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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION    FORM 20-F o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
  x
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the fiscal year ended
March 31, 2004
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the
transition period from __________________ to
___________________
 Commission File Number: 082-03895 PROTHERICS PLC  Not Applicable
(Translation of Registrants name into English) England and Wales
(Jurisdiction of incorporation or organization) The Heath Business & Technical Park, Runcorn, Cheshire, WA7 4QF England (Address of principal executive office) Securities registered or to be registered pursuant to Section 12(b) of the Act: None Securities registered or to be registered pursuant to Section 12(g) of the Act: Ordinary Shares of 2 Pence Each
(Title of Class)   Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the Registrants classes of capital or
common stock as of the close of the period covered by this Annual Report:207,750,086 ordinary shares of 2p each as of March 31, 2004   Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: x     Yes               o     No Indicate by check mark which financial statement item the Registrant has elected to follow: x     Item 17          o     Item 18




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TABLE OF CONTENTS  
 PageINTRODUCTION
    
    
    1GLOSSARY
    
    
    2PART I
    
    
    6ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    6ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    6ITEM 3. KEY INFORMATION
    
    
    6ITEM 4. INFORMATION ON THE COMPANY
    
    
    13ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    37ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    47ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    55ITEM 8. FINANCIAL INFORMATION
    
    
    56ITEM 9. LISTING
    
    
    56ITEM 10. ADDITIONAL INFORMATION
    
    
    57ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    70ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    70PART II
    
    
    71ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    71ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS
    
    
    71ITEM 15. CONTROLS AND PROCEDURES
    
    
    71ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    71ITEM 16B. CODE OF ETHICS
    
    
    71ITEM 16C. PRINCIPLE ACCOUNTANT FEES AMD SERVICES
    
    
    72PART III
    
    
    73ITEM 17 FINANCIAL STATEMENTS
    
    
    73ITEM 18. FINANCIAL STATEMENTS
    
    
    73ITEM 19. EXHIBITS
    
    
    73Ex-1.1 Articles of Association of Protherics PLCEx-2.1 Form of Instrument Constituting 6% Unsecured Convertible Loan NotesEx-4.9 Letter of extension dated November 14, 2003Ex-4.28 Letter of Appointment, dated September 9, 2004Ex-4.29 Consultancy Services Agreement dated September 27, 2004Ex-4.32 Letter of Appointment dated January 19, 2004Ex-4.33 Letter of Appointment dated February 23, 2004Ex-8.1 List of SubsidiariesEx-11.1 Code of EthicsEx-31.1 Section 302 Certification of the CEOEx-31.1 Section 302 Certification of the CFOEx-32.1 Section 906 Certification of the CEO & CFO
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INTRODUCTION Protherics PLC (the Company) is a public limited company incorporated
under the laws of England and Wales (registered number 2459087) and listed on
the London Stock Exchange. The Company was incorporated in January 1990 under
the name Powerfirst Public Limited Company and changed its corporate name to
Proteus International PLC (Proteus) in 1990. In September 1999, a
wholly-owned subsidiary of Proteus merged with Therapeutic Antibodies Inc., a
Delaware corporation (Therapeutic Antibodies). After the merger, the Company
changed its name to Protherics PLC. In June 2003, the Company acquired Enact
Pharma PLC (Enact), the OFEX traded biopharmaceutical company. The Companys
address is The Heath Business & Technical Park, Runcorn, Cheshire, WA7 4QF,
England. Certain statements contained in this report may not be based on historical
facts and are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. In particular, certain statements included
herein under Item 3. Key Information and Item 5. Operating and Financial
Review and Prospects, including without limitation, those concerning the
Companys strategy and competitive strengths, the Companys expectations and
plans, the Companys collaborative revenues, research and development and
general and administrative expenses, contain certain forward-looking statements
concerning the Companys operations, performance and financial condition. Such
statements may generally, but not always, be identified by their use of words
such as anticipates, expects, or believes. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, no assurance can be given that such expectations will prove in
hindsight correct. Many important factors could cause actual results to differ
materially from such expectations including, among others, those set forth in
Item 3. Key InformationRisk Factors and Item 4. Information on the
CompanyGovernment Regulation (collectively, the Risk Factors). All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified by the Risk
Factors. Other relevant risks may be detailed from time to time in the
Companys press releases and filings with the Securities and Exchange
Commission. We undertake no obligation to update these forward-looking
statements to reflect events or circumstances that occur after the date of this
report. The scientific and technical terms and abbreviations used in this report
are defined in the Glossary beginning on page 2.




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GLOSSARY The discussion herein regarding the Companys product candidates and
technologies includes certain scientific and technical terms and abbreviations.
These terms include: adjuvant
    
    A pharmacological agent added added to a drug to increase or aid its
effectaffinity
    
    the strength of the binding between an antibody and its antigen or
epitopeangiotensin
    
    the term used to describe a family of peptide hormones that are
involved in the control of blood pressure and body fluid levelsangiotensin converting enzyme
    
    an enzyme that forms the peptide angiotensin IIantibody
    
    substance produced by cells of the immune system which bind to parts
of other substances in a highly specific way to neutralize their
effectantiserum(a)
    
    serum from an animal which has been injected with an immunogenassay
    
    a quantitative or qualitative process used to measure or detect a
particular substancebovine spongiform encephalopathy
    
    the abnormal prion protein disease of the brain in cattlecis-platin
    
    a platinum metal-based organic anti-cancer drugclinical development
    
    the stage of pharmaceutical research and development in which
potential drugs are studied in human clinical trials (or in the
target species for animal health drugs)cytokine
    
    a cellular messenger, typically of the immune systemcytotoxic
    
    a molecule or drug that is toxic to cellsdiagnostic test
    
    an assay used for the diagnosis of disease typically carried out on
body fluids or tissuesencephalopathies
    
    diseases of the brain which interfere with its normal functioningendogenous enzyme
    
    an enzyme that naturally occurs in cells or tissuesenzymes
    
    proteins that promote changes in other molecules (e.g., in other
proteins, sugars or fatty substances)epitope
    
    the part or parts of the target molecule which react with an antibodyfab fragment
    
    the fragment produced by cleavage of an antibody with a proteolytic
enzyme that binds to the antibody target molecule (antigen)fragment
    
    part of an antibody molecule which can be split from the whole
molecule and which still retains biological activityGNRH
    
    gonadotrophin releasing hormone, the boss hormone that controls
sexual development and function in both males and females
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high blood pressure
    
    blood pressure that is above medically defined limits and which is
associated with increased risks of stroke and heart diseaseimmune system
    
    the cells and structures in the body that are capable of producing
antibodies and other components of the immune responseimmunogen
    
    any substance which can elicit the formation of specific antibodiesimmunotherapeutics
    
    medicines that act on or through the immune system (e.g., vaccines)inhibitor
    
    a substance that blocks the action of another substance (e.g., an
enzyme)intrinsic over-expression
    
    the expression (production) in the cell of any molecule at higher
levels than normalin vitro
    
    experimental biological processes made to occur in isolation from
the whole organismmetalloorganic
    
    a carbon containing synthetic chemical compound that contains a
metal group as part of its intrinsic biochemical actionmetastasis
    
    the spread of a tumor from the organ of origin to a distant sitemolecular target
    
    the substance (e.g., an enzyme) at which drug discovery efforts are
directedmonoclonal antibody
    
    an antibody directed to a single epitope on the target moleculemonospecific antivenins
    
    antisera prepared to the venom of a single species of snakenamed patient basis
    
    this refers to a form of limited regulatory approval for certain
drugs used in the treatment of human injuries or conditions for
which no satisfactory therapies exist, or for which other drugs are
unavailable, cause adverse effects or are in short supplynon-ionic surfactant
    
    microscopic globular structures with a fluid center surrounded by
layers of fatty materials which can entrap vaccine antigensoncology
    
    the study of cancerorphan drug status
    
    status granted by the FDA which provides certain development,
registration and marketing incentives, for development of treatments
of small (fewer than 200,000 per annum in the United States)
incidence conditionsPCT
    
    Patent Cooperation Treaty (Washington, 1970), as amended, and the
regulations and administrative instructions thereunderphase I clinical study/trial
    
    the assessment of the safety of a biologically active substance in
volunteersphase II clinical study/trial
    
    the assessment in patients of a drug to determine dose range and
preliminary efficacypolyclonal antibody
    
    a population of antibodies directed to multiple epitopes on the
target molecule
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post-mortem tests
    
    testing of animals after death (e.g., from samples taken in the
slaughterhouse)pre-clinical development
    
    the research and development stage immediately prior to clinical
trials, which usually lasts 12-18 monthsprion protein
    
    the protein that assumes an abnormal structure in bovine spongiform
encephalopathy and related diseases and which is believed to be
capable of transmitting bovine spongiform encephalopathy and related
diseasesprodrug
    
    an inert chemical which can be activated within the body to an
active drugproof of concept and optimization studies
    
    studies in animals to demonstrate the (expected) action of the drug
and to define the most effective form of the drugpurification of polyclonal antibodies
    
    the process of removal of extraneous foreign proteins, viruses and
other biological materials associated with manufacturing of product®
    
    means a trademark has been registeredsepsis syndrome
    
    the name given to a spectrum of disorders caused by the bodys
exaggerated response to infection or injury. The defining
characteristics are inflammation, abnormal vital signs and failure
of one or more major organ systems. The condition may progress to
multiple organ failureserum
    
    the component of blood excluding the red and white blood cells and
fibrinogensex steroid hormones
    
    hormones that induce maleness (testosterone) or femaleness (estrogen
and progesterone)specificity
    
    the degree to which an antibody binds to antigens other than that to
which it is primarily directedsynthesis
    
    the route of manufacturetitanocene compound
    
    a stable titanium metal-based organic compoundtitres
    
    a measurement of the amount of antibody present in a serum sample
based on dilution of the serumtherapeutic
    
    A pharmaceutical product targeted to treat a specific disease
    
    means that a trademark is being registered or an application for a
trademark is being made in one or more countriesTNFa
    
    tumor necrosis factor alpha, a cytokine, involved in the bodys
inflammatory processtransmissible spongiform encephalopathy
    
    a degenerative condition of the nervous system believed to be caused
by the accumulation of an abnormal form of the prion proteinvaccine
    
    a formulation used to stimulate an immune response
 4




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VEGF
    
    vascular endothelial growth factor, a protein which is involved in
the formation of new blood vessels
 5




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PART I 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. 
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. 
 ITEM 3. KEY INFORMATION Selected Financial Data The Consolidated Financial Statements have been prepared in accordance
with U.K. generally accepted accounting principles (GAAP), which differs in
certain respects from U.S. GAAP. For a discussion of the material adjustments
to net loss and shareholders funds that would have been required in applying
the significant differences between U.K. GAAP and U.S. GAAP, see Note 27 of the
Notes to the Consolidated Financial Statements included herein. The data set forth below should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto included herein. Year Ended March 31,2004
    
