Interim Results

EpiStem Holdings plc
28 February 2008

For release: 28th February 2008

Epistem Plc (LSE: EHP), the UK epithelial stem cell company, announced today its
interim results for the period to 31st December 2007.

Epistem is a biotechnology company commercialising its expertise in tissue
renewal in the areas of oncology, gastrointestinal diseases and dermatology.
They provide specialised preclinical efficacy testing, biomarker services and
develop proprietary novel therapeutics for partnership and co-development with
drug development companies.

Located in purpose built office and laboratory facilities adjacent to the
University of Manchester, UK, Epistem maintain close links with drug companies,
clinicians and academics in the field, ensuring that the company remains at the
forefront of stem cell science and technology.

During the year, the Group made significant progress on a number of key fronts:

Highlights:

  • 66% growth in Interim year on year sales
  • Novel Therapeutics accelerating development of selected therapeutic lead
    candidates
  • £1.1m fundraising in November 2007 for newly emerging biomarker business
  • Epistem Biomarker technology wins Bionow 2007 'Biomedical Project of The
    Year' award
  • Strong customer interest in new product developments including cancer stem
    cells and wound healing
  • Healthy balance sheet with £2.6m of cash at period end
  • 20% increase in share price post April 2007 admission, set against
    downturn in financial markets and market segment


Commenting on the Interim results, Matthew Walls, CEO of Epistem commented: 
'Following a very successful first half of this financial year, the Board of
Epistem remain convinced that in the medium term there will be substantial
uplift in the value of the Company based on its current performance and the
value opportunities now beginning to emerge'


For further details, please contact:

Matthew Walls                                 0161 606 7258
CEO
Epistem Plc

Mike Wort / Anna Dunphy                       0207 861 3838
De Facto Communications

Thilo Hoffmann / Gareth Price                 020 7426 9000
Landsbanki Securities





Chairman and Chief Executive Officer Statement

Following the April 2007 admission, we are pleased to report to shareholders
that the Company continues to make excellent progress across its core business
areas. This Interim Report covers the six month period from 1st July 2007 to 31
December 2007.

Overview

Results for the first six months showed a 66% year on year growth in revenues
for the Company, primarily from the Company's Contract Research Services
division. This growth represents a significant uplift in the first half business
performance over last year and further evidence of the growing interest in the
Company's stem cell services and expertise.

The Novel Therapies division has selected a small group of proteins from its 250
protein asset for accelerated development. The early characterisation and
efficacy results for these lead candidate proteins are very encouraging.

Biomarker developments have also accelerated with the initial feasibility
studies undertaken with AstraZeneca Plc proving successful. The Company also
completed a £1.1m placement in November 2007 to fund further development of its
Biomarker business and received the 2007 North West Regional Development Agency
'Bionow' award for Biomedical Project of The Year.

Against the backdrop of the volatile financial markets, the combination of a
revenue-generating and profitable Contract Research Services division coupled
with an investment-driven Novel Therapies division continues to provide a
balanced risk profile for our ongoing business model. This position has been
further recognised by our shareholders with the stock price now 20% above its
admission price in April 2007.

Cash reserves in the Company are healthy at £2.6m with the monthly cash burn
(£0.1m/month) primarily related to investment in our Novel Therapies division.

Financial Review

Sales revenue from business operations for the first six months of this
financial year was £1.1m, an increase of £0.4m. The revenue growth was driven by
increased 'fee for service' business generated by the Contract Research Services
division. Interim Operating Profits for The Contract Research Services Division
increased by £0.3m over the previous year. Cost increases over the period were
primarily in relation to new staff and expertise, with other costs remaining
under tight control. The net loss for the period amounted to £0.5m compared with
a loss of £0.5m over the same period last year. The corresponding Earnings Per
Share figure for the Interim period was (6)p against (10)p for the previous
year.

At the time of writing there is a high degree of uncertainty in the financial
markets. The directors consider that the Group's cash reserves place the
business in a strong position which along with the Company's growth prospects
will allow the Company to take advantage of opportunities that may present
themselves in such market conditions.

Operational Review

Over the first half, Contract Research Services has responded to an increased
demand for its drug efficacy and skin testing models. This included an increase
in the number of biodefence candidates tested under the US National Institutes
of Health (NIH) contract for radiation sickness. We are also applying our
knowledge of the behaviour of normal epithelial stem cells to develop new models
for testing drugs in the area of cancer stem cells. With the pharmaceutical
industry beginning to focus more closely on cancer stem cells and their
microenvironment the Company is well positioned to address this growing area of
oncology development.

