for a healthier future

Phytopharm plc Annual Report and Accounts 2011

Who we are

Developing novel treatments targeting diseases with high unmet need

Phytopharm (LSE:PYM) is a development stage pharmaceutical company. Our lead series of compounds has the potential to be a new class of therapy for neurodegenerative diseases.

Our lead programmes target neurodegenerative diseases, including Parkinson's disease, amyotrophic lateral sclerosis and glaucoma.

Our objective

Our objective is to develop products aimed at major markets with high unmet clinical need to key value inflection points before seeking late‑stage development and commercial partners.

Our products

read more about our product development on pages 8 to 12

Our products are single chemical entities with novel mechanisms of action protected by strong patent families.

read more about our strategy on page 8

Business Overview

IFC Who we are
01 Business highlights
02 Strategy and portfolio

Business Review

04 Chairman's review
06 Chief Executive's review
08 Business review
13 Financial review

Corporate Governance

16 Principal risks and uncertainties
17 Board of Directors
18 Directors' report
22 Remuneration report
27 Corporate governance 33 Statement of Directors' responsibilities

Financial Statements

34 Independent auditors' report
36 Consolidated statement of comprehensive income
37 Consolidated and Company balance sheets
38 Consolidated statement of changes in equity
39 Company statement of changes in equity
40 Consolidated and Company cash flow statements
41 Notes to the financial statements

Shareholder information can be found on page 60.

Business highlights

Operational

• Cogane™ Phase II Parkinson's disease trial (CONFIDENT‑PD) on track to complete recruitment in spring 2012 with results around the end of 2012
• Positive preclinical results on Cogane™ in Parkinson's disease presented at the Movement Disorders Conference in June 2011
• Cogane secures Orphan Drug status from US Food and Drug Administration and the European Commission for the treatment of amyotrophic lateral sclerosis ("ALS")
• Positive data achieved in preclinical model of ALS with Cogane™. Initiated "gold standard" genetic in vivo model with the financial support of the UK Motor Neurone Disease Association; results anticipated in Q1 2012
• Encouraging early data reported from the recently initiated programme investigating the effect of Myogane™ in glaucoma. Further results due in Q1 2012
• Technology Strategy Board agreed to provide grant funding to support the development of Myogane™ in glaucoma
• P61 anti‑inflammatory project re‑activated, lead compound selected for further development

Financial

• Loss after tax increased to £7.66 million in line with expectations reflecting increased focus on the development of our pharmaceutical programmes (2010: £3.80 million)
• Cash and money market investments of £17.57 million (2010: £23.61 million)

read more about our operational highlights in the Business Review on pages 8 to 12

Strategy and portfolio

Targeting diseases with high levels of unmet need

Phytopharm is a development stage pharmaceutical company developing novel treatments targeting diseases with high levels of unmet need.

Our commercially focused development projects have the potential to produce significant treatment advances in our target areas of neurodegeneration and inflammatory disease. Our products are single chemical entities with novel mechanisms of action protected by strong patent families. Our pipeline has been sourced from our own research activities and from licensing activities, particularly from leading research institutions in China with whom the Company has long‑standing relationships.

The potential to be a new class of therapy

Our lead series of compounds, the Sapogenins (including CoganeTM and MyoganeTM), has the potential to be a new class of therapy for neurodegenerative diseases including Parkinson's disease, ALS and glaucoma.

Clinical development

CoganeTM is currently being evaluated in a 400 patient multi‑national Phase II, randomised, double blind, placebo controlled, dose ranging study (CONFIDENT‑PD). The study is comparing the safety, tolerability and efficacy of three doses of CoganeTM and placebo when administered for 28 weeks to untreated patients with early stage Parkinson's disease.

read more about the Sapogenin programmes on pages 8 to 11

Our business model

Phytopharm operates as a virtual company ensuring the majority of our financial resources are focused on our pharmaceutical pipeline. We utilise a network of scientific and clinical experts to help guide our development projects with our experienced pharmaceutical managers overseeing operations.

read more about our business in the Chief Executive's Review on page 6

Key Development Areas Other Development Areas

Parkinson's disease

Parkinson's disease is a movement disorder characterised by muscle rigidity, tremor and a slowing of physical movement (bradykinesia) and, in extreme cases, a loss of physical movement (akinesia). The primary symptoms are the result of altered signalling of an area of the brain, the striatum, responsible for the control of movement.

Glaucoma

Current pharmacological treatments for glaucoma are predominantly focused on reducing the elevated intraocular pressure ("IOP") in the eye,which is often associated with glaucoma. However, a significant number of patients with glaucoma do not exhibit raised IOP and, in addition, a significant number of patients whose IOP is successfully reduced still experience ongoing neurodegeneration resulting in deterioration of sight.

ALS

ALS, also known as Lou Gehrig's disease, is the most prevalent form of motor neurone disease which generally strikes people between 40 and 60 years of age. It is characterised by progressive loss of both lower (spinal cord and brain stem) and upper (cerebral cortex) motor neurones, which leads to severe muscle weakness and wasting, followed by paralysis and death, generally caused by respiratory failure.

P61

P61 is a series of novel new chemical entities ("NCEs") which exhibit anti‑inflammatory, anti‑remodelling, anti‑spasmodic and TRPV1 modulating activities. This range of activity within single molecules could provide attractive therapeutic options for a number of inflammatory diseases including chronic obstructive pulmonary disease, asthma, atopic dermatitis, psoriasis, gastrointestinal inflammatory conditions and pain.

Chairman's review

"The coming year is going to be a critical one for the Company. Success in our ongoing studies is likely to bring good returns to Phytopharm."

Mr Alistair Taylor Non‑Executive Chairman

Following a year of re-organisation and consolidation in 2010, Phytopharm has been delivering on its objectives in 2011. The Company, much leaner and more focused than in previous years, is on plan and budget to deliver significant results from its pharmaceutical development projects in 2012.

Over the past year the Company has produced new supportive data in Parkinson's disease, ALS and glaucoma; has been granted Orphan Drug status for Cogane™ in ALS in both the US and Europe; has been successful in attracting grant funding for its ALS and glaucoma projects; and has initiated a large, multinational Phase II study in Parkinson's disease which is on target to report around the end of 2012. Importantly the Company has been very efficient in its cost control. In the current economic climate it is heartening that Phytopharm retains a cash runway until the end of 2013, sufficient to complete its current studies and allow time to negotiate whatever deals may follow.

The coming year is going to be a critical one for the Company. Results from ongoing projects, particularly the clinical trial in Parkinson's disease, have the potential to be major value drivers and the management team are working hard in order to deliver high-quality studies.

Success in our ongoing studies is likely to bring good returns to Phytopharm. Whilst it is true that we are operating in a difficult environment at the current time, it is also true that the majority of large pharmaceutical companies are looking to external sources in order to replenish their product pipelines and that high value deals are being concluded for attractive new products. We believe that Cogane™ and Myogane™ fall into this category, with the potential to provide important advances in the treatment of neurodegenerative diseases and, ultimately, provide the basis of good returns for shareholders.

We thank you for your ongoing support and look forward to delivering exciting new data in 2012.

Mr A H Taylor Non‑Executive Chairman

CoganeTM and MyoganeTM are orally bioavailable neurotrophic factor modulators that readily cross the blood-brain barrier. They have been shown to induce and modulate the production of neurotrophic factors.

there is hope that therapeutic advances, such as Phytopharm's lead pharmaceutical programmes Cogane™ and Myogane™, could be beneficial in more than one of these diseases.

Chief Executive's review

Mr Tim Sharpington Chief Executive Officer

Phytopharm has made good progress in 2011. We have focused our efforts and resources on advancing the projects in our pharmaceutical pipeline and these programmes remain on track to reach significant milestones in the coming year. Our lead programmes target neurodegenerative diseases, including Parkinson's disease, Amyotrophic Lateral Sclerosis (ALS, the common form of motor neurone disease) and glaucoma. These diseases share a common feature, the degeneration of neurones. There is a significant unmet medical need for new treatments which can slow or halt the progression of these diseases – disease modifying therapies – as currently available medicines focus largely on reducing the symptoms of disease rather than tackling their underlying cause. Phytopharm's lead development compounds, Cogane™ and Myogane™, have demonstrated disease modifying potential in a broad range of experimental models. If this potential translates into clinical efficacy then Cogane™ and Myogane™ will provide significant breakthroughs in the treatment of neurodegenerative diseases.

During the past year the Company has presented new data which supports the potential use of Cogane™ and Myogane™ as new treatments of neurodegenerative diseases. We have also

In Summary

• We have focused our efforts and resources on advancing the projects in our pharmaceutical pipeline and these programmes remain on track to reach significant milestones in the coming year.
• Around the end of 2012 we will receive the results from our 400 patient, Phase II study of Cogane™ in Parkinson's disease.
• We have also worked on the development of our novel anti-inflammatory project, P61. Though this project is at an early stage of development it has made good progress this year.
• The Company has been successful in securing grant funding to support some of its activities.

initiated long-term studies which will read out in 2012. In the early part of 2012 we are expecting results from new preclinical studies in ALS and glaucoma. Around the end of 2012 we will receive the results from our 400 patient, Phase II study of Cogane™ in Parkinson's disease. The study of neurodegenerative diseases does, by its nature, take some time and everyone in the Company is focused on delivering a high-quality study as efficiently as possible.

The Company has been successful in securing grant funding to support some of its activities. We were grateful to receive financial support for our ongoing ALS study from the Motor Neurone Disease Association whilst the Technology Strategy Board agreed to provide a grant to help support a study of Myogane™ in glaucoma. These grants, together with our virtual staffing model, have helped us to move our programmes forward whist maintaining tight cost control. Our spending has been in line with expectations and is focused on our research and development activities.

As we move closer to obtaining the results from our clinical study in Parkinson's disease, we have started the planning process for our next steps. We have initiated discussions with

Neurodegenerative diseases

Cogane™ and Myogane™ have demonstrated disease modifying potential in a broad range of experimental models. If this potential translates into clinical efficacy then Cogane™ and Myogane™ will provide significant breakthroughs in the treatment of neurodegenerative diseases.

There is a significant unmet medial need for new treatments which can slow or halt the progression of these diseases.

Both compounds have been formulated as once daily, orally administered therapies.

Unmet need Dosage CONFIDENT-PD Market

CoganeTM is being studied in a Phase II trial of early stage Parkinson's disease (CONFIDENT-PD) in movement disorder centres in North America and Europe.

The prevalence of Parkinson's disease is estimated at being 0.3% of the whole population in industrialised countries.

a number of pharmaceutical companies who are interested in our products and, while we do not anticipate concluding significant deals until after the completion of our ongoing studies, we have been pleased with the initial level of interest expressed.

In addition to Cogane™ and Myogane™ we have also worked on the development of our novel anti-inflammatory project, P61. Though this project is at an early stage of development it has made good progress this year. A lead compound has been identified and a number of early development checkpoints have been successfully passed. We are looking forward to testing this compound in a number of disease models next year.

We are very grateful for the ongoing support of our staff and shareholders. Developing new treatments for neurodegenerative diseases is time consuming, expensive and not without risk. However, there are significant rewards for developing successful new treatments, both in terms of benefits to those affected by these diseases and in terms of commercial returns for companies and their shareholders. We are making good progress with our developments and are confident of delivering good value for shareholders if our ongoing studies show the same level of benefit as those performed to date.

Mr T Sharpington Chief Executive Officer

Business review

"Our commercially focused development projects have the potential to produce significant treatment advances in our target areas of neurodegeneration and inflammatory disease."

Strategy

Phytopharm plc ("Phytopharm") is a development stage pharmaceutical company developing novel treatments targeting diseases with high levels of unmet need. Our lead series of compounds, the Sapogenins (including Cogane™ and Myogane™), has the potential to be a new class of therapy for neurodegenerative diseases including Parkinson's disease, amyotrophic lateral sclerosis ("ALS") and glaucoma.

We will consider adding additional products to our pharmaceutical pipeline if suitable candidates are identified.

Our objective is to develop products aimed at major markets with high unmet medical need to key value inflection points before seeking late‑stage development and commercial partners as appropriate. We will consider retaining certain rights to products targeting orphan indications.

Overview

We continue to progress our strategy of focusing on our pharmaceutical programmes, specifically on the development of Cogane™ for Parkinson's disease. During the period, we reported recruitment of patients with Parkinson's disease into the multi‑national Cogane™ Phase II dose ranging study (CONFIDENT‑PD) which commenced in November 2010. The study is being conducted in leading movement disorder centres in North America and Europe.

Pharmaceutical programmes Neurodegeneration

Neurodegeneration is the umbrella term for the progressive loss of structure, function or death of neurones. Many neurodegenerative diseases, including Parkinson's disease, ALS,

glaucoma and Alzheimer's disease, occur as a result of neurodegenerative processes that exhibit many similarities suggesting that these diseases are related on a sub‑cellular level. Because of the similarities in neurodegeneration across this range of diseases, there is hope that therapeutic advances, such as Phytopharm's lead pharmaceutical programmes Cogane™ and Myogane™, could be beneficial in more than one of these diseases.

The Sapogenins

Cogane™ and Myogane™ are structurally related, small molecule, chemical entities and members of the Sapogenin class of compounds. They are orally bioavailable neurotrophic factor modulators that readily cross the blood‑brain barrier. Both compounds have demonstrated neuroprotective effects in a range of preclinical models. Specifically, Cogane™ and Myogane™ have been shown to induce and modulate the production of neurotrophic factors.

Both compounds have completed long-term toxicology studies, have been formulated as once daily, orally administered therapies and have completed Phase I studies demonstrating good bioavailability and safety profiles.

Cogane™ is being studied in a Phase II trial of early stage Parkinson's disease. It has also been evaluated for safety and tolerability in patients with Alzheimer's disease.

Additionally, Cogane™ is being assessed in preclinical models of ALS and Myogane™ in preclinical models of glaucoma, a neurodegenerative disease of the eye. If results are encouraging, they have the potential to be progressed rapidly into clinical proof of concept studies.

The neuroprotective and neurotrophic actions of Cogane™ and Myogane™ suggest potential beneficial effects in other orphan neurodegenerative diseases.

Cogane™ in Parkinson's disease

Parkinson's disease is a movement disorder characterised by muscle rigidity, tremor and a slowing of physical movement (bradykinesia) and, in extreme cases, a loss of physical movement (akinesia). The primary symptoms are the result of altered signalling in an area of the brain, the striatum, responsible for the control of movement. This is caused by degeneration of dopaminergic neurones between the substantia nigra and the

Cogane™ and Myogane™, our lead neurodegenerative products

Structurally related, small molecule, chemical entities and members of the Sapogenin class of compounds. Both compounds have demonstrated neuroprotective effects in a range of preclinical models.

• Induce and modulate the production of neutrophic factors

administered therapies

• Completed long-term toxicology studies • Been formulated as once‑daily, orally

• Completed Phase 1 studies
• Demonstrated good bioavailability and safety profile

Cogane™ is being studied in a Phase II trial of early stage Parkinson's disease and in preclinical models of ALS. It has also been evaluated for safety andtolerability in patients with Alzheimer's disease.

MyoganeTM is currently being evaluated in an in vivo model of glaucoma. Myogane™ has already been tested in standard preclinical safety studies that we believe, subject to funding, will be able to progress the project rapidly into Phase II studies if the in vivo models provide positive data.

Business review (continued)

Pharmaceutical programmes (continued)

The Sapogenins (continued) Cogane™ in Parkinson's disease (continued)

striatum parts of the brain, leading to insufficient formation and action of dopamine. Parkinson's disease is therefore termed a neurodegenerative disease. The disease is slow in onset and the appearance of symptoms reflects the gradual loss of dopaminergic neurones.

The prevalence of Parkinson's disease is estimated at being 0.3% of the whole population in industrialised countries, rising to 1% in those over 60 years of age and to 4% of the population over 80. The market size for Parkinson's disease was \$3.2 billion in 2009 and is forecast to grow to \$4.6 billion by 2012.

Mode of action

Glial cell‑derived neurotrophic factor ("GDNF") and brain derived neurotrophic factor ("BDNF") are naturally occurring proteins in the brain that have been shown to be effective in re‑growing damaged nerves. As they are proteins, they cannot be given orally (in tablet or liquid form) because they are degraded in the stomach and intestine and also do not readily cross the blood‑brain barrier. GDNF and BDNF can work only when injected into, or when produced by, the brain. Direct injection of GDNF into the area of the brain involved

in Parkinson's disease has shown evidence of being clinically effective in restoring the control of movement but requires highly complex and difficult surgical procedures.

