Half Yearly Report

RNS Number : 3855M

Phytopharm PLC

24 May 2010

 



24 May 2010

Company Contact: Phytopharm plc Sandy Morrison CEO Roger Hickling R & D Director [phone] www.phytopharm.com

U.K. Investor Relations Contact: FD John Dineen Ben Atwell [phone]

Interim Results for the six months ended 31 March 2010

Phytopharm plc (PYM: London Stock Exchange) ("Phytopharm" or the "Company", or the "Group") today announces its interim results for the six months ended 31 March 2010.

Financial summary

·      £24.1 million net raised in December 2009 through a Placing and Open Offer.

·      Loss after tax of £1.91 million (HY 2009 £2.21 million).

·      Cash and money market investments balance of £26.31 million (HY 2009 £5.73 million).

Operational summary

·      Appointment of Mr Roger Hickling as Research and Development Director and Phytopharm Board Director in January 2010.

·      Positive headline results reported from a non-clinical efficacy study of Cogane™ in the gold-standard, non-clinical model of Parkinson's disease.

·      Completion of a Phase Ib safety, tolerability and pharmacokinetic clinical study of Cogane™ in healthy volunteers and Parkinson's disease patients.

·      Preparatory activities are ongoing for the Cogane™ Phase II clinical study. The study is expected to begin in various countries, including the UK and USA, later this year with completion in 2012.

·      Additional Cogane™ product formulation work initiated to prepare for post Phase II development.

Sandy Morrison, Interim CEO, commented "Phytopharm has made solid progress during the first half of this year in implementing the agreed strategy of focusing on our pharmaceutical programmes and ring-fencing our functional food programmes. Cogane™ remains our top priority. During the period, we reported promising results with Cogane™ in a preclinical model and in a safety, tolerability and pharmacokinetic study in Parkinson's disease patients and preparations for a Phase II study of Cogane™ in Parkinson's disease are underway."

"We also secured significant new investment from the equity fundraising completed in December 2009 and we were pleased with the strong support we received from our shareholders. We now have a robust balance sheet with which to progress our promising pharmaceutical pipeline. I look forward to announcing more specific progress during H2 2010. I would also like to thank Phytopharm's dedicated and talented team for their efforts throughout the period".

Business Review

In December 2009, Phytopharm successfully completed a fully underwritten Placing and Open offer raising £24.1 million net of expenses and is now executing its agreed strategy.

Phytopharm's strategic focus is to progress the Company's pipeline of clinical and preclinical candidates for the treatment of neurodegenerative diseases whilst maintaining tight cost control.

Phytopharm's lead candidate is Cogane™ for the treatment of Parkinson's disease. An application to open an Investigational New Drug (IND) has been submitted to the Food and Drug Administration (FDA) for a Phase II clinical study. The study is expected to begin in various countries, including the UK and USA, later this year with completion in 2012.

The Company's existing early stage pipeline for additional neurodegenerative disease opportunities together with asthma and Chronic Obstructive Pulmonary Disease (COPD) are under review.

No decision on specific programmes will be considered until further data from pre-clinical studies become available and the Company has completed a risk analysis of the commercial opportunities and has ensured it has the resources needed to pursue one or more of the candidates.

Phytopharm is maintaining strong relationships with key disease specific charities and is pursuing other sources of non-dilutive funding. These contacts continue to provide Phytopharm with access to experts in the field and the patients for whom the products are being developed. These links will be progressed as will applications for further non-dilutive funding, as appropriate and if deemed feasible.

The Board were delighted to welcome Mr Roger Hickling as Research and Development Director and as a Board Member in January 2010. Roger's appointment strengthens the Company's ability to drive its research and development programmes forward following the successful fundraising activities in December 2009.

The search for a new CEO is currently ongoing and an appointment will be made as soon as a suitable candidate can be found.

Expenditure on the Group's residual functional food programmes remains restricted. Efforts are mainly focussed on establishing means of exploiting our IP and amassed know-how in a cost efficient manner. The principal efforts are directed at assessing opportunities for new partnering arrangements.

Operational review

Parkinson's disease

Phytopharm's lead development candidate is Cogane™ for the treatment of Parkinson's disease. Cogane™ is a novel small molecule, orally bioavailable neurotrophic factor inducer that readily crosses the blood brain barrier. In preclinical studies, Cogane™ stimulates the release of neurotrophic factors and increases neurite outgrowth. Importantly, Cogane™ also reverses the decrease of neurotrophic factors and reverses dopaminergic neuronal degeneration observed in vitro. When administered orally in several different preclinical models of Parkinson's disease, Cogane™ reverses the loss of dopaminergic neurones and elevates glial cell line-derived neurotrophic factor (GDNF).