    2003
    
    2002
    
    2001
    
    2000(in thousands of pounds, except share and per share data)Consolidated Profit & Loss Account Information:U.K. GAAPTurnover
    
    
    21,019
    
    
    
    11,270
    
    
    
    7,924
    
    
    
    4,186
    
    
    
    1,598Operating profit/(loss)
    
    
    1,245
    
    
    
    (604
    )
    
    
    (2,102
    )
    
    
    (6,543
    )
    
    
    (13,624
    )Net profit/(loss)
    
    
    1,265
    
    
    
    (238
    )
    
    
    2,867
    
    
    
    (6,206
    )
    
    
    (15,454
    )Net profit/(loss) per ordinary share (basic
and fully diluted)
    
    
    0.61
    p
    
    
    (0.13
    p)
    
    
    1.59
    p
    
    
    (3.80
    p)
    
    
    (10.50
    p)U.S. GAAPTurnover
    
    
    16,913
    
    
    
    12,515
    
    
    
    7,416
    
    
    
    2,255
    
    
    
    1,598(Loss)/profit from operations
    
    
    (10,875
    )
    
    
    (1,255
    )
    
    
    2,832
    
    
    
    (5,934
    )
    
    
    (15,274
    )Net (loss)/profit
    
    
    (10,855
    )
    
    
    (889
    )
    
    
    2,769
    
    
    
    (5,597
    )
    
    
    (15,196
    )Net (loss)/profit per ordinary share (basic
and diluted)
    
    
    (5.26
    p)
    
    
    (0.47
    p)
    
    
    1.55
    p
    
    
    (3.42
    p)
    
    
    (10.33
    p)Consolidated Balance Sheet Data:U.K. GAAPTotal assets (fixed assets plus current assets)
    
    
    34,546
    
    
    
    19,525
    
    
    
    17,430
    
    
    
    11,696
    
    
    
    10,314Net assets
    
    
    15,293
    
    
    
    10,338
    
    
    
    10,141
    
    
    
    3,971
    
    
    
    5,001Long-term obligations
    
    
    9,449
    
    
    
    717
    
    
    
    1,106
    
    
    
    3,600
    
    
    
    1,152Shareholders funds
    
    
    15,293
    
    
    
    10,338
    
    
    
    10,141
    
    
    
    3,971
    
    
    
    5,001Number of equity shares outstanding (in
thousands of shares)
    
    
    207,750
    
    
    
    188,233
    
    
    
    188,233
    
    
    
    174,269
    
    
    
    157,866U.S. GAAPTotal assets (fixed assets plus current assets)
    
    
    27,430
    
    
    
    20,198
    
    
    
    20,024
    
    
    
    13,855
    
    
    
    9,933Shareholders funds
    
    
    2,877
    
    
    
    9,817
    
    
    
    10,271
    
    
    
    4,199
    
    
    
    4,620
 6




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Under U.K. GAAP, the fiscal 2002 operating loss excludes the £5,032,000
net gain recognized upon disposal of the computer-aided molecular design
(CAMD) division, whereas under U.S. GAAP, the net gain from operations in
fiscal 2002 includes a U.S. GAAP profit of £5,404,000 after giving effect to
proceeds from the disposal of CAMD. Under U.K. GAAP, the fiscal 2004 operating loss included an amortization
charge of £782,000 on goodwill generated upon the acquisition of Enact in June
2003. Under U.S. GAAP, the in-process research and development of Enact on
acquisition was valued and expensed in the fiscal year ended March 2004, giving
rise to an additional charge of £9,199,000. Under U.K. GAAP, the fiscal years 2002, 2003 and 2004 incorporate the
results of certain sales of the Companys products which include a right of
replacement or return for which a provision for such returns and replacements
is made where appropriate, based upon management estimates. Under U.S. GAAP,
FASB 48 Revenue Recognition when Right of Return Exists indicates that an
absence of historical experience with similar types of sales of similar
products may impair the ability to make a reasonable estimate of returns.
Because the Companys CroFab and DigiFab were both relatively new products,
there is an absence of historical experience for these sales, and therefore all
revenue related to sales that include a right of replacement must be deferred
under U.S. GAAP until the replacement or return privilege expires. The
consequence of this difference in accounting treatment between U.K. GAAP and
U.S. GAAP is to reduce the profit/(loss) of the Company in the fiscal years
2002, 2003 and 2004 by £443,000, £1,119,000 and £3,274,000, respectively. Under U.K. GAAP, the expense of share options granted to employees is
recognized in the Groups financial statements when the share options have been
granted. Such grants give rise to the compensation expense measured by
reference to the fair value of shares only on the date of grant, and at no
subsequent date for variable plans. Under U.S. GAAP, a charge for stock
compensation plans is recognized over the period the employee performs related
services where it is probable that the performance conditions will be attained.
The consequence of this difference in accounting treatment between U.K. GAAP
and U.S. GAAP is to reduce the profit of the Company in fiscal year 2004 by
£225,000. For the years ended March 31, 2002 and March 31, 2003, there is a
difference between U.S. GAAP and U.K. GAAP to record the fair value of the
derivative instruments on the balance sheet at March 31, 2002, March 31, 2003
and March 31, 2004, resulting in a decrease in profit of £25,000, increase in
profit of £468,000 and increase in profit of £578,000, respectively. Currencies And Exchange Rates The Company publishes its consolidated financial statements in sterling.
In this Annual Report, references to sterling or £ are to U.K. currency and
references to U.S. dollars or $ are to U.S. currency. Solely for
informational purposes, this Annual Report contains translations of certain
sterling amounts into or from U.S. dollars at a specified rate. These
translations should not be construed as representations that the sterling
amounts actually represent such U.S. dollar amounts or could be converted into
or from U.S. dollars at the rate indicated or at any other rate. Unless
otherwise stated herein, the translations of sterling into or from U.S. dollars
have been made at £1.00 to $1.8400, the Noon Buying Rate on March 31, 2004. The following tables set forth, for the periods and dates indicated,
certain information concerning the Noon Buying Rate for sterling expressed in
U.S. dollars per £1.00. The period average data set forth below is the average
of the Noon Buying Rate on the last day of each full month during the period.
On August 31, 2004, the Noon Buying Rate was £1.00 to $1.8031. 7




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2004 Month Ended
    
    High
    
    LowMarch 31
    
    $
    1.8680
    
    
    $
    1.7943April 30
    
    
    1.8564
    
    
    
    1.7674May 31
    
    
    1.8369
    
    
    
    1.7544June 30
    
    
    1.8387
    
    
    
    1.8090July 30
    
    
    1.8734
    
    
    
    1.8160August 31
    
    
    1.8459
    
    
    
    1.7921
 Year ended March 31,
    
    Average2000
    
    $
    1.60852001
    
    
    1.47372002
    
    
    1.43172003
    
    
    1.55412004
    
    
    1.6926
 Risk Factors In addition to the other information contained in this Annual Report, the
following factors should be carefully considered in evaluating the Company and
its business. If any of the following risks actually occur, the Companys
business, financial condition or results of future operations could be
materially adversely affected. The information contained in the following risk
factors concerning the Companys financial results of operations is based on
and assumes presentation in accordance with U.K. GAAP. If the Company is unable to generate sufficient revenues from operations, it
will require additional financing. This financing may not be available at all
or, if available, on terms that dilute shareholders interests. The Company will require significant revenue from product sales,
collaborative and licensing arrangements and strategic alliances to fund its
ongoing operations. If the Company is unsuccessful in generating this revenue
or this revenue is insufficient to fund proposed projects, then the Company
will require additional financing. Additional financing may not be available
to the Company on favorable terms or at all. If the Company has insufficient
funds or is unable to raise additional funds, it may be required to delay,
reduce or cease certain of its programs and may be unable to continue its
operations at its current level, if at all. Future financings may result in the substantial dilution of shareholders
interests and may result in future investors being granted rights superior to
those of existing shareholders. For a discussion of the Companys liquidity,
see Item 5. Operating and Financial Review and Prospects. If the Company fails to obtain adequate intellectual property rights for its
product candidates, competitors may be able to take advantage of the Companys
research and development efforts. The Company may also be subject to claims of
intellectual property infringement by third parties. The Companys success will depend, in large part, on its ability to obtain
and maintain patent or other proprietary protection for its technologies,
products and processes. If the Company is not able to obtain patent protection
for certain of its products or to secure patents that are sufficiently broad in
their scope, competitors may be able to take advantage of the Companys
research and development efforts. Legal standards relating to the validity of
patents covering pharmaceutical or biotechnological inventions and the scope of
claims made under such patents are still developing. There is no consistent
policy regarding the breadth of claims allowed in biotechnology patents. The
patent position of a biotechnology company is highly uncertain and involves
complex legal and factual questions. 8




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There can be no assurance that competitors will not develop substantially
equivalent techniques or otherwise gain access to the Companys technologies.
The Company may have to initiate litigation to enforce its patent and license
rights. If the Companys competitors file patent applications that claim
technology also claimed by it, the Company may have to participate in
interference or opposition proceedings to determine the priority of invention.
An adverse outcome could subject the Company to significant liabilities to
third parties and require it to cease using technology owned by, or to license
disputed rights from, third parties. The Companys success also depends on its ability to operate without
infringing the proprietary rights of third parties with respect to products
that facilitate the Companys ability to develop and exploit its own products.
If infringement occurs, the Company may have to develop an alternative
technology or reach an agreement for the license of the necessary rights from
the third party. Should this be necessary, the Company cannot assure that it
can obtain or develop those technologies or obtain those licenses, and as a
result, may be unable to develop and market its product candidate. The cost to the Company of any litigation or proceeding relating to
intellectual property rights, even if resolved in the Companys favor, could be
substantial. Some of the Companys competitors may be able to sustain the
costs of litigation more effectively than it because of their substantially
greater resources. Products in the Companys development pipeline may fail to generate future
revenues to fund operations. Prior to fiscal year 2004, the Companys product launches have not
generated sufficient revenues to cover all of the Companys costs and may not
do so in the future. In addition to the products launched, the Company has a
variety of product candidates in various stages of development and will need to
undertake substantial additional research and development and pre-clinical and
clinical testing of the Companys product candidates. These efforts may not
result in the development of any further commercially successful products, in
which case the Company may not be able to generate sufficient revenues to fund
operations as currently budgeted, or may be required to scale back operations
or specific projects. The Company may fail to successfully develop a product candidate for many
reasons, including:  
    
    a product candidate fails in pre-clinical studies;  
    
    a potential product is not shown to be safe and effective in clinical trials;  
    
    the Company fails to obtain regulatory approval for the product;  
    
    the Company fails to produce a product in commercial quantities at an acceptable cost; or  
    
    a product does not gain market acceptance. Exchange rate fluctuations may adversely affect the Companys results of
operations and financial position. Over 90% of the Companys revenues for the year ended March 31, 2004 were
derived from customers located in the U.S. and these sales are denominated in
U.S. dollars. Since the majority of the Companys expenses are denominated in
British pounds sterling and Australian dollars, the results of operations and
financial condition, as reported in pounds sterling, will be affected by
fluctuations in exchange rates. 9