Cogane™ has the potential to overcome many of the difficulties associated with GDNF administration. In preclinical models, Cogane™ stimulated the release of GDNF and BDNF in the brain and increased neurite outgrowth. When administered orally in several different preclinical models of Parkinson's disease, Cogane™ reversed the decrease of neurotrophic factors and reversed the loss of dopaminergic neurones in the striatum, the area of the brain most affected in Parkinson's disease.

Progress to date

The profile of Cogane™ suggests that it will have benefit in both the motor and non‑motor symptoms of Parkinson's disease. In addition its effect on restoring damaged neurones to a functioning state implies that it might result in a delay in the progression of disease in recently diagnosed patients.

Data from preclinical models also indicates that Cogane™ when administered in conjunction with L‑DOPA showed additional benefit over L‑DOPA alone. Other data suggests that Cogane™ reduces the side effects associated with L‑DOPA. If these effects of improved efficacy and reduced side

effects of L‑DOPA by co‑administration of Cogane™ are also observed in patients, this will have significant benefit in the management of patients with more severe disease.

Cogane™ is currently being evaluated in a 400 patient multi‑national Phase II, randomised, double blind, placebo controlled, dose ranging study (CONFIDENT‑PD). The study is comparing the safety, tolerability and efficacy of three doses of Cogane™ and placebo when administered for 28 weeks to untreated patients with early stage Parkinson's disease. The study will assess the efficacy of Cogane™ in the treatment of both motor and non‑motor symptoms of Parkinson's disease. Recruitment into the study is ongoing and expected to be completed in spring 2012. Our target remains to have results from the study available around the end of 2012.

Cogane™ in motor neurone disease/ALS

"The market size for Parkinson's disease was \$3.2 billion in 2009 and is forecast to grow to \$4.6 billion by 2012."

There is an urgent need for the development of new approaches to treat this devastating condition.

It is estimated that there are over 30,000 patients living with ALS in the seven major markets. ALS is classified as an orphan disease and, as such, offers the potential for expedited development.

Progress to date

ALS is the most common form of motor neurone disease, a neurodegenerative disease with limited treatment options and poor prognosis. Cogane™ has previously shown promising activity in preliminary in vitro and in vivo models of ALS. In a preclinical study using a toxin‑induced model of ALS, Cogane™ protected motor neurones and demonstrated anti‑inflammatory effects compared to the control animals. A study of Cogane™ in the genetic "gold standard" in vivo model of ALS is ongoing. This study is being performed with the support of the Motor Neurone Disease Association, a UK-based charitable organisation which has provided a grant to cover the costs of the study. Results from the study are expected in Q1 2012.

As Cogane™ is already in clinical trials for Parkinson's disease, rapid progression into efficacy indicating trials will be possible, subject to funding, if results from this preclinical study are positive. Furthermore, ALS is an orphan indication, a classification which supports expedited clinical development. Cogane™ has recently been granted Orphan Drug status by both the European Commission and by the US Food and Drug Administration for development in ALS. Orphan Drug status allows significant access to the regulatory authorities for advice and expedited clinical progression as well as financial advantages.

Glaucoma

A programme investigating the effect of Myogane™ in glaucoma, a neurodegenerative condition of the eye, has recently been initiated. Current pharmacological treatments for glaucoma are predominantly focused on reducing the elevated intraocular pressure ("IOP") in the eye, which is often associated with glaucoma. However, a significant number of patients with glaucoma do not exhibit raised IOP and, in addition, a significant number of patients whose IOP is successfully reduced still experience ongoing neurodegeneration resulting in deterioration of sight. We therefore believe that there is a major unmet need and a commercial opportunity for products which could successfully treat the underlying neurodegenerative process in glaucoma.

Business review (continued)

Pharmaceutical programmes (continued) Glaucoma (continued)

There is a growing body of scientific literature describing the neuroprotective effects of neurotrophic factors, specifically brain derived neurotrophic factors ("BDNF") and glial‑cell derived neurotrophic factors ("GDNF") in models of glaucoma. Myogane™ has been shown to modulate the production of neurotrophic factors in a number of cell types and to have beneficial neuroprotective and neurorestorative effects on retinal ganglion cells, the cells which degenerate in glaucoma. Myogane™ is currently being evaluated in an in vivo model of glaucoma; it is expected that results from these studies will be available in Q1 2012. As Myogane™ has already been tested in standard preclinical safety studies we believe that, subject to funding, we will be able to progress the project rapidly into Phase II studies if the in vivo models provide positive data.

Alzheimer's disease

Cogane™ and Myogane™ protect cortical neurones from glutamate and ‑amyloid induced neuronal damage and increase neurite outgrowth in vitro. Cogane™ and Myogane™ also increase the density of muscarinic receptors both in vitro and in vivo. In vivo, Cogane™ and Myogane™

improve cognition in the aged rat and ‑amyloid/ibotenic acid rat model of Alzheimer's disease.

The safety, tolerability and pharmacokinetics of orally administered Cogane™ in patients with Alzheimer's disease have previously been assessed in a twelve week study. Cogane™ was generally well tolerated in this patient group. Further work may be undertaken in this area if additional resources become available.

P61 programme

During the period we re-activated the P61 programme, which was established to investigate the known pharmacological properties of curcumin and gingerol. P61 is a series of novel new chemical entities ("NCEs") which exhibit anti‑inflammatory, anti‑remodelling, anti‑spasmodic and TRPV1 modulating activities. This range of activity within single molecules could provide attractive therapeutic options for a number of inflammatory diseases including chronic obstructive pulmonary disease, asthma, atopic dermatitis, psoriasis, gastrointestinal inflammatory conditions and pain. A lead compound has been identified and is being characterised to better understand its pharmaceutical potential.

Legacy products

A co-operation agreement was signed with the Council for Scientific and Industrial Research, South Africa, who will fund the future development and commercialisation of Hoodia gordonii as an appetite suppressant. Phytopharm retains a commercial interest in the project and will receive a proportion of any future commercial milestones and royalties from the project.

The sales and distribution agreement with Intervet/Schering Plough Animal Health for Phytopica®, our canine animal health product, came to an end in December 2010.

Financial review

Ongoing pharmaceutical development

We have continued to implement a strategy focused on the progression of our pharmaceutical development programmes.

Financial review

The financial performance for the year ended 30 September 2011 reflects the Group's ongoing pharmaceutical development activities, particularly the progress of our pharmaceutical development programmes in neurodegenerative diseases.

Following our successful fundraising activities in the previous financial year, we have continued to implement a strategy focused on the progression of our pharmaceutical development programmes. We continue to operate with a lean operational structure whilst also diversifying our development pipeline in a cost efficient manner, with the potential for further programmes to enter the clinic or become licensed in the medium term. Based on our current expectations Phytopharm is financed through to the end of 2013.

Revenue

Following the conclusion of activities on our legacy programmes revenue from continuing operations amounted to £0.07 million (2010: £0.70 million).

Research and development expenses

Research and development expenses for the year increased from £4.01 million for the year ended 30 September 2010 to £7.46 million in the current year. This increase in expenditure

on research and development activities reflects the progression of Cogane™ into the CONFIDENT‑PD clinical study.

Administrative expenses

Our administrative expenses remained fairly constant at £1.15 million compared to £1.12 million in the previous year, in line with our virtual business model.

Finance income

Finance income represents interest received and receivable from our cash balances which amounted to £0.38 million during the year compared to £0.29 million for the year ended 30 September 2010 due to higher average cash balances during the financial year following the fundraising completed during the previous year.

Taxation

The tax credit of £0.51 million for the year represents amounts that are expected to be received under current legislation on research and development tax credits. The increase in the year is due to increased expenditure on our research and development activities primarily in relation to the Cogane™ development programme which is also reflected in the increase in our total loss for the year of £7.66 million (2010: £3.80 million).

Financial review (continued)

"Diversifying our development pipeline in a cost efficient manner."

Balance sheet

Non‑current assets

Non‑current assets representing property, plant and equipment amounted to £0.08 million at 30 September 2011 compared to £0.11 million in the previous year.

Current assets

Current assets comprise trade and other receivables, tax receivable, money market investments and cash and cash equivalents which decreased to £18.51 million at 30 September 2011 (2010: £24.50 million).

Money market investments and cash and cash equivalents at 30 September 2011 amounted to £17.57 million reflecting net cash outflows from research and development activities. Money market investments represent fixed-rate, short-term deposits placed with a range of banks at fixed terms with a maturity date of more than three months. Cash and cash equivalents are invested for a period of 90 days or less with a similar range of banks.

Our current tax receivable at 30 September 2011 increased to £0.48 million compared to £0.41 million at 30 September 2010. This increase in the current tax receivable reflects an increase

in expenditure on our pharmaceutical programmes; however, the current amount reclaimable is capped at the level of PAYE and NIC paid by the Group.

Current liabilities

Current liabilities representing trade and other payables, other taxation and social security, accruals and deferred income and other payables increased from £1.13 million at 30 September 2010 to £2.63 million at the current year end primarily due to the recognition of unbilled costs of research and development activities.

Equity

Share capital and share premium at 30 September 2011 have broadly remained unchanged at £3.47 million and £77.28 million respectively. During the year the Group issued 124,539 new ordinary shares for cash consideration of £0.01 million following the exercise of share options.

Cash flow

Net cash used in operating activities for the year was £6.42 million, an increase from £4.44 million in the previous year, reflecting our continued focus on the development of our pharmaceutical programmes.

We expect net cash outflow to continue as we progress the development of our pharmaceutical programmes, primarily Cogane™ in the Phase II proof of concept and dose range finding study (CONFIDENT‑PD) which commenced recruitment in November 2010. We also continue to maintain our strong relationships with disease specific charities which may result in additional funding being available.

Outlook

Following the start of recruitment onto the CONFIDENT‑PD clinical study, we look forward to continuing the development of our pharmaceutical pipeline during the remainder of 2011 and into 2012. This development work will also include the completion of the investigations into the effects of Cogane™ in ALS and Myogane™ in glaucoma which may, funding dependent, allow us to initiate further efficacy indicating trials in additional indications. We also expect to complete the current phase of the P61 programmes.

In line with our virtual operational structure, we will continue to outsource the majority of our operations to specialist external organisations enabling us to operate with a low headcount and minimal infrastructure. This lean operational structure confers substantial cost and technical benefits as the nature and range of our activities change as our

programmes progress through the various stages of development. Efficiency and cost control continue to be a key focus.

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 results of operations and financial conditions, market estimates, the Group's plans and objectives for future operations, including future revenues, financial plans and expected expenditures and divestments. All forward‑looking statements in this report are based on information known to the Group on 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 or results of the Group.

Principal risks and uncertainties

The nature of pharmaceutical development is such that there are significant inherent risks due to the long and complex development process.

Below are those principal risks and uncertainties that the Board considers could have a material impact on the Group's operational results, financial condition and prospects. These risks are not in any particular order of priority and there may be other risks that are either currently unknown or not considered material which could have a similar impact on the Group's business in the future.

The Board reviews each area of the business at least annually to identify material risks and the controls in place to manage these risks. This comprehensive review is undertaken as part of the review of internal controls as set out on pages 30 and 31.

Risk	Description and mitigating activities
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 success of the Group's programmes depends upon the quality of the design and the implementation of each programme. The progress of the development programmes therefore represents the best indicator of the Group's performance. A full review of the programmes is given in the Business Review on pages 8 to 12.
Financial risk	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 further scope for product development. The availability and timing of such additional external funds represent a material uncertainty, although the Group currently has sufficient funds to finance its operational activities for at least the next twelve months.
Clinical and regulatory risk	Successful commercialisation of the Group's products is likely to depend on successful progress through clinical studies and registration. 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 conclusions 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 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 and overall cost effectiveness of the product.
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.
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 or 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 or operations may be adversely impacted.
Foreign exchange risk	The Group records its transactions and prepares its financial statements in sterling. Where possible the Group maintains natural hedges by matching foreign currency income with foreign currency expenditure. The Group incurs expenditure in foreign currency relating principally to clinical trials which may exceed any revenues in foreign currencies. To the extent that income and expenditure in foreign currencies are not matched, fluctuations in exchange rates between sterling and foreign currencies, principally US dollar and Euro, may result in realised or unrealised foreign exchange gains and losses. Where there is certainty of the amount and timing of expenditure of foreign currencies, the Group may purchase financial instruments to minimise any foreign exchange gains or losses. Where the timing and/or the amount to be received is uncertain, risk management is more difficult and the Group will use financial instruments wherever possible. To the extent that financial instruments are not utilised, any fluctuations in foreign exchange movements may have a material adverse impact on the results from operating activities.

Board of Directors

Mr Alistair Taylor

Non-Executive Chairman

Mr Taylor is formerly Executive Chairman of UK listed Lombard Medical Technologies plc and has over 47 years' experience in the healthcare industry; 12 years in pharmaceuticals and over 37 years in medical devices. He was Chief Executive Officer of Biocompatibles International plc from 1994 to 1998 and during this period the company progressed from a technology‑based start up company, through flotation to a FTSE 250 company. Prior to this, Mr Taylor was Chief Executive Officer of Schneider Inc, a Swiss interventional cardiology/radiology device company and during this time the company's turnover grew to \$100 million. Schneider was subsequently sold by Pfizer Inc., its parent, for over \$2 billion. Mr Taylor's early career included the Chief Accountant role at Beecham Pharmaceuticals. He is also Chairman of Starbridge Systems Limited and Nightingale‑EOS Limited.

Mr Tim Sharpington

Chief Executive

Mr Sharpington has nearly 20 years' experience in the life sciences sector with various biotechnology and pharmaceutical service companies in Europe and the USA. He has broad experience across drug development, in‑licensing, mergers and acquisitions as well as fundraisings. In 2002, Mr Sharpington was appointed as Development Director at Arakis Ltd, a UK-based inflammatory and CNS focused company where he led the development of four projects from concept to Phase II, participated in the licensing of its lead product to Novartis and also had a pivotal role in the successful sale of Arakis to Sosei in 2005 for £107 million. After leaving Arakis Mr Sharpington founded and became Chief Executive Officer of Serentis Limited in 2006 where he led a £15 million venture capital fundraising and the development of two dermatology products to Phase II.

Mr Roger Hickling

Research and Development Director

Mr Hickling has a BSc in chemistry from Kings College, University of London and over 30 years' experience in pharmaceutical research and development. This includes management of development portfolios and projects from preclinical through to Phase IV covering a range of disease areas. In addition, Mr Hickling has extensive experience in international regulatory affairs, including clinical trials and marketing applications. Between 1976 and 1998 Mr Hickling worked at SmithKline Beecham where he oversaw both in‑house and partnered early stage neuroscience development projects. Mr Hickling held a variety of positions at several pharmaceutical companies between 1998 and 2009 including Alizyme Therapeutics plc. He was appointed to the Board of Alizyme Therapeutics as Research and Development Director in 2006 with responsibility for research and development strategy development, all research and development operations and staff.

Mr Alexander (Sandy) Morrison Non-Executive Director

Mr Morrison has a BSc (Hons) in applied chemistry (Strathclyde) and has over 20 years' experience in general and international management, global supply chain management and research and development. He was Chief Executive Officer of Lipton Ltd, the global tea sourcing organisation for Unilever with operations in six countries from 2000 to 2006. During Mr Morrison's period as CEO, substantial operational and financial improvements were made to the Unilever global tea supply chain and he also played a significant part in addressing issues in the international tea trade. In the immediate years prior to 2000, Mr Morrison had senior international food and beverage roles for Unilever outside the UK, in the supply chain and in research and development, both at the Rotterdam head office and in the Unilever food and beverage subsidiary in Australia.

Dr Peter Blower

Non-Executive Director

Dr Blower has over 40 years' experience in medicinal research and development with a strong background in the field of neuroscience. He joined Beecham Research Laboratories in 1969 and rose to the position of Director of New Neuroscience products at SmithKline Beecham in 1996 before leaving in 2000 to form his own consultancy company. He has been elected to Fellowship of the Royal Society of Medicine and the Institute of Biology and has authored over seventy scientific publications. He has a M.I.Biol from the Institute of Biology (1972), a PhD in pharmacology from the University of Aston (1977) and a DSc from the University of East London (1997).