Phytopharm has made significant progress during the last six months demonstrating that in preclinical models of Parkinson's disease Cogane™ reverses the damage to dopamine-containing neurones and elevates GDNF in the area of the brain involved in Parkinson's disease. In a recently completed preclinical efficacy study, oral administration of Cogane™ over eighteen weeks significantly reduced parkinsonian disability by 43 per cent in the macaque model of MPTP-induced Parkinson's disease (the gold standard for preclinical Parkinson's disease research), which will be clinically highly relevant if repeated in Parkinson's disease patients. Encouragingly, in the macaque study a statistically significant reduction in parkinsonian symptoms was reached after nine weeks of administration with Cogane™. The magnitude of the effect increased over the subsequent nine weeks of administration and was still increasing at the end of the study (week eighteen). Histology data from this study suggests that the mechanism underlying these effects is considerably more complex than originally envisaged. Further work in this area is ongoing.  This study was funded from the $1.16 million grant from the Michael J. Fox Foundation for Parkinson's Research. Phytopharm has also shown that administration of Cogane^TM to macaques in conjunction with L‑dopa (the standard treatment for Parkinson's disease) resulted in improved control of symptoms compared to those animals treated with L‑dopa alone. These data continue to support the development of Cogane™ as an exciting, new and potentially disease-modifying therapy for Parkinson's disease.

The Company has also completed a Phase Ib safety, tolerability and pharmacokinetic clinical study with Cogane™, which was shown to be safe and generally well tolerated in both healthy volunteers and Parkinson's disease patients over the twenty eight day study period. Importantly, at day twenty-eight, plasma levels in Parkinson's disease patients taking Cogane™ at a dose of 150 mg/day reached levels associated with efficacy in the non-human primate study and other preclinical disease models of Parkinson's disease.

Phytopharm has initiated the necessary preparatory and regulatory activities with a Clinical Research Organisation (CRO) for the planned Cogane™ Phase II clinical study to demonstrate efficacy in patients with Parkinson's disease. A panel of key opinion leaders helped with the design of the study and will be intimately involved in its execution. An IND has been submitted to the FDA. The study is expected to begin in various countries, including the UK and USA, later this year, with completion in 2012.

In parallel, product development work on Cogane™ is being undertaken to improve the commercial and technical viability of its manufacture / drug formulation so that the information is available for a rapid progression into further clinical trials.

Huntington's disease

Cogane^TM has been evaluated by the CHDI Foundation, Inc. in a preclinical model of Huntington's disease. In this model although Cogane^TM demonstrated some functional activity, the effects were small and were not accompanied by improvements in survival time or decreases in the size of the lesion as measured by magnetic resonance imaging (MRI). Phytopharm does not plan further development in Huntington's disease at this time.

Motor neurone disease / Amyotrophic lateral sclerosis (ALS)

In a preclinical model of ALS, administration of Myogane™, which, like Cogane^TM, is a novel orally bioavailable neurotrophic factor inducer, resulted in delays to the loss of muscle strength and extended survival time. These data have generated considerable interest from charitable organisations including the Motor Neurone Disease Association. The results give Phytopharm the strategic option of progressing either Myogane^TM or Cogane^TM in ALS.

Age memory impairment

PYM60086, which is an extract of a Traditional Chinese Medicine used as a tonic for the elderly with memory enhancing properties, has been shown in preclinical research conducted at the Beijing Institute to increase blood flow to the brain, to have antioxidant and anti-inflammatory properties and to be a neurotrophic factor inducer. When administered orally in several preclinical models, PYM60086 improved memory and learning. Phytopharm has agreed with the Beijing Institute to modify the existing agreement to allow the Institute to progress the development of the compound in Asian markets whilst Phytopharm retains the rights to develop a pharmaceutical product in Western markets.

Other neurological diseases

The neuroprotective and neurotrophic actions of Cogane™ suggest potential beneficial effects in other neurodegenerative diseases including Alzheimer's disease, diabetic neuropathy and neuropsychiatric disorders such as schizophrenia, depression, anxiety and epilepsy. These will be examined further as resources permit.

Asthma and COPD

The Company has identified a series of compounds as potential treatments for COPD and asthma. The lead candidates are TRPV1-modulators, anti-inflammatories and airway relaxants and these prevent airways remodelling and have been tested in several models of asthma. Preclinical comparative proof of concept studies with marketed products have demonstrated encouraging results showing improved beneficial effects in several models of asthma. Further work in this area will be initiated as resources allow.

Hoodia extract

The Company's weight management functional food product is based on a highly concentrated extract of the succulent plant Hoodia gordonii, which contains novel satiety stimulators that reduces calorie intake in overweight subjects, as demonstrated in the Company's double-blind, placebo-controlled clinical study.

Earlier clinical studies funded by Pfizer Inc. using a solid product formulation had been encouraging in demonstrating a statistically significant reduction in the average daily calorific intake in the Hoodia extract group. The kinetic data confirms that the systematic exposure to biologically active constituents of Hoodia was consistent with the observed clinical effects.

