Interim Results

Ardana PLC 13 December 2005 Ardana: Interim Results for the six months ended 30 September 2005 Ardana plc (LSE: ARA) the emerging pharmaceutical company focused on improving human reproductive health, today announces its Interim Results for the six months ended 30 September 2005. Highlights Year to Date • Teverelix Long Acting (LA) - prostate cancer - Positive results in Phase II trial - Pre-Investigational New Drug (IND) application meeting with the United States Food & Drug Administration (FDA) • Teverelix LA - benign prostatic hyperplasia - Positive results in Phase II trial - Pre-Investigational New Drug (IND) application meeting with the FDA - Projected development time reduced by up to two years with potential launch in 2010 • Oral Growth Hormone Secretagogue - Positive results in Phase I trial • StriantTM SR - Launch in Germany through Cytochemia AG - Launch in Republic of Ireland through Mode Medical - Agreement with Pharmacuro ApS for marketing in Scandinavia Key Financials • Operating loss for the six months ended 30 September 2005 of £4,185,000 (2004: £4,094,000) • Total cash and available-for-sale investments of £24.8 million (2004: £13.5 million) Dr Maureen Lindsay, CEO, commented 'During the first half of the financial year we have made significant progress across all aspects of Ardana's business. In addition to the UK, StriantTM SR has now been launched in Germany and the Republic of Ireland and a marketing partner has been appointed in Scandinavia. Our second commercial-stage product, InvicorpTM, an injectable treatment for erectile dysfunction, is proceeding well towards an anticipated launch in the second half of 2006. In clinical development, our compounds are advancing and, in particular, we are pleased with the positive outcomes of our discussions with the US Food and Drug Administration in relation to Teverelix LA for both prostate cancer and BPH. We are also progressing our development of Teverelix LA for the indication of endometriosis. We are confident that we will be able to continue to deliver good news on a number of fronts during the remainder of the financial year.' Enquiries For more information contact: Maureen Lindsay + 44 (0) 131 226 8550 Ardana Julia Phillips/Davina Langdale +44 (0)20 7831 3113 Financial Dynamics (corporate and financial media relations): Nicki Brimicombe + 44 (0)1883 732353 NB Public Relations (trade and technical media relations): About Ardana Ardana plc is a pharmaceutical company focused on the discovery, development and marketing of innovative products to improve human reproductive health, a $23.8 billion market*. Since its foundation, Ardana has maintained a broad and balanced portfolio to manage risk and actively pursues product and technology in-licensing and out-licensing to maintain a robust pipeline. Ardana's four lead products are summarised below: • StriantTM SR, a testosterone replacement therapy that has already been launched by Ardana through its own sales force in the UK as a treatment for men with hypogonadism and for which Ardana has marketing rights in Europe; • Teverelix LA, in development for three initial indications (prostate cancer, benign prostatic hyperplasia and endometriosis); • Testosterone cream, a trans dermal testosterone delivery system in development for the treatment of male hypogonadism, has now commenced Phase II trials; • Invicorp, an injectable combination drug treatment for erectile dysfunction, for which Ardana has marketing and manufacturing rights in Europe. In addition, Ardana has a strong portfolio of follow-on products in development. Ardana completed its IPO on the London Stock Exchange in March 2005 raising £21 million. For further information please see www.ardana.co.uk *Source: IMS Retail Drug Monitor October 2004: key drug purchases in the 12 months to October 2004 for the Genito-Urinary and Hormone classes Statements contained within this press release may contain forward-looking comments which involve risks and uncertainties that may cause actual results to vary from those contained in the forward-looking statements. In some cases, you can identify such forward-looking statements by terminology such as 'may', ' will', 'could', 'forecasts', 'expects', 'plans', 'anticipates', 'believes', ' estimates', 'predicts', 'potential', or 'continue'. Predictions and forward-looking references in this press release are subject to the satisfactory progress of research which is, by nature, unpredictable. Forward projections reflect management's best estimates based on information available at the time of issue. CHIEF EXECUTIVE'S STATEMENT Introduction I have great pleasure in presenting Ardana's first interim report for the six months to 30 September 2005. During the first half of the financial year we have made progress across all aspects of Ardana's business. In addition to the UK, StriantTM SR has now been launched in Germany and the Republic of Ireland and a marketing partner has been appointed in Scandinavia. The commercial development of InvicorpTM, our injectable treatment for erectile dysfunction, is proceeding towards our anticipated launch in the second half of 2006. Our compounds in clinical development are advancing well and, in particular, we are pleased with the outcome of our discussions