Interim Results

28th Aug 2008 07:00



28 August 2008

Announcement of Interim results for the six months ended 30 June 2008

Winnersh, UK, 28 August 2008, Vernalis plc (LSE: VER) today announces its preliminary results for the six months ended 30 June 2008.

In the first half of 2008, Vernalis implemented a major change in its business strategy and is now focused on pursuing its R&D programmes up to and including proof of concept clinical studies whilst seeking partnerships for later-phase clinical development and commercialisation. Vernalis has completed a major restructuring to provide a stable financial platform for this R&D based strategy. Vernalis also today announces the successful completion of a Phase IIa study with V10153, a potential treatment for ischaemic stroke. 

Highlights

Proforma cash resources at 30 June 2008 of £22.9 million (including £6.2 million proceeds from sale of Apokyn® and US operations to Ipsen). Cash resources at 30 June 2008 of £16.7 million (31 Dec 2007: £20.5 million)

Early settlement of $56 million loan from Endo

€18.4 million financing from European frovatriptan revenues 

Divestment of Apokyn & US operations to Ipsen (completed 1 July 2008)

$5 million share subscription by Ipsen at 20 per cent premium (1 July 2008)

V10153 Phase IIa study in ischaemic stroke successfully completed.  5 mg/kg dose to be evaluated in efficacy studies

V1512 - positive data from Phase II pharmacokinetic study (Parkinson's disease)

•	V1512: Partner and start Phase III programme	H2 08
•	V3381: Partner or start Phase IIb study	H2 08
•	V24343: Start low-dose study	H2 08
•	V10153: Start efficacy study	H1 09
•	BIIB014: V2006: Complete Phase II study (Biogen Idec)	2009
•	NVP-AUY922: Complete Phase I study (Novartis)	Undisclosed

 

Peter Fellner, Executive Chairman, Vernalis commented, "In the first half of 2008, we have completed the restructuring of Vernalis, as planned and on schedule. The divestment of Apokyn® and the US operations together with utilisation of frovatriptan revenues to raise cash and cancel debt has strengthened the balance sheet and provided the financial platform to invest in our product pipeline and discovery programmes. I am also very pleased to announce today that we have successfully completed our Phase IIa ischaemic stroke study with V10153, and have identified a safe dose to take through to efficacy studies next year in this very underserved market. "

-- ends --

Enquiries:

Vernalis plc	+44 (0) 118 977 3133
Peter Fellner, Executive Chairman
Tony Weir, Chief Financial Officer
Brunswick Group	+44 (0) 20 7404 5959
Jon Coles
Justine McIlroy

Notes to Editors

About Vernalis

Vernalis is a pharmaceutical company with one marketed product, Frova®, and six products in clinical development and collaborations with leading, global pharmaceutical companies including Novartis, Biogen Idec, Endo, Menarini and Chiesi:

 

Product	Indication	Phase I	Phase II	Phase III	Registration	Market	Marketing Rights
Frova®	Migraine					X	Endo/Menarini (Royalties)
Frova®	Menstrual Migraine			X			Endo/Menarini (Royalties)
V1512	Parkinson’s Disease		X				World Wide (excl. Italy)
V10153	Ischaemic Stroke		X				Worldwide
V3381	Neuropathic Pain		X				Worldwide
V2006	Parkinson’s Disease		X				Biogen Idec (Milestone & Royalties)
V24343	Obesity/ Diabetes	X					Worldwide
AUY922	Cancer	X					Novartis (Milestone & Royalties)
Hsp90-Oral	Cancer						Novartis (Milestone & Royalties)
-	Cancer						Servier (Milestone & Royalties)

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

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 Frova® 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

Strategic Framework

Vernalis has undertaken a major change in its business strategy following the decision of the US FDA, in September 2007, not to approve the Company's Supplemental New Drug Application (sNDA) for Frova® for the short-term prevention of menstrual migraine.

The revised strategy will refocus the Company on building value by effectively and rapidly progressing its innovative development pipeline and discovery programmes up to and including proof-of-concept clinical studies, prior to establishing partnerships for later-phase clinical development and subsequent commercialisation. The development pipeline includes a series of novel product candidates addressing potentially large market opportunities. Several are retained in entirety by Vernalis, and two are being developed in collaboration with major partners, Novartis and Biogen Idec.

Vernalis will continue to exploit its proven, highly competitive structure-based discovery technologies and capabilities to drive a series of key programmes, with the initial goal of generating attractive development candidates from one to two of these programmes within the next 12 months.

As a consequence of this strategic shift, Vernalis has implemented a major restructuring of its business, in order to provide a stable financial platform for the repositioned Company. Current estimates are that Vernalis should have sufficient funds until mid 2010 based on its current out-licensing and investment plans for its R&D programmes.

The key elements of the restructuring are as follows:

Early settlement of the loan due to Endo Pharmaceuticals Inc. This was successfully concluded and announced in February 2008. The outstanding balance of approximately $56million, which was originally due for repayment in August 2009, was discharged in full in return for an initial payment of $7million and Vernalis foregoing Frova® royalties from US sales until they exceed $85million per annum.

 A financing agreement with Paul Capital Healthcare whereby Paul Capital Healthcare acquired an interest in 90 per cent of Vernalis' net revenues from frovatriptan under its collaboration with Menarini in return for a payment to Vernalis of €18.4 million. The remaining 10 per cent retained by Vernalis will be used to meet the costs of supplying active pharmaceutical ingredient to Menarini.

Divestment of Apokyn®, currently marketed in the US for Parkinson's disease, together with the Company's US sales and marketing operations to Ipsen on 1 July 2008 for an initial cash consideration of $6.5 million. Further milestone consideration of up to $6.0 million may become payable by Ipsen to Vernalis and, in addition, Ipsen subscribed $5.0 million for new shares in Vernalis at a 20 per cent premium.

Reduction of the total headcount from 210, including US commercial operations, to approximately 90. The remaining employees are all based in the UK, with around 75 in R&D. The discovery programmes are being concentrated at the Cambridge research facility, with a small group of development and corporate staff continuing to be based in Winnersh.

All elements of the restructuring are expected to be completed in the third quarter of 2008.

Marketed Products

Apokyn® - Advanced Parkinson's Disease

Apokyn® was divested to Ipsen effective from 1 July 2008. Gross sales for Apokyn for the six months ended 30 June 2008 were $2.1 million (2007: $3.1 million).  These results are shown as a discontinued operation in the income statement.