The Company conducted clinical studies under the joint development agreement with Unilever; these were undertaken using different extracts and formulations from those previously studied. Under the terms of the Mutual Termination Agreement, Phytopharm and Unilever are currently evaluating the data arising from one of these studies and the final report is expected to be available from the clinical research organisation in Q3 2010. The Company intends to publish a number of scientific articles on the Hoodia programme in 2010.

Phytopharm currently maintains a very limited Hoodia supply chain and expenditure on this programme will remain restricted until a satisfactory forward plan is secured.

We are evaluating a number of potential opportunities including discussions with major branded companies to explore ways forward for the Hoodia programme which Phytopharm has licensed from the South African Council for Scientific Research (CSIR). It is currently too early in the dialogue to give any indication as to whether these discussions will lead to a further commercial opportunity to develop products based upon Hoodia gordonii. 

Phytopica®

Phytopica® is a natural, three plant product for canine skin health that provides a novel three-in-one approach to help maintain a normal healthy immune system, support normal white cell function and provide antioxidant benefits. The beneficial effects and good safety profile of Phytopica® have been proven extensively in clinical trials and the product has been found to be suitable for all dogs studied to date whatever size or breed.

Recent sales of Phytopica® have been disappointing and after dialogue with our distributor, Intervet / Schering-Plough Animal Health, we have amicably agreed to terminate the existing global distribution and marketing agreement for Phytopica®. Intervet / Schering-Plough Animal Health will continue to market Phytopica® in the existing territories until 31 December 2010. In the meantime, Phytopharm is actively exploring further business opportunities for Phytopica®.

Financial review

The Group continues to outsource the majority of its operations to specialist external contractors enabling the Group to operate with a low headcount and minimal infrastructure. This lean operational structure confers substantial cost benefits as the nature and breadth of activities carried out by the Group may fluctuate significantly from time to time, driven by the number and complexity of clinical trials and preclinical studies being conducted.

Income statement

The revenue of £0.11 million for the six months ended 31 March 2010 (six months ended 31 March 2009 £0.72 million) was generated from reimbursement of expenditure from Unilever in respect of the development of Hoodia extract, the sale of certain raw materials from inventory and sales of Phytopica® by Phytopharm to Intervet / Schering-Plough Animal Health.

Revenue from Unilever amounted to £0.06 million for the six months ended 31 March 2010 (six months ended 31 March 2009 £0.51 million).

Revenue from the sale of Phytopica® by Intervet / Schering-Plough Animal Health for onward distribution and eventual sale to end users amounted to £0.01 million (six months ended 31 March 2009 £0.13 million).

Other miscellaneous revenue of £0.04 million comprises the sale of certain inventories (six months ended 31 March 2009 £0.08 million).

Other income of £0.01 million represents payments from the Michael J Fox Foundation in respect of pre-clinical development work on Cogane™ for Parkinson's disease completed during the period (six months to 31 March 2009 £0.12 million).

Cost of goods sold for the six months ended 31 March 2010 amounted to £0.007 million and comprised the costs of the manufacture and sale of Phytopica® and the costs of raw materials sold during the period (six months ended 31 March 2009 £0.16 million).

Following the Group's successful fundraising in December 2009, expenditure on development of the Group's pharmaceutical programmes has been consistent whilst expenditure on the Group's residual functional food programmes remains limited. Development expenditure amounted to £1.62 million during the period compared to £2.31 million in the six months ended 31 March 2009 reflecting the reduced expenditure on residual activities on the Hoodia programme following the termination arrangements with Unilever.

Expenditure on administrative expenses reduced to £0.66 million for the period compared to £0.88 million for the six months ended 31 March 2009 following the restructuring programme implemented in early 2009. Administrative expenses for the six months ended 31 March 2009 included certain exceptional costs amounting to £0.29 million.

The overall loss on ordinary activities before taxation decreased to £2.07 million (six months ended 31 March 2009 £2.36 million). The loss after tax decreased to £1.91 million (six months ended 31 March 2009 £2.21 million). The reduction in the Group's losses is principally due to a reduction in expenditure on the Group's residual functional food programmes and on administrative expenses.

Balance sheet

As at 31 March 2010 non-current assets amounted to £0.08 million compared to £0.20 million at 30 September 2009 and £0.29 million at 31 March 2009. Intangible assets represent patent and know-how licences acquired externally that have been recognised as an asset at cost. At each balance sheet date the Group reviews the carrying amount of its intangible assets to determine whether there is any indication that these assets have suffered an impairment loss. Following the review at 31 March 2010, an impairment charge of £0.10 million was recorded to write down to £nil the carrying value of the intangible assets (30 September 2009 and 31 March 2009 £0.10 million). The intangible assets were fully impaired as a result of Phytopharm's strategy of focusing on specific chemical entities as pharmaceutical products.

