Sinclair Pharma plc
Annual Report to 30 June 2005
Sinclair Pharma plc Annual Report to 30 June 2005 New product approvals (cumulative) 
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2
4
6
8
10
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2000 2001 2002 2003 2004 2005
Number of Products Registered
EU Registration US Registration
Dallas
TX(USA)
Lebanon
NJ(USA)
Godalming
(UK)
Operations
Milan
(Italy)
Götebörg
(Sweden)
SINCLAIR PHARMA 1
Highlights for 2005
Operating Highlights
• Significant regulatory progress with
6 product approvals
– FDA approval for both Aloclair® Gel and
Aloclair® Spray (for mouth ulcers)
– FDA and EU approval for Decapinol® (for
gingivitis)
– EU approval for Alogon™ (for sore throats)
– EU approval for Sebclair™ (for seborrheic
dermatitis)
– Two further FDA 510(k) filings made for
Sebclair™ and Alogon™
• Important commercial progress with
34 licensing deals and 27 launches of
Sinclair products. Key highlights include:
– Atopiclair™ (for atopic and contact
dermatitis) licensed in US to Chester Valley
Pharmaceuticals and launched in June
2005
– Aloclair® products (for mouth ulcers) now
on sale in over 24 countries through
Sunstar Butler
– Decapinol® (for gingivitis) launched in May
2005
– Xclair™ for radiation dermatitis licensed in
US, UK, Germany, Korea & Colombia
– SST™ (for dry mouth syndrome) licensed
in US, Korea & Colombia
– Salinum™ (for saliva replacement) licensed
in US, UK, Germany, Austria & Colombia
• Completed fourth acquisition since MBI:
Euroderm RDC Srl [Euroderm] (now
Sinclair Srl) providing direct sales force in
Italy
• Other Progress
–Successful double-blind study
demonstrating the efficacy of Atopiclair™
in atopic dermatitis
– Gelclair™/Aloclair® patent approved in
the EU and US
– Wal-Mart starts to sell Aloclair® Rinse
(Rincinol® in the US) from April 2005
– Aloclair® Rinse received accreditation
from the UK Dental Health Foundation
Financial Highlights
– Turnover up 174% to £7.0m (2004:
£2.5m), on continuing operations
– Operating loss of £2.8m (2004: £2.9m
loss)
– Loss per share of 5.44p (2004: 6.59p loss
per share)
– Cash balances of £4.9m at 30 June 2005
(2004: £7.8m)
• Strong order book
• Positive outlook with current Q1 trading
strong & substantial growth expected
Post period end highlights
– Decapinol® Toothpaste & Gel receive EU
regulatory approval
– All three Aloclair® presentations licensed
in Mexico
– Sebclair™ licensed to CVP Inc in the US
– Atopiclair™ launched in Italy and co-
promotion there with specialist distributor 2
Contents
Highlights for 2005 1
Chairman’s Statement 3
Chief Executive’s Review 4
Financial Review 10
Directors and Officers 12
Directors’ Remuneration Report 15
Corporate Governance Report 24
Directors’ Report 32
Statement of Directors’ Responsibilities 37
Independent Auditors’ Report 38
Group Profit and Loss Account 40
Group Statement of Total Recognised Gains and Losses 41
Group Balance Sheet 42
Company Balance Sheet 43
Group Statement of Cash Flows 44
Notes to the Financial Statements 46
Notice of AGM 73
Corporate Advisers 75 3
With the regulatory and commercial progress
made this year, Sinclair is a materially stronger
business than it was last year. 3 EU and 3 US
product approvals and 34 licensing deals were
struck during the financial year. Revenues
increased by 174% to £7.0m (2004: £2.5m) on
continuing operations.
In the last five years, Sinclair has obtained
regulatory approval in the EU for thirteen of its
products (two post period) and for nine of these
in the US. It has furthermore achieved the
licensing of a total of 10 of these approved
products to partners in the US, EU and other
countries. In the context of normal pharma
industry time-frames, this is a remarkable
achievement and lays the groundwork for
substantial future revenue growth and
sustainable profitability.
The Company has also taken an important step
in the evolution of its strategy this year when it
acquired Sinclair Srl (formerly Euroderm) and with
it, it’s Italian sales force. This important step gives
us greater control over the marketing of our
products and will lead to substantially improved
margins for those sold by our Italian sales force.
The establishment of our own sales and
marketing capability in other major markets is an
important future part of our strategy. With our
clear success in gaining regulatory approvals, we
now have a large portfolio of approved products
which we will be able to market ourselves in
selected countries as well as through licensing
partners.
As indicated in our market update in June,
Sinclair has a robust near term pipeline of future
potential products. These include five new derma
products, five oral care products including two
Decapinol® line extensions for which, post
period, we already have EU regulatory approval
and two products for the treatment of eye
conditions.
We are now seeing increasing revenues from our
main products as our licensing partners start to
market them. Our Atopiclair™ agreement with
Chester Valley Pharmaceuticals Inc. last
December has resulted in the product’s US
launch in June this year. Similarly, Decapinol®,
our novel oral rinse product for gingivitis, has
now been launched in Italy by Dompé. Our other
key oral health, and currently largest product,
Aloclair®, is now being sold by the international
group Sunstar Butler in 24 countries in the EU
and North America. The US based retailing giant
Wal-Mart is now selling Aloclair® Rinse
(marketed in the US as Rincinol®) in its US stores
and superstores. Aloclair® is now Sinclair’s most
widely available product with a total of 34
licensing agreements covering over 50 countries,
including the Far East, the USA, Canada, South
America, Australia, Europe and the Middle East.
Steve Harris
Non-Executive Chairman
Chairman’s Statement
“In the last five years,
the remarkably repaid
achievement of
regulatory approvals
and licensing deals for
Sinclair products has
laid the groundwork for
substantial future
revenue growth and
sustainable
profitability.” 4
OVERVIEW
Sinclair has made major progress in the last year
in its mission to become a leading specialty
pharmaceutical company. The six regulatory
approvals in the period and 34 licence deals
confirm Sinclair’s regulatory and commercial
expertise. Sinclair’s risk averse strategy,
implemented at the time of the management
buy-in, in 2000, has proved to be successful. In
only five years Sinclair has rapidly acquired and
integrated four acquisitions and obtained the
approval for 13 new products in the EU and 9 in
the US. It has licensing agreements in place for
ten of these products. As these partners have
commenced launching in their territories, our
revenues from sales have increased accordingly.
In short, Sinclair has achieved a solid platform of
approved products, licensing partners and a
pipeline of interesting future products which
enable it to anticipate future sustainable growth
and profitability with confidence.
Strategy
Sinclair is a rapidly growing specialty
pharmaceutical business developing a strong
portfolio of niche pharmaceutical products in
dermatology and oral health. We manage risk by
avoiding the heavy cost and long time frames
associated with traditional R&D. Instead, we
deploy our expertise in identifying and acquiring
those products that have hit hurdles
(developmental or regulatory) in the latter stages
of their development. We have a proven ability to
overcome such hurdles and are achieving strong
regulatory success. We now have 13 products
approved in the EU and 9 in the US. The next
step in our strategy is to acquire our own
marketing infrastructure in selected markets,
enabling us to retain greater control over our
products and higher margins. The first such step
in this strategy was the acquisition of Euroderm
in Italy in January 2005.
Regulatory Progress for Financial Year
30 June 2005
Regulatory progress in the past year has
continued to be strong. Since July 2004, we
have achieved three new US registrations and
three in the EU. This year both Aloclair® Gel and
Aloclair® Spray, for the treatment of mouth
ulcers and oral lesions, received US Food & Drug
Administration (FDA) approval as medical
devices. These were followed by FDA approval
for our novel mouth rinse Decapinol® for the
treatment of gingivitis. In the EU we received
regulatory approval (as medical devices) for,
Decapinol®, Alogon™ our Aloclair® line
extension for the relief of pharyngitis (sore throat)
and lastly for Sebclair™ our product for
seborrheic dermatitis.
Licensing Progress for Financial Year
30 June 2005
Early product approval has facilitated the
establishment of numerous licensing
agreements. Since we operate in niche markets,
it is our strategy to look for the most suitable
licensing partners who we believe will expedite
the launch of our products. Over the last year we
have concluded thirty-four agreements covering
eight products. The most significant of these
products include Atopiclair™, our treatment for
atopic and contact dermatitis, and Decapinol®
as well as the three Aloclair® presentations.
Aloclair® is presently Sinclair’s largest selling
product and is now licensed to partners covering
more than 50 countries.
Chief Executive’s Review
“In only five years
Sinclair has rapidly
acquired and
integrated four
acquisitions and
obtained the approval
for 13 new products in
the EU and 9 in the US.
It has licensing
agreements in place
for ten of these
products. In short,
Sinclair has achieved a
solid platform of
approved products,
licensing partners and
a pipeline of
interesting future
products which enable
it to anticipate future
sustainable growth and
profitability with
confidence.” 5
PRODUCT AREAS
Oral Health
Aloclair® Rinse, Gel & Spray & Gelclair™ for
mouth ulcers and oral lesions
Aloclair® is currently Sinclair’s largest product in
terms of sales and distribution. Sales of Aloclair®
to distributors were slightly lower than last year
due to scheduling of purchase orders in the
previous year. However, retail sales continue to
increase and with the growing geographical
spread of markets covered, Aloclair® will
continue to be an important revenue contributor.
Aloclair® has three presentations (an oral rinse
solution, an oral gel and an oral spray). With the
Gel and Spray US approvals this year, all three
Aloclair® presentations now have regulatory
approval in the US allowing them to be sold over
the counter (OTC). TNS market research
conducted for Sinclair indicates that 16% of the
adult population get an oral ulcer over a 12
month period and 64% of that population seek
pain relief with a medication. That research
translates to a user base of over 100 million
adults in both the EU and US where all three
Aloclair® delivery systems are now approved.
The global mouth ulcers market is estimated to
be worth more than $1 billion per annum.
Fifteen distribution agreements for Aloclair®
products (including extensions of existing
agreements) were signed in the past fiscal year.
The Sunstar Butler Group in particular has
significantly increased its Aloclair® (Rincinol® in
the US) distribution agreements over the past
four years and they now cover 23 countries in the
EU and North America.
This year, our Italian distributor Recordati
confirmed that it will be selling all three Aloclair®
products in Italy under the trade name of
‘Alovex’. Also, our licensee in Hungary, Vicis
Pharma Co, extended their existing agreement
for Aloclair® Rinse and Gel to include Spray.
Further afield we have signed up three more
licensees for Aloclair® Rinse. We licensed the
Turkish company SSM for the distribution of
Aloclair® Rinse in that country and have also
signed up Pharmbio Korea and Meditech Int. Pty
of Australia for distribution of Aloclair® Rinse in
those countries.
This year the EU patent for Aloclair® Rinse and
Gelclair™ was granted. Gelclair™ is Sinclair’s
product for the relief of severe oral ulceration and
inflammation from various causes (mucositis).
Sinclair was also advised this year that the US
patent for Aloclair® Rinse and Gelclair™ had been
granted. This triggered a US$500,000 milestone
payment under our existing worldwide distribution
agreement with Helsinn Healthcare S.A.
A further testimony to the effectiveness of
Aloclair® was the news that our UK licensee,
Forest Labs, had secured accreditation for
Aloclair® Rinse from the UK Dental Health
Foundation. Aloclair® Rinse is the first product to
receive such accreditation for the pain relief of
mouth ulcers in the UK and the accreditation
provides a significant independent validation of
Aloclair® Rinse’s efficacy.
Alogon™ for painful throat conditions such
as pharyngitis
Based on the same technology as Aloclair® and
Gelclair™, Alogon™ is Sinclair’s new product for
painful throat conditions such as pharyngitis. In
Q2 it received EU approval as an OTC medical
device.
The product is presented in the form of a liquid
gargle but is also being developed as a tablet and
spray. The registration of Alogon™ as a medical
device in the EU was achieved significantly earlier 6
than anticipated and Sinclair has now also filed
for US 510(k) registration for the product.
Decapinol® for gingivitis
Decapinol® is a new oral rinse product for the
treatment of gingivitis which we believe to have
significant potential. Decapinol® received
regulatory approval as a medical device in both
the US and the EU during the financial year.
License agreements were put in place in three
markets. Following EU approval for Decapinol®
at the commencement of the financial year we
appointed Dompé International S.A as our
distributor in Italy and they launched Decapinol®
in June 2005 utilising their 228 strong sales force.
In March 2005 Laboratorios Inibsa SA was
appointed as our distributor in Spain. Inibsa
promotes the Oralex brand of toothbrush,
toothpaste and mouthwash products to dentists
in Spain and has a staff of 300, 42% of whom are
employed in sales and marketing. Inibsa expect
to launch Decapinol® in Spain in the coming
months.
Decapinol® has been clinically proven in tests
with over 2,000 patients. Decapinol® acts by
interfering with the attachment of bacteria to the
teeth and gum surfaces, in contrast to
antiseptics and antibiotics such as chlorhexidine,
which tend to kill all oral bacteria and adversely
affect the natural balance of oral bacteria. Sinclair
believes that Decapinol® is the first new
chemical entity for gingivitis for the past 30 years
and that it has the potential to grow the existing
market since it is well tolerated compared to
existing treatments. We are developing a range
of new Decapinol® products such as toothpaste
as announced at our R&D presentation to
analysts and investors. The combined market for
all mouthwashes and toothpastes is estimated to
be worth $12.5 billion of which $10.5 billion is
toothpastes. The market for specific gingivitis
products is currently estimated to be worth
£1.5 billion.
Sinclair is actively engaged in licensing
discussions for Decapinol® in the US and the
remainder of Europe and hopes to reach
agreement in the major territories over the course
of this financial year.
SST™ & Salinum™ for dry mouth syndrome
(“xerostomia”)
Sales for our dry mouth products at £153k
(2003/4 £175k) were down 13% on last year. We
expect growth again in this financial year with the
anticipated US launch but, as our revenues
increase, these products are likely to represent a
decreasing proportion of our future revenues.
Both products already have regulatory approval
in the EU and the US. Just before the year-end
Salinum™ and SST™ agreements were signed
for the US with Align Pharmaceuticals and with
Bio Pharma for Colombia. During the year
distribution agreements for Salinum™ were also
signed in the UK with JJS Pharma Ltd, in
Germany with ORCA Pharm and in Austria with
Novopharm Bio. In addition at the end of May an
agreement for SST™ was concluded with
Medifocus Co. Ltd. of Korea.
Xerostomia occurs when the salivary glands’
functions are partially or in extreme cases totally
impaired. This may occur in a variety of
circumstances including, old age, auto immune
disease, a large number of drugs, and surgery or
radiation therapy to the head and neck.
Xclair™ for radiation dermatitis
Xclair™ is at the start of its commercial life and
was introduced in the first markets during the
year and achieved sales of £208k. Based on the
same technology as Atopiclair™, this product is
for the treatment of radiation dermatitis which is
an inflammatory condition of the skin afflicting
patients receiving radiotherapy for cancer. 7
Xclair™ has previously received regulatory
approval in both the EU and US. Progress on this
product was evidenced by five new distribution
agreements for Xclair™ over the year, in the US,
UK, Germany, South Korea and Colombia.
Dermatology
Atopiclair™ for atopic and contact
dermatitis
Atopiclair™, the first prescription medical device
authorised by the US FDA to relieve the symptoms
of atopic dermatitis and allergic contact dermatitis,
was launched in the US in June.
An important treatment aim in atopic dermatitis is
to reduce and control the itch associated with the
disease. Proof of its efficacy was reinforced by
the announcement in June of a positive US
multicentre double blind trial in atopic dermatitis
showing very rapid and highly significant clinical
improvement.
During the year, Atopiclair™ was licensed in the
US to Chester Valley Pharmaceuticals Inc (CVP).
CVP is a well financed specialty dermatology
company, headed by two highly experienced and
respected pharma executives each with a
significant track record in commercialising
dermatology products. The dramatic reductions
in itch, as well as other results from the recent US
study, lead to CVP’s belief that Atopiclair™ will be
welcomed by physicians and patients in the US.
Although only launched by CVP in June in the
US, Atopiclair™ sales have got off to an
encouraging start. The launch of this key product
also triggered a £1.6 million license fee and
milestone payment.
In the second half, a further three distribution
agreements were put in place for Atopiclair™ in
Portugal, Indonesia and Israel.
Sebclair™ for seborrheic dermatitis
Sebclair™ received EU regulatory approval as a
Class 2a medical device for prescription or OTC
distribution in April 2005. Discussions continue
with the FDA and a response is expected in the
current financial year.
Post period we appointed Chester Valley
Pharmaceuticals Inc as our US licensee. We are
actively seeking distribution partners for this
promising product in other territories and we
anticipate the first sales of Sebclair™ during the
current financial year.
Seborrheic dermatitis is a common skin condition
characterised by red, flaky skin. It is estimated to
occur in 3-5% of the general population. It is
common in young adult men, and in the under-
5s, where it may manifest as ‘cradle cap’.
Sebclair™ addresses a market worth more than
$500 million.
Product Pipeline
As revealed in our R&D day in June, Sinclair has
a growing product pipeline behind the portfolio of
approved drugs and devices. Of these, the most
exciting compounds include Decapinol®
Toothpaste. Decapinol® Gel (both now approved
in the EU). Decapinol® Toothpaste has the
potential to take the Decapinol® range of
products beyond the US $2 billion mouthwash
market into the US$10 billion toothpaste
marketplace. The introduction of our pipeline
products for psoriasis and acne represent a step
into this further multi-billion dollar market.