Frova® - Acute Migraine

Frova®, a selective 5-HT1B/1D receptor agonist, is approved as an acute oral treatment for migraine headache and its associated symptoms. Vernalis licensed North American rights for Frova® to Endo, who reported net sales in the six months ended 30 June 2008 of $26.9 million (2007: $24.9 million). In return for the early settlement of the loan due to Endo Vernalis does not receive royalties on US sales of frovatriptan until sales exceed $85 million per annum.

In Europe, frovatriptan is marketed by Menarini, and they reported sales in the six months ended 30 June 2008 of €13.2 million (2007: €9.9 million). Under its collaboration with Menarini, Vernalis earns a return which approximates to 25 per cent of net sales through the supply of product to Menarini. In April 2008, Vernalis entered a financing agreement with Paul Capital Healthcare relating to the revenues under the collaboration with Menarini. Vernalis continues to receive the full revenues from Menarini but 90 per cent of these are paid to Paul Capital Healthcare under the financing arrangement.

In the six months ended 30 June 2008, frovatriptan was launched in Portugal.

Frova® - Prevention of Menstrual Migraine (MM)

On 30 September 2007, Vernalis announced that the FDA had issued a non-approvable letter in respect of the sNDA for Frova® for the short-term prevention of menstrual migraine. Vernalis' partner, Endo, has subsequently withdrawn the sNDA and Vernalis and Endo are continuing to evaluate options for further development in this and other indications.

Vernalis' European partner, Menarini, is considering submitting an application throughout Europe, under the mutual recognition procedure, to extend the current acute indication to include prevention of menstrual migraine. 

Product development pipeline 

Unpartnered products

V1512 - Parkinson's Disease

V1512 combines Levodopa (L-dopa) methylester, a form of L-dopa with significantly enhanced solubility, with Carbidopa. It is fully soluble in water and is presented in a patented effervescent formulation as a potential novel treatment for Parkinson's disease. It is expected that this product could provide a valuable clinical advantage in patients with advanced disease, many of whom suffer from reduced gastrointestinal motility. Data from a recently completed pharmacokinetic study have confirmed the improved reproducibility and reliability of L-dopa absorption from V1512 compared with standard L-dopa therapy.

We plan to evaluate V1512 in a pivotal Phase III programme, which has been agreed with the FDA under the Special Protocol Assessment (SPA) process. Discussions are currently ongoing with potential partners, to enable this Phase III programme to be completed, and to undertake the commercialisation of this novel product.

V10153 - Ischaemic Stroke

V10153 is a novel thrombolytic protein which is being developed for the treatment of acute ischaemic stroke. Current therapeutic options for stroke sufferers are limited since the only approved drug therapy, the thrombolytic recombinant tissue plasminogen activator (rt-PA), must be administered within three hours of a stroke occurring.

V10153 has been evaluated in a Phase IIa study in which patients who had recently suffered a stroke are treated within three to nine hours. This trial was designed primarily to collect safety data, but patients have also been assessed by CT angiography to ascertain whether reperfusion or recanalisation events occurred.

Four dose levels (1 mg/kg; 2.5 mg/kg; 5 mg/kg and 7.5 mg/kg) have been completed and a total of 49 patients have been treated. Ten patients received each of the first two dose levels of 1 mg/kg and 2.5 mg/kg and 20 patients received the third dose level of 5 mg/kg. Nine patients received the top dose level of 7.5 mg/kg of which three experienced a clinically significant bleed. Although such bleeds occur relatively frequently in ischaemic stroke patients, the possibility that the bleeds were treatment-related cannot be ruled out. It has been agreed, in consultation with the Study Steering Committee and Data Safety Monitoring Board, that the study has met its objectives and consequently enrolment in the study has been closed.

The Data Safety Monitoring Board has confirmed that the 5mg/kg dose is safe and well tolerated. Several patients at this dose level have demonstrated positive clinical outcomes with those patients who entered the trial with better prognostic characteristics, such as those that were treated earlier and/or those with smaller clots, responded particularly well to V10153.

The Phase IIa trial has, therefore, met its objective of determining a safe dose (5 mg/kg) of V10153 for evaluation in further clinical studies. Consultants with specialised expertise in neurological imaging have been engaged to further assess the data from the trial. These analyses will be available later this year, following which the next steps in the development of V10153 will be formulated. These plans could include a study to assess V10153 within the initial three hour period following a stroke, since this product has potential clinical advantages over rt-PA. These advantages include a prolonged plasma half-life, with a possibility of a reduced reocclusion rate, as well as the potential to administer the product by bolus injection rather than infusion. An academic collaboration is also being planned with Dr Michael Hill, Calgary, Canada, on a study to evaluate the safety and efficacy of V10153 in patients who awake with a stroke. Many of these patients are currently ineligible for thrombolytic therapy. 

V3381 - Neuropathic pain

V3381 has a dual mechanism of action, as an NMDA antagonist and MAO-A inhibitor, that gives it the potential to moderate pain at both central and peripheral sites, and is being developed for the treatment of neuropathic pain. V3381 has successfully completed a Phase IIa trial in patients suffering neuropathic pain from long-standing diabetes. Data from the trial indicate that V3381 was generally well tolerated with good preliminary indications of efficacy.

V24343 - Obesity & Diabetes

V24343 is a cannabinoid type 1 receptor (CB1) antagonist which is a potential treatment for obesity, diabetes and related disorders. V24343 has successfully completed a series of Phase I studies which showed that V24343 produced significant weight loss in overweight and mildly obese volunteers while being generally well tolerated and without any serious adverse events. The pre-clinical and clinical data indicate a wide safety margin, and suggest that the centrally mediated side effects seen with rimonabant may be less problematic with V24343. A further study to evaluate lower doses in the likely effective dose range is planned for H2 2008, after which Vernalis will explore potential partnership options for further development and commercialisation. Back-up compounds which have predominantly peripheral CB1 effects are also being evaluated in pre-clinical studies (see below).

Partnered products

BIIB014 (V2006) - Parkinson's disease

V2006 is an adenosine A2A receptor antagonist in development as a novel treatment for Parkinson's disease. V2006 has been licensed to Biogen Idec who are conducting the development programme. Vernalis will receive milestone payments as V2006 progresses through development, and subsequently royalties on future sales. Biogen Idec has started a Phase II programme which is investigating V2006, in combination with L-dopa, in late-stage Parkinson's disease patients and as monotherapy, in a placebo-controlled study, in early stage Parkinson's disease patients. Results from the programme are expected in 2009. 