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The Company enters into hedging agreements to protect against currency
exchange risk. However, this policy may not in all cases be able to manage all
the currency transaction risks, particularly given the volatility of exchange
rates and the continued weakness of the U.S. dollar. Differences between U.K. and U.S. GAAP may have a significant impact on the
Companys financial statements when reconciling to U.S. GAAP. New or revised accounting standards in both the U.K. and the U.S. which
may be introduced from time to time by U.K., U.S. or other international
accounting authorities could have a material adverse impact on the Companys
reported financial results when reconciled to U.S. GAAP, as certain accounting
standards and principles differ under U.S. GAAP and U.K. GAAP. The Company has a history of operating losses and may not be profitable on a
sustainable basis. Until fiscal year 2004, the Company had not been profitable at an
operating level over a full financial year. In future years, the Company may
revert to operating losses. For the fiscal years ended March 31, 2003, 2002, and 2001, the Company had
U.K. GAAP (losses)/profits on ordinary activities after taxation of
approximately (£238,000), £2,867,000 and (£6,206,000), respectively, although
the profit recorded in fiscal year ended March 31, 2002 included a profit
generated on disposal of the CAMD division of £5,032,000. The underlying
losses resulted principally from costs associated with the manufacture of
pharmaceutical products, and the research, development and clinical testing
activities of product candidates. In the fiscal year ended March 31, 2004, the
Company had U.K. GAAP profits of £1,265,000, although continuing profitability
will depend on the Companys ability to generate sufficient revenues from
existing product sales and product candidates that are currently under
development and to enter into new partnerships for the licensing of its product
candidates while maintaining existing partnerships, particularly during the
forthcoming years while the Company anticipates increasing its costs in
relation to establishing a salesforce and other manufacturing based projects. If the Company is unable to maintain existing or enter into new collaborative
arrangements, its ability to develop and market product candidates will suffer
and it may be unable to sustain its business. One of the Companys primary focuses is on the research and development of
new pharmaceutical products, and, therefore, it will be dependent on its
existing alliances and new alliances with third parties to provide development,
manufacturing, marketing and sales capabilities. The Companys ability to
obtain new agreements will depend, in part, on the success of its clinical
trials. Collaborators and licensees have significant discretion over the
resources they devote to these efforts. The Companys success, therefore, will
depend on whether these third parties perform their responsibilities and devote
sufficient resources to collaborations with the Company. The Company cannot
guarantee that:  
    
    it will be able to establish additional collaborative arrangements or license agreements;  
    
    any collaborative arrangement or agreement will be on favorable terms;  
    
    any existing or future collaborative arrangement or agreement
will result in a successful product and/or generate sufficient
revenue; or  
    
    the Companys collaborative partners will satisfactorily
perform their obligations under the collaborative arrangements. In addition, there can be no assurance that the Companys collaborators
and licensees will not pursue alternative technologies either on their own or
in collaboration with others, including the Companys competitors. 10




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If the livestock from which the Company obtains antisera or the snakes from
which the Company obtains venom, develop diseases, the Company may be unable to
meet its current or future antibody requirements. The Company currently supplies all of the antisera required for the
production of its polyclonal antibody products from its own flocks of sheep in
South Australia and Tasmania. The Company takes stringent precautions to
minimize the risk of animal diseases, including scrapie, which could affect its
sheep or the safety of its products. All of the sheep used by the Company to
produce its antisera are located in Australia, which the office of the
Australian Chief Veterinary Officer has acknowledged as being scrapie free.
However, animal diseases could affect the Companys flocks and therefore its
ability to produce antisera. The Company currently sources three of the four venoms used in the
production of its treatment for rattlesnake bites (CroFab) from specimens in
captive colonies maintained by third parties in Utah and Florida in the United
States. The fourth venom is obtained from the Companys own captive colony in
Utah. The Company takes stringent precautions by quarantine, by testing and by
veterinary clinical care to maintain captive specimens free of reptile diseases
as certified by consulting veterinarians. However, reptile diseases could
adversely affect captive specimens and the ability to obtain timely supplies of
venom. In the future, the Company may contract with third parties for the supply
of antisera. The Company will use its best efforts to obtain antisera from
suppliers who certify that their livestock is disease free. However, animal
diseases could affect the livestock of third party suppliers and therefore
adversely affect the Companys ability to obtain antisera. If the Company is not able to obtain adequate quantities of raw materials from
its existing suppliers or services from external contractors, the Company may
not be able to access alternative sources of supply or services within a
reasonable amount of time or at commercially reasonable rates. The Company requires supplies of certain raw materials, such as crotalid
snake venom and digoxin, for use in the development and manufacture of its
products and product candidates. Although the Company has no reason to believe
that its suppliers will be unable to procure adequate supplies of such raw
material on a timely basis, disruptions in supplies, including delays due to
the inability of the Companys suppliers, or the Company, to procure raw
materials would have a material adverse effect on the Companys business. The
Company also relies on third party contractors to provide critical services
such as the filling and freeze-drying of product into vials. Problems at
contractors facilities in the recent past have caused delays and disruptions
in supplies of the Companys marketed products and, despite efforts to dual
supply critical suppliers and service providers, there can be no assurance the
Company will not experience similar delays in the future. Regulatory requirements for pharmaceutical products tend to make the
substitution of suppliers and contractors costly and time-consuming. The
unavailability of adequate commercial quantities, the inability to develop
alternative sources, a reduction or interruption in supply or contracted
services, or a significant increase in the price of materials or services could
have a material adverse effect on the Companys ability to manufacture and
market its products or to fill orders from its distributors, which in turn
would have an adverse impact on the Companys cash flows. If the Company is unable to comply with stringent regulatory quality controls,
there may be delays in the production and manufacture of the Companys
products. Production of the Companys products involves a highly complex
manufacturing process. The Company, in conjunction with the FDA and other
regulatory authorities, applies very stringent quality controls to this
manufacturing process. If any step in the production and manufacturing process
fails the stringent quality control tests, there could be delays in sales of
the Companys products. This could have a material adverse effect on the
Companys business. 11




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Regulation by government agencies imposes significant costs and restrictions on
the Companys business activities. The production and sale of pharmaceutical products is highly regulated.
The Companys ability and the ability of its partners to secure regulatory
approval for the Companys products and to continue to satisfy regulatory
requirements will determine its future success. The Company may not receive
required regulatory approvals for its products or receive approvals in a timely
manner. In particular, the U.S. Food and Drug Administration and comparable
agencies in foreign countries, including the European Medicines Evaluation
Agency and the Medicines Control Agency in the U.K., must approve human
immunotherapeutic and preventive products before they are marketed. This
approval process can involve lengthy and detailed laboratory and clinical
testing, sampling activities and other costly and time-consuming procedures.
While the time required to obtain approval varies, it can take several years.
Delays in obtaining or the failure to obtain regulatory approvals or the
restriction, suspension or revocation of regulatory approvals could adversely
affect the marketing of products and the Companys ability to receive product
revenues or royalties. The Company cannot guarantee that it will be able to
obtain the necessary approvals for clinical testing or for the manufacturing
and marketing of any products that it may develop. The Company is also subject to ongoing regulatory review. Discovery of
previously unknown problems with a product, manufacturer or facility or other
violations of regulatory requirements may result in fines, suspensions of
regulatory approvals, product recalls and criminal prosecution. For further
discussion of regulations and potential penalties, see Item 4. Information on
the CompanyGovernment Regulation. Announcements, developments and/or regulatory changes in the biotechnology
sector may cause the Companys share price to fluctuate. The market price of the Companys ordinary shares may be affected by
announcements from or about other companies in the biotechnology sector.
Factors that could cause the Companys stock price to fluctuate in the future
may include:  
    
    announcements by other biotechnology companies of clinical
trial results and other product developments;  
    
    adverse developments in the protection of intellectual property or other legal matters;  
    
    announcements in the scientific and research community;  
    
    changes in treatment recommendations or guidelines by private
health organizations or science foundations;  
    
    regulatory changes that affect the Companys products; and  
    
    changes in third-party reimbursement policies or in medical practices. The Companys competitors may have greater resources for developing product,
and, as a result, may be able to develop products that are superior to, or less
costly to manufacture than, the Companys products or product candidates or
launch competing products before it does. The pharmaceutical industry is highly competitive. The Company competes
with pharmaceutical companies in the United States, the United Kingdom, Europe
and elsewhere for both its existing products and those currently under
development. Many of these companies have research, development, marketing,
financial and personnel resources greater than the Companys. Competitors may
develop and receive regulatory approval for a marketable product before the
Company does. Competitors may also 12




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develop a product that is more effective or less costly to manufacture
than the Companys products or product candidates, rendering the Companys
products or product candidates obsolete. The Company anticipates that it will
face increased competition in the future as new companies enter its markets and
alternative drugs and technologies become available. Third-party reimbursement and health care cost containment initiatives may
constrain the Companys future revenues. The Companys ability to market successfully any product it may develop
will depend in part on the level of reimbursement that government health
administration authorities, private health coverage insurers and other
organizations provide for the cost of the Companys products and related
treatments. The Company may not be able to sell the Companys products
profitably if reimbursement is unavailable or limited in scope. Increasingly,
third-party payors, including governmental agencies, are attempting to contain
health care costs in ways that are likely to impact the Companys development
of products, including:  
    
    challenging the prices charged for health care products;  
    
    limiting both coverage and the amount of reimbursement for new therapeutic products;  
    
    denying or limiting coverage for products that are approved
by the regulatory agencies but are considered experimental or
investigational by third-party payors; and  
    
    refusing to provide coverage when an approved product is used
in a way that has not received regulatory marketing approval. The Company faces product liability and other operational risks and may not be
able to obtain adequate insurance. The testing, marketing and sale of the Companys products involve
significant product liability risks. The Company may be held liable for
damages for product failures or adverse reactions resulting from the use of the
Companys products. Although the Company maintains product liability coverage,
this insurance may not provide adequate coverage against all product liability
claims. Furthermore, in the future, the Company may not be able to obtain
insurance on acceptable terms against product liability and other operational
risks such as property damage and business interruption, and any insurance the
Company does obtain may not provide adequate coverage against any asserted
claims or other losses. 
 ITEM 4. INFORMATION ON THE COMPANY History and Development of the Company Originally founded in 1987, Protherics is a biopharmaceutical company
engaged in the development, manufacture and sale of pharmaceutical products
largely for the treatment of human diseases. The Company is the result of the
September 1999 merger of Proteus International PLC and Therapeutic Antibodies
Inc. The Companys ordinary shares are listed on the London Stock Exchange
(LSE:PTI.L). Proteus was originally founded in 1987 and was incorporated in England and
Wales under the Companies Act 1985 on January 12, 1990, as a public company
limited by shares. Proteus was engaged in the business of research for the
discovery of novel drugs using two technologies: immunotherapeutic vaccines
and computer-aided molecular design. Therapeutic Antibodies was incorporated in Delaware in 1984, with its
headquarters in Nashville, Tennessee, and operations in the United States, the
United Kingdom and Australia. Therapeutic 13