Directors' report for the year ended 30 September 2011

The Directors of Phytopharm (registered in England and Wales: 03131723) present their report together with the audited consolidated and Company financial statements for the year ended 30 September 2011.

The Remuneration Report can be found on pages 22 to 26 and the Corporate Governance Report, including the corporate social responsibility statement, can be found on pages 27 to 32.

Principal activities

Phytopharm is a development stage pharmaceutical company developing novel treatments targeting diseases with high levels of unmet need. For further details regarding the Group's activities, please refer to the Chairman and Chief Executive Officer's Review and the Business Review.

Review of the business and future developments

A review of the development and performance of the Group including important events, progress during the year, the financial performance during the year and likely future developments, can be found in the Chairman and Chief Executive Officer's Review, the Business Review and the Financial Review on pages 4 to 15. The principal risks and uncertainties facing the Group can be found on page 16.

The Directors are satisfied with the progress made across the product portfolio and with the year end position.

Key performance indicators

The principal Key Performance Indicators ("KPIs") of the Group are the progress of the Group's development programmes through preclinical and clinical development, in particular its lead programme Cogane™ in Parkinson's disease, whilst tightly controlling its cost base. The Group focuses its financial resources on its research and development activities whilst operating as a virtual company keeping administrative costs to a minimum and ensuring cash resources are sufficient to fulfil its current strategy. While these KPIs demonstrate relevant factors by reference to which the development, performance and position of the Group can be measured effectively, it is the nature of Phytopharm's business and the biopharmaceutical industry in general, that these KPIs are not readily or meaningfully comparable on a year-on-year basis. Details of financial performance are given in the Financial Review on pages 13 to 15.

Key events

Key events during the past year are referred to in the Chairman and Chief Executive Officer's Statement, the Business Review and the Financial Review. They include the following:

• Cogane™ Phase II Parkinson's disease trial (CONFIDENT-PD) on track to complete recruitment in spring 2012 with results around the end of 2012;
• positive preclinical results on Cogane™ in Parkinson's disease presented at the Movement Disorders Conference in June 2011;
• Cogane™ secures Orphan Drug status from US Food and Drug Administration and the European Commission for the treatment of amyotrophic lateral sclerosis;
• positive data achieved in preclinical model of ALS with Cogane™. Initiated "gold standard" genetic in vivo model with the financial support of the UK Motor Neurone Disease Association; results anticipated in Q1 2012;
• encouraging early data reported from the recently initiated programme investigating the effect of Myogane™ in glaucoma. Further results due in Q1 2012;
• Technology Strategy Board agreed to provide grant funding to support the development of Myogane™ in glaucoma; and
• P61 anti-inflammatory project re-activated, lead compound selected for further development.

Post balance sheet events

See note 24.

Results and dividends

The Group's results for the year ended 30 September 2011 are presented on page 36. The Group's net loss after taxation was £7,658,330 (2010: £3,801,514). The Group is not yet in a position to pay a dividend and the loss for the year has been added to the accumulated losses in equity.

Research and development activities

The Group continues to develop pharmaceutical products, as described in the Business Review.

Directors

The Directors of the Company, all of whom have been Directors for the whole of the year and up to the date of signing the financial statements, are as follows:

Executive Directors

Mr T Sharpington Chief Executive Officer Mr R I Hickling Research and Development Director

Non-Executive Directors

Mr A H Taylor Non-Executive Chairman Mr A D Morrison Dr P R Blower Senior Independent Director

Biographical details of the Directors are shown on page 17.

There were no contracts of significance with the Company or any of its subsidiaries existing during or at the end of the financial year in which a Director of the Company was materially interested.

The interests of Directors in the shares and share options of the Company at 30 September 2011 are disclosed in the Remuneration Report of the Board of Directors on pages 22 to 26.

Re‑election

At the 2012 Annual General Meeting ("AGM"), in accordance with the Company's Articles of Association and the provisions of the UK Corporate Governance Code, Mr R I Hickling and Dr P R Blower will retire. Being eligible, and with the Board's recommendation, they will offer themselves for re-election.

Mr A H Taylor, Dr P R Blower and Mr A D Morrison, as Non-Executive Directors, have letters of appointment which provide for three months' notice from either party.

The service contracts of the Executive Directors and the letters of appointment for the Non-Executive Directors are available for inspection at the registered office of the Company and will be available at the 2012 AGM as specified in the notice of meeting.

In accordance with Section 992 of the Companies Act 2006, the Directors disclose that the rules regarding the appointment and replacement of Directors are contained in the Company's Articles of Association, which may be amended with shareholder approval in accordance with relevant legislation. The powers of the Directors are contained in the Company's Articles of Association or in accordance with the provisions of the Companies Act 2006. The Companies Act 2006 provides that Directors may issue and buy back the Company's shares on behalf of the Company, subject to authority being given to the Directors by shareholders in general meeting. No authority to buy back the Company's ordinary shares has been sought.

Directors' interests

Details of the Directors' interests in the ordinary share capital of the Company, as required to be disclosed in accordance with the Disclosure and Transparency Rules, are given in the Remuneration Report. During the financial year under review, the Directors purchased the following ordinary shares:

Mr T Sharpington 120,000 ordinary shares Mr R I Hickling 120,000 ordinary shares

There were no other changes in the Directors' shareholdings between 30 September 2011 and the date of this report.

Directors' and officers' liability insurance

The Group has in place for the whole of the year, and at the date of signing the financial statements, qualifying third party indemnity insurance for all Directors and officers.

Structure of the Company's capital

The Company's share capital traded on the London Stock Exchange comprises a single class of ordinary shares of one pence each, each carrying one voting right and all ranking equally with each other. At 30 September 2011, 346,801,972 shares were allotted and fully paid. See note 22 to the financial statements for details of movements in the Company's share capital during the year.

Directors' report (continued) for the year ended 30 September 2011

Structure of the Company's capital (continued)

Holders of ordinary shares are entitled to receive all shareholder documents, to attend, speak and exercise voting rights, either in person or by proxy, on resolutions proposed at General Meetings and participate in any distribution of income or capital. There are no restrictions on the transfer of shares in the Company or in respect of voting rights attached to the shares. None of the shares carry any special rights with regard to the control of the Company.

Details of employee share option schemes are set out in note 23 to the financial statements. Participants in employee share option schemes have no voting or other rights in respect of the shares subject to their awards until the options are exercised, at which time the shares rank pari passu in all respects with shares already in issue.

There are no restrictions on the transfer of securities in the Group.

Authority to issue shares

Each year at the AGM, the Directors seek authority to allot shares. The authority, when granted, lasts until 30 March 2012 or until the conclusion of the next AGM if sooner. At the last AGM held on 30 March 2011, shareholders authorised the Directors to allot relevant securities up to an aggregate nominal value of £1,155,779 representing one-third of the issued share capital and to further allot equity securities up to a nominal value of £346,734 (being 10% of the issued share capital). At the 2012 AGM similar authorities will be sought from shareholders.

Substantial shareholdings

At 9 December 2011 the Directors are aware of the following holdings representing 3% or more of the voting rights of the issued share capital of the Company in accordance with the Disclosure and Transparency Rules of the Financial Services Authority ("FSA"):

Name of shareholder having a material interest

Name of shareholder having a material interest	% holding
Invesco Perpetual	56.38
Henderson Global Investors	10.23
Mr Klaus Hebben	4.28

The shares held by Invesco Asset Management Limited ("Invesco") are held in Invesco's capacity as an institutional investor and an investment channel for others and not on its own behalf. A significant number of the shares are held by open ended investment companies together with other shares held in investment portfolios managed by Invesco as nominee/bare Trustee.

On 3 December 2009, Invesco and the Company entered into a relationship agreement under which Invesco has undertaken to ensure that whilst it holds an interest in the shares of the Company in excess of 30%. it will exercise its voting rights insofar as it is able to do so that:

(a) the Company is capable of carrying on its business independently of Invesco;

(b) all transactions, agreements and arrangements with any member of the Group and Invesco are conducted on an arm's length basis; and

(c) any dealing or dispute between Invesco and any member of the Group is dealt with by a committee comprising only of independent Directors.

Purchase of own shares

Purchases in shares of Phytopharm relate to the Phytopharm Share Incentive Plan whereby the Company issued one "Matching Share" for every one "Partnership Share" purchased by the employee. All shares are held by the scheme Trustees until the shares vest unconditionally with the employee. During the year ended 30 September 2011, the Group purchased 5,171 ordinary shares of one pence (2010: 39,296) at a total cost of £373 (2010: £3,885).

Significant agreements

The Group is not party to any significant agreement which would take effect, alter or terminate upon a change of control of the Company. The Group has licences granted to it from Shanghai Jiao Tong University (formerly Shanghai Second Medical University) and the Beijing Institute of Radiation Medicine. In addition, the Group has entered into a co-operation agreement with the Council for Scientific and Industrial Research in South Africa.

Employees

Equal opportunities

The Group operates an equal opportunities policy. Full consideration is given to all job applicants, irrespective of gender, age, marital status, disability, sexual orientation, race, colour, religion, political belief, ethnic or national origin or any other conditions not relevant to the performance of the role, who can demonstrate that they have the necessary skills and abilities.

Employees (continued)

Disabled employees

With regard to existing employees and those who may become disabled, the Group's policy is to examine ways and means to provide continuing employment under its existing terms and conditions and to provide training and career development, including promotion, wherever possible.

Employee involvement

The Group believes that it is important that employees are aware of the Group's business strategy and objectives and to assist them to work towards these goals. Regular meetings are held with all employees and managers, both to raise issues and provide a flow of information.

Share option schemes

The Directors remain committed to the principle that all employees should be able to participate in the Group's progress through share ownership schemes. Details of the Group's share option schemes are given on pages 25 and 26.

Payment of creditors

The Company does not follow a specific payment code but has a policy to pay its suppliers in accordance with the specific terms agreed with each supplier. The number of days' purchases outstanding at 30 September 2011 for the Company was 47 days (2010: 44 days).

Financial risk management

The financial risk management and objectives of the Group and the exposure of the Group to capital, liquidity, credit and interest rate risks are set out in note 20.

Annual General Meeting

The notice convening and giving details of the 2012 AGM of the Company will be mailed to shareholders.

Corporate governance

The Company's statement on corporate governance can be found in the Corporate Governance Report on pages 27 to 32 of these financial statements. The Corporate Governance Report forms part of this Directors' Report and is incorporated into it by cross-reference.

Audit information

In the case of each of the persons who are Directors of the Company at the date when this report is approved:

• so far as each of the Directors is aware, there is no relevant audit information (as defined in the Companies Act 2006) of which the Company's auditors are unaware; and
• each of the Directors has taken all steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006.

Going concern

As at 30 September 2011, the Group had cash resources (being cash and cash equivalents and money market investments) of £17,574,476. (2010: £23,608,171).

After making enquiries and taking into account of management's estimate 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.

Independent auditors

A resolution to re-appoint PricewaterhouseCoopers LLP as auditors to the Company will be proposed at the next AGM.

Mr T Sharpington Chief Executive Officer

9 December 2011

Remuneration report

This report complies with the UK Corporate Governance Code 2010, the Listing Rules of the FSA and the Companies Act 2006. It sets out the Group's remuneration policy and details of Directors' remuneration. In accordance with the Companies Act 2006, a resolution to approve this report will be proposed to shareholders at the AGM in 2012.

The regulations require the auditors to report to the Company's members on certain parts of the Directors' Remuneration Report and to state whether in their opinion those parts of the report have been properly prepared in accordance with the Companies Act (as amended by the Regulations). The report has therefore been divided into separate sections for audited and unaudited information.

Unaudited information

Remuneration Committee

The Remuneration Committee ("the Committee") is comprised exclusively of independent Non-Executive Directors. The Directors who have served on the Remuneration Committee during the year are as follows:

Mr A D Morrison (Chairman from 26 January 2011) Dr P R Blower (Chairman to 26 January 2011) Mr A H Taylor

The Remuneration Committee decides the remuneration policy that applies to Executive Directors and all of the Group's employees including other senior management. This comprises the setting of salaries for the Executive Directors, the setting of salary scales for other employees, approving the format and range of all performance related arrangements (both annual and long-term equity incentive arrangements) and determining the extent to which the elements of variable pay vest. In determining remuneration, consideration will be given to reward levels throughout the organisation as well as in the external employment market. The Remuneration Committee aims to reward all employees fairly based on their role, their performance and salary levels in the wider market.

The Executive Directors are invited to attend the Remuneration Committee meetings to make recommendations on compensation levels for employees.

During the year ended 30 September 2011, the Remuneration Committee met five times and there was full attendance at each meeting.

Remuneration of Non-Executive Directors

The Non-Executive Directors each receive a fee for their services, which is agreed by the Board following recommendation by the Committee in respect of the Chairman and by the Chairman in respect of the other Non-Executive Directors with the assistance of independent information regarding the level of fees within the sector, where necessary, concerning comparable organisations and appointments.

Neither the Chairman nor the other Non-Executive Directors receive any pension or other benefits from the Group.

Remuneration policy for Executive Directors

The Group's remuneration policy for Executive Directors is to:

• have regard to the Directors' experience and the nature and complexity of their work, and regard to Directors' remuneration in comparable companies, in order to pay a competitive salary, including a performance related cash bonus that attracts and retains management of the highest quality;
• link individual remuneration packages to the Group's long-term performance through the award of share options via the Phytopharm Share Option Plan 2007 and the Phytopharm Long Term Incentive Plan 2007; and
• provide post retirement benefits through the Group's pension schemes.

Consistent with the above policy, compensation awarded to Executive Directors comprises four main performance and non-performance related elements:

• basic salary and bonuses;
• benefits;
• share options and performance share awards (awarded by reference to annual performance); and
• pension arrangements.

Basic salary

The Committee sets the annual salaries for Executive Directors, having regard to personal performance and responsibilities of each Director and their expected future contribution.

Unaudited information (continued)

Performance related bonuses

The Group may make bonus payments depending on the overall performance of the Group against objectives agreed with the Remuneration Committee at the beginning of each year. These objectives relate to the development and progression of the Group's product portfolio together with operational and corporate effectiveness. The level of any bonus payments is based on the Group's overall performance against these objectives together with individual's performance and contribution towards achieving overall objectives.

Incentive schemes

The Group operates incentive schemes to assist in attracting and retaining high calibre employees and to focus the performance of key management on creating long-term shareholder value. The awards to individuals are linked to the performance targets of the Group and the individual. The Group's targets and those for Executive Directors are approved by the Board.

Share option schemes

The total number of unissued ordinary shares in the capital of the Company which may be placed under option on any day under the Phytopharm share option schemes may not exceed, when added to the aggregate number of shares that have been or may be issued pursuant to rights granted for the past ten years, 10% of the issued ordinary share capital of the Company immediately prior to that day.

Share options are granted under the Phytopharm Share Option Plan 2007 which is open to all employees. The Phytopharm Share Option Plan 2007 complies with the tax favoured Enterprise Management Incentive Legislation. Where possible the Company will grant tax advantaged options. The Remuneration Committee determines the level of awards. To provide maximum flexibility, the Committee has discretion to make awards up to an annual 400% of salary individual limit although the Committee would only envisage making an award at such a level in very exceptional circumstances. Performance share awards will normally vest three years after the date of grant subject to continued employment and the extent to which a performance target has been satisfied.

The vesting of a share option under the above scheme will depend on total shareholder return ("TSR") performance conditions being met. The Company's TSR will be compared to that of the companies making up the FTSE Small Cap Index at or within three months of the vesting date. No option or award can be exercised for below median performance.

The Committee considers TSR to be the most appropriate method of measuring performance at this stage of the Group's development where income streams have not stabilised and the Group has not yet made a profit. The Committee seeks independent verification of the TSR conditions before confirming that a share option has vested.

The 2010 Directors' Reward Plan enabled the Group to recognise the input of the Non-Executive Directors to the success of the Group in 2009. The one-off grant of options in 2010 under the plan will vest at the end of three years and no performance conditions will apply. As a condition of exercise, the Non-Executive Directors will be required to enter into an agreement under which they agree not to dispose of any shares acquired on exercise for a period of at least one year from the date of exercise. No further options have been granted under this scheme.