NVP-AUY922 - Cancer

NVP-AUY922 is a novel Hsp90 inhibitor for the treatment of a range of cancers, and is being developed by Novartis. It is the first compound from the collaboration with Novartis to enter clinical testing and is currently being evaluated in a Phase I programme in patients in a variety of solid tumours and haematological cancers. Vernalis will receive milestone payments as it progresses through development, and royalty payments upon commercialisation.

Discovery programmes

As part of the restructuring programme, research at Vernalis has been reduced in size by approximately one third whilst still retaining the core assets of chemistry, structural sciences, molecular modelling and assay development to ensure ongoing capability to evaluate new targets rapidly and identify innovative drug candidates. The Vernalis discovery capability has delivered highly active clinical candidate molecules for the Hsp90 programme partnered with Novartis and is also the basis for a major oncology collaboration with Servier.

Research has also been reorganised, with an increased focus on our three late-stage lead optimisation programmes addressing novel targets in cancer, pain and diabetes. Two of these discovery programmes utilise Vernalis' suite of highly competitive structure-based drug discovery technologies. This uses a fragment-based approach to identify novel chemical starting points for the drug discovery process, from which hit compounds are identified using NMR and other biophysical techniques. The evolution of these hits into lead compounds is guided by the way in which they bind to the target, determined by using X-ray crystallography. This approach delivered highly active clinical candidate molecules for the Hsp90 programme partnered with Novartis.

Key late-stage discovery programmes 

Checkpoint Kinase 1 (Chk1) inhibitors - Cancer

Some cancer cells use the Chk1 pathway to increase cell survival by pausing DNA replication and allowing repair of the damaged DNA before completing cell division. Inhibition of the Chk1 kinase blocks this pathway, forcing cells to undergo cell division (mitosis) with substantial DNA damage that results in their death. The aim of this programme is to identify product candidates that increase the anti-tumour efficacy of current cytotoxic agents without increasing their toxicity to non-cancerous tissues.

FAAH inhibitors - Neuropathic pain

Fatty acid amide hydrolase (FAAH) is the target for a late stage research programme in neuropathic pain. FAAH is the enzyme responsible for metabolism of the endocannabinoid anandamide, and its inhibition results in elevated anandamide. Anandamide is a central and peripheral neurotransmitter which, amongst other actions, can interact with the CB1 and CB2 cannabinoid receptors. In man, stimulation of these receptors has been shown to relieve chronic pain in patients with spinal cord injuries and multiple sclerosis. As FAAH inhibitors selectively increase anandamide in tissues mediating pain responses, they cause a powerful analgesic response in the absence of the side effects associated with more widespread CB1 receptor activation. Vernalis has identified highly potent and selective inhibitors which are in the process of being evaluated as possible drug candidates.

Peripherally acting CB1 antagonists - Type 2 diabetes

This is a follow-on programme from that which produced V24343, which like rimonabant, is both a peripherally and centrally acting CB1 receptor antagonist. Rimonabant has been shown to cause weight loss and improve the symptoms of type 2 diabetes in extensive clinical trials but is also associated with unwanted CNS side effects such as depression and anxiety. The pre-clinical data available on V24343 indicate that it may have a much wider safety margin. Recent evidence suggests that the metabolic actions of CB1 receptor antagonists may be mediated through peripherally located CB1 receptors. Peripherally acting CB1 receptor antagonists may therefore possess the weight loss and anti-diabetic properties of centrally acting agents, without the CNS side effect complication.

•	V1512: Partner and start Phase III programme	H2 08
•	V3381: Partner or start Phase IIb study	H2 08
•	V24343: Start low-dose study	H2 08
•	V10153: Start efficacy study	H1 09
•	BIIB014 (V2006): Complete Phase II study (Biogen Idec)	2009
•	NVP-AUY922: Complete Phase I study (Novartis)	Undisclosed

 

Financial Review

Income Statement

Revenue for the six months ended 30 June 2008 was £47.9 million (2007: £8.5 million) including £44.6 million of exceptional revenue. Pre-exceptional revenues were £3.3 million (2007: £8.5 million). These comprised revenues from frovatriptan in Europe of £1.9 million (2007: £3.8 million), reflecting the supply of active pharmaceutical ingredient to Menarini, and collaborative revenues of £1.4 million (2007: £2.8 million). In addition, in 2007, royalty revenues resulting from sales of frovatriptan in North America amounted to £1.9 million. The exceptional revenue recognised in the period was as a consequence of the early settlement of the loan due to Endo in February 2008. An amount of £24.2 million was recognised as an advance payment of royalties representing the balance of the loan that was cancelled in consideration for altering the royalty terms. In addition, £20.4 million was recognised on the release of the outstanding deferred income relating to the collaboration with Endo.

Cost of sales for the six months ended 30 June 2008 was £14.4 million (2007: £2.7 million) including £13.6 million of exceptional cost of sales. Pre-exceptional cost of sales were £0.9 million (2007: £2.7 million) and reflected supplies of frovatriptan for Europe of £0.2 million (2007: £1.0 million) and the amortisation of frovatriptan intangible assets of £0.7 million (2007: £1.7 million). The exceptional cost of sales recognised in the period of £13.6 million results from the accelerated amortisation of the frovatriptan intangible asset relating to the US rights.

Research and development expenditure for the six months ended 30 June 2008 was £9.0 million (2007: £11.8 million). Expenditure of £7.8 million (2007: £8.9 million) was incurred on internally funded R&D with the reduction due to the restructuring announced in February 2008. Expenditure of £1.2 million (2007: £2.9 million) was incurred on clinical trials and manufacture of product candidates with the reduction due to the reduced clinical portfolio following the restructuring.

General and administrative expenditure was £7.7 million (2007: £3.1 million) including an exceptional charge of £4.7 million (2007: £0.6 million credit). Pre-exceptional general and administrative expenditure was £3.0 million (2007: £3.8 million) with the reduction due to the restructuring. The exceptional charge of £4.7 million comprised restructuring costs of £2.9 million and a vacant lease provision of £1.8 million, following the decision to vacate a proportion of the Company's premises in Winnersh. In 2007, the exceptional credit reflected a reduction in the onerous lease provision following an agreement to sub-let one of the Company's excess properties.