Current assets increased to £26.94 million (30 September 2009 £4.68 million; 31 March 2009 £6.71 million) due to the successful Placing and Open offer in December 2009 where the Group raised £24.1 million net of expenses. Cash and cash equivalents including money market investments amounted to £26.31 million at 31 March 2010 (30 September 2009 £3.91 million; 31 March 2009 £5.73 million). Current assets also includes inventories of £0.20 million (30 September 2009 £0.25 million; 31 March 2009 £0.28 million, amounts receivable of £0.27 million (30 September 2009 £0.23 million; 31 March 2009 £0.54 million) and current tax receivable of £0.16 million (30 September 2009 £0.30 million; 31 March 2009 £0.16 million).

Inventories continue to decrease as the Group generates revenues from the sales of raw materials and inventory is written down to the lower of cost and net realisable value and amounted to £0.20 million at 31 March 2010 (30 September 2009 £0.25 million; 31 March 2009 £0.28 million).

Amounts receivable of £0.27 million remain broadly constant compared to £0.23 million at 30 September 2009 whereas at 31 March 2009 amounts receivable amounted to £0.54 million. This reduction is due to a decrease in the amounts outstanding for the reimbursement of development activities under collaboration agreements.

Amounts receivable in respect of research and development tax credits amounted to £0.16 million at 31 March 2010 (30 September 2009 £0.30 million; 31 March 2009 £0.16 million).

Current liabilities at 31 March 2010 have decreased to £1.68 million (30 September 2009 £1.75 million; 30 March 2009 £1.95 million) reflecting a reduction in accruals for development expenditure on the Group's pharmaceutical programmes.

The Group's share capital increased to £3.47 million and share premium increased to £77.28 million due to the successful fundraising activities during the six months ended 31 March 2010. As at 30 September 2009 the Group's share capital and share premium remained unchanged from 31 March 2009 at £0.95 million and £55.71 million respectively.

Cash flow

Net cash used in operating activities for the six months ended 31 March 2010 was £1.77 million, an increase from £1.52 million for the previous period reflecting the Group's focus on the development of its pharmaceutical programmes primarily Cogane™.

Cash generated from financing activities has arisen from the fundraising activities completed in December 2009 where the Group raised £25.21 million before issue costs of £1.12 million.

Related parties

Related party disclosures are given in note 12.

Forward looking statements

Certain information included in these statements is forward looking and involves risk and uncertainties that could cause results to differ materially from those expressed or implied by the forward looking statements.

Forward looking statements include, without limitation, projections relating to the Group's plans and objectives for future operations, including future revenues, financial plans and expected expenditure and divestments. All forward looking statements on this report are based upon information known to the Group at the date of this release. The Group undertakes no obligation to publicly update or revise any forward looking statement, whether as a result of new information, future events or otherwise.

It is not reasonably possible to itemise all of the many factors and specific events that could cause the Group's forward looking statements to be incorrect or that could otherwise have a material adverse effect on the future operations of the Group.

Risks and uncertainties

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results.

Industry risk

In common with other research and development stage businesses, Phytopharm's business risks relate principally to the success of its development programmes and to the need to fund its operations through these.  The progress of the development programmes therefore represents the best indicator of the Group's performance and a full review of the programmes is given in the operational review on pages 2 to 4.

Financial risk

The Group has one product, Phytopica®, on the market. However, the revenues currently being generated by this programme will not offset the Group's research and development expenditure, and the Group expects to continue to make losses until it is able to increase its revenues sufficiently.  Additional funds such as charitable income, collaboration deals and / or further financing may be required to allow for further scope for product development. The availability and timing of such additional external funds represents a material uncertainty.

Clinical and regulatory risk

Successful commercialisation of the Group's products is likely to depend on continuing successful progress through clinical and consumer studies, and registration as applicable. Development of product candidates involves a lengthy and complex process, and products may not meet the necessary requirements in terms of toxicity, efficacy or safety, or the relevant regulators may not agree with the results of the Group's research and may require further testing or withhold approval altogether.

Competition risk

The Group's success depends on acceptance of the Group's products by the markets, including physicians and third party payers, and consequently the Group's progress may be adversely affected if it is unable to achieve market acceptance of its products. Factors which may affect the rate and level of market acceptance of any of the Group's products will include the existence or entry on to the market of superior competing products or therapies and the price of the Group's products compared to competing products.

Intellectual property risk

The Group's success depends in part on its ability to obtain and maintain protection for its intellectual and proprietary information, so that it can stop others from making, using or selling its inventions or proprietary rights. The Group's patent applications may not be granted and its existing patent rights may be successfully challenged and revoked.

