CeNeS Pharmaceuticals plc
Annual Report and Accounts 2002 Contents
1 Highlights
2 Chairman’s Statement
3 Chief Operating Ofﬁcer’s Review
8 Clinical Development
14 Board of Directors
15 Financial Review
17 Directors’ Report
19 Corporate Governance
21 Statement of Directors’ Responsibilities
22 Remuneration Report
26 Independent Auditors’ Report
27 Consolidated Proﬁt and Loss Account and Consolidated
Statement of Total Recognised Gains and Losses
28 Consolidated and Company Balance Sheets
29 Consolidated Cash Flow Statement and Reconciliation of
Net Cash Flow to Movement in Net Funds
30 Notes to the Financial Statements
49 Directors, Advisors and Contacts Highlights
• Sale of pharmaceutical products in deal worth over 
£9 million completed May 2003
• M6G for post-operative pain ready to start Phase III trials
after successful completion of Phase II trials
• CNS 5161 for neuropathic pain ready to start extended
Phase II trials
• Disposed of non-core assets to complete restructuring plan.
Carried interests retained in all cases:-
Cambridge Cognition
– sold May 2002
Channelwork
– sold August 2002
GGF2 for multiple sclerosis
– sold to Acorda Therapeutics November 2002
CEE 03 310 for sleep/drug abuse
– sold to Addex Pharma December 2002
Financial and corporate
• Loss for 2002 of £6.3 million. Loss for 2001 was £64.6
million
• Turnover down slightly to £5.2 million in 2002 from £5.3
million in 2001
• Cash at 31 December 2002 £0.5 million. Post year-end over
£9 million raised from sale of pharmaceutical products in
May 2003. CeNeS is now projected to have cash for at
least the next two years.
• Agreement with Elan to terminate M6G joint venture
announced June 2003.
• Application to be made for the Company’s shares to be
admitted to AIM (Alternative Investment Market).
CeNeS Pharmaceuticals plc Annual Report 2002 1
Key events since January 2002 I am pleased to report that CeNeS has effected a successful
ﬁnancial restructuring whilst maintaining momentum in our key
clinical assets. CeNeS is now well placed to progress its late
stage clinical pipeline focused on the treatment of pain and
thereby deliver increased shareholder value.
The year of 2002 has seen the successful completion of the
main objectives of the restructuring plan commenced in late
2001. This success has been followed early in 2003 by the
completion of the disposal of our main pharmaceutical products
in return for a signiﬁcant cash consideration of over £9m. As a
result, CeNeS is now in its strongest ﬁnancial position for over
four years. The pharmaceuticals products division had
continued to perform to plan in 2002/2003 but, following the
receipt of several unsolicited offers, the Board took the view
that, in light of the poor funding environment and the
investment needed in CeNeS late stage clinical assets, the
realisation of a signiﬁcant amount of cash was the best option.
CeNeS now has sufﬁcient cash resources for at least the next
two years and the capability to take forward its two late stage
clinical projects in post-operative and neuropathic pain into their
Phase III and Phase II programmes respectively. CeNeS also
has interests in several non-core assets that have been
sold/partnered under the restructuring programme.
The attainment of this secure, focused status is a major
achievement and has been carried out against the background
of extremely adverse conditions in the public markets and the
biopharma sector in particular. In addition, CeNeS has had to
deal with the implications of the ﬁnancial restructuring plan
implemented by its key corporate partner Elan.
The successful restructuring of CeNeS and the continued
progress of our key clinical assets would not have been
possible without the efforts of everyone at CeNeS and I would
like to thank the Board, management and employees of CeNeS
for all their hard work and commitment.
In June 2003 John Buckle resigned as a director following the
disposal of the pharmaceutical products. On behalf of the
directors I would like to thank John for his valuable contribution
to CeNeS.
The Board has resolved to apply for the Company’s shares to be
admitted to AIM (Alternative Investment Market of The London
Stock Exchange). CeNeS will cancel its listing on the Ofﬁcial List.
The Directors believe that given the Company’s current market
capitalisation AIM is a more appropriate market. The Directors
and its advisors believe that there is a greater likelihood of the
Company attracting longer-term investor support in the AIM
markets and the move will allow transactions to be completed
more cost effectively. Admission to AIM is expected to be
completed by the end of July at which time the listing of the
Company’s shares on the Ofﬁcial List will be cancelled.
The Board now look forward to increasing investor interest and
conﬁdence in CeNeS starting from a sound ﬁnancial base with
a clear therapeutic focus. It is the Board’s view that increased
shareholder value will best be attained by the progression of
CeNeS existing clinical assets in pain. However, the Board will
also continue to examine realistic in-licensing and corporate
transactions when it is felt that a successful conclusion will
enhance the delivery of shareholder value.
The continuing depressed state of the biopharmaceutical sector
remains an extremely challenging operating environment for the
smaller companies such as CeNeS. The difﬁcult decisions that
the CeNeS Board has taken in the past eighteen months mean
that CeNeS is well placed to cope with the ongoing uncertainty.
Alan Goodman
Chairman
“CeNeS is now well placed to progress its late stage clinical
pipeline focused on the treatment of pain and thereby deliver
increased shareholder value”
2
Chairman’s statement Strategy
After a difﬁcult eighteen months CeNeS is now securely
established as a small, well funded biotechnology company
focused on its late stage clinical candidates – morphine-6-
glucuronide (M6G) and CNS 5161- that are targeted at the
treatment of post-operative and neuropathic pain respectively.
CeNeS plans to eventually license these potential products to
pharmaceutical companies who will then complete their clinical
development, gain marketing approvals and commercialise the
products.
CeNeS medium term strategy is to take M6G and CNS 5161
through further Phase III and Phase II trials respectively in the
next 18 months with the intention of assembling comprehensive
data packages which will enhance the ability of the Company to
locate suitable partners for the ﬁnal development and
commercialisation of these planned drugs. Concurrently, CeNeS
will manage its cash resources prudently and plans to carry out
the M6G and CNS 5161 clinical programmes referred to above
and still have cash resources to fund operations into late 2005.
CeNeS management will also continue to examine in-licensing
opportunities with the intention of expanding the portfolio if
suitable drug candidates and acceptable ﬁnancial deal
structures/clinical investment plans can be agreed. CeNeS
Board will also, with the assistance of its advisors, continue to
review corporate transactions that it judges to be in the
interests of CeNeS shareholders. CeNeS improved ﬁnancial
position means that it is better placed to obtain value for
shareholders should any transaction proceed to completion.
CeNeS continues to have a diverse range of interests in 
non-core assets that have been sold or partnered under the
restructuring programme. In the longer term this portfolio could
generate up to $20 million plus royalty streams if various
milestones and targets are achieved under the agreed
contracts. Under its strategic plan CeNeS management will
continue to monitor the progress of these interests.
Pharmaceutical products sale
Raising funds from the disposal of the pharmaceutical products
reduces the Company’s dependence on Elan in the continuing
late stage development of M6G and enables the Company
alone to continue the clinical development of M6G until a new
partner is secured.
The proceeds of the disposals will also allow the Company 
to develop its second clinical candidate, CNS 5161, targeted 
at the treatment of neuropathic pain. Phase II clinical trials of
CNS 5161 are planned to commence as soon as practicable 
in 2003. The funds raised from the disposal will also remove
any perceived short term risk associated with the Company’s
cash resources and will enable the Board to negotiate further
partnership deals from a more ﬁnancially secure position,
thereby increasing the prospects of the Board realising greater
value to shareholders.
CeNeS Pharmaceuticals plc Annual Report 2002 3
Chief Operating Ofﬁcer’s review Elan Joint Venture
On 18 June 2003 CeNeS announced that it has reached
agreement with Elan Corporation to terminate the CeNeS/Elan
joint venture which was established in June 2001 to develop
M6G for the treatment of pain. CeNeS alone will now plan to
take forward and fund the clinical development of M6G as it
enters its phase III program for the treatment of post-operative
pain until a new partner is found.
Under the terms of the agreement CeNeS and Elan have
agreed that the joint development programmes are terminated
and that the respective rights to M6G and certain drug delivery
technologies are returned to CeNeS and Elan. The minority
shareholding held by Elan in CeNeS Bermuda Limited will be
transferred to CeNeS. CeNeS has agreed to pay Elan a
percentage of all future revenues CeNeS generates from M6G.
CeNeS and Elan have also agreed that no more funding shall
be available to CeNeS under the convertible loan stock
arrangements entered into in June 2001. Elan has retained its
current holding of 16.9 million ordinary shares representing
9.9% of the current issued ordinary share capital of CeNeS.
Under the terms of the 5% 2009 convertible exchangeable loan
stock (the “CELS”) and the 7% 2007 convertible unsecured
loan stock (the “CULS”) CeNeS retains the option to repay the
loan stock together with accrued interest in cash or convert the
outstanding amount into CeNeS ordinary shares in 2007 in
respect of the CULS and 2009 in respect of the CELS. CeNeS
has drawn down US$12,015,000 under the CELS and
US$2,806,000 under the CULS. If the CELS and the CULS run
to term and each of the CELS and the CULS convert into
CeNeS ordinary shares a further 20.1 million CeNeS ordinary
shares would be issued giving Elan a total shareholding of
36.9 million ordinary shares (19% of CeNeS issued share 
capital as enlarged by the issue of the new ordinary shares on
conversion). The agreement reached between CeNeS and Elan
provides that both the CELS and CULS are freely transferable
by Elan and the CELS will no longer be exchangeable for
shares in CeNeS Bermuda Limited.
Restructuring
During the period under review CeNeS management completed
the sale of two non-core divisions and several out-licensing
deals.
4
Chief Operating Ofﬁcer’s review (continued) Portfolio of carried interests in divested non-core assets
Following the restructuring programme commenced in late 2001, CeNeS now has carried interests in certain divested non-core
assets as shown below:
Asset disposed New owner/partner CeNeS carried interest *
Dopamine D1 receptor agonists – Shire Pharmaceuticals Group Plc Milestones and royalties
Parkinson’s research project
Ion channel library Scion Pharmaceuticals Inc Stage payments and milestones
GGF2 – potential treatment for Acorda Therapeutics, Inc Milestones and royalties
multiple sclerosis
CEE 03 310 – potential Addex Pharmaceuticals SA Milestones and royalties
treatment for sleep disorders 
and substance abuse
CEE 03 320 – potential treatment TheraSci Limited Milestones and royalties
for sleep disorders and
substance abuse
Cognitive testing division Cambridge Cognition Limited Stage payments and a milestone payment
AutoPatch technology and Xention Discovery Limited Minority shareholding, loan note and certain 
certain ion channel assets rights over potential pain drug candidates arising 
from Xention’s work
* The receipt of future milestones and/or royalties is dependent on the successful progression of the divested asset/technology
and as such is not certain.
CeNeS Pharmaceuticals plc Annual Report 2002 5 Cambridge Cognition sale
This neuropsychological testing business was sold to a
management buy out team backed by venture capitalists in
May 2002 to create a new company called Cambridge
Cognition Limited. Under the terms of the sale, CeNeS will
realise a maximum of £1m in stage payments and CeNeS
retains rights to use the CANTAB cognitive testing system in its
clinical trials. CeNeS had owned the business since early 1997
and revenues had grown to £1.1m in 2001 from £0.4m in 1997.
The division was not core to the strategy going forward and
required further investment to realise the full potential of the
technology and software that CeNeS had developed. In mid
2001, CeNeS established the necessary management team to
lead the spinout.
CeNeS Channelwork spinout
In August 2002, CeNeS announced the spinout of its ion
channel technology development business (Channelwork).
Channelwork was acquired by a new company called Xention
Discovery Limited in a transaction led by a venture capital fund
manager specialising in life sciences start-up companies. In
addition to a minority shareholding in the new company, CeNeS
retains certain option rights over clinical candidates for the
treatment of pain disorders that arise from the research
undertaken by Xention.
Under the terms of the transaction, Xention has acquired the
AutoPatch™ technology and all related intellectual property. The
CeNeS employees working on the project also transferred to
Xention. AutoPatch is a pioneering technology that enables
high-throughput functional screening of ion channel drug
targets at speeds and in volumes not possible with
conventional technology. This enhanced throughput will be
exploited by Xention to address more targets and to create
more novel chemistry than would be possible using traditional
methods. On completion, CeNeS received consideration of a
minority shareholding in Xention and a loan note of £375,000.
Disposal of other non-core assets
In late 2001, CeNeS completed the disposal of the ion-channel
focused chemical library to Scion Pharmaceuticals, Inc. for
consideration of up to $2.8m. In early 2002 CeNeS assigned a
Parkinson’s disease research programme to our partner Shire
Pharmaceuticals plc and again retained an interest in the form
of milestones of up to £2m and royalties in this programme
should it proceed through clinical development.
In November 2002, CeNeS out-licensed its recombinant glial
growth factor (GGF2) for the potential treatment of multiple
sclerosis (MS) to Acorda Therapeutics, Inc. a leading US based
research and development company specialising in spinal cord
injury and central nervous system (CNS) disorders.
6
Chief Operating Ofﬁcer’s review (continued) GGF2 is involved in controlling the cells that form and maintain
the myelin sheath insulating nerve axons in the CNS. These
cells are thought to be involved early in the demyelination of
nerve ﬁbres seen in MS. A recombinant version of GGF2,
rhGGF2, is currently in late stage pre-clinical trials for multiple
sclerosis. Cambridge Neuroscience, which was acquired by
CeNeS in December 2000, along with Bayer, had originally
developed the growth factor.
Under the terms of the agreement, Acorda acquired CeNeS
rights relating to GGF2 and its earlier stage research candidate
neuregulin 2 (NRG2). In return, CeNeS will receive up to $13m
consisting of $0.5m upfront together with up to $12.5m further
stage payments dependent on the achievement of clinical
milestones. CeNeS will also receive royalties on any product
sales.
In December 2002, CeNeS signed an agreement to out-licence
CEE 03-310, its selective antagonist of dopamine D1-like
receptors, which CeNeS had been developing for the potential
treatment of sleep disorders and substance abuse. The
compound was out-licensed to Addex Pharmaceuticals, a
biopharmaceutical company committed to the discovery,
development and marketing of novel therapeutic compounds
for the treatment of addiction and other neuropsychiatric
conditions in spinal cord injury and central nervous (CNS)
disorders. Addex will focus on the development of the
compound in the treatment of drug abuse.
Under the terms of the agreement, Addex acquired CeNeS
rights relating to CEE 03-310 and in return, CeNeS will receive
up to $4.5m consisting of $0.3m upfront together with up to
$4.2m further stage payments dependent on the achievement
of clinical milestones. CeNeS will also receive royalties on any
product sales.