The operating profit for the six months ended 30 June 2008 was £16.8 million (2007: £9.2 million loss) including an exceptional profit of £26.4 million (2007: £0.6 million). The pre-exceptional operating loss was £9.6 million (2007: £9.8 million).

Finance income reduced to £0.6 million (2007: £1.9 million) due to lower interest receivable of £0.5 million (2007: £0.9 million) and lower exchange gains of £0.1 million (2007: £1.0 million). Finance expenses increased to £1.7 million (2007: £1.3 million) and included a finance charge of £0.9 million (2007: £nil) in respect of the Paul Capital Healthcare financing, loan interest to Endo of £0.1 million (2007: £0.8 million), exchange losses of £0.4 million (2007: £0.1 million) and an implicit finance charge of £0.3 million (2007: £0.4 million).

The tax credit of £0.7 million (2007: £0.9 million) represents amounts that are expected to be received under current legislation on research and development tax credits for small and medium sized companies.

The loss for the period from discontinued operations amounted to £3.3 million (2007: £5.6 million). The discontinued operations comprise the Group's commercialisation and development activities on Apokyn® and the revenues and expenditures of the US commercial operation. These operations have been divested to Ipsen in a transaction which completed on 1 July 2008.

Balance Sheet

Non-current assets at 30 June 2008 amounted to £25.6 million (31 December 2007: £40.7 million) with the reduction due to the accelerated amortisation of the US frovatriptan carrying value referred to above.

Current assets at 30 June 2007 amounted to £21.9 million (31 December 2007: £29.3 million). The reduction is due to lower trade receivables due in respect of Apokyn® as separately classified as assets held for sale and amounts due from Menarini in respect of sales for the period were received in June 2008.

Non-current liabilities amounted to £23.6 million (31 December 2007: £53.0 million). The reduction is due to the settlement of the loan due to Endo and resultant release of deferred income to the income statement. These were offset by the inception of the €18.4 million financing arrangement with Paul Capital Healthcare.

Current liabilities amounted to £13.9 million (31 December 2007: £19.4 million). The reduction is due to the settlement of the loan due to Endo and the release of deferred income to the profit and loss account.

Cash Flow

Cash resources, comprising held to maturity financial assets and cash and cash equivalents, at 30 June 2007 amounted to £16.7 million (31 December 2007: £20.5 million).

The net decrease in cash resources in the period is due to:

a) the receipt, net of repayments, of £13.0 million from Paul Capital Healthcare;

b) the payment of £3.6 million ($7 million) to Endo as part of the early settlement of the loan;

c) restructuring costs of £2.9 million;

d) funding the net losses of the business of £8.5 million;

e) funding the losses of the discontinued operations of £3.5 million; and 

f) favourable working capital movements of £2.8 million.

The amounts due from Ipsen in respect of the sale of Apokyn® and US operations and share subscription of $12.3 million were received on 1 July 2008, after the end of the period. Inclusion of this amount with the actual balance at 30 June 2008 results in proforma cash resources of £22.9 million.

Outlook

In the first half of 2008, Vernalis has restructured its business to employ approximately 90 people in the UK, divested Apokyn® and the US commercial operations, settled the loan due to Endo and raised finance from Paul Capital Healthcare. Vernalis is now focused on establishing clinical proof of principle for its product candidates prior to seeking partners for the later phases of clinical development and commercialisation.

As a result of these actions, Vernalis has strengthened its balance sheet and reduced its ongoing operating expenditures but its net revenues have also been reduced. Vernalis is not yet a sustainable business and expects to incur further losses which are expected to exceed its existing cash balances.

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 2007, available on the website www.vernalis.com.

Vernalis is a research and development company with a small portfolio of research programmes and product candidates. 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 raise additional finance, through collaborative arrangements, to finance the Group's operations.

Related Parties

Related party disclosures are given in note 10.

Forward-Looking Statements

Certain statements in this interim report are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involved risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

The Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Independent review report to Vernalis plc

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008, which comprises the consolidated income statement, consolidated balance sheet, consolidated statement of changes in shareholders' equity, consolidated cash flow statement 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 2008 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 LLP Chartered AccountantsLondon

28 August 2008

Unaudited consolidated income statement

for the six months ended 30 June 2008

		Six months ended 30 June 2008			Six months ended 30 June 2007
	Note	Pre Exceptional Items	Exceptional Items  (Note 3)	Total	Pre Exceptional Items	Exceptional Items  (Note 3)	Total
		£000	£000	£000	£000	£000	£000
Revenue	2	3,324	44,595	47,919	8,467	-	8,467
Cost of sales		(882)	(13,562)	(14,444)	(2,686)	-	(2,686)
Research and development expenditure		(8,996)	-	(8,996)	(11,794)	-	(11,794)
General and administrative expenses		(3,040)	(4,683)	(7,723)	(3,784)	635	(3,149)
Operating (loss)/profit		(9,594)	26,350	16,756	(9,797)	635	(9,162)
Finance income	4	623	-	623	1,877	-	1,877
Finance expense	4	(1,733)	-	(1,733)	(1,267)	-	(1,267)
(Loss)/profit on ordinary activities before taxation		(10,704)	26,350	15,646	(9,187)	635	(8,552)
Tax credit on ordinary activities		718	-	718	950	-	950
(Loss)/profit for the period from continuing operations		(9,986)	26,350	16,364	(8,237)	635	(7,602)
(Loss)/profit for the period from discontinued operations	6	(3,531)	200	(3,331)	(5,597)	-	(5,597)
(Loss)/profit for the period		(13,517)	26,550	13,033	(13,834)	635	(13,199)
(Loss)/profit per share (basic and diluted)	5	(4.1)p	8.1p	4.0p	(4.4)p	0.2p	(4.2)p

The notes form part of these financial statements. 