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Antibodies was engaged in the business of developing and producing
polyclonal antibody products for the treatment of human disease and
life-threatening conditions. On September 15, 1999, a wholly-owned subsidiary of Proteus merged with
and into Therapeutic Antibodies. After the merger, Proteus changed its name to
Protherics PLC. In July 2001, the Company sold its CAMD operations and certain rights to
products in research to Tularik, Inc., a drug discovery company headquartered
in San Francisco, California, USA. The Companys CAMD technology consisted of
its proprietary Prometheus virtual screening software and associated know-how
and its VA Linux hardware system. On June 18, 2003, the Company acquired Enact when its recommended offer
was declared wholly unconditional. Enact provided the Company with both a
potential high margin late stage product and earlier stage research projects.
Several of the non-core research projects have subsequently been out-licensed
to Nanomor Biomedical Limited and Morvus Technology Limited. The Companys address is The Heath Business & Technical Park, Runcorn,
Cheshire, WA7 4QF England. Its telephone number is 011-44-1928-518-000. The
Companys address in the U.S. is 5214 Maryland Way, Suite 405, Brentwood,
Tennessee 37027. Its U.S. telephone number is (615) 327-1027. Business Overview The Companys core technology is focused on immunotherapeutics and
oncology. Immunotherapeutics encompasses the use of antibodies to combat the
effects of disease or poisoning. This can be done either actively through
vaccines or passively by administration of pre-formed antibodies. Therapeutic vaccines are an example of active immunotherapy. Unlike
traditional vaccines, which stimulate the bodys immune system to produce
antibodies against a potential external infection, therapeutic vaccines involve
immunizing a patient so as to cause the immune system to produce antibodies
against an internal disease-causing substance, thereby treating the patients
existing condition. In comparison to other therapeutic approaches, this
potentially has significant benefits, such as specificity of action, avoidance
of side effects and long duration of action between booster doses. Passive immunotherapeutics include the immediate use of previously
produced antibodies in the treatment of acute-poisoning situations, such as
envenomation or drug overdose. There are two general classes of antibodies for
use as immunotherapeutic agents. The first is polyclonal antibodies, which
contain a variety of antibodies directed to different sites, known as epitopes,
on the target molecule. The second type, monoclonal antibodies, consists of a
population of identical antibodies all directed to a single epitope.
Protherics technology is based on the former, which may have advantages over
monoclonal antibodies in these acute-poisoning situations. Protherics has four launched products generating revenues, one outlicensed
technology generating a royalty revenue stream, and several product candidates
in various stages of development. The acquisition of Enact in June 2003 has provided the Company with a
broader research and development pipeline and technology platforms with one
product in the process of registration although currently generating revenues
on a named-patient basis, one currently in clinical trial and a further product
with the potential to enter clinical trials. These products are targeted at
the treatment of cancer. The most advanced is a compound which can reduce some
of the toxic effects of a drug widely used in cancer therapy, while the other
two products can potentially be used in the treatment of cancers which are
resistant to currently available drugs. 14




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Operations The Company has research and development laboratories in Runcorn, Cheshire
in the U.K., good manufacturing practice compliant manufacturing facilities in
Wales, Australia and Salt Lake City, Utah, and administrative, clinical
development and regulatory affairs facilities in Runcorn and Nashville,
Tennessee, U.S.A. The Company also maintains a small administrative office in
London. Corporate Partnerships, Collaborations and Joint Ventures Historically, the Company has entered into licensing and collaborative
agreements with pharmaceutical companies and other entities with established
distribution capabilities to market their products. See Item 10. Additional
Information  Material Contracts. Products The following table lists the Companys products currently in production or
under development: Distribution
    
    Next SignificantProduct
    
    Principal uses
    
    Status
    
    Partner / Licensee
    
    Milestone(3)Products Commercially AvailableCroFab
    
    Crotalid
(rattlesnake)
envenomation 
United States
    
    Launched
    
    Altana (US)
Swedish Orphan
(Europe)
    
    Expansion of sales
throughout U.S.
marketDigiFab
    
    Reversal of digoxin
toxicity
    
    Launched (U.S.)
U.K. marketing
authorization
submitted September
2004
    
    Altana (US)
Swedish Orphan
(Scandinavia)
Beacon
Pharmaceuticals
(Europe excl.
Scandinavia)
Mayne Pharma
(Australia/SE Asia)
    
    European marketing approval expected 2005Voraxaze
    
    Methotrexate
toxicity
    
    Orphan Drug
designation in E.U.
and U.S. Sold on
named patient basis
within E.U. and on
compassionate use
basis in the U.S.
    
    IDIS (European
named patient
sales)
    
    Regulatory
submission to FDA
and European
authorities planned
early 2005ViperaTAb
    
    Vipera berus
(common adder
snake) envenomation
Northern Europe
    
    Sold on a named
patient basis
    
    Swedish Orphan
(Europe)
    
    Expansion of sales
to European UnionBovine Spongiform
Encephalopathy
(BSE) Diagnostic
Technology
    
    Detection of BSE in
carcasses
    
    Outlicensed and
generating revenues
    
    Licensed to Enfer
Scientific and
Abbott
Laboratories, via
Enfer Scientific
    
    Potential testing
in the U.S.
 15




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Distribution
    
    Next SignificantProduct
    
    Principal uses
    
    Status
    
    Partner / Licensee
    
    Milestone(3)Products in DevelopmentAngiotensin Vaccine
    
    Hypertension
    
    Program of
formulation trials
with range of
adjuvants(2)
    
    
    
    Results of
formulation trials
expected 4th
quarter 2004CytoFab (formerly
CytoTAb)
    
    Treatment of sepsis
    
    Phase III planning
    
    To be determined
    
    Agreement sought with strategic partnerNQO2
    
    Cancer therapy
    
    Phase I trial(2)
    
    
    
    Trial results expected 2005VEGF Vaccine
    
    Cancer therapy
    
    Pre-clinical testing
    
    
    
    Pre-clinical
testing in model of
metastasis with a
proprietary
adjuvantCroVet antivenin
    
    Rattlesnake
envenomations in
animals
    
    Evaluating
opportunities for
commercialization
    
    To be determined
    
    Decision on whether
to pursue
registration under
reviewGnRH Animal Vaccine
    
    Animal castration
    
    Phase II(3)
    
    Janssen Animal
Health
    
    Not in active developmentGnRH Human Vaccine
    
    Prostate cancer
    
    Phase II(2)
    
    
    
    Not in active developmentProducts in ResearchMetalloorganic
    
    Ovarian cancer
    
    Research
    
    
    
    Pre-clinical testing in tumor model
  (1)
    
    Each of the dates of next significant milestones represents the Board of
Protherics expectations based on progress to date. There can be no
assurance, however, that any of these dates or milestones will be
achieved.(2)
    
    To date all clinical trials have been conducted in the U.K.(3)
    
    Equivalent stage of development for animal health products Products Commercially Available CroFabis the Companys polyclonal antibody product for treatment of
envenomations from North American crotalids (for example, rattlesnakes). The
Company received regulatory approval by the U.S. Food and Drug Administration
(the FDA) in October 2000, and launched the product in the U.S. prior to the
spring 2001 snakebite season. The product is being distributed by Fougera, a
division of Altana Inc. It is the first new entry into the crotalid antivenin
market in over 50 years. CroFabis indicated for the management of patients
with minimal or moderate envenomation and is intended for treating bites early
in the course of poisoning to prevent them from developing into more severe
cases. The competing product in the U.S., which was introduced over 50 years ago,
is based on horse serum, although it is believed the manufacturer has
discontinued production for the U.S. market. A manufacturer of another horse
serum product that does not have regulatory approval in the U.S. exists in
Mexico. This Mexican antivenin may, in the future, compete with CroFab. DigiFabis a polyclonal antibody product for the treatment of digoxin
overdose. Digoxin is a widely prescribed drug for the treatment of cardiac
conditions. It has a narrow therapeutic range which can cause life-threatening
toxicity. In August 2001, the Company received FDA approval for marketing
DigiFab in the U.S., the primary source of demand for the product, and
Fougera, a division of Altana Inc. began distribution of the product in the
U.S. in February 2002. There is one similar product on the U.S. market, and the
Company is looking to increase its share of the market by active marketing via
Fougera. The Company has submitted an application for marketing authorization
for DigiFabTM in the U.K., which approval is expected in the second half of
2005. If received, the U.K. approval would facilitate mutual recognition of
marketing approval throughout the E.U. 16