Long-term incentives

The Group operates the Phytopharm Long Term Incentive Plan 2007 under which performance share awards can be made to selected senior managers of the Group and its subsidiaries. The Committee determines the level of awards to provide maximum flexibility. The Committee has discretion to make awards up to an annual 400% of salary individual limit although the Committee would only envisage making an award at such a level in very exceptional circumstances. Performance share awards will normally vest three years after the date of grant subject to continued employment and the extent to which a performance target has been satisfied.

The Committee's policy is that the same TSR performance condition as described above for share options will apply to the vesting of performance share awards. This is for the same reasons as given above. The vesting of a share award under the above scheme will depend on TSR performance conditions being met. The Company's TSR will be compared to that of the companies making up the FTSE Small Cap Index at or within three months of the vesting date. The distinction is that no option or award can be exercised for below median performance and the maximum level of the award vesting for performance in the upper quartile.

Share purchase scheme

The Group also operates an HMRC approved Share Incentive Plan which is open to all employees who may purchase Partnership shares up to the value of £125 each month and are awarded one Matching Share for each Partnership Share purchased. The shares are held in trust for a minimum of three years and are not subject to performance criteria. Details of the Executive Directors' interests in this plan are specified in the table on page 26.

Pensions

The Executive Directors have money purchase pension schemes to which the Group contributed 12.5% of basic salary during the year.

Remuneration report (continued)

Unaudited information (continued)

Fees retained for non-executive directorships in other companies

The Committee recognises that Executive Directors may be invited to take up non-executive directorships and that these can broaden the experience and knowledge of the Director, from which the Group would benefit. Accordingly, subject to Board approval, they may accept non-executive appointments, as long as they are not likely to lead to a conflict of interest. They are also allowed to retain any fees paid under such appointments. Mr T Sharpington served as a Non-Executive Director of Clinical Force Limited until July 2011 for which he did not receive a fee.

Performance graph

The following shows the Company's performance, measured by TSR compared with the performance of the FTSE Small Cap Index also measured by TSR. TSR looks at the value at 30 September 2011 of £100 invested in the Company on 1 September 2006 compared with the value of £100 invested in the FTSE Small Cap Index over the same period. This index has been selected for this comparison because, in the opinion of the Directors, it is the most appropriate index against which the total shareholder return of the Company should be measured.

Executive Directors' contracts

It is the Group's policy that Executive Directors have contracts with an indefinite term but which provide for a maximum period of six months notice to be served by the Company or by the Director.

Non-Executive Directors' letters of appointment

The terms of service for Non-Executive Directors are specified in letters of appointment. Currently appointments are for a period of twelve months, which may be renewed, and are summarised in the table below:

	Date of appointment	Notice period
Mr A H Taylor	1 July 2011	3 months
Mr A D Morrison	1 June 2011	3 months
Dr P R Blower	31 July 2011	3 months

In addition, one-third of all Directors are required under the Articles of Association to resign and offer themselves for re-election at each Annual General Meeting.

Directors' interests in shares

The interests of the Directors in the shares of the Company at 30 September 2011 and 30 September 2010 were:

	Ordinary shares of 1 pence
	2011	2010
Mr T Sharpington	120,000	—
Mr R I Hickling	120,000	—
Mr A H Taylor	330,043	330,043
Mr A D Morrison	246,544	246,544
Dr P R Blower	193,682	193,682

All Directors' interests are beneficially held.

Unaudited information (continued)

Directors' interests in shares (continued)

Apart from the interests disclosed on the previous page, and those set out in the share option table on page 26, no Directors had any interest in the year in the share capital of the Company or other Group companies. There have been no changes in the Directors' interests in the share capital of the Group since the year end.

Audited information

Directors' detailed emoluments and compensation

Details of individual Directors' emoluments for the year are as follows:

				2010
Salary and fees £	Performance related bonus £	Total excluding pensions £	Pension contributions £	Total excluding pensions £	Pension contributions £

					5,089
					7,408
—	—	—	—	128,031	—
					12,497

					—
					—
30,758	—	30,758	—	29,025	—
102,895	—	102,895	—	96,462	—
423,923	35,000	458,923	37,796	349,605	12,497
	190,687 130,341 321,028 41,344 30,793	15,000 20,000 35,000 — —	205,687 150,341 356,028 41,344 30,793	22,469 15,327 37,796 — —	43,266 81,846 253,143 38,906 28,531

(i) From 6 July 2010.

(ii) From 15 January 2010.

(iii) To 6 July 2010.

No Directors waived emoluments in the financial year ended 30 September 2011 (2010: £nil).

There were no gains made by individual Directors from the exercise of share options for the year ended 30 September 2011 (2010: none).

Remuneration report (continued)

Audited information (continued)

Directors' interest in share options

Details of options over shares of the Company held by Directors, all of which have been granted at no cost to the Directors, are set out below:

		Number of options
	At 1 October 2010	Granted during the year	At 30 September 2011	Note*	Exercise price	Date from which exercisable	Expiry date
Mr T Sharpington	1,566,186	—	1,566,186	1	£0.0763	20 July 2013	20 July 2020
	1,900,558	—	1,900,558	2	£0.0763	20 July 2013	20 July 2020
	—	750,791	750,791	1	£0.0735	16 December 2013	16 December 2020
	3,466,744	750,791	4,217,535
Mr R I Hickling	1,566,186	—	1,566,186	1	£0.0763	20 July 2013	20 July 2020
	167,201	—	167,201	2	£0.0763	20 July 2013	20 July 2020
	—	512,305	512,305	1	£0.0735	16 December 2013	16 December 2020
	1,733,387	512,305	2,245,692
Mr A H Taylor	350,000	—	350,000	3	£0.1125	30 March 2013	30 March 2018
Mr A D Morrison	256,667	—	256,667	3	£0.1125	30 March 2013	30 March 2018
Dr P R Blower	256,667	—	256,667	3	£0.1125	30 March 2013	30 March 2018
Total	6,063,465	1,263,096	7,326,561

* Further details of the terms of the share option schemes are contained in note 23 to the financial statements under the note reference in the above table.

Directors' interests in long-term incentive plans

There are no awards in issue under the Long Term Incentive Plan.

Share Price

The market price of the Company's shares at the end of the financial year was 7.5 pence (30 September 2010: 8.43 pence) and the range of market prices during the year was between 6.88 pence and 9.75 pence.

Approval

This report was approved by the Board of Directors and signed on its behalf by:

Mr A D Morrison Chairman of the Remuneration Committee

9 December 2011

Corporate governance

The UK Corporate Governance Code

The Directors are accountable to shareholders for the good corporate governance of the Group and seek to uphold and report on compliance with current best practice in corporate governance.

See page 33 for the Statement of Directors' Responsibilities in respect of the Annual Report, the Directors' Remuneration Report and the Financial Statements.

Compliance statement

The Directors are satisfied that, unless disclosed otherwise within this report, the Group has complied throughout the year with the best practice provisions set out in the UK Corporate Governance Code in effect for the financial year to 30 September 2011. This report, together with the Remuneration Report, sets out the manner in which the Group has applied the main principles contained in the UK Corporate Governance Code. A copy of the UK Corporate Governance Code is available at the FRC's website: www.frc.org.

The principles set out in the UK Corporate Governance Code cover five main areas: leadership, effectiveness, accountability, remuneration and relations with shareholders. With the exception of remuneration (which is dealt with separately in the Remuneration Report) the following section sets out how the Board has applied such principles.

Board

The Board is chaired by Mr A H Taylor and met for regular business six times during the year under review. All meetings were attended by all the Directors appointed at the time of the meeting. In addition, further meetings were held when circumstances and urgent business dictated.

The Board has agreed a schedule of items that are specifically reserved for its consideration, which is reviewed on an annual basis. This schedule includes business strategy, financing arrangements, material acquisitions and divestments, approval of budgets, major capital expenditure projects, risk management, treasury policies, and establishing and monitoring internal controls. The Board is responsible for the overall direction and strategy of the Group and for securing the optimum performance from Group assets. At each meeting, the Board reviews strategy and progress of the Group towards its objectives, particularly in respect of research and development projects, and monitors financial progress against budget.

The Group's policy is that at least half of the Board of Directors consists of Non-Executive Directors. The role of Non-Executive Directors is to ensure that independent judgement is brought to Board deliberations and decisions. Dr P R Blower is the Senior Non-Executive Director. During 2010, shareholders approved the 2010 Directors' Reward Plan to enable the Group to recognise the input of the Non-Executive Directors to the success of the Group in the previous twelve months and the Non-Executive Directors were awarded a one-off grant of share options. The Group does not intend to make any further grants of share options under this scheme. There are no performance conditions attached to the share options and given the level of the award, the Board considers the Non-Executive Directors to be independent. Mr A D Morrison filled the role of interim Chief Executive Officer from November 2009 to July 2010 and returned to his role as Non-Executive Director following the appointment of Mr T Sharpington as Chief Executive Officer in July 2010 and the publication of the 2010 Annual Report. The Board does not consider the role of Interim Chief Executive Officer has impacted the independence of Mr A D Morrison due to the temporary nature of the role.

Biographies of the Directors are set out on page 17. Details of the Directors' shareholdings are shown on page 24.

All Directors are required to retire and submit themselves for re-election at the first AGM after appointment and, thereafter, at least every three years. Subject to their re-election and Companies Act provisions, the Non-Executive Directors are appointed for specified terms. See page 24.

There is clear separation of the roles of Chairman and Chief Executive Officer on terms which have been agreed and set out in writing by the Board and which are reviewed on an annual basis. The Chairman is responsible for overseeing the running of the Board, encouraging all Directors to participate fully in discussions with the aim of reaching a consensus and ensuring that the Non-Executive Directors are properly briefed on matters. The Chief Executive has responsibility for implementing the Board's strategy and managing day-to-day business activities of the Group with the Executive Directors and senior managers. The Company Secretary, through the Chairman, is responsible for advising the Board on all governance matters.

The Board has agreed procedures to allow individual Directors to seek independent professional advice at the Company's expense for the furtherance of their duties and all Directors have access to the services of the Company Secretary. The Company Secretary is accountable to the Board through the Chairman on governance matters. It is the responsibility of the Company Secretary to ensure that Board procedures are followed and all rules and regulations are complied with. Newly appointed Directors receive a comprehensive, formal and tailored introduction to the Group's business as well as information on their responsibilities and roles as a Director of the Company.

Corporate governance (continued)

Board performance and appraisal

The Board is mindful of the requirement to undertake annual evaluation of its performance and that of its committees and individual Directors. All Directors have conducted a self assessment of the performance of the Board during the year by reference to an evaluation checklist provided by the Group's external auditors. The results were compiled and analysed by the Company Secretary. Areas for improvement identified by the assessment will be addressed accordingly.

Board committees

In accordance with best practice, the Company has established Audit, Remuneration and Nominations Committees with written terms of reference for each that deal with their authorities and duties. The full terms of reference of all the Committees have been published on the Company's website.

Audit Committee

The Audit Committee comprises the independent Non-Executive Directors, Mr A D Morrison, Dr P R Blower and Mr A H Taylor, who the Board considers has recent and relevant financial experience, and is chaired by Dr P R Blower. The Audit Committee met three times during the year under review, with the Group's external auditors and Executive Directors attending where appropriate. All meetings were fully attended. Following the appointment of Mr T Sharpington in July 2010, Mr A D Morrison has now returned to his role as a Non-Executive Director and he reverted to a member of the Audit Committee following the publication of the 2010 Annual Report.

Between 1 October 2010 and the publication of the 2010 Annual Report the Audit Committee did not consist of at least two independent Non-Executive Directors other than the Non-Executive Chairman as required under Section C.3.1 of the UK Corporate Governance Code as Mr A D Morrison had stepped down as a Non-Executive Director whilst fulfilling the role of Interim Chief Executive Officer which in the view of the Board did not affect Mr A D Morrison's independence.

The Audit Committee assists the Board in ensuring that the Group's published financial statements give a true and fair view and in securing reliable internal financial information for decision making. The Audit Committee reviews the findings of the external auditors and reviews key accounting policies and judgements. The Audit Committee is also responsible for monitoring the effectiveness of the external audit process and the independence of the external auditors, recommending audit fee proposals to the Board and considering the scale and nature of non-audit work. Non-audit services provided by the external auditors are discussed to ensure the Audit Committee is satisfied regarding the objectivity and independence of the external audit, including any relevant safeguards. Any material non-audit fees are approved by the Audit Committee before being committed.

The Group's tax compliance work is carried out by the auditors only in cases where they are best suited to perform the work in a cost efficient manner, given their familiarity with the Group's business. A breakdown of fees paid to the auditors can be found in note 7 to the financial statements.

The Audit Committee assesses annually the qualification, expertise and resources, and independence of the external auditors and the effectiveness of the audit process. The assessment covers all aspects of the audit service provided by the audit firm.

The Audit Committee reviews the Group's Protected Disclosure ("Whistleblowing") policy and procedure on an annual basis to ensure that adequate arrangements are in place by which members of staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other areas. The Audit Committee considers that appropriate arrangements are in place for the proportionate and independent investigation of such matters and for appropriate follow up action.

The Audit Committee conducted a self-assessment of its performance during the year by reference to an evaluation checklist provided by the Group's external auditors. The results were compiled and analysed by the Company Secretary. Areas for improvement identified by the assessment will be addressed accordingly.

The terms of reference of the Audit Committee include the following responsibilities:

• to monitor the integrity of the Group's financial statements;
• to review annually the need for an internal audit function;
• to review the effectiveness of the Group's internal control and risk management systems; and
• to consider and make recommendations to the Board regarding the appointment of the Group's external auditors.

Remuneration Committee

The Remuneration Committee comprises the independent Non-Executive Directors Mr A D Morrison, Dr P R Blower and Mr A H Taylor and is chaired by Mr A D Morrison. The Remuneration Committee met five times during the year under review. All meetings were attended by all members. During the year Dr P R Blower stepped down as Chairman of the Committee.

Board committees (continued)

Remuneration Committee (continued)

The Remuneration Committee is responsible for making recommendations to the Board on remuneration policy for all members of staff and Executive Directors. The policy recommendations include setting salary scales and approving the format and range of incentive payments and share option grants to all staff. Remuneration of Non-Executive Directors is under the control of the Chairman and the Executive members of the Board.

The Remuneration Committee conducted a self-assessment of its performance during the year by reference to an evaluation checklist provided by the Group's external auditors. The results were compiled and analysed by the Company Secretary. Areas for improvement identified by the assessment will be addressed accordingly.

The terms of reference of the Remuneration Committee include the following responsibilities:

• to determine and agree with the Board the framework and policy for the remuneration of the Executive Directors and other members of the Executive Team;
• to determine targets for any performance related pay scheme;
• to approve overall remuneration structure; and
• to review employee benefit structures.

The Remuneration Report, which includes details of the Group's remuneration policy, is set out on pages 22 to 26.

Nomination Committee

The Nomination Committee comprises Mr A D Morrison, Dr P R Blower and Mr A H Taylor and is chaired by Dr P R Blower. The Nomination Committee met once during the year under review and the meeting was attended by all members.

The Nomination Committee is responsible to the Board for determining the qualities and experience required of the Company's Executive and Non-Executive Directors and for identifying suitable candidates. In appropriate cases, recruitment consultants assist in the process. The Nomination Committee is also responsible for succession planning.

The terms of reference of the Nomination Committee include the following responsibilities:

• to identify and nominate candidates to fill Board positions as they arise;
• to prepare a description of the role and capabilities required for a particular appointment; and
• to give full consideration to succession planning.

Relations with shareholders

The Group is committed to maintaining good relations with its institutional and private shareholders and reports formally to shareholders four times a year through the provision of interim results (around April) and annual results (around November) and, as required under the Disclosure and Transparency Rules, releases interim management statements around February and August. In addition, the Group keeps shareholders informed of significant events for the Group during the year by issuing press releases which are immediately made available on the Group's website (www.phytopharm.com). The Group's website also provides an overview of the business, including its strategy, products and objectives.

The Group also maintains communication by making presentations during the year to institutional shareholders on request and to all shareholders through the Group's website. This contains information on all of the Group's products and all financial reports and regulatory announcements issued by the Group. Details of the current share price and historic share price performance are also included.

The Board is kept up to date at its regular meetings with the views of shareholders and analysts by the Chairman and Chief Executive.

Annual General Meeting

The principal forum for discussion with shareholders is the AGM and their participation is encouraged. The Group endeavours to provide formal notification together with an explanation of each proposed resolution and to send these to shareholders at least 20 working days in advance of the meeting.