Unaudited consolidated balance sheets

as at 30 June 2008

		30 June 2008	30 June 2007	31 December 2007
	Note	£000	£000	£000
Assets
Property, plant and equipment		825	1,724	1,128
Intangible assets	7	24,728	69,359	39,527
Available-for-sale financial assets		34	107	32
Non-current assets		25,587	71,190	40,687
Inventories		474	1,016	386
Trade and other receivables		1,616	6,355	5,973
Tax receivable		3,055	3,273	2,440
Held-to-maturity financial assets		7,794	10,835	380
Cash and cash equivalents		8,919	16,154	20,076
Current assets		21,858	37,633	29,255
Non-current assets and disposal groups held for sale	6	5,769	-	3,568
Total assets		53,214	108,823	73,510
Liabilities and shareholders' equity
Liabilities
Borrowings	8	13,077	15,046	23,377
Other non-current liabilities		4,221	6,644	6,476
Deferred income		1,178	21,292	19,150
Provisions	9	5,109	4,791	3,983
Non-current liabilities		23,585	47,773	52,986
Borrowings	8	712	12,883	4,144
Trade and other liabilities		10,548	15,306	9,705
Tax payable		-	9	-
Deferred income		1,011	4,601	4,385
Provisions	9	1,648	1,192	1,097
Derivative financial instruments		-	-	40
Current liabilities		13,919	33,991	19,371
Liabilities directly associated with non-current assets and disposal groups held for sale	6	928	-	278
Total liabilities		38,432	81,764	72,635
Shareholders' equity
Share capital		48,106	47,372	48,106
Share premium		369,633	369,633	369,633
Other reserves		186,561	180,386	185,687
Retained deficit		(589,518)	(570,332)	(602,551)
Total shareholders' equity		14,782	27,059	875
Total liabilities and shareholders' equity		53,214	108,823	73,510

The notes form part of these financial statements. 

Unaudited consolidated statements of changes in shareholders' equity

	Share capital	Share premium	Other reserves	Retained deficit	Total
	£000	£000	£000	£000	£000
Balance at 1 January 2007	47,372	369,633	177,941	(557,133)	37,813
Revaluation of assets available for sale	-	-	(28)	-	(28)
Exchange gain on translation of overseas subsidiaries	-	-	1,936	-	1,936
Net income recognised directly in equity	-	-	1,908	-	1,908
Loss for the period from continuing operations	-	-	-	(7,602)	(7,602)
Loss for the period from discontinued operations	-	-	-	(5,597)	(5,597)
Total recognised income and expense for the period	-	-	1,908	(13,199)	(11,291)
Equity share options charge	-	-	537	-	537
Balance at 30 June 2007	47,372	369,633	180,386	(570,332)	27,059
Revaluation of assets available for sale	-	-	(75)	-	(75)
Exchange gain on translation of overseas subsidiaries	-	-	2,650	-	2,650
Net income recognised directly in equity	-	-	2,575	-	2,575
Loss for the period from continuing operations	-	-	-	(21,364)	(21,364)
Loss for the period from discontinued operations	-	-	-	(10,855)	(10,855)
Total recognised income and expense for the period	-	-	2,575	(32,219)	(29,644)
Issue of equity share capital	734	-	2,007	-	2,741
Equity share options charge	-	-	719	-	719
Balance at 31 December 2007	48,106	369,633	185,687	(602,551)	875
Revaluation of assets available for sale	-	-	2	-	2
Exchange loss on translation of overseas subsidiaries	-	-	(562)	-	(562)
Net income recognised directly in equity	-	-	(560)	-	(560)
Profit for the period from continuing operations	-	-	-	16,364	16,364
Loss for the period from discontinued operations	-	-	-	(3,331)	(3,331)
Total recognised income and expense for the period	-	-	(560)	13,033	12,473
Equity share options charge	-	-	1,434	-	1,434
Balance at 30 June 2008	48,106	369,633	186,561	(589,518)	14,782

The notes form part of these financial statements. 

Unaudited consolidated cash flow statements 

for the year ended 30 June 2008

	30 June 2008	30 June 2007
	£000	£000
Cash flows from operating activities
Profit/(loss) for the year from continuing operations	16,364	(7,602)
Loss for the year from discontinued operations	(3,331)	(5,597)
Profit/(loss) for the year from continuing and discontinued operations	13,033	(13,199)
Taxation	(692)	(696)
Depreciation	177	336
Loss on disposal of property plant and equipment	178	-
Amortisation, impairment and disposal of intangible fixed assets and investments	14,237	2,381
Movement in provision for loss on sale of discontinued operations	(200)	-
Movement in provisions	1,688	(1,027)
Royalty off set against US dollar secured loan	-	(930)
Decrease in deferred income	(21,346)	(1,056)
Equity share option charge	1,434	537
Finance income	(635)	(1,906)
Finance expense	1,745	1,287
Exchange gain	(3)	(51)
	9,616	(14,324)
Changes in working capital
Increase in inventories	(247)	(89)
Decrease in receivables	4,300	616
(Decrease)/increase in liabilities	(1,225)	233
Cash generated from/(used in) operations	12,444	(13,564)
Taxation received	-	2,736
Taxation paid	(85)	(311)
Interest paid	(890)	(20)
Net cash generated from/(used in) operating activities	11,469	(11,159)
Cash flows from investing activities
Purchase of property plant and equipment	(12)	(374)
Fees incurred on the sale of asset held for sale	(942)	-
Interest received	516	489
Interest received on financial assets held-to-maturity	5	676
Net cash (used in)/generated from investing activities	(433)	791
Cash flows from financing activities
Receipt of funds from Paul Capital funding liabilities	14,670	-
Repayment of Paul capital funding liability	(773)	-
Repayment of US dollar secured loan	(27,681)	-
Movement in held-to-maturity financial assets	(7,677)	5,252
Capital element of finance lease payments	(104)	(80)
Net cash (used in)/generated from financing activities	(21,565)	5,172
Foreign exchange loss on cash and cash equivalents	(323)	(119)
Movements in cash and cash equivalents in the period	(10,852)	(5,315)
Cash and cash equivalents at the beginning of the period	20,076	21,469
Cash and cash equivalents at the end of the period from continuing and discontinued operations	9,224	16,154
Continuing operations	8,919	16,154
Disposal group	305	-
Cash and cash equivalents at the end of the period from continuing and discontinued operations	9,224	16,154

1 Accounting policies and basis of preparation

The Company is a 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.

The Company has its primary listing on the London Stock Exchange.

This condensed consolidated interim financial information was approved for issue on 28 August 2008.

This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985. Statutory accounts for the year ended 31 December 2007 were approved by the Board of directors on 12 May 2008 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 237 of the Companies Act 1985.

This condensed consolidated interim financial information has been reviewed, not audited.

This condensed consolidated interim financial information for the six months ended 30 June 2008 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 interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2007, which have been prepared in accordance with IFRSs as adopted by the European Union.

Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2007, as described in those annual financial statements.

The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning 1 January 2008, but are not currently relevant for the Group.

IFRIC 11, 'IFRS 2 - Group and treasury share transactions'.

IFRIC 12, 'Service concession arrangements'.

IFRIC 14, 'IAS 19 - the limit on a defined benefit asset, minimum funding requirements and their interaction'.

The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 January 2008 and have not been early adopted:

IFRS 8, 'Operating segments', effective for annual periods beginning on or after 1 January 2009. IFRS 8 replaces IAS 14, 'Segment reporting', and requires a 'management approach' under which segment information is presented on the same basis as that used for internal reporting purposes. The expected impact is still being assessed in detail.

IAS 23 (amendment), 'Borrowing costs', effective for annual periods beginning on or after 1 January 2009. This amendment is not relevant to the Group.

IFRS 2 (amendment) 'Share-based payment', effective for annual periods beginning on or after 1 January 2009. Management is assessing the impact of changes to vesting conditions and cancellations on the Group's SAYE schemes.

IFRS 3 (amendment), 'Business combinations' and consequential amendments to IAS 27, 'Consolidated and separate financial statements', IAS 28, 'Investments in associates' and IAS 31, 'Interests in joint ventures', effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. 

IAS 1 (amendment), 'Presentation of financial statements', effective for annual periods beginning on or after 1 January 2009. Management do not expect there to be any impact on the Group.

IAS 32 (amendment), 'Financial instruments: presentation', and consequential amendments to IAS 1, 'Presentation of financial statements', effective for annual periods beginning on or after 1 January 2009. This is not relevant to the Group.

IFRIC 13, 'Customer loyalty programmes', effective for annual periods beginning on or after 1 July 2008. This is not relevant to the Group.

2 Segmental information

The Group's primary segmental reporting is by geographical location of assets.

Geographical segments

The Group's operations are split into two geographical areas and are based on the selling entity location. The UK is the home country of the parent.

Primary reporting format - geographic	Continuing UK	Continuing North America	Continuing Total	Discontinued UK	Discontinued North America	Discontinued Total	Total UK	Total North America	Total
	Six months to 30 June 2008			Six months to 30 June 2008			Six months to 30 June 2008
	£000	£000	£000	£000	£000	£000	£000	£000	£000
Revenue	47,919	-	47,919	171	968	1,139	48,090	968	49,058
Segmental operating profit/(loss) before intercompany allocations	17,459	(703)	16,756	(477)	(3,028)	(3,505)	16,982	(3,731)	13,251
Intercompany allocations	-	-	-	(2,673)	2,673	-	(2,673)	2,673	-
Segmental operating profit/(loss)	17,459	(703)	16,756	(3,150)	(355)	(3,505)	14,309	(1,058)	13,251
Gain recognised on measurement to fair value less costs to sell	-	-	-	200	-	200	200	-	200
Finance income	623	-	623	-	12	12	623	12	635
Finance expense	(1,733)	-	(1,733)	-	(12)	(12)	(1,733)	(12)	(1,745)
Profit/(loss) on ordinary activities before taxation	16,349	(703)	15,646	(2,950)	(355)	(3,305)	13,399	(1,058)	12,341
Tax credit/(charge) on ordinary activities	718	-	718	-	(26)	(26)	718	(26)	692
Profit/(loss) for the period	17,067	(703)	16,364	(2,950)	(381)	(3,331)	14,117	(1,084)	13,033
Primary reporting format - geographic	Continuing UK	Continuing North America	Continuing Total	Discontinued UK	Discontinued North America	Discontinued Total	Total UK	Total North America	Total
	Six months to 30 June 2007			Six months to 30 June 2007			Six months to 30 June 2007
	£000	£000	£000	£000	£000	£000	£000	£000	£000
Revenue	8,467	-	8,467	739	1,355	2,094	9,206	1,355	10,561
Segmental operating loss before intercompany allocations	(7,304)	(1,858)	(9,162)	(755)	(4,597)	(5,352)	(8,059)	(6,455)	(14,514)
Intercompany allocations	-	-	-	(4,688)	4,688	-	(4,688)	4,688	-
Segmental operating loss	(7,304)	(1,858)	(9,162)	(5,443)	91	(5,352)	(12,747)	(1,767)	(14,514)
Finance income	1,852	25	1,877	-	29	29	1,852	54	1,906
Finance expense	(1,267)	-	(1,267)	-	(20)	(20)	(1,267)	(20)	(1,287)
Loss on ordinary activities before taxation	(6,719)	(1,833)	(8,552)	(5,443)	100	(5,343)	(12,162)	(1,733)	(13,895)
Tax credit/(charge) on loss on ordinary activities	950	-	950	-	(254)	(254)	950	(254)	696
Loss for the period	(5,769)	(1,833)	(7,602)	(5,443)	(154)	(5,597)	(11,212)	(1,987)	(13,199)

Revenue analysis

The revenue analysis in the table below is based on the country of registration of the fee-paying party.

	Continuing	Discontinued	Total		Continuing	Discontinued	Total
	Six months to 30 June 2008				Six months to 30 June 2007
	£000	£000	£000		£000	£000	£000
United Kingdom	30	-	30		27	-	27
Rest of Europe	2,941	-	2,941		3,977	-	3,977
North America	44,938	1,139	46,077		4,456	2,094	6,550
Rest of the World	10	-	10		7	-	7
	47,919	1,139	49,058		8,467	2,094	10,561

An analysis of revenue by category is set out in the table below:

	Continuing	Discontinued	Total		Continuing	Discontinued	Total
	Six months to 30 June 2008				Six months to 30 June 2007
	£000	£000	£000		£000	£000	£000
Product sales	1,915	967	2,882		3,758	1,361	5,119
Royalties	39	-	39		1,910	-	1,910
Collaborative	45,965	172	46,137		2,799	733	3,532
	47,919	1,139	49,058		8,467	2,094	10,561

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 year, 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, and provision for vacant leases.