In March 2003, CeNeS sold its rights to the selective dopamine
DI receptor antagonist, CEE 03-320 to TheraSci Limited for a
small upfront payment. CeNeS also retains a carried interest.
Neil Clark
Chief Operating Ofﬁcer & Finance Director
CeNeS Pharmaceuticals plc Annual Report 2002 7 Morphine-6-glucuronide (M6G)
Post-operative pain
Post-operative pain is an acute condition directly caused by a
surgical procedure. The pain typically lasts for a few days and
can range in intensity from mild to severe depending on the
type and duration of the operation. It is estimated that there are
over 90 million operations in USA and Europe each year, and
patients are currently treated with a variety of different drugs
including morphine.
Current treatment of post-operative pain
Morphine formulations are currently the treatment of choice for
the control of moderate to severe pain including post-operative
pain. Morphine is a very effective analgesic, though it can be
associated with undesirable side effects including respiratory
depression, sedation, nausea and vomiting.
When morphine is taken into the body it is broken down in the
liver to two main metabolites – morphine-3-glucuronide (M3G)
and morphine-6-glucuronide (M6G). M6G is an effective
analgesic. However the breakdown into each of the two
metabolites varies from patient to patient and can be affected
by the patients’ liver function and other factors outside of the
doctor’s control. Therefore the amount of each metabolite
which each patient receives will vary.
Through an understanding of the metabolism of morphine
CeNeS has identiﬁed an opportunity for the development of
M6G, a potent active metabolite of morphine, into a marketable
product. Controlled clinical studies have conﬁrmed that M6G is
an effective analgesic, and that it may have clinical advantages
over morphine including a reduced tendency to cause
respiratory depression, nausea and vomiting. In addition, other
characteristics of the metabolism of M6G make it an attractive
candidate for the treatment of pain.
CeNeS has patents covering novel synthetic routes for the cost-
effective manufacture of M6G and is developing M6G for the
treatment of post-operative pain.
8
Clinical development – pain portfolio
USA
Europe
 in-patients      day-cases
There are over 90 million operations each year in USA 
and Europe
(OECD and other sources)
(Organisation for Economic Cooperation and Development)
20m
23m
12m
36m M6G clinical development status – post-operative pain
All patients who have been administered morphine will have
been exposed to M6G as a result of the normal metabolic
processes. However, a great deal of additional information is
required to satisfy the regulatory authorities on the efﬁcacy,
safety and tolerability of M6G if it is to be approved for
commercial sale. Therefore human safety and tolerance studies
have been undertaken using M6G and clinical trials have been
performed using M6G in more than 450 patients.
Phase II clinical trials show that M6G produces equivalent
analgesia to morphine to combat post-operative pain.
Additional clinical studies have also shown that M6G reduced
the incidence of nausea and vomiting by more than 50% when
compared directly with morphine in post-operative pain. These
data have conﬁrmed that M6G has an equivalent analgesic
action to morphine combined with an improved side effect
proﬁle. In particular M6G appears to cause a signiﬁcantly lower
frequency and severity of nausea and vomiting than morphine.
Recently published phase II trial in over 140 patients
conﬁrms efﬁcacy of M6G in treating post-operative pain
and suggests a better side effect proﬁle compared with
morphine
According to the authors “Compared with the M6G group,
patients who received morphine were more likely to report
nausea in the ﬁrst 2 hours after surgery…and to suffer it with
greater severity. During the same period they were more likely
to vomit and feel sleepy, but the intensity of pain and use of
rescue analgesia were similar in both groups” The authors
conclude that “M6G appears to have a better toxicity proﬁle
than morphine”
(Cann C. et al, Anaesthesia, 2002, 57 1195-1212)
If CeNeS is able to conﬁrm in larger phase III clinical trials that
M6G causes less side effects than morphine, but has equal
analgesic efﬁcacy then this could produce an attractive
alternative for patients and healthcare providers.
Phase III trials of M6G are planned to start in 2003 and it is
planned to submit an application to the European regulatory
authorities in 2005 with a launch anticipated in 2006. Due to
the different regulatory requirements in USA, the North
American launch is likely to be later than that in Europe.
CeNeS had been developing M6G in a joint collaboration with
Elan Pharmaceuticals. CeNeS and Elan have agreed to
terminate this joint venture and CeNeS is currently seeking
partners for M6G.
M6G in post-operative pain – key highlights
CeNeS lead clinical candidate
As effective as morphine but with better side effect proﬁle
Phase III trials scheduled to start in 2003
Estimated European launch for post-operative pain 2006
CeNeS Pharmaceuticals plc Annual Report 2002 9 The markets for M6G
M6G has potential as an analgesic for two major types of pain,
acute post-operative pain and chronic cancer pain, both of
which are currently treated with morphine.
Post-operative pain
For post-operative pain morphine is often used as the ﬁrst line
analgesic in many of the 95 million operations performed in the
USA and Europe each year. Estimated annual sales of morphine
in this market are £400m (Sources: IMS and Front Line Pain
Management Report, 2001). However, the undesirable side
effects of morphine include nausea, vomiting, respiratory
depression and sedation. M6G is likely to offer signiﬁcant clinical
beneﬁts to morphine in the treatment of post-operative pain due
to the reduced incidence and severity of some of these side
effects, whist offering equal analgesic efﬁcacy.
Cancer pain
Morphine is also used frequently to treat many of the 2.7 million
patients who develop cancer each year in the USA and Europe.
M6G could compete in this £600m morphine market because
M6G could potentially lead to a reduced incidence and severity
of nausea and vomiting compared with morphine and so could
improve patient well-being and quality of life.
CeNeS is initially developing M6G for the treatment of post-
operative pain, with phase III studies planned to start in 2003.
CeNeS plans to also develop M6G for the treatment of chronic
pain such as cancer pain.
Opiate Analgesia
Analgesia is the process of pain-relief and any pain-relieving
drug is called an analgesic. The most potent known class of
analgesics is the opiates, derived from the opium poppy, which
confer a high degree of pain-relief for severe pain. Opiates such
as morphine and codeine, act centrally in the brain in areas
such as the periaqueductal grey area where they mimic the
actions of neuromodulators called endogenous opioids and
‘switch off’ the sensation of pain centrally.
Some of the undesirable side effects of morphine
treatment
Morphine is one of the most effective analgesics known, but like
all drugs it can be associated with undesirable side effects.
These side effects can be distressing for patients, they may
lead to medical complications and can impose an economic
burden on healthcare providers.
Nausea and vomiting are amongst the most common side
effects of morphine and up to 50% of patients receiving
morphine can experience this distressing side effect. Tolerance
to opioid-induced nausea and vomiting can occur with repeated
treatment, but post-operative patients do not have the
opportunity to develop such tolerance as they are on short-term
treatment. Patients have been reported to be willing to suffer a
degree of pain rather than experience post-operative nausea
and vomiting.
Sedation is another common side effect of morphine
treatment, and in the post-operative period it is complicated by
the sleepiness caused by the anaesthetic. If patients are
10
Clinical development – pain portfolio (continued) excessively sedated then it may be difﬁcult for doctors to
accurately assess their well-being.
Constipation is a side effect of morphine treatment, which is
more common when morphine is administered over a number
of days. It is less of an issue for post-operative patients.
Respiratory depression (a reduction in breathing rate) is a
rarer, but potentially dangerous side effect of morphine
treatment. The body’s normal response to lack of oxygen or the
build up of excessive carbon dioxide is to increase the
breathing rate to compensate. This response is inhibited by
morphine. This can be particularly dangerous in the post-
operative period since the patient’s breathing rate is often
reduced by the anaesthetic drugs.
CNS 5161
A range of diseases or conditions including diabetes, HIV/AIDS,
cancer, trauma, shingles and neurodegenerative disorders such
as multiple sclerosis can result in nerve damage and
subsequent chronic pain. This “neuropathic pain” can be
described by patients as burning, stinging, shooting, aching or
electric-shock-like sensations, and it can last for many months
or years. Common features of these abnormal conditions
include increased temporal summation of pain in response to
repeated stimulation (“wind up” pain), hyperalgesia (reduced
pain threshold and exaggerated response to mild noxious
stimuli, and allodynia (painful response to non-noxious stimuli).
Drug treatments for neuropathic pain represent a signiﬁcant
area of unmet medical need and a growing market opportunity.
One of the most common forms of neuropathic pain is that
associated with diabetes. It is estimated that there are over 13
million patients in the USA and Europe with diabetes and that
over 30% of these experience neuropathic pain, which can last
for many years. In addition herpes zoster infections can lead to
shingles and of the 1.5 to 2 million patients in USA and Europe
with shingles up to 15 to 20% experience neuropathic pain,
which is often resistant to current treatments, and can last for
many months.
CeNeS Pharmaceuticals plc Annual Report 2002 11
 
 
 
Patients with
neuropathic pain
4 million
There are over 13 million patients
with diabetes in USA and Europe
and many suffer from neuropathic pain
There are between 1.5 and 2 million patients
with Shingles in USA and Europe
and many suffer from neuropathic pain
Patients with
neuropathic pain
400,000 Current drug treatment for neuropathic pain
Some patients with mild to moderate neuropathic pain may
respond to simple analgesics or non-steroidal anti-inﬂammatory
drugs (NSAIDs), but most patients will require more specialist
drug therapy. Due to the difﬁculty in treating neuropathic pain, it
can account for up to 40% of patients referred to specialist pain
clinics. The more common treatments include tricyclic anti-
depressant drugs and anticonvulsant drugs, though their side
effects can be problematic. Additionally, many of these drugs
are not licensed for the treatment of neuropathic pain.
Currently, the anticonvulsant gabapentin is the only oral drug
licensed for the treatment of neuropathic pain in UK, and it has
a more favourable side effect proﬁle than some of the other
anticonvulsants. Capsaicin cream, commercially prepared from
dried chilli peppers, is also licensed for some types of
neuropathic pain and may be applied topically. However it can
cause initial stinging and this deters some patients. Local
anaesthetic drugs can also be used to provide short-term
soothing relief from neuropathic pain. Opioid analgesics are
effective for some patients, especially when combined with
other drugs. In extreme cases nerve-blocks, nerve ablation and
spinal analgesia may be required to ease this distressing
condition.
Glutamate and neuropathic pain
Glutamate is an amino acid that is a major excitatory transmitter
in the brain. Glutamate binds to N-methyl-D-aspartate (NMDA)
receptors which have been implicated in the long-term
sensitisation of central nociceptive neurons. Drugs which
antagonise the NMDA receptor have been shown to be
effective in models of persistent pain. Some of the older non
speciﬁc NMDA antagonists have shown promise in the
treatment of neuropathic pain, though they are often associated
with unacceptable side effects.
CNS 5161 (N-(2-chloro-5-(methylmercapto)phenyl)-N’-(3-
methylmercapto)phenyl)-N’methyl-guanidine
monohydrochloride) is a novel and selective non-competitive
antagonist of NMDA receptors. It acts by binding to a site within
the ion-channel associated with the NMDA receptor, rather than
competing with glutumate at the agonist recognition site.
Excessive amounts of the excitatory amino acid, glutumate has
been associated with neuropathic pain as well as stroke, status
epilepticus, and neurodegenerative diseases such as
Huntingdon’s chorea.
CNS 5161 clinical development status – neuropathic pain
Two Phase I studies (trials in healthy volunteers) have been
completed with CNS 5161. The ﬁrst study demonstrated the
safety and tolerability of selected doses of CNS 5161 given
intravenously. The second study examined the reduction in pain
experienced after placebo, morphine and two separate doses
of CNS 5161, administered on separate occasions to further
volunteers. CNS 5161 at 0.5mg was found to produce a
statistically signiﬁcant reduction in perceived pain compared
with placebo.
An initial phase II study has been completed in 10 patients with
chronic intractable neuropathic pain. This study demonstrated
12
Clinical development – pain portfolio (continued) that 0.25mg of CNS 5161 gave statistically signiﬁcant pain
relief. The drug was well tolerated by the patients.
Based on these encouraging results CeNeS is planning a dose
escalating “proof of concept” study in order to establish the
effective analgesic dose of CNS 5161 with the minimum of
undesirable effects for the patients.
Longer term it is anticipated that a commercial formulation of
CNS 5161 will be developed in an adhesive patch presentation
that can be applied to the skin and so provide pain relief over a
number of days. Initial studies have conﬁrmed the feasibility of
administering CNS 5161 by this route.
If CeNeS is able to conﬁrm the efﬁcacy of CNS 5161 in the
treatment of neuropathic pain and is able to establish that it is
well tolerated by patients then this could prove to be a valuable
commercial opportunity, and relieve the suffering of many
patients in chronic pain.
The markets for CNS 5161
CNS 5161 is being developed for a poorly treated population of
around 8 million patients suffering from neuropathic pain in the
major pharmaceutical markets. The neuropathic pain market is
estimated at being worth $1.7 billion worldwide.
Although neuropathic pain is the lead therapeutic indication for
CNS 5161, clinical observations and preclinical ﬁndings with
NMDA antagonists suggest that this drug candidate has the
potential to prevent or treat a wide range of neurological
disorders which involve neuronal degeneration, altered neuronal
activity or neuro-inﬂammation. These diseases include
Parkinson’s Disease, Huntingdon’s Disease, epilepsy, addiction,
multiple sclerosis, AIDS dementia and the neurological
complications of certain central nervous system injuries and
infections. CeNeS will seek to identify suitable partners for the
further commercialisation of these disease areas.
CNS 5161 for neuropathic pain
Key highlights
NMDA antagonist
In phase II trials for neuropathic pain
Market size for neuropathic pain drugs >£1 billion
CeNeS Pharmaceuticals plc Annual Report 2002 13 *Alan Goodman Chairman (52)
Alan is a chartered management accountant with over 20 years’
experience in the biotechnology and healthcare industries. He
joined Medeva in 1989 to create a new independent
pharmaceutical group by acquisition. More recently he has been
a founder of a number of listed biopharmaceutical companies
including Acambis and CeNeS. Alan also runs Avlar
Bioventures, a venture capital fund that invests in early stage life
science companies.
*Neil Clark Chief Operating Ofﬁcer and Finance Director (40)
Neil Clark is a chartered accountant with 10 years professional
experience working for Coopers & Lybrand. Neil joined CeNeS
in 1997 and became Finance Director in July 2000. Neil was
made Chief Operating Ofﬁcer in October 2001.