Acquisition of Euroderm
On 31 January we completed the acquisition of
Euroderm, a privately-owned dermatology
business. This deal increases Sinclair’s product
portfolio and during the last 5 months of the
financial year Euroderm contributed £1.07m to
overall revenues. Euroderm has its own sales
“Our experience, from
clinical  trials and from
anecdotal reports
evidencing that
Atopiclair™ is effective
in reducing the itch,
the severity and the
extent of eczema
lesions and the rapid
onset of action and
very good tolerance
seen in this trial, has
us very optimistic
about the success of
the product as soon as
it hits the market.”
(Dr. William Abramovits, independent principal investigator,
multicenter Atopiclair
TM
study performed in the US.) 8
force in Italy giving us greater control over our
products and improved margins. Following
completion, the company was renamed Sinclair
Srl.
Our success in registering new products ahead
of expectations has meant that we have been
able to accelerate our strategy to move down the
distribution chain and gain higher margins for our
products. We will now be able to market our
growing portfolio of approved products directly in
Italy. In addition, by acquiring a cash generative
company that has capacity for further products
we will not incur cash costs in setting up our own
sales force in Italy. We intend to continue this
strategy across the major territories in Europe.
Management
We strengthened our senior management this
year with the appointment of Derek Williams as
COO of our main operating company and Mario
di Majo as head of our newly acquired company
Sinclair Srl. Derek joined Sinclair from Celltech
where he was most recently European
Commercial Director, overseeing the
restructuring of commercial operations and the
establishment of a Europe-wide secondary care
capability. Derek’s primary role will be to lead
Sinclair’s expansion of its own sales and
marketing capability across Europe and into
North America as more of the products in the
company’s pipeline come to market. Mario was
for the past ten years with Teva Pharma Italia,
latterly as Hospital Business Unit Director. Paul
Phull, previously Vice-President of Business
Development was appointed as Business
Development director of the operating company.
At the beginning of the year the Board was
strengthened by the appointment of Grahame
Cook as non-executive director. Grahame, aged
47, has over 18 years experience in investment
banking advising on a wide range of M&A and
Capital Market transactions in the US and
Europe.
Post Period
Since the year end, Sinclair has received two EU
regulatory approvals, struck seven new licensing
deals covering six products and launched
Atopiclair™ in the EU.
In early July both our Decapinol® line extensions
Decapinol® Toothpaste (a toothpaste for treating
gingivitis) and Decapinol® Gel (a product for the
intensive professional treatment of gum
infections) had obtained EU registration approval.
These products are based on the technology
behind Decapinol® and the registrations
significantly increase the addressable market for
Decapinol®. Licensing agreements signed post
period include agreements with Anabiosis
Limited in Greece for the distribution of
Salinum™ and Xclair™. Our US distributor for
Atopiclair™ has also taken Sebclair™ in the US.
Adding to their existing agreements, Sunstar
Butler’s Mexican company John O. Butler
(Mexico) has signed distribution agreements for
all three Aloclair® presentations while Pharmbio
Korea Ltd has become our distributor for
Decapinol® in South Korea. We have also
launched Atopiclair™ in Italy through Sinclair Srl
(formerly Euroderm). This is Sinclair’s first product
launch through our own sales force and
represents a significant step in the evolution of
the Company’s distribution strategy which, up to
now, has been to appoint licensing partners to
commercialise its products.
In early September, the Company announced the
appointment of Piper Jaffray Ltd. as nominated
adviser in place of Roberts Baird Limited and as
joint broker. In addition, the Company
announced the appointment of Nomura
International plc as joint broker. Piper Jaffray Ltd.
and Nomura International plc will act alongside
“Our ongoing
programme is to find
and develop new
products via
acquisitions and from
technology platforms
already acquired and
to strengthen our
product portfolio with
patented products
backed by clinical trial
programmes.” 9
Robert W. Baird Ltd who will remain in their
existing role as broker.
Atopiclair™
Sinclair announced in October that it’s wholly
owned Italian subsidiary Sinclair Srl (formerly
Euroderm) has signed a one year co-promotion
deal in Italy for Atopiclair™ with the Madaus
Group’s Italian subsidiary, Madaus Srl (Madaus).
The Madaus Group focuses on development,
marketing and sales of pharmaceutical products.
Madaus will promote the product to the Italian
paediatric market.
Decapinol®
Sinclair also announced that it signed an
agreement with Pharmbio Korea Co Ltd in South
Korea for the distribution of Decapinol®, its novel
oral rinse for the treatment of gingivitis (gum
inflammation).
In the US, the Food & Drug Administration (FDA)
approved Decapinol® earlier this year as a
medical device which may be sold on prescription.
Following further discussions, the FDA have
agreed to an important change to the labelling of
the product to include prevention of plaque.
Sinclair sees the revised labelling as an important
advance and one that will assist in establishing the
platform for Decapinol®. In the US approximately
80 per cent of the adult population are estimated
to have some degree of gum inflammation,
resulting in a US prescription market for
mouthwashes that may exceed US$100 million
1
.
OTC mouthwash brands contribute to a several
fold larger total market. We believe that
Decapinol® has the potential to become a viable
contender in this market since clinical trials have
proved Decapinol® to be well tolerated and
effective with clear unique advantages.
Outlook
Since our flotation in December 2003, we have
successfully advanced our business model. The
acquisition of Euroderm allows us to sell a
number of our registered products directly in Italy
and is the first step in Sinclair building a
European direct sales force for its expanding
derma portfolio. Through this we intend to share
in the much larger margins available to
distributors. It should be recalled that since our
original management buy-in in 2000, we have
successfully integrated three other acquisitions
which have helped us to grow our product
portfolio and technology platforms. We plan to
make similar acquisitions in other key markets as
the Company grows.
Our ongoing programme therefore is to find and
develop new products via acquisitions and from
technology platforms already acquired and to
strengthen our product portfolio with patented
products backed by clinical trial programmes.
We also expect to see further clinical trial results
together with product registrations, licensing
deals and launches over the next twelve months.
We now have behind us very significant
regulatory successes with 13 product
registrations in the EU and 9 in the US. We have
established sales and marketing agreements in
more than 50 countries which have resulted in a
growing number of international distributors now
beginning to launch our products in key markets.
After a year when the Company met or exceeded
the market expectations we believe we have
established a solid base from which we can
confidently anticipate increasing revenue growth
through product sales and increased momentum
towards profitability.
Dr MJ Flynn
Chief Executive Officer
1“Anti-gingivitis markets”, a summary of the gingivitis market.
Datamonitor, October 2004 10
Financial Review
Revenue
Revenue on continuing operations saw a
substantial increase over the previous year of
over 170 per cent, rising to £6.97m (2004:
£2.55m). This included the benefit of both license
fees arising from our deal on Atopiclair™ in the
US with Chester Valley Pharmaceuticals Inc., and
revenues from our first acquisition following our
IPO, being that of the business of Euroderm, now
renamed Sinclair Srl. License fees and milestone
payments contributed £2.25m (2004: £0.05m)
and arose from Atopiclair™ £1.63m (2004: £nil),
Decapinol® £0.31m (2004: £nil) and Gelclair™
£0.31m (2004: £0.02m). The successful
completion of the Atopiclair™ multicentre trial in
the US meant we achieved total license fees and
milestone payments for the financial year of
$3.0m. Associated with this are the costs of the
US Atopiclair™ clinical trial. The benefit of the net
additional revenue from the Atopiclair™ license
and milestone fees was absorbed by lower gross
margin than expected, due to product mix, and
additional costs mainly due to accelerating the
growth of our infrastructure.
The acquisition of Euroderm was our first
acquisition of a business with its own direct sales
force, and this contributed sales of £1.07m of
revenue in the five months after acquisition.
Product sales and royalties, excluding Euroderm,
rose by 45% to £3.64m (2004: £2.51m). This
growth was seen across a number of products in
the portfolio, with Atopiclair™ and Decapinol®
generating revenues for the first time: Atopiclair™
from the US and Decapinol® from Italy and
Spain. Aloclair® sales were lower than in 2004
simply due to the timing of some large stocking
towards the end of 2004, however the off-take to
consumers continues to grow. We are also very
pleased at the continued growth of Visclair™
sales, being taken to market through our
distributor Ranbaxy.
Gross Margin
Our product sales at the moment are dominated
by our lower margin products, Aloclair®,
Visclair™ and Photofrin. Also overall margin has
been influenced by sales of Atopiclair™ in the US
at cost plus 10% – we earn an additional 11%
royalty on the distributor ex-factory sales, but for
the early years we supply the product also at cost
plus a small margin until Chester Valley
Pharmaceuticals Inc. takes over manufacture.
The early part of the year saw some erosion of
margin from the weak US dollar, impacting
revenues from the US. However the dollar
strengthened towards the end of the year.
We continue to work with our manufacturers to
improve prices to us and hence margins.
Administrative Expenses
Administrative expenses excluding goodwill for
the Group for the year were £6.25m (2004:
£3.61m). As the Group has expanded,
administrative expenses have naturally grown as
we expand the portfolio and begin to have our
own sales organisations. The acquisition of
Euroderm added £0.94m of administrative
expenses for the 5 month period since
acquisition. In addition we incurred costs of
£0.6m in order to undertake the Atopiclair™
“This year has seen a
period of accelerated
investment in our
product development
pipeline and
infrastructure which
has utilised some
operating cash. Year
end cash balances of
£4.9m (2004: £7.7m)
were before the receipt
of $1.0m from Chester
Valley Pharmaceuticals
Inc. which was
received shortly after
30th June 2005. This
cash will be used for
the further
development of our
product pipeline and to
continue our
acquisition strategy.” 11
multicentre trial, to support the launch of
Atopiclair™ in the US. Of the remaining increase
we saw some price inflation but also accelerated
some of our product development programs and
the recruitment of some key people.
Interest
The Group generated interest income of
£0.248m (2004: £0.165m) on its cash balances.
Working Capital and Cash
Generation
During the year the Group had net operating
cash outflow of £2.39m (2004: £1.48m) before
non-operating items such as the acquisition of
Euroderm (£1.2m). Increasing product revenues
(from licensing activities and now from direct
sales ourselves, at much higher margins) will add
to the cash generation of the business. This year
has seen a period of accelerated investment in
our product development pipeline and
infrastructure which has utilised some operating
cash. Year end cash balances of £4.9m (2004:
£7.7m) were before the receipt of $1.0m from
Chester Valley Pharmaceuticals Inc. which was
received shortly after 30th June 2005. This cash
will be used for the further development of our
product pipeline and to continue our acquisition
strategy.
JAP Randall ACA
Chief Financial Officer Directors & Officers
The Board comprises - Two Executive Directors and four Non-executive Directors:
Ralph Stephen Harris B.Pharm, F.R. Pharm.S (aged 63)
Non-executive Chairman
Chairman, Remuneration Committee
Chairman, Nomination Committee
Member, Audit Committee
Mr Harris joined the Board of Sinclair Pharma as a non-executive Director in October 2001 and was
appointed non-executive Chairman on 18 November 2003. Mr Harris is currently the non-executive
Chairman of Proteome Sciences plc and Convè plc. Mr Harris is also a non-executive Director of
SkyePharma plc, GeneMedix plc, Advanced Medical Solutions plc, Premier Research plc and
Prophilian plc. Mr Harris has over 40 years experience in the pharmaceutical industry and has held a
variety of positions in both the prescription and consumer healthcare sectors with sales, marketing
and general management experience with Merck Sharp and Dohme, Eli Lilly, Boots and Reckitt and
Colman (now Reckitt Benckiser).
Before setting up his own consultancy practice in 1995 to work as a non-executive Director in the life-
science industry, Mr Harris was Development and Licensing Director for Medeva plc.
Dr. Michael J Flynn, MBBS, MRCS, LRCP, FFP.RCP (Dist) (aged 63)
Chief Executive Officer
Dr. Flynn became Chief Executive Officer of Sinclair Pharma in August 2000 following a management
buy-in of Sinclair Pharmaceuticals Limited, which he led. Between 1998 and 2000, Dr Flynn privately
acquired the rights to a portfolio of products, which he brought to the Group. From June to November
1998, Dr. Flynn was acting Chief Executive Officer of Cortecs Group plc where he held the position of
president between 1992 and June 1998 and of director between 1986 and 1992. Between 1976 and
1986, he was medical director and president of Technology International Limited, a Contract Research
Organisation that Dr Flynn co-founded. Prior to 1976, Dr. Flynn had worked as senior medical advisor
to Crookes Laboratories Limited, established Duphar Limited in the UK and spent approximately 5
years in the clinical research department of Philips Duphar in Holland.
Dr. Flynn has spent over 30 years in the pharmaceutical industry and has served on the board of
directors of approximately 30 private companies involved in the healthcare sector. Dr. Flynn was
elected a fellow by Distinction of the Faculty of Pharmaceutical Medicine of the Royal Colleges of
Physicians in 2001 and qualified as a physician from Kings College Hospital, London.
Jeremy Anthony Philip Randall, ACA (aged 41)
Chief Financial Officer
Mr Randall became Chief Financial Officer of the Company in August 2000 when he completed the
management buy-in with Dr Flynn. Before joining Sinclair Pharma, Mr. Randall worked in corporate
finance setting up and running the Bristol office of Gambit Corporate Finance. Prior to that Mr. Randall
had been involved in two other buy-ins and acted as adviser to both private and quoted companies
between 1993 and 2000, in both the capacity as nominated adviser and in practice with KPMG.
During this period, Mr Randall was involved in a number of flotations and transactions on the Official
List, Unlisted Securities Market and the Alternative Investment Market, as well as raising private equity.
Mr. Randall qualified as a chartered accountant with KPMG in 1990.
12 13
Andrew John Sinclair, Ph.C, MR Pharm.S (aged 75)
Non-executive Director
Mr Sinclair founded Sinclair Pharmaceuticals Limited in 1971 and became non-executive chairman of
Sinclair Pharma following the buy-in of Sinclair Pharmaceuticals Limited in 2000. Before that he
worked for ten years for Berk Pharmaceuticals Limited as sales manager and then as a director.
Between 1957 and 1961 Mr Sinclair worked as a production manager and export executive for May
and Baker Limited, a pharmaceutical manufacturer and distributor.
Alexis Daniel Sandown Prenn (aged 43)
Senior independent non-executive Director
Member, Audit Committee
Member, Remuneration Committee
Member, Nomination Committee
Mr Prenn joined the Company as a non-executive director in September 2000 and was one of the
leading investors in Sinclair Pharma at the time of the management buy in. Mr Prenn was part of a
management buy-in team to Fii Group PLC, a footwear supplier to Marks and Spencer PLC. He held
a number of senior marketing and general management positions with Magellan PLC (formerly
Celestion Industries PLC) prior to its successful sale to Claremont Garments PLC. Mr Prenn is a
founder and managing director of an Internet consultancy, Rushmore Digital Technologies Limited,
which has offices in London and Sofia, Bulgaria.
Grahame Cook, MA (Hons) (Oxon), ACA (aged 47)
Non-executive Director
Chairman, Audit Committee
Member, Remuneration Committee
Member, Nomination Committee
Mr Cook joined the Company as a non-executive director on 12 July 2004. Mr Cook has over 18 years
experience in investment banking, advising on a wide number of mergers & acquisitions and capital
market transactions in the US and Europe. He was until 2003, Global CEO of West LB Panmure,
where he joined in 1999. Prior to that, from 1995, Mr Cook was Managing Director of Capital Markets
and on the Global Investment Banking Management Committee at UBS. Mr Cook’s earlier career
includes six years as Director of Barclays de Zoete Wedd Corporate Finance, and seven years as a
Chartered Accountant at Arthur Andersen. He has advised on a number of transactions in the
pharmaceuticals and biotechnology sectors across Europe and the US, including private equity
investments, IPO’s and secondary offerings. Mr Cook was a founder member of the LSE’s TechMARK
Advisory Committee, and holds an MA, double first, from Oxford University. 14
Senior Management
Marco Mastrodonato (aged 37), Senior Vice President
Mr Mastrodonato has headed up the Business and Products Development Division of Sinclair 
Pharma since the acquisition of Propharma S.r.l. by the Company in May 2001. Mr Mastrodonato 
founded Propharma S.r.l. in 1999 and invented Gelclair, Aloclair and a range of hypoallergenic 
toiletries for paediatrics. Between 1996 and 1998 Mr Mastrodonato worked as a consultant for 
Carrington Laboratories Inc, a US research-based bio-pharmaceutical company, licensing and 
exporting products from the US to Europe. Prior to 1996, Mr Mastrodonato founded Protema S.p.a., 
an Italian agro-chemical company. Between 1989 and 1996 he worked for an international clinical 
research organisation, AAI Pharma Inc. and between 1987 and 1989 he worked for OEMF 
Informatore Farmaceutico.
Mike Killeen (aged 50), Vice President of Sales and Marketing
Mr Killeen joined Sinclair Pharma following the acquisition of Propharma S.r.l by the Company in 
May 2001. At Propharma S.r.l, Mr Killeen held the position of vice president of sales and marketing 
for the US and Pacific Rim. Prior to joining Propharma S.r.l., Mr Killeen was director of sales and 
marketing at Carrington Laboratories Inc., prior to which he was director of business development at 
Horizon Medical Inc.
Paul Phull (aged 42), BSc (Hons), M.C.I.M, Director of Business Development
Mr Phull joined Sinclair as Director of Business Development in February 2001 and in 2004 was
appointed to his current position. Since graduating in 1986, Mr Phull has held a number of senior sales
and marketing positions in the healthcare industry.
Derek Williams (aged 47), Chief Operating Officer
Derek Williams was appointed Chief Operating Officer of Sinclair Pharmaceuticals in April 2005. Mr
Williams has over fifteen years of senior commercial management experience in the global
pharmaceutical industry and joined Sinclair from Celltech where he was most recently European
Commercial Director, overseeing the restructuring of commercial operations and the establishment of
a Europe-wide sales and marketing capability.
