Interim results for six months ended 30 June 2013

29 July 2013

LSE: VER

Interim results for the six months ended 30 June 2013

Vernalis plc (LSE: VER) today announces its results for the six months ended 30 June 2013.

Financial Highlights

·; Strong financial performance, ahead of market expectations:

·; Revenue up 29%, or £1.7 million to £7.6 million (2012: £5.9 million) driven by an increase in both collaboration income and frovatriptan royalties

·; Collaboration income increased 26% to £5.0 million (2012: £3.9 million) including £2.5 million of milestone income (2012: £0.4 million)

·; Frovatriptan income increased 34% to £2.6 million (2012: £2.0 million)

·; Operating costs before exceptional items remain unchanged at £9.1 million (2012: £9.3 million)

·; Operating loss before exceptional items reduced by 40% to £2.6 million (2012: £4.3 million)

·; Profit for the period after exceptional items was £4.2 million (2012: loss of £3.2 million) including a foreign exchange gain of £4.4 million (2012: £0.2 million)

·; Strong balance sheet with £85.7 million cash resources (including cash, cash equivalents and held-to-maturity financial assets) and debt free:

·; Net increase in cash resources of £4.1 million for the first 6 months of 2013

·; Large proportion of cash continues to be denominated in non-sterling currencies, with a foreign exchange gain of £4.4 million reported in the period

·; Underlying cash burn remained flat at £2.6 million (2012: £2.6 million)

·; R&D tax credits anticipated on payments made to Tris, related to development performed on our behalf and will include the upfront payment and the first two milestones payable for each product

·; First proof-of-concept (PoC) milestone paid to Tris in March 2013

Operational Highlights

Cough Cold Commercial Pipeline:

·; CCP-01 PoC achieved and milestone paid to Tris in March 2013

·; First NDA remains on-track for filing mid-2014

·; Four further programmes in active development at Tris

·; 505(b)(2) pathway based on comparative bioavailability confirmed with FDA for all five programmes

NCE Development Pipeline:

Frovatriptan (marketed) (Migraine):

·; H1 2013 Menarini frovatriptan sales in-line with same period 2012 (€13.1 million vs €13.3 million)

·; Positive results from a pilot study sponsored by Menarini presented at the International Headache Congress in Boston, showing that the combination of frovatriptan with dexketoprofen resulted in improved efficacy compared with frovatriptan alone

V81444 (CNS diseases):

·; First subjects dosed in a combined Phase Ib/II PoC, safety and pharmacokinetic study (July 2013)

V158866 (Pain):

·; Recruitment of patients continues in the Phase II PoC study in spinal cord injury neuropathic pain

AUY922 (Cancer):

·; Continuing in multiple Phase I and Phase II studies with Novartis in a variety of cancers including breast, non-small-cell lung and gastric cancers

Tosedostat - CHR2797 (Cancer):

·; Investigator led trial placed on partial clinical hold by FDA (June 2013). Cell Therapeutics Inc (CTI) are working to provide additional data to the FDA

Research Collaborations:

·; Long-term collaboration with Servier extended (March 2013)

·; Genentech milestones of $4.0 million (£2.5 million) earned in first half of year

Expected Newsflow

·; Achieve multiple PoCs in cough cold pipeline (H2 2013, and 2014)

·; File CCP-01 NDA (mid 2014)

·; Multiple further cough cold NDA filings (late 2014 and 2015)

·; AUY922 (Cancer) - Multiple Phase I and II study results (Novartis, timing not disclosed)

·; V81444 (CNS diseases) - Completion of Phase II PoC study (H1 2014)

·; V158866 (Pain) - Completion of Phase I/II PoC study (H1 2014)

·; Achieve milestones under existing research collaborations

·; Secure new research collaborations

Ian Garland, Chief Executive Officer, commented, "We have continued to make excellent progress with our cough cold programmes with CCP-01 on-track for NDA filing in mid-2014. We also expect to undertake multiple proof-of-concept studies during 2013 and 2014 on our other four cough cold candidates and the accelerated nature of these programmes positions us for further NDA filings during late 2014 and 2015. Our first half 2013 financial results were strong and we remain in an excellent position to deliver substantial value to our shareholders."