Economic risk

As a consequence of the international nature of its business, the Group is exposed to risks associated with changes in foreign currency rates. The Group is headquartered in the United Kingdom, and substantially all its cash resources are in pounds sterling. An adverse change in exchange rates may lead to either an increase in certain of the Group's costs or a decrease in the pounds sterling value of its revenues, and hence a significant impact on the Group's reported results of operations, financial position and cash flow.

Counterparty risk

The Group relies on third party organisations to conduct its clinical trials and to manufacture its products. If the relationship with or performance of any of these partners is adversely affected the Group's results of operations may be adversely impacted.

The Group also derives revenue or financial support from its collaborators and expects to derive additional support from partnering with certain charitable organisations. If these relationships are adversely affected, or if the products involved fail to continue to make satisfactory progress, the Group's results of operations may be adversely impacted.

Responsibility statement

The Directors confirm that this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8 namely:

·      an indication of important events that have occurred during the first six months 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 Phytopharm plc are listed in the Phytopharm plc Annual Report for the year ended 30 September 2009 with the exception of Mr Roger Hickling who was appointed on 15 January 2010.

By order of the Board

Alistair Taylor	Sandy Morrison
Non-Executive Chairman	Chief Executive Officer
21 May 2010	21 May 2010

Independent review report to Phytopharm 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 31 March 2010, which comprises the consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in 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 31 March 2010 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 Accountants, Cambridge, 21 May 2010

Notes:

a.   The maintenance and integrity of the Phytopharm plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim report since it was initially presented on the website.

b.   Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.

Consolidated statement of comprehensive income

	Note	Unaudited Six months ended 31 Mar 2010 £			Unaudited Six months ended 31 Mar 2009 £
Revenue	2		110,860			716,170
Cost of sales			(6,721)			(156,729)
Gross profit			104,139			559,441
Other income	2		11,413			123,207
Net operating expenses	3		(2,276,111)			(3,193,257)
Before exceptional items			(2,276,111)			(2,900,764)
Exceptional items	4		-			(292,493)
Operating loss			(2,160,559)			(2,510,609)
Interest receivable and similar income			89,855			147,190
Loss on ordinary activities before taxation			(2,070,704)			(2,363,419)
Tax credit on loss on ordinary activities	5		159,476			156,343
Loss for the half year period attributable to equity holders			(1,911,228)			(2,207,076)
Basic and diluted loss per ordinary share (pence)	6		(0.9)			(2.3)

All revenues and expenses shown above were generated from continuing activities. All of the loss is attributable to the equity holders of the parent.

The notes on pages 14 to 19 form an integral part of this condensed consolidated interim financial information.

Consolidated balance sheets

	Notes	Unaudited At 31 Mar 2010 £			Unaudited At 31 Mar 2009 £			Audited At 30 Sep 2009 £
Non-current assets
Property, plant and equipment			75,139			185,292			102,366
Intangible assets	7		-			99,400			99,400
Non-current assets			75,139			284,692			201,766
Current assets
Inventories	8		201,228			280,997			249,474
Trade and other receivables	9		270,242			541,687			228,019
Current tax receivable			159,476			157,033			294,855
Money market investments			-			5,000,000			-
Cash and cash equivalents			26,311,285			730,849			3,910,117
Current assets			26,942,231			6,710,566			4,682,465
Total assets			27,017,370			6,995,258			4,884,231
Current liabilities
Trade and other payables	10		(1,682,627)			(1,945,290)			(1,746,820)
Net assets			25,334,743			5,049,968			3,137,411
Equity
Share capital	11		3,466,774			945,484			945,484
Share premium			77,278,113			55,709,052			55,709,052
Other reserves (deficit)			(204,211)			(204,211)			(204,211)
Profit and loss account (deficit)			(55,205,933)			(51,400,357)			(53,312,914)
Shareholders' funds			25,334,743			5,049,968			3,137,411

The notes on pages 14 to 19 form an integral part of this condensed consolidated interim financial information.