*Ronald Irwin Non-executive Director (67)
Ronald has had a number of positions with ICI, Wellcome
Foundation, Sterling Winthrop, Marion Merrell Dow (Chairman
and Managing Director) and British Biotechnology. Ronald is
currently a non-executive director of Xenova Group and Echo
International Health Services.
*Timothy Wright Non-executive Director (45)
Timothy Wright has 20 years of experience of the
pharmaceutical industry holding senior management positions
in the United States, Canada and Europe. Timothy is currently
President of Elan Biopharmaceuticals International. Prior to
working for Elan he has held senior positions with Cardinal
Health and Dupont Merck.
Terry Smith Development Director (56)
Terry has over 30 years experience in academia and the
pharmaceutical industry, much of it related to research and
development in the ﬁeld of analgesia. He held various positions
with the Wellcome Research Laboratories and British
Technology Group before joining CeNeS as Operations Director
in 1997. Terry has concentrated within CeNeS on pre-clinical
and clinical development and became Development Director in
2001.
* Denotes a director of CeNeS Pharmaceuticals plc.
14
Board of Directors and senior management Results of operations  The loss for the year ended 31 December 2002 was
£6.3 million (2001: £64.6 million). The cash balance at 31 December 2002
was £0.5 million (31 December 2001: £2.2 million).
Turnover decreased to £5.2 million in the year to 31 December 2002
compared to turnover of £5.3 million in the previous ﬁnancial year. A fall in the
revenues generated by Cambridge Cognition Limited and the Channelwork
division – which were both sold during the year – was largely offset by the
continued steady growth in sales of the portfolio of pharmaceutical products
and also non-recurring revenues generated in 2002 from the divestment of
non-core assets under the restructuring plan. Gross proﬁts have increased as
a result of changes in pharmaceutical product manufacturing arrangements
and the recognition of certain licensing revenues. The discontinued turnover
and gross proﬁt ﬁgures relate to the activities of Cambridge Cognition Limited
and the Channelwork division which were disposed of during the year. 
Research and development costs in total decreased signiﬁcantly to
£3.5 million (2001: £8.3 million) as a result of the cut backs and divestments
made in non-core activities. Research and development costs in continuing
operations have decreased to £2.1 million (2001: £2.5 million). The majority of
this spend relates to the clinical development of M6G undertaken by the
CeNeS/Elan joint venture. CeNeS has reclaimed its joint venture spend by
calling down funds under the 7% Convertible Unsecured Loan Stock 2007
instrument issued to Elan under the joint venture arrangement. Research and
development costs in discontinued operations have decreased to £1.5 million
(2001: £5.8 million) principally as a result of the discontinuation of non-core
research and development activities. The reduction in discontinued research
and development cost is despite the inclusion of an amount of £1.0 million
paid in December 2002 to British Technology Group (BTG) for drug delivery
licences originally acquired from BTG in 1997. At the same time BTG
subscribed for 4 million CeNeS ordinary 10 pence shares at 25 pence per
share.
Administrative expenses, excluding exceptional goodwill write downs of
£1.7 million (2001: £33.7 million), have signiﬁcantly decreased to £6.2 million
(2001: £13.8 million), reﬂecting cut backs made under the restructuring
process. Included in these numbers is the charge for amortisation of
intangible assets which for the year to 31 December 2002 was £2.8 million
(2001: £3.5 million). The total amortisation of intangible assets for the year to
31 December 2002 also includes £1 million of research and development
costs in respect of the BTG drug delivery licences.
Administrative costs relating to discontinued activities were £0.8 million
(2001: £5.3 million). Following the disposals of Cambridge Cognition Limited
and the Channelwork division during 2002, staff numbers have reduced to
12 from 85 as at 31 December 2001.
Following the disposals of Cambridge Cognition Limited and the
Channelwork division and as a result of the prevailing market conditions, the
directors have reviewed the carrying value of the goodwill held on the balance
sheet as an intangible asset at 31 December 2002. Accordingly, the directors
have decided that the balance of goodwill should be written down to
£7.5 million, resulting in a write down of £1.7 million. The goodwill arose on
CeNeS Limited’s merger with Core Group in December 1999.
Other operating income of £1.6 million (2001: £0.5 million) relates to the
development spend reclaimed by CeNeS in the period under the CeNeS/Elan
joint venture arrangements. A proﬁt on disposal of £0.6 million (2001: £nil)
was made on the sales of Cambridge Cognition Limited and the
Channelwork division. Other interest receivable and similar income of
£1.2 million (2001: £nil) relates to the gain on foreign currency translation
made on conversion of the dollar denominated long term convertible debt.
A provision of £0.9 million (2001: £0.9 million) has been made for the
expected liability relating to the leases of premises in Scotland that are no
longer required by the group. The sites in Scotland are being actively
marketed. Of this provision, £0.6 million (2001: £0.7 million) is included in
creditors due after more than one year and £0.3 million (2001: £0.2 million) is
included in creditors due within one year.
During the 2002 ﬁnancial year CeNeS received £962,000 under the research
and development tax credit scheme in respect of the year to 31 December
2001. It is estimated that the claim for 2002 will be £82,000. This amount
has yet to be agreed with the Inland Revenue. The amount to be claimed in
2002 is lower because CeNeS has received funding via the CeNeS/Elan joint
venture and this receipt reduces the amount of qualifying research and
development expenditure.
The tax credit in the proﬁt and loss account for 2002 of £226,000 includes
£82,000 in respect of 2002, £165,000 received in respect of 2001 and
£21,000 repayable in respect of 2000.
Fixed assets  The decrease in intangible assets to £13.3 million (2001:
£18.0 million) is a result of amortisation of product licences and goodwill of
£2.8 million, excluding the BTG licence, the disposal of Cambridge Cognition
Limited and the impairment of CeNeS Limited goodwill of £1.7 million.
Tangible ﬁxed assets have decreased to £43,000 (2001: £596,000) as a
result of the disposals of Cambridge Cognition Limited and the Channelwork
division, and the closure of the Scottish premises.
Stock  Stocks of raw materials have risen as a result of a bulk purchase of
dipipanone used in the manufacture of Diconal. All consumable stocks were
disposed of to Cambridge Cognition Limited. 
Debtors  Debtors due after more than one year of £2.1 million (2001: £nil)
include amounts advanced to CeNeS (Bermuda) Limited of £1.8million,
deferred consideration owed following the disposal of Cambridge Cognition
Limited and the loan note due following the disposal of the Channelwork
division. Debtors due within one year are lower at £1.2 million (2001:
£2.6 million) mainly because of lower trade debtors following the group
restructuring and a lower tax debtor in respect of the research and
development tax credit.
Creditors  Creditors due within one year are lower at £2.1 million 
(2001: £4.5 million). Included in 2001 creditors were payments in advance 
of £0.5 million (2002: £nil), restructuring provisions of £0.8 million 
(2002: £0.4 million) and obligations under ﬁnance leases of £0.2 million
(2002: £8,000). Trade creditors, accruals and tax and social security creditors
are also lower in 2002 as a result of the restructuring process.
The share of net liabilities of joint venture of £1.8 million (2001: £0.5 million)
reﬂects the losses made by CeNeS (Bermuda) Limited in carrying out
development work on M6G.
Cash resources  Net cash outﬂow for the year ended 31 December 2002
was £1.7m (2001: £8.4m). Cash at bank and in hand at 31 December 2002
was £0.5m (2001: £2.2m).
Financial Review
CeNeS Pharmaceuticals plc Annual Report 2002 15 Financial instruments  The group’s ﬁnancial instruments comprises
borrowings, long-term loans, cash and liquid resources, and various items,
such as trade debtors and creditors that arise directly from its operations.
The main purpose of these ﬁnancial instruments is to raise ﬁnance for the
group’s operations. It is, and has been throughout the period under review,
the group’s policy that no trading in ﬁnancial instruments shall be undertaken.
The main risks arising from the group’s ﬁnancial instruments are interest rate
risk and liquidity risk. The Board reviews and agrees policies for managing
each of these risks and they are summarised below. These policies have
remained unchanged since the beginning of 2002. All of the UK companies’
transactions are denoted in sterling. CeNeS (Bermuda) Limited and CeNeS
Pharmaceuticals, Inc. carried out transactions in US dollars.
Interest rate risk  The group ﬁnances its operations by a mixture of cash,
long-term loans and ﬁnance leases. The group invests and borrows at both
ﬁxed and ﬂoating rates of interest. Both interest and borrowings are closely
monitored by the group treasury function.
Liquidity risk  As regards liquidity, the group had gross ﬁnancial assets of
£0.5m cash at the year end. These resources are maintained to meet the
protected maximum cash outﬂow from debt repayment and working capital
needs during the coming year.
Convertible debt  The 5% convertible unsecured exchangeable loan stock
2009 has decreased to £8.0 million (2001: £8.7 million) after interest of
£0.4 million and a foreign exchange gain on retranslation of £1.2 million. The
movement on the 7% Convertible Unsecured Loan stock 2007 of £1.8 million
reﬂects the draw downs made by CeNeS under the CeNeS/Elan joint venture
to fund CeNeS portion of the development work undertaken in 2001/2002 on
the joint ventures development of M6G. The joint venture was terminated
post year end and there will be no further draw downs under these loans.
Financial outlook for 2003 and 2004  One of the key objectives of the
restructuring process initiated in 2001 was for the Company to be self
funding to the end of 2003. As a result of the progress during 2002, the
directors are now conﬁdent that this target will be exceeded. This was
achieved with the disposals of non-core assets and effective ﬁnancial
management. Subsequently, the disposal of the pharmaceutical products in
May 2003 generating cash of approximately £9 million means that the
Company has sufﬁcient funds to progress its late stage clinical portfolio and
to fund other corporate activities over the next two years.
Financial Review
16 The Directors present their annual report on the affairs of CeNeS Pharmaceuticals plc (“the group”) together with the consolidated ﬁnancial
statements for the year ended 31 December 2002.
Principal activity and business review
The principal activity of the group is the development and sale of drug products for the treatment of pain disorders of the central nervous
system (CNS).
Results, dividends and future prospects
Turnover for the year was £5.2m (2001: £5.3m) and comprises revenues from the sale of pharmaceutical products, licence fees and
revenues from research and development funding. The loss of the group for the year after taxation was £6.3m (2001: £64.6m).
The directors do not recommend the payment of a dividend (2001: nil). The group’s performance and future prospects are discussed in the
Chairman’s Statement on page 2, the Chief Operating Ofﬁcer’s Review on pages 3 to 7, and the Clinical Development section on pages 8 to
13 and Financial Review on pages 15 and 16.
Research and development
The group was involved in an active programme of research and development of CNS and pain products and related technologies. 
The costs of research and development are expensed to the proﬁt and loss account.
Research and development costs in continuing operations have decreased to £2.1 million (2001: £2.5 million). The majority of this spend
relates to the clinical development of M6G undertaken by the CeNeS/Elan joint venture.
Research and development costs incurred by the discontinued operations of £1.5 million include costs incurred by Channelwork and
Cambridge Cognition Limited prior to their disposal and the licence fee of £1 million paid to BTG Group in December 2002.
Directors
The present membership of the Board is set out on page 14 together with brief biographies.
The Directors who served during the year were:
Mr A G Goodman (Chairman)
Mr Neil R Clark *
Dr John W Buckle (resigned as a Director on 30 June 2003)
Mr T Ronald Irwin *
Mr Tim R Wright
* Neil Clark and Ronald Irwin will retire at the next Annual General Meeting and offer themselves for re-election in accordance with the Code
of Best Practice prepared by the Committee on Corporate Governance.
Directors’ shareholdings and service contracts
Details of the Directors’ contracts and their beneﬁcial interests in the shares of the Company are shown in the Remuneration Report on
pages 22 to 25.
Policy on payment of creditors
The group seeks the best possible terms from suppliers consistent with consideration of quality, delivery price and discounts. In many cases
these are agreed with the supplier as part of the process of placing an order. Provided that the supplier has met its contractual obligations,
then the group endeavors to ensure that payment is made on these terms. This policy is known to all staff who handle payments to
suppliers.
The average number of creditor days of the group at 31 December 2002 was 57 (2001: 35 days).
Employment policy
The group is aware of its obligations to disabled persons and makes every effort to ensure they receive equal opportunities and are not
discriminated against on the grounds of their disability.
The group will make every effort to assist any individual who becomes disabled during the course of their employment.
All employees are kept informed about the group’s progress and objectives through regular meetings. The Directors believe that it is
important that the group’s employees’ interests are closely aligned with the group.
Directors’ Report
CeNeS Pharmaceuticals plc Annual Report 2002 17 To this end all employees either already hold, or are eligible to receive options under the current and/or any new share option schemes.
Additionally a savings related share option scheme (SAYE) was established in March 1997 and was open to all employees in service at that
time. The scheme was reopened to all employees in April 1998 to allow further subscriptions to the scheme. As at 31 December 2002, 3
(31 December 2001: 11) employees held options under this scheme to subscribe for a total of 7,674 shares at an exercise price of £0.80.
Post balance sheet events
On 22 May 2003 CeNeS announced that it had completed the sale of its pharmaceutical products Diconal, Cyclimorph and Valoid to a
subsidiary of Waymade Healthcare Plc for a consideration of over £9 million in cash.
On 18 June 2003 CeNeS announced that it has reached agreement with Elan Corporation to terminate the CeNeS/Elan joint venture which
was established in June 2001 to develop M6G (morphine-6-glucuronide) for the treatment of pain. CeNeS alone will now plan to take
forward and fund the clinical development of M6G as it enters its phase III program for the treatment of post-operative pain until a new
partner is found. (see Financial Statements note 2b)
Under the terms of the agreement CeNeS and Elan have agreed that the joint development programmes are terminated and that the
respective rights to M6G and certain drug delivery technologies are returned to CeNeS and Elan. The minority shareholding held by Elan in
CeNeS Bermuda Limited will be transferred to CeNeS. CeNeS has agreed to pay Elan a percentage of all future revenues CeNeS generates
from M6G.
Substantial shareholdings
As at 8 July 2003, under section 198 of the Companies Act 1985, the Company had been notiﬁed of the following interests amounting to
3% or more of the ordinary share capital of the Company.