Presentation & Conference Call

Vernalis management will host a presentation at 09.30 am (UK) today (29 July 2013) at Brunswick's offices, 16 Lincoln's Inn Fields, London WC2A 3ED. 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 3139 4830, Passcode 99824478#.

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Enquiries:

Notes to Editors

About Vernalis

Vernalis is a revenue generating development stage pharmaceutical company with significant expertise in drug development. The Group has one marketed product, frovatriptan for the acute treatment of migraine, 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 also 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 have been endorsed over the last five years by collaborations with leading pharmaceutical companies, including Biogen Idec, Endo, GSK, 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

Fifteen months on from the 2012 licensing deal with Tris, Vernalis' transformation into a self-sustaining pharmaceutical company continues to advance with the progression of our differentiated prescription cough cold candidates, which now form a late-stage, low-risk pipeline. In parallel, the Company continues with its plans to realise value from its historical investments in its higher risk pipeline of novel potential treatments in the oncology, CNS and respiratory fields as well as our drug discovery operations. Our key priority remains to advance the Tris commercial pipeline and progress the Company to sustainable profitability, whilst continuing to exploit the potential in our novel drug pipeline and research capabilities with only modest investment and taking only low levels of risk.

Late stage low-risk development and commercialisation

The licensing deal with Tris combines Tris' extended release liquid technology with Vernalis' management team's substantial experience in the US cough cold sector to produce an exciting, high potential value but low-risk commercial pipeline.

We have prioritised development of five products under the Tris collaboration following feedback from FDA that confirmed an accelerated regulatory path based on comparative bio-availability for these products. All five are extended release formulations of existing immediate release prescription cough cold products.

The first candidate, CCP-01, achieved PoC in March 2013 and following production of three stability batches is on-track for NDA filing in mid-2014. Tris has already developed formulations for the remaining four products and plans to run PoC pilot bio-availability studies during H2 2013, and 2014. We anticipate that PoC will be achieved for all four further products and that multiple NDA filings will take place during 2014 and 2015.

The prescription cough cold market continues to be a large and attractive market with significant potential for extended release formulations of current immediate release products. The total market fluctuates with the severity of the cough cold season and the latest IMS prescription data indicate that 33.7 million prescriptions were written for cough cold products in the year to June 2013, representing a moderate to severe season. By way of comparison 35 million prescriptions were written in the year to June 2011 (also a severe season) and 28.9 million in the same period to June 2012 (a very mild season). We estimate the potential market size for extended release products to be around $2 billion.

During the first half of 2013 we have undertaken further market research in the US with current prescribers of short acting prescription cough cold products. That market research confirmed the physicians' high interest in the products we are developing, indicated high potential usage and confirmed that the key selling point of interest is a longer duration of action. We are also continuing preparations to establish our US commercial infrastructure ahead of the planned first launch in 2015.

Frovatriptan

Underlying frovatriptan sales made by Menarini in H1 2013 continue to perform broadly in line with the same period of 2012 (€13.1 million compared to €13.3 million). Menarini is anticipating sales will remain flat for 2013. The royalties on these underlying sales 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 in-line with changes in foreign exchange rates. Royalties included in revenue for the period to 30 June 2013 were £2.6 million compared to £2.0 million for the first half of 2012 with the increase driven primarily by an increase in volume but also some foreign exchange movement.

Realising value from the NCE pipeline

The NCE pipeline at 30 June 2013 comprised seven development programmes focusing on central nervous disorders, cancer and inflammation. Four of these programmes are partnered, one each with Novartis, Chroma, Verona Pharma and Servier. This pipeline continues to progress and importantly includes several products with significant commercial potential.

