign exchange gains on the retranslation of cash balances into sterling. Interest received on cash, cash equivalents and held to maturity financial assets was £0.2 million, consistent with 2011. Following the fundraising in March we purchased $100 million to avoid any foreign exchange exposure on our Tris activities; interest rates are lower on USD denominated deposits and so although we have held more cash during the period when compared to 2011, the rates of interest on those balances have been lower.

Finance expenses are consistent with 2011 at £0.1 million.

The tax credit of £0.8 million (2011: £0.9 million) represents amounts recoverable under current legislation for research and development tax credits.

The loss before and after exceptional charges for the six month period to 30 June 2012 was £3.2 million (2011: £4.7 million). The loss after exceptional charges for the six month period to 30 June 2011 was £7.0 million.

Balance Sheet

Non-current assets at 30 June 2012 were £7.6 million (31 December 2011: £4.3 million). The increase largely reflects the upfront payments to Tris (US$5 million) together with deal related transaction costs, which have been capitalised in the period within intangible assets. This increase has been offset by the amortisation of the frovatriptan intellectual property which continues to be amortised over the life of the product. In addition property plant and equipment has increased largely due to the fit out of our new premises in Winnersh.

Current assets at 30 June 2012 amounted to £89.8 million (31 December 2011: £32.4 million). Cash resources increased by £59.8 million following the £65.9 million net of expenses fundraising in March, less £6.1 million cash utilised in the period. This cash increase is offset by a reduction to the receivables balances (£2.3 million) following receipt of the milestone from Lundbeck and from HMRC for prior year R&D tax claims.

Total liabilities at 30 June 2012 totalled £10.3 million (31 December 2011: £12.7 million). The decrease relates to a reduction to trade and other liabilities of £1.7 million as a result of paying the accrued Tris fees, staff bonus and a reduction of £0.9 million in our vacant lease provision following the exit from our previous lease in Winnersh.

At 30 June 2012 the Group had net assets of £87.1 million (31 December 2011: £24.0 million).

Cash flow

Cash resources comprising held-to-maturity financial assets and cash and cash equivalents, at 30 June 2012 totalled £84.5 million (31 December 2011: £24.7 million). The increase in cash resources over the six months to 30 June 2012 was £59.8 million and included £65.9 million net of expenses from the equity fundraising and £6.1 million of cash utilised in the period. The underlying cash burn was £2.6 million (underlying cash burn represents the movement in cash resources during the year excluding one off items, discontinued operations and milestone income) compared to £1.7 million for the first six months of 2011. This increase in cash burn for the period is primarily due to one cash receipt on the shipment of active pharmaceutical ingredient to Menarini in the first six months to 30 June 2012, compared to two cash receipts for the same period in 2011.

Outlook

Cash resources of £84.5 million with no debt provides a very strong platform for our cough/cold strategy. The cost base remains under tight control and investment in research continues to be focussed on our collaborations. Selective investment will continue in our in-house development programmes, V158866 and V81444 through the remainder of the year and we will continue to progress our US commercial plans in anticipation of Tris' success.

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 2011, available on the website www.vernalis.com. There are no changes to these principal risks. No further risks are anticipated for the remaining six months of the year.

Vernalis is a revenue generating development stage pharmaceutical company with one marketed product and a portfolio of research and development programmes. Across the pharmaceutical industry as a whole, competition is intense selling approved products and more product candidates fail in clinical studies than produce successful marketed products. Success or failure with Vernalis' approved products and product candidates will have a significant impact on the Company's prospects including the ability to secure licensing agreements on existing products and to secure further finance in the future should this be required.

Related Parties

Related party disclosures are given in note 10.

Going concern

At 30 June 2012, the Group had cash resources (being cash and cash equivalents and held-to-maturity financial assets) of £84.5 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 2012, which comprises the unaudited condensed consolidated income statement, unaudited condensed consolidated balance sheet, 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 AIM rules for Companies which require that financial information must be presented and prepared in a form consistent with that which will be adopted in the company's annual financial statements, and in accordance with Disclosure and Transparency rules as if the company were listed on a regulated market under EU law.

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 AIM Rules for Companies. 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 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union , the AIM Rules for Companies or the Disclosure and Transparency Rules which the company has adopted as if it were listed on a market regulated under EU law.

PricewaterhouseCoopers LLPChartered AccountantsReading

31 July 2012

Unaudited condensed consolidated income statement

For the six months ended 30 June 2012

The notes form part of this condensed financial information.

Unaudited condensed consolidated balance sheet

As at 30 June 2012

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

For the six months ended 30 June 2012

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

For the six months ended 30 June 2012

Unaudited condensed statement of cash flows

For the six months ended 30 June 2012

Notes to the unaudited condensed financial statements for the six months ended 30 June 2012

1 Accounting policies and basis of preparation

Vernalis plc ('the company') and its subsidiaries (together 'the group') are a revenue generating research and development stage pharmaceutical company with significant experience in drug development and discovery.

The company is a public limited company incorporated and domiciled in the UK. The address of its registered office is 100 Berkshire Place, Wharfedale Road, Winnersh, Berkshire, RG41 5RD and its primary listing is on the Alternative Investments Market (AIM).

This condensed consolidated financial information has been reviewed but not audited and was approved for issue on 31 July 2012.

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 2011 were approved by the Board of directors on 2 April 2012 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. This condensed consolidated financial information for the six months ended 30 June 2012 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 as if the company were listed on a market regulated under EU law. The condensed consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2011, which have been prepared in accordance with IFRSs as adopted by the European Union.

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.

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed interim financial statements, the significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2011.

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

Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2011, as described in those annual financial statements.

There are no new IFRSs or IFRICs that are effective for the first time for this interim period that would be expected to have a material impact on this group.

Notes to the unaudited condensed financial statements for the six months ended 30 June 2012 (continued)

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. Exceptional items include, but are not limited to, impairments of goodwill and intangible assets, restructuring costs and the provision for vacant leases.

4 Finance income and expense

Notes to the unaudited condensed financial statements for the six months ended 30 June 2012 (continued)

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 unless their effect is antidilutive.

6 Property, plant and equipment

Additions of £0.7m were made during the six months ended 30 June 2012 (£0.2m in the six months ended 30 June 2011).

There were capital commitments of £2,000 at 30 June 2012 (2011: £17,000).

7 Intangible assets

Additions of £3.5m were made during the six months ended 30 June 2012 (£nil in the six months ended 30 June 2011). These additions relate to a $5m upfront milestone paid to Tris, together with Tris licence related transaction costs.

8 Share capital

On 2 March 2012 the Group listed 342,528,564 ordinary shares of 1 pence each in connection with a Firm Placing and Placing and Open Offer announced on 10 February 2012.

Notes to the unaudited condensed financial statements for the six months ended 30 June 2012 (continued)

9 Other reserves

10 Related party transactions

Key management compensation amounted £924,000 for the six months ended 30 June 2012 (30 June 2011: £700,000). Key management includes only executive and non-executive directors.

11 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 of orders received. In addition milestone revenue is dependent upon progression of the related clinical trials and research collaborations.

Notes to the unaudited condensed financial statements for the six months ended 30 June 2012 (continued)

Statement of directors' responsibilities

The directors have voluntarily complied with the requirements of the Disclosure and Transparency Rules 4.2.7 and 4.2.8 as if the company were listed on a regulated market under EU law.

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 herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, 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 2011. 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

31 July 2012