Prior to that, Mr Williams was Senior Vice President of Global Strategic Marketing at Bayer, based in
the USA and has held general management positions in both the pharmaceutical and medical
diagnostics industries in Europe and North America.
Sonya Downer (aged 48) Company Secretary and Group Financial Controller
Ms Downer joined Sinclair in April 2001 as group financial controller. Ms Downer is a part qualified
chartered certified accountant with over 20 years experience at a number of major UK plc’s including
divisions of Zygal Dynamics Plc, the TI Group and IMI Plc. She has also been actively involved in
several successful start-up companies.
Ms Downer has six years prior experience in the role of company secretary and was appointed
company secretary to the Sinclair Group on 6th April 2005. 15
Directors’ Remuneration Report
Introduction
As a company whose shares are traded on the
London Stock Exchange’s AIM market, the
Company is not required to, and does not, comply
with Schedule 7A of the Companies Act 1985. The
following disclosures are provided on a voluntary
basis.
The report meets the relevant requirements of the
Listing Rules of the FSA and describes how the
board has applied the Principles of Good
Governance relating to directors’ remuneration.
Remuneration Committee
The Company has established a Remuneration
Committee. The members of the committee are
the non executive directors Mr ADS Prenn, Mr G
Cook and its chairman Mr RS Harris. The Board
of Sinclair approved a proposal on 1 October
2004 to review the constitution of the
remuneration committee with regards to the
requirement under the Combined Code to have
the committee comprise non-executive directors
who are considered independent. It was noted
that Mr AJ Sinclair was not considered to be
independent as a significant shareholder of the
Company. Mr AJ Sinclair stepped down from the
remuneration committee  on 1 October 2004 and
was replaced by Mr G Cook.
None of the Committee has any conflicts of
interest arising from cross-directorships or day-to-
day involvement in running the business. The
Committee makes recommendations to the board
and no director plays a part in any discussions
about his own remuneration. A sub-group of the
remuneration committee not comprising the
Chairman assesses the Chairman’s remuneration.
In determining the directors’ remuneration for the
year, the Committee has instructed Halliwells
Consulting, a business independent of the
Company and employees, to prepare a review
surveying its peer group companies to determine
the positioning and structuring of directors’
remuneration packages during the year. In
accordance with the guidance provided by
Halliwells Consulting the Committee reviewed the
level of directors’ remuneration at a Remuneration
Committee meeting on 15 July 2005.
Remuneration Policy
Executive remuneration packages are designed
to attract, motivate and retain directors and to
reward them for enhancing value to
shareholders. The performance measurement of
the executive directors and key members of
senior management and the determination of
their annual remuneration package is undertaken
by the Remuneration Committee. The Board
determines the remuneration of the non-
executive directors.
There are 4 main elements of the remuneration
policy:
• basic salaries and benefits in kind;
• shares and share option schemes;
• bonus scheme; and
• pensions.
The Company’s policy is that a substantial
proportion of the remuneration of the executive
directors should be performance related. As
described below, executive directors may earn
annual incentive payments, the range being
between 20% and 80% of their basic salary,
together with the benefits of participation in share
option schemes. Executive directors are entitled
to accept appointments outside the Company
but cannot be involved with a competing
business except with the written consent of the
Board. The directors’ external remunerated
appointments are listed below.
Executive Director Company
Dr MJ Flynn Axcan Pharma (Ireland) Limited
Mr JAP Randall Kinneir Dufort Ltd 16
(i) Basic salaries and benefits in kind
The Remuneration Committee, prior to the
beginning of each year when an individual may
change position or responsibility, determines
basic salaries. In deciding appropriate levels, the
committee considers the Group as a whole and
takes into account the performance of the
individual and the rates for similar positions in
comparable companies. Basic salaries were last
reviewed in July 2005.
Benefits in kind are not pensionable. Directors
are paid a car allowance commensurate with
their position within the Company.
(ii) Share option schemes
a. Sinclair Pharma Plc 2003 Enterprise
Management Incentive Share Option
Scheme and Sinclair Pharma Plc
Unapproved Share Option Scheme
The Company operates an approved share
option scheme, the Sinclair Pharma Plc 2003
Enterprise Management Incentive Share Option
Scheme (2003 EMI Scheme), pursuant to a
resolution of the Board passed on 18 November
2003. In addition the Company also operates an
unapproved share option scheme, the Sinclair
Pharma Plc Unapproved Share Option Scheme.
The Remuneration Committee may grant options
under the 2003 EMI Scheme and the
Unapproved Share Option Scheme to any
number of employees. In order to be qualifying,
an employee must:
• not own 30% or more of the issued share
capital of the Company; and
• be employed by the Group for at least
25 hours a week, or, if less, for at least 75%
of his working time.
Non-executive directors and/or consultants to
the Group will not be qualifying employees.
Performance Conditions
Pursuant to Rule 3.3 of the 2003 EMI scheme, the
exercisability of a directors share option is
dependent upon the satisfaction of a performance
condition. Set out in the table below is the
performance conditions that apply to the options
granted under the Scheme on 1 June 2005.
Level of Performance vs. FTSE All Share Index Percentage of Shares comprised in
Option which become exercisable
Below 20% out-performance 0%
20% out-performance 20%
Between 21% and 49% out-performance Pro-rata between 21% and 49% on a 
straight line basis
50% out-performance 50%
Between 51% and 124% out-performance Pro-rata between 51% and 99% on a 
straight line basis
125% out-performance and above 100% 17
Options may be granted at any time other than
during a close period or other than at any time
when a grant would be in breach of any laws or
regulations. No option may be granted after the
tenth anniversary of the date of commencement
of the 2003 EMI Scheme. No option may be
assigned or transferred in any way, although the
executors or personal representatives of a
deceased option holder may in certain
circumstances exercise options held by him. No
consideration is payable for the grant of an
option. The acquisition price payable for each
ordinary share on exercise of an option will be
determined by the Committee but will be an
amount which is not less than the market value of
an ordinary share at the date of grant.
During the year to 30 June 2005 the following
share options were granted under the Sinclair
Pharma Plc 2003 EMI approved and unapproved
schemes to the following executive directors.
2003 EMI 2003
Approved Unapproved
Share option Share option
scheme scheme
Dr MJ Flynn 105,819 185,165
Mr JAP Randall 105,819 69,311
The market value and exercise price of the share
options at date of grant, being 20 October 2004
was 94.5p.
There were no grants under either scheme to any
other director in the year and no grants to any
director in the year to 30 June 2004.
b. Sinclair Pharma Plc 2003 Executive
Incentive Plan
The Company has also established the Sinclair
Pharma Plc 2003 Executive Incentive Plan (EIP)
pursuant to a resolution of the Board passed on
18 November 2003. The EIP is intended to allow
the Company to make performance share awards
and grant options, make restricted share awards,
award stock appreciation rights and cash based
long-term incentives, or a combination thereof to
senior executives and key employees.
The Committee made no awards from the EIP
during the year.
A performance share award is a promise to
deliver ordinary shares at the end of the
performance period subject to the satisfaction of
the performance conditions. The right will vest
automatically and does not require any action by
the award holder.
An option right is a right to acquire Ordinary
shares, which is exercisable at the end of the
performance period subject to the satisfaction of
the performance conditions.
A restricted share award is a transfer of ownership
of ordinary shares made on terms that the legal
title of those ordinary shares is conditional upon
the satisfaction of the performance conditions at
the end of the performance period.
A stock appreciation right is a right to receive a
cash award that is calculated based upon a
formula linked to the price of ordinary shares and
which will vest automatically at the end of the
performance period subject to the satisfaction of
the performance conditions.
A cash based long-term incentive is a right to
receive a cash amount at the end of the
performance period subject to the satisfaction of
the performance conditions.
Awards made under EIP are not granted under
an Inland Revenue approved share scheme. The
performance conditions relating to awards
granted under EIP are listed above in Para (ii) (a)
Share Option Schemes.
At the discretion of the Committee an award may
be granted under the 2003 Executive Incentive
Plan to the following qualifying employees: 18
• Any executive director or employee of the
Group who is required to devote the whole or
substantially the whole of his working time to
the Group will be eligible to participate in the
EIP .
Awards may be made at any time other than a
close period or other than at any time when a
grant would be in breach of any other applicable
laws or regulations. No awards will be made more
than ten years after the date of the adoption of the
EIP. No award may be assigned or transferred in
any way, although the executors or personal
representatives of a deceased participant may in
certain circumstances benefit from the award. No
consideration is payable for the grant of an award.
The performance criteria period will, in the
absence of any other period determined by the
Committee, be the three consecutive financial
years commencing with the financial year in
which the award is made.
The Committee will set performance conditions
that they consider to be both relevant, stretching
and designed to enhance the business having
regard to the Combined Code and the guidelines
and standards of principles published from time to
time by the Association of British Insurers relating
to best practice on share incentive schemes. The
performance conditions must be met at the end
of the performance period for the award to vest.
The Committee will determine at the date of the
Award the acquisition price payable for each
ordinary share when the award vests under EIP.
c. Replacement, New and Consultant
Warrants
Replacement Warrants
On 2 December 2003, the Company and holders
of 4,350,000 warrants (“Old Warrants”) agreed to
the issue of replacement warrants (“Replacement
Warrants”) in exchange for the release of
4,350,000 Old Warrants.
The Replacement Warrants provide the holder
with a right to acquire such number of ordinary
shares as are equal in amount to “target value”.
Target value was calculated using the following
formula:
No. of Old Warrants (or Unapproved Options)
held by warrant holder x placing price per
ordinary share.
Replacement Warrants are denominated in units.
On the exercise of each unit of value a
corresponding value of ordinary shares in the
Company may be acquired. The maximum
number of ordinary shares, which can be
acquired under the terms of the replacement,
warrants shall not exceed the number of ordinary
shares that may have been acquired under the
terms of the Old Warrants. The acquisition price
payable for ordinary shares shall be between
£0.01 and £0.33 per unit and shall, in aggregate,
be equal to the acquisition price payable for
ordinary shares under the terms of the Old
Warrants.
The Company and the holders of the warrants
also entered into a joint election under section
4(4)(a) of the UK Social Security Contributions
and Benefits Act 1992 to transfer legal
responsibility for payment of the employers’
national insurance contributions to the holders of
the Replacement Warrants.
Replacement warrants are not granted under an
Inland Revenue approved share scheme. There
are no performance conditions relating to
replacement warrants.
No further grants of replacement warrants have
been made since 2 December 2003.
New Warrants
In consideration for the transfer of the employers’
national insurance liability on the Replacement 19
Warrants, a total of 784,875 New Warrants were
granted to the warrant holders (the “New
Warrants”). The New Warrants were granted under
the same terms and the same exercise price as
the Replacement Warrants to which they relate.
The replacement warrants and new warrants are
exercisable in whole or in part at any time.
These warrants shall lapse on the earlier of:
1. the tenth anniversary of the date of grant; and
2. the bankruptcy of the warrant holder.
There are no performance conditions relating to
new warrants. No further grants of new warrants
have been made since 2 December 2003
Consultant Warrants
The Company also granted warrants to subscribe
for ordinary shares to consultants (“Consultant
Warrants”). These warrants are exercisable at any
time but will lapse on the earlier of.
1. the tenth anniversary of the date of grant;
2. twelve months after a death of a warrant
holder;
3. the cessation of a consulting contract;
4. subject to the discretion of the Board; or
5. the bankruptcy of the warrant holder.
All ordinary shares issued under a Consultant
Warrant will rank pari passu with all other ordinary
shares then in issue other than in relation to
dividends, which have a record date prior to the
date of issue.
There are no performance conditions relating to
consultant warrants. No further grants of
consultant warrants have been issued to any
director in the years to 30 June 2005 or 30 June
2004.
The Sinclair Pharma Plc Employee Share Trust
(ESOT)
The ESOT has been established to provide a
vehicle through which share incentives and other
benefits may be provided to past, present or future
employees of the Company. The ESOT may for
example gift, sell or grant options or warrants over
shares to employees of the Company.
On 3 December 2003, the trustees of the ESOT
subscribed for 6,034,875 ordinary shares for the
aggregate sum of £913,853. The trustees have
agreed to use these ordinary shares to settle the
Replacement Warrants and New Warrants over,
in aggregate up to 6,034,875 ordinary shares
held by Dr MJ Flynn, Mr JAP Randall, Mr ADS
Prenn, Mr RS Harris and Dr G Hill. The trustees
have allocated the ordinary shares to individual
sub-funds in proportion to the warrants and
options in issue for each holder. Further, the
trustees have appointed an interest in these
ordinary shares to the holders of the warrants
such that following the exercise of all
Replacement and New Warrants by a warrant
holder; the assets in their sub-funds shall vest in
their names absolutely.
Awards granted through ESOT are not granted
under an Inland Revenue approved share
scheme. The performance conditions relating to
awards granted through ESOT are listed above in
Para (ii) (a) Share Option Schemes.
The interests appointed in these sub-funds to
individual directors can be summarised as
follows:
Name No. of Ordinary shares
Dr MJ Flynn 3,448,500
Mr JAP Randall 1,379,400
Mr RS Harris 86,214
Mr ADS Prenn 86,214
Total 5,000,328
At 30 June 2005 the market value of the ordinary
shares held within the Sinclair Pharma Plc
employee share trust (ESOT) was £6,604,329. 20
The interest in trust property shall lapse on the
earlier of:
1. the tenth anniversary of the date of
appointment;
2. the date of cessation of the beneficiary’s
employment or directorship with the
Company; or
3. the bankruptcy of the beneficiary.
The Committee has responsibility for supervising
the schemes and the grant of options to
executive directors under its terms.
d. Interests in shares
In addition, on 3 December 2003, the trustees
subscribed for 1,431,129 ordinary shares at an
exercise price of £1.15 in the Company. The
trustees appointed an interest in the ordinary
shares to the following individuals.
Name No. of Ordinary shares
Mr JAP Randall 1,172,490
Mr RS Harris 172,425
Mr ADS Prenn 86,214
Total 1,431,129
At 30 June 2005 the market value of the interests
in ordinary shares held within the Sinclair Pharma
Plc employee share trust (ESOT) was
£1,889,090.
The relevant trust property will vest absolutely to
the above beneficiaries after the earliest of the
following events.
1. the day prior to the tenth anniversary of the
date of appointment of the interest; and
2. as notified to the trustees at the discretion of
the Committee, or on any take over,
reconstruction, or passing of a resolution for
the voluntary winding up of the Company.
The trustees may resolve that the interest in the
trust property should vest absolutely to the
beneficiary prior to the day prior to the tenth
anniversary of the date of appointment.
The interest in trust property shall lapse on the
earlier of:
1. the tenth anniversary of the date of
appointment;
2. the date of cessation of the beneficiaries or
directorship with the Company (unless such
cessation is by reason of (a) injury, disability,
retirement or redundancy or (b) be as notified
to the trustees at the discretion of the
Committee) for any reason, in which case the
interest will lapse 40 days after such
cessation; and
3. the bankruptcy of the beneficiary.
There are no performance conditions relating to
interests in shares.
(iii) Bonus Scheme
The Committee establishes the objectives that
must be met for each financial year if a cash
bonus is to be paid. Account is taken of the
relative success of the different parts of the
business for which the executive directors are
responsible and the extent to which the strategic
objectives are being met. The directors’ bonus is
divided equally between profit and share
performance subject to targets being achieved.
(iv) Pensions
The Group operates a defined contribution
scheme for the benefit of the executive directors
and the employees. Both Dr MJ Flynn and Mr
JAP Randall are members of money purchase
personal pension plans. The Group contributed
20% of their pensionable pay into the scheme
during the year. Their dependants are eligible for
a lump sum in the event of death in service. The
assets of the pension scheme are held separately
from those of the Group. 21
Performance Graph
The following graph shows the Company’s
performance, measured by total shareholder
return (TSR), compared with the performance of
the FTSE Pharma and Biotech Index also
measured by TSR. TSR is defined as share price
growth and reinvested dividend. The FTSE
Pharma & Biotech Index has been selected for
this comparison because it was deemed to be
the most appropriate.
The graph below shows the percentage change
in total shareholder return (with dividends
reinvested) from 10 December 2003 (the date of
company’s flotation onto AIM) to 30 June 2005.
Executive directors’ Contracts
It is the Group’s policy that executive directors
should have contracts with a rolling term of 12
months providing for a maximum of 12 months
notice by either party.
The details of the executive directors’ contracts
are summarised below.
Notice period
Date of Contract (both parties)
Dr MJ Flynn 18 November 2003 12 months
Mr JAP Randall 18 November 2003 12 months
In the event of early termination, the directors’
contracts provide for compensation up to a
maximum of basic salary, employer’s pension
contributions and other benefits in kind for the
notice period.
Sinclair Pharma Plc (SPH) v FTSE Pharma (TSR)
80
85
90
95
100
105
110
115
120
125
Dec-03 Jun-04 Dec-04 Jun-05
SINCLAIR PHARMA - TOTAL RETURN INDEX
FTSE PHARM & BIOTECH - TOTAL RETURN INDEX
Data provided by Robert W.Baird Ltd
Non-executive directors’ contracts
All non-executive directors have specific terms of engagement. Their remuneration is determined by
the Board based upon Board surveys of fees paid to non-executive directors of similar companies with
similar responsibilities. It is the Group’s policy that non-executive directors should have contracts with
a fixed term of 12 months providing for a maximum of 3 months notice by either party. 22
A basic fee is set for normal duties. Non-executive directors are appointed for an initial period of 12 months
and subject to continuation of satisfactory performance and re-election at the annual general meeting, will
be renewed for a further 12 months. During the year, the terms of engagement of the non-executive
directors were renewed after successfully completing their initial period. Non-executive directors are not
eligible for pensions, incentives or any similar payments other than normal out of pocket expenses incurred
on behalf of the business. Compensation for loss of office is not payable to non-executive directors.