Of the three in-house programmes, during the first half 2013 we initiated PoC studies for V81444, an A2A receptor antagonist which is being investigated as a treatment for central nervous system diseases, and V158866, a FAAH inhibitor being investigated as a treatment for neuropathic pain as a result of spinal cord injury. We expect both of these studies to be completed by the middle of 2014 and if positive, plan to seek partners for their continued development. We continue to seek a partner for our remaining in-house programme, V158411, a Phase I-ready Chk1 inhibitor for cancer.

AUY922 (our Hsp90 inhibitor from a research collaboration with Novartis) is being evaluated in a wide range of Phase Ib and Phase II cancer studies. We remain excited about the commercial potential of this product. We can potentially receive clinical milestones and royalties on sales as this programme progresses.

Tosedostat, which is being progressed by CTI, is currently in an investigator led study and was placed on partial clinical hold in June 2013 whilst CTI work to provide additional data to the FDA. The other two partnered programmes continue to progress and we will provide updates as results of on-going studies become available.

Maintaining a balanced approach to research

Following the excellent performance in 2012, research has continued to perform strongly in H1 2013 with five active collaborations and two milestones earning £4.8 million of income (H1 2012: £3.9 million). We continue to follow a lower risk collaborative research strategy, leveraging our expertise and strong track record in fragment and structure based drug design.

We maintain a robust debt free financial position

At 30 June 2013 the Company had £85.7 million of cash resources and no debt. The majority of the cash remains in US dollar to minimise our exposure to foreign currency movements by matching the currency in which our cash is held to our future obligations. As a consequence of holding these foreign currency deposits, we report exchange exposure on the retranslation of the US dollar cash deposits into sterling at each reporting date and on that basis a £4.2 million gain on our US dollar deposits has been recorded for the period to 30 June 2013 (H1 2012: £0.3 million). Critically, any changes in the foreign exchange rates between sterling and the US dollar will not impact our ability to execute our US commercial strategy, albeit that reported cash and held to maturity financial assets in sterling will be affected. This cash resources position, together with the frovatriptan royalty stream and multiple development and research collaborations, provide the company with an exceptionally robust financial platform for future growth.

Financial Review

Income statement

Revenue continues to grow from both collaborations and royalties

Revenue for the six months ended 30 June 2013 was £7.6 million (2012: £5.9 million). Revenues comprised income of £2.6 million (2012: £2.0 million) from the supply of frovatriptan active pharmaceutical ingredient (API) to Menarini and collaboration income (including deferred revenue) of £5.0 million (2012: £3.9 million).

Milestone income drives 26% growth in collaboration income

Collaboration income in 2013 increased by £1.1 million or 26%, due to £2.5 million of milestone income received from the Genentech collaboration which concluded in the period. In 2012 we received a €0.5 million (£0.4 million) milestone from one of the Servier collaborations. This additional 2013 milestone income has been offset by a reduction in FTE income with four active collaborations at the end of June 2013 compared to six at June 2012.

Frovatriptan royalties up 34%

Underlying sales of frovatriptan by Menarini in Europe and Central America were €13.1 million; broadly flat compared with 2012 (H1 2012: €13.3 million). Underlying volumes of tablet sales in 2013 were also flat compared with 2012 at 4.7 million (H1 2012: 4.7 million). Vernalis receives 25.25 % of Menarini sales via a royalty linked to the supply of API so the reported royalties do not necessarily track the underlying sales of frovatriptan.

The reported £2.6 million of frovatriptan royalties for the first six months of 2013 was an increase of 34% compared with the same period last year (28% of this increase due to volume and 6% due to foreign exchange). In the first half 2013, we shipped 2.5kg of API to Menarini for non-EU territories, one batch of tablets for the Central American market and the usual 12.5kg shipment normally made in H1 (H1 2012: 12.5kg only). API shipments are invoiced in Euros and translated into sterling for financial reporting purposes. For the first half of 2013 there was a foreign exchange benefit of 6% due to the weakening of sterling against the Euro when compared with the first six months of 2012.