Name Number % holding
Elan Corporation plc 16,949,217 9.7
Barclayshare Nominees Limited 15,193,452 8.7
NY Nominees Limited 11,245,138 6.5
Pershing Keen Nominees Limited 7,844,011 4.5
Prelude Trust plc 5,989,740 3.4
Evolution Beeson Gregory Nominees Limited 5,256,752 3.0
Appointment of auditors
Arthur Andersen resigned as auditors in the year and PricewaterhouseCoopers was appointed to ﬁll the casual vacancy. Following the
conversion of PricewaterhouseCoopers to a limited liability partnership (LLP) from 1 January 2003, PricewaterhouseCoopers resigned on 27
January 2003 and the directors appointed its successor, PricewaterhouseCoopers LLP as auditors to ﬁll the casual vacancy. A resolution to
reappoint PricewaterhouseCoopers LLP as auditors to the group will be proposed at the Annual General Meeting
Annual General Meeting
The notice of the Annual General Meeting will be posted to shareholders in due course.
By order of the Board
Neil R Clark
Company Secretary
8 July 2003
Directors’ Report
18 Set out below is how the principles of the Combined Code appended to the Listing Rules of the Financial Services Authority have been
applied and the extent of the group’s current compliance.
Statement of compliance with the Code of Best Practice
The Company has complied throughout the year with the provisions of the Code of Best Practice set out in section 1 of the Combined
Code except as follows:
• The majority of non-executive directors are not independent of the Company (Provision A.3.2)
• The remuneration committee is not comprised exclusively of independent non-executive directors (Provision B.2.2)
• The audit committee is not comprised exclusively of non-executive directors the majority of whom are independent of the Company
(Provision D.3.1)
• Additionally, the Company does not have a Chief Executive Ofﬁcer but instead has a Chief Operating Ofﬁcer and an executive
Chairman. This does not represent a breach of any provision of the Combined Code and the board believes that this is the most
appropriate structure given the size of the board and the Company.
The Board consider its current structure acceptable given the reduced number of Board members.
Board of Directors
The executive Directors of the Company are fully involved with the management of the group at all levels, and the direction and control of
the Company. The board meets six times per annum. It is responsible for the business and commercial strategy, monitoring progress, the
approval of ﬁnancial statements and operating and capital expenditure budgets.
The board has shown its commitment to dividing responsibilities for running the board and running the Company’s business by appointing
Mr Neil Clark and Mr Alan Goodman as the Chief Operating Ofﬁcer and Chairman respectively. Under the 2001 restructuring plan the
Finance director, Mr Neil Clark, took on the additional role of Chief Operating Ofﬁcer.
All Directors bring individual judgement to bear on matters of strategy, resources, performance and standards of conduct. Appropriate
training is made available to Directors to assist them in the discharge of their duties as required. The Directors receive reports on the current
and prospective activities of the group and have full and timely access to any other relevant information they may require.
All Directors have direct access to the services and advice of the Company secretary who is responsible for ensuring those relevant
procedures, rules and regulations are complied with. The board as a whole determines the appointment and removal of the Company
secretary. Directors may, at the Company’s expense, seek independent legal advice on any matter relating to the discharge of their duties.
Although all Directors are equally accountable legally, the non-executive Directors have a particular responsibility to ensure that actions
proposed by the executive Directors are critically examined and thoroughly discussed. The non-executive Directors therefore fulﬁl a vital role
in corporate accountability. The board considers that Mr Ronald Irwin is independent of management and free from any business or
relationship that could jeopardise the exercise of independent judgement. Mr Tim Wright is not considered to be independent due to his
representation of Elan International Services Limited which is a major shareholder of the Company. Mr Alan Goodman has the role of
executive Chairman and so does not rank as a non-executive director. Mr Ronald Irwin is the senior independent non-executive Director to
whom any relevant concerns should be addressed.
All Directors are required to submit themselves for re-election at least every three years. Directors aged over 70 are required to submit
themselves for re-election annually. The executive Directors have contracts of service that can be terminated by either party with a notice
period of 12 months.
Audit committee
The audit committee is comprised of Mr Ronald Irwin (the committee Chairman), Mr Tim Wright and Mr Alan Goodman. It examines and
reviews, on behalf of the board, internal controls, ﬁnancial and accounting policies and practices, the form and content of ﬁnancial reports
and statements, and the work of external auditors. It meets at least once a year with representatives of the Company’s auditors without any
executive directors being present.
Remuneration committee
The remuneration committee is comprised of Mr Ronald Irwin (the committee Chairman), Mr Tim Wright and Mr Alan Goodman. It makes
recommendations to the board on the group’s policy for executive remuneration and determines the individual remuneration packages on
behalf of the board for the executive Directors of the group. Further matters are covered in the Remuneration Report.
Corporate Governance
CeNeS Pharmaceuticals plc Annual Report 2002 19 Nominations committee
The nomination committee, which is chaired by Mr Ronald Irwin, makes recommendations to the board regarding all new board
appointments. The nominations committee members are Mr Alan Goodman, Mr Ronald Irwin and Mr Tim Wright.
Relations with shareholders
The board attaches a high priority to effective communications with all shareholders. The announcement of interim and full year results is
used as an opportunity for shareholders to enter into a dialogue with the Chairman and Directors.
In addition the Company has established an internet web site (www.cenes.com) to further aid communications. All of the Company’s press
releases, as well as other information on the Company including the current share price can be accessed through the web site.
The Directors seek to build on a mutual understanding of objectives between the Company and its institutional shareholders by making
regular presentations, obtaining feedback and providing training to those involved in investor relations.
Internal control
The group fully complies with the Combined Code’s provisions on internal control, having established procedures to implement the guidance
issued in September 1999 as the Turnbull Report, and by reporting in accordance with that guidance.
The Board has applied Principle D.2 of the Combined Code by establishing a continuous process for identifying, evaluating and managing
the signiﬁcant risks faced by the group. Identiﬁcation and evaluation of risks is an integral part of the board’s business planning process.
The board of directors is responsible for identifying, evaluating and managing the signiﬁcant risks faced by the group. The Board is also
responsible for ensuring that the group maintains a sound system of internal control to address those risks and, therefore to safeguard
shareholders’ investments and the group’s assets. In compliance with Provision D.2.1 of the Combined Code, the board has undertaken a
speciﬁc review, which is anticipated to be revisited at least annually, to evaluate the effectiveness of the process of identifying, evaluating and
managing risks. The reviews covered all controls, including ﬁnancial, operational and risk management controls and risk. The board also
reviewed the effectiveness of the group’s system of internal control.
Monitoring internal controls have and will continue to include the scrutiny of reports prepared by management and in depth review. All
weaknesses identiﬁed will be reviewed. As part of this process the Audit Committee will consider and report to the board on any matters
arising from the work undertaken by the external auditors and will undertake a periodic review to consider the need to establish an internal
audit function.
There are inherent limitations in any system of internal control. Internal controls can only manage and not eliminate the risk of a failure to
achieve business objectives or of other losses. Internal controls can therefore provide only reasonable, and not absolute, assurance against
material misstatement or loss.
By order of the Board
Neil R Clark
Company Secretary
Corporate Governance
20 Going concern
The group is engaged in the development of biopharmaceutical products and expects those activities to absorb liquid resources until such
products begin to be commercialised. After having made due enquiries the directors have a reasonable expectation that the group will have
adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern
basis in the ﬁnancial statements.
Directors’ responsibilities
Financial statements
Company law requires the directors to prepare ﬁnancial statements for each ﬁnancial year that 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. The directors are required to prepare the ﬁnancial
statements on the going concern basis, unless it is inappropriate to presume that the Company will continue in business.
The directors conﬁrm that suitable accounting policies have been used and applied consistently, except as explained in note 1 to the
ﬁnancial statements. They also conﬁrm that reasonable and prudent judgements and estimates have been made in preparing the ﬁnancial
statements for the year ended 31 December 2002 and that applicable accounting standards have been followed.
The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the ﬁnancial position
of the Company and enable them to ensure that the ﬁnancial statements comply with the Companies Act 1985. They are also responsible
for safeguarding the assets of the Company 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 group’s website; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the
ﬁnancial statements since they were initially present on the website. Information published on the Internet is accessible in many different
countries with different legal requirements. Legislation in the UK governing the preparation and dissemination of ﬁnancial statements may
differ from legislation in other jurisdictions.
Statement of Directors’ Responsibilities
CeNeS Pharmaceuticals plc Annual Report 2002 21 The principal function of the Remuneration Committee is to determine, on behalf of the Board, the remuneration and other beneﬁts of the
executive Directors, including pension contributions, share options, bonus payments and service contracts. The fees paid to non-executive
Directors are determined by the Board as a whole. Non-executive Directors do not receive bonuses or pension contributions.
The Committee gives full consideration to the provisions set out in Schedule B of the Combined Code annexed to the Listing Rules of the
London Stock Exchange in determining appropriate remuneration packages.
The Remuneration Committee now comprises of Mr Ronald Irwin and Mr Tim Wright the non-executive Directors and also the Chairman, 
Mr Alan Goodman.
The Remuneration package
The Remuneration Committee is aware that it must attract and retain individuals of the highest calibre by continuing to offer packages that
are fair and reasonable for the responsibilities involved. The Committee endeavours to ensure that such packages are sufﬁciently dependent
on achievement to motivate individuals to continue to contribute to the success of the Company. The Remuneration Committee is sensitive
to the pay and employment conditions elsewhere in the Company when considering executive pay and annual salary increases. The
Chairman of the Remuneration Committee is Mr Ronald Irwin.
Basic salary – the basic salary of each executive Director is determined by the Remuneration Committee, taking into account the individual’s
performance, the achievement of personal objectives and basic salaries in companies whose activities and size are comparable to those of
CeNeS Pharmaceuticals plc.
Bonus arrangements – Director’ bonuses are discretionary and are approved by the Remuneration Committee. No bonuses were awarded
to Directors in 2001 or 2002.
Pension contributions – the group makes deﬁned contributions to personal pension arrangements on behalf of the executive Directors at a
deﬁned percentage of salary, excluding bonus, car allowance or other forms of remuneration.
Share options – all executive Directors are entitled to participate in the Company’s share option schemes. The performance criteria for the
share option schemes are disclosed on page 25. Any options granted thereunder are approved by the Remuneration Committee.
Service contracts
Each of the Directors has a service agreement or letter of appointment with the Company. Details of the terms of employment (including
salary) are set out below:
Alan Gilbert Goodman
Mr Alan Gilbert Goodman has a service contract with the Company dated 17 November 1999. Mr Goodman is currently Chairman of the
Company and his current salary is £99,000 per annum. The agreement provides that Mr Goodman spends two days per week working on
the group’s business. The agreement is for an initial term of 12 months and thereafter may be terminated by either party on 12 months’
notice. Mr Goodman is also entitled to a pension contribution equal of 10 per cent. of his salary, permanent health insurance, life insurance
cover, private medical insurance and a company car.
There are no provisions in the service agreement for compensation upon early termination of Mr Goodman’s contract.
Neil Robert Clark
Mr Neil Robert Clark has a service contract with the Company dated 14 August 2000. Mr Clark is currently Chief Operating Ofﬁcer, Financial
Director and Company Secretary of the Company and his current salary is £125,500 per annum. The agreement is for an initial term of
12 months and thereafter may be terminated by either party on 12 months’ notice. Mr Clark is also entitled to a pension contribution equal
to 10 per cent. of his salary, permanent health insurance, life insurance cover, private medical insurance and a car allowance of £5,000.
There are no provisions in the service agreement for compensation upon early termination of Mr Clark’s contract.
Thomas Ronald Irwin
Thomas Ronald Irwin was appointed a Non-executive Director of the Company by a letter of appointment with effect from 13 December
1999 receiving directors’ fees of £18,000 per annum. The appointment may be terminated by either party on one month’s notice.
Timothy Ray Wright
Timothy Ray Wright was appointed a Non-executive Director of the Company by letter of appointment with effect from 29 October 2001 receiving
director’s fees of £18,000 per annum. The appointment may be terminated by either party on one month’s notice. Mr Wright is appointed as a
nominated director by Elan Corporation as permitted under the terms of a business venture between CeNeS and Elan Corporation.
Each non-executive Director is also entitled to reimbursement of out of pocket expenses.
Remuneration report
22 Total shareholder return
The graph below shows the total shareholder return performance of the Company in comparison to the FTSE All Share and the ING Barings
European Biotech Universe “Tier 3” indices over the past ﬁve years.
The FTSE All Share is chosen an appropriate index because the directors believe it is not materially different from the FTSE All-Share 900
which is used to measure the Company’s performance in assessing the exercising of share options under the Company schemes. The
“Tier 3” index is composed of European listed biotech and pharmaceutical companies with a market capitalisation of up to Euro 200 million.
Directors’ remuneration
The remuneration paid in respect of Directors who served during the year was as follows:
Basic Taxable Pension Total Total
Director Fees salary beneﬁts
(2)
contributions 2002 2001
££££££
Executive
Dr J Buckle
(appointed 18 October 2001)
(resigned 30 June 2003) – 120,500 6,047 11,550 138,097 33,446
Mr N R Clark – 130,500 2,171 12,550 145,221 143,921
Mr A G Goodman – 99,000 17,740 9,900 126,640 124,227
Dr D J Roach
(resigned 8 October 2001) ––––– 201,811
Mr M Collett
(resigned 8 October 2001) ––––– 159,961
Non-Executive
Mr T R Irwin (Note 1) 18,000 ––– 18,000 18,000
Mr T Wright 18,000 ––– 18,000 4,500
Mr M Redmond
(resigned 3 October 2001) ––––– 13,500
Dr D A Needham
(resigned 3 October 2001) ––––– 13,500
Mr P C O’Brien
(resigned 1 October 2001) ––––– 13,500
Mr H W Wilcox III
(resigned 1 October 2001) ––––– 13,500
Total 36,000 350,000 25,958 34,000 445,958 739,866
1997 1998 1999 2000 2001 2002
CeNeS Pharmaceuticals plc FTSE All-Share ING Barings European Biotech Universe "Tier 3"
0
20
40
60
80
100
120
140
160
Remuneration report
CeNeS Pharmaceuticals plc Annual Report 2002 23 Notes:
(1) These amounts represent fees payable to Irwin Associates International on behalf of Mr T R Irwin’s services.
(2) Non-pensionable taxable beneﬁts include a fully expensed car for Mr A G Goodman up to 1 September 2002 and medical beneﬁts.
Messrs Buckle and Clark receive medical beneﬁts but do not receive an expensed company car but they do receive a car allowance as part
of their salary. No directors waived their emoluments in either year.
(3) On 28 March 2002 Mr J Buckle exercised 16,855 options held under the CeNeS Limited unapproved option scheme, making a gain of £400.
Directors’ shareholdings
The directors’ beneﬁcial interests in the shares of the Company are shown below. None of the Directors has any other beneﬁcial interest in
the shares of any other group companies.