At the AGM the Board provides a summary of the year's events after which all the Directors are available to answer questions from shareholders.

In accordance with the UK Corporate Governance Code recommendations, the Company counts all proxy votes. On each resolution which is voted on a show of hands, the Company indicates the level of proxies lodged, the number of proxy votes for and against each resolution and the number of abstentions. The Chairs of the Audit, Remuneration and Nomination Committees attend to answer questions.

Corporate governance (continued)

Announcements

All major announcements are approved by the Board prior to issue. The Group also has internal procedures to guard against unauthorised release of information.

Corporate social responsibility

The Board recognises the importance of social, ethical and environmental matters and it endeavours to take into account the interests of the Group's stakeholders, including its investors, employees and suppliers, when operating the business.

Social

The Group places considerable value on attracting and retaining its employees and seeks to keep them informed on the Group's business strategy and objectives to assist them in working towards these goals. This is achieved through formal and informal meetings where employees have the opportunity to ask questions as well as receive information.

Employee training and development requirements are assessed as part of the performance appraisal process. Additional training is undertaken as required to provide staff with continual professional development.

The Group is committed to health and safety and has well-developed health and safety policies and procedures to safeguard all of its employees, partners, contractors and visitors. The Board is aware of its legal and moral obligations for health and safety at work and is committed to preventing accidents and minimising occupational ill health.

The Board of Directors is committed to continuing communication and involvement with all the Group's employees.

Ethical

The Group operates within a strict regulatory environment in the pharmaceutical industry and conducts its clinical development activities in accordance with internationally recognised regulatory and quality standards. A code of business conduct and ethics is in place to promote fair, honest and ethical conduct by all employees in their relationships with stakeholders. The Group has also implemented an anti-bribery and corruption policy following the introduction of the Bribery Act 2010.

The Group endeavours to appoint employees with appropriate skills, experience and knowledge for the roles they undertake. The Group has a range of polices which are aimed at retaining and incentivising key staff. Employees have clear objectives based on the Group's business objectives which have been set by the Remuneration Committee.

Environment

The Group recognises that protecting the environment is a primary corporate responsibility and that environmental matters are not just the responsibility of the Board of Directors, but also an area in which each employee, sub-contractor and supplier has a contribution to make.

The Group therefore encourages all employees, partners and contractors to operate in an environmentally responsible manner. Where appropriate these requirements have been incorporated into the Group's standard operating procedures and the environmental performance of contractors is reviewed as part of the audit process. It is the Group's policy to undertake reasonable measures to assess the environmental impact of its operations, processes and products. Waste is minimised with paper and packaging recycled and confidential waste is shredded and recycled. Where possible other materials, including glass and plastics, are recycled. The Group aims to continually improve environmental performance and compliance within these areas.

Internal control

The Board acknowledges that it is ultimately responsible for the Group's system of internal control and reviews its effectiveness at least annually and the Board confirms that this process has been in place up to the date of the approval of the financial statements. However, the Board acknowledges that such a system can only provide reasonable and not absolute assurance against material misstatement or loss, as it is designed to manage rather than eliminate the risk of failure to achieve business objectives.

The key procedures that the Board has established are designed to provide effective internal controls within the Group and comply with the Internal Control Guidance for Directors on the UK Corporate Governance Code (Turnbull Guidance 2005) issued by the Financial Reporting Council. There is an ongoing process for identifying, evaluating and managing significant risks faced by the Group and the effectiveness of all the Group's internal controls in effect during the year has been reviewed by the Board. This process has been in place throughout the year under review. The Board confirms that the necessary steps have been taken to rectify any significant failings or weaknesses identified through this process.

Internal control (continued)

The Group has a quality assurance function but it does not have a formal internal audit function, which is considered appropriate by the Audit Committee given the size of the Group's operations at this time. The Executive Directors' active involvement in the activities of the Group allows the Board to continually monitor and assess significant business, operational, financial, compliance and other risks and to review the effectiveness of internal control. The Executive Directors provide regular management reports covering inter alia research and development activities, shareholder relations, financial management and commercial activities.

Following the implementation of the Bribery Act 2010, the Group has reviewed, and where appropriate updated, its existing policies and procedures in this area.

The Group's key internal control procedures include the following:

Control environment

The Group's control environment is the responsibility of the Group's Directors and managers at all levels. The Group's organisational structure has clear lines of reporting and responsibility. Regular research and development programme reviews are held to review progress against plans for each programme. The information from these meetings is reported on a regular basis to a management group comprising the Executive Directors and key senior managers to compare progress against plans for the business as a whole. Overall control of the business rests with the Board of Directors.

Risk identification and evaluation

Regular assessments of ongoing risks facing the business are undertaken as part of the operational reviews and regular management group meetings in the key areas such as management of working capital, compliance, legal and operational issues.

Operational controls

Quality

Investigational medicinal products are manufactured on behalf of Phytopharm and are produced in accordance with Good Manufacturing Practice ("GMP") to ensure that the products are manufactured consistently to the appropriate quality standards.

Non-clinical studies

Key non-clinical studies to determine the safety and efficacy of new products are conducted in accordance with Good Laboratory Practice ("GLP") at contractors who operate under those regulations. Each contractor is audited to assess compliance with GLP prior to initiation of studies.

Clinical studies

All clinical studies carried out by the Group are in accordance with Good Clinical Practice ("GCP"). This ensures that the health and well being of the subjects is carefully monitored during the study and that the data gathered are complete and reliable. All studies are audited for compliance under the management of Phytopharm's quality assurance group.

Financial controls

Financial reporting and consolidation

Budgets and long-term forecasts are normally prepared twice a year to allow management to monitor the key business and financial risks. Further, more frequent, forecasts are prepared if circumstances require. The budgets are reviewed and approved by the Board prior to adoption by the Group. Consolidated management accounts are prepared on a monthly basis and performance against budget is analysed in detail and reported on monthly and reviewed regularly by the Board.

The integrity of the Group's public financial reporting process is supported by a number of processes and steps to provide assurance over the completeness and accuracy of the content, including:

• review by Executive Directors;
• review and recommendation by the Audit Committee; and
• review and approval by the Board.

Control procedures

The Group has established detailed policies and accounting and administrative procedures are in place covering all significant areas and key systems. These include formal authorisation procedures for the transfer of funds, capital expenditure and recruitment. Any commitment of expenditure requires documentary approval which is subject to prescribed limits of authority. Any major expenditure or commitment including the appointment of senior members of staff requires Board approval.

Corporate governance (continued)

Compliance

The Group has established policies and standard operating procedures ("SOPs") together with company handbooks that provide instruction on all aspects of the operation of the business. These SOPs and handbooks are designed to ensure compliance with the quality management requirements of the Group and external regulations where appropriate. All SOPs and company handbooks are reviewed on a regular basis and updated where necessary.

Insurance

The Group has reviewed its portfolio of insurance policies with its insurance broker to ensure that the policies are appropriate to the Group's activities.

Takeover directive

Disclosures relating to the Takeover Directive are included in the Directors' Report on pages 18 to 21.

Announcements

All major announcements, including those relating to the Group's research and development activities, are approved by the Board of Directors and, where appropriate, by senior management prior to issue. The Group also has internal and external checks to guard against unauthorised release of information.

On behalf of the Board

Mr A H Taylor Non-Executive Chairman

9 December 2011

Statement of Directors' responsibilities

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Group and parent company financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU"). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent; and
• state whether applicable IFRS as adopted by the EU have been followed, subject to any material departures disclosed and explained in the financial statements.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are listed in the Board of Directors on page 17, confirm that, to the best of their knowledge:

• the Group financial statements, which have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and loss of the Group; and
• the information contained in the Directors' Report and the Business Review includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

By order of the Board

Mrs Z McGowan Company Secretary 9 December 2011

Independent auditors' report

to the members of Phytopharm plc

Independent auditors' report to the members of Phytopharm plc

We have audited the financial statements of Phytopharm plc for the year ended 30 September 2011 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Company Balance Sheets, the Consolidated and Company Statements of Changes in Equity, the Consolidated and Company Cash Flow Statements and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards ("IFRS") as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

Respective responsibilities of Directors and auditors

As explained more fully in the Statement of Directors' Responsibilities set out on page 33, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, 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 the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's and the parent company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion:

• the financial statements give a true and fair view of the state of the Group's and of the parent company's affairs as at 30 September 2011, and of the Group's loss and Group's and parent company's cash flows for the year then ended;
• the Group financial statements have been properly prepared in accordance with IFRS as adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with IFRS as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the lAS Regulation.

Opinion on other matters prescribed by the Companies Act 2006

In our opinion:

• the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
• the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
• the parent company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or
• certain disclosures of Directors' remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review:

• the Directors' statement, set out on page 21, in relation to going concern;
• the parts of the Corporate Governance Statement relating to the Company's compliance with the nine provisions of the UK Corporate Governance Code specified for our review; and
• certain elements of the report to shareholders by the Board on Directors' remuneration.

Simon Ormiston (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors

Cambridge 9 December 2011

Consolidated statement of comprehensive income

for the year ended 30 September 2011

	Note	2011 £	2010 (restated) £
Revenue	2	66,659	696,854
Cost of sales		—	(87,447)
Gross profit		66,659	609,407
Other income	2	—	17,120
Operating expenses	3	(8,613,800)	(5,129,037)
Operating loss		(8,547,141)	(4,502,510)
Finance income	6	375,685	289,825
Loss before taxation	7	(8,171,456)	(4,212,685)
Taxation	8	513,126	411,171
Loss and total comprehensive income for the year	9	(7,658,330)	(3,801,514)
Basic and diluted loss per ordinary share (pence)	10	(2.2)	(1.3)

The notes on pages 41 to 59 form part of these financial statements.

All of the loss is attributable to the owners of the parent.

Consolidated and Company balance sheets at 30 September 2011

		Group		Company
	Note	2011 £	2010 £	2011 £	2010 £
Assets
Property, plant and equipment	12	83,646	112,904	—	—
Investments	13	—	—	1,639,136	1,501,603
Amounts due from subsidiary undertaking	14	—	—	21,870,207	16,471,326
Non-current assets		83,646	112,904	23,509,343	17,972,929
Trade and other receivables	15	459,954	480,974	198,675	209,794
Current tax receivable		479,229	411,171	—	—
Money market investments	16	14,500,000	22,500,000	14,500,000	22,500,000
Cash and cash equivalents	17	3,074,476	1,108,171	2,677,736	484,469
Current assets		18,513,659	24,500,316	17,376,411	23,194,263
Total assets		18,597,305	24,613,220	40,885,754	41,167,192
Liabilities and equity
Trade and other payables	18	2,633,307	1,134,915	87,034	76,961
Total current liabilities		2,633,307	1,134,915	87,034	76,961
Equity attributable to owners of the parent
Ordinary shares	22	3,468,019	3,466,774	3,468,019	3,466,774
Share premium		77,283,731	77,278,113	76,788,324	76,782,706
Merger reserve		(204,211)	(204,211)	—	—
Accumulated loss		(64,583,541)	(57,062,371)	(39,457,623)	(39,159,249)
Total equity		15,963,998	23,478,305	40,798,720	41,090,231
Total liabilities and equity		18,597,305	24,613,220	40,885,754	41,167,192

The notes on pages 41 to 59 form part of these financial statements.

The financial statements, comprising the Consolidated Statement of Comprehensive Income, the Consolidated and Company Balance Sheets, the Consolidated and Company Statements of Changes in Equity, the Consolidated and Company Cash Flow Statements and the related notes, were approved by the Board of Directors and were signed on its behalf by:

Mr T Sharpington

Chief Executive Officer

9 December 2011

Phytopharm plc Registered number: 3131723

Consolidated statement of changes in equity

for the year ended 30 September 2011

Group	Note	Ordinary shares £	Share premium £	Merger reserve £	Accumulated losses £	Total £
Balance at 1 October 2009		945,484	55,709,052	(204,211)	(53,312,914)	3,137,411
Comprehensive income
Loss attributable to owners of the parent		—	—	—	(3,801,514)	(3,801,514)
		—	—	—	(3,801,514)	(3,801,514)
Transactions with owners:
Issue of ordinary shares	22	2,521,290	21,569,061	—	—	24,090,351
Purchase of shares in Phytopharm plc	22	—	—	—	(3,885)	(3,885)
Credit in respect of share options		—	—	—	55,942	55,942
Transactions with owners		2,521,290	21,569,061	—	52,057	24,142,408
Balance at 30 September 2010		3,466,774	77,278,113	(204,211)	(57,062,371)	23,478,305
Balance at 1 October 2010		3,466,774	77,278,113	(204,211)	(57,062,371)	23,478,305
Comprehensive income
Loss attributable to owners of the parent		—	—	—	(7,658,330)	(7,658,330)
		—	—	—	(7,658,330)	(7,658,330)
Transactions with owners:
Issue of ordinary shares	22	1,245	5,618	—	—	6,863
Purchase of shares in Phytopharm plc	22	—	—	—	(373)	(373)
Credit in respect of share options		—	—	—	137,533	137,533
Transactions with owners		1,245	5,618	—	137,160	144,023
Balance at 30 September 2011		3,468,019	77,283,731	(204,211)	(64,583,541)	15,963,998

The notes on pages 41 to 59 form part of these financial statements.

Company statement of changes in equity

for the year ended 30 September 2011

Company	Note	Ordinary shares £	Share premium £	Accumulated losses £	Total £
Balance at 1 October 2009		945,484	55,213,645	(38,786,185)	17,372,944
Comprehensive income
Loss attributable to owners of the parent		—	—	(429,006)	(429,006)
		—	—	(429,006)	(429,006)
Transactions with owners:
Issue of ordinary shares	22	2,521,290	21,569,061	—	24,090,351
Credit in respect of share options		—	—	55,942	55,942
Transactions with owners		2,521,290	21,569,061	55,942	24,146,293
Balance at 30 September 2010		3,466,774	76,782,706	(39,159,249)	41,090,231
Balance at 1 October 2010		3,466,774	76,782,706	(39,159,249)	41,090,231
Comprehensive income
Loss attributable to owners of the parent		—	—	(435,907)	(435,907)
		—	—	(435,907)	(435,907)
Transactions with owners:
Issue of ordinary shares	22	1,245	5,618	—	6,863
Credit in respect of share options		—	—	137,533	137,533
Transactions with owners		1,245	5,618	137,533	144,396
Balance at 30 September 2011		3,468,019	76,788,324	(39,457,623)	40,798,720

The notes on pages 41 to 59 form part of these financial statements.

Consolidated and Company cash flow statements

for the year ended 30 September 2011

		Group		Company
	Note	2011 £	2010 £	2011 £	2010 £
Cash flows from operating activities
Operating loss		(8,547,141)	(4,502,510)	(809,798)	(718,335)
Depreciation	12	49,804	67,198	—	—
Impairment of intangible asset		—	99,400	—	—
Gain on disposal of property, plant and equipment		(24,743)	(4,108)	—	—
Share option charge		137,533	55,942	—	—
		(8,384,547)	(4,284,078)	(809,798)	(718,335)
Changes in working capital
Decrease/(increase) in trade and other receivables		17,052	(90,254)	6,632	(25,307)
Increase/(decrease) in trade and other payables		1,498,392	(611,905)	10,073	6,802
Decrease in inventories		—	249,474	—	—
Cash used in operations		(6,869,103)	(4,736,763)	(793,093)	(736,840)
Taxation received		445,068	294,855	—	—
Net cash used in operating activities		(6,424,035)	(4,441,908)	(793,093)	(736,840)
Cash flows from investing activities
Purchase of property, plant and equipment	12	(20,800)	(85,128)	—	—
Sale of property, plant and equipment		24,997	11,500	—	—
Investment in shares of Phytopharm plc		(373)	(3,885)	—	—
Interest received		379,653	127,124	378,378	126,896
Loan to subsidiary undertaking	14	—	—	(5,398,881)	(4,179,740)
Net cash generated from/(used in) investing activities		383,477	49,611	(5,020,503)	(4,052,844)
Cash flows from financing activities
Issue of shares	22	6,863	25,212,904	6,863	25,212,904
Share issue costs	22	—	(1,122,553)	—	(1,122,553)
Movement in money market investments	16	8,000,000	(22,500,000)	8,000,000	(22,500,000)
Net cash generated from financing activities		8,006,863	1,590,351	8,006,863	1,590,351
Movements in cash and cash equivalents in the year		1,966,305	(2,801,946)	2,193,267	(3,199,333)
Cash and cash equivalents at the beginning of the year		1,108,171	3,910,117	484,469	3,683,802
Cash and cash equivalents at the end of the year		3,074,476	1,108,171	2,677,736	484,469
Money market investments at the end of the year		14,500,000	22,500,000	14,500,000	22,500,000
Total cash, cash equivalents and money market investments		17,574,476	23,608,171	17,177,736	22,984,469

The notes on pages 41 to 59 form part of these financial statements.