External R&D spend remains focused

Research and development expenditure for the six months ended 30 June 2013 was flat compared with 2012 at £6.5 million (H1 2012: £6.4 million). External R&D expenditure increased to £0.9 million (H1 2012: £0.6 million) with V158866 in a phase II PoC study and increased activity on Tris projects. Expenditure on internal R&D activities reduced to £5.6 million (H1 2012: £5.8 million).

Operating costs before exceptional items remain tightly managed

General and administrative expenses before exceptional items were £2.6 million compared to £2.8 million in 2012. Included within costs for 2012 were £0.5 million of one-off Tris transaction related expenditure including due diligence fees and a foreign exchange option fee, 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 2013 there was a foreign exchange loss of £0.2 million for the period. Adjusting for these items the underlying costs remain consistent year-on-year.

The exceptional gain in 2013 of £0.5 million relates to a reassessment of assumptions used to calculate the property provision.

Operating loss reduced by 40%

The operating loss for the period before exceptional items was £2.6 million (H1 2012: £4.3 million). The operating loss after exceptional items was £2.1 million (H1 2012: £4.3 million).

Significant foreign exchange gain further improves half year performance

Finance income has increased to £4.7 million (H1 2012: £0.3 million) due to a £4.4 million foreign exchange gain on the retranslation of cash and held-to-maturity financial assets into sterling at 30 June 2013. The majority of the gain has arisen because the US dollar has strengthened by 6.7% against sterling since the start of the year. Interest received on cash, cash equivalents and held-to-maturity financial assets was £0.2 million, consistent with 2012. With a large proportion of our cash remaining in US dollars we will continue to recognise foreign exchange gains and losses on this cash at the end of each reporting period, based on the prevailing exchange rates.

Finance expense is consistent with H1 2012 at £0.1 million.

R&D tax credit on qualifying payments made to Tris

The tax credit of £1.6 million (H1 2012: £0.8 million) represents amounts recoverable under current legislation relating to research and development expenditure. Payments made to Tris that relate to development work performed on our behalf will qualify for R&D tax credits. The increase in the tax credit for the period arises not only from the tax credit on the PoC milestone that was paid to Tris in March but also £0.5 million from 2012 relating to the US$5 million upfront payment made to Tris.

Profit reported for the period

The Group reported a profit before exceptional items for the six month period to 30 June 2013 of £3.6 million (H1 2012: loss of £3.2 million) due to an improved business performance in addition to the foreign exchange gain on cash (£4.4 million as explained above). Profit after exceptional items for the six month period to 30 June 2013 was £4.2 million (H1 2012: loss of £3.2 million).

Balance Sheet

Well positioned for commercial success

Non-current assets at 30 June 2013 were £8.1 million (31 December 2012: £6.9 million). The increase reflects the PoC payment to Tris for CCP-01 announced in March 2013, which has 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. 

Current assets at 30 June 2013 amounted to £90.9 million (31 December 2012: £88.6 million). Cash resources increased by £4.1 million to £85.7 million. This cash increase is offset by a reduction to trade and other receivables balances following receipt of two research milestones included in the 2012 results, as well as the tax receivable, following receipt of the R&D tax credit for 2012 from HMRC.

Total liabilities at 30 June 2013 totalled £9.0 million (31 December 2012: £10.1 million) and importantly we remain debt free.

At 30 June 2013 the Group had net assets of £90.0 million (31 December 2012: £85.5 million).

Cash flow

Cash management remains strong with sufficient cash to fully execute the commercial strategy

Cash resources comprising held-to-maturity financial assets and cash and cash equivalents, at 30 June 2013 totalled £85.7 million (31 December 2012: £81.6 million).