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ViperaTAbis produced and sold by the Company to treat bites from the
European Vipera berus(common adder) snake. This polyclonal antibody product
is currently being sold on a named patient basis in Sweden, Norway, Finland and
Denmark under an agreement with Swedish Orphan AB. The Company also supplies
ViperaTAbto the U.S. Department of Defense. The Company intends to broaden
product sales in Europe. VoraxazePrior to its acquisition in June 2003 by the Company, Enact had
in-licensed and successfully developed its lead compound Voraxaze
(glucarpidase, previously known as carboxypeptidase G2 or CPG2), which is used
as a rescue therapy for methotrexate toxicity. Methotrexate is an established
drug in cancer therapy with a known toxicity profile. Support therapy, such as
the use of Leucovorin is routinely used to counteract general methotrexate
toxicity, but it is ineffective in some cases and does not reduce the high
levels of methotrexate circulating in the body. Voraxaze is a recombinantly
produced enzyme which rapidly breaks down methotrexate, thus removing the
potential for it to cause further toxicity. Voraxaze is already used on a compassionate basis through the National
Cancer Institute in the U.S. Voraxaze was granted Orphan Drug status in the
European Union in February 2003 and in the U.S. in August 2003. Sales on a
named patient basis commenced in Europe in January 2004. Regulatory submission
to FDA and European authorities is planned for early 2005 and, pending approval
from these authorities, a full commercial U.S. and European launch is
anticipated in 2006. BSE Diagnostic Test. There is a significant public concern in Europe and
North America with respect to bovine spongiform encephalopathy (BSE 
colloquially known as mad cow disease). The Company has licensed its
intellectual property in transmissible spongiform encephalopathy (TSE)
diagnosis in animals to Enfer Scientific Limited (Enfer) for application in
the worldwide development and marketing of a test to determine whether beef
carcasses are infected by BSE. Enfer markets the test in Ireland and has
entered into a marketing agreement with Abbott Laboratories to market the test
in other territories, initially focusing on the European market. In April
2004, Abbott Laboratories received conditional approval from the U.S.
Department of Agriculture to sell the test in the U.S. As part of a program to address the political, commercial and health
issues, a European Union (E.U.) validation study has undertaken a review of a
number of alternative BSE detection tests, of which four companies tests were
accepted for detailed evaluation. In June 1999, the European Union (E.U.)
announced the results of this evaluation. The evaluation showed that three of
the four tests selected for the study were 100 percent accurate in detecting
BSE in samples from known infected animals. Enfers test was one of these
tests and was the one that gave the fastest results. In June 2003, the
European Commission qualified two further tests. Currently all beef carcasses
from animals over 30 months old are required to be tested in the E.U. Products in Development Angiotensin Vaccine. Angiotensin II is a peptide hormone which plays an
important role in the control of blood pressure (by raising blood pressure in
response to a fall in pressure). It is formed from a slightly larger peptide,
angiotensin I, by the action of an enzyme, the angiotensin converting enzyme
(ACE). Drugs that prevent the action of this enzyme (ACE inhibitors) were
discovered in the late 1970s and have become market leaders in the treatment of
high blood pressure and heart failure. More recently, drugs that block the
action of angiotensin II have been developed and marketed and these appear to
be as effective as ACE inhibitors in these indications. However, these
treatments, and others, for high blood pressure require the patient to take
tablets on a daily basis, and failure to do so is one of the major reasons for
the poor control of blood pressure. In August 1996, the Company began its angiotensin immunotherapeutic
project for the treatment of high blood pressure. During 1997, the Company
completed pre-clinical proof of concept and optimization studies for a vaccine
to trigger the production of antibodies targeting angiotensin I and selected a
formulation for progression into clinical trials. In May 2000, the Company
announced that its 17




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angiotensin vaccine had demonstrated its ability to raise anti-angiotensin
antibodies in a Phase I study in humans, and in November 2000, the Company
announced that the vaccine had lowered blood pressure in normal human
volunteers on a salt-restricted diet. These results provided encouraging
indications that the product is capable of blocking the blood pressure raising
effects of angiotensin II. The angiotensin immunotherapeutic has now completed a small preliminary
Phase IIa clinical trial in the U.K. in patients with mild/moderate
hypertension. The vaccine again demonstrated its ability to raise
anti-angiotensin antibodies and these appeared to have an effect on the
renin-angiotensin system. The angiotensin immunotherapeutic is now undergoing
further formulation studies with a range of adjuvants in order to determine the
formulation which produces the best antibody response to take forward into a
further clinical study in hypertensive patients. The following factors could make the angiotensin immunotherapeutic a
unique treatment if successfully developed:  
    
    long duration of action  the product is expected to be
effective for several months between doses due to the persistence of
the antibodies to angiotensin;  
    
    improved patient compliance  the drug will be periodically
administered by injection, under medical supervision, thereby
avoiding the need for the patient to take medication for their high
blood pressure every day;  
    
    smooth onset of action  there should be a gradual reduction
in blood pressure over a period of weeks as the antibodies are
developed, which is particularly important in elderly patients; and  
    
    consistent effect  as the product produces a long-term
antibody response, it should provide blood pressure control across
both day and night, avoiding peaks and troughs in drug effect on
blood pressure. CytoFab(formerly CytoTAb) is a product designed to neutralize the
effects of tumor necrosis factor alpha (TNFa). The bodys inflammatory
response to trauma, and certain infections and diseases, often involves the
release of high levels of cytokines, such as TNFa, which themselves may have
serious or even life-threatening effects. Clinical trials have demonstrated
that CytoFabcan effectively neutralize TNFa, indicating that it could be
useful for treating or preventing a number of inflammatory diseases.
Development of CytoFabis currently focused on sepsis, where the Companys
clinical trials have shown the most promise. In June 1998, the Company terminated its Phase IIb trial in sepsis early,
having recruited 81 out of 300 patients required for this study. This trial
was terminated because the Company believed at that time that the commercial
risk posed to it was too great. However, data from the 81 patients enrolled in
the Phase IIb trial coordinated by Vanderbilt University shows that CytoFab
demonstrated a statistically significant reduction in two of the key clinical
endpoints being studied: the amount of time patients remained in the intensive
care unit and the amount of time patients required assisted ventilation. An end of Phase II meeting with the FDA was held in September 2003. The
agreed programme included a simplified manufacturing process and a reduction in
the size of the proposed Phase III clinical trial.. The Company is now seeking
a collaborative partner to enable further clinical evaluation of CytoFabfor
sepsis. NQO2.NQO2 (NAD(P)H quinine oxidoreductase 2) is an endogenous enzyme
found naturally and at high levels in certain tumor types, most notably hepatic
(liver) cell carcinoma (HCC). There are no effective treatments for HCC and
the recurrence rate is high; current survival after diagnosis is typically only
a few months. HCC is a common cancer with an increasing incidence in the U.S.
and Europe. 18




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##### Table of Contents



Through the acquisition of Enact in June 2003, the Company has acquired a
potential cancer therapy that utilizes the intrinsic over-expression of NQO2 in
certain tumors. NQO2 can, in the presence of a synthetic co-factor, EP-O152R,
identified by Enact, activate the prodrug (inactive form of the drug) CB1954,
to its potent cytotoxic form, which is over a thousand-fold more potent that
the parent prodrug. As the activation of the prodrug CB1954 occurs relatively
selectively in the tumor and less so in normal healthy cells due to differences
in the levels of NQO2, the therapy should confer the specificity lacking from
the majority of commonly used chemotherapy treatments. A patent protecting the Companys technology in regard to the co-factor
has already been granted in the U.K. and the U.S. and is under examination in
other territories. Following favorable preclinical data, a Phase I trial in which CB1954 and
EP-0125R are given separately and in combination to patients with refractory
cancer commenced in May 2004. The study is being undertaken by Cancer Research
UK (CRUK) at two sites in the U.K. The primary endpoint of this trial will be
to establish safety and tolerability, while the secondary endpoint will be to
document any anti-tumor activity. VEGF Vaccine.The Company is researching and developing a vaccine to
inhibit the action of Vascular Endothelial Growth Factor (VEGF), a protein
which is involved in angiogenesis  the development and spread of new blood
vessels. Angiogenesis has been implicated as an important factor in the spread
and growth of secondary cancers, i.e. metastases. By inhibiting angiogenesis,
metastasis, i.e., the development of secondary tumors, may be impaired. The
Company has tested several formulations of the VEGF vaccine in a preclinical
animal model of metastasis. Inhibition of the spread of melanoma tumor cells
into the lungs was observed with several formulations. A high titre of
antibodies to VEGF was seen in a recent preclinical study with a proprietary
adjuvant. The Company is considering its options with regard to further
development of this vaccine. The Company has filed a priority patent application in the U.K., and made
a Patent Cooperation Treaty (PCT) filing worldwide in June 2003. CroVetis an antibody product for the treatment of envenomations from
North American crotalids in animals. It is estimated that veterinarians treat
close to 10,000 cases of snake envenomations each year with antivenin. The
only antivenin currently on the market is a product introduced over 50 years
ago and is based on horse serum. The Company has completed a veterinary trial
using CroVet in dogs and is evaluating opportunities for commercialization of
this product. GnRH Animal Vaccine. The GnRH hormone has the same structure and overall
function in humans and animals, and therefore, the same approach to block its
effects is applicable to both human and animal applications. In animal health
and husbandry, the potential applications encompass fertility and behavior
control and improvement in meat quality. The Company entered into a licensing agreement with Janssen Pharmaceutica
BV (Janssen) to develop a GnRH Animal Vaccine. Janssen has evaluated the
GnRH Animal Vaccine across a range of target species. The development program
has demonstrated proof of concept in cats; however, Janssen has decided that it
will not continue development of this product on commercial grounds. This
program is currently on hold although the Company continues to supply academic
research institutes with the vaccine for experimental purposes. GnRH Human Vaccine. GnRH is a hormone that controls sexual development
and function in both males and females, including the secretion of male and
female sex steroid hormones. Suppression of GnRH activity has been shown to be
of benefit in a number of diseases, including prostate cancer and
pre-menopausal breast cancer. The Company has developed an immunotherapeutic
vaccine which has undergone clinical trials and is designed to stimulate
production of antibodies that block GnRH. 19




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Under a license agreement with the Company, ML Laboratories PLC (ML)
conducted a dose ranging Phase IIa clinical trial in prostate cancer which
indicated that a higher dose of the vaccine would be required. ML informed the
Company that they did not intend to continue development of this product and
the license agreement was subsequently terminated. The Company has
subsequently suspended active development. Metalloorganics.Through the acquisition of Enact, the Company has
acquired water soluble titanocene derivatives which, in vitro, show high
activity against cis-platin resistant ovarian cell lines. Pre-clinical studies
to investigate the effects of the lead compound in animal models of ovarian
cancer are ongoing; one of the models uses ovarian cancer cells which are
resistant to cis-platin. Principal Markets The Company operates in the United Kingdom, the United States and
Australia, and its revenues are largely attributable to its core technology of
immunotherapeutics and also royalties from diagnostic testing for bovine
spongiform encephalopathy. The table below shows a breakdown of revenues by
geographical market for each of the last three fiscal years. 2004
    
    2003
    
    2002£000
    
    £000
    
    £000United Kingdom
    
    
    157
    
    
    
    54
    
    
    
    70Rest of Europe
    
    
    1,588
    
    
    
    1,503
    
    
    
    2,005North America
    
    
    18,993
    
    
    
    9,669
    
    
    
    5,675Rest of the World
    
    
    281
    
    
    
    44
    
    
    
    17421,019
    
    
    
    11,270
    
    
    