Notes to the financial statements

for the year ended 30 September 2011

1. Accounting policies and basis of preparation

Phytopharm plc is a public limited company incorporated in England and Wales and domiciled in the UK with a listing on the London Stock Exchange under the symbol PYM. The address of its registered office is Lakeview House, 2 Lakeview Court, Ermine Business Park, Huntingdon, Cambridgeshire, England PE29 6UA.

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to both years presented, unless otherwise stated.

Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU, IFRIC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared on a historical cost basis.

Going concern

At 30 September 2011, the Group had cash resources (being cash and cash equivalents and money market investments) of £17,574,476 (2010: £23,608,171).

After making enquiries and taking into account management's estimate 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.

Basis of consolidation

The consolidated financial statements include the financial statements of Phytopharm plc (the "Company") and all its subsidiary undertakings (together the "Group"), made up to 30 September 2011.

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one-half of the voting rights. Subsidiaries are full consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

Inter-company transactions, balances, income and expenses on transactions between Group companies are eliminated. Profits and losses resulting from inter-company transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Accounting developments

Current financial year

The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning 1 October 2010:

• Annual improvements 2009 (those improvements effective 1 January 2010);
• Annual improvements 2010 (those improvements effective 1 July 2010);
• amendment to IFRS 1, 'First time adoption on additional exemptions' (effective 1 January 2010);
• amendment to IFRS 1, 'First time adoption on Financial instrument disclosures' (effective 1 July 2010);
• amendment to IFRS 2, 'Share-based payments' on group cash-settled share-based payment transactions (effective 1 January 2010);
• amendment to IAS 32, 'Financial instruments Presentation' on classification of rights issues (effective 1 February 2010);
• IFRIC 15, 'Agreements for construction and real estates' (effective 1 January 2009 but EU-endorsed from 1 January 2010); and
• IFRIC 19, 'Extinguishing financial liabilities with equity instruments' (effective 1 July 2010).

None of the above new standards, amendments to standards or interpretations which were mandatory for the first time for the financial year beginning 1 October 2010 have had an impact on the financial statements of the Group.

Future financial years

The following standards and interpretations to existing standards have been published and are mandatory for the Group's accounting periods beginning on or after 1 October 2011:

• Annual improvements 2010 (those improvements effective 1 January 2011);
• amendment to IFRS 7, 'Financial instrument disclosures' enhancing disclosures about transfers of financial assets (effective 1 July 2011);
• IFRS 9, 'Financial instruments' on 'classification and measurement' (effective 1 January 2013);

Notes to the financial statements (continued)

for the year ended 30 September 2011

1. Accounting policies and basis of preparation (continued) Accounting developments (continued)

Future financial years (continued)

• IFRS 10, 'Consolidated financial statements' (effective 1 January 2013);
• IFRS 11, 'Joint arrangements' (effective 1 January 2013);
• IFRS 12, 'Disclosure of interests in other entities' (effective 1 January 2013);
• IFRS 13, 'Fair value measurement' (effective 1 January 2013);
• amendment to IAS 24, 'Related party transactions (effective 1 January 2011);
• amendment to IAS 19, 'Employee benefits' resulting from post employment benefits (effective 1 January 2013); and
• amendment to IAS 27, 'Consolidated and separate financial statements' reissued as 'separate financial statements' (effective 1 January 2013).

The Directors do not anticipate that the adoption of these standards will have a significant impact on the financial statements of the Group when they come into effect for periods commencing on or after 1 October 2011.

The following standards and interpretations to existing standards have been published and are mandatory for the Group's accounting periods beginning on or after 1 October 2011 and are not expected to be relevant to the Group:

• amendment to IFRS 1, 'First time adoption' on hyperinflation and fixed dates (effective 1 July 2011);
• amendment to IAS 12, 'Income taxes' relating to recovery of underlying assets (effective 1 January 2012);
• IAS 28, 'Investments in associates' reissued as 'Investments in associates and joint ventures' (effective 1 January 2013);
• amendment to IAS 1, 'Presentation of financial statements' (effective 1 July 2012); and
• amendment to IFRIC 14, 'Prepayments of minimum funding requirement' (effective 1 January 2011).

Critical accounting judgements

The preparation of the consolidated 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 the determination of the carrying value of investments in and loans to subsidiaries, the period over which research and development costs are recognised and the share option charge and the underlying assumptions. The Directors have reviewed the period over which significant research and development costs relating to clinical trials are recognised based on information provided by clinical research organisations. The Directors have assessed the carrying value of the investments and loans and the inputs to the share option charge calculation and there is not considered to be a reasonable change to a metric that would result in a material adjustment to the carrying value of the investments or the share option charge.

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 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 year in which the estimate is revised if the revision affects only that year, or in the year of revision and future years if the revision affects both current and future years.

Revenue

Revenue, which excludes value added tax, represents the invoiced value of goods and services supplied, net of certain promotional activity. Revenue from sales of products is recognised when the risks and rewards of ownership pass to the customer and is stated net of value added tax.

Amounts received or receivable in respect of research and development contracts, collaborative research agreements, licence fees or milestone payments are recognised as revenue when the licence rights are granted or the specific conditions stipulated in the agreements have been satisfied and provided that there are no future obligations. These amounts are shown gross of any withholding tax.

Other income

Other income, which excludes value added tax, represents amounts received or receivable from charitable organisations.

Cost of sales and operating expenses

Cost of sales comprises the proportion of milestone and royalty income earned by the Group and due to third parties under licence agreements and the direct cost of goods sold, including distribution costs.

1. Accounting policies and basis of preparation (continued)

Research and development expenditure

All research and development costs, whether funded by third parties under licence and development agreements or not, are included within operating expenses and classified as research and development costs.

All ongoing development expenditure is currently expensed in the year in which it is incurred. Due to the regulatory and other uncertainties inherent in the development of the Group's products, the criteria for development costs to be recognised as an asset, as prescribed by IAS 38, 'Intangible assets', are not met until the product has been submitted for regulatory approval, such approval has been received, and it is probable that future economic benefits will flow to the Group. The Group does not currently have any such internal development costs that qualify for capitalisation as intangible assets.

Share-based payments

The Group makes equity-settled share-based payments to its employees and Directors. Equity-settled share-based payments are measured at fair value at the date of grant and are expensed on a straight line basis over the vesting period of the award. At each balance sheet date, the Group revises its estimate of the number of options that are expected to become exercisable. The share-based payment charge is allocated to research and development expenses and administrative expenses on the basis of staff numbers, with a corresponding adjustment to equity.

Employee benefits

All employee benefit costs, notably holiday pay and contributions to Group or personal defined contribution plans, are charged to the statement of comprehensive income on an accruals basis. The Group operates a defined contribution pension scheme. The assets of this scheme are held separately from those of the Group in independently administered funds. The Group does not offer any other post retirement benefits.

Operating leases

Costs in respect of operating leases are charged to the statement of comprehensive income on a straight line basis over the lease term.

Property, plant and equipment

Property, plant and equipment are stated at historic purchase cost less accumulated depreciation. The cost of property, plant and equipment is its purchase cost, together with any incidental expenses of acquisition. Depreciation is calculated so as to write off the cost of property, plant and equipment, less its estimated residual value, on a straight line basis over the expected useful economic lives of the assets concerned.

The principal rates used for this purpose are:

Plant and machinery	20%
Computer equipment	33%
Fixtures and fittings	20%
Motor vehicles	25%

Leasehold improvements are depreciated over the shorter of the lease term and the asset's useful economic life.

The assets' residual values and useful lives are reviewed, and adjusted if necessary, at each balance sheet date.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within the operating loss.

Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. 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.

Impairment of assets

Non-current assets are reviewed for impairment both annually and when there is an indication that an asset may be impaired (when events or changes in circumstances indicate that carrying value may not be recoverable). An impairment loss is recognised in the statement of comprehensive income for the amount by which the asset's carrying value exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less cost to sell and value in use.

Investments in subsidiary

Investments in subsidiary undertakings are carried at cost less any impairment provision. Such investments are subject to an annual review and any impairment is charged to the statement of comprehensive income. The fair value of the options granted after 7 November 2002 by Phytopharm plc to the employees of Phytotech Limited which had not vested by 1 September 2005 is also included in the value of the investment.

Notes to the financial statements (continued)

for the year ended 30 September 2011

1. Accounting policies and basis of preparation (continued)

Trade and other receivables

Trade receivables are non-interest bearing and are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

Money market investments

Money market investments have fixed maturities that the Group's management has the positive intention to hold to maturity. These investments include short-term investments with an original maturity date of more than three months.

Cash and cash equivalents

Cash and cash equivalents include cash in hand, bank deposits repayable on demand and other short-term highly liquid investments with original maturities at inception of ninety days or less.

Foreign currency translation

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in sterling (£), which is the Company's functional and presentation currency.

Transactions denominated in foreign currencies are translated into sterling, being the functional currency of the Group, at actual rates of exchange ruling at the date of transaction. Monetary assets and liabilities expressed in foreign currencies are translated into sterling at rates of exchange ruling at the end of the financial year. All foreign currency exchange differences are taken to the statement of comprehensive income in the year in which they arise.

Current tax

Current tax represents UK tax recoverable and is provided at amounts expected to be recovered using the tax rates and laws that have been enacted at the balance sheet date.

Deferred taxation

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements in accordance with IAS 12, 'Income taxes'. Deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither the accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. A deferred tax asset is recognised only to the extent that it is probable that sufficient taxable profit will be available in future years to utilise the temporary difference.

Trade and other payables

Trade payables are non-interest bearing and are initially stated at their fair value and subsequently held at amortised cost.

Ordinary shares and share premium

Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

Employee share trust

The Company recognises the assets and liabilities of the trust in its own accounts and shares held by the trust are recorded at cost as a deduction at arriving at shareholders' funds until such time as the shares vest unconditionally to employees. The trust is a separately administered trust, funded by contributions from employees and Phytotech Limited, whose assets comprise shares in the Company.

Segmental information

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Executive Directors.

2. Business and geographical segments

The Group's development and other functions operating across all the Group's research programmes 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, being the research and development of pharmaceutical products.

2. Business and geographical segments (continued)

The Group is domiciled in the UK. The result of its revenue and other income from external customers in the UK is £4,761 (2010: £566,717) and the total revenue and other income from external customers in other countries is £61,898 (2010: £147,257).

	2011	2010
	£	£
Revenue
South Africa	61,898	—
Europe	4,761	566,717
Asia	—	130,137
	66,659	696,854
Other income
USA (i)	—	17,120
	66,659	713,974
(i) Represents grant income recognised.
All non-current assets are located in the United Kingdom (2010: all).
The Group has revenue and other income exceeding 10% from more than one customer:
	2011	2010
	£	£
Customer A	61,898	—
Customer B	4,761	506,717
Customer C	—	116,611
Customer D	—	17,120
Customer E	—	60,000

3. Operating expenses	2011	2010
	£	£
Research and development	7,461,246	4,013,486
Administrative expenses	1,152,554	1,115,551
	8,613,800	5,129,037

4. Directors' emoluments
	2011	2010

	£	£
Aggregate emoluments 458,923 Contributions to money purchase pension schemes 37,796		349,605 12,497
496,719		362,102

There were no gains made by individual Directors from the exercise of share options for the year ended 30 September 2011 (2010: none).

Detailed disclosures of Directors' individual remuneration and share options are given in the Remuneration Report on pages 22 to 26.

Two of the Executive Directors (2010: two) had retirement benefits accruing to them from money purchase pension schemes in respect of qualifying services.

Notes to the financial statements (continued)

for the year ended 30 September 2011

5. Employee information

The average monthly number of persons (including Executive Directors) employed during the year was:

	2011 Number	2010 Number
Administration	4	5
Research and development	10	15
	14	20
	2011 £	2010 £
Staff costs (for the above persons):
Wages and salaries	1,022,420	1,126,653
Social security costs	117,542	100,810
Other pension costs	81,096	54,973
Share option charge	137,533	55,942
	1,358,591	1,338,378
Highest paid Director
	2011 £	2010 £
Aggregate emoluments	205,687	128,031
Contributions to money defined benefit scheme	22,469	—
	228,156	128,031
Key management compensation
	2011 £	2010 £
Short-term employee benefits	769,840	689,968
Post employment benefits	51,483	25,173
Share-based payments	104,734	33,345
	926,057	748,486

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including all Executive Directors and Non-Executive Directors. The number of management personnel in addition to the Directors whose remuneration is included above is 2 (2010: 2).

Included within wages and salaries is an amount of £71,840 for the year ended 30 September 2010 paid in consultancy costs for the services of the Interim Chief Operating Officer, Keith Thomson, paid to Thomson Business Consultancy Limited, of which Keith Thomson is a director.

6. Finance income

Interest receivable represents interest from cash and cash equivalents and money market deposits.

	2011 £	2010 £
Cash and cash equivalents	59,262	93,678
Money market investments	316,423	196,147
	375,685	289,825

7. Loss before taxation

	2011 £	2010 £
Loss before taxation is stated after charging/(crediting):
Depreciation charge for the year:
Owned property, plant and equipment	49,804	67,198
Loss on disposal of property, plant and equipment	(24,743)	(4,108)
Impairment charge for intangible asset	—	99,400
Fees payable to the Company's auditors for the audit of the parent company
and consolidated financial statements	24,255	27,000
Fees payable for other services supplied pursuant to legislation	13,840	10,000
Fees payable for the audit of the Company's subsidiaries pursuant to legislation	10,395	6,000
Tax services	14,350	25,642
Foreign exchange loss	19,186	36,299
Operating lease charges:
Other	83,318	104,127

In addition to the fees payable to the Company's auditor for the year ended 30 September 2010 disclosed above, £108,000 was paid to the Company's auditor in respect of fees for other services supplied pursuant to legislation. These fees have been recorded against the share premium account.

8. Taxation

	2011 £	2010 £
Current tax:
UK corporation tax
Current UK corporation tax credit on loss for the year	479,229	411,171
Adjustment in respect of prior year	33,897	—
Current UK corporation tax credit on loss for the year	513,126	411,171

No corporation tax liability arises on the results for the year due to the loss incurred (2010: £nil). The Group 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.

The tax on the Group's loss before taxation differs from the theoretical amount that would arise using the weighted average tax rate applicable to losses of the Group as follows:

	2011 £	2010 £
Loss before taxation	(8,171,456)	(4,212,685)
Loss before taxation multiplied by the standard rate for research and development tax credits at 13.25% (2010: 14%)	(1,082,718)	(589,776)
Effect of:
Difference between depreciation and capital allowances	(1,524)	4,690
Expenses not deductible for tax purposes	407	92
Effect of share option charge/(credit)	18,223	7,832
Enhanced research and development expenditure	(511,373)	(176,216)
Adjustment in respect of prior year	(33,897)	—
Carried forward losses	1,097,756	342,207
Tax credit for the year	(513,126)	(411,171)

See note 19 for details of the potential deferred tax assets that have not been recognised due to uncertainty as to the timing of their utilisation. See note 24 for details of the impact on the potential deferred tax assets of changes to the United Kingdom corporation tax system announced in the March 2011 Budget Statement.

Notes to the financial statements (continued)

for the year ended 30 September 2011

8. Taxation (continued)

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 14% to 31 March 2011 and 12.5% from 1 April 2011.

9. Loss for the financial year

As permitted by Section 408 of the Companies Act 2006 the parent company's statement of comprehensive income has not been included in these financial statements. The parent company's loss for the year to 30 September 2011 was £435,907 (2010: £429,006).

10. Loss per ordinary share

Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year after the deduction of the weighted average number of the ordinary shares held by the employee benefit trust during the year.

For diluted loss per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion for all dilutive potential ordinary shares. The Company has no dilutive potential ordinary shares in issue because it is loss making.