Note Interest in ordinary Interest in ordinary
shares of 10p each shares of 10p each
31st December 31st December
2002 2001
Number Number
Mr T R Irwin 36,000 36,000
Mr T Wright ––
Mr N R Clark 52,600 52,600
Mr A G Goodman 1,2 12,134,404 8,551,471
Dr J Buckle 16,855 –
Notes:
(1) 4,638,176 (2001 – 7,655,243) of these ordinary shares are held by ATM Investments Limited and by ATM Global Investments Limited,
both companies limited by shares with Mr Goodman as a director. In addition, Mr Goodman’s interest includes non-beneﬁcial holdings of
1,600,000 (2001 – nil) ordinary shares held by pension funds of which Mr Goodman is a trustee.
(2) On 1 May 2003 Mr Goodman acquired a further 1,500,000 ordinary shares at a price of 2.75 pence per share. There have been no other
changes in their interests in the share capital of the Company since 31 December 2002.
Directors’ options As at 1st Granted Exercised As at 31st Earliest
January during during December Exercise Exercise Expiry
Note 2002 the year the year 2002 price date date
Number Number Number Number
Mr N R Clark 2,5 100,961 –– 100,961 £1 in aggregate 30-Jun-03 03-Jul-10
2,5 1,176,563 –– 1,176,563 £1 in aggregate 31-Dec-04 31-Dec-11
3,6 73,170 –– 73,170 82p 11-May-03 11-May-07
1 25,384 –– 25,384 4.9p Note 1 30-Sep-04
1 15,230 –– 15,230 4.9p Note 1 02-Mar-06
1 101,538 –– 101,538 4.9p Note 1 27-Oct-06
1,492,846 –– 1,492,846
Mr A G Goodman 1 2,023,864 –– 2,023,864 4.9p Note 1 14-Jan-04
2,5 126,923 –– 126,923 £1 in aggregate 19-Jun-03 30-Jun-10
2,5 928,125 –– 928,125 £1 in aggregate 31-Dec-04 31-Dec-11
3,078,912 –– 3,078,912
Dr J Buckle 2,5 1,082,813 –– 1,082,813 £1 in aggregate 31-Dec-04 31-Dec-11
3,6 103,658 –– 103,658 82p 11-May-03 11-May-07
1 202,076 – 16,855 185,221 4.9p Note 1 27-Oct-06
1,388,547 – 16,855 1,371,692
Remuneration report
24 Notes:
(1) Each of Mr A G Goodman, Mr A G Goodman’s spouse, Mrs E Goodman, Mr N R Clark and Dr J W Buckle have entered into option
agreements with CeNeS Limited pursuant to which they have a right to subscribe at par for a number of shares in CeNeS Limited. In the
event that the option is exercised (the end date for exercising being seven years from the date of grant of the option) the optionholder will be
under an obligation to transfer his ordinary shares in CeNeS Limited to CeNeS Pharmaceuticals plc in return for approximately 20.31 10p
ordinary shares for each CeNeS Limited ordinary share.
(2) These options have been granted under the CeNeS Pharmaceuticals plc Executive Share Option Plan and have a performance target
linked to the FTSE All-Share 900 companies’ performance over a period of three years (see note 5).
(3) Options granted under the CeNeS Pharmaceuticals plc Unapproved Share Option Scheme (see note 6)
(4) Subject to the rules of the relevant option scheme and the agreement of the Remuneration Committee directors and employees may
have the right to exercise their options awarded under the relevant schemes within a six month period following the termination of their
employment contracts.
(5) Performance condition schedule for the CeNeS Pharmaceuticals plc Executive Share Option Plan – The Performance Target is that the
growth in the Company’s share price over a three year period (starting with the date of grant of the Option) must exceed the growth in total
shareholder return (“TSR”) for the FTSE A All-Share 900 companies (excluding investment companies) over that period. Options may be
exercised in full only if the growth of the Company’s share price over a three year period commencing on the date of grant would put the
Company at the same level or above the Company which is ranked 225th (with the Company being granted 1st) of the FTSE A All-Share
900 companies (excluding investment companies) ranked according to the growth in TSR over that period. Options may be exercised over
half the number of shares in the Company to which they relate if the growth in the Company’s share price over a ﬁxed three year period
commencing on the date of grant would put the Company at the same level or above the median company of the FTSE A All-Share 900
companies (excluding investment companies) ranked according to growth in TSR over that period. If the Performance Target is not met over
the ﬁxed three year period, it shall be re-tested over a four year period or a ﬁve year period (each period having the same start date). If the
Performance Target is not met, the Option will lapse.
(6) Performance condition schedule for the CeNeS Pharmaceuticals plc Approved and Unapproved Share Option schemes – The exercise of
the option will be subject to the satisfaction of a performance target. The performance target is that the growth in the Company’s share
price over a three year period (starting with the date of the grant of the option) must exceed the growth in total shareholder return (“TSR”) for
the FTSE A All-Share 900 (excluding investment companies) over that period. Options may be exercisable in full only if the growth in the
Company’s share price over a ﬁxed three year period commencing on the date of grant would put the Company at the same level or above
the median company of the FTSE All-Share 900 Companies (excluding investment companies) ranked according to the growth in TSR over
that period. If the performance target is not met over the ﬁxed three year period, it may be re-tested over a four year period or a ﬁve year
period (each period having the same start date).
The market price of the Company’s shares at 31 December 2002 was 3p.
The highest and lowest prices during the year were 8.5p and 2.75p respectively.
On behalf of the Board
T Ronald Irwin
Chairman of the Remuneration Committee
8 July 2003
Remuneration report
CeNeS Pharmaceuticals plc Annual Report 2002 25 We have audited the ﬁnancial statements on pages 27 to 48. We have also audited the disclosures, from the section headed ‘Directors’
remuneration’ on page 23 to the end of page 25 required by Part 3 of Schedule 7A to the Companies Act 1985 contained in the directors’
remuneration report (“the auditable part”).
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the annual report and the ﬁnancial statements in accordance with applicable United Kingdom law
and accounting standards are set out in the statement of directors’ responsibilities. The directors are also responsible for preparing the
directors’ remuneration report.
Our responsibility is to audit the ﬁnancial statements and the auditable part of the directors’ remuneration report in accordance with relevant
legal and regulatory requirements and United Kingdom Auditing Standards issued by the Auditing Practices Board. This report, including the
opinion, has been prepared for and only for the company’s members as a body in accordance with Section 235 of the Companies Act 1985
and for no other purpose. We do not, in giving this opinion, 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.
We report to you our opinion as to whether the ﬁnancial statements give a true and fair view and whether the ﬁnancial statements and the
auditable part of the directors’ remuneration report have been properly prepared in accordance with the Companies Act 1985. We also
report to you if, in our opinion, the directors’ report is not consistent with the ﬁnancial statements, if the company has not kept proper
accounting records, if we have not received all the information and explanations we require for our audit, or if information speciﬁed by law
regarding directors’ remuneration and transactions is not disclosed.
We read the other information contained in the annual report and consider the implications for our report if we become aware of any
apparent misstatements or material inconsistencies with the ﬁnancial statements. The other information comprises only the directors’ report,
the unaudited part of the directors’ remuneration report, the chairman’s statement, the operating and ﬁnancial review and the corporate
governance statement.
We review whether the corporate governance statement reﬂects the company’s compliance with the seven provisions of the Combined
Code speciﬁed for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to
consider whether the board’s statements on internal control cover all risks and controls, or to form an opinion on the effectiveness of the
group’s corporate governance procedures or its risk and control procedures.
Basis of audit opinion
We conducted our audit in accordance with auditing standards issued by the Auditing Practices Board. An audit includes examination, on a
test basis, of evidence relevant to the amounts and disclosures in the ﬁnancial statements and the auditable part of the directors’
remuneration report. It also includes an assessment of the signiﬁcant estimates and judgements made by the directors in the preparation of
the ﬁnancial statements, and of whether the accounting policies are appropriate to the company’s circumstances, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide
us with sufﬁcient evidence to give reasonable assurance that the ﬁnancial statements and the auditable part of the directors’ remuneration
report are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated
the overall adequacy of the presentation of information in the ﬁnancial statements.
Opinion
In our opinion:
• the ﬁnancial statements give a true and fair view of the state of affairs of the company and the group at 31 December 2002 and of the
loss and cash ﬂows of the group for the year then ended;
• the ﬁnancial statements have been properly prepared in accordance with the Companies Act 1985; 
• and those parts of the directors’ remuneration report required by Part 3 of Schedule 7A to the Companies Act 1985 have been properly
prepared in accordance with the Companies Act 1985.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
Cambridge
8 July 2003
Independent auditors’ report to the members of
CeNeS Pharmaceuticals plc
26 Notes 2002 * 2001
£’000 £’000
Turnover – continuing 4,146 3,145
– discontinued 1,086 2,159
2 5,232 5,304
Cost of sales – continuing (1,590) (1,795)
– discontinued (212) (1,019)
(1,802) (2,814)
Gross proﬁt – continuing 2,556 1,350
– discontinued 874 1,140
3,430 2,490
Research and development costs – continuing (2,058) (2,543)
– discontinued (1,478) (5,803)
(3,536) (8,346)
Administrative expenses – continuing (5,400) (8,514)
– exceptional goodwill write down 
in continuing operations 3,13 (1,731) (9,231)
– discontinued (788) (5,271)
– exceptional goodwill write down in 
discontinued operations – (24,479)
(7,919) (47,495)
Other operating income 1,574 519
Operating loss – continuing (5,059) (18,419)
– discontinued (1,392) (34,413)
(6,451) (52,832)
Share of operating loss of joint venture (1,391) (9,057)
Proﬁt on disposal of discontinued operations 16 553 –
Provision for loss on disposal of discontinued operations – (4,216)
Net interest payable 5 (445) (106)
Other interest receivable and similar income 6 1,186 –
Loss on ordinary activities before taxation 7 (6,548) (66,211)
Taxation 11 226 1,493
Loss on ordinary activities after taxation (6,322) (64,718)
Minority interest 26 64 121
Loss for the year 24 (6,258) (64,597)
Loss per ordinary share – basic and diluted 12 (3.7p) (40.7p)
* Results for these periods have been re-presented to show the group’s interest in CeNeS (Bermuda) Limited as a joint
venture, see note 1a).
Consolidated statement of total recognised gains and losses
For the year ended 31 December 2002
Group Group
2002 2001
£’000 £’000
Loss for the year (6,258) (64,597)
Gain on foreign currency translation 18 124
Total recognised gains and losses for the year (6,240) (64,473)
Consolidated Proﬁt and Loss Account
For the year ended 31st December 2002
CeNeS Pharmaceuticals plc Annual Report 2002 27 Notes Group Group Company Company
2002 * 2001 2002 2001
£’000 £’000 £’000 £’000
Fixed assets
Intangible assets 13 13,309 17,992 – –
Tangible assets 14 43 596 – –
Investments 15 – – 16,042 19,242
13,352 18,588 16,042 19,242
Current assets
Stocks 17 888 473 – –
Debtors – amounts falling due after more 
than one year 18 2,142 – 1,994 –
Debtors – amounts falling due within one year 19 1,247 2,591 11 13
Cash at bank and in hand 480 2,161 344 620
4,757 5,225 2,349 633
Creditors – amounts falling due within one year 20 (2,145) (4,515) (248) (207)
Net current assets 2,612 710 2,101 426
Total assets less current liabilities 15,964 19,298 18,143 19,668
Creditors – amounts falling due
after more than one year
5% convertible unsecured exchangeable 
loan stock 2009 21 (7,995) (8,717) (7,995) (8,717)
7% convertible unsecured loan stock 2007 21 (1,801) – (1,801) –
Other creditors 21 (663) (1,013) – –
Share of gross and net liabilities of joint venture 15 (1,793) (512) – –
Net assets 3,712 9,056 8,347 10,951
Capital and reserves
Called up share capital 23 17,441 17,016 17,441 17,016
Share capital to be issued 23 5,219 5,262 5,219 5,262
Share premium account 24 86,235 85,603 86,235 85,603
Proﬁt and loss account 24 (115,590) (109,350) (100,585) (96,981)
Other reserves 24 10,407 10,421 37 51
Equity shareholders’ funds 25 3,712 8,952 8,347 10,951
Minority interests 26 – 104 – –
Total capital employed 3,712 9,056 8,347 10,951
* Results for these periods have been re-presented to show the group’s interest in CeNeS (Bermuda) Limited as a joint
venture, see note 1a).
These ﬁnancial statements were approved by the Board of Directors on 8 July 2003 and were signed on its behalf by:
Mr Neil Clark Mr Alan Goodman
Chief Operating Ofﬁcer and Finance Director Chairman
Consolidated and Company Balance Sheets
As at 31st December 2002
28 Notes 2002 2001
£’000 £’000
Net cash outﬂow from operating activities 27 (5,005) (14,834)
Returns on investments and servicing of ﬁnance
Interest received 49 199
Interest paid (15) (20)
Interest element of ﬁnance lease rental payments (8) (57)
Net cash inﬂow from returns on investment 26 122
and servicing of ﬁnance
Taxation
Research and development tax credit 962 693
Capital expenditure and ﬁnancial investment
Payment to acquire tangible ﬁxed assets (16) (223)
Payment to acquire intangible ﬁxed assets (1,000) –
Receipts from sale of tangible ﬁxed assets 354 724
Net cash (outﬂow)/inﬂow from capital expenditure (662) 501
and ﬁnancial investment
Acquisitions and disposals
Investment in joint venture – (8,542)
Proceeds from sale of subsidiary undertaking 16 488 –
Net cash acquired with subsidiary – 20
Net cash inﬂow/(outﬂow) from acquisitions and disposals 488 (8,522)
Net cash outﬂow before ﬁnancing (4,191) (22,040)
Financing
Issue of ordinary share capital 1,005 5,742
Repayment of loans (61) (64)
Issue of convertible loan note 1,794 8,502
Capital element of ﬁnance lease rentals (228) (540)
Net cash inﬂow from ﬁnancing 2,510 13,640
Decrease in cash 28 (1,681) (8,400)
Reconciliation of Net Cash Flow to Movement in Net Debt
Notes 2002 2001
£’000 £’000
Decrease in cash in the period 28 (1,681) (8,400)
Cash inﬂow due to changes in debt and ﬁnance leasing (1,505) (7,898)
Change in net debt resulting from cash ﬂows (3,186) (16,298)
Non-cash items 715 (215)
Movement in net debt (2,471) (16,513)
Net (debt)/funds brought forward (7,032) 9,481
Net debt carried forward 28 (9,503) (7,032)
Consolidated Cash Flow Statement
For the year ended 31st December 2002
CeNeS Pharmaceuticals plc Annual Report 2002 29 1. Accounting policies
The ﬁnancial statements have been prepared in accordance with applicable accounting standards in the United Kingdom. A summary of the
more important accounting policies, which have been reviewed by the Board of Directors in accordance with Financial Reporting Standard
(‘FRS’) 18 ‘Accounting policies’, is set out below, together with an explanation of where changes have been made to previous policies on
the adoption of a new accounting standard in the year.