From our 250 genes used to identify candidate stem cell regulators, we are now
advancing 4 leads in the therapeutic areas of oncology and wound healing. Early
characterisation and efficacy results have been very encouraging. Two of our
oncology leads have shown inhibition in our cancer stem cell models and we are
currently characterising the nature of this inhibition. The Company anticipates
additional leads emerging in the coming months from its protein asset. The early
commercial contract for an off-patent molecule outlined in the October 2007
Annual Report has been terminated and this molecule will be repositioned as a
biodefence therapeutic lead.

Biomarker developments have moved quickly over the first half, with the Company
beginning to put in place foundations for further development and
commercialization of its platform technology. The recent Biomarker feasibility
work completed with AstraZeneca Plc provided the first independent validation of
the technology platform. We are now undertaking other validation work with our
pharmaceutical partners.

Strategy

The Board believes that shareholder value can be best enhanced by maintaining
and developing its combined business model and by growing, where appropriate by
complementary acquisition. The combined business model offers a cornerstone of a
growing and profitable Contract Research Services operation. This business model
will be further underpinned by developing the newly emerging Biomarker business.
The investment based Novel Therapeutics division will continue to de-risk its
drug development position with the advancement of its therapeutic leads.

Outlook

On a like for like basis, we anticipate continued growth in our Contract
Research Services business in the second half of the year over the comparative
period in 2007. Additional growth is also anticipated through our emerging
Biomarker business validated by our pharmaceutical partners.

The early characterisation results from our therapeutic leads are positive and
we expect to see further development of our therapeutic lead candidates over the
second half.

The Board of Epistem remain convinced that in the medium term there will be
substantial uplift in the value of the Company based on its current performance
and the value opportunities now beginning to emerge.



David Evans        Matthew Walls
Chairman           Chief Executive Officer
February 2008


Consolidated Income Account
Six months ended 31 December 2007


                                                         Restated
                                   Six months to    Six months to    Year ended
                                     31 Dec 2007      31 Dec 2006   30 Jun 2007
                                      (unaudited)      (unaudited)     (audited)
                                               £                £             £

Revenue                                1,106,467          666,846     1,357,444

Contract research costs                 (725,506)        (499,015)   (1,112,093)
Discovery and development costs         (525,682)        (484,159)   (1,034,053)

General administrative costs            (416,601)        (190,122)     (452,708)

Operating loss                          (561,322)        (506,450)   (1,241,410)

Interest receivable                       46,923           12,138        49,793

Interest payable and similar 
charges                                   (6,799)          (9,404)       (5,276)

Loss on ordinary activities before 
taxation                                (521,198)        (503,716)   (1,196,893)

Tax credit on loss on ordinary 
activities                               (95,000)        (100,173)     (160,358)

Loss for the financial period           (426,198)        (403,543)   (1,036,535)

Earnings per share (pence)                  (6)p            (10)p         (22)p



Consolidated Statement of Changes in Equity
Six months ended 31 December 2007

                                                   Share       Share        Reverse    Profit and
                                      Share      Premium     Options   Acquisitions          Loss         
                                    Capital      Account     Reserve        Reserve       Account         Total
                                          £            £           £              £             £             £

Balance at 1 July 2006                  202    2,531,968     398,812              -    (1,835,964)    1,095,018

Recognition of equity settled
share-based payments in the period        -            -      22,187              -             -        22,187

Loss for period                           -            -           -              -      (403,543)     (403,543)

At 31 December 2006                     202    2,531,968     420,999              -    (2,239,507)      713,662

IFRS 3 reserve acquisition           60,482    2,423,924           -     (2,484,406)            -             -
Allotment of ordinary shares         37,387    3,053,250           -              -             -     3,090,637
Share issue costs                         -     (607,542)          -              -             -      (607,542)
Recognition of equity settled
share-based payments in the 
period                                    -            -      32,933              -             -        32,933

Loss for period                           -            -           -              -      (632,992)     (632,992)

At 30 June 2007                      98,071    7,401,600     453,932     (2,484,406)   (2,872,499)    2,596,698

Allotment of ordinary shares          9,807    1,055,897           -              -             -     1,065,704
Share issue costs                         -      (20,295)          -              -             -       (20,295)
Recognition of equity settled
share-based payments in the 
period                                    -            -      55,284              -             -        55,284

Loss for period                           -            -           -              -      (426,198)     (426,198)