The increase in cash resources over the six months to 30 June 2012 was £4.1 million and included a £4.4 million gain on the retranslation of foreign currencies into sterling for financial reporting purposes. 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) and flat when compared with the first six months of 2012 (H1 2012: £2.6 million). During the period we paid for the PoC milestone for CCP-01 announced in March 2013, and received £4.0 million in total from two Genentech milestones and two milestones included in the 2012 results but not received until this year.

Outlook

Cash resources of £85.7 million, no debt and tight financial control provide a very strong platform for delivering on our cough cold strategy without the need to seek further cash from our existing investors. The filing of an NDA with the FDA for the first cough cold candidate is expected in mid 2014 and multiple value-enhancing milestones are achievable in the next 12 months. We will continue to progress our US commercial plans in anticipation of Tris' success. In parallel, the NCE pipeline continues to perform well with data from the two PoC studies for V158866 and V81444 anticipated in H1 2014.

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 2012, 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 development and research programmes. Across the pharmaceutical industry as a whole, competition is intense in the selling of 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 11.

Going concern

At 30 June 2013, the Group had cash resources (being cash and cash equivalents and held-to-maturity financial assets) of £85.7 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 2013, which comprises the unaudited condensed consolidated income statement, unaudited condensed consolidated balance sheet, unaudited condensed consolidated 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 the financial information must be presented and prepared in a form consistent with that which will be adopted in the company's annual financial statements.

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 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 2013 is not prepared, in all material respects, in accordance International Accounting Standard 34 as adopted by the European Union and the AIM Rules for Companies.

PricewaterhouseCoopers LLPChartered Accountants

Reading26 July 2013

Unaudited condensed consolidated income statement

For the six months ended 30 June 2013

The notes form part of this condensed financial information.

Unaudited condensed consolidated balance sheet

As at 30 June 2013

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

For the six months ended 30 June 2013

The notes form part of this condensed financial information.

Unaudited condensed statement of changes in equity

For the six months ended 30 June 2013

Unaudited condensed statement of cash flows

For the six months ended 30 June 2013

Notes to the unaudited condensed financial statements for the six months ended 30 June 2013

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 business 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 26 July 2013.

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 2012 were approved by the Board of directors on 9 April 2013 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 2013 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 2012, 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 2012.

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 2012, 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 2013 (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 size, 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 year, so as to facilitate comparison with prior years 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.

An exceptional credit of £505,000 (2012:£nil) has been recognised in the income statement following a reassessment of the assumptions used to calculate the provision.

4. Finance income and expense

Notes to the unaudited condensed financial statements for the six months ended 30 June 2013 (continued)

5. Income tax credit

Analysis of current tax credit in the 6 months to 30 June.

6. 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.

7. Property, plant and equipment

Additions of £0.1m were made during the six months ended 30 June 2013 (£0.7m in the six months ended 30 June 2012).

There were capital commitments of £513,000 at 30 June 2013 (2012: £2,000).

Notes to the unaudited condensed financial statements for the six months ended 30 June 2013 (continued)

8. Intangible assets

Additions of £2.0m were made during the six months ended 30 June 2013. These additions relate to a $3.0m milestone paid to Tris Pharma, in recognition of the achievement of PoC for the first collaboration programme, CCP-01. Additions of £3.5m were made in the six months ended 30 June 2012 and related to a $5.0m upfront milestone paid to Tris Pharma, together with professional fees incurred in relation to the Tris Pharma agreement.

9. Share capital

Notes to the unaudited condensed financial statements for the six months ended 30 June 2013 (continued)

10. Other reserves

11. Related party transactions

Key management compensation amounted £1,003,000 for the six months ended 30 June 2013 (30 June 2012: £924,000). Key management includes only executive and non-executive directors.

12. 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 dependent upon the timing of shipments made. 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 2013 (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 2012. 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

26 July 2013