Notice Period
Date of Contract Initial Period (both parties)
Mr RS Harris 18 November 2003 12 months 3 months
Mr AJ Sinclair 18 November 2003 Nil 3 months
Mr ADS Prenn 18 November 2003 12 months 3 months
Mr G Cook 12 July 2004 12 months 3 months
Directors’ Emoluments
Fees/Basic Benefits Annual 2005 2004
Salary in kind bonuses Total Total
£000 £000 £000 £000 £000
Name of director
Executive
Dr MJ Flynn 187 16 10 213 182
Mr JAP Randall 135 16 7 158 137
Non-executive
Mr RS Harris 40 – – 40 32
Mr AJ Sinclair 25 – – 25 48
Mr ADS Prenn 25 – – 25 21
Mr G Cook 28 – – 28 –
440 32 17 489 420
Mr G Cook was appointed as a non-executive director on 12 July 2004.
Directors Pension Entitlements
Two directors were members of money purchase schemes. Contributions made by the Company in
respect of such directors were as follows.
2005 2004
£000 £000
Dr MJ Flynn 28 28
Mr JAP Randall 23 21
51 49
Directors’ Share Options, Warrants and Interests in Shares
Aggregate emoluments do not include any amounts for the value of options to acquire ordinary shares
in the Company granted to or held by the directors.
Details of the options and interests in ordinary £0.01 shares for directors who served during the year
are as follows: 23
Cancelled/
expired/ Exercise Exercisable
At 1.7.04 Granted Exercised released At 30.6.05 Price (p) From to
M.Flynn
1
3,000,000 – – – 3,000,000 £0.01 17 Aug 16 Aug
2000 2010
M.Flynn
2
448,500 – – – 448,500 £0.01 17 Aug 16 Aug
2000 2010
J.Randall
1
1,200,000 – – – 1,200,000 £0.01 17Aug 16 Aug
2000 2010
J.Randall
2
179,400 – – – 179,400 £0.01 17Aug 16 Aug
2000 2010
A.Prenn
1
75,000 – – – 75,000 £0.67 31 Oct 30 Oct
2001 2011
R.Harris
1
75,000 – – – 75,000 £1.33 1 Mar 28 Feb
2002 2012
J.Randall
3
1,172,490 – – – 1,172,490 £1.15 3 Dec 2 Dec
2003 2013
R.Harris
2
11,214 – – – 11,214 £1.33 3 Dec 2 Dec
2003 2013
R.Harris
3
172,425 – – – 172,425 £1.15 3 Dec 2 Dec
2003 2013
A.Prenn
2
11,214 – – – 11,214 £0.67 3 Dec 2 Dec
2003 2013
A.Prenn
3
86,214 – – – 86,214 £1.15 3 Dec 2 Dec
2003 2013
M.Flynn
4
– 105,819 – – 105,819 £0.945 20 Oct 19 Oct
2007 2014
M.Flynn
5
– 185,165 – – 185,165 £0.945 20 Oct 19 Oct
2007 2014
J.Randall
4
– 105,819 – – 105,819 £0.945 20 Oct 19 Oct
2007 2014
J.Randall
5
– 69,311 – – 69,311 £0.945 20 Oct 19 Oct
2007 2014
6,431,457 466,114 – – 6,897,571
The information presented above is a combination of outstanding warrants and interests in the ESOT
held by each Director.
1
Replacement warrants (see Para c above)
2
New warrants (see Para c above)
3
Interests in ordinary £0.01 shares (see Para d above)
4
EMI awards
5
Unapproved share options
The market price of the Company’s ordinary shares to which the options relate fluctuated between
£0.92 and £1.43 during the year. At 30 June 2005, the closing market price of the Company’s ordinary
1p shares was £1.32.
Approval
This report was approved by the board of Directors on 5 October 2005 and signed on its behalf:
Mr RS Harris
Chairman of the Remuneration Committee 24
Corporate Governance Report
Compliance with the Combined
Code on Corporate Governance
The Board supports the ideals of the Combined
Code (the “Code”), issued in July 2003. This
statement describes how the company applies
the principles of the Code and the company’s
compliance with the specific provisions of the
Code.
The Board confirms that the Company has been
in compliance with provisions of the Code for the
year ending 30 June 2005 with the exception of
the following:
• A.1.3 and A.6.1 Code provisions require that
formal performance evaluations of the board,
its committees and its directors have been
conducted. A formal performance review of
the audit committee and its chairman was
carried out during the year and informal
performance reviews of the directors were
performed during the year. The Chairman is
now formalising performance reviews of the
board, its committees and its directors and
expects to be fully compliant with Code
provisions A.1.3 and A.6.1 within the next
financial year;
• A.3.1 Code provision requires the chairman to
hold meetings with the non-executive
directors without the executives present. Led
by the senior independent non-executive
director, the non executive directors should
meet without the chairman present at least
annually to appraise the chairman’s
performance. An appraisal of the chairman
did not occur during the year but the board is
presently reviewing procedures for board
performance appraisals and annual
assessments;
• B2.1 Code provision requires that the board
establish a remuneration committee
consisting solely of independent non-
executive directors. Mr AJ Sinclair stepped
down as a member of the remuneration
committee and was replaced by Mr G Cook
on 1 October 2004, as Mr Sinclair was
deemed not independent as a significant
shareholder of the Company. The Company is
now in compliance with B2.1 provision of the
Code;
• C3.4 Code provision requires the Company to
have appropriate and adequate
‘whistleblowing’ procedures in place. The
Board is currently drafting appropriate
‘whistleblowing’ procedures that will be
incorporated within the staff handbook and
will allow all employees direct and unlimited
access to the Chairman of the Audit
Committee.
The Board has considered the guidance of the
Turnbull Report recommending that within 12
months of becoming a public limited company
and entry on to the London Stock Exchange the
directors must review the system of internal
controls. A review of the complete system of
internal controls commenced on 7 December
2004 and was completed on 10 March 2005,
together with a market risk appraisal assessing
the business risk in the market segment in which
the Sinclair Group operate. The review of the
complete system of internal controls identified 13
risk areas graded from low risk to high risk. The
Board approved the internal control and market
risk review reports during April 2005 and
immediately initiated a program to mitigate all
identified risks commencing with all risks graded
as high. The directors have now established an
annual review of the effectiveness of the group’s
system of internal controls and will report to
shareholders that they have done so. The review
covers all material controls, including financial,
operational and compliance controls and risk
management systems. 25
Board and Board Committees
Board
The Board of Directors
The board currently comprises four non-
executive and two executive directors.
Mr RS Harris is Non-Executive Chairman and Mr
ADS Prenn is the Senior Non-Executive Director.
Mr G Cook was appointed as a Non-Executive
Director and Chairman of the Audit Committee
on 12 July 2004. Mr G Cook is a Chartered
Accountant and brings invaluable capital markets
and industry experience to the Board of Sinclair.
External directorships held by non-executive
directors of Sinclair Pharma plc are detailed in the
directors’ biographies.
Details of directors’ service contracts are given in
the Directors Remuneration Report on pages 21
to 22.
All the directors have access to advice and
services of the Company Secretary, who is
responsible for ensuring that Board procedures
and applicable regulations under the Company’s
Articles of Association or otherwise are complied
with. Mr JAP Randall, Chief Financial Officer
stood down as company secretary and was
replaced by Ms SD Downer, Group Financial
Controller, at a resolution passed by the Board
on 6 April 2005. Each Director is entitled, if
necessary, to seek independent professional
advice at the Company’s expense.
Board Meetings
The Board of directors meets at least bi-monthly
and has a defined schedule of matters reserved
for its decision. It is responsible for the overall
Group strategy, approval of major capital
expenditure projects, and consideration of major
financing matters of the Group.
Operational Board
The operational board is delegated the
responsibility for developing and implementing
the company’s strategic direction and ensuring
its resources are well managed. The operational
board normally meets bi-monthly and has a
range of responsibilities which include:
• reviewing operational performance and taking
actions to enhance or improve performance;
• implementing agreed strategies;
• monitoring the performance of employees
and assigning appropriate resources;
• identifying and discussing risk and taking
appropriate action to control risk; and
• recommending actions to the board on
matters reserved for the board as a whole.
Board Committees
The Board Committees, which are comprised
solely of non-executive directors, operate within
clearly defined terms of reference and report
regularly to the Board. The terms of reference of
the board committee’s are available for
inspection at the company’s registered office
during normal business hours and at the AGM
(for 15 minutes prior to the meeting and during
the meeting).
Nomination Committee
During the year the nomination committee, which
was chaired by Mr RS Harris and composed of
Mr ADS Prenn and Mr G Cook, was responsible
for all senior appointments, which are made
within the Group. With effect from the 1 October
2004, Mr AJ Sinclair stepped down as a member
of the nomination committee and was replaced
by Mr G Cook. Neither an external search
consultancy nor open advertising was used in
connection with the appointment of Mr G Cook.
The board took into account Mr G Cook’s skills
and experience in approving his appointment as 26
non-executive director and chairman of the audit
committee.
Executive and Non-Executive Directors are
subject to election by shareholders at the first
opportunity after their appointment and to re-
election thereafter by the shareholders at least
every three years.
Remuneration Committee
During the year the remuneration committee,
which was chaired by Mr RS Harris and
composed of Mr ADS Prenn and Mr G Cook,
was responsible for making recommendations to
the Board on remuneration policy for the
Company’s executive directors and the terms of
their service contracts, with the aim of ensuring
that their remuneration, including share options
and awards under the Share Schemes, is based
both on their own performance and that of the
Group generally. The remuneration committee will
also administer and establish performance
targets for the Share Schemes and approve
further grants or awards under them. In addition,
it will advise on the remuneration policy for the
Group’s employees.
With effect from the 1 October 2004, Mr AJ
Sinclair stepped down as a member of the
remuneration committee and was replaced by Mr
G Cook.
Further details of the company’s policies on
remuneration, service contracts and
compensation payments are included in the
Directors’ Remuneration Report. During the year
Dr MJ Flynn served as a non-executive director of
Axcan Pharma (Ireland) Ltd and was
remunerated £10,200 in this appointment. Mr
JAP Randall served as a non-executive director
of Kinneir Dufort Ltd during the year and was
remunerated £13,200 in this appointment.
Audit Committee and auditors
The audit committee, which during the year was
chaired by Mr G Cook, composed of Mr ADS
Prenn and Mr RS Harris, will review any reports
from management and the auditors regarding the
accounts and the internal control systems
implemented throughout the Group and
considers draft interim and annual accounts. It
will also make recommendations to the Board on
the appointment of the auditors and their audit
fee. The audit committee has unrestricted access
to the Group’s auditors. Meetings are also
attended, by invitation, by the chief executive and
the chief finance officer. On the 12 July 2004, Mr
AJ Sinclair resigned from the audit committee; Mr
RS Harris stepped down as chairman of the audit
committee and was replaced by Mr G Cook.
The committee has written terms of reference
setting out its main roles and responsibilities and
are available from the company secretary on
request.
The work of the committee in discharging its
responsibilities include:
• monitoring the integrity of the financial
statements of the company, and any formal
announcements relating to the company’s
financial reporting performance, and
reviewing financial reporting judgments
contained in them;
• reviewing the company’s internal financial
controls and reviewing the company’s internal
control and risk management systems;
• establishing and reviewing the company’s
‘whistle-blowing’ arrangements;
• making recommendations to the board, for it
to put to shareholders for their approval in
general meeting, in relation to the
appointment, re-appointment and removal of 27
the external auditor and to approve the remuneration and terms of engagement of the external
auditor;
• reviewing the need for a separate internal audit function;
• reviewing and monitoring the external auditor’s independence and objectivity and the effectiveness
of the audit process, taking into consideration relevant professional and regulatory requirements;
and
• developing and implementing policy on engagement of the external auditor to supply non-audit
services, taking into account relevant ethical guidance regarding the provision of non-audit services
by the external audit firm.
The committee has met with senior management and the external auditors to review financial reporting
at both the half and full year, including discussions as to the scope, materiality, timing and findings of
the annual audit.
The Group’s auditors, Ernst & Young LLP, provide non-audit services in addition to the provision of
audit services. In the year ending 30 June 2005 non-audit services provided by Ernst & Young LLP
comprised advice with regard to taxation, International Financial Reporting Standards compliance and
convergence, financial due diligence and other miscellaneous services. Where appropriate the partner
managing the provision of non-audit services is different from the partner managing audit services and
as such the Board believes the auditors remain objective and independent. The Board also considers
the level of fees charged by Ernst & Young LLP is not disproportionate or inappropriate to the size of
the business and considers the Company therefore compliant with provision C3.7 of the Combined
Code with regard to independence and objectivity.
Attendance at meetings
The following table summarises the attendance of board members at board and committee meetings
during the year:
Main Operational Audit Nomination Remuneration
Board Board Committee Committee Committee
Number of meetings held: 66311
Number of meetings attended:
Mr G Cook 55311
Dr MJ Flynn 6 6 – – –
Mr RS Harris 66311
Mr ADS Prenn 66311
Mr JAP Randall 6 6 – – –
Mr AJ Sinclair 6 6 – – –
Chairman and chief executive
The roles of chairman and executive management, led by the chief executive officer, are separated and
clearly defined:
a. The non-executive chairman, Mr RS Harris, is responsible for leadership of the board, ensuring
effectiveness in all aspects of its role, setting the board’s agenda and conducting board meetings, 28
and ensuring effective communication with
shareholders and the conduct of shareholders
meetings; and
b. Executive management are led by the chief
executive, Dr MJ Flynn, who has been
delegated responsibility by the board for the
day-to-day management of the company
within the control and authority framework set
up by the board. The levels of authority for
management are periodically reviewed by the
board and are documented. The chief
financial officer, Mr JAP Randall and directors
of the Sinclair Pharmaceuticals Limited Board
assist the chief executive, Dr MJ Flynn in
managing the business.
The division of responsibility between the
chairman and the chief executive is clearly
established, set out in writing and agreed by the
board.
Board balance and independence
The board includes a balance of executive and
non-executive directors such that no individual or
small group of individuals can dominate the
board’s decision taking. The size of the board
and balance of skills is considered appropriate for
the requirements of the business. No one other
than the committee chairman and members is
entitled to be present at a meeting of the audit,
nomination or remuneration committees, but
others may attend at invitation of the committee.
As a smaller company, Code provision A3.2
requires the company to have at least two
independent non-executive directors. The board
considers that Mr RS Harris, Mr G Cook and Mr
ADS Prenn are independent, and the reasons for
this decision are set out below.
The board has reviewed the independence of Mr
RS Harris, Mr G Cook and Mr ADS Prenn,
including an assessment of their overall character
and approach, and concluded based on the
following guiding principles that they are
independent throughout the year. They have not
been previous employees of the group, have no
material business relationships with the group,
are not members of the company’s pension
scheme, have no close family ties with the
company’s advisers, directors or senior
employees, hold no cross directorships linking
them with the other directors, do not represent
significant shareholders and have served on the
board less than 5 years. All three directors have
nominal shareholdings in the company, which the
board considers appropriate without
compromising independence. Mr G Cook is also
non-executive director of Equity Development
Limited and as such has been disclosed as a
related party transaction as detailed in note 24. It
should also be noted that the senior independent
non-executive director, Mr ADS Prenn was an
initial investor in the management buy-out of the
business and the board has taken these into
account when assessing their independence.
Appointments to the board
Appointments to the board are made on merit
and against objective criteria. Care is taken to
ensure that appointees have enough time to
devote to the job. The board keeps under review,
and takes appropriate action, to ensure orderly
succession for appointments to the board and to
senior management, so as to maintain an
appropriate balance of skills and experience
within the company and on the board. The Code
provisions require the formation of a nomination
committee to lead and oversee the application of
the Code principles as they relate to board and
senior management appointments.
The board considers the other significant
commitments of non-executive directors prior to
appointment, to ensure that they have sufficient 29
time to meet what is expected of them, and
keeps changes to these commitments under
review. The terms and conditions of appointment
of non-executive directors are available for
inspection at the company’s registered office
during normal business hours and at the AGM
(for 15 minutes prior to the meeting and during
the meeting).
On 12 July 2004, Mr G Cook was appointed as
a non-executive director. The board took into
account Mr Cook’s skills and experience as a
chartered accountant in his appointment to the
role of Chairman of the Audit Committee. Neither
an external search consultancy nor open
advertising was used in connection with the
appointment of Mr G Cook.
Information and professional development
The board is supplied in a timely manner with
information in a form and of quality appropriate to
enable it to discharge its duties. The chief
financial officer is responsible for ensuring the
directors receive, accurate, timely and clear
information, which is provided by operational
management and enhanced or clarified where
necessary.
All directors receive induction on joining the
board and the chairman ensures that directors
continually update their skills and knowledge and
familiarity with the company required to
undertake their role both on the board and on
board committees. The company provides the
necessary resources for developing and updating
its directors’ knowledge and capabilities.
Under the direction of the chairman, the
company secretary’s responsibilities include
good information flows within the board and its
committees and between senior management
and non-executive directors, as well as facilitating
induction and assisting with professional
development as required. The company
secretary is responsible for advising the board,
through the chairman, on all governance matters
and for ensuring that board procedures are
complied with and applicable rules and
regulations are followed. The appointment and
removal of the company secretary is a matter for
the board as a whole.
The directors have access to independent
professional advice at the company’s expense
where they judge it necessary to discharge their
responsibilities as directors. Committees are also
provided with sufficient resources to undertake
their duties.