with the FDA in relation to Teverelix LA for both prostate cancer and BPH. We are also progressing our development of Teverelix LA for the indication of endometriosis. Operational Review Product Portfolio StriantTM SR During June 2005 we announced that Ardana had signed an agreement granting Cytochemia AG exclusive rights to market StriantTM SR in Germany, and in October we announced that Cytochemia had commenced marketing the product. Ardana received initial revenues during the period and will receive future revenues for the supply of StriantTM SR to Cytochemia. The German launch of StriantTM SR was announced at the 57th Congress of the German Society of Urology meeting in Dusseldorf, which was attended by approximately 3,000 urologists. StriantTM SR is now available on prescription in Germany which, with an estimated market size of €15.2 million per annum, is the largest market for testosterone replacement therapies in Europe. Cytochemia will target all 3,500 urologists plus andrologists in the country. StriantTM SR is a mucoadhesive buccal (gum surface) testosterone replacement therapy for confirmed male hypogonadism (i.e. those suffering from a deficiency or absence of testosterone). StriantTM SR is the first-to-market buccal adhesive tablet and marketing to urologists and endocrinologists in the UK by Ardana's own sales force continues to progress. Cytochemia has considerable experience in Germany selling to the same specialists through their targeted sales force, which has a strong track record in the education of physicians on product usage. Cytochemia has a very complementary portfolio to Ardana and its product ImmuCyst, which has been on the market for 13 years, is an established agent for the treatment and prevention of superficial bladder cancer. StriantTM SR represents an excellent fit with Cytochemia's product portfolio and will be an important addition. As the biggest and most developed market in Europe for testosterone replacement, Germany is key for StriantTM SR. In partnering with Cytochemia we believe that the product is in the best hands to ensure a successful introduction there. Striant's novel and effective delivery of testosterone has received high levels of acceptance from both patients and prescribers. We continue to develop our distribution capability around Europe with the granting of exclusive rights to market StriantTM SR in the Nordic region to Pharmacuro ApS. Pharmacuro, established in 2003, is a young, dynamic, pharmaceutical marketing and distribution company that provides the medical communities of Denmark, Sweden, Norway and Finland with a range of products. Pharmacuro is an excellent strategic partner for Ardana: its focused sales and marketing force targets endocrinologists and it has already established strong relationships in the Nordic region. The market size for testosterone replacement in the Nordic region is estimated at approximately €3 million per annum. Pharmacuro expects to launch StriantTM SR in the Nordic market in H1 2006. Testosterone Cream Testosterone Cream is a transdermal testosterone delivery system based on our Bi-Gel technology, which is in development for the treatment of male hypogonadism. On 31 October 2005 we announced positive results of a second Phase I study. The study was in healthy female subjects to provide a control group equivalent to hypogonadal men with low testosterone levels. The study not only provided proof of concept on the delivery technology but also clear evidence that testosterone can be effectively delivered through the skin to bring testosterone levels to within the normal range observed in healthy males, using this cream. These Phase I results are very encouraging. A Phase II dose-finding study in hypogonadal men has recently been initiated. We expect the Testosterone Cream to have high patient acceptability. The cream is fast drying, has low alcohol content, and only requires application to a small area of the body. The new formulation of testosterone as a cream complements our current portfolio and will offer additional choice for the patient. Also, based upon the knowledge we have gained on the technology, Ardana can develop not only additional compounds to market ourselves but also offer this to other companies and thereby generate licensing income. In 2004, the testosterone replacement market in Europe and in the US was estimated to be approximately $600 million. The US market is by far the most attractive with sales of $537million, growing at 40%, of which $422 million were sales of testosterone gels (IMS Health). Other therapies for male hypogonadism include injectable formulations of testosterone, oral preparations, transdermal patches, topical gels and sub-cutaneous implants. InvicorpTM InvicorpTM is an injectable treatment for erectile dysfunction. Marketing authorisation for InvicorpTM has been granted in Denmark and we intend to initiate European Mutual Recognition proceedings in the first half of 2006 with a view to launching the product in the second half of 2006. Teverelix LA - Prostate Cancer Recent results from two Phase II studies in patients with prostate cancer were outlined in our last Annual Report. In these studies Teverelix LA, a gonadotrophin releasing hormone antagonist, successfully suppressed serum