	Six months ended 30 June 2008	Six months ended 30 June 2007
Continuing operations	£000	£000
Settlement with Endo:
Sale of future US frovatriptan royalties	24,160	-
Release of Endo deferred income	20,435	-
	44,595	-
Accelerated amortisation of related US frovatriptan intangible (see note 7)	(13,562)	-
	31,033	-
Restructuring costs	(2,895)	-
Provision for vacant leases	(1,788)	635
Exceptional items from continuing operations	26,350	635
Movement in provision for loss on sale of discontinued operations (see note 6)	200	-
Exceptional items from continuing and discontinued operations	26,550	635

4 Finance charge

	Six months ended 30 June 2008	Six months ended 30 June 2007
Continuing operations	£000	£000
Finance income
Interest on cash, cash equivalents and held-to-maturity assets	421	775
Exchange gains on other payables	-	62
Exchange gains on Paul Capital funding liability	108	-
Exchange gains on long-term loan	-	715
Exchange gains on contingent deferred consideration	-	250
Other interest	94	75
	623	1,877
Finance expense
Paul Capital funding liability	878	-
Loans repayable wholly or partly within five years	124	773
Exchange loss on cash	323	120
Exchange loss on other receivables	-	19
Exchange loss on long-term loan	36	-
Unwinding of discount on contingent deferred consideration on purchase of intangible assets	234	234
Unwinding of discount on royalty buy-out from GSK	12	12
Unwinding of discount on provision	126	109
	1,733	1,267

5 Earnings per share

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

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

For diluted loss per share all potential ordinary shares including options and deferred shares are anti-dilutive.

Continuing operations	Six months ended 30 June 2008	Six months ended 30 June 2007
Attributable loss before exceptional items (£000)	(9,986)	(8,237)
Exceptional items (£000)	26,350	635
Attributable profit/(loss) (£000)	16,364	(7,602)
Weighted average number of shares in issue (000)	327,980	313,301
Loss per ordinary share before exceptional items	(3.0)p	(2.6)p
Exceptional items	8.0p	0.2p
Profit/(loss) per share (basic and diluted)	5.0p	(2.4)p

Continuing and discontinued operations	Six months ended 30 June 2008	Six months ended 30 June 2007
Attributable loss before exceptional items (£000)	(13,517)	(13,834)
Exceptional items (£000)	26,550	635
Attributable profit/(loss) (£000)	13,033	(13,199)
Weighted average number of shares in issue (000)	327,980	313,301
Loss per ordinary share before exceptional items	(4.1)p	(4.4)p
Exceptional items	8.1p	0.2p
Profit/(loss) per share (basic and diluted)	4.0p	(4.2)p

6 Assets held for sale and discontinued operations

On the 29 November 2007 the Vernalis Board approved the intention to sell Vernalis Pharmaceuticals Inc, its sales and marketing division, along with the associated rights to Apokyn®.

The sales and marketing operations form a separate major line of business and geographical area of operations. The operations are held for sale and therefore have been classified as discontinued operations.

Vernalis announced on the 5 June 2008 that it had agreed terms for the sale of Apokyn® and its US Commercial Operations to Ipsen. On 1 July 2008 Vernalis announced that it had completed the sale of Apokyn® and its US Commercial Operations to Ipsen.

Results of discontinued operations

	Six months ended 30 June 2008			Six months ended 30 June 2007
	Pre Exceptional Items	Exceptional Items  (Note 3)	Total	Pre Exceptional Items	Exceptional Items  (Note 3)	Total
Discontinued operations	£000	£000	£000	£000	£000	£000
Revenue	1,139	-	1,139	2,094	-	2,094
Cost of sales	(438)	-	(438)	(985)	-	(985)
Research and development expenditure	(360)	-	(360)	(719)	-	(719)
Selling and marketing	(2,738)	-	(2,738)	(4,601)	-	(4,601)
General and administrative expenses	(1,108)	200	(908)	(1,141)	-	(1,141)
Operating loss	(3,505)	200	(3,305)	(5,352)	-	(5,352)
Finance income	12	-	12	29	-	29
Finance expense	(12)	-	(12)	(20)	-	(20)
Loss on ordinary activities before taxation	(3,505)	200	(3,305)	(5,343)	-	(5,343)
Tax charge on ordinary activities	(26)	-	(26)	(254)	-	(254)
Loss for the period from discontinued operations	(3,531)	200	(3,331)	(5,597)	-	(5,597)

Assets and Liabilities classified as held for sale

	30 June 2008	31 December 2007
Assets	£000	£000
Property, plant and equipment	154	142
Intangible assets	4,111	2,875
Non-current assets	4,265	3,017
Inventories	462	304
Trade and other receivables	318	247
Tax receivable	156	-
Held-to-maturity financial assets	263	-
Cash and cash equivalents	305	-
Current assets	1,504	551
Assets of disposal group	5,769	3,568
Liabilities
Borrowings - Non current	(87)	(131)
Borrowings - Current	(87)	(147)
Trade and other liabilities	(617)	-
Provisions	(137)	-
Liabilities of disposal group	(928)	(278)

IFRS requires that the total assets and liabilities of discontinued operations are each shown separately and excluded from the individual line items of the balance sheet. However, no restatement of the prior period is required and the assets and liabilities are included in the individual line items.

Cash flow from discontinued operations included in the consolidated cash flow statement

	2007	2006
Discontinued operations	£000	£000
Cash flow from operating activities	(4,189)	(6,086)
Cash flow from investing activities	12	29
Cash flow from financing activities	(104)	(80)
	(4,281)	(6,137)

Loss per share

Discontinued operations	2007	2006
Attributable loss before exceptional items (£000)	(3,531)	(5,597)
Exceptional items (£000)	200	-
Attributable loss (£000)	(3,331)	(5,597)
Weighted average number of shares in issue (000)	327,980	313,301
Loss per ordinary share before exceptional items	(1.1)p	(1.8)p
Exceptional items	0.1p	0.0p
Loss per share (basic and diluted)	(1.0)p	(1.8)p