    7,924
 All diagnostic test revenues are included within the Rest of Europe
category and amounted to £1,362,000, £1,331,000 and £1,476,000 in the years
ended March 31, 2004, 2003 and 2002, respectively. Competition The pharmaceutical industry is highly competitive, as evidenced by the
range of existing drug therapies. The Company competes with established
pharmaceutical companies as well as biopharmaceutical companies acting
independently or in collaboration with established pharmaceutical companies.
In addition, public and private academic and research institutions and certain
governmental agencies also compete with the Company in the research and
development of therapeutic products and in recruiting qualified scientific
personnel. Competition among products will be determined by, among other things,
efficacy, safety, convenience, reliability, price, geographical location and
patent position. Seasonality Demand for the Companys CroFab rattlesnake antivenin product is subject
to seasonal fluctuations. In the U.S., demand for snakebite antivenins peaks
during the spring and summer months. Hospitals and clinics typically place
orders in the first 3 months of the year in anticipation of the biting season
and for the following 6 months which constitute the season. Orders for CroFab
rattlesnake antivenin product are usually highest during these months. Sources and Availability of Supplies, Consumables and Raw Materials The Company currently supplies all of the antisera used in the manufacture
of its products from its own flocks of sheep. In addition, the Company relies
on certain outside suppliers of key raw materials 20




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and consumables. Specifically, the Company purchases a significant
proportion of crotalid snake venom for use in the manufacture of its CroFab
product, Digoxin for the manufacture of its DigiFab product and purification
columns used in the manufacture of both CroFaband DigiFab. Certain
supplies, consumables and raw materials are purchased from single sources. See
Item 3. Key Information  Risk Factors. Intellectual Property, Patents and Trademarks The Companys policy is to protect and defend the intellectual property
associated with its technology and products, principally through patent
protection. The Company also believes that sufficient steps have been taken to
ensure that trade secrets, such as animal husbandry techniques, manufacturing
techniques for conjugate vaccines, recombinant proteins and processes for the
large-scale production of polyclonal antibodies, are protected. The Company has optimized the production and purification of polyclonal
antibodies and has developed extensive proprietary knowledge in this area,
combining scientific, veterinary and large-volume processing skills. The
Company has been granted patents and has applied for additional patents in the
United States, Europe and other relevant jurisdictions covering several aspects
of its process techniques. However, the Company is now in the process of
reviewing all process patent applications and granted process patents in order
to determine whether any should be allowed to lapse, as they do not encompass
the current processes used by the Company. The Company holds a number of patents and patent applications, the most
material being:  
    
    Voraxaze The Company is in the process of filing patent
applications around certain researched and unpublished aspects of
Voraxaze, with the first filing in February 2004;  
    
    Transmissible Spongiform Encephalopathies  the Company has
been granted patents for its transmissible spongiform encephalopathy
diagnostic technology in the U.S., Europe (European Patent Office),
South Africa, Australia and New Zealand. These patents will expire
between 2012 and 2015. The European patent was granted in 1999 and
opposed by four companies. The opposition is now in the appeals
stage. Patent applications are pending in the U.S., Canada and
Japan, claiming a priority date of December 3, 1991. The first U.S.
divisional patent was granted on April 30, 2002. A further
application to cover new variant Creutzfeldt-Jacob Disease was filed
in January 2004;  
    
    GnRH vaccines  the Company has been granted patents for GnRH
analogues and their use in vaccines in the U.S., U.K., Canada, New
Zealand and Australia, claiming a priority date of June 5, 1987;  
    
    Angiotensin vaccine  The Company has pending patent
applications for angiotensin peptide analogues and vaccine uses in
Europe, Canada, Japan, the U.S., and Argentina, all claiming a
priority date of June 24, 1997. Both the New Zealand patent and the
Australian patent have been granted and notification has been
received that the European patent will be granted in Q4 2004;  
    
    VEGF (Vascular Endothelial Growth Factor) vaccine The
Company has filed a priority patent application in the U.K., and a
PCT filing in June 2003 for a vaccine to inhibit the action of VEGF,
a protein which is involved in the formation of new blood vessels
during cancer spread (metastasis);  
    
    Non-Ionic Surfactant Vesicles (therapeutic)  The Company has
been granted a patent for use of non-ionic surfactant vesicles in
the treatment of inflammatory and other human diseases in South
Africa. The Company has submitted a patent application in the U.K.
claiming a 21




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priority date of August 2, 1995, and a patent cooperation treaty
patent application on September 1, 1996. The Company has decided not
to proceed further with these applications after reviewing the
commercial viability of the technology;  
    
    Anti-TNFa antibodies  The Company has been granted U.K.,
U.S., Canadian, Japanese, European (European Patent Office, EPO),
New Zealand and Australian patents for use of Fab fragments of
anti-TNFa antibodies in medicine, particularly for the use in the
treatment of sepsis. The European patent is being maintained in
France, Germany, Italy and Spain. The majority of these patents
expire in 2014, although the U.S. patent is due to expire in 2018;  
    
    Mixed monospecific polyclonal antivenins  The Company has
been granted European, United Kingdom, Australian and Russian
Federation patents on the use of mixed monospecific polyclonal
antivenins. These patents are projected to expire on April 24,
2012, other than the Australian patent, which is expected to expire
on April 24, 2008. Applications are being pursued in Japan and the
Company has been informed that an application in the U.S. will be
granted before the end of the current fiscal year;  
    
    NQO2  The Company has filed patent applications in Europe
(EPO), U.S., Japan, Canada, U.K, and Hong Kong around using NQO2 to
activate prodrugs in the presence of an added co-factor. The
priority date for filing is June 1997 and the filing date is June
15, 1998; the expected expiry date for any patents is June 15, 2018.
Patents have been granted in the U.K. and Hong Kong and the
applications are proceeding in the other territories, with first
U.S. grant expected later in 2004;  
    
    Metalloorganics  The Company, through the acquisition of
Enact, has acquired exclusive options on applications for two
families of patents, including one already granted in Singapore and
South Africa, covering both the synthesis and the use of
water-soluble titanocene compounds. The priority dates for these
patents are December 1999 and July 2002, respectively. Third Party Patent Rights Rockefeller University held a European patent, which has now been revoked,
which could be construed to cover use of anti-TNFa antibodies. Rockefeller
University also holds patent rights related to this revoked European patent in
the U.S., Australia and Japan. The Board believes that due to the precise
nature of most of these patent rights in Australia and the U.S., commercial
exploitation of CytoFabin these territories will not infringe any valid
claims of these patents. The Company is aware of U.S. patents granted to
Rockefeller University in October 2001 and July 2002 relating to a neutralizing
antibody to a mediator substance which, if valid, could be used to restrict the
Companys development of anti-TNFa products, including CytoFabin the U.S.
The Company has an opinion from their U.S. patent attorney that CytoFabdoes
not infringe the claims of these patents. The Company has specific patents in
the U.S. and other territories covering the use of Fab fragments of anti-TNFa
antibodies, as summarized above. The Company is aware of two U.S. patents granted in August 1997 and August
1998 in the name of Genentech, Inc. (Genentech) that cover anti-TNFa
antibodies. One patent relates to a TNFa antagonist comprising an antibody
that neutralizes cytotoxic activity of human TNFa. There are also claims to
Fab fragments of a variable region of the antibody. The second patent relates
to a method of treatment of graft versus host reaction that comprises
administering to a patient a therapeutically effective dose of a TNFa
antagonist. If valid, these patents could be used to restrict the Companys
development of anti-TNFa products, including CytoFab, in the U.S. and other
territories in which equivalent rights exist. However, the Company has
obtained opinion from a U.S. patent attorney that the claims of the former
patent are invalid over the prior art, and that it is arguable that the claims
of the latter are similarly invalid. 22




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The Company has identified a series of patents (e.g. European and
Australian) that correspond to the Genentech anti-TNFa antibody patents, and a
Dainippon European patent, relating to human recombinant TNFa. These patents
contain claims to certain forms of recombinant human TNFa and consequently they
could, if valid, be used to restrict the Companys use of recombinant human
TNFa (in the form claimed by the patents) to produce anti-TNFa antibodies in
the territories in which the patent is maintained. The Company will take steps
to ensure that its supplier of TNFa is appropriately licensed under the
patents, failing which, it will consider its alternative options, such as
contesting the validity of the patents. Additional patents and applications are in existence, which could limit
the commercialization of CytoFab. These include patents, or patent
applications, in the names of Peptide Technology, Centocor, Kennedy Institute,
Abbott (formerly Knoll) and Unisearch. The Company has taken advice from its
patent agents, and the progress of the patent applications is being monitored.
The Directors believe that, overall, these patents and applications will not
inhibit the use of CytoFabin the treatment of sepsis. The Company has
opposed an Australian patent application and a European patent, both in the
name of Abbott, which relate to the use of TNF antagonists to treat sepsis in
patients with particular IL-6 levels, with a view to preventing the Australian
application proceeding to grant and getting the European patent revoked. Professor Sean B. Carroll created a family of patents relating to purified
polyvalent antivenins and methods of purifying antivenins using immuno affinity
techniques, which, if valid, could be used to attempt to limit exploitation of
the Companys antivenin products. Professor Carroll assigned all rights in the
patents to Ophidian Pharmaceuticals, Inc. who subsequently assigned all rights
in the patents to Promega Corporation (Promega). In 2001, the Company
entered into an agreement with Promega to obtain an exclusive world-wide
license to utilize these patents, and should the Company satisfy the written
royalty payment terms by December 31, 2004, these patent rights will be
assigned to the Company. Trademarks The Company has registered the following active trademarks in the
jurisdictions which are specified below:  
    
    CroFab® in the U.S.;  
    
    CytoFab® in the United Kingdom, Europe and the U.S.;  
    
    CytoTAb® in the United Kingdom;  
    
    DigiFab® in the U.S.;  
    
    DigiTAb® in the United Kingdom and the U.S.;  
    
    ViperaTAb® in the United Kingdom; and  
    
    Voraxaze® in Europe. In addition, applications to register the following active trademarks are currently pending:  
    
    DigiFab in Europe; and  
    
    Voraxaze in the U.S. 23




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Registrations of the trademarks CroFab®, CytoTAb®, DigiTab®, and
ViperaTAb® are also held in various other jurisdictions. GOVERNMENT REGULATION General Regulation by government authorities in the U.S., Europe and other
countries in which the Company operates is a significant consideration in the
development, production, marketing, labeling and reimbursement of their
products and in the continuation of their research and development activities. In the U.S., Europe and most other countries, in order to market and sell
biological products, drugs, medical devices and diagnostic products, there is a
requirement to obtain and to maintain an approval for a product from the
appropriate regulatory authority, referred to as a marketing authorization.
The Company is also subject to various laws, regulations, policies, guidelines
and recommendations relating to such matters as safe working conditions,
laboratory and manufacturing practices, the experimental use of animals and the
protection of the environment. Furthermore, there has been a general trend
towards greater regulation of the pharmaceutical industry and its products. The submission of a marketing authorization application to a regulatory
authority does not guarantee that an authorization will be granted. Regulatory
authorities require substantial data in connection with marketing authorization
applications, resulting in a lengthy approval process. The time taken to obtain
such approval varies depending upon the countries concerned and the nature of
the product, but can take from a few months to several years and can involve
substantial expenditure. This may be due to:  
    
    the lack of necessary results/data required by regulatory authorities;  
    
    the changing or adding of regulation; or  
    
    new scientific standards or other scientific developments
arising during the product development process. Furthermore, regulatory authorities of different countries may impose
differing requirements and may refuse to grant, or may require additional data
before granting an approval, even though the product may have been approved by
the regulatory authority of another country. Even if approval is obtained,
failure to comply with present or future regulatory requirements, or the
emergence of new information reflecting adversely upon the safety or
effectiveness of the approved drug, can lead the regulatory authority to
suspend, vary or withdraw its approval to market the product. In the U.S., the principal regulatory agency is the FDA. Nearly all other
countries have similar national regulatory authorities. The Company may have
to satisfy different requirements from the FDA, European regulatory authorities
and other national regulatory authorities. There is an ongoing initiative, the
International Conference on Harmonization (ICH), among representatives from
Japan, the United States and the European Union, to limit regulatory
differences where possible. Considerable progress has been made through the
ICH process, resulting in the issuance of a wide range of agreed pre-clinical
and clinical guidelines. In Europe, the Company must take into consideration:  (a)
    
    the regulatory climate within the European Union, including
the influence of the International Conference on Harmonization, and
the approach of the European Medicines Evaluation Agency and its
expert advisory committee, the European Committee for Proprietary
Medicinal Products, as well as 24




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(b)
    
    the position of the national regulatory authorities. Recognizing global regulatory differences, wherever practical, the Company
intends to design pre-clinical and clinical protocols which should generate
sufficient data of a quality that will be acceptable to support applications
for the same product in each country where it is intended to be marketed. Price Regulation In some countries it is necessary to obtain approval for the price to be
charged for a medicinal product or device. This is true in a number of European
Union member states. In the United Kingdom, the launch price of pharmaceuticals
is set by the manufacturer but is subject to the constraints of the
Pharmaceutical Price Regulation System which controls the profitability of a
companys business with the United Kingdoms National Health Service. Governments may also influence the product price through the control of
national healthcare systems and organizations which may bear the cost of supply
of such products. In the United States, government-funded or private medical
care plans can influence prices, and there are a variety of indirect controls. United States Regulation Regulatory Authorities- The production and marketing of the Companys
products and its research and development activities are subject to regulation
by federal and state governmental authorities in the United States. Although
most states maintain one or more agencies with power to regulate products, they
commonly defer to the federal agencies discussed below in matters relating to
the development, production, marketing, labeling and reimbursement of products. FDA Regulation- Biological products, drugs, medical devices and
diagnostic products are subject to rigorous review by the FDA. The Federal
Food, Drug and Cosmetic Act, the Public Health Service Act and other federal
statutes and regulations govern or influence the testing, manufacture, safety,
efficacy, labeling, storage, record keeping, approval, advertising and
promotion of such products. Product development and approval within this
regulatory framework takes a number of years, involves the expenditure of
substantial resources and is commercially risky. Many products ultimately do
not reach the market because of toxicity or lack of effectiveness as
demonstrated by required testing. Total development time for successful
compounds often exceeds 10 years. However, under the provisions of recent
legislation, the FDA has committed to reduce the review time for applications.
Although the agency has achieved some reductions, especially for high-priority
medicines, the review process remains lengthy and complex. There has been
little or no reduction in the testing required before applications are
submitted, which consumes most of the time spent in developing new medicines
for the United States market. In addition, there can be no assurance that this
regulatory framework will not change or that additional regulations will not
arise at any stage of product development that may affect approval, delay an
application, or require additional expenditures. The steps required before a pharmaceutical product may be marketed in the
United States include:  (a)
    
    pre-clinical laboratory testing;(b)
    
    submission to the FDA of an investigational new drug
application which must become effective before human clinical trials
may be commenced;(c)
    
    adequate and well-controlled human clinical trials to
establish the safety and efficacy of the drug; 25




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(d)
    
    submission of a new drug application to the FDA; and(e)
    
    FDA approval of the new drug application prior to any
commercial sale or shipment of the drug. Good Practice Standards- Various standards are applied either by law or
custom to the activities of pharmaceutical companies. These include
principally:  
    
    Good Laboratory Practice, applied to studies performed during
pre-clinical developments to identify the compounds behavior and
toxicity in animals;  
    
    Good Clinical Practice, intended to ensure the quality and
integrity of clinical data and to protect the rights and safety of
human subjects in clinical trials; and  
    
    Good Manufacturing Practice, intended to ensure the quality
of drugs by setting minimum standards for all drug manufacturing
facilities. Such standards have been developed by the FDA and by the
United States National Committee for Clinical Laboratory Standards.
Violation of these regulations can lead to invalidation of the
relevant studies. The Company has used consulting firms in the United Kingdom and in the
United States for advice on compliance with existing regulations and
guidelines. Clinical Testing- Clinical testing of new compounds in humans is designed
to establish both safety and efficacy in treating a particular disease or
condition. These studies are usually conducted in three phases of testing. The
clinical trial process may take from two to six years or more to complete. Phase I trials are normally conducted in a small number of healthy human
subjects or patients with the specific condition targeted. Their purpose is to
provide a preliminary evaluation of the product candidates safety, toxicity
and behavior when administered to humans. In Phase II trials, the product candidate is assessed for its short-term
safety and preliminary efficacy in a limited number of patients with the
targeted disease or disorder. The appropriate dose ranges and regimens for
Phase III are also determined during this phase. Phase III trials involve a comprehensive evaluation of safety, efficacy
and toxicity that might not have been evident in smaller studies. The trials
are carried out, typically on a multi-center basis, on a sufficient number of
patients to obtain statistically significant results. All adverse reactions are
investigated in detail, and special features of the product candidate are
explored. Clinical trials for existing and future products seek to develop safety
data as well as efficacy data and will require substantial time and significant
funding. There is no assurance that clinical trials related to these products
will be completed successfully within any specified time period, if at all.
Furthermore, the FDA may suspend clinical trials at any time if it believes
that the subjects participating in such trials are being exposed to
unacceptable health risks. If the drug is considered by the FDA and by prospective users to provide
an important benefit in the treatment of a serious disease, the applicant may
be faced with demands from patient groups, sometimes endorsed by the FDA, for
release of the drug for treatment during the investigative stage. The supply of
such treatment is termed treatment use. Supplying drugs on this basis can
involve significant expense and resource demands for the sponsor of the drug,
which must administer the pre-approval release program. This may, in some
situations, interfere with the ability to complete controlled clinical trials
of the drug. 26




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Approval Procedures and Criteria The FDA generally applies the same
requirements for approval of all products:  
    
    proof of safety and efficacy;  
    
    demonstration of adequate controls in the manufacturing process; and  
    
    conformity with requirements for labeling. Efficacy must
usually be demonstrated by two well-controlled clinical trials
carried out in accordance with FDA regulations. The FDA has discretion to determine whether the data submitted is adequate
for approval. The time taken for this approval process is based on:  
    
    the quality of the submission;  
    
    the potential contribution of the compound in improving the
treatment of the target disease; and  
    
    the workload at the FDA. There can be no assurance that any new drug will successfully proceed
through this approval process or that it will be approved in any specific
period of time. During its review, the FDA may ask for additional test data. If the FDA
approves the product, it may require post-marketing testing, including
potentially expensive post-market surveillance studies, known as Phase IV
testing. This phase further assesses the products therapeutic value and
provides additional information about the safety and efficacy of the product
across a broader patient base. In addition, the FDA can impose restrictions on
the use of the drug that may be difficult and expensive to administer. Orphan Drug Status- The Orphan Drug Act of 1983 encourages manufacturers
to seek approval of products intended to treat rare diseases and conditions
with a prevalence of fewer than 200,000 patients in the United States or for
which there is no reasonable expectation of recovering the development costs
for the product. For products that receive orphan drug designation by the FDA,
the Orphan Drug Act provides tax credits for clinical research, FDA assistance
with protocol design, eligibility for FDA grants to fund clinical studies and a
period of seven years of marketing exclusivity for the product following FDA
marketing approval. The Companys crotalid antivenin, CroFab, received
marketing approval by the FDA under the orphan drug program, and its
methotrexate therapeutic, Voraxaze, for which the Company is seeking marketing
approval, received orphan drug designation by the FDA in August 2003. Accelerated Approval- The FDA may accelerate approval of medicines that
offer a significant improvement in the treatment of fatal or life-threatening
conditions, or conditions for which there is no alternative therapy. In certain
cases, the FDA may permit Phase II and Phase III studies to be compressed into
a single study. It is unusual for the FDA to base an approval on such
compressed studies, and although the Companys Voraxaze product approval will
be considered on this basis, there can be no assurance that such combined
testing would be considered acceptable for any of its other products. Acceptance of Foreign Clinical Data- The FDA will accept reports of
foreign clinical trials if they meet requirements for good clinical practice
and are relevant to United States medical practice. It is, however, uncommon
for the agency to approve a product without some evidence from clinical trials
conducted in the United States, and most sponsors carry out at least one
pivotal trial there. Studies conducted outside the United States are subject to
special audits by FDA inspectors and may be rejected if 27




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United States requirements for record-keeping, protection of human
subjects and other matters relating to good clinical practice are not met. Non-Patent Market Exclusivity- Under United States law, there are two
forms of non-patent market exclusivity. First, the law prohibits approval of
abbreviated new drug applications or literature-based applications for copies
of innovative products for a period of five years after the approval of a new
chemical entity, and three years after the approval of a new indication or
dosage form for which substantial clinical trials were required. Second, the law provides for a seven-year period of protection for orphan
drugs (see above). During this period, the FDA is precluded, subject to complex
exceptions, from approving any application for the same drug, even if it is
based on original data. These provisions apply to all drugs, including
antibiotics and biological products. Post Approval- After regulatory approval is obtained, products are
subject to continual review. Manufacturing, labeling and promotional activities
are continually regulated by the FDA and equivalent regulatory agencies of
other countries, and the manufacturer also reports certain adverse events
involving its drugs to these agencies. Previously unidentified adverse events
or an increased frequency of adverse events that occur post-approval could
result in labeling modifications of approved products, which could adversely
affect future marketing of a drug. Finally, approvals may be withdrawn if
compliance with regulatory standards is not maintained or if problems occur
following initial marketing. Manufacturing Controls- Certain manufacturers and suppliers are required
by the Federal Food, Drug and Cosmetic Act and by FDA regulations to follow
Good Manufacturing Practice requirements and are subject to routine inspections
by the FDA and certain state and foreign regulatory agencies for compliance
with Good Manufacturing Practice and other applicable regulations. Upon routine
inspection of these facilities, there can be no assurance that the FDA and
other regulatory agencies will find the manufacturing process or facilities to
be in compliance with Good Manufacturing Practice and other regulations.
Failure to achieve satisfactory Good Manufacturing Practice compliance as
confirmed by routine inspections could have a material adverse effect on a
companys ability to continue to manufacture and distribute its products in the
United States, and in the most serious case, could result in the issuance of a
regulatory warning letter or seizure or recall of products, injunction and/or
civil fines or closure of a companys manufacturing facility until Good
Manufacturing Practice compliance is achieved. Advertising and Promotion- The FDA regulates advertising and promotion of
prescription drugs. Promotion for unapproved uses is prohibited, and
sponsorship of medical symposia and publications is restricted. Financial
incentives to prescribers are regulated under federal and state criminal laws,
as well as codes of practice for the medical professions. Noncompliance- Failure to comply with the applicable regulatory
requirements can, among other things, result in fines, suspensions of
regulatory approvals, product recalls, operating restrictions and criminal
prosecution. In addition, the marketing and manufacturing of pharmaceutical
products is subject to continuing FDA and other regulatory review, and later
discovery of previously unknown problems with a product, manufacturer or
facility may result in the FDA and other regulatory agencies requiring further
clinical research or restrictions on the product or the manufacturer, including
withdrawal of the product from the market. Product Liability- Companies that market products in the United States
are subject to suit in state and federal courts for personal injuries caused by
these items. The risk of product liability litigation is significantly greater
in the United States than in most European jurisdictions, and damage awards can
be substantial. FDA approval is not a defense to liability, but failure to
comply with FDA requirements may constitute evidence of negligence. Medicare and Medicaid- The Medicare program, a federal program that
provides defined health benefits for the aged and disabled, may be an indirect
source of revenue for products. Further, the 28




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Medicaid program, a joint federal and state program that provides defined
health benefits to certain financially needy individuals, may also provide a
source of revenue for products. Any restrictions on reimbursement, coverage or
eligibility under the Medicare or Medicaid program could adversely affect the
revenue generated by a product. To the extent a company participates in the Medicare and Medicaid
programs, it will be subject to extensive federal and state regulation,
including  (a)
    
    the Medicare and Medicaid fraud and abuse laws which prohibit
the offering or payment of any bribe, kickback, rebate or other
remuneration in return for the referral or recommendation of
patients for items and services covered by federal health care
programs;(b)
    
    the Omnibus Budget Reconciliation Act of 1993, commonly known
as Stark II, which prohibits certain referrals of Medicare
patients by a physician to an entity if the physician or a member of
such physicians immediate family has a financial relationship
with the entity, defined broadly to include any type of compensation
arrangement or ownership interest; and(c)
    
    the federal False Claims Act which imposes civil and criminal
liability on individuals or entities that submit false or fraudulent
claims for payment to the government. Generic Substitution Statutes/Statutorily Required Rebates- Many states
have enacted generic substitution statutes which permit, and in some cases
require, the substitution of a different manufacturers version of a product
than the one prescribed. In addition, many states require pharmaceutical
companies to rebate a portion of their revenues from products sold to Medicaid
beneficiaries back to the states concerned. European Union Regulation The European Union currently consists of 25 Member States. Pharmaceutical
companies operating in the European Union are subject to regulatory controls
governing the development, manufacture, labeling, supply and marketing of their
products. Traditionally, regulation in this sector took the form of national
legislation and self regulation through codes of practice. However, national
legislation in the area increasingly reflects initiatives at the European
Community level, normally in the form of Directives and regulations. There is
a broad range of European Community legislation governing all aspects of
activities related to medicinal products. This legislation is supplemented by
numerous guidelines (which provide guidance on existing European directives
relating to safety, quality and efficacy), that are not legally binding in most
cases. However, failure to comply with, or a departure from, the guidelines
requires justification and may, for example, raise issues as to the adequacy of
data submitted in support of an application to market a product. In November
2001, many of the stand-alone Directives regulating medicinal products were
brought together and codified in a single Directive (Directive 2001/83/EC on
the Community Code relating to medicinal products for human use). This has
since been amended by Directive 2003/63/EC (which came into force October 2003)
and Directive 2004/27/EC (which will come into force October 2005). Pre-clinical Research -European legislation (Directive 2001/83/EC as
amended by Directive 2003/63/EC and Directive 2004/27/EC) imposes certain
specific requirements for pre-clinical testing of a product where the data
generated will be used for an application for a product marketing authorization
in the European Union. Basic provisions in legislation are expanded upon by a
broad range of guidance documents issued by the European Committee for
Medicinal Products for Human Use (CHMP), which, while not usually incorporated
into the legislation, are extremely important for companies to follow when
products are under development. Deviation by companies from such guidance,
particularly where they are specific to product groups, would generally require
a strong justification upon application for a marketing 29




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authorization. Directive 86/609/EEC establishes pre-clinical research
standards to be met by research institutions engaged in animal research. These
provisions are enforced through registration and inspection. Additionally,
Directive 87/18/EEC on good laboratory practice establishes high standards of
practice and associated legislation for laboratories, with compliance again
monitored through a system of inspection. Clinical Research -European legislation also stipulates requirements for
conducting research in human beings where the data is intended to be utilized
in a marketing authorization application (Directive 2001/83/EC as amended by
Directive 2003/63/EC and Directive 2004/27/EC). The European Committee for
Medicinal Products for Human Use (CHMP) has issued a number of guidance
documents. In particular, these include guidelines on good clinical practice,
which adopt the texts developed by the International Conference for
Harmonization. These guidelines became effective in January 1997 and take
account of European Committee for Medicinal Products for Human Use (CHMP)
guidelines on good clinical practice previously adopted in 1990. In addition,
some general legislation, such as the Data Protection Directive (95/46/EC), is
also relevant to the conduct of clinical research. Aside from these provisions,
however, the conduct of research in the European Union was not until recently
subject to specific European Union legislation. In April 2001 the European
Commission enacted Directive 2001/20/EC on the approximation of the laws,
regulations and administrative provisions of the member states relating to the
implementation of good clinical practice in the conduct of clinical trials on
medicinal products for human use. The Directive required member states to
comply with its terms by May 1, 2004. The aim of this Directive is to harmonize
the regulation of clinical research across the European Union. Failure to
satisfy the requirements, which include adherence to good clinical practice,
may lead to a rejection of an application for a marketing authorization. Obtaining a Marketing Authorization- No pharmaceutical product may be
marketed in the European Union without a marketing authorization (although
national legislation in some member states permits a product to be sold on a
named patient basis). The UK Medicines Act 1968 governs applications for
marketing authorization for human use in the United Kingdom. The Medicines Act
implements in the United Kingdom detailed European Union Directives on the
licensing of pharmaceutical products. Each time new legislation is introduced
at the European level, it is implemented in the United Kingdom pursuant to the
Medicines Act. As a result, the core rules in force in the United Kingdom are
the same as those in force in other states within the European Union. In
addition, individual countries within the European Union may implement some
additional national legislation relating to, for example, specific labeling
requirements or in areas where there is no existing European Union Directive. Registration Systems- Three principal systems exist in the European
Union for registering pharmaceutical products in order to obtain a marketing
authorization: the national system, the mutual recognition system and the
centralized system. The national system involves the submission of a marketing authorization
application to a single member state of the European Union. When a company
wishes to apply for marketing authorizations in more than one European Union
state, the mutual recognition system or the centralized system described below
must be used. The mutual recognition system involves a marketing authorization
application initially directed to one national regulatory authority. As soon
as one member state has given approval for marketing, this decision is
circulated to other member states nominated by the applicant. There is a
specified timetable for this procedure which includes an arbitration process
for resolving disputes and for arriving at a final decision, which is
administered by the European Committee for Medicinal Products for Human Use
(CHMP). Such decision is legally binding both on the applicant and on the
European Union member states involved. The arbitration process may
significantly lengthen the time from initial application to approval in all
nominated member states. The result of such process may impose limitations not
just on the marketing authorization applied for, but also on marketing
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The centralized system is a process for which there is a single
application, a single evaluation and a single authorization for medicinal
products. This system applies only to certain types of applications (it is
compulsory for certain biotechnology products and optional for certain other
products, including new chemical entities not previously authorized in the
European Union, medicinal products administered by significantly innovative and
novel delivery systems and significant new indications for existing products).
It should be noted that the scope of the Centralized system has been amended in
Regulation 726/2004 which comes into effect November 20, 2005. The centralized process is administered by the European Medicines Agency
(described below). A marketing authorization granted pursuant to the
centralized procedure is recognized in all European Union member states. As
with the mutual recognition system, a specific timetable is specified for
evaluation of the application, including allowances for appeals. The European Agency for the Evaluation of Medicinal Products was
established by Council Regulation EEC No. 2309/93 of July 1993 with effect from
January 1, 1995. This Regulation has been replaced by Regulation 726/2004
which largely comes into effect November 20, 2005 (under this new regulation
the EMEA is now referred to as the European Medicines Agency). The EMEA is
responsible for co-ordinating the evaluation and supervision of medicinal
products for both human and veterinary use across the European Union. On the
basis of the EMEAs opinion, the European Commission authorizes the marketing
of a product approved by the centralized system and arbitrates between member
states of the European Union on other medicinal products submitted under the
mutual recognition system. The EMEA comprises a management board, three
committees of scientific experts responsible for preparing the EMEAs opinion
(one for medicinal products for human use, one for medicinal products for
veterinary use, and one for the designation of orphan drugs for rare
diseases), an executive director and a permanent secretariat. Criteria Assessed in
Obtaining a Marketing Authorization- European Directive 2001/83/EC (as amended by Directive 2003/63/EC and
Directive 2004/27/EC) sets out the basic principles for the
regulation of marketing of medicinal products within the European
Union. The criteria for the grant of a marketing authorization
are quality, safety and efficacy. In order to demonstrate these
criteria, a wide range of information and data are required to be
submitted to the relevant regulatory authority. The exact
requirements as to the analytical, pharmacotoxicological and
clinical standards and protocols in respect of testing medicinal
products to be submitted are detailed in European Directive
2003/63/EC. In summary, any application for a marketing
authorization must be accompanied by, among other things, the
results of:  
    
    physico-chemical, biological or microbiological tests
(establishing the quality of the products),  
    
    pharmacological and toxicological tests (establishing the safety of the product), and  
    
    clinical trials (studies in humans establishing efficacy and safety). The quality of the product is determined by laboratory studies and tests.
These verify both the chemical constitution and stability of the product as
well as the manufacturing processes used. The safety of the product is initially determined by studies to show
matters such as toxicity, the effect on reproductive potential, adverse effects
on genes, whether the product has the ability to cause cancer, how the product
is distributed within the body, how quickly the body eliminates the product and
the products interaction with other body chemicals. 31




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The efficacy and safety of the product are derived from clinical trials
with volunteers and patients. Clinical trials