	2011	2010
Attributable loss (£)	(7,658,330)	(3,801,514)
Weighted average number of shares in issue	346,619,213	284,234,443
Basic and diluted loss per ordinary share (pence)	(2.2)	(1.3)
11. Intangible assets

	2011 £	2010 £
Cost At 1 October and 30 September	—	99,400
Impairment at 1 October Charge for the year	— —	(99,400) —
Impairment at 30 September	—	(99,400)
Net carrying value at 30 September	—	—

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.

During the year ended 30 September 2010 an impairment charge of £99,400 was recorded to write down to £nil the carrying value of the intangible assets. The intangible assets were impaired as a result of the Group's strategy of focusing in specific chemical entities as pharmaceutical products, which means that the intangible assets are no longer expected to be utilised.

12. Property, plant and equipment

	Leasehold	Computer	Motor	Plant and	Fixtures
Group	improvements £	equipment £	vehicles £	machinery £	and fittings £	Total £
Cost
At 1 October 2010	32,637	233,257	61,304	19,049	130,054	476,301
Additions	4,435	11,309	—	4,443	613	20,800
Disposals	—	(10,354)	(61,304)	(10,712)	(46,001)	(128,371)
At 30 September 2011	37,072	234,212	—	12,780	84,666	368,730
Accumulated depreciation
At 1 October 2010	2,011	187,644	60,111	17,281	96,350	363,397
Charge for year	7,118	30,465	1,193	1,086	9,942	49,804
Disposals	—	(10,292)	(61,304)	(10,520)	(46,001)	(128,117)
At 30 September 2011	9,129	207,817	—	7,847	60,291	285,084
Net book value
At 30 September 2011	27,943	26,395	—	4,933	24,375	83,646
At 30 September 2010	30,626	45,613	1,193	1,768	33,704	112,904
	Leasehold	Computer	Motor	Plant and	Fixtures
	improvements	equipment	vehicles	machinery	and fittings	Total
Group	£	£	£	£	£	£
Cost
At 1 October 2009	9,184	251,355	95,000	28,838	189,687	574,064
Additions	32,637	22,562	—	1,277	28,652	85,128
Disposals	(9,184)	(40,660)	(33,696)	(11,066)	(88,285)	(182,891)
At 30 September 2010	32,637	233,257	61,304	19,049	130,054	476,301
Accumulated depreciation
At 1 October 2009	5,142	188,090	82,866	25,314	170,286	471,698
Charge for year	3,789	39,441	10,941	1,262	11,765	67,198
Disposals	(6,920)	(39,887)	(33,696)	(9,295)	(85,701)	(175,499)
At 30 September 2010	2,011	187,644	60,111	17,281	96,350	363,397
Net book value
At 30 September 2010	30,626	45,613	1,193	1,768	33,704	112,904
At 30 September 2009	4,042	63,265	12,134	3,524	19,401	102,366

Company

The Company has no property, plant and equipment (2010: none).

Notes to the financial statements (continued)

for the year ended 30 September 2011

13. Investments

	Group		Company
Investment in Group undertakings	2011 £	2010 £	2011 £	2010 £
At 1 September	—	—	1,501,603	1,445,661
Increase in capital contribution relating to share-based payments	—	—	137,533	55,942
At 30 September	—	—	1,639,136	1,501,603

The capital contribution relating to share-based payments relates to share options granted by the Company to employees of subsidiary undertakings in the Group. Refer to note 23 for further details on the Group's share option schemes.

Interests in Group undertakings

Name of undertaking				Proportion of voting rights and nominal value of issued shares held by
	Country of incorporation	Description of shares held	Group %	Company %
Phytotech Limited	England and Wales	Ordinary 10 pence shares	100	100
Phytodevelopments Limited	England and Wales	Ordinary £1 shares	100	—

Both the above companies have been included in these financial statements and operated principally in their country of incorporation or registration.

The principal business activities of these subsidiary undertakings are:

• Phytotech Limited development of pharmaceutical products and functional foods; and
• Phytodevelopments Limited dormant.

14. Amounts due from subsidiary undertaking

	Group		Company
	2011 £	2010 £	2011 £	2010 £
Amounts due from subsidiary undertaking	—	—	21,870,207	16,471,326

No provision was made against the amount due to the Company from its subsidiary undertaking during the year (2010: £nil).

There are no fixed terms in respect of amounts owed by subsidiary undertakings. These are non-interest bearing, unsecured and not payable on demand.

15. Trade and other receivables

The fair value of trade and other receivables are their current book values.

	Group		Company
	2011 £	2010 £	2011 £	2010 £
Trade receivables	5,581	—	—	—
Other receivables	86,395	59,926	5,696	7,796
Prepayments and accrued income	367,978	421,048	192,979	201,998
	459,954	480,974	198,675	209,794

As of 30 September 2011, all trade receivables were fully performing and aged less than six months from their due date. These related to independent customers for whom there was not recent history of default. As of 30 September 2010, the Group had no trade receivables.

15. Trade and other receivables (continued)

The carrying amounts of the Group's trade receivables are denominated in the following currencies:

		Group		Company
	2011 £	2010 £	2011 £	2010 £
Sterling	5,581	—	—	—

16. Money market investments

	Group		Company
	2011 £	2010 £	2011 £	2010 £
Held-to-maturity financial assets	14,500,000	22,500,000	14,500,000	22,500,000

These represent fixed-rate short-term deposits placed with a range of banks at fixed terms.

17. Cash and cash equivalents

		Group		Company
	2011 £	2010 £	2011 £	2010 £
Cash and cash equivalents	3,074,476	1,108,171	2,677,736	484,469

The Company holds its excess cash and cash equivalents in a combination of fixed interest accounts and fixed-term money market deposits. At 30 September 2011 and 30 September 2010 these did not exceed three months in duration. The fair value of cash and cash equivalents approximates their carrying value.

18. Trade and other payables

The fair value of trade and other payables approximates their current book values.

	Group		Company
	2011 £	2010 £	2011 £	2010 £
Trade payables	665,109	354,219	33,699	36,970
Other taxation and social security	37,945	36,364	—	—
Other payables	10,662	11,502	—	—
Accruals and deferred income	1,919,591	732,830	53,335	39,991
	2,633,307	1,134,915	87,034	76,961

19. Deferred taxation

The Group and Company have the potential deferred tax assets shown below, which are not recognised due to uncertainty as to the timing of their utilisation.

	Group		Company
	2011 £	2010 £	2011 £	2010 £
Tax effect of timing differences: Depreciation in excess of tax allowances Accumulated losses	302,472 12,655,313	329,776 11,448,286	7,317 1,115,669	7,902 1,087,228
	12,957,785	11,778,062	1,122,986	1,095,130

Notes to the financial statements (continued)

for the year ended 30 September 2011

19. Deferred taxation (continued)

A number of changes to the UK corporation tax system were announced in the March 2011 Budget Statement. Certain of these tax changes were substantively enacted in the Finance Act 2011 in July 2011. The impact of this has been reflected in the unrecognised potential deferred tax asset.

Certain other changes are expected to be enacted in future Finance Acts, including further reductions in the main rate of corporation tax by 1% per annum to 23% by April 2014. As at 30 September 2011, there is an unrecognised deferred tax asset of £12,957,785. If these changes were applied to this the impact would be to reduce the potential deferred tax asset by £1,036,000 (being £518,000 recognised in the year ending 30 September 2012 and £518,000 recognised in the year ending 30 September 2013).

20. Financial instruments

The Group's financial instruments comprise primarily cash and liquid resources and various items such as trade receivables and trade payables, which arise directly from its operations. The Group does not currently have any derivative transactions.

The Group's ongoing objectives in using financial instruments are to maximise the returns on funds held on deposit, while investing only with institutions with high credit ratings, to minimise exchange rate risk where appropriate, and to generate additional cash resources through the issue of shares when market conditions are appropriate. In addition, the Group has from time to time conserved cash resources by entering into financing arrangements for the acquisition of major capital assets.

The balance sheet positions at 30 September 2011 and 30 September 2010 are not representative of the positions throughout the years as cash and short-term investments fluctuate considerably depending on when significant receipts have occurred and on the timing of share issues.

Risk in relation to the use of financial instruments

Capital risk

The capital structure of the Group consists of cash and cash equivalents, money market investments and equity attributable to owners of the parent, comprising issued capital, reserves and accumulated losses. The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern and to ensure that the Group has sufficient capital available to meet future operational requirements. The Group does not typically utilise debt financing.

Liquidity risk

The Group's policy throughout the year regarding liquidity has been to maximise the return on funds, but to minimise the associated credit and liquidity risk by placing funds in low-risk cash deposits and short-term cash deposits. The Board monitors the level of cash and money market investments on a regular basis and management monitors the level on a daily basis to ensure that the Group has sufficient liquid funds to meet its commitments as they fall due.

The Group and Company holds cash deposits at call or with a maturity of up to twelve months.

Trade and other payables are payable within the terms specified by the supplier.

Credit risk

Other than trade receivables, the financial instruments that subject the Group to a potential credit risk comprise principally cash and cash equivalents and money market investments. The Group's policy is to minimise the risks associated with cash and money market investments by placing these deposits with institutions with a recognised high rating (typically A or above) or with one of the major clearing banks. Trade receivables are largely with highly reputable, creditworthy trading partners.

The table below shows the rating of the financial institutions that the Group's cash and cash equivalents and money market deposits are held with:

Group	Rating	2011 £	2010 £
Institution A	AA	8,241,585	12,166,258
Institution B	A	9,323,881	11,432,498
Institution C	A	8,410	8,787
		17,573,876	23,607,543

20. Financial instruments (continued)

Risk in relation to the use of financial instruments (continued) Credit risk (continued)

Company	Rating	2011 £	2010 £
Institution A	AA	8,083,089	11,958,260
Institution B	A	9,090,442	11,021,816
Institution C	A	4,205	4,393
		17,177,736	22,984,469

The Group disclosure above does not include cash in hand amounting to £600 (2010: £628).

Interest rate risk

The Group holds all cash, bank and held-to-maturity investments in sterling, US dollar, Euros, Canadian dollar, Hungarian forint and South African rand accounts. Interest rates on current accounts are floating and are based on London Interbank Bid Rate ("LIBID"), while interest rates on term deposits are fixed for the duration of deposit.

The Group monitors future potential cash outflows on a regular basis and where possible places cash resources in money market deposits with fixed interest rates for the term of the deposit. The remaining cash resources are held in accounts with floating interest rates based on relevant national LIBID equivalents. Changes in interest rates for fixed and floating deposits may increase or decrease the Group's finance income. The Group does not have any committed borrowing facilities. Consequently, there is no material exposure to interest rate risk in respect of financial liabilities.

If interest rates had been 1% higher or lower in 2011 the increase/decrease in finance income arising from money market investments would have been £168,000 (2010: £150,000).

The interest rate profile of the Group's financial assets is:

	2011	2010
Group	Fixed £	Floating £	Fixed £	Floating £
Sterling cash and cash equivalents	—	2,785,205	—	586,183
US dollar cash and cash equivalents	—	271,811	—	496,932
Euro cash and cash equivalents	—	17,416	—	24,309
Canadian dollar cash and cash equivalents	—	40	—	—
Hungarian forint cash and cash equivalents	—	4	—	—
South African rand cash and cash equivalents	—	—	—	747
Sterling money market deposits	14,500,000	—	22,500,000	—
	14,500,000	3,074,476	22,500,000	1,108,171

The weighted average interest rate of the Group's cash and cash equivalents at 30 September 2011 was 1.09% (2010: 0.24%).

The weighted average interest rate of the Group's money market investments at 30 September 2011 was 2.06% (2010: 1.73%).

The interest rate of the Company's financial assets is:

	2011			2010
Company	Fixed £	Floating £	Fixed £	Floating £
Sterling cash and cash equivalents	—	2,677,736	—	484,469
Sterling money market deposits	14,500,000	—	22,500,000	—
	14,500,000	2,677,736	22,500,000	484,469

The weighted average interest rate of the Company's cash and cash equivalents at 30 September 2011 was 1.27% (2010: 0.26%). The weighted average interest rate of the Company's money market investments at 30 September 2011 was 1.81% (2010: 1.73%).

Notes to the financial statements (continued) for the year ended 30 September 2011

20. Financial instruments (continued)

Foreign currency risk

The Company's principal functional currency is sterling. Where possible the Group maintains natural hedges by matching foreign currency income with foreign currency expenditure. The Group incurs expenditure in foreign currency relating principally to clinical trials which may exceed any revenues in foreign currencies. To the extent that income and expenditure in foreign currencies are not matched, fluctuations in exchange rates between sterling and foreign currencies, principally Euro and US dollar, may result in realised or unrealised foreign exchange gains and losses. Where there is certainty of the amount and timing of expenditure of foreign currencies, the Group may purchase financial instruments to minimise any foreign exchange gains or losses. Where the timing and/or the amount to be received is uncertain, risk management is more difficult and the Group will use financial instruments wherever possible. To the extent that financial instruments are not utilised, any fluctuations in foreign exchange movements may have a material adverse impact on the results from operating activities. The Group had an exposure to the sterling/Euro and sterling/US dollar exchange rates due to the need to fund expenditure denominated in Euros and US dollars. Had sterling been 10%. weaker in relation to the Euro, the loss in 2011 would have been increased by £79,000 (2010: £24,000) and had sterling been 10% weaker in relation to the US dollar, the loss in 2011 would have increased by been £48,000 (2010: £68,000).

Fair value of financial assets and liabilities

There is no material difference between the fair value and the carrying values of the financial instruments referred to above, because of the short maturity period of these financial instruments or their intrinsic size and risk.

Financial instruments by category

	2011	2010
	Loans and	Loan and
Group	receivables £	receivables £
Assets as per balance sheet
Trade and other receivables excluding prepayments	257,087	229,002
Money market investments	14,500,000	22,500,000
Cash and cash equivalents	3,074,476	1,108,171
	17,831,563	23,837,173
	2011	2010
	Loans and	Loan and
Company	receivables £	receivables £
Assets as per balance sheet
Trade and other receivables excluding prepayments	169,976	176,564
Money market investments	14,500,000	22,500,000
Cash and cash equivalents	2,677,736	484,469
	17,347,712	23,161,033
	2011	2010
	Other financial	Other financial
Group	liabilities £	liabilities £
Liabilities as per balance sheet
Trade and other payables excluding statutory liabilities	2,595,362	1,098,551

20. Financial instruments (continued)

Financial instruments by category (continued)

	2011	2010
	Other financial	Other financial
Company	liabilities £	liabilities £

Liabilities as per balance sheet
Trade and other payables excluding statutory liabilities	87,034	76,961

21. Pensions

The Group operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from those of the Group in independently administered funds. The pension cost represents contributions paid and payable by the Group to the funds and amounted to £81,096 (2010: £54,973). The amounts outstanding in respect of pensions are £10,662 (2010: £11,705).

22. Ordinary shares

At 30 September 2011	346,801,972	3,468,019	76,788,324
Issued under share option scheme	124,539	1,245	5,618
At 1 October 2010	346,677,433	3,466,774	76,782,706
At 30 September 2010	346,677,433	3,466,774	76,782,706
At 1 October 2009 Issued under placing and open offer	94,548,391 252,129,042	945,484 2,521,290	55,213,645 21,569,061
	Ordinary shares Number	Ordinary shares of 1 pence each £	Share premium £

In the year ended 30 September 2011 the Company issued 124,539 new ordinary shares of one pence each for a total cash consideration of £6,863 following the exercise of share options. The nominal value of these shares was £1,245.

In the year ended 30 September 2010 the Company issued 252,129,042 new ordinary shares of one pence each for a total cash consideration of £24,090,351 after the expenses of issue. The nominal value of these shares was £2,521,290.

Netted against the accumulated loss are purchases of shares in Phytopharm plc, which relate to the Phytopharm Share Incentive Plan 2007, under which the Company issued one "Matching Share" for every one "Partnership Share" purchased by the employee. All shares are held by the scheme Trustees until the shares vest unconditionally with the employee. During the year ended 30 September 2011 the Group purchased 5,171 (2010: 39,296) ordinary shares of one pence at a total cost of £373 (2010: £3,885).

23. Options over shares of Phytopharm plc

Potential issues of ordinary shares

The Company may grant share options to selected employees on joining the Company and any such grants are made following the preliminary and interim announcements together with performance related grants to all employees. Performance criteria must be satisfied before share options can be exercised and these are detailed below. In addition, the Company has a long-term incentive scheme and a Directors' Reward Plan under which long-term share incentives may be granted to selected senior executives.