Performance evaluation
A formal performance review of the audit
committee and the chairman of the audit
committee were performed during the year by a
process of self-assessment. In performing these
reviews, criteria that were taken into account
included the ability of the director to: take the
perspective of creating shareholder value; to
contribute to the development of strategy and
identification of risks; to provide clarity of
direction to management; to be a source of wise
counsel; to bring a broad perspective to
discussions and an understanding of key issues;
to commit the time required to fulfil the role; and
to listen to and respect the ideas of fellow
directors and management. The Chairman is
currently formalising the performance reviews of
the remaining committees and the directors.
The senior non-executive director Mr ADS Prenn,
is responsible for the performance evaluation of
the chairman, taking into account the views of
the executive directors. A performance
evaluation of the chairman was not carried out
during the year. 30
Re-election
All directors are submitted for re-election at
regular intervals, subject to continued
satisfactory performance. The board keeps
under review the need for refreshing the board
and takes appropriate action.
All directors are subject to election by
shareholders at the first annual general meeting
after their appointment, and to re-election
annually. Non-executive directors are appointed
for specified terms subject to re-election and to
Companies Act provisions relating to the removal
of a director.
Accountability
Financial reporting
The board is responsible for presenting a
balanced and understandable assessment of the
company’s position and prospects, extending to
interim reports and other price-sensitive public
reports and reports to regulators as well as to
information required to be presented by statutory
requirements.
Internal Control
The directors are responsible for reviewing the
effectiveness of the internal controls in the year
and have performed this review in the year as
stated. There is an ongoing process to identify,
evaluate and manage risk, which has been in
place throughout the period and up to date of
approval, in accordance with the Turnbull
process, and it is regularly reviewed by the board.
The system includes internal controls covering
financial, operational and compliance areas, and
risk management. There are limitations in any
system of internal control, which can provide
reasonable but not absolute assurance with
respect to the preparation of financial
information, the safeguarding of assets and the
possibility of misstatement or loss.
The Board has considered the guidance provided
by the Turnbull report and as mentioned above,
commenced a review of the complete system of
internal controls and prepared a market risk
appraisal within 12 months of entry onto the AIM
market. The review of the complete systems of
the internal controls commenced 7 December
2004 and was completed on 10 March 2005
together with a market risk appraisal assessing
the business risk in the market segment in which
the Sinclair Group operate. The review of the
complete system of internal controls identified 13
risk areas graded from low risk to high risk. The
Board approved the internal control and market
risk review reports during April 2005 and
immediately initiated a program to mitigate all
identified risks commencing with all risks graded
as high.
The additional key procedures designed to
provide an effective system of internal control are
the:
• annual review of the control environment and
procedures;
• review and update of the group’s policy and
procedures;
• review of external audit plans;
• review of significant issues arising from the
external audit; and
• discussions with management on risk areas
identified by the management and the board.
During the year the audit committee
commissioned a review of the complete system
of internal controls and reported back to the
board on its findings. A number of risk areas were
identified which has resulted in the board
implementing new procedures and systems.
Control environment
The Group operates within a control framework
developed and strengthened over a number of 31
years and communicated as appropriate by a
series of written procedures. These lay down
accounting and financial control procedures, in
addition to controls of a more operational nature.
The key procedures that directors have
established with a view to providing internal
control are as follows:
• the establishment of the organisational
structure and the delegated responsibilities of
operational management;
• the definition of authorisation limits, including
matters reserved for the board;
• the establishment of detailed operational
budgets for each financial year;
• reporting and monitoring performance against
budgets and rolling forecasts;
• the security of physical property and
computer information; and
• detailed financial and legal due-diligence on
all acquisitions.
The Board has considered it inappropriate to
establish an internal audit function, given the size
of the Group. However, this decision will be
reviewed as the operations of the Group develop.
Shareholders
Relations with Shareholders
The board as a whole is responsible for ensuring
that a dialogue is maintained with shareholders
based on mutual understanding of objectives.
The Directors place great importance on
maintaining good communications with both
institutional and private investors. The chief
finance officer has responsibility for day-to-day
investor relations and communications with other
stakeholders. The chief executive and chief
finance officer meet regularly with the Company’s
institutional shareholders and report their views
back to the Board. The chairman is however
reviewing attendance procedures at these
meetings to include the attendance of all non-
executive directors to enable the whole board to
develop an understanding major shareholders
issues and concerns.
The Annual General Meeting provides an
opportunity to communicate with private and
institutional shareholders and the Company
welcomes their participation.
Mr ADS Prenn, the senior independent non-
executive director, is available to shareholders if
they have concerns, where contact through the
normal channels of chairman, chief executive or
chief financial officer has failed to resolve or for
which such contact is inappropriate.
Going Concern
The financial statements have been prepared on
a going concern basis. This assumes that the
Group will have sufficient financial resources to
allow it to continue in operational existence for at
least 12 months following the date of this report.
The Directors believe it to be appropriate to
prepare the accounts on a going concern basis. 32
Directors’ Report
The Directors present their annual report on the affairs of the Group to the shareholders, together with
the audited financial statements for the year ended 30 June 2005.
Principal Activities and Review of Business
The Chairman’s Statement, the Chief Executive’s Report and the Financial Review together contain
details of the principal activities and development of the business of the Group during the year and
likely future developments.
Sinclair Pharma Plc identifies and acquires innovative pharmaceutical products and therapeutic
medical devices in late stage development and brings them to the market place. We are focused on
oral health, dermatology and cancer support therapies. The Sinclair Group combines product
evaluation, product development and regulatory and business development expertise to add value to
its acquired and in house products. A key element of the business is to minimise risk and exposure.
The Sinclair business model maximises returns, through the speed with which products are generally
marketed by drawing on its in house regulatory and marketing expertise.
Review of business and future developments
A review of the group’s business during the year and future developments is contained in the
Chairman’s Statement.
Results, Earnings and Dividends
The loss for the financial year of £2,668,920 (2004: £2,754,000 loss) has been taken to reserves. The
Directors do not recommend a dividend (2004: £nil).
Share Capital
Details of the Group’s share capital is set out in note 18 to the accounts.
Directors
Names and biographies of the current directors and officers who all served for the full year are detailed
on pages 12 to 13. Mr G Cook was appointed as a Non-Executive Director on 12 July 2004. Ms SD
Downer was appointed company secretary for the group by a resolution passed by the Board on 6
April 05. Ms SD Downer is currently group financial controller but is not a director of Sinclair Pharma
plc or any of its subsidiaries. Dr MJ Flynn, Mr RS Harris and Mr ADS Prenn retire and will be available
for reappointment by rotation. Details of the resolutions reappointing these directors are contained in
the AGM notice on page 73. 33
Directors’ Interests
The interests of the Directors in the Group’s share capital at 30 June 2005 were as follows:
Share
warrants/
interests/
Ordinary in ordinary Share
Share of 1p 1p shares/ warrants/
on 30 June options over options over
Ordinary Ordinary 2004 Ordinary Ordinary
Shares of 1p Shares of 1p or date of Shares of 1p Shares of 1p
on 5 Oct on 30 June appointment on 30 June on 30 June
2005 2005 if later 2005 2004
Dr MJ Flynn 9,169,300 9,169,300 11,169,300 3,739,484 3,448,500
Mr RS Harris 43,478 43,478 43,478 258,639 258,639
Mr ADS Prenn 60,110 160,100 247,500 172,428 172,428
Mr JAP Randall 400,000 400,000 1,200,000 2,727,020 2,551,890
Mr AJ Sinclair 5,745,000 5,645,000 5,079,750 – –
Mr G Cook 100,000 100,000 100,000 – –
On 5 August 2005, Mr ADS Prenn sold 100,000 ordinary 1p shares all of which were purchased by
Mr AJ Sinclair on the same date. There are no further changes in directors’ interests up to the date of
this report.
The warrants are only exercisable if the holder remains as an employee, director or consultant of the
Group.
Dr MJ Flynn’s holding includes 2,410,000 shares held by his wife (2004: 3,060,000).
Mr RS Harris’s holding of 43,478 shares is held by his wife (2004: 43,478).
Mr ADS Prenn’s holding includes 37,500 shares held by his children (2004: 37,500).
Mr AJ Sinclair’s holding includes 20,000 shares held by his wife (2004: nil).
Mr G Cook’s holding of 100,000 shares is held by his wife (2004: 100,000).
Details of the Directors’ share warrants together with warrants granted and exercised is included in the
‘Directors’ share options, warrants and interests in shares’ section of the Directors’ Remuneration
Report.
None of the Directors at any time during the year ended 30 June 2005 had any material interests in
any contracts with the Company or any of its subsidiaries. None of the Directors at any time during
the year ended 30 June 2005 or subsequent to 30 June 2005 held any debentures of the Company
or its subsidiaries. None of the directors are trustees of the ESOT. 34
Substantial Shareholdings
As at 5 October 2005 the Group has been notified, in accordance with sections 198 to 208 of the
Companies Act 1985 (or are otherwise aware) of the following interests in 3% or more of the ordinary
share capital of the Group.
Shareholding %
Dr MJ Flynn 9,169,300 15.5
FMR Corp 8,401,108 14.2
The Sinclair Pharma Plc Employee Share Trust 6,431,457 10.9
Framlington Investment Management Limited 5,973,030 10.0
Mr AJ Sinclair 5,745,000 9.7
Mr M Mastrodonato 1,905,727 3.2
Research and development expenditure
The group actively reviews technical development in its markets with a view of taking advantage of the
available opportunities to maintain and improve its competitive position. The group has continued to
invest in the development of new pharmaceutical products during the year as detailed in note 3.
Payment to Suppliers
It is the Group’s policy to abide by the payment terms agreed with suppliers whenever it is satisfied
that the supplier has provided goods and services in accordance with agreed terms and conditions.
Creditors days during the year were 61 days (Group) and 53 days (Company), (2004: 55 days
(Company)).
Related Party Transactions
Details of related party transactions are given in note 24.
Employees
Our most important asset is our employees. We are committed to developing policies that encourage
all employees to achieve their greatest potential and to continue to contribute to the success of the
Group. We seek to develop employees’ potential by encouraging them to attend seminars, training
courses, and providing help in seeking necessary professional qualifications to further their careers.
We operate equal opportunities in recruitment, training and promotion regardless of gender, ethnic
origin, nationality or disability.
Every employee qualifies for our EMI share option plan. The conditions and restrictions on qualifying
employees are set out on pages 16 to 17 of the Directors Remuneration report. This ensures that
employees are able to share the success of the business as it grows and have a sense of ownership.
Additionally, we have cutting edge staff policies, enabling flexible working practices including Internet
access from home using broadband and wireless technology. 35
Disabled Employees
It is our policy to treat applicants and employees with disabilities equally and fairly, and not to
discriminate against the disabled in recruitment, training, career development and promotion.
Health, Safety and the Environment
Health and safety and impact upon the environment are considered when the Group conducts its
business. It is the Group’s aim to provide a safe working environment for employees at all times. The
Group operates in a socially and environmentally responsible manner, proactively seeking ways of
reducing any adverse impact upon our surroundings through recycling schemes, making more efficient
use of utilities and seeking ways to reduce waste. The Company is committed to the implementation
of all relevant Health and Safety legislation to ensure the welfare of its employees in the workplace. It
is also aware of the increasing importance of environmental issues, the impact of which is taken into
consideration in its business decisions.
Charitable and political donations
The company has demonstrated its commitment and social responsibility to the wider community by
donating £329 to charity during the year. A number of charities benefited including cancer and
children’s charities (2004: £115). There were no political donations during the year (2004: nil).
International Financial Reporting Standards (IFRS)
Under a European Union Regulation, UK listed companies are required to prepare their consolidated
financial statements in accordance with adopted IFRS for accounting periods starting on, or after, 1
January 2005. Although companies with shares traded on the AIM are exempt from the Regulation for
two years (as AIM is not a regulated market), Sinclair has chosen to adopt IFRS in line with its listed
peers in the year ended 30 June 2006.
An overview of the Company’s current position as regards progress to the 2005 transition is provided
below.
a. The directors believe that the Company has sufficient qualified internal resources to manage and
perform the required transition to IFRS from 1 July 2005. Significant progress has been made on
transition matters, based on IFRS in issue, during 2005 that will allow the company to report under
IFRS in the year ending 30 June 2006 (including comparatives for 2005):
b. Staff performing key roles in the transition have already received, and will continue to receive, IFRS
training provided by suitably qualified external organisations; and
c. The Company is currently discussing with its auditors the assistance and advice that they can
provide throughout the transition period. External professional advice will continue to be taken on
specific IFRS matters as they arise where considered necessary by the directors.
Based on assessments carried out to date on IFRS currently in issue, the key differences likely to apply
to the company’s consolidated financial statements are:
i. The presentation of primary statements is likely to be different in respect of format and content; and
ii. The Company anticipates changes in accounting for the following significant items; goodwill and
share options. 36
This is not an exhaustive list and the differences are subject to change as more information becomes
available as to the exact content of final IFRS that will be applicable to the company in 2005.
The current timetable for adoption of IFRS is as follows:
i. The interim financial report for the period ending 31 December 2005 will be prepared under IFRS
(with IFRS comparatives).
ii. Consolidated financial statements for the full year to 30 June 2006 will be prepared under IFRS
(with IFRS comparatives).
Auditors
A resolution to re-appoint Ernst & Young LLP, as auditor will be put to the members at the Annual
General Meeting.
Annual General Meeting
Explanatory information concerning the resolutions to be proposed at the Annual General Meeting to
be held on 28 November 2005 is set out on pages 73 to 74.
By order of the Board
JAP Randall ACA
Chief Finance Officer
5 October 2005 37
Statement of Directors’ Responsibilities
Company law requires the Directors to prepare financial statements for each financial year, which give
a true and fair view of the state of affairs of the Company and the Group and the profit or loss of the
Group for that year.
In preparing those financial statements the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and estimates that are reasonable and prudent;
• state whether applicable accounting standards have been followed, subject to any material
departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis, unless it is inappropriate to presume
that the Group will continue in business.
The Directors confirm that they have complied with the above requirements in preparing the financial
statements.
The Directors are responsible for keeping proper accounting records that disclose with reasonable
accuracy at any time the financial position of the Company and the Group and to 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 the Group and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
By order of the Board
JAP Randall
Chief Financial Officer
5 October 2005 38
Independent auditors’ report to the
members of Sinclair Pharma PLC
We have audited the group’s financial statements for the year ended 30 June 2005, which comprise
the Group Profit and Loss Account, Group Balance Sheet, Company Balance Sheet, Group Statement
of Cash Flows, Group Statement of Total Recognised Gains and Losses and the related notes 1 to 24.
These financial statements have been prepared on the basis of the accounting policies set out therein.
This report is made solely to the Company’s members, as a body, in accordance with Section 235 of
the Companies Act 1985. Our audit work has been undertaken so that we might state to the
company’s members those matters we are required to state to them in an auditors’ report and for no
other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors are responsible for preparing the Annual Report, including the financial statements which
are required to be prepared in accordance with United Kingdom law and applicable accounting
standards as set out in the Statement of Directors’ Responsibilities in relation to the financial
statements.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory
requirements and United Kingdom Auditing Standards.
We report to you our opinion as to whether the financial statements give a true and fair view and are
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 with the group is not disclosed. We read other information contained in the Annual Report
and consider whether it is consistent with the audited financial statements. This other information
comprises the Chairman’s Statement, Chief Executive’s Review, Financial Review, Directors’
Remuneration Report, Corporate Governance Report and Directors’ Report. We consider the
implications for our report if we become aware of any apparent misstatements or material
inconsistencies with the financial statements. Our responsibilities do not extend to any other
information. 39
Basis of audit opinion
We conducted our audit in accordance with United Kingdom 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. 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 group’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 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 of the group as at 30 June 2005 and of the loss of the group for the year then ended and have
been properly prepared in accordance with the Companies Act 1985.