At 31 December 2007                 107,878    8,437,202     509,216     (2,484,406)   (3,298,697)    3,271,193


Consolidated Balance Sheet
As at 31 December 2007

                                                         Restated
                                     31 Dec 2007      31 Dec 2006  30 Jun 2007
                                      (unaudited)      (unaudited)    (audited)
                                               £                £             £

Non-current assets
Intangible assets                         56,894           60,758        58,826

Plant and equipment                      347,775          375,977       368,099

                                         404,669          436,735       426,925

Current assets
Trade and other receivables              516,370          332,853       357,089
Tax receivables                          255,358          230,700       160,358

Cash and cash equivalents              2,612,045          328,414     2,394,456

                                       3,383,773          891,967     2,911,903

Liabilities
Current liabilities
Trade and other payables                 347,305          356,106       394,994
Obligations under finance leases          68,812           94,470        81,317

Bank overdrafts and loans                      -                -       128,884

                                         416,117          450,576       605,195

Net current assets                     2,967,656          441,391     2,306,708

Total assets less current 
liabilities                            3,372,325          878,126     2,733,633

Non-current liabilities

Obligations under finance leases        (101,132)        (164,464)     (136,935)

Net assets                             3,271,193          713,662     2,596,698

Capital and reserves
Called-up equity share capital           107,878              202        98,071
Share premium account                  8,437,202        2,531,968     7,401,600
Share options reserve                    509,216          420,999       453,932
Reverse acquisition reserve           (2,484,406)               -    (2,484,406)

Profit and loss account               (3,298,697)      (2,239,507)   (2,872,499)

Total shareholders' equity             3,271,193          713,662     2,596,698


Consolidated Statement of Cash Flows
Six months ended 31 December 2007

                                                         Restated
                                   Six months to    Six months to    Year ended
                                     31 Dec 2007      31 Dec 2006   30 Jun 2007
                                      (unaudited)      (unaudited)     (audited)
                                               £                £             £

Cash flows from operating activities
Loss for the period                     (561,322)        (506,450)   (1,241,410)
Depreciation, amortisation and 
impairment                                50,022           53,632       109,264

Share-based payment expense               55,284           22,187        55,120

Operating loss before changes in
working capital and provisions          (456,016)        (430,631)   (1,077,026)
(Increase)/decrease in trade and 
other receivables                       (159,281)          (9,490)      (33,726)

(Decrease)/increase in trade and 
other payables                           (47,689)         142,068       180,956

Net cash outflow generated from 
operations                              (662,986)        (298,053)     (929,796)
Interest paid                             (6,799)          (9,404)       (5,276)
Interest received                         46,923           12,138        49,793

Tax received                                   -                -       130,527

Net cash outflow from operating 
activities                              (622,862)        (295,319)     (754,752)

Cash flows from investing activities

Acquisition of property, plant and 
equipment                                (27,766)         (17,370)      (63,192)

Net cash outflow from investing 
activities                               (27,766)         (17,370)      (63,192)

Cash flows from financing activities
Proceeds from issue of share capital   1,065,704                -     3,090,637
Expenses of share issue                  (20,295)               -      (607,542)

Repayment of borrowings                  (48,308)         (34,768)      (75,450)

Net cash inflow from financing 
activities                               997,101          (34,768)    2,407,645

Net increase/(decrease) in cash 
equivalents                              346,473         (347,457)    1,589,701

Cash and cash equivalents at beginning 
of period                              2,265,572          675,871       675,871

Cash and cash equivalents at end of 
period                                 2,612,045          328,414     2,265,572

Analysis of Net Funds

Cash at bank and in hand               2,612,045          328,414     2,394,456

Bank overdrafts                                -                -      (128,884)

Net Funds                              2,612,045          328,414     2,265,572


Notes to the Interim Financial Statements
Six months ended 31 December 2007

1.  Significant accounting policies

Basis of accounting

The interim financial statements have been prepared under the historical cost
convention, modified to include the revaluation of financial instruments and in
accordance with applicable accounting standards in particular International
Financial Reporting Standards as adopted by the EU ('Adopted IFRSs').

Epistem Holdings Plc is a company incorporated in the UK.

These interim financial statements have not been audited and do not constitute
statutory accounts within the meaning of section 240 of the Companies Act 1985.

The comparative figures for the financial year ended 30 June 2007 are not the
statutory accounts for the financial year but are abridged from those accounts
which have been reported on by the Group's auditors and delivered to the
Registrar of Companies. The report of the auditors was unqualified.