testosterone to the required levels for treatment. On 7 September we announced that Ardana had a pre-Investigative New Drug application meeting with the FDA to discuss the development for prostate cancer of our lead compound Teverelix LA. The FDA has confirmed that serum testosterone levels can serve as a reliable surrogate marker for efficacy in the treatment of prostate cancer. The meeting reached agreement on the path forward for the development of Teverelix LA for the treatment of prostate cancer, which should allow us to meet our registration timelines and previously announced launch target of the end of 2009. We are planning to submit to the FDA the first study to be performed under an IND in the pursuit of this indication within the next few months. An additional Phase II study has commenced, and results from this study should be available in the first half of 2006. Teverelix LA - Benign Prostatic Hyperplasia (BPH) On 21 September 2005 we announced that the launch of Teverelix LA in BPH could be advanced by up to two years, following a pre-IND application meeting with the FDA at which consensus on the company's development plan for the therapy was reached. We now expect that Teverelix LA in BPH could reach the market by 2010. In a recent Phase II study in patients with BPH, Teverelix LA demonstrated a statistically significant improvement in symptoms of BPH as measured by the International Prostate Symptom Score (IPSS). The FDA has confirmed that improvements in symptoms according to IPSS can serve as a single endpoint for therapeutic and regulatory review. We are planning to submit the first study under this IND to the FDA within the next few months. Another European Phase II study in patients with BPH has commenced. If all future development goes to plan, we anticipate that Teverelix LA may now be launched up to two years earlier than previously anticipated. Other compounds Our other compounds in earlier stage development continue to make progress; of which the following are key: • Oral Growth Hormone Secretagogue (GHS), which is potentially useful as a treatment for growth hormone deficiency disorders and metabolic complications associated with critical illness; and • Terbutaline, a bio-adhesive vaginal gel for use as a treatment for infertility linked to endometriosis. Financial Review Key financials Total product sales of StriantTM SR for the six months ended 30 September 2005 were £164,000 (2004: £22,000). Operating loss for the six months ended 30 September 2005 was £4,185,000 (2004: £4,094,000). On 30 September 2005, Ardana had available cash and cash equivalents of £14.7 million (2004: £13.5 million) and an available-for-sale investment (see note 4) of £10.1 million (2004: £nil). International Financial Reporting Standards ('IFRS') Recent years have seen considerable momentum towards establishing common international accounting standards, intended to benefit companies, shareholders and analysts alike. Following the European Union's adoption of IFRS, companies listed within member states are required to prepare financial statements under IFRS for all accounting periods commencing on or after 1 January 2005. Previously, and in the 2005 Annual Report, we reported our financial results under UK GAAP. This interim statement, which is unaudited, has been prepared on a basis that is consistent with the accounting policies and presentation expected to be used in the Group's annual report and financial statements for the year ending 31 March 2006, which will comply with IFRS as required by International Accounting Standard (IAS) 1. IFRS 2 (Share-based payment) has the most significant impact on the financial results reported. The comparative financial information for the six months ended 30 September 2004 and the year ended 31 March 2005 have been restated in accordance with the basis of preparation as set out in note 1 to the interim financial information. Outlook We are very encouraged by the feedback we have received from the FDA for Teverelix LA in the treatment of both prostate cancer and BPH. The clinical development and launch for prostate cancer is on track according to our original schedule in this multi-billion dollar prostate cancer market, and the opportunity to bring forward the launch date for BPH is very exciting for ourselves and potential partners. We look forward to announcing further progress with the Teverelix programme including the development of a third indication for the treatment of endometriosis. Operationally we continue to manage risk in the business by looking for a significant co-development partner for Teverelix, through our flexible and low cost business model, and by developing a mix of products in our pipeline. We intend actively to pursue product and technology in-licensing and acquisition opportunities, and look to create value by out-licensing other compounds we own which are not core to our strategy. By these activities we aim to retain and increase maximum value for our shareholders. I am pleased to report that all our plans continue to progress on schedule and we expect to announce significant future newsflow. Group income statement (unaudited) 6 months ended 30 September 2005 Notes 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2005 2004* 2005* £'000 £'000 £'000 Revenue Product revenue 164 22 60 Revenue from sale of services 106 51 75 _____ _____ _____ Total revenue 270 73 135 Cost of product sales (66) (5) (11) Research and development expenses (2,363) (1,672) (3,977) Other operating expenses (2,026) (2,490) (5,163) _____ _____ _____ Total operating expenses (4,455) (4,167) (9,151) _____ _____ _____ Operating loss 5 (4,185) (4,094) (9,016) Interest received 623 241 523 _____ _____ _____ Loss before tax (3,562) (3,853) (8,493) Tax 254 221 479 _____ _____ _____ Loss for the period (3,308) (3,632) (8,014) _____ _____ _____ Basic loss per share 3 (5.9p) (22.0p) (20.7p) _____ _____ _____ All of the revenue and loss for the period above is derived from continuing operations. * During the year ended 31 March 2005, the Group carried out a corporate restructuring including the introduction of a new holding company. The income statement has been prepared using merger accounting and the comparative financial information is presented on a proforma basis as if the new holding company had been in existence and had been the parent of all group subsidiaries throughout the comparator periods. Group balance sheet (unaudited) At 30 September 2005 Notes 30 September 30 September 31 March 2005 2004* 2005 £'000 £'000 £'000 Non-current assets Property, plant and equipment 26 39 33 _____ _____ _____ Current assets Inventories 38 112 107 Trade and other receivables 1,522 1,564 1,308 Available-for-sale investment 4 10,118 - - Cash and cash equivalents 14,721 13,465 29,182 _____ _____ _____ 26,399 15,141 30,597 _____ _____ _____ Total assets 26,425 15,180 30,630 _____ _____ _____ Current liabilities Trade and other payables (2,750) (3,654) (3,841) _____ _____ _____ Non-current liabilities Trade and other payables (1,363) (3,089) (1,373) _____ _____ _____ Total liabilities (4,113) (6,743) (5,214) _____ _____ _____ Net assets 22,312 8,437 25,416 _____ _____ _____ Equity Share capital 556 182 556 Other equity 173 44 93 Share premium account 26,949 5,954 26,949 Merger reserve 34,451 34,451 34,451 Own shares (95) (44) (101) Retained earnings (39,722) (32,150) (36,532) _____ _____ _____ Total equity 22,312 8,437 25,416 _____ _____ _____ * During the year ended 31 March 2005, the Group carried out a corporate restructuring including the introduction of a new holding company. This balance sheet has been prepared using merger accounting and is presented as if the new holding company had been in existence and had been the parent of all group subsidiaries throughout the current and prior periods. As such, the balance sheet as at 30 September 2004 is presented on a proforma basis. Group cash flow statement (unaudited) 6 months ended 30 September 2005 Notes 6 months 6 months Year ended 30 ended 30 ended 31 September September March 2005 2004* 2005* £'000 £'000 £'000 Cash flows from operating activities Net cash used by operations 5 (5,271) (4,437) (10,305) Corporation tax received 267 383 384 _____ _____ _____ Net cash used by operating activities (5,004) (4,054) (9,921) _____ _____ _____ Investing activities Interest received 546 241 523 Proceeds on disposal of property, plant and equipment - 9 8 Purchases of property, plant and equipment (9) (27) (36) Investment in available-for-sale investment 4 (10,000) - - _____ _____ _____ Net cash (used in)/from investing activities (9,463) 223 495 _____ _____ _____ Financing activities Issue of shares - 5,980 27,349 Purchase of own shares 6 162 105 _____ _____ _____ Net cash from financing activities 6 6,142 27,454 _____ _____ _____ Net (decrease)/increase in cash and cash equivalents (14,461) 2,311 18,028 Cash and cash equivalents at beginning of period 29,182 11,154 11,154 _____ _____ _____ Cash and cash equivalents at end of period 14,721 13,465 29,182 _____ _____ _____ * During the year ended 31 March 2005, the Group carried out a corporate restructuring including the introduction of a new holding company. The cash flow statement has been prepared using merger accounting and the comparative financial information is presented on a proforma basis as if the new holding company had been in existence and had been the parent of all group subsidiaries throughout the comparator periods. Group statement of recognised income and expense (unaudited) 6 months ended 30 September 2005 £'000 Loss for the period (3,308) Unrealised gain on revaluation of available-for-sale investment 118 _____ Total recognised income and expense (3,190) _____ There was no recognised income or expense in either the 6 months ended 30 September 2004 or the year ended 31 March 2005 other than the loss for these periods and so no proforma group statement of recognised income and expense is presented for those periods. Group reconciliation of shareholders' equity (unaudited) 6 months ended 30 September 2005 Share Other Share Merger Retained Own Total Capital Equity Premium Reserve Earnings Shares £'000 £'000 £'000 £'000 £'000 £'000 £'000 Opening balances 556 93 26,949 34,451 (36,532) (101) 25,416 _____ _____ _____ _____ _____ _____ _____ Recognised directly in equity Movement in own shares - - - - - 6 6 Share-based payment - 80 - - - - 80 _____ _____ _____ _____ _____ _____ _____ Net change directly in - 80 - - - 6 86 equity _____ _____ _____ _____ _____ _____ _____ Total recognised income and - - - - (3,190) - (3,190) expense _____ _____ _____ _____ _____ _____ _____ Total movements - 80 - - (3,190) 6 (3,104) _____ _____ _____ _____ _____ _____ _____ Equity at the end of the 556 173 26,949 34,451 (39,722) (95) 22,312 period _____ _____ _____ _____ _____ _____ _____ Group reconciliation of shareholders' equity (unaudited) 6 months ended 30 September 2004 * Share Other Share Merger Retained Own Total Capital Equity Premium Reserve Earnings Shares £'000 £'000 £'000 £'000 £'000 £'000 £'000 Opening balances 156 25 - 34,451 (28,588) (135) 5,909 _____ _____ _____ _____ _____ _____ _____ Recognised directly in equity New share capital subscribed 26 - 5,954 - - - 5,980 Movement in own shares - - - - - 91 91 Gain on sale of EBT shares - - - - 70 - 70 Share-based payment - 19 - - - - 19 _____ _____ _____ _____ _____ _____ _____ Net change directly in 26 19 5,954 - 70 91 6,160 equity _____ _____ _____ _____ _____ _____ _____ Total recognised income and - - - - (3,632) - (3,632) expense _____ _____ _____ _____ _____ _____ _____ Total movements 26 19 5,954 - (3,562) 91 2,528 _____ _____ _____ _____ _____ _____ _____ Equity at the end of the 182 44 5,954 34,451 (32,150) (44) 8,437 period _____ _____ _____ _____ _____ _____ _____ * During the 6 months ended 30 September 2004, the Group carried out a corporate restructuring including the introduction of a new holding company. This reconciliation of shareholders' equity has been prepared using merger accounting and is presented on a proforma basis as if the new holding company had been in existence and had been the parent of all group subsidiaries throughout the period. Group reconciliation of shareholders' equity (unaudited) Year ended 31 March 2005* Share Other Share Merger Retained Own Total Capital Equity Premium Reserve Earnings Shares £'000 £'000 £'000 £'000 £'000 £'000 £'000 Opening balances 156 25 - 34,451 (28,588) (135) 5,909 _____ _____ _____ _____ _____ _____ _____ Recognised directly in equity New share capital subscribed 400 - 26,949 - - - 27,349 Movement in own shares - - - - - 34 34 Gain on sale of EBT shares - - - - 70 - 70 Share-based payment - 68 - - - - 68 _____ _____ _____ _____ _____ _____ _____ Net change directly in 400 68 26,949 - 70 34 27,521 equity _____ _____ _____ _____ _____ _____ _____ Total recognised income and - - - - (8,014) - (8,014) expense _____ _____ _____ _____ _____ _____ _____ Total movements 400 68 26,949 - (7,944) 34 19,507 _____ _____ _____ _____ _____ _____ _____ Equity at the end of the 556 93 26,949 34,451 (36,532) (101) 25,416 period _____ _____ _____ _____ _____ _____ _____ * During the year ended 31 March 2005, the Group carried out a corporate restructuring including the introduction of a new holding company. This reconciliation of shareholders' equity has been prepared using merger accounting and is presented on a proforma basis as if the new holding company had been in existence and had been the parent of all group subsidiaries throughout the period. Notes to the Interim Financial Information (unaudited) 6 months ended 30 September 2005 1. Basis of Preparation The financial information for the 6 months ended 30 September 2005 does not constitute statutory accounts for the purposes of Section 240 of the Companies Act 1985 and has not been audited. No statutory accounts for the period have been delivered to the Registrar of Companies. The financial information in respect of the year ended 31 March 2005 has been produced using extracts from the statutory accounts under UK GAAP for this period and amended by adjustments arising from the implementation of International Financial Reporting Standards (IFRS). Consequently, this does not constitute the statutory information for the year ended 31 March 2005 which was audited. The statutory accounts for this period have been filed with the Registrar of Companies. The auditors' report on these accounts was unqualified and did not contain a statement under Sections 237 (2) or (3) of the Companies Act 1985. The interim financial information has been prepared on the basis of IFRS and International Accounting Standards (IAS) as set out in note 2 and, where appropriate, standing interpretations issued by the International Accounting Standards Board (IASB) and its committees expected to be effective for the year ending 31 March 2006. It is possible that the IFRS, IAS and related interpretations will be subject to amendment by the IASB and subsequent endorsement by the European Commission. As a result the accounting policies used to prepare the interim financial information may need to be updated and amended for any subsequent changes or new standards that are effective or applied by the Group in the year ending 31 March 2006. The Group has opted not to prepare the interim financial information under IAS 34 'Interim Financial Reporting'. The interim financial information has been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The principal accounting policies are set out below. 