7 Intangible assets

	Goodwill	Assets in use	Assets not yet in use	Total
	£000	£000	£000	£000
Cost
At 1 January 2008	10,355	37,408	43,343	91,106
Exchange	-	-	(882)	(882)
At 30 June 2008	10,355	37,408	42,461	90,224
Aggregate amortisation
At 1 January 2008	10,355	15,188	26,036	51,579
Accelerated amortisation on sale of future royalties	-	13,562	-	13,562
Amortisation charge in the period	-	675	-	675
Exchange	-	-	(320)	(320)
At 30 June 2008	10,355	29,425	25,716	65,496
Net book value at 30 June 2008	-	7,983	16,745	24,728
	Goodwill	Assets in use	Assets not yet in use	Total
	£000	£000	£000	£000
Cost
At 1 January 2007	10,703	50,400	39,026	100,129
Exchange	55	-	1,890	1,945
At 30 June 2007	10,758	50,400	40,916	102,074
Aggregate amortisation
At 1 January 2007	7,311	13,242	9,781	30,334
Amortisation charge in the period	-	2,381	-	2,381
At 30 June 2007	7,311	15,623	9,781	32,715
Net book value at 30 June 2007	3,447	34,777	31,135	69,359
	Goodwill	Assets in use	Assets not yet in use	Total
	£000	£000	£000	£000
Cost
At 1 July 2007	10,758	50,400	40,916	102,074
Assets reclassified held for sale	-	(12,992)	(167)	(13,159)
Adjustments	(479)	-	-	(479)
Exchange	76	-	2,594	2,670
At 31 December 2007	10,355	37,408	43,343	91,106
Aggregate amortisation
At 1 July 2007	7,311	15,623	9,781	32,715
Impairment	3,044	-	16,255	19,299
Amortisation charge in the period	-	2,272	-	2,272
Assets reclassified held for sale	-	(2,707)	-	(2,707)
At 31 December 2007	10,355	15,188	26,036	51,579
Net book value at 31 December 2007	-	22,220	17,307	39,527

Accelerated amortisation on sale of future royalties

Frova 

Following the Group's early settlement of the amount due to Endo Pharmaceuticals Inc (Endo) under the loan agreement between the two companies, Vernalis agreed to forego future royalties on US sales of Frova® until annual US net sales exceed a threshold of $85 million. Due to the sale of future Frova® revenues an accelerated amortisation of £13.6 million has been recorded.

8 Borrowings

	30 June 2008	30 June 2007	31 December 2007
	£000	£000	£000
US dollar secured loan	-	14,858	23,377
Paul Capital funding liabilities	13,077	-	-
Obligations under finance leases (see note 6)	-	188	-
Non-current borrowings	13,077	15,046	23,377
US dollar secured loan	-	12,739	4,144
Paul Capital funding liabilities	712	-	-
Obligations under finance leases (see note 6)	-	144	-
Current borrowings	712	12,883	4,144
Total borrowings	13,789	27,929	27,521

Paul Capital funding liabilities

The Group entered into a transaction with Paul Capital on 21 April 2008. Under the terms of the transaction Paul Capital provided €18.4 million which will be repaid out of the potential future revenue stream under the licence agreement with Menarini to market Frovatriptan in Europe.

Whilst the contractual arrangements with Paul Capital are royalty agreements under which royalties are payable on revenues earned and payments received, the proceeds received from Paul Capital meet the definition of a financial liability under IAS 39 'Financial Instruments: Recognition and Measurement' and are treated as financial liabilities accordingly. Royalties paid to Paul Capital are treated as repayments of the liabilities and notional interest is charged on the liability using the effective interest rate at inception of the agreement. The effective interest rate is 35.9%. Any change in the estimated future payments to Paul Capital is recognised as income or expense in the income statement.

US dollar secured loan

On the 20 February 2008 the Group announced that it had agreed to the early settlement of the amount due to Endo Pharmaceuticals Inc (Endo) under the loan agreement between the two companies. To give effect to this early settlement Vernalis paid Endo $7 million in cash and agreed to forego future royalties on US sales of Frova® until annual US net sales exceed a threshold of $85 million. The outstanding balance on the loan, which was originally due for repayment in August 2009, was approximately $56m. 

9 Provisions

	Restructuring provision	Onerous lease provision	Returns and rebates	Total
	£000	£000	£000	£000
At 1 January 2008	-	4,444	636	5,080
Charged for the period	2,182	1,651	-	3,833
Utilised during the period	(1,612)	(405)	(128)	(2,145)
Amortisation of discount	-	126	-	126
Reclassified as held for sale asset	-	-	(137)	(137)
At 30 June 2008	570	5,816	371	6,757

Provisions have been analysed between current and non-current as follows:

	30 June 2008	30 June 2007
	£000	£000
Current	1,648	1,192
Non-current	5,109	4,791
	6,757	5,983

Onerous lease provision

Where leasehold properties become vacant the Group provides for all costs, net of anticipated income, to the end of the lease or the anticipated date of the disposal or sublease. This provision relates to properties in Oxford, Cambridge and Winnersh and is expected to be utilised over the life of the related leases to 2014, 2020 and 2012 respectively and has been discounted to fair value at the balance sheet date.

Included in the onerous lease provision is a dilapidation provision which principally relates to costs associated with the Group's obligation to reinstate leased buildings to their original state. The provision is expected to be utilised on vacation of the properties by 2014, 2020 and 2012 respectively and has been discounted to fair value at the balance sheet date.

The charge in the onerous lease provision in the six months to 30 June 2008 is due to a portion of the Winnersh property becoming vacant due to the restructuring in the period.

Returns and rebates provision

On acquiring the rights from Elan, the Group took on an obligation for certain product returns, estimated at £1.9 million. In addition the Group is responsible for product returns, rebates and chargebacks from the date it re-acquired the rights from Elan through to the date of the outlicence to Endo. There are no further obligations to the Company in respect of these for sales made after the Company outlicensed the rights to Frova® to Endo. The balance of the provision is to be utilised in the second half of 2008.

Restructuring provision

The restructuring provision relates to redundancy costs incurred as part of the Group's restructuring announced in February 2008 and the remaining balance will be utilised in the second half of 2008.

10 Related party transactions

The Group had no related party transactions.

11 Post-balance-sheet events

The Group announced on the 1 July 2008 that it has completed the sale of Apokyn® and its US Commercial Operations to Ipsen. 

The subscription by Ipsen for 35,253,134 new ordinary shares of 5 pence each in the capital of Vernalis as part of the Sale arrangements also completed on this day.

Cash proceeds of £6.2 million were received, had the transaction completed on 30 June the Group would have had proforma cash balances of £22.9 million.

Statement of Directors' responsibilities

The directors' confirm that this condensed consolidated interim financial information has 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 4.2.7 and DTR 4.2.8, namely:

an indication of important events that have occurred during the first six months 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 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 2007.

By order of the Board

Tony Weir

Chief Financial Officer

28 August 2008

ENDIR MGGZRLNVGRZM

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Vernalis PLC