Notes to the financial statements (continued)

for the year ended 30 September 2011

23. Options over shares of Phytopharm plc (continued)

Potential issues of ordinary shares (continued)

The outstanding share scheme options and long-term incentive awards at 30 September 2011 are shown below analysed according to the exercise criteria:

	Number outstanding	Exercise		Date	Exercisable	Exercisable	Currently vested	Currently exercisable
	2011	price	Note	granted	from	to	2011	2011
Phytopharm Share Option Plan 2007
	235,189	£0.0413	1	11/03/2009	11/03/2012	10/03/2019	—	—
	980,562	£0.1100	1	20/01/2010	19/01/2013	19/01/2020	—	—
	3,132,372	£0.0763	1	21/07/2010	20/07/2013	20/07/2020	—	—
	2,067,789	£0.0763	2	21/07/2010	20/07/2013	20/07/2020	—	—
	1,868,030	£0.0735	1	17/12/2010	16/12/2013	16/12/2020	—	—
	1,355,841	£0.0735	2	17/12/2010	16/12/2013	16/12/2020	—	—
	9,639,783						—	—
Phytopharm Directors' Reward Plan 2010
	863,334	£0.1125	3	31/03/2010	30/03/2013	30/03/2015	—	—
	863,334						—	—
	Number						Currently	Currently
	outstanding 2010	Exercise price	Note	Date granted	Exercisable from	Exercisable to	vested 2010	exercisable 2010
Phytopharm Share Option Plan 2007
	80,426	£0.3100	1	19/12/2007	19/12/2010	18/12/2017	—	—
	14,327	£0.2350	1	28/03/2008	28/03/2011	27/03/2018	—	—
	239,963	£0.2175	1	30/05/2008	30/05/2011	29/05/2018	—	—
	409,230	£0.0413	1	11/03/2009	11/03/2012	10/03/2019	—	—
	1,406,750	£0.1100	1	20/01/2010	19/01/2013	19/01/2020	—	—
	3,132,372	£0.0763	1	21/07/2010	20/07/2013	20/07/2020	—	—
	2,067,789	£0.0763	2	21/07/2010	20/07/2013	20/07/2020	—	—
	7,350,857						—	—
Phytopharm Directors' Reward Plan 2010
	863,334	£0.1125	3	31/03/2010	30/03/2013	30/03/2015	—	—
	863,334						—	—
Phytopharm Save As You Earn Plan 2007
	125,285	£0.0613	4	22/12/2008	22/12/2011	21/12/2012	—	—
	125,285						—	—

Note

1 These options vest on the third anniversary of the date of grant and have been granted under the Phytopharm Share Option Plan 2007: Enterprise Management Incentive Scheme. The number of options exercisable will be determined by the Company's TSR compared to the constituents of the FTSE Small Cap Index. The value of options (at date of grant) will be exercisable if the Company's TSR in the relevant ranking group is above the median.

2 These options vest on the third anniversary of the date of grant and have been granted under the Phytopharm Share Option Plan 2007: Unapproved Scheme. The number of options exercisable will be determined by the Company's TSR compared to the constituents of the FTSE Small Cap Index. The value of options (at date of grant) will be exercisable if the Company's TSR in the relevant ranking group is above the median.

3 These options vest on the third anniversary of the grant date and have been granted under the Phytopharm Directors' Reward Plan 2010. There are no performance conditions attached to the exercise of these options.

4 These options are granted under a Save As You Earn plan approved by HMRC. The last offer under the plan was made to all employees and Executive Directors on 13 August 2007. There are no performance conditions attached to the exercise of these options. This plan has been cancelled during 2011 and there are no options outstanding at 30 September 2011. All options outstanding at 1 October 2010 were exercised or lapsed during the year according to the scheme rules.

23. Options over shares of Phytopharm plc (continued)

Option valuations

Exercise of options is subject to continued employment or being a good leaver. Options were valued using a stochastic model (also known as a Monte Carlo model). The fair value per option granted and the assumptions used in the calculation for options granted since 19 December 2007 are set out in the tables below.

Award	Grant date	Exercise price	Number of shares outstanding 2011	Number of shares outstanding 2010	Fair value per option at grant date
Share Option Plan 2007	19/12/2007	£0.3100	—	80,426	£0.1531
Share Option Plan 2007	23/08/2008	£0.2350	—	14,327	£0.1297
Share Option Plan 2007	30/05/2008	£0.2175	—	239,963	£0.1142
Share Option Plan 2007	11/03/2009	£0.0413	235,189	409,230	£0.0223
Share Option Plan 2007	20/01/2010	£0.1100	980,562	1,406,750	£0.0574
Share Option Plan 2007	21/07/2010	£0.0763	3,132,372	3,132,372	£0.0404
Share Option Plan 2007	21/07/2010	£0.0763	2,067,789	2,067,789	£0.0404
Share Option Plan 2007	17/12/2010	£0.0735	1,868,030	—	£0.0402
Share Option Plan 2007	17/12/2010	£0.0735	1,355,841	—	£0.0402
Directors' Reward Plan 2010	31/03/2010	£0.1125	863,334	863,334	£0.0666
Save as You Earn Plan 2007	22/12/2008	£0.0613	—	125,285	£0.0308
			10,503,117	8,339,476

The fair values of the original share options granted but not vested as at 30 September 2011 were calculated using the following assumptions:

Award	Grant date	Expected term (note(a))	Expected dividend yield (note(b)) %	Risk-free rate (note (c)) %	Expected volatility (note (d)) %	Performance condition (note)
Share Option Plan 2007	11/03/2009	6.00 years	—	2.3	72.4	1
Share Option Plan 2007	20/01/2010	5.90 years	—	3.2	70.5	1
Share Option Plan 2007	21/07/2010	6.77 years	—	2.3	70.4	1
Share Option Plan 2007	21/07/2010	6.77 years	—	2.3	70.4	2
Share Option Plan 2007	17/12/2010	5.00 years	—	2.5	74.7	1
Share Option Plan 2007	17/12/2010	5.00 years	—	2.5	74.7	2
Directors' Reward Plan 2010	31/03/2010	5.91 years	—	2.7	73.7	3

Notes to assumptions

(a) Expected term

For options granted up to 21 July 2010

i) 40% of participants exercise after three years if a gain of 40% is available. If this gain is not available, these individuals hold on to their shares until such a gain can be made;
ii) 25% of the remainder exercise from the third anniversary onwards using a reducing balance methodology, providing that a gain of 20% is available. If this gain is not available, these individuals refrain from exercising until such a gain can be made;
iii) 15% of the total participants are "good leavers". A good leaver is an employee who ceases to be an employee due to redundancy or other circumstances outside their control;
iv) 5% of the participants exercise per annum on a reducing balance methodology, providing that the options are "in the money" (irrespective of the level of gain) to allow for leavers in these years;
v) any remaining options are exercised at maturity providing that they are "in the money" (i.e. the share option price is less than the market price). Any awards that are "underwater" (i.e. the share option price is greater than the market price) therefore lapse at maturity; and

vi) all exercises are dependent on the performance condition being met.

Notes to the financial statements (continued)

for the year ended 30 September 2011

23. Options over shares of Phytopharm plc (continued)

Notes to assumptions (continued)

(a) Expected term (continued)

For options granted after 21 July 2010

A fixed term of 5 years (being almost halfway through the exercise window). The exercise profile has been simplified as calculations indicated that the difference in values is small and this alternative approach allows better modelling of the actual TSR performance condition and to use actual company data rather than assuming a hypothetical company performance.

(b) Expected dividend yield

The dividend yield of 0% reflects the absence of a history of paying dividends and a clear dividend policy statement at the relevant grant dates.

(c) Risk free interest rate

UK Gilt rates prevalent on the date of grant with a period commensurate with the term of the award.

(d) Expected volatility

Expected volatility is the measurement of the amount by which a share price is expected to fluctuate during a period. The expected volatility has been calculated using the standard approach of calculating the standard deviation of the natural logarithm of historical share price movements. Certain periods where there has been inactivity followed by substantial increases in price and volume have been excluded from this calculation due to specific events creating a volatility that would not be representative of the potential future volatility.

A reconciliation of share option scheme movements for the years ended 30 September 2011 and 30 September 2010 is set out below:

	2011		2010
	Number	Weighted average exercise price	Number	Weighted average exercise price
At 1 October	8,339,476	£0.09	1,062,051	£0.15
Granted	3,466,774	£0.07	7,563,495	£0.09
Exercised	(124,539)	£0.06	—	£0.00
Lapsed	(1,178,594)	£0.13	(286,070)	£0.21
At 30 September	10,503,117	£0.06	8,339,476	£0.09

The weighted average mid-market share price at the time of exercise was £0.08 per share. No share options were exercised in the year ended 30 September 2010.

The following tables summarise the information about the range of exercise prices for share options outstanding at 30 September 2011 and 30 September 2010:

		2011			2010
Range of exercise prices	Weighted average exercise price	Number of shares	Weighted average remaining life contractual years	Weighted average exercise price	Number of shares	Weighted average remaining life contractual years
£0.04 to £0.08	£0.07	8,659,221	8.97	£0.07	5,734,676	£9.73
£0.11 to £0.12	£0.11	1,843,896	6.66	£0.11	2,270,084	£8.10
£0.21 to £0.24	—	—	—	£0.22	254,920	£8.00
£0.31	—	—	—	£0.31	80,426	£7.00

The total charge for the year relating to employee share-based payment plans was £137,533 (2010: £55,942) all of which related to the above equity based transactions.

24. Post balance sheet events

Certain other changes are expected to be enacted in future Finance Acts, including further reductions in the main rate of corporation tax by 1% per annum to 23% by April 2014. As at 30 September 2011, there is an unrecognised deferred tax asset of £12,957,785. If these changes were applied to this the impact would be to reduce the potential deferred tax asset by £1,036,000 (being £518,000 in the year ending 30 September 2012 and £518,000 in the year ending 30 September 2013).

25. Financial commitments

At 30 September 2011 there were the following commitments under non-cancellable operating leases:

	2011 Land and	2010 Land and
	buildings £	buildings £
Within one year	81,224	81,224
Between two and five years inclusive	233,961	315,185
	315,185	396,409

The Group has purchase obligations of £8,290,230 in respect of its sub-contracted research and development activities as at 30 September 2011 (2010: £2,531,835). The Company had no such commitments (2010: £nil).

Company

The Company has no annual commitments under non-cancellable operating leases (2010: £nil).

26. Related party transactions

Group

Under IAS 24, 'Related Party Disclosures' the Group is not required to disclose intra-group transactions which are eliminated on consolidation.

The Directors regard Phytopharm plc as the ultimate controlling party of the Group.

Company

The inter-company balances outstanding at 30 September 2011 and 30 September 2010 are shown on the Company balance sheet.

The Company has been charged £548,148 (2010: £412,694) for corporate services provided by subsidiary undertakings.

The remuneration received by key management personnel, including the Directors, is disclosed in note 5.

Shareholder information

Phytopharm is listed in the Official List of the Financial Services Authority and traded on the London Stock Exchange's ("LSE") main market for listed securities. The stock symbol for Phytopharm on the LSE is PYM.

Analysis of shareholdings at 30 September 2011

	2,529		346,801,972
1,000,000 and over	30	1.1862%	313,918,068	90.5180%
500,001–1,000,000	15	0.5931%	11,392,483	3.2850%
10,001–500,000	285	11.2693%	18,042,002	5.2024%
5,001–10,000	181	7.1570%	1,327,951	0.3829%
1,001–5,000	639	25.2669%	1,536,956	0.4432%
1–1,000	1,379	54.5275%	584,512	0.1685%
Shareholding range	Number of shareholders	Percentage of total shareholders	Number of ordinary shares	Percentage of ordinary issued share capital

American Depositary Receipts

Phytopharm's shares are represented in the US in the form of American Depositary Shares ("ADSs") represented by American Depositary Receipts ("ADRs"). The ADR are issued by the Bank of New York Mellon. Each ADRs is equivalent to two ordinary shares and trades on the over-the-counter ("OTC") market in the US under the symbol PHYOY, identified by the CUSIP number 41942W101.

Registrar

Administrative enquiries regarding shareholdings in Phytopharm on such matters as a lost share certificate should be made to Equiniti Registrars who can be contacted directly on 0871 384 2030* or you may wish to write to them at Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA. For security reason, Equiniti cannot accept address changes over the telephone or by email.

* Calls to this number are charged at 8 pence per minute from a BT landline. Call charges may vary if using other telephone providers. Lines open 8.30am to 5.30pm, Monday to Friday.

Shareholders can also register a portfolio online at www.shareview.co.uk. This will provide options to register for electronic communications, view details of your shareholding and complete certain transactions online.

ADR holders should contact the Bank of New York Mellon, BNY Mellon Shareowner Services, PO Box 247416, Pittsburgh, PA 15252-8516, US.

Share dealing

If you wish to buy or sell shares in Phytopharm, this must be done through a stockbroker. The London Stock Exchange provides a "Guide to Investment Services" which gives a number of companies offering share dealing services.

Equiniti offers share dealing services by post, telephone and online. If you would like more details about the share dealing services available, please write to the address above, telephone 0871 384 2030 or visit Equiniti's website, www.equiniti.com.

Registered office

Lakeview House 2 Lakeview Court Ermine Business Park Huntingdon Cambridgeshire PE29 6UA

Company Secretary

Mrs Zoe McGowan

Company number

03131723

Registrars

Equiniti Registrars Limited

Aspect House Spencer Road Lancing West Sussex BN99 6DA

Brokers

Peel Hunt LLP 111 Old Broad Street London EC2N 1PH

Independent auditors

PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors Abacus House Castle Park Cambridge CB3 0AN

Solicitors

White & Case 5 Old Broad Street London EC2N 1DW

Financial public relations

FTI Consulting Limited Holborn Gate 26 Southampton Buildings London

Financial advisors

WC2A 1PB

N M Rothschild & Sons Limited New Court St Swithins Lane London EC4N 8AL

Phytopharm's commitment to environmental issues is reflected in this Annual Report and Accounts which has been printed on Revive 100, a recycled paper stock containing 100% recovered waste.

Phytopharm plc

Lakeview House 2 Lakeview Court Ermine Business Park Huntingdon Cambridgeshire PE29 6UA United Kingdom

Tel: +44 (0)1480 437697 Fax: +44 (0)1480 417090

Email: [email protected]

AI assistant

IXICO PLC — Annual Report 2011

7723_10-k_2011-09-30_99f11de7-6db4-48b4-8fea-190d3abcd61e.pdf

for a healthier future

Who we are

Our objective

Our products

Contents

Business Overview

Business Review

Corporate Governance

Financial Statements

Business highlights

Operational

Financial

Strategy and portfolio

Targeting diseases with high levels of unmet need

The potential to be a new class of therapy

Clinical development

Our business model

Key Development Areas Other Development Areas

Parkinson's disease

Glaucoma

ALS

P61

Chairman's review

Mr A H Taylor Non‑Executive Chairman

Chief Executive's review

In Summary

Neurodegenerative diseases

Unmet need Dosage CONFIDENT-PD Market

Business review

Strategy

Overview

Pharmaceutical programmes Neurodegeneration

The Sapogenins

Cogane™ in Parkinson's disease

Cogane™ and Myogane™, our lead neurodegenerative products

Business review (continued)

Pharmaceutical programmes (continued)

The Sapogenins (continued) Cogane™ in Parkinson's disease (continued)

Mode of action

Progress to date

Cogane™ in motor neurone disease/ALS

Progress to date

Glaucoma

Business review (continued)

Pharmaceutical programmes (continued) Glaucoma (continued)

Alzheimer's disease

P61 programme

Legacy products

Financial review

Ongoing pharmaceutical development

Financial review

Revenue

Research and development expenses

Administrative expenses

Finance income

Taxation

Financial review (continued)

"Diversifying our development pipeline in a cost efficient manner."

Balance sheet

Non‑current assets

Current assets

Current liabilities

Equity

Cash flow

Outlook

Forward looking statements

Principal risks and uncertainties

The nature of pharmaceutical development is such that there are significant inherent risks due to the long and complex development process.

Board of Directors

Mr Alistair Taylor

Non-Executive Chairman

Mr Tim Sharpington

Chief Executive

Mr Roger Hickling

Research and Development Director

Mr Alexander (Sandy) Morrison Non-Executive Director

Dr Peter Blower

IXICO PLC Annual Report 2011