Ernst & Young LLP
Registered Auditor
Southampton
5 October 2005 40
Group Profit and Loss Account
For the year ended 30 June 2005
2005 2004
Note £000 £000
Turnover
Continuing operations 2 5,900 2,546
acquisition 2 1,071 –
Discontinued operations 2 – 109
6,971 2,655
Cost of sales (2,616) (1,664)
Gross profit 4,355 991
Administrative expenses excluding National Insurance provision and goodwill amortisation (6,251) (3,613)
National Insurance provision on share options – 578
Goodwill amortisation (958) (914)
Total administrative expenses (7,209) (3,949)
Operating loss
Continuing operations 3 (2,574) (2,885)
acquisition 3 (280) –
Discontinued operations 4 – (73)
(2,854) (2,958)
Profit on sale of discontinued operations –87
Loss on ordinary activities before interest and taxation (2,854) (2,871)
Interest receivable 248 165
Interest payable 7 (18) (14)
Loss on ordinary activities before taxation (2,624) (2,720)
Tax charge on loss on ordinary activities 8 (45) (34)
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (2,669) (2,754)
MINORITY INTEREST IN RESULT FOR YEAR ––
RETAINED LOSS FOR THE FINANCIAL YEAR 20 (2,669) (2,754)
Earnings per share per £0.01 Ordinary Share
Basic loss per share 10 (5.44)p (6.59)p
Diluted loss per share 10 (5.44)p (6.59)p 41
Group Statement of Total Recognised Gains and Losses
For the year ended 30 June 2005
2005 2004
£000 £000
Loss for the financial year (2,669) (2,754)
Exchange difference on retranslation of net assets of subsidiary undertakings 48 (51)
Total recognised gains and losses relating to the year (2,621) (2,805) 42
Group Balance Sheet
At 30 June 2005
2005 2004
Note £000 £000
Fixed assets
Intangible assets 11 18,341 16,928
Tangible assets 12 393 124
18,734 17,052
Current assets
Stocks 14 601 109
Debtors 15 4,901 2,061
Cash at bank and in hand 4,908 7,753
10,410 9,923
Creditors: amounts falling due within one year 16 4,840 1,860
Net current assets 5,570 8,063
Total assets less current liabilities 24,304 25,115
Creditors: amounts falling due after more than one year 17 175 –
Minority interest (4) (4)
24,133 25,119
Capital and reserves
Called up share capital 18 592 539
Share premium account 20 16,171 16,030
Shares to be issued 20 – 4,367
Merger reserve 20 15,684 10,062
Other reserve 20 686 698
Profit and loss account 20 (9,000) (6,577)
Shareholders’ funds – equity interests 24,133 25,119
Approved by the Board on 5 October 2005
Dr MJ Flynn
Chief Executive Officer 43
Company Balance Sheet
At 30 June 2005
2005 2004
Note £000 £000
Fixed assets
Intangible Assets 11 1,089 1,157
Investments 13 25,738 23,233
26,827 24,390
Current assets
Debtors 15 5,783 3,580
Cash at bank and in hand 3,963 7,494
9,746 11,074
Creditors: amounts falling due within one year 16 160 98
Net current assets 9,586 10,976
Total assets less current liabilities 36,413 35,366
36,413 35,366
Capital and reserves
Called up share capital 18 592 539
Share premium account 20 16,171 16,030
Shares to be issued 20 – 4,367
Merger reserve 20 20,784 15,162
Other reserve 20 686 698
Profit and loss account 20 (1,820) (1,430)
Shareholders’ funds – equity interests 36,413 35,366
Approved by the Board on 5 October 2005
Dr MJ Flynn
Chief Executive Officer 44
Group Statement of Cash Flows
For the year ended 30 June 2005
2005 2004
Note £000 £000
Net cash outflow from operating activities 22(a) (2,385) (1,479)
Returns on investments and servicing of finance
Interest received 248 165
Interest paid (18) (14)
230 151
Taxation
Corporation tax paid (238) –
Corporation tax refunded 23 –
Capital expenditure
Payments to acquire tangible fixed assets (280) (25)
Payments to acquire intangible fixed assets – (71)
(495) (96)
Acquisitions and disposals
Purchase of subsidiary undertaking 13 (1,201) –
Net proceeds on sale of operations (discontinued operations) – 339
(1,201) 339
Net cash outflow before financing (3,851) (1,085)
Financing
Issue of ordinary share capital - flotation – 10,800
Issue of ordinary share capital – ESOT 222 753
Share issue costs – (1,807)
Issue of ordinary share capital – share options 195 –
Repayments of finance lease (1) –
Cash outflow from repayment in short term loans 22(b) (70) (450)
Cash outflow from decrease in loan stock 22(b) – (587)
Cash inflow from increase in long term loans 22(b) 135 –
481 8,709
(Decrease)/increase in cash 22(b) (3,370) 7,624 45
Group Statement of Cash Flows (Continued)
For the year ended 30 June 2005
Reconciliation of net cash flow to movement in net funds/(debt)
2005 2004
Note £000 £000
(Decrease)/increase in cash (3,370) 7,624
Cash outflow from repayment of short term loans 70 450
Cash inflow from increase in long term loans (135) –
New finance lease (55) –
Cash outflow from decrease in loan stock – 587
Change in net debt resulting from cash flows 22(b) (3,490) 8,661
Exchange differences 61 1
Movement in net funds/(debt) (3,429) 8,662
Net debt at 1 July 22(b) 7,683 (979)
Net funds at 30 June 22(b) 4,254 7,683 46
Notes to the Financial Statements
At 30 June 2005
1. Accounting Policies
Basis of preparation
The financial statements are prepared under the historical cost convention and in accordance with UK applicable accounting standards.
Basis of consolidation
The group financial statements consolidate the financial statements of Sinclair Pharma Plc and all its subsidiary undertakings drawn up to 30 June each
year. No profit and loss account is presented for Sinclair Pharma Plc as permitted by section 230 of the Companies Act 1985. Acquisitions have been
included in the group financial statements using the acquisition method of accounting. The results of acquired entities are included in the group financial
statements from the date of acquisition. Purchase consideration is allocated to assets and liabilities on the basis of fair value at the relevant date of
acquisition.
The purchase of the entire share capital of Pharmarights Limited has been merger accounted, reflecting the substance of that business combination on
18 August 2000 as a group reconstruction as defined by FRS 6 “Acquisitions and Mergers”.
Turnover
Revenue from product sales is recognised upon shipment to customers. Provisions for rebates, product returns and discounts to customers are provided
for as reductions to turnover in the same period as the related sales occurred.
Royalties receivable under licensing agreements are recognised as they are earned and are recorded within turnover.
The recognition of other payments received and receivable, such as licence fees, upfront payments and milestones, is dependent on the terms of the
related arrangement, having regard to the ongoing risks and rewards of the arrangement, and the existence of any performance or repayment obligations,
if any, with the third party. Amounts received are recognised immediately as turnover where there are no substantial remaining risks, no ongoing
performance obligations and amounts received are not refundable. Amounts are deferred over an appropriate period where these conditions are not met.
The discontinued operations disclosed in the year to 30 June 2004 relate to the sale of the group’s UK Aspirin telesales and distribution business on 24
September 2003.
Goodwill
Positive goodwill arising on acquisitions is capitalised, classified as an asset on the balance sheet and amortised on a straight-line basis over its useful
economic life up to a presumed maximum of 20 years. It is reviewed for impairment at the end of the first full financial year following the acquisition and in
other periods if events or changes in circumstances indicate that the carrying value may not be recoverable. The directors review the estimated useful life
of the goodwill on an annual basis and have not identified any need to adjust these amounts.
If a subsidiary or business is subsequently sold or closed, any goodwill arising on acquisition that has not been amortised through the profit and loss
account is taken into account in determining the profit or loss on sale or closure.
Other intangible assets
Intangible assets acquired as part of an acquisition of a business are capitalised separately from goodwill if the fair value can be measured reliably on initial
recognition, subject to the constraint that unless the asset has a readily ascertainable market value, the fair value is limited to an amount that does not
create or increase any negative goodwill arising on the acquisition.
Intangible assets are amortised on a straight-line basis over their estimated useful lives up to a maximum of 20 years. The carrying value of intangible assets
is reviewed for impairment at the end of the first full financial year following the acquisition, and in other periods if events or changes in circumstances
indicate that the carrying value may not be recoverable. The directors are of the view that the useful economic life of the intellectual property acquired with
the Pharmarights business on 18 August 2000 is 10 years, and the intellectual property is being amortised over that period. 47
Notes to the Financial Statements
At 30 June 2005
Research and Development expenditure
Research and development expenditure is written off to the profit and loss account as incurred.
Depreciation
Depreciation is provided on all tangible fixed assets at rates calculated to write off the cost, less estimated residual value, of each asset evenly over its
expected useful life, as follows:
Office & laboratory equipment 15 - 25% pa (reducing balance)
Leasehold improvements Expensed over period of lease
Stocks
Stocks are stated at the lower of cost and net realisable value. Cost includes all costs incurred in bringing each product to its present location and condition,
as follows:
Raw materials and finished goods for resale - purchase cost on a first-in, first-out basis.
Net realisable value is based on estimated selling price less any further costs expected to be incurred to disposal.
Deferred taxation
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events
have occurred at that date that will result in an obligation to pay more, or a right to pay less, or to receive more, tax, with the following exception:
• provision is made for deferred tax that would arise on remittance of the retained earnings of overseas subsidiaries, only to the extent that, at the balance
sheet date, dividends have been accrued as receivable.
• deferred tax assets are recognised only to the extent that the directors consider that it is more likely than not that there will be suitable taxable profits
from which the future reversal of the underlying timing differences can be deducted.
Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based
on tax rates and laws enacted or substantively enacted at the balance sheet date.
Foreign currencies
Company
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign
currencies are retranslated at the rate of exchange ruling at the balance sheet date or if appropriate at the forward contract rate. All differences are taken
to the profit and loss account.
Group
The financial statements of overseas subsidiary undertakings are translated at the rate of exchange ruling at the balance sheet date. The exchange
difference arising on the retranslation of opening net assets is taken directly to reserves. All other translation differences are taken to the profit and loss
account.
Pensions
The group operates a defined contribution pension scheme. Contributions are charged to the profit and loss account as they become payable in
accordance with the rules of the schemes.
1. Accounting policies (continued) 48
Notes to the Financial Statements
At 30 June 2005
ESOP Trusts
The group has adopted UITF 38 “Accounting for ESOP Trusts” and accordingly has deducted issues of shares to the group’s ESOT from profit and loss
account reserves.
Leasing and hire-purchase commitments
Assets held under finance leases and hire purchase contracts are capitalised in the balance sheet and depreciated over their useful lives. The interest
element of payments is charged to the profit and loss account over the period of the lease and represents a constant proportion of the balance of capital
repayments outstanding.
2. Turnover and segmental analysis
Turnover, which is stated net of discounts, rebates and value added tax, represents amounts invoiced to third parties, derived from the provision of goods
and services which fall within the group’s sole ordinary activity, the development and exploitation of pharmaceutical products, and can be analysed as
follows:
2005 2004
£000 £000
Continuing operations
Licence Fees 2,487 50
Product Revenue 4,484 2,496
Discontinued operations
Product Revenue – 109
Total 6,971 2,655
Discontinued operations in 2004 relate to the Caprin business, which comprised a UK based, telesales and distribution operation. The business was sold
on 24 September 2003, as the business was considered no longer to be part of the core activities of the group.
The Group operates from two principal areas of activity, that of the UK and the rest of Europe. It operates within four geographical markets, the United
Kingdom, the Rest of Europe, the United States of America and the Rest of the World.
1. Accounting policies (continued) 49
Notes to the Financial Statements
At 30 June 2005
An analysis of turnover by geographical market is given below:
2005 2004
£000 £000
Turnover by destination
United Kingdom
– continuing operations 752 453
– discontinued operations –97
Rest of Europe
– continuing operations 3,811 1,681
– discontinued operations –12
United States of America
– continuing operations 2,278 245
Rest of World
– continuing operations 130 167
6,971 2,655
Turnover by origin
United Kingdom
– continuing operations 5,033 1,825
– discontinued operations – 109
Rest of Europe
– continuing operations 1,938 721
6,971 2,655
Segment operating (loss)/profit
United Kingdom
– continuing operations (1,729) (1,435)
– discontinued operations – (73)
Goodwill amortisation (165) (169)
Rest of Europe
– continuing operations (167) (536)
Goodwill amortisation (793) (745)
(2,854) (2,958)
Profit on sale of operation (discontinued operations) –87
Loss on ordinary activities before interest and taxation (2,854) (2,871)
2. Turnover and segmental analysis (continued) 50
Notes to the Financial Statements
At 30 June 2005
2. Turnover and segmental analysis (continued)
2005 2004
£000 £000
Net assets/(liabilities) by location
United Kingdom
– continuing operations 7,335 10,404
– discontinued operations ––
Goodwill 2,394 2,643
Rest of Europe
– continuing operations 844 (951)
Goodwill 13,555 13,019
24,128 25,115
Minority interest 44
24,132 25,119
3. Operating loss
Operating loss is stated after charging/(crediting):
2005 2004
£000 £000
Auditors’ remuneration
– audit services – group 83 83
– company 87
– non audit services 38 41
Depreciation of tangible fixed assets 97 65
Depreciation of assets held under finance leases 2–
Amortisation of intangible fixed assets 958 993
Foreign exchange gain (61) (1)
Operating leases – land and buildings 71 17
Research and development 542 265 51
Notes to the Financial Statements
At 30 June 2005
4. Analysis of continuing and discontinued operations
2005 2004
Continuing Acquisition Total Continuing Discontinued Total
£000 £000 £000 £000 £000 £000
Turnover 5,900 1,071 6,971 2,546 109 2,655
Cost of sales (2,345) (271) (2,616) (1,567) (97) (1,664)
3,555 800 4,355 979 12 991
Other administrative expenses (5,309) (942) (6,251) (3,528) (85) (3,613)
National Insurance provision – – – 578 – 578
Goodwill amortisation (820) (138) (958) (914) – (914)
Total administrative expenses (6,129) (1,080) (7,209) (3,864) (85) (3,949)
Operating loss (2,574) (280) (2,854) (2,885) (73) (2,958)
The operating loss in the year ending 30 June 2004 relates to the discontinued Caprin business.
5. Staff costs
2005 2004
£000 £000
Wages and salaries 1,565 1,047
Social security costs 261 168
Other pension costs 54 99
1,880 1,314
The average monthly number of employees during the year was made up as follows:
2005 2004
No. No.
Sales 16 9
Administration 22 15
Distribution and stores –1
38 25 52
Notes to the Financial Statements
At 30 June 2005
6. Director’s remuneration
Director’s remuneration is detailed within the within the ’Directors’ emoluments and Directors’ pension entitlements’ sections of the Directors’ Remuneration
Report.
7. Interest payable
2005 2004
£000 £000
Bank loans and overdrafts 17 14
Interest due on finance leases 1–
18 14
8. Taxation on loss on ordinary activities
(a) Tax on loss on ordinary activities
2005 2004
£000 £000
Current tax:
UK Corporation Tax
Current tax on income for the year ––
Tax underprovided in previous years –6
–6
Foreign Tax 45 28
Total current tax (note 8 (b)) 45 34
Deferred tax:
Origination and reversal of timing differences ––
Group deferred tax ––
Tax on loss on ordinary activities 45 34 53
Notes to the Financial Statements
At 30 June 2005
(b) Factors affecting the current tax charge
The tax assessed on the loss on ordinary activities for the year is higher than the standard rate of corporation tax in the UK of 30% (2004 – 30%). The
differences are reconciled below:
2005 2004
£000 £000
Loss on ordinary activities before tax (2,624) (2,720)
Loss on ordinary activities multiplied by the standard rate of corporation tax in the UK of 30% (2004: 30%) (787) (816)
Amortisation not allowed for tax purposes 287 274
Expenses not deductible for tax purposes 7 352
Research and development tax credit (59) (45)
Tax underprovided in previous years –6
Unrelieved/(utilised) UK tax losses 630 572
Unrelieved/(utilised) overseas tax losses 99 (38)
Decelerated capital allowances (2) 5
Share option gains deduction (118) (277)
Other timing differences (12) 1
Total current tax (note 8(a)) 45 34
(c) Deferred tax
Group
£nil (2004: £nil) is provided for deferred taxation on the balance sheet.
The Group has a potential deferred taxation asset, which has not been recognised in the accounts, due to uncertainties surrounding suitable future taxable
profits as follows:
2005 2004
£000 £000
Taxation losses (1,193) (573)
Accelerated capital allowances 6 (4)
Other timing differences (2) (13)
Unprovided deferred taxation asset (1,189) (590)
Company
£nil (2004: £nil) is provided for deferred taxation on the balance sheet.
8. Taxation on loss on ordinary activities (continued) 54
Notes to the Financial Statements
At 30 June 2005
9. Loss/(Profit) attributable to members of the parent undertaking
The loss dealt with in the financial statements of the parent undertaking was £588,277 (2004: profit of £531,959).
10. Earnings per share
Basic and diluted loss per share
The basic loss per share has been calculated by dividing the loss for the year, after exceptional costs, by the weighted average number of shares in
existence for the year.
Shares held by the Employee Share Trust, including shares over which options have been granted to Directors and staff, have been excluded from the
weighted average number of shares for the purposes of calculation of the basic loss per share.
The loss and weighted average number of shares for the purpose of calculating the diluted loss per share are identical to those used for the basic loss per
share at 30 June 2005, as the exercise of share options would have the effect of reducing the loss per share and is therefore not dilutive under the terms
of FRS 14.
2005 2004
£000 £000
Loss attributable to equity shareholders (2,669) (2,754)
Number Number
Weighted average number of shares 49,055,798 41,819,756
Dilutive share options ––
Dilutive share warrants ––
Diluted weighted average number of shares 49,055,798 41,819,756
Basic loss per share (5.44)p (6.59)p
Diluted loss per share (5.44)p (6.59)p 55
Notes to the Financial Statements
At 30 June 2005
11. Intangible fixed assets
Goodwill Licenses Other Total
Group £000 £000 £000 £000
Cost:
At 1 July 2004 18,173 141 1,225 19,539
Contingent consideration adjustment (1,517) – – (1,517)
Additions in year - acquisition 2,762 1,263 – 4,025
At 30 June 2005 19,418 1,404 1,225 22,047
Amortisation:
At 1 July 2004 2,511 32 68 2,611
Provided during the year 958 69 68 1,095
At 30 June 2005 3,469 101 136 3,706
Net book value:
At 30 June 2005 15,949 1,303 1,089 18,341
At 30 June 2004 15,662 109 1,157 16,928
The goodwill arose on the acquisition of four companies in previous years and is being amortised over a period of 20 years. Purchased goodwill during the
year of £2,762,000 relates to the acquisition of Euroderm details of which are outlined in note 13.
A contingent consideration adjustment has arisen as a result of the reduction in market value of the contingent consideration at the point of allotment for
the 2002 acquisition.
• Additional consideration of £2,116,230 was satisfied by the allotment of 1,258,339 (post bonus issue) ordinary shares of £0.01 each in the share capital
of Sinclair Pharma plc and having an estimated market value of £1.67 (post bonus issue) at the date of acquisition. The contingent shares were allotted
in September 2004 when the mid market value of Sinclair Pharma plc ordinary £0.01 shares was priced at £1.02, a difference of £0.65 per ordinary
£0.01 share when compared to the estimate. As a result the cost of acquisition has been reduced by £832,724.