Consolidated statement of changes in shareholders' equity

		Unaudited Share capital	Unaudited Share premium				Unaudited Other reserves (deficit)		Unaudited Profit and loss account (deficit)			Unaudited Total
		£			£		£		£			£
Balance at 1 October 2008		945,484	55,671,139				(204,211)	(49,251,097)				7,161,315
Loss for the period attributable to equity holders		-	-				-	(2,207,076)				(2,207,076)
		-	-				-	(2,207,076)				(2,207,076)
Transactions with owners:
Recovery of share issue costs		-	37,913				-	-				37,913
Purchase of shares in Phytopharm plc		-	-				-	(2,381)				(2,381)
Equity share options charge		-	-				-	60,197				60,197
		-	37,913				-	57,816				95,729
Balance at 31 March 2009		945,484	55,709,052				(204,211)	(51,400,357)				5,049,968
Balance at 1 April 2009		945,484	55,709,052				(204,211)	(51,400,357)				5,049,968
Loss for the period attributable to equity holders		-	-				-	(1,703,612)				(1,703,612)
		-	-				-	(1,703,612)				(1,703,612)
Transactions with owners:
Purchase of shares in Phytopharm plc		-	-				-	(980)				(980)
Equity share options charge		-	-				-	(207,965)				(207,965)
		-	-				-	(208,945)				(208,945)
Balance at 30 September 2009		945,484	55,709,052				(204,211)	(53,312,914)				3,137,411
Balance at 1 October 2009		945,484	55,709,052				(204,211)	(53,312,914)				3,137,411
Loss for the period attributable to equity holders		-	-				-	(1,911,228)				(1,911,228)
		-	-				-	(1,911,228)				(1,911,228)
Transactions with owners:
Issue of equity share capital		2,521,290	22,691,614				-	-				25,212,904
Expenses of share issue		-	(1,122,553)				-	-				(1,122,553)
Purchase of shares in Phytopharm plc		-	-				-	(2,550)				(2,550)
Equity share option charge		-	-				-	20,759				20,759
		2,521,290	21,569,061				-	(18,209)				24,108,560
Balance at 31 March 2010		3,466,774	77,278,113				(204,211)	(55,205,933)				(25,334,743)

The notes on pages 14 to 19 form an integral part of this condensed consolidated interim financial information.

Consolidated cash flow statement

		Unaudited Six months ended 31 Mar 2010 £			Unaudited Six months ended 31 Mar 2009 £
Cash flow from operating activities
Operating loss			(2,160,559)			(2,510,609)
Depreciation			33,348			54,938
Gain on disposal of property, plant and equipment			-			(198)
Impairment of intangible assets			99,400			-
Share option charge			20,759			60,197
			(2,007,052)			(2,395,672)
Changes in working capital
Increase in trade and other receivables			(42,223)			(57,812)
(Decrease) / increase in trade and other payables			(64,193)			611,704
Decrease in inventories			48,246			119,234
Cash used in operations			(2,065,222)			(1,722,546)
Taxation received			294,855			199,418
Net cash used in operating activities			(1,770,367)			(1,523,128)
Cash flows from investing activities
Purchase of property, plant & equipment			(6,121)			(41,112)
Sale of property, plant & equipment			-			5,300
Purchase of shares of Phytopharm plc			(2,550)			(2,381)
Interest received			89,855			147,190
Net cash generated from investing activities			81,184			108,997
Cash flows from financing activities
Issue of shares			25,212,904			-
Share issue costs			(1,122,553)			-
Share issue costs recovered			-			37,913
Movement in money market investments			-			500,000
Net cash generated from financing activities			24,090,351			537,913
Movements in cash and cash equivalents in the period			22,401,168			(876,218)
Cash and cash equivalents at the beginning of the period			3,910,117			1,607,067
Cash and cash equivalents at the end of the period			26,311,285			730,849

The notes on pages 14 to 19 form an integral part of this condensed consolidated interim financial information.

Notes to the unaudited financial statements
For the six months ended 31 March 2010

1 General information, accounting policies and basis of preparation

Phytopharm plc is a public limited company incorporated and domiciled in the UK, with a listing on the London Stock Exchange. The address of its registered office is Corpus Christi House, 9 West Street, Godmanchester, Cambridgeshire PE29 2HY.

Phytopharm plc is a pharmaceutical development company with a residual portfolio of functional foods.

This condensed consolidated financial information was approved for issue on 21 May 2010 and comprises the consolidated interim balance sheets as at 31 March 2010 and 31 March 2009 and the year end balance sheet at 30 September 2009 together with the related consolidated interim statements of comprehensive income, cash flows and changes in shareholders' equity for the periods then ended of Phytopharm plc.

In preparing this condensed consolidated financial information 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, management has used the principal accounting policies set out in the Group's annual financial statements for the period ended 30 September 2009, which have been prepared in accordance with IFRSs as adopted by the European Union, except as described below in "Accounting Policies".

The condensed consolidated interim financial information has not been audited and does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 but has been reviewed by the auditors in accordance with ISRE 2410 (UK and Ireland) issued by the Auditing Practices Board. The Group's statutory accounts for the year ended 30 September 2009 were approved by the Board of Directors on 2 December 2009 and have been 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 a statement under section 498 (2) or (3) of the Companies Act 2006.

Going concern

This interim financial information has been prepared on a going concern basis which assumes that the Company will continue in operational existence for the foreseeable future. As at 31 March 2010, the Company had cash and money market investments of £26,311,285 (31 March 2009 £5,730,849).

Following the Group's successful Placing and Open Offer in December 2009 and after making enquiries and taking into account management's estimates of future expenditure, the Directors have a reasonable expectation that the Group will have adequate financial resources to continue in operation for the foreseeable future.