The ﬁnancial statements are prepared in accordance with the historical cost convention.
a) Changes in presentation of ﬁnancial statements
FRS 19, ‘Deferred Tax’, came into effect for these ﬁnancial statements but has not impacted on the amounts included in the proﬁt and loss
account and balance sheets. The presentational requirements of the standard for the current and prior year are shown in note 11 and
note 22.
Accounting for joint venture undertaking
Due to its 80.1% shareholding in CeNeS (Bermuda) Limited, the group accounted for CeNeS (Bermuda) Limited as a subsidiary in the
Financial Statements for the year ended 31 December 2001.
The Directors continually review the method of accounting for this undertaking and now believe that to account for CeNeS (Bermuda)
Limited as a joint venture rather than as a subsidiary better presents the substance of the relationship. As a result, CeNeS (Bermuda) Limited
has been accounted for using the gross equity method of accounting in these ﬁnancial statements. The comparative ﬁgures for have also
been adjusted to reﬂect this method of accounting.
b) Basis of consolidation
The group ﬁnancial statements consolidate the ﬁnancial statements of CeNeS Pharmaceuticals plc and of its subsidiary undertakings,
CeNeS Drug Delivery Limited and CeNeS Pharmaceutical Limited, under merger accounting principles and of its subsidiary undertakings
CeNeS Limited, CeNeS Research Limited, CeNeS Pharmaceuticals Inc., Cambridge Cognition Guarantee Limited and CeNeS Contract
Research Limited under acquisition accounting principles.
c) Intangible ﬁxed assets
Goodwill, arising on the acquisition of subsidiary undertakings and businesses, representing the excess of the fair value of the consideration
given over the fair value of the identiﬁable assets and liabilities acquired, is capitalised as an asset on the balance sheet and amortised over
its useful economic life which the directors estimate to be 15 years. Provision is made for any impairment.
Intangible assets – licences
Licences with an immediate deﬁned revenue stream are included at cost and depreciated in equal installments over a period of 5 years
which is their estimated useful economic life. Provision is made for any impairment.
Other licences acquired are expensed immediately as part of research and development costs.
d) Tangible ﬁxed assets and depreciation
Tangible ﬁxed assets are stated at cost or valuation, net of depreciation and any provision for impairment. Depreciation is provided on
tangible ﬁxed assets at rates calculated to write off the cost, less estimated residual value, of each asset on a straight line basis over its
expected useful life as follows:
Leasehold improvements over the shorter of the lease term or 10 years
Fixtures, ﬁttings and computers over 2 – 7 years
Plant and machinery over 5 – 10 years
Laboratory equipment over 3 – 5 years
Motor vehicles over 4 years
e) Investments
Investments in subsidiary companies which are accounted for under merger accounting principles are shown at the nominal value of shares
issued in accordance with the provisions of the Companies Act 1985.
Investments in subsidiary companies which are accounted for under acquisition accounting principles are shown at cost less any provision
for impairment.
Notes to the Financial Statements
Year ended 31st December 2002
30 f) Foreign currency
Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies including long-term liabilities, are translated into sterling at rates of exchange ruling at the balance sheet
date. All exchange differences on these monetary assets and liabilities are dealt with in the proﬁt and loss account. This treatment is required
by Statement of Standard Accounting Practice (‘SSAP’) 20 ‘Foreign Currency Translation’ in order to give a true and fair view of the group’s
results. Compliance with SSAP 20 overrides Schedule 4 Paragraph 12 of the Companies Act 1985 which states that only proﬁts realised at
the balance sheet date should be included in the proﬁt and loss account.
The results of overseas operations are translated at average rates of exchange during the period and their balance sheets at the rates ruling
at the balance sheet date. Exchange differences arising on translation of the opening net assets and results of overseas operations are dealt
with through reserves except as explained below. All other exchange differences are included in the proﬁt and loss account.
The joint venture undertaking, CeNeS (Bermuda) Limited, is accounted for under the temporal method. Transactions are accounted for as if
they were entered into by CeNeS Pharmaceuticals plc directly. Consequently, all transactions are translated at the rate ruling at the
transaction date. Monetary items are translated at the closing rate at the balance sheet date. Non-monetary items are translated at the
exchange rate ruling at the date on which the initial transaction to recognise them is made and are not retranslated at each balance sheet
date. All exchange gains and losses, including those arising on the retranslation of opening monetary items, are take to the proﬁt and loss
account for the year.
g) Stocks
Stocks comprise ﬁnished goods and raw materials and are stated at the lower of cost and net realisable value. Cost includes materials,
direct labour and an attributable proportion of manufacturing overheads based on normal levels of activity. Net realisable value is based on
estimated selling price, less further costs expected to be incurred to completion and disposal. Provision is made for obsolete, slow-moving
or defective items where appropriate.
h) Leasing and hire purchase commitments
Rentals under operating leases are charged on a straight-line basis over the lease term, even if the payments are not made on such a basis.
Beneﬁts received and receivable as an incentive to sign an operating lease are similarly spread on a straight-line basis over the lease term,
except where the period to the review date on which the rent is ﬁrst expected to be adjusted to the prevailing market rate is shorter than the
full lease term, in which case the shorter period is used.
Assets held under ﬁnance leases which confer rights and obligations similar to those attached to owned assets, are capitalised as tangible
ﬁxed assets and are depreciated over the shorter of the lease terms and their useful lives. The capital element of future lease obligations are
recorded as liabilities, while the interest elements are charged to the proﬁt and loss account over the period of the and represents a
constant proportion of the balance of capital repayments outstanding.
Provisions are made in respect of onerous leases to the extent that the directors believe that costs will be incurred under the terms of the
lease.
i) Government grants
Government grants in respect of capital expenditure are credited to a deferral account and released into the proﬁt and loss account in line
with the useful life, as calculated for depreciation purposes, of the assets to which they relate.
Grants related to revenue expenditure are credited to the proﬁt and loss account when they become receivable.
j) Taxation
Current tax is provided at amounts expected to be paid or recovered using the tax rates and laws that have been enacted or substantially
enacted by the balance sheet date.
Provision is made for deferred taxation, in accordance with FRS 19, ‘Deferred Tax’ on all material timing differences. Deferred tax assets are
recognised to the extent that they are regarded as recoverable. Deferred tax assets and liabilities are not discounted.
k) Turnover
Turnover represents amounts receivable from product sales, licence fees and contract services net of VAT and other sales related taxes.
Revenue is recognised when there is evidence of an arrangement, delivery of the product has occurred, the selling price is determinable and
recovery of the debt is reasonably assured.
i. Product sales are recognised as revenue upon shipment to customers
Notes to the Financial Statements
Year ended 31st December 2002
(continued)
CeNeS Pharmaceuticals plc Annual Report 2002 31 ii. Licence fees are deferred and recognised over the period of the associated research and development agreement.
iii. Contract services are recognised on satisfactory completion of the service provided. For certain long term contracts a proportion of
revenue equivalent to the proportion of work completed is recognised when certain milestones have been achieved.
iv. Revenue is recognised immediately in respect of sales of technology where there are no further obligations to provide any services under
the terms of the sale.
l) Research and development
Fixed assets used for research and development are included as tangible ﬁxed assets and written off in accordance with the depreciation
policy above. Other research and development expenditure is charged to the proﬁt and loss account as incurred and includes relevant staff
costs as well as an apportionment of occupancy costs, general overheads and depreciation.
m) Pensions
The company operates deﬁned contribution schemes for its employees.
The amount charged to the proﬁt and loss account in respect of pension costs is the contributions payable during the year. Differences
between contributions payable in the year and contributions actually paid are shown either as accruals or prepayments in the balance sheet.
n) Capital instruments (loan notes)
Convertible debt is initially stated at the amount of the net proceeds after deduction of issue costs. The carrying amount is increased by the
amortised ﬁnance cost each year and reduced by the interest paid. The ﬁnance cost is calculated as the difference between the total
repayments and the net proceeds and amortised to the proﬁt and loss account over the term of the loan stock. Convertible debt is reported
as a liability until conversion occurs.
2a) Turnover and segmental information
Turnover comprises licence fees, revenues from research and development funding and revenues from the sale of pharmaceutical products.
All turnover is derived from the principal activity of the group.
An analysis by geographical market is given below:
Total Group, including United Kingdom North America Europe Rest of World Group
joint venture 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Turnover by destination 3,657 3,902 1,036 715 521 576 18 111 5,232 5,304
Turnover by origin 5,232 5,304 – – – – – – 5,232 5,304
Exceptional items (1,731) (9,452) – (24,259) –––– (1,731) (33,710)
(Loss)/proﬁt before taxation (6,601) (39,376) 53 (26,835) –––– (6,548) (66,211)
Minority interest 64 121 –––––– 64 121
Net assets 3,696 8,958 16 98 – – –– 3,712 9,056
The analysis presented above includes the following amounts in respect of the discontinued operations of Cambridge Cognition Limited,
CeNeS Drug Delivery Limited, CeNeS Pharmaceuticals, Inc. and Channelwork.
United Kingdom North America Europe Rest of World
2002 2001 2002 2001 2002 2001 2002 2001
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Turnover by destination 338 648 703 326 26 98 19 –
Turnover by origin 1,086 1,072 – – – – – –
Exceptional items – – – (24,259) – – – –
(Loss)/proﬁt before taxation (1,691) (9,634) 52 (26,741) ––––
Net assets/(liabilities) (1,246) (1,311) 16 98 – – – –
See note 15 for details of the Group’s share of the results of CeNeS (Bermuda) Limited, the joint venture with Elan Corporation, all of which
relate to the principal activity of the Group.
Notes to the Financial Statements
Year ended 31st December 2002
(continued)
32 2b) CeNeS/Elan business venture
As a result of the change in method of accounting for the joint venture there is no material difference to the proﬁt for the year or the prior
year.
On 18 June 2003 CeNeS announced that it has reached agreement with Elan Corporation to terminate the CeNeS/Elan joint venture which
was established in June 2001 to develop M6G ( morphine-6-glucuronide) for the treatment of pain. CeNeS alone will now plan to take
forward and fund the clinical development of M6G as it enters its phase III program for the treatment of post-operative pain. Under the terms
of the agreement CeNeS and Elan have agreed that the joint development programmes are terminated and that the respective rights to
M6G and certain drug delivery technologies are returned to CeNeS and Elan. The minority shareholding held by Elan in CeNeS Bermuda
Limited will be transferred to CeNeS.
3. Exceptional administrative expenses
The goodwill write down in administrative expenses of £1.7 million relates to the impairment of goodwill which arose on the acquisition of
CeNeS Limited. The directors estimate that as at 31 December 2002 the value of goodwill arising on the acquisition of CeNeS Limited has a
fair value of £7.5 million (31 December 2001: £10 million).
4. Other operating income
2002 2001
£’000 £’000
Amounts charged to joint venture 1,574 519
5. Net interest (payable)/receivable
2002 2001
£’000 £’000
Interest receivable 49 186
Finance charges payable – ﬁnance leases and hire purchase contracts (8) (57)
Loan stock and other loans (486) (235)
(445) (106)
6. Other interest receivable and similar income
2002 2001
£’000 £’000
Foreign currency gains 1,186 –
These unrealised foreign currency gains have arisen on retranslation of the convertible unsecured loan stock arrangements which are
denominated in US dollars.
7. Loss on ordinary activities before taxation
The loss on ordinary activities is stated after charging/(crediting):
2002 2001
£’000 £’000
Auditors’ remuneration: audit services (Company: £9,000 (2001: £9,000)) 37 54
Auditors’ remuneration: non-audit services 25 100
Depreciation of owned assets 126 979
Depreciation of assets held under ﬁnance leases and hire purchase contracts 58 450
Impairment losses on tangible ﬁxed assets – 3,301
Amortisation of intangible assets 3,819 5,355
Impairment of goodwill 1,731 33,710
Loss on foreign exchange 42 1
Operating lease rentals: plant and machinery – 58
Operating lease rentals: other 446,047 304
Release of grants received (96) (41)
(Proﬁt)\loss of sale of ﬁxed assets (207) 256
Share option provision (50) (25)
Notes to the Financial Statements
Year ended 31st December 2002
(continued)
CeNeS Pharmaceuticals plc Annual Report 2002 33 8. Staff costs
The number of employees (including Executive Directors) at 31st December 2002 was 12. The average monthly number of employees
during the year (including Executive Directors) was:
2002 2001
Number Number
Production – 21
Sales and administration 18 40
Research and development 10 78
28 139
Their aggregate remuneration comprised:
2002 2001
£’000 £’000
Wages and salaries 1,044 5,758
Social security costs 128 602
Other pension costs (see note 30) 95 275
Payment in lieu of notice to Directors and senior employees (including social security costs) – 60
1,267 6,695
9. Directors remuneration
2002 2001
£’000 £’000
Aggregate emoluments 411,958 627,681
Compensation for loss of ofﬁce – 60,000
Pension costs 34,000 52,185
445,958 739,866
Highest paid director
Aggregate emoluments 132,671 156,961
Compensation for loss of ofﬁce – 30,000
Pension costs 12,550 14,850
145,221 201,811
The disclosure of individual Directors’ remuneration, share options, pension contributions and pension entitlements are shown in the
Remuneration Report on pages 22 to 25 and form part of these ﬁnancial statements. Retirement beneﬁts are accruing to three directors
(2001: ﬁve) under deﬁned contribution pension schemes. During the year one director exercised options over ordinary 10p shares in the
Company.
10. Loss for the ﬁnancial year
As permitted by Section 230 of the Companies Act 1985, the parent company’s proﬁt and loss account has not been included in these
ﬁnancial statements. The parent company’s loss for the ﬁnancial year was £3,604,000 (2001: £94,744,000).