• A further contingent consideration adjustment has arisen as a result of the reduction in market value of the contingent consideration satisfied on the
release of Decapinol for sale in one of the designated territories. Additional consideration of £2,251,110 was satisfied by the allotment of 1,339,267
(post bonus issue) ordinary shares of £0.01 each in the share capital of Sinclair Pharma plc and having an estimated market value of £1.67 (post bonus
issue) at the date of acquisition. The contingent shares were allotted on 2 June 2005 when the mid market value of Sinclair Pharma plc ordinary £0.01
shares was priced at £1.17, a difference of £0.50 per ordinary £0.01 share when compared to the estimate. As a result the cost of acquisition has been
adjusted by £684,168. 56
Notes to the Financial Statements
At 30 June 2005
The licences are held in a subsidiary company and comprise product distribution rights that have been capitalised and are being amortised over their useful
life, a period of 10 years. Additions during the year relate to trade licences, trade marks and technical dossiers recognised under UK GAAP purchased with
the acquisition of Euroderm. Trade licences, trade marks and technical dossiers purchased with Euroderm have been amortised over their useful life, a
period of 10 years.
The other intangible fixed assets arose on the buy-out of future royalty obligations on certain of the Group’s products. The consideration comprised
350,000* £0.01 ordinary shares at a price of £3.50 per ordinary share (prior to the bonus issue). The directors have determined that the useful economic
life of the other intangible asset is 18 years.
*before the 2:1 bonus issue.
Goodwill Licenses Other Total
Company £000 £000 £000 £000
Cost:
At 1 July 2004 – – 1,225 1,225
Additions in year ––––
Disposals in year ––––
At 30 June 2005 – – 1,225 1,225
Amortisation:
At 1 July 2004 – – 68 68
Provided during the year – – 68 68
Disposals in year ––––
At 30 June 2005 – – 136 136
Net book value:
At 30 June 2005 – – 1,089 1,089
At 30 June 2004 – – 1,157 1,157
The other intangible fixed assets arose on the buy-out of future royalty obligations on certain of the Company’s products. The consideration comprised
350,000* £0.01 ordinary shares at a price of £3.50 per ordinary share.
* before the 2:1 bonus issue.
11. Intangible fixed assets (continued) 57
Notes to the Financial Statements
At 30 June 2005
12. Tangible fixed assets
Office & laboratory Leasehold
equipment improvements Total
Group £000 £000 £000
Cost:
At 1 July 2004 277 40 317
Additions 183 153 336
Acquisition of Euroderm 41 – 41
Exchange differences (2) – (2)
At 30 June 2005 499 193 692
Depreciation:
At 1 July 2004 153 40 193
Provided during the year 57 42 99
Exchange differences 7– 7
At 30 June 2005 217 82 299
Net book value:
At 30 June 2005 282 111 393
At 30 June 2004 124 – 124
On 15 May 2005 the Group entered into a finance lease agreement to purchase a new Group wide accounting system. The cash cost of £57,343 is
included within office and laboratory additions and £1,593 in depreciation has been charged to the profit and loss during the year. The NBV of assets
subject to finance leases at 30 June 2005 was £55,750.
13. Investments
Subsidiary
undertakings
Company £000
Cost:
At 1 July 2004 23,233
Contingent consideration adjustment (1,517)
Addition 4,022
At 30 June 2005 25,738 58
Notes to the Financial Statements
At 30 June 2005
Country of Proportion Nature of
incorporation Holding held business
Sinclair Pharmaceuticals Ltd England Ordinary shares 100% Pharmaceutical products
Pharmarights Ltd England Ordinary shares 100% Distribution rights
For Zest Ltd England Ordinary shares 100% Medical products
Sinclair Pharma Srl* Italy Ordinary shares 100% Pharmaceutical products
Salix Pharma AB Sweden Ordinary shares 100% Pharmaceutical products
Sinclair Pharma AB Sweden Ordinary shares 99.1% Pharmaceutical products
Sinclair Srl (formerly Italy Ordinary shares 100% Pharmaceutical products
Euroderm
*90% of the issued share capital is held by Sinclair Pharma plc, 10% is held by Sinclair Pharmaceuticals Ltd.
Details of the Biosurface Pharma AB acquisition are detailed within note 11.
On 31 January 2005 the group acquired Euroderm for a consideration of £3,873,000 (€5,600,000), before expenses, satisfied by the following.
(i) Initial consideration of £1,052,000 (€1,500,000) in cash on completion at 31 January 2005.
(ii) Initial consideration of £1,035,000 (€1,500,000) in Sinclair Pharma Plc ordinary 1p shares on completion based on an £GBP/€ exchange rate of
£0.6905 and an ordinary share valued at £1.24. Sinclair Pharma Plc issued 835,283 ordinary 1p shares to the shareholders of Euroderm to satisfy the
initial share consideration.
(iii) Additional consideration of £1,786,000 (€2,600,000) in Sinclair Pharma Plc ordinary 1p shares payable on the 10th day following the agreement of the
Completion Accounts. The Completion Accounts were determined in April 2005 and on 24 April 2005, 1,428,037 ordinary 1p shares in Sinclair Pharma
were issued to the shareholders of Euroderm based on an £GBP/€ exchange rate of £0.6869 and an ordinary share valued at £1.25.
The investment in Sinclair Srl (formerly Euroderm) has been included in the company’s balance sheet at its fair value at the date of acquisition.
13. Investments (continued) 59
Notes to the Financial Statements
At 30 June 2005
Analysis of the acquisition of Sinclair Srl:
Acquisition of Euroderm:
Book Fair value
value Adjustments to group
£000 £000 £000
Fixed assets – intangible 1,811 (548)
1
1,263
– tangible 41 – 41
Stocks 205 – 205
Debtors 609 – 609
Creditors due within one year (858) – (858)
Net assets/(liabilities) 1,808 (548) 1,260
Goodwill arising on consolidation 2,762
4,022
Discharged by:
Cash (i) 1,052
Fair value of shares issued (ii), (iii) 2,821
Costs associated with the acquisition 149
4,022
Cash outflow on acquisition £’000
Net cash acquired with the subsidiary –
Cash paid 1,052
Costs associated with the acquisition 149
Net cash outflow 1,201
1
As required under FRS 11, the board has conducted an impairment review on the acquisition of Euroderm. The board has assessed the recoverability of
all fixed assets purchased on the acquisition against future cash flows and using DCF techniques and tested their impairment. Accordingly, the board has
adjusted the carrying value of certain intangible fixed assets.
Goodwill on acquisition is calculated on a provisional basis.
13. Investments (continued) 60
Notes to the Financial Statements
At 30 June 2005
In 5 months to 30 June 2005, Sinclair Srl generated net cash outflows from operating activities of £1,001,960 paid £10,501 in respect of net returns on
investments and servicing of finance, paid £nil in respect of taxation and utilised £52,582 for capital expenditure and financial investment.
The acquisition is classified as a substantial acquisition under FRS 6, and as such the following additional information is provided.
Summarised profit and loss account for the period 1 January 2004 to 31 December 2004 and 1 January 2005 to 31 January 2005
1month to 12 months to
31 January 31 December
2005 2004
£000 £000
Turnover 96 2,599
Operating loss (73) (294)
Loss before taxation (76) (294)
Taxation ––
Retained loss for the period (76) (294)
Retranslation of Sinclair Srl’s net assets resulted in a £8,979 exchange gain in the groups’ statement of recognised gains and losses. Euroderm had no
other recognised gains and losses in the 7 month period to 31 January 2005 other than the retained loss above.
14. Stocks
Group Company
2005 2004 2005 2004
£000 £000 £000 £000
Raw materials 22 19 – –
Finished goods 579 90 – –
601 109 – –
15. Debtors
Group Company
2005 2004 2005 2004
£000 £000 £000 £000
Trade debtors 4,201 1,308 – –
Amounts owed by group undertakings – – 5,760 3,555
Other debtors 387 669 13 25
Prepayments and accrued income 313 84 10 –
4,901 2,061 5,783 3,580
13. Investments (continued) 61
Notes to the Financial Statements
At 30 June 2005
16. Creditors: amounts falling due within one year
Group Company
2005 2004 2005 2004
£000 £000 £000 £000
Other loan –70 – –
Obligations under finance lease 16 – – –
Bank loans and overdrafts 464 – – –
Trade creditors 2,475 927 48 54
Current corporation tax 17 177 – 32
Other taxes and social security costs 101 207 – 12
Other creditors 732 155 – –
Accruals and deferred income 1,035 324 112 –
4,840 1,860 160 98
The other loan of £70,000 arose in a subsidiary undertaking and was owed to a company controlled by Dr M Flynn, a director. The loan was interest free,
was unsecured and had no fixed repayment schedule. The loan was repaid on 28 September 2004.
17. Creditors: amounts falling due after more than one year
Group Company
2005 2004 2005 2004
£000 £000 £000 £000
Bank loan 135 – – –
Obligations under finance leases 40 – – –
175 – – –
Barclays Bank Plc granted a bank loan of €200,000, during April 2005 to finance the refurbishment the new offices occupied by the employees of Sinclair
Pharma Srl and the newly acquired Sinclair Srl (formerly Euroderm). Based on a closing £GBP/€ exchange rate of 0.675 the value of the loan outstanding
at 30 June 2005 was £134,960. The loan is repayable over 5 years and interest is charged at 3 month Euro Libor rate. 62
Notes to the Financial Statements
At 30 June 2005
18. Share capital, share options and share warrants
2005 2004 2005 2004
Share Capital 000’s 000’s £000 £000
Authorised
Ordinary shares of £0.01 each 70,000 70,000 700 700
Allotted, called up and fully paid
Ordinary shares of £0.01 each 59,226 53,935 592 539
The movements in share capital are detailed in note 20.
Share Options
The Company has an EMI share option scheme under which approved and unapproved options to subscribe for the Company’s shares have been granted
to certain employees, as follows:
Options at Granted Exercised Lapsed Options at Exercise Dates normally
1 July 2004 in year in year in year 30 June 2005 Price (p) exercisable
100,000 – (50,000) – 50,000 33p 2003 - 2011
289,200 – (95,000) – 194,200 67p 2003 - 2011
990,000 – – – 990,000 115p 2006 - 2013
– 1,120,546 – – 1,120,546 94.5p 2007 - 2014
- 187,500 – – 187,500 115p 2008 - 2015
1,379,200 1,308,046 (145,000) – 2,542,246 63
Notes to the Financial Statements
At 30 June 2005
Share Warrants and interests in ordinary £0.01 shares
The Company has issued share warrants and interests over ordinary £0.01 shares as follows:
Warrants over Warrants over 
1p ordinary 1p ordinary 
shares at Granted Exercised Lapsed shares at Exercise Dates normally
1 July 2004 in year in year in year 30 June 2005 Price (p) exercisable
4,827,900 – – – 4,827,900 1p 2000 - 2010
135,000 – (135,000) – – 1p 2001 - 2011
75,000 – – – 75,000 67p 2001 - 2011
152,835 – (99,020) – 53,815 133p 2001 - 2011
75,000 – – – 75,000 133p 2002 - 2012
345,764 – (334,550) – 11,214 67p 2003 - 2013
2,031,129 – – – 2,031,129 115p 2003 - 2013
11,214 – – – 11,214 133p 2003 - 2013
7,653,842 – (568,570) – 7,085,272
The holder must be an employee, director or consultant of the company at the time of exercise. Rules governing the exercise of warrants and share options
are detailed on pages 16 to 20 of the Directors’ Remuneration Report.
Disclosures relating to the ESOT are included within the Directors Remuneration Report.
19. Financial instruments
The Group’s principal financial instruments comprise cash positive bank deposit accounts and an interest bearing loan. The Group endeavours to maximise
the return from cash deposits by regular market reviews while ensuring accessibility. The Group has various other financial instruments such as trade
debtors and trade creditors that arise directly from its operations.
It is, and has been throughout the period, the Group’s policy that no trading in financial instruments is undertaken.
The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk and foreign currency risk. The policies for managing these
risks are summarised below. The Group holds no derivative financial instruments to manage the interest rate profile or to hedge foreign currency exposures.
It is not the Group’s policy to hedge foreign currency as foreign subsidiaries receive and pay in foreign currency creating a netting effect.
With the exception of the analysis of currency exposures, the disclosures below exclude short-term debtors and creditors.
18. Share capital, share options and share warrants (continued) 64
Notes to the Financial Statements
At 30 June 2005
Interest rate risk profile of financial liabilities
Fixed rate Floating rate
financial financial
Total liabilities liabilities
£000 £000 £000
2005
Sterling 56 56 –
Euro 599 – 599
655 56 599
2004
Sterling 70 – 70
Euro –––
70 – 70
The floating rate financial liabilities comprised:
– Sterling denominated overdrafts that bear interest at rates based on LIBOR; and
– Euro denominated overdrafts that bear interest rates based on the European base rate.
– Euro denominated loans are repayable in 2010 and are charged at the 3 month Euro Libor rate.
The fixed rate financial liabilities comprised:
– Sterling denominated financial liabilities expire May 2008 and bear an effective monthly interest rate of 1.49%.
19. Financial Instruments (continued) 65
Notes to the Financial Statements
At 30 June 2005
Interest rate risk profile of financial assets
The interest rate profile of the financial assets of the group as at 30 June is as follows:
Floating rate
financial
assets
£000
2005
Sterling 3,993
US dollar 832
Euro 83
4,908
2004
Sterling 7,554
US dollar 1
Euro 198
7,753
Floating rate financial assets comprised cash deposits earning interest at bank variable interest rate being 4.45%.
Currency Exposures
It is not the Group’s policy to hedge foreign currency exposures as foreign subsidiaries receive and pay in foreign currency creating a netting effect.
The table below shows the Group’s currency exposures; in other words, those transactional (or non-structural) exposures that give rise to the net currency
gains and losses recognised in the profit and loss account. Such exposures comprise the monetary assets and monetary liabilities of the Group that are
not denominated in the operating (or functional) currency of the operating unit involved.
19. Financial Instruments (continued) 66
19. Financial instruments (continued)
At 30 June, these currency exposures are as follows:
Functional currency of group operations
Net Foreign Currency Monetary Assets/(Liabilities)
Swedish
Sterling Euro Kroner US Dollar Total
£000 £000 £000 £000 £000
2005
Sterling – 498 – 1,529 2,027
Euro –––––
– 498 – 1,529 2,027
2004
Sterling – 228 – 1 229
Euro (27) – – – (27)
(27) 228 – 1 202
Maturity of financial liabilities
The maturity profile of the Group’s financial liabilities at 30 June is as follows:
Finance Finance
Leases Other Leases Other
2005 2005 2004 2003
£000 £000 £000 £000
In one year or less, or on demand 16 464 – 70
In more than one year but not more than two 19 – – –
In more than two years but not more than five 20 136 – –
55 600 – 70
Borrowing facilities
The Group has an overdraft facility available to it. The undrawn committed facilities available at 30 June in respect of which all conditions precedent had
been met at that date are as follows:
2005 2004
£000 £000
Expiring in one year or less 400 400
400 400
Fair values of financial assets and financial liabilities
There are no differences between the book and fair value of the Group’s financial instruments, as disclosed above.
Notes to the Financial Statements
At 30 June 2005 67
20. Reconciliation of shareholders’ funds and movement on reserves
Share premium Shares to Profit and 
Share Capital account be issued Merger reserve Other reserve loss Account Total 
Group £000 £000 £000 £000 £000 £000 £000
At 1 July 2003 118 3,428 4,367 10,062 – (1,772) 16,203
Buy out royalty obligations 3 1,222 –––– 1,225
Bonus Issue 244 (244) –––––
Issue of ordinary share capital - flotation 94 10,706 –––– 10,800
Flotation costs – (1,807) –––– (1,807)
Issue of ordinary share capital - ESOT 75 2,485 – – – (2,560) –
Warrant reserve –––– 749 – 749
Warrants and options exercised 5 240 – – (51) 560 754
Loss for the period ––––– (2,754) (2,754)
Exchange difference ––––– (51) (51)
At 1 July 2004 539 16,030 4,367 10,062 698 (6,577) 25,119
Warrants and options exercised 4 141 – – (12) 198 331
Biosurface acquisition 26 – (4,367) 2,824 – – (1,517)
Euroderm acquisition 23 – – 2,798 – – 2,821
Loss for the period ––––– (2,669) (2,669)
Exchange difference ––––– 48 48
At 30 June 2005 592 16,171 – 15,684 686 (9,000) 24,133
Relief under s131 of the Companies Act has been taken for the Biosurface Pharma AB and Euroderm acquisitions.
Notes to the Financial Statements
At 30 June 2005 68
20. Reconciliation of shareholders’ funds and movement on reserves (continued)
Total
Share premium Shares to Profit and shareholders’
Share Capital account be issued Merger reserve Other reserve loss Account funds 
Company £000 £000 £000 £000 £000 £000 £000
At 1 July 2003 118 3,428 4,367 15,162 – 39 23,114
Buy out royalty obligations 3 1,222 –––– 1,225
Bonus Issue 244 (244) –––––
Warrant reserve –––– 749 – 749
Issue of ordinary share capital - flotation 94 10,706 –––– 10,800
Flotation costs – (1,807) –––– (1,807)
Issue of ordinary share capital - ESOT 75 2,485 – – – (2,560) –
Warrants and options exercised 5 240 – – (51) 560 754
Profit for the period ––––– 531 531
At 1 July 2004 539 16,030 4,367 15,162 698 (1,430) 35,366
Warrants and options exercised 4 141 – – (12) 198 331
Biosurface acquisition 26 – (4,367) 2,824 – – (1,517)
Euroderm acquisition 23 – – 2,798 – – 2,821
Loss for the period ––––– (588) (588)
At 30 June 2005 592 16,171 – 20,784 686 (1,820) 36,413
Warrant reserve
Other reserves arose on the grant of 784,875 warrants in settlement of the National Insurance liability on certain warrants and unapproved share options
that were issued by the Company.