2. Accounting Policies The Group's consolidated financial statements were prepared in accordance with UK Generally Accepted Accounting Principles (UK GAAP) until 1 April 2005. UK GAAP differs in some respects to IFRS. In preparing the 2005 consolidated interim financial information, management has made certain amendments to the UK GAAP basis to comply with the recognition and measurement criteria of IFRS. The 2004 comparative figures have been restated to reflect these adjustments. The accounting policies set out below have been applied consistently to all of the periods covered in the interim financial information. Application of IFRS 1 The Group's financial statements for the year ending 31 March 2006 will be the first financial statements to be prepared in accordance with IFRS. The interim financial information has been prepared as described above including the principles set out in IFRS 1. Under the first time adoption procedures set out in IFRS 1, the Group is required to establish its IFRS accounting policies as at 1 April 2005 and to apply these retrospectively in the determination of prior period comparatives to 1 April 2004, the date of transition. There are a number of optional exemptions to this general principle, the most significant of which are set out below. • IFRS 2, Share-based Payment The Group has elected to apply IFRS 2 to all share-based awards and options granted post 7 November 2002 but not vested at 1 January 2005. • IFRS 3, Business Combinations The Group has elected not to restate business combinations prior to the date of transition. • IAS 16, Property, Plant and Equipment The Group has elected, where appropriate, to use fair value at the date of transition as the 'deemed' cost of plant, property and equipment. Consequently any historic asset revaluations will not be updated. • IAS 32, Financial Instruments: Disclosure and Presentation and IAS 39, Financial Instruments: Recognition and Measurement The Group has elected to adopt IAS 32 and IAS 39 from 1 April 2005 and not to restate prior period comparatives. Consequently the comparative financial information in respect of financial instruments is presented in accordance with UK GAAP. Tables setting out the reconciliation of opening UK GAAP balances to IFRS, together with the effect on the Group's equity, net income and cash flows, are provided in note 6. Basis of consolidation During the year ended 31 March 2005, the Group carried out a corporate restructuring consisting of the introduction of a new holding company. The restructuring represented a change in identity of the holding company rather than an acquisition of the business. Consequently, the restructuring has been accounted for using merger accounting principles. Therefore, although Ardana plc did not become the parent company of the Group until May 2004, the financial information is presented as if the Company and its subsidiaries had always been part of the same group. As such, the comparative financial information for the periods ended 30 September 2004 and 31 March 2005 is presented on a proforma basis. The results and cash flows of the entities are combined from the beginning of the year in which the merger occurred and their assets and liabilities are combined at the amounts at which they were previously recorded. In accordance with sections 131 and 133 of the Companies Act 1985, the Company has taken no account of any premium on the shares issued and has recorded the cost of the investment at the nominal value of the shares issued. The resulting difference arising on consolidation has been credited to a merger reserve. The interim financial information incorporates the results, cashflows and financial position of the Company and its subsidiaries for the 6 months ended 30 September 2005. On acquisition, the assets and liabilities of a subsidiary are measured at their fair value at the date of acquisition. Any excess of the cost of acquisition over the fair value of the identifiable net assets acquired is recorded as goodwill. Goodwill is reviewed for impairment at least annually and any impairment is recognised immediately in the income statement. Any deficiency of cost of acquisition below the fair value of the identifiable net assets acquired is credited to the income statement on acquisition. Goodwill recorded on business combinations prior to IFRS transition has not been restated and has been written off to reserves according to the UK GAAP accounting standards then in force. On disposal or closure of a previously acquired business, the attributable amount of goodwill previously written off to reserves is not included in determining the profit or loss on disposal. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Fixed asset investments Fixed asset investments are shown at cost less provisions for impairment. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable from the sale of goods and services provided in the normal course of business, net of value added tax and discounts, and is recognised as follows: i) Product revenue Product revenue is recognised when the significant risks and rewards of ownership of the product have been transferred to a third party. ii) Revenue from sale of services Revenue from sale of services is recognised in the period in which the services are rendered. Interest income is recognised on an accruals basis. Research and development Research expenditure is charged against income in the period in which it is incurred. Development expenditure is charged to income in the period in which it is incurred unless it meets the recognition criteria of IAS 38 'Intangible Assets'. Regulatory and other uncertainties generally mean that such criteria are not met. Where, however, the recognition criteria are met, intangible assets are capitalised and amortised over their useful economic lives from product launch. Payments to in-license products and compounds from external third parties, generally taking the form of up-front payments and milestones, are capitalised and amortised over their economic lives from launch. Property, plant and equipment Property, plant and equipment are shown at cost, net of depreciation and any provision for impairment. Depreciation is provided on all property, plant and equipment at varying rates calculated to write-off cost over the useful lives. The principal rates employed are: Plant and machinery 10% - 50% straight line basis Leases Rentals under leases classified as operating leases are charged to the income statement on a straight-line basis over the lease term. Operating loss Operating loss is stated after charging research and development and other operating costs but before finance costs. Trade receivables Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowance for estimated irrecoverable amounts. Trade payables Trade payables are not interest-bearing and are stated at their nominal value. Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on the taxable loss for the period. Taxable loss differs from net loss as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax loss nor the accounting loss. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Share-based payment The Group issues equity-settled share-based benefits to certain employees. Subject to the transition arrangements set out above, these share-based payments are measured at their fair value at the date of grant and the fair value of expected shares is expensed to the income statement on a straight-line basis over the vesting period. Fair value is measured by use of the Black-Scholes model, as amended to take account of management's best estimate of probable share vesting and exercise. Foreign currencies Transactions in currencies other than Sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Gains and losses arising on retranslation are included in net profit or loss for the period. On consolidation, the assets and liabilities of the Group's overseas operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly. Exchange differences arising, if any, are classified as equity and transferred to the Group's translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of. Inventories Inventories are stated at the lower of cost and net realisable value. Provision is made for obsolete and slow-moving items where appropriate. Available-for-sale investment The available-for-sale investment is measured at cost and is revalued at fair value at subsequent reporting dates. Gains and losses arising from changes in fair value are recognised directly in equity until the investment is disposed of or is determined to be impaired at which time the cumulative gain or loss previously recognised in equity is included in the net profit or loss for the period. Interest receivable is credited to the income statement in the period in which it is earned. 3. Loss per Share Basic loss per share is calculated by dividing the loss for the financial period after taxation by the weighted average number of ordinary shares in issue during the period. The basic loss per share is calculated as follows:- 6 months ended 6 months ended 30 Year ended 31 30 September September March 2005 2004 2005 Loss after taxation (£'000) (3,308) (3,632) (8,014) Weighted average number of ordinary shares in issue 55,562,806 16,528,038 38,717,240 _____ _____ _____ Basic loss per share (pence) (5.9) (22.0) (20.7) _____ _____ _____ 4. Available-for-sale investment On 15 August 2005, Ardana invested £10 million in a corporate bond fund. Interest is received quarterly in arrears. The capital value of this investment is subject to market fluctuations. The funds can be withdrawn, in whole or in part, at any time. 5. Reconciliation of operating loss to net cash used by operations 6 months 6 months Year ended 30 ended 30 ended 31 September September March 2005 2004 2005 £'000 £'000 £'000 Operating loss (4,185) (4,094) (9,016) Depreciation 16 14 29 Decrease/(increase) in stock 69 (112) (107) Increase in debtors (150) (698) (184) (Decrease)/increase in creditors (1,101) 434 (1,095) Share-based payment 80 19 68 _____ _____ _____ Net cash used by operations (5,271) (4,437) (10,305) _____ _____ _____ 6. Explanation of transition to IFRS Cash flow The cash flow differences between UK GAAP and IFRS, for each financial period, are presentational. There is no impact on the final cash position nor the movement in the period. The IFRS cash flow statement with comparative information is presented on page 10. a) Effect on proforma group income statement for the 6 months to 30 September 2004 The effect of the changes to the Group's accounting policies on the proforma group income statement was as follows:- UK GAAP in Effect of IFRS IFRS transition to £'000 format IFRS (i) £'000 £'000 Revenue Product revenue 22 - 22 Revenue from sale of services 51 - 51 _____ _____ _____ Total revenue 73 - 73 Cost of product sales (5) - (5) Research