11. Tax on loss on ordinary activities
2002 2001
£’000 £’000
UK corporation tax (82) (800)
Adjustment in respect of prior periods (144) (693)
(226) (1,493)
Notes to the Financial Statements
Year ended 31st December 2002
(continued)
34 Current taxation
The tax result for the period is different from the standard rate of corporation tax in the UK (16%). The differences are explained below:
2002 2001
£’000 £’000
Loss on ordinary activities before tax (6,548) (66,211)
Loss on ordinary activities multiplied by the rate at which UK R&D tax credits may be claimed 
of 16% (2001: 16%) (1,048) (10,594)
Effects of:
Expenses not deductible for tax purposes 547 6,274
Accelerated capital allowances and other timing differences (226) 28
Difference between pension cost relief and net pension cost charge (14) 17
Movements in losses 450 1,381
Adjustment in respect of prior periods (144) (693)
Overseas differences 209 2,094
Current tax charge for the period (226) (1,493)
12. Loss per ordinary share
The basic and diluted loss per ordinary share is based on a group loss for the ﬁnancial year of £6.3m (2001: £64.6m) on 170,361,713
(2001: 158,906,546) ordinary shares, the weighted average number of shares in issue during the year.
13. Intangible ﬁxed assets
Licences Goodwill Total
Group £’000 £’000 £’000
Cost
As at 1st January 2002 10,252 48,902 59,154
Additions 1,000 – 1,000
Disposal – (140) (140)
As at 31st December 2002 11,252 48,762 60,014
Amortisation
As at 1st January 2002 2,392 38,770 41,162
Charge for the year 3,050 769 3,819
Impairment write down – 1,731 1,731
Disposal – (7) (7)
As at 31st December 2002 5,442 41,263 46,705
Net book value as at 31st December 2002 5,810 7,499 13,309
Net book value as at 31st December 2001 7,860 10,132 17,992
The Company has no intangible ﬁxed assets (2000: nil).
Further to the divestment of non-core assets under the restructuring process and as a result of the current ﬁnancial climate the directors
have reviewed the carrying value of goodwill in the balance sheet. The goodwill which arose on the acquisition of CeNeS Limited has been
estimated to have a fair value of £7.5 million resulting in an impairment loss of £1.7 million.
Notes to the Financial Statements
Year ended 31st December 2002
(continued)
CeNeS Pharmaceuticals plc Annual Report 2002 35 14. Tangible ﬁxed assets
Computers,
Plant, ofﬁce
machinery and equipment,
Leasehold laboratory Motor furniture
improvements equipment vehicles and ﬁttings Total
Group £’000 £’000 £’000 £’000 £’000
Cost
As at 1st January 2002 1,920 4,221 149 722 7,012
Additions ––– 16 16
Disposals (12) (4,134) (149) (404) (4,699)
As at 31st December 2002 1,908 87 – 334 2,329
Depreciation
As at 1st January 2002 1,920 3,783 116 597 6,416
Charge for the year – 115 – 69 184
Disposals (12) (3,830) (116) (356) (4,314)
As at 31st December 2002 1,908 68 – 310 2,286
Net book value as at 31st December 2002 – 19 – 24 43
Net book value as at 31st December 2001 – 438 33 125 596
Included within ﬁxed assets are items held under existing ﬁnance lease or hire purchase agreements with a year end net book value of £nil
(2001: £94,179). The depreciation charge for the year on these assets was £57,759 (2001: £449,879).
The Company has no tangible ﬁxed assets (2001: £nil).
15. Investments
In subsidiary companies:
Company
Cost and net book value £’000
At beginning of year 19,242
Shareholding in Xention Limited –
Disposal of shares in Cambridge Cognition Limited (700)
Write down investment in CeNeS Limited (see note 13) (2,500)
16,042
Xention Limited
On 14 August 2002, CeNeS Limited sold its Channelwork business to Xention Limited.
This was satisﬁed by the issue to CeNeS of 375,000 ordinary shares of £0.01, at a deemed value of £1 per ordinary share in Xention Limited
and a loan note for £375,000 which is receivable in 31 December 2009.
As a result of Xention Limited being a private company with early stage development projects, the fair value of the shareholding has been
estimated at £1.
The value assigned to the loan note is included in debtors due after more than one year (see note 18).
Notes to the Financial Statements
Year ended 31st December 2002
(continued)
36 Disposal of shareholding in Cambridge Cognition Limited
On 30 May 2002, CeNeS Pharmaceuticals plc sold its entire shareholding in Cambridge Cognition Limited for a consideration of up to
£1million. Of this, £700,000 is receivable in upfront and stage payments and a further £300,000 is dependent on milestones.
Summary of subsidiary undertakings: % holding
Country of (all classes
incorporation of shares)
Subsidiary undertakings held directly
CeNeS Drug Delivery Limited Scotland 100%
CeNeS Pharmaceutical Limited (formerly Core Medica Limited) Scotland 100%
CeNeS Limited England 100%
CeNeS Contract Research Limited (formerly Excyte Limited) England 100%
CeNeS Pharmaceuticals Inc. (formerly Cambridge NeuroScience Inc.) USA 100%
Cambridge Cognition Guarantee Limited England 100%
Subsidiary undertakings held indirectly
CeNeS Research Limited (formerly Cambridge Cognition Limited) England 100%
As a result of the group restructuring initiated in 2001 the activities of CeNeS Drug Delivery Limited, CeNeS Contract Research Limited and
CeNeS Pharmaceuticals Inc. have been discontinued. The principal activity of CeNeS Limited is the development, sales and marketing of
pharmaceutical products for the treatment of disorders of the central nervous system.
CeNeS Research Limited, CeNeS Pharmaceutical Limited and Cambridge Cognition Guarantee Limited are dormant companies.
CeNeS sold its entire shareholding in Cambridge Cognition Limited in May 2002 (see note 16).
In joint ventures:
Summary of joint ventures % holding
Country of (all classes
incorporation of shares)
CeNeS (Bermuda) Limited Bermuda 80.1%
The principal activity of CeNeS (Bermuda) Limited is the development of pharmaceutical products.
CeNeS Pharmaceuticals plc owns 6,000 ordinary shares of US$1 each and 3,612 non-voting ordinary shares of US$1 each, being 80.1% of
the issued share capital of CeNeS (Bermuda) Limited. The remaining 19.9% of the issued share capital, being 2,388 non-voting ordinary
shares of US$1 each, is owned by Elan Corporation plc.
Due to its 80.1% shareholding in CeNeS (Bermuda) Limited, the group accounted for CeNeS (Bermuda) Limited as a subsidiary in the
Financial Statements for the year ended 31 December 2001.
The Directors continually review the method of accounting for this arrangement and now believe that to account for CeNeS (Bermuda)
Limited as a joint venture rather than as a subsidiary better presents the substance of the relationship. As a result, CeNeS (Bermuda) Limited
has been accounted for using the gross equity method of accounting in these ﬁnancial statements. The comparative ﬁgures have also been
adjusted to reﬂect this method of accounting.
The group’s share of CeNeS (Bermuda) Limited’s gross liabilities was £1,793,000 (2001: £512,000). The joint venture did not have any
assets at 31 December 2002 or any turnover for the year then ended. The group’s share of the joint venture’s loss was £1,391,000 (2001:
(£9,057,000).
On 18 June CeNeS agreed with Elan Corporation plc to terminate the CeNeS/Elan joint venture (see notes 2b and 35).
Notes to the Financial Statements
Year ended 31st December 2002
(continued)
CeNeS Pharmaceuticals plc Annual Report 2002 37 16. Disposals
a) Disposal of shareholding in Cambridge Cognition Limited
On 30 May 2002 the group sold its entire 86.9% interest in the ordinary share capital of Cambridge Cognition Limited.
Net assets disposed of and the related sale proceeds were as follows:
£’000
Fixed assets 41
Current assets 405
Creditors (345)
Net assets 101
Minority interest (15)
Related goodwill 133
219
Proﬁt on sale 469
Net sale proceeds 688
Satisﬁed by:
Net cash 488
Deferred consideration (due on 30 May 2004) 200
688
Net cash inﬂows in respect of the sale comprised:
Net cash consideration 488
A summarised proﬁt and loss account of Cambridge Cognition Limited from the beginning of the ﬁnancial year until the date of disposal on
30 May 2002 is detailed below:
£’000
Turnover 476
Gross proﬁt 365
Operating loss (281)
Loss before and after taxation (281)
b) Disposal of the Channelwork division
On 14 August 2002 the group sold its Channelwork division to Xention Limited.
Net assets disposed of and the related sale proceeds were as follows:
£’000
Fixed assets 85
Creditors (21)
Net assets 64
Proﬁt on sale 84
Sale proceeds 148
Satisﬁed by:
375,000 £0.01 ordinary shares in Xention Limited (see note 15) –
Loan note (see note 15) 148
148
There were no cash ﬂows in respect of the sale.
Notes to the Financial Statements
Year ended 31st December 2002
(continued)
38 A summarised proﬁt and loss account of the Channelwork division from the beginning of the ﬁnancial year until the date of disposal on
14 August 2002 is detailed below:
£’000
Turnover 610
Gross proﬁt 509
Operating proﬁt 137
Proﬁt before and after taxation 137
17. Stocks
Group Group Company Company
2002 2001 2002 2001
£’000 £’000 £’000 £’000
Stocks are comprised of:
Consumables – 45 – –
Raw materials 715 246 – –
Finished goods 173 182 – –
888 473 ––
18. Debtors: amounts falling due after more than one year
Group Group Company Company
2002 2001 2002 2001
£’000 £’000 £’000 £’000
Loan note – Xention Limited 148 –– –
Amounts owed by Joint Venture 1,794 – 1,794 –
Other debtors 200 200
2,142 – 1,994 –
The loan note was issued by Xention Limited to CeNeS Limited as part of its consideration for the acquisition of the Channelwork division
from CeNeS Limited (see note 15). It is receivable on 31 December 2009. The value assigned to the loan note is £148,000.
19. Debtors: amounts falling due within one year
Group Group Company Company
2002 2001 2002 2001
£’000 £’000 £’000 £’000
Trade debtors 915 1,518 – –
Other debtors 198 74 7 13
Corporation tax recoverable 64 800 – –
Prepayments and accrued income 70 199 4 –
1,247 2,591 11 13
Notes to the Financial Statements
Year ended 31st December 2002
(continued)
CeNeS Pharmaceuticals plc Annual Report 2002 39 20. Creditors: amounts falling due within one year
Group Group Company Company
2002 2001 2002 2001
£’000 £’000 £’000 £’000
Customer payments in advance – 477 ––
Trade creditors 1,142 1,385 83 102
Other taxation and social security 32 186 ––
Obligations under ﬁnance leases and hire purchase contracts 8 226 ––
Other loans 65 65 ––
Other creditors 243 9 ––
Accruals 655 2,167 165 105
2,145 4,515 248 207
21. Creditors: amounts falling after more than one year
Group Group Company Company
2002 2001 2002 2001
£’000 £’000 £’000 £’000
Convertible Debt
5% convertible unsecured exchangeable loan stock 2009 7,995 8,717 7,995 8,717
7% convertible unsecured exchangeable loan stock 2007 1,801 – 1,801 –
9,796 8,717 9,796 8,717
The 5% convertible exchangeable loan stock 2009 was issued to Elan Corporation as part of the joint venture entered into with Elan
Corporation on 26th June 2001. The term of the loan stock is 8 years. The loan stock is convertible at the option of Elan Corporation on or
after 26th June 2003. The maximum number of ordinary shares to be issued by CeNeS to Elan Corporation is 15.8 million.
The 7% convertible exchangeable loan stock 2007 was issued to Elan Corporation during the year ended 31 December 2002 in order to
fund the clinical development work carried out within the joint venture arrangement. The loan stock is convertible at the option of Elan
Corporation on or after 26 June 2003. The maximum number of ordinary shares to be issued by CeNeS to Elan Corporation is 4.3 million.
On 18 June 2003 CeNeS announced the termination of the joint venture with Elan Corporation. As a result no further funds will be drawn
down under the convertible loan stock arrangements.
Both of these loans are denominated in US dollars. As a result of exchange rate movements in the year a proﬁt on retranslation of
£1.2 million has been recorded in the proﬁt and loss account.
Group Group Company Company
2002 2001 2002 2001
Other creditors £’000 £’000 £’000 £’000
Obligations under ﬁnance leases and hire purchase contracts – 10 – –
Other loans 114 175 – –
Accruals 549 732 – –
Deferred government grant – 96
663 1,013 – –
Notes to the Financial Statements
Year ended 31st December 2002
(continued)
40 The maturity of the convertible loan stock, other loans and obligations under ﬁnance leases and hire purchase contracts at the year end was
as follows:
Group Group
2002 2001
£’000 £’000
Amounts falling due:
Within one year 73 291
Between one and two years – 10
Between two and ﬁve years 114 175
After ﬁve years 9,796 8,717
9,983 9,193
Loans include amounts due to North Ayrshire Council totalling £94,000 (2001 – £134,000). The loan incurs interest at 9% per annum. The
loan is secured by a ﬂoating charge and by guarantee from the Company.
Loans also include amounts due to Ayrshire Development Fund Limited totalling £85,000 (2001 – £106,000). The loan incurs interest at 8%
per annum. The loan is secured by a ﬂoating charge and by guarantee from the Company.
22. Provisions for liabilities and charges
Deferred tax assets have not been recognised as the directors consider that this would be inappropriate as the group is not expected to
realise sufﬁcient proﬁts in the foreseeable future. This will be reassessed at such time as the company makes a proﬁt. The amount
unprovided of the total potential liability/(asset) is as follows:
Group 2002 2001
Amount Amount Amount Amount
provided unprovided provided unprovided
£’000 £’000 £’000 £’000
Tax effect of timing differences:
Excess of capital allowances over depreciation – 46 – (351)
Short term timing differences – (23) – (50)
Tax effect of losses carried forward – (10,760) – (17,136)
Other provision – (17) – (39)
– (10,754) – (17,576)
Company 2002 2001
Amount Amount Amount Amount
provided unprovided provided unprovided
£’000 £’000 £’000 £’000
Tax effect of timing differences:
Short term timing differences – (23) – (3)
Tax effect of losses carried forward – (566) – (714)
– (589) – (717)
Notes to the Financial Statements
Year ended 31st December 2002
(continued)
CeNeS Pharmaceuticals plc Annual Report 2002 41 23. Called up share capital
2002 2002 2001 2001
The share capital of the Company is shown below: Number £’000 Number £’000
Authorised
Ordinary shares of 10p each 258,300,620 25,830 258,300,620 25,830
Number Issued Share
of ordinary share capital premium
Allotted, issued and fully paid 10p shares £’000 £’000
At 1st January 2002 170,160,661 17,016 85,603
Exercise of share options 252,307 25 32
BTG Group 4,000,000 400 600
174,412,968 17,441 86,235
Share warrants
Warrants issued to Elan Corporation in June 2001 have been cancelled as part of the agreement with Elan to terminate the joint venture
(see note 2b).