During the twelve months ended 30 June 2004, the Company entered into a joint election with the holders of certain warrants for the transfer of the
employer’s National Insurance liability arising on the exercise of the warrants. In consideration for the transfer of this liability, the Company granted additional
warrants over units to subscribe for shares, which, as at the date of grant, provided the warrant holders with a right to subscribe for 784,875 shares.
The warrants were granted at the same exercise price as the warrants that attracted the National Insurance liability, which was less than market value on
the date of grant reflecting the value of the National Insurance liability transferred to the holders. Accordingly, the intrinsic value (the difference between
market price and the grant price) was transferred from the National Insurance provision and is included in the other reserve. The other reserve is released
to the profit and loss account reserve as the underlying warrants are exercised.
Notes to the Financial Statements
At 30 June 2005 69
20. Reconciliation of shareholders’ funds and movement on reserves (continued)
Issue of ordinary share capital
As at 30 June 2005, the Company had 972,059 approved EMI share options and 1,570,187 unapproved EMI share options to subscribe for the Company’s
ordinary £0.01 shares, granted to certain employees, granted at option prices between £0.33 and £1.15 each. As at 30 June 2005, the Company also
had 7,085,272 warrants and interests in shares over ordinary £0.01 shares, to be exercised at between £0.01 and £1.33 each. As at 30 June 2005 the
Sinclair Pharma plc Employee’s Share Trust holds 6,431,457 shares in respect of certain of these warrants.
During the year 145,000 share options and 568,570 share warrants were exercised detailed in note 18.
Euroderm acquisition
On 31 January 2005, Sinclair Pharma plc purchased the entire share capital of Euroderm for the following consideration:
• Initial consideration of €1,500,000 in Sinclair Pharma Plc ordinary 1p shares on completion based on an £GBP/€ exchange rate of £0.6905 and an
ordinary share valued at £1.24. Sinclair Pharma Plc issued 835,283 ordinary 1p shares to the shareholders of Euroderm to satisfy the initial share
consideration; and
• Additional consideration of €2,600,000 in Sinclair Pharma Plc ordinary 1p shares payable on the 10th day following the agreement of the Completion
Accounts and Pre-tax Profit and sales calculations. The Completion Accounts were determined in April 2005 and on 24 April 2005, 1,428,037 ordinary
1p shares in Sinclair Pharma were issued to the shareholders of Euroderm based on an £GBP/€ exchange rate of £0.6869 and an ordinary share
valued at £1.25.
• A further 50,492 ordinary 1p shares in Sinclair Pharma plc were issued to cover share commission costs of £62,977.
Biosurface Pharma AB acquisition
Full details of the Biosurface Pharma AB acquisition are contained in note 13.
Employee Share Option Trust (ESOT)
The group has adopted UITF 38 “Accounting for ESOP Trusts” and accordingly has deducted issues of shares to the group’s ESOT from profit and loss
account reserves.
The ESOT has been established to provide a vehicle through which share incentives and other benefits may be provided to past, present or future
employees of the Company. The ESOT may for example gift, sell or grant options or warrants over shares to employees of the Company in a most efficient
manner. The number of ordinary 1p shares issued from ESOT during the year to 30 June 2005 was 334,550.
Full details of the ESOT are contained within the directors remuneration report of pages 19 to 20.
Notes to the Financial Statements
At 30 June 2005 70
21. Operating lease commitments
At 30 June 2005 the Group was committed to making the following payments during the next year in respect of operating leases:
Land & Land &
Buildings Buildings
2005 2004
£000 £000
Leases which expire:
Within one year ––
Between two and five years –17
After five years 124 –
124 17
On 14 January 2005 Sinclair Pharma Srl entered into a commercial leasing agreement with Immobiliare Barbara Srl to provide office accommodation for
the employees and act as the registered office of Sinclair Pharma Srl and Sinclair Srl (formerly Euroderm). The lease is for a period of 6 years expiring March
2011.
22. Notes to the statement of cash flows
(a) Reconciliation of operating loss to net cash outflow from operating activities
2005 2004
£000 £000
Operating loss (2,854) (2,958)
Depreciation of tangible fixed assets 99 65
Amortisation of intangible fixed assets 1,095 993
(Increase)/decrease in debtors (2,267) 2,579
(Increase)/decrease in stocks (287) 151
Increase/(decrease) in creditors 1,867 (1,697)
Increase/(decrease) in provisions 23 (611)
Exchange gains (61) (1)
Net cash outflow from operating activities (2,385) (1,479)
Notes to the Financial Statements
At 30 June 2005 71
22. Notes to the statement of cash flows (continued)
(b) Analysis of net debt
At At
1 July Cash Non-cash Exchange 30 June
2004 flow movements differences 2005
£000 £000 £000 £000 £000
Cash at bank and in hand 7,753 (2,906) – – 4,908
Bank overdrafts – (464) – – (464)
Cash 7,753 (3,370) – 61 4,444
Short term loans (70) 70 – – –
Long term loans – (135) – – (135)
Finance leases – – (55) – (55)
Net funds 7,683 (3,435) (55) 61 4,254
(c) Major non-cash transactions
i. During the year, 2,313,812 ordinary 1p shares in Sinclair Pharma plc were issued as consideration on completion of the acquisition of Euroderm.
ii. Conditions regarding the contingent consideration of the acquisition of Biosurface Pharma AB were satisfied during the year and subsequently
2,597,606 ordinary 1p shares in Sinclair Pharma plc were allotted.
23. Capital commitments
The group had capital commitments of £nil at 30 June 2005 (2004: £38,107).
Notes to the Financial Statements
At 30 June 2005 72
24. Related party transactions
1. During the year, the Company paid £25,219 (2004: £5,000) to Equity Development Ltd for research and distribution, capital market service and media
positioning. Mr G Cook a Non Executive Director of the Company is also a Non Executive Director of Equity Development Ltd. The contract was entered
into prior to Mr G Cook joining the Board of Sinclair Pharma Plc. There was £1,873 (2004: £nil) amount outstanding for this transaction at 30 June
2005.
2. An agreement was made on 5 April 2001 between Sinclair Pharmaceuticals Ltd (“Sinclair”) and Axcan Pharma (Ireland) Ltd (“Axcan”) to appoint Sinclair
as exclusive distributor of Axcan to supply and distribute Photofrin® in Europe. Sinclair shall also provide the following services to Axcan:
a. Reception of products, sampling, labelling, quarantine, services and organization and delivery of the samples for bio-assey to a person designated
by Axcan from time to time.
b. Warehousing of products for the benefit of Axcan and shipping of such products to independent distributors pursuant to directors given by Axcan
from time to time.
During the year, the Company paid £371,475 (2004: £696,571) to Axcan for the cost of Photofrin® sold in the year less reimbursable costs. At 30 June
2005 the amount owing to Axcan was £267,275 (2004: £127,483).
Dr MJ Flynn, Chief Executive Officer is a remunerated Non Executive Director as disclosed in the Directors’ Remuneration Report of Axcan Pharma
(Ireland) Ltd.
3. A loan of £70,000 raised in the prior year was owed to a company controlled by Dr MJ Flynn, a director. The loan was interest free, was unsecured and
had no fixed repayment schedule. The loan was repaid on 28 September 2004.
Notes to the Financial Statements
At 30 June 2005 73
Notice of AGM
SINCLAIR PHARMA PLC
NOTICE OF ANNUAL GENERAL MEETING
NOTICE is hereby given that the ANNUAL GENERAL MEETING of SINCLAIR PHARMA PLC will be held at the offices of Simmons & Simmons at CityPoint,
One Ropemaker Street, London EC2Y 9SS on Monday, 28 November 2005 at 12:00 noon, to transact the following business:
Ordinary Business
1. To receive and adopt the accounts for the year ended 30 June 2005, together with the Reports of the Directors and of the Auditors thereon.
2. (a) To re-appoint Ernst & Young LLP as auditors to the Company, to hold office until the conclusion of the next general meeting at which accounts
are laid before the Company.
(b) To authorise the Directors to determine the remuneration of the auditors of the Company.
3. To re-elect as a Director MJ Flynn, who retires by rotation, in accordance with Article 111 of the Company’s Articles of Association.
4. To re-elect as a Director AJ Sinclair, who retires, in accordance with Article 109 of the Company’s Articles of Association
5. To re-elect as a Director RS Harris, who retires by rotation, in accordance with Article 111 of the Company’s Articles of Association.
6. To approve the Directors’ Remuneration Report for the year ended 30 June 2005, as set out on pages 15 to 23 of the Annual Report and Accounts.
Special Business
As special business, to consider and if thought fit pass the following resolutions which will be proposed as to resolution 7 as an ordinary resolution and as
to resolutions 8 and 9 as special resolutions:
7. THAT, subject to and in accordance with Article 16 of the Articles of Association of the Company, the Directors be generally and unconditionally
authorised in accordance with section 80 of the Companies Act 1985 to exercise all the powers of the Company to allot relevant securities (within
the meaning of section 80 of the Companies Act 1985) up to a maximum nominal amount of £197,783 (being approximately one third of the current
issued share capital) provided that such authority shall expire on the conclusion of the Annual General Meeting of the Company to be held in 2006,
or on 31 January 2007, whichever is the earlier, but so that the Company may before such expiry make an offer or agreement which would or might
require relevant securities to be allotted after such expiry, and the Directors may allot relevant securities in pursuance of such offer or agreement as
if the authority conferred by this resolution had not expired.
8. THAT, subject to the passing of resolution 8 as set out in the notice of this meeting, and in accordance with Article 17 of the Articles of Association
of the Company, the Directors be empowered pursuant to section 95 of the Companies Act 1985 to allot equity securities (as defined in section 94
of the Companies Act 1985) for cash pursuant to the general authority conferred by resolution 8 as set out in the notice of this meeting, as if section
89(1) of the Companies Act did not apply to such allotment, provided that this power shall be limited to allotments of equity securities.:
(i) in connection with or pursuant to an offer by way of rights, open offer or other pre-emptive offer to the holders of shares in the Company and
other persons entitled to participate therein in proportion (as nearly as practicable) to their respective holdings, subject to such exclusions or
other arrangements as the Directors may consider necessary or expedient to deal with fractional entitlements or legal or practical problems
under the laws of any territory or the regulations or requirements of any regulatory authority or any stock exchange in any territory; and
(ii) otherwise than pursuant to sub-paragraph (i) above, up to an aggregate nominal amount of £59,225.65, being approximately 10% of the
current issued share capital.
and such power shall expire on the conclusion of the Annual General Meeting of the Company to be held in 2006 or on 31 January 2007, whichever
is earlier, but so that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted
and the Directors may allot equity securities in pursuance of such offer or agreement as if the power conferred by this resolution had not expired.
9. THAT the Company be generally and unconditionally authorised, pursuant to Article 9 of the Articles of Association of the Company and pursuant
to section 166 of the Companies Act 1985, to make market purchases (as defined in section 163 of the Companies Act 1985) of up to 5,922,565
Ordinary Shares of 1p each in the capital of the Company (being approximately 10% of the current issued ordinary share capital of the Company)
on such terms and in such manner as the Directors of the Company may from time to time determine, provided that: 74
(a) the amount paid for each share (exclusive of expenses) shall not be more than five per cent above the average of the middle market quotation
for Ordinary Shares as derived from the Daily Official List of London Stock Exchange plc for the five business days before the date on which
the contract for the purchase is made, and in any event not less than 1p per share; and
(b) the authority herein contained shall expire at the conclusion of the Annual General Meeting of the Company to be held in 2006 or on 31
January 2007, whichever is earlier, provided that the Company may, before such expiry, make a contract to purchase its own shares which
would or might be executed wholly or partly after such expiry, and the Company may make a purchase of its own shares in pursuance of
such contract as if the authority hereby conferred hereby had not expired.
Dated: 28 October 2005 By Order of the Board
Registered Office: SD Downer
Borough Road Secretary
Godalming
Surrey GU7 2AB
Notes:
1. Any member entitled to attend and vote at the Annual General Meeting is entitled to appoint one or more proxies (who need not be a member of
the Company) to attend and, on a poll, to vote instead of the member.  Completion and return of a form of proxy will not preclude a member from
attending and voting at the meeting in person, should he subsequently decide to do so.
2. In order to be valid, any form of proxy and power of attorney or other authority under which it is signed, or a notarially certified or office copy of such
power or authority, must reach the Company’s Registrars, Capita Registrars, The Registry, 34 Beckenham Road, Kent BR3 4TU not less than 48
hours before the time of the meeting or of any adjournment of the meeting. Alternatively you can register your vote electronically at
www.capitaregistrars.com which includes full details of the registration procedure.
In the case of joint holders, the signature of any one holder will be sufficient, but the names of all joint holders should be stated, and the vote of the
senior holder who tenders a vote will be accepted to the exclusion of the vote(s) of other joint holder(s), seniority being determined by the order
which the names stand in the register of members of the Company.
3. Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, shareholders who hold shares in uncertificated form must be entered
on the Company’s share register at noon on 26 November 2005 in order to be entitled to attend and vote at the Annual General Meeting.  Such
shareholders may only cast votes in respect of shares held at such time.  Changes to entries on the relevant register after that time shall be
disregarded in determining the rights of any person to attend or vote at the meeting.
4. Copies of the service contracts of each of the Directors, and the register of Directors’ interests in shares of the Company kept pursuant to section
325 of the Companies Act 1985 will be available for inspection at the registered office of the Company during usual business hours on any weekday
(Saturdays and public holidays excluded) from the date of this notice until the date of the Annual General Meeting and at the place of the Annual
General Meeting from at least 15 minutes prior to and until the conclusion of the Annual General Meeting.
5. Biographical details of each Director who is being proposed for re-appointment or re-election by shareholders, including their membership of Board
committees, are set out in pages 12 to 13 of the accounts for the year ended 30 June 2005.
6. CREST members who wish to appoint proxies by using the CREST electronic appointment service may do so by utilising the procedures described
in the CREST manual. CREST personal members or other CREST sponsored members and those CREST members who have appointed a voting
service provider should refer to their CREST sponsor or voting service provider who will be able to take appropriate action in their behalf. 
In order for a CREST proxy appointment to be valid the appropriate CREST message must be properly authenticated in accordance with CREST
Co’s specification and must contain the information required for such instructions. The message must be transmitted so as to be received by the
Company’s Registrars by noon on 26 November 2005. For this purpose, the time of receipt will be taken to be the time (as determined by the
timestamp applied to the message by the CREST applications host) from which the Registrar is able to receive the message by enquiry to CREST
in the manner prescribed by CREST.
CREST members and where applicable, their CREST sponsors or voting service providers should note that CREST Co does not make available
special procedures in CREST for any particular messages and normal system timings and limitations will therefore apply in relation to the input of
CREST proxy instructions. It is the responsibility of the CREST members concerned to take such action as shall be necessary to ensure that a
message transmitted by means of the CREST system by any particular time.
Subsequent to the approval of the accounts on 5 October 2005, Mr ADS Prenn has decided not to offer himself for re-election as a director, and
as a result there will not be a resolution for his re-appointment at the AGM. Mr ADS Prenn will therefore retire from office at the AGM on 28 November
2005. 75
Nominated Adviser
Piper Jaffray
1st Floor, Phoenix House
18 King William Street
London
EC2N 7US
Financial Public Relations
Financial Dynamics
Holburn Gate
26 Southampton Buildings
London
WC2A 1PB
Registrars
Capita Registrars
The Registry
34 Beckenham Road
Kent
BR3 4TU
Bankers
Barclays Bank plc
Ground Floor, Building 2
Turnford Place
Turnford
Broxburne 
Herts 
EN10 6NH
Joint Brokers and Underwriters 
Robert W Baird Limited
Mint House
77 Mansell Street
London
E1 8AF
Nomura International plc
Nomura House
1StMartinsleGrand
London
EC1A 4NP
Solicitors to the Company
Simmons & Simmons
CityPoint
One Ropemaker Street
London
EC2Y 9SS
Auditors
Ernst & Young LLP
Wessex House
19 Threefield Lane
Southampton
SO14 3QB
Registered Office
Borough Road
Godalming
Surrey
GU7 2AB
Corporate Advisors
Registered No: 03816616  
Partnered with Align 2004 
US Radiation 
dermatitis 
Xclair 
 Partnered in UK, Korea, 
Germany, Colombia 
2004 EU 
 Registration approval. 2005 US 
 Partnered in Italy and 
Spain, launched in Italy
2005 EU 
Gingivitis and 
periodontitis   
Decapinol 
rinse 
 
Partnered with CVP 
   
US 
Sebborrhoiec 
dermatitis  
Sebclair 
   US Gingivitis and 
periodontitis   
Decapinol 
toothpaste 
EU 
US 
 
 
EU 
US 
EU 
US 
EU 
US 
EU 
EU 
 
EU 
US 
 
 
 
Partnered in UK, Korea, 
Germany, Austria, 
Colombia 
2002
  
     
  2005 
 Butler, Recordati, Forest & 
many others 
2004 
    
 . 
2005 
  
 Launched in Italy through 
Sinclair, partnered in 
Indonesia, Israel & Portugal 
2004
 
Partnered with Align 2004 
Xerostomia Salinum    
 n/a n/a Sore Throat Alogon 
 Butler, and Rinse launched 
in WalMart 
2005 Mouth ulcers Aloclair spray 
  2006 
Gingivitis and 
periodontitis   
Decapinol gel 
 Registration approval 2006 
     
 Partnered with CVP. 
Positive multicentre trial 
result. 
2004 Atopic contact 
Dermatitis  
Atopiclair  
 Approved FY Registration Development 
 
Progress in FY2005
 
Regulatory status Indication
 
Product
Key portfolio progress during 2005 Designed & printed by Perivan 205981