Critical accounting policies

The preparation of the consolidated interim financial statements requires the Directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The main accounting judgements relate to inventory valuation, the share option charge and the underlying assumptions. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods.

Accounting policies

The accounting policies adopted are consistent with those of the financial statements for the year ended 30 September 2009, as described in those financial statements on pages 42 to 46, except for those matters relating to the adoption of new Standards as set out below.

The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning 1 October 2009.

IFRS 8, "Operating segments" (effective 1 January 2009). IFRS8 replaces IAS14, 'Segment reporting'. It requires a 'management approach' under which segment information is presented on the same basis as that used for internal reporting purposes. Management considers that there is only one reportable segment: research and development of pharmaceutical products, including residual functional food programmes.

IAS 1 (revised). "Presentation of financial statements" (effective 1 January 2009). The revised  standard prohibits the presentation of items of income and expenses (that is non-owner changes in equity) in the statement of changes in equity, requiring "non-owner changes in equity" to be presented separately from owner changes in equity. All "non-owner changes in equity" are required to be shown in a performance statement. Entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and a statement of comprehensive income).  The Group has elected to present one statement: the statement of comprehensive income.  The interim financial statements have been prepared under the revised disclosure requirements.

IFRS 2 (amendment), "Share based payment" (effective 1 January 2009). IFRS2 (amendment) deals with vesting conditions and cancellations. It clarifies that vesting conditions are either service or performance conditions only. Other features of a share-based payment would need to be included in the grant date fair value calculation for transactions with employees and others providing similar services; they would not impact the number of awards expected to vest or valuation thereof subsequent to grant date. Prior to the adoption of the amendment to IFRS 2, any cancellations made by employees under the Group's save as you earn plan resulted in the reversal of all charges to date.  The amendment requires that cancellations are treated as accelerated vestings and all remaining charges are immediately recognised in the income statement with the credit recognised in equity.  There have been no cancellations of options under the save as you earn plan and therefore there is currently no impact of the amendment to this standard.

The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning 1 October 2009 but are not relevant to the Group.

IFRS 3 (revised), "Business combination" (effective 1 July 2009)

IFRS 7 (amendment), "Financial instruments: disclosures" (effective 1 January 2009)

IAS 23 (amendment), "Borrowing costs" (effective 1 January 2009)

IAS 27 (revised), "Consolidated and separate financial statements" (effective 1 July 2009)

IAS 32 (amendment), "Financial Instruments: Presentation" and IAS 1, "Presentation of financial instruments on 'Puttable financial instruments and obligations arising on liquidation'" (effective 1 January 2009)

IAS 39 (amendment), "Financial instruments: Recognition and measurement" (effective 1 July 2009)

IFRIC 12 "Service concession arrangements" (effective 30 March 2009)

IFRIC 13 "Customer loyalty programmes" (effective 1 July 2008 but EU endorsed for use 1 January 2009)

IFRC 14 "IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction" (effective 1 July 2008 but EU endorsed for use from 1 January 2009)

IFRIC 15 "Agreements for the construction of real estate" (effective 1 January 2009 but EU-endorsed for use from 1 January 2010)

IFRIC 16 "Hedges of a net investment in a foreign operation" (effective 1 October 2008 but EU-endorsed for use from 1 July 2009)

IFRIC 17 "Distributions of non-cash assets to owners" (effective 1 July 2009)

The following standards and amendments to existing standards have been published and are mandatory for the Group's accounting periods beginning on or after 1 October 2010.

IFRIC 18 "Transfer of assets from customers" (effective 1 July 2009 but EU-endorsed for use from 31 October 2009)

Amendment to IFRS 2, "Share-based payments - Group cash-settled share-based payment transactions" (effective 1 January 2010)

Amendment to IFRS 1 for additional exemptions (effective 1 January 2010)

Amendment to IAS 32, "Financial Instruments: Presentation on classification of rights issues" (effective 1 February 2010)

IFRIC 19, "Extinguishing financial liabilities with financial instruments" (effective 1 July 2010)

Amendment to IAS 24, "Related party disclosures" (effective 1 January 2011, although not yet EU-endorsed)

IFRS 9, "Financial instruments" (effective 1 January 2013, although not yet EU-endorsed)

2 Business and geographical segments

The Group's development and other functions operating across both pharmaceutical products and functional foods, are managed centrally and are reported internally as a single business. This also applies to the Group's marketed products. The chief operating decision-maker has been identified as the Executive Directors of Phytopharm plc.  The Executive Directors review the Group's internal reporting in order to assess performance and allocate resources.  Management has determined the operating segment based on these reports.  Accordingly, the Directors consider that there is only one reporting segment.