and development expenses (1,672) - (1,672) Other operating expenses (2,471) (19) (2,490) _____ _____ _____ Total operating expenses (4,148) (19) (4,167) _____ _____ _____ Operating loss (4,075) (19) (4,094) Interest received 241 - 241 _____ _____ _____ Loss before tax (3,834) (19) (3,853) Tax 221 - 221 _____ _____ _____ Loss for the period (3,613) (19) (3,632) _____ _____ _____ b) Effect on proforma group income statement for the year ended 31 March 2005 The effect of the changes to the Group's accounting policies on the proforma group income statement was as follows:- UK GAAP in Effect of IFRS IFRS transition to £'000 format IFRS (i) £'000 £'000 Revenue Product revenue 60 - 60 Revenue from sale of services 75 - 75 _____ _____ _____ Total revenue 135 - 135 Cost of product sales (11) - (11) Research and development expenses (3,977) - (3,977) Other operating expenses (5,095) (68) (5,163) _____ _____ _____ Total operating expenses (9,083) (68) (9,151) _____ _____ _____ Operating loss (8,948) (68) (9,016) Interest received 523 - 523 _____ _____ _____ Loss before tax (8,425) (68) (8,493) Tax 479 - 479 _____ _____ _____ Loss for the period (7,946) (68) (8,014) _____ _____ _____ c) Effect on proforma group balance sheet as at 1 April 2004 (date of transition to IFRS) The effect of the changes to the Group's accounting policies on the equity of the Group at 1 April 2004 was as follows:- UK GAAP in Effect of IFRS IFRS transition to £'000 format IFRS (i) £'000 £'000 Non-current assets Property, plant and equipment 34 - 34 _____ _____ _____ Current assets Trade and other receivables 1,029 - 1,029 Cash and cash equivalents 11,154 - 11,154 _____ _____ _____ 12,183 - 12,183 _____ _____ _____ Total assets 12,217 - 12,217 _____ _____ _____ Current liabilities Trade and other payables (3,302) - (3,302) _____ _____ _____ Non-current liabilities Long term provisions (3,006) - (3,006) _____ _____ _____ Total liabilities (6,308) - (6,308) _____ _____ _____ Net assets 5,909 - 5,909 _____ _____ _____ Equity Share capital 156 - 156 Other equity - 25 25 Merger reserve 34,451 - 34,451 Own shares (135) - (135) Retained earnings (28,563) (25) (28,588) _____ _____ _____ Total equity 5,909 - 5,909 _____ _____ _____ d) Effect on group balance sheet as at 30 September 2004 The effect of the changes to the Group's accounting policies on the equity of the Group at 30 September 2004 was as follows:- UK GAAP in Effect of IFRS IFRS transition to £'000 Format IFRS(i) £'000 £'000 Non-current assets Property, plant and equipment 39 - 39 _____ _____ _____ Current assets Inventories 112 - 112 Trade and other receivables 1,564 - 1,564 Cash and cash equivalents 13,465 - 13,465 _____ _____ _____ 15,141 - 15,141 _____ _____ _____ Total assets 15,180 - 15,180 _____ _____ _____ Current liabilities Trade and other payables (3,654) - (3,654) _____ _____ _____ Non-current liabilities Long term provisions (3,089) - (3,089) _____ _____ _____ Total liabilities (6,743) - (6,743) _____ _____ _____ Net assets 8,437 - 8,437 _____ _____ _____ Equity Share capital 182 - 182 Other equity - 44 44 Share premium account 5,954 - 5,954 Merger reserve 34,451 - 34,451 Own shares (44) - (44) Retained earnings (32,106) (44) (32,150) _____ _____ _____ Total equity 8,437 - 8,437 _____ _____ _____ e) Effect on group balance sheet as at 31 March 2005 (date of last UK GAAP financial statements) The effect of the changes to the Group's accounting policies on the equity of the Group at 31 March 2005 was as follows:- UK GAAP in Effect of IFRS IFRS transition to £'000 Format IFRS (i) £'000 £'000 Non-current assets Property, plant and equipment 33 - 33 _____ _____ _____ Current assets Inventories 107 - 107 Trade and other receivables 1,308 - 1,308 Cash and cash equivalents 29,182 - 29,182 _____ _____ _____ 30,597 - 30,597 _____ _____ _____ Total assets 30,630 - 30,630 _____ _____ _____ Current liabilities Trade and other payables (3,841) - (3,841) _____ _____ _____ Non-current liabilities Long term provisions (1,373) - (1,373) _____ _____ _____ Total liabilities (5,214) - (5,214) _____ _____ _____ Net assets 25,416 - 25,416 _____ _____ _____ Equity Share capital 556 - 556 Other equity - 93 93 Share premium account 26,949 - 26,949 Merger reserve 34,451 - 34,451 Own shares (101) - (101) Retained earnings (36,439) (93) (36,532) _____ _____ _____ Total equity 25,416 - 25,416 _____ _____ _____ Footnote: (i) Charge for share-based payment Under IFRS 2 a charge must be recognised for any share-based payment including awards under the Group's share option schemes. The cost of the option is based on the fair value of the option at the date of grant and is charged to the income statement over the vesting period. A charge has been recognised in the income statement for all the awards granted since 7 November 2002. An equivalent amount is credited to reserves in the balance sheet, resulting in a nil effect on net assets. 7. Interim Results Copies of this statement are being circulated to shareholders and are available at the offices of Ardana plc, 38 Melville Street, Edinburgh, EH3 7HA. They will also be available on our website, www.ardana.co.uk. This information is provided by RNS The company news service from the London Stock Exchange

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