Share to be issued
Following the reverse takeover of Core Group plc by CeNeS Limited in December 1999 there are 11,374,392 ordinary 10p shares to be
issued as deferred consideration to holders of options over ordinary shares in CeNeS Limited. These were valued at 45p per share at the
date of the reverse takeover of Core Group plc by CeNeS Limited giving a value of £4,559,000 after deducting £560,000 receivable by
CeNeS on exercise of the options.
There are also 1,557,947 ordinary 10p shares to be issued as deferred consideration to holders of options over shares in Cambridge
NeuroScience Inc. These were valued at approximately 66p per share at the date of the takeover of Cambridge NeuroScience Inc in
December 2000 giving them a value of £660,000 after deducting £400,000 receivable by CeNeS on exercise of the options.
Notes to the Financial Statements
Year ended 31st December 2002
(continued)
42 Schedule of options outstanding as at 31st December 2002
As at
Note 31/12/02 Exercise price Date of grant
Unapproved share option scheme 1 51,748 £0.515 9th November 1998
Approved share option scheme 1 58,652 £0.515 9th November 1998
Unapproved share option scheme 1 321,950 £0.82 11th May 2000
Approved share option scheme 1 1,001,797 £0.82 11th May 2000
Approved share option scheme 1 35,865 £0.823 26th September 2000
Approved share option scheme 1 36,810 £0.815 3rd October 2000
Unapproved share option scheme 1 24,540 £0.815 3rd October 2000
Unapproved share option scheme 1 375,000 £0.535 18th December 2000
Approved share option scheme 1 119,307 £0.578 29th January 2001
Approved share option scheme 1 218,712 £0.428 11th June 2001
Unapproved share option scheme 1 2,241,872 £0.08 1st January 2002
Approved share option scheme 1 876,003 £0.08 1st January 2002
Executive Share Option Plan 3 126,923 £1 in aggregate 30th June 2000
Executive Share Option Plan 3 100,961 £1 in aggregate 3rd July 2000
Executive Share Option Plan 3 3,187,501 £1 in aggregate 31st December 2001
SAYE scheme 5 year option (1998) 2 7,674 £0.80 27th April 1998
Notes:
1) Subject to the satisfaction of any applicable condition of exercise, options may be exercised in whole or in part at any time and from time
to time after the earliest of the third anniversary of grant, the death of the option holder, or the option holder ceasing to be a director or
employee of the Company by reason of injury, disability or redundancy, or retirement, or at the discretion of the Remuneration Committee,
for any reason.
2) In normal circumstances a Sharesave Option may be exercised by the holder (“Sharesave Option Holder”) only during the period of six
months commencing on the date that the bonus under the related SAYE contract is payable.
Earlier exercise is permitted on the Sharesave Option Holder’s death, retirement at age 60, or such other age at which he is bound to retire,
or if the employee’s employment is terminated by reason of redundancy, injury or disability. In such circumstances the Sharesave Option is
exercisable only to the extent of the amount of the contributions then made under the related SAYE contract and any interest or bonus
payable thereon.
The Core Technologies Employees Trust also holds 25,000 shares on behalf of one ex-employee.
3) The CeNeS Executive Share Option Plan (the “Plan”) provides for the grant of rights to acquire shares by way of purchase to eligible
employees of CeNeS. Under the Plan options are granted at an aggregate exercise price of £1 and will normally only vest after the third
anniversary of the date of grant and if the Company’s share price has exceeded the growth in total shareholder return for the FTSE A All-
Share 900 Companies over that period.
Notes to the Financial Statements
Year ended 31st December 2002
(continued)
CeNeS Pharmaceuticals plc Annual Report 2002 43 24. Reserves
Proﬁt
Other Share and loss
reserves premium account Total
The group £’000 £’000 £’000 £’000
As at 1 January 2002 10,421 85,603 (109,350) (13,326)
Issue of new shares
– Exercise of share options (14) 32 – 18
– BTG Group – 600 – 600
Gain on foreign currency translation –– 18 18
Retained loss for the year to 31 December 2002 –– (6,258) (6,258)
10,407 86,235 (115,590) (18,948)
Included in other reserves as at 31 December 2002 is a merger reserve of £10,370,000.
Proﬁt
Other Share and loss
reserves premium account Total
The Company £’000 £’000 £’000 £’000
As at 1 January 2002 51 85,603 (96,981) (11,327)
Issue of new shares
– Exercise of share options (14) 32 – 18
– BTG Group – 600 – 600
Retained loss for the year to 31 December 2002 –– (3,604) (3,604)
37 86,235 (100,585) (14,313)
25. Reconciliation of movements in group shareholders’ funds
Group Group
2002 2001
£’000 £’000
Loss for the ﬁnancial year (6,258) (64,597)
Gain on foreign currency translation 18 124
Movement in share option reserve (14) –
Share capital to be issued (43) (45)
Issue of shares 1,057 5,874
Net (decrease)/increase in shareholders’ funds for the year (5,240) (58,644)
Opening shareholders’ funds 8,952 67,596
Closing shareholders’ funds 3,712 8,952
26. Minority interests
£’000
At 1 January 2002 104
Sale of subsidiary undertaking (40)
Proﬁt and loss account (64)
At 31 December 2002 –
All minority interests comprise equity interests.
Notes to the Financial Statements
Year ended 31st December 2002
(continued)
44 27. Reconciliation of operating loss to net cash outﬂow from operating activities
2002 2001
£’000 £’000
Operating loss (6,451) (52,832)
Depreciation 184 1,429
Release of grant (96) (38)
Amortisation of intangible assets 3,819 5,355
(Proﬁt)/loss on sale of tangible ﬁxed assets (207) 256
Impairment of goodwill 1,731 33,710
Beneﬁts and options settled by shares – 109
(Increase)/decrease in stocks (460) (100)
(Increase)/decrease in debtors (1,559) 2,182
Increase/(decrease) in creditors (1,966) (4,905)
Net cash outﬂow from operating activities (5,005) (14,834)
28. Analysis and reconciliation of net debt/funds
1st January Exchange Non-cash 31st December
2002 Cash ﬂow adjustment items 2002
£’000 £’000 £’000 £’001 £’000
Cash in hand and at bank 2,161 (1,681) –– 480
Debt due after one year (8,892) (1,733) 1,186 (471) (9,910)
Debt due within one year (65) ––– (65)
Finance leases (236) 228 –– (8)
(7,032) (3,186) 1,186 (471) (9,503)
29. Contingent liabilities and guarantees
The Company has a guarantee in relation to the lease arrangements for 3 Riverside Way, Irvine, entered into by CeNeS Drug Delivery
Limited. The lease has a 25 year term, commencing 12th February 1998, with a break point at year 20. The annual amount payable is
£163,000. As a result of the restructuring this property is no longer required and the Company is actively seeking to sublet the property.
In September 1999, Core Technologies Limited concluded an agreement to take a lease of new, additional premises adjacent to the main
site at Riverside Way, Irvine. The lease term is for ten years at an annual rental of £154,000. After successfully subletting the property during
2001, the tenant has since gone into administration in late 2002 and the Company is now actively seeking to sublet the property.
The Company has a provision for future expected lease costs of £915,000 (2001: £915,000) being four years lease costs for the property at
3 Riverside Way and one year’s lease costs in respect of the additional property.
The Company has entered cross guarantees within the group as part of its banking arrangements.
30. Pension commitments
CeNeS has a stakeholder pension scheme which is available to all UK based employees.
Previously employees of CeNeS Limited had a deﬁned contribution paid by the Company to the employee’s chosen personal pension
arrangement. The pension charge for the year was £75,000 (2001: £173,000). At 31 December 2002 contributions totalling £57,000 (2001:
£112,000) were payable to these pension arrangements.
Employees of CeNeS Drug Delivery Limited also had the option of having a deﬁned contribution paid to their chosen personal pension
arrangement. The group also operates a voluntary pension scheme for employees of CeNeS Drug Delivery Limited, The Core Technologies
Pension Scheme, which is a money purchase scheme that was closed to new employees who joined the company after December 1999.
Contributions are paid into an individual retirement account for each employee. The assets of the scheme are held separately from those of
the group and are under the control of the trustees of the scheme who have appointed William M Mercer Limited as professional advisors.
The pension charge for the year was £20,000 (2001: £103,000). At 31 December 2002 contributions totalling £nil (2001: £35,000) were
payable to the scheme and are included in creditors.
Notes to the Financial Statements
Year ended 31st December 2002
(continued)
CeNeS Pharmaceuticals plc Annual Report 2002 45 31. Operating lease commitments
Annual obligations under non-cancellable operating leases are as follows:
Land and Land and
buildings Other buildings Other
2002 2002 2001 2001
Expiry Date £’000 £’000 £’000 £’000
Within one year 68 8 163 4
Within two to ﬁve years 14 42 14 40
After ﬁve years 317 – 317 –
399 50 494 44
32. Related party transactions
The following fees and expenses were incurred during the period from the associated companies of the non-executive Directors of the group
as follows:
Group Group
2002 2001
£’000 £’000
Alta Berkeley Associates (Dr David A Needham) – 14
Irwin Associates International (Mr T Ronald Irwin) 18 18
The balances due at the year end and included in creditors and accruals were as follows:
Group Group
2002 2001
£’000 £’000
Alta Berkeley Associates (Dr David A Needham) – 5
Irwin Associates International (Mr T Ronald Irwin) 10 –
CeNeS Pharmaceuticals plc paid rents of £107,000 to DeNovo Pharmaceuticals Limited. Mr A G Goodman, CeNeS Pharmaceuticals plc’s
chairman is chairman of DeNovo Pharmaceuticals Limited. The highest balance due to DeNovo during the year was £37,000. The balance
at the year end and was zero.
The company has taken advantage of the exemption available to parent companies under FRS 8 ‘Related Party Disclosures’ not to disclose
transactions and balances with group entities which have been eliminated on consolidation.
33. Financial instruments
The group’s ﬁnancial instruments comprise cash and liquid resources, ﬁnance leases and hire purchase commitments and various items
arising directly from its operations such as trade debtors and trade creditors. The group undertakes certain foreign currency transactions in
the course of its operations, predominantly in US dollars. To date the group has not hedged any transactional currency exposure.
It is, and has been throughout the year, the group’s policy that no trading in ﬁnancial instruments shall be undertaken, other than placing
funds on treasury deposit.
The main risks arising from the group’s ﬁnancial instruments are interest rate risk, foreign currency risk and liquidity risk. The board reviews
and agrees policies for managing each of these risks and they are summarised below.
Short term debtors and creditors have been excluded from all the following disclosures, other than currency risk disclosures.
Notes to the Financial Statements
Year ended 31st December 2002
(continued)
46 Interest rate proﬁle
The group has no ﬁnancial assets at the year end other than cash (2001: £nil).
Interest rate proﬁle of the group’s ﬁnancial liabilities, which all have ﬁxed interest rates, was as follows:
31st December 2002 31st December 2001
£’000 £’000
Sterling
– Borrowings 179 240
– Finance leases 8 236
US Dollar
– Convertible debt 9,796 8,717
Weighted Weighted average
average interest period for which
rate rate is ﬁxed
% Years
Sterling
– Borrowings 8.5 4.0
– Finance leases 8.0 0.1
US Dollar
– Convertible debt 5.4 7.3
The weighted average interest rate is 5.4% (2001: 5.3%). See note 21 for details of the maturity of the group’s ﬁnancial liabilities.
Interest rate proﬁle of the group’s ﬁnancial assets:
During the year cash was the only ﬁnancial asset within the group and was subject to ﬂoating rates of interest.
Currency risk
During the year, the group’s currency exposures arising due to its investment in CeNeS (Bermuda) Ltd were as follows. CeNeS Limited
invoiced CeNeS (Bermuda) Limited monthly in US dollars for clinical development work carried out. CeNeS Pharmaceuticals plc then drew
down funds in US dollars under the 7% convertible loan stock 2007 to fund its share of liabilities within CeNeS (Bermuda) Limited. Once
funded, CeNeS (Bermuda) Limited paid the outstanding invoices to CeNeS Limited.
At the end of the year the group’s individual operations had no net monetary assets and liabilities in currencies other than their functional
currency.
Liquidity risk
The Board closely monitors the liquidity of the group through regular review of ﬁnancial information and takes appropriate action to reduce
liquidity risk in terms of meeting working capital requirements.
Fair values
There is no difference between the fair value and the carrying value of bank and cash balances and obligations under ﬁnance lease
agreements. Carrying values approximate to fair values because of the short maturity periods of these ﬁnancial instruments.
The 5% convertible unsecured exchangeable loan stock 2009 had a carrying value of £7,995,000 (2001: £8,717,000) and the 7%
convertible unsecured exchangeable loan stock 2007 had a carrying value of £1,801,000 (2001: £nil) at 31 December 2002. At that date it
was not practical to estimate fair value with sufﬁcient reliability, as the instruments are unique to the group that has no comparable form of
debt. The future cash ﬂows associated with the loan stock were difﬁcult to predict with any degree of reliability, as they were wholly
dependent upon whether it was converted into shares or redeemed at par.
Notes to the Financial Statements
Year ended 31st December 2002
(continued)
CeNeS Pharmaceuticals plc Annual Report 2002 47 34. Capital commitments
As at 31st December 2002 amounts contracted for, but not provided in the accounts, amounted to £nil (2001: £nil).
35. Post balance sheet events
On 22 May 2003 CeNeS announced that it had completed the sale of its pharmaceutical products Diconal, Cyclimorph and Valoid to a
subsidiary of Waymade Healthcare Plc for a consideration of over £9 million in cash.
On 18 June 2003 CeNeS announced that it has reached agreement with Elan Corporation to terminate the CeNeS/Elan joint venture which
was established in June 2001 to develop M6G (morphine-6-glucuronide) for the treatment of pain. CeNeS alone will now plan to take
forward and fund the clinical development of M6G as it enters its phase III program for the treatment of post-operative pain. (see note 2b)
Under the terms of the agreement CeNeS and Elan have agreed that the joint development programmes are terminated and that the
respective rights to M6G and certain drug delivery technologies are returned to CeNeS and Elan. The minority shareholding held by Elan in
CeNeS Bermuda Limited will be transferred to CeNeS. CeNeS has agreed to pay Elan a percentage of all future revenues CeNeS generates
from M6G.
Notes to the Financial Statements
Year ended 31st December 2002
(continued)
48
Printed by St Ives Burrups B710930/10882 Directors
Alan G Goodman
Chairman
Neil R Clark
Director
T Ronald Irwin
Non-Executive Director
Tim Wright
Non-Executive Director
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