Revenue by destination is as follows:

	Unaudited Six months ended 31 Mar 2010 £			Unaudited Six months ended 31 Mar 2009 £
Revenue
Rest of Europe		65,497			503,673
United Kingdom		-			131,090
Asia		45,363			81,407
		110,860			716,170
Other income
USA(i)		11,413			123,207
		122,273			839,377

(i) Represents grant income received

3 Net operating expenses

	Unaudited Six months ended 31 Mar 2010 £			Unaudited Six months ended 31 Mar 2009 £
Research and development		1,619,940			2,313,522
Administrative expenses		656,171			879,735
		2,276,111			3,193,257

4 Exceptional items

Exceptional items represent significant items of income or 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 during the period. There were no exceptional costs for the six months ended 31 March 2010. Exceptional items for the six months ended 31 March 2009 comprised restructuring costs following the Group's business strategy review of £76,250 together with the costs of the contractual notice periods for the former CEO and CFO of £216,243. The exceptional items in the six months ended 31 March 2009 included £102,893 of research and development costs and £189,600 of administrative expenses. 

5 Tax on loss on ordinary activities

There is no corporation tax charge because of the incidence of tax losses. The Company has taken advantage of the Research and Development corporation tax credits introduced in the Finance Act 2000 whereby a company may surrender corporation tax losses incurred on research and development expenditure for a corporation tax refund at the rate of 24.5 pence on the pound of actual expenditure.

6 Loss per ordinary share

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

For diluted loss per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. Since the Group is loss-making there is no such dilutive impact.

	Unaudited Six months ended 31 Mar 2010 £			Unaudited Six months  ended 31 Mar 2009 £
Attributable loss (£)		(1,911,228)			(2,207,076)
Weighted average number of shares in issue		221,998,236			94,548,391
Basic and diluted loss per ordinary share (pence)		(0.9)			(2.3)

7 Intangible assets

Intangible assets represent patent and know-how licences acquired externally that have been recognised as an asset at cost. At each balance sheet date the Group reviews the carrying amount of its intangible assets to determine whether there is any indication that these assets have suffered an impairment loss.

Following the review at 31 March 2010, an impairment charge of £0.10 million was recorded to write down to £nil the carrying value of the intangible assets (30 September 2009 and 31 March 2009 £0.10 million). The intangible assets were fully impaired as a result of Phytopharm's strategy of focusing on specific chemical entities as pharmaceutical products.

8 Inventories

	Unaudited 31 Mar 2010 £			Unaudited 31 Mar 2009 £			Audited 30 Sep 2009 £
Work in progress		126,292			126,292			126,292
Raw materials and consumables		74,936			154,705			123,182
		201,228			280,997			249,474

9 Trade and other receivables

	Unaudited 31 Mar 2010 £			Unaudited 31 Mar 2009 £			Audited 30 Sep 2009 £
Trade receivables		-			150,136			44,794
Other receivables		78,877			106,122			11,803
Prepayments and accrued income		191,365			285,429			171,422
		270,242			541,687			228,019

10 Trade and other payables

	Unaudited 31 Mar 2010 £			Unaudited 31 Mar 2009 £			Audited 30 Sep 2009 £
Trade payables		414,754			606,654			203,597
Other payables		7,087			14,208			5,871
Other taxation and social security		38,831			20			32,160
Accruals and deferred income		1,221,955			1,324,408			1,505,192
		1,682,627			1,945,290			1,746,820

11 Share capital

	Unaudited 31 Mar 2010 £			Unaudited 31 Mar 2009 £			Audited 30 Sep 2009 £
Allotted, called-up and fully paid
346,677,433 (31 March 2009: 94,548,391; 30 September 2009: 94,548,391) ordinary shares of 1 pence each		3,466,774			945,484			945,484

On 30 December 2009, the Company issued 252,129,042 new ordinary shares of 1 pence each at a price of 10 pence per share for total cash consideration of £24,090,351 after the expenses of the issue. The nominal value of these shares was £2,521,290.

Purchase of shares in Phytopharm plc relate to the Phytopharm Share Incentive plan whereby the Company issued one "Matching Share" for every "Partnership Share" purchased by the employee. All shares are held by the scheme Trustee until the shares vest unconditionally with the Employee.

In the year ended 30 September 2009 no shares were issued for cash.

12 Related party transactions

During the six months ended 31 March 2010, £71,840 was paid in consultancy costs for the services of the Interim Chief Operating Officer, Keith Thomson. This amount was paid to Thomson Business Consultancy Limited of which Keith Thomson is a Director. During the six months ended 31 March 2009, £102,750 was paid for similar these consultancy costs to a third party consultancy company.

13 Seasonality

The Group's financial results have not historically been subject to any significant seasonal trends.

14 Post balance sheet events

There have been no significant post balance sheet events.

 

END

 

 

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