These interim financial statements were approved by the Board of Directors on 27
February 2008.

The accounting policies set out below have, unless otherwise stated, been
applied consistently to all periods represented in these consolidated financial
statements.

Basis of consolidation

The consolidated financial statements consolidate those of the Company and its
subsidiary (together referred to as the 'Group').

Subsidiaries are entities controlled by the Group. The financial statements of
subsidiaries are included in the consolidated financial statements from the date
that control commences until the date that control ceases. Transactions between
Group companies are eliminated on consolidation.

On 16 March 2007 Epistem Holdings Plc merged with Epistem Limited, when the
shareholders of Epistem Limited exchanged their shares for equivalent shares in
Epistem Holdings Plc. As Epistem Holdings Plc was newly incorporated at the time
of the transaction under the terms of IFRS 3 'Business Combinations' this
transaction has been accounted for as a reverse acquisition, on the basis that
the shareholders of Epistem Limited gained a controlling interest in the Group.
The financial statements therefore represent a continuation of the financial
statements of Epistem Limited.

Revenue recognition

The company generally invoices and reports as sales, 50% of the value of a new
contract on signature. This policy is designed to recognise that, in negotiating
contracts for new studies, the company performs specific pre-contract work to
establish the parameters of the study work. When the final report is issued to
the client the remainder of the contract is invoiced and recognised as income,
at that date. In other cases where the contract does not provide for income
recognition on signature revenue is recognised as the work is invoiced.

Segment reporting

A segment is a group of assets, liabilities and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other parts of the business. The group's primary format for
segment reporting is based on business segments.

Research and development

Research and development expenditure is written off in the year in which it is
incurred.

Share-based payments

The group issues equity-settled and cash-settled share-based payments to certain
employees (including directors). Equity-settled share-based payments are
measured at fair value at the date of grant. The fair value determined at the
grant date of the equity-settled share-based payments is expensed on a
straight-line basis over the vesting period, together with a corresponding
increase in equity, based upon the group's estimate of the shares that will
eventually vest.

Fair value is measured using the Black-Scholes pricing model. The expected life
used in the model has been adjusted, based on management's best estimate, for
the effects of non-transferability, exercise restrictions and behavioural
considerations.

Where the terms of an equity-settled transaction are modified, as a minimum an
expense is recognised as if the terms had not been modified. In addition, an
expense is recognised for any increase in the value of the transaction as a
result of the modification, as measured at the date of modification.

Where an equity-settled transaction is cancelled, it is treated as if it had
vested on the date of the cancellation, and any expense not yet recognised for
the transaction is recognised immediately. However, if a new transaction is
substituted for the cancelled transaction, and designated as a replacement
transaction on the date that it is granted, the cancelled and new transactions
are treated as if they were a modification of the original transaction, as
described in the previous paragraph.

2.  Segment information

                                     Contract
                                     Research      Novel  Unallocated
                                     Services  Therapies     Expenses     Total
                                            £          £            £         £

Six months ended 31 December, 2007
Revenue                             1,106,467          -            -  1,106,467
Segment result                        394,999   (506,238)    (394,799)  (506,038)

Less equity settled share-based 
payments (IFRS 2)                     (14,038)   (19,444)     (21,802)   (55,284)

Operating Profit/Loss                 380,961   (525,682)    (416,601)  (561,322)

Six months ended 31 December, 2006
Revenue                               666,846          -            -    666,846
Segment result                        167,831   (461,972)    (190,122)  (484,263)

Less equity settled share-based 
payments (IFRS 2)                           -    (22,187)           -    (22,187)

Operating Profit/Loss                 167,831   (484,159)    (190,122)  (506,450)

Twelve months ended 30 June, 2007
Revenue                             1,357,444          -            -   1,357,444
Segment result                        245,351   (989,678)    (441,963) (1,186,290)

Less equity settled share-based 
payments (IFRS 2)                           -    (44,375)     (10,745)    (55,120)

Operating Profit/Loss                 245,351 (1,034,053)    (452,708)  (1,241,410)

Registered Office
48 Grafton Street
Manchester M13 9XX
United Kingdom

Nominated Adviser & Broker
Landsbanki Securities (UK) Limited
Beaufort House
15 St Botolph Street
London EC3A 7QR

Epistem Plc
48 Grafton Street
Manchester
M13 9XX
United Kingdom

T [phone]
F [phone]

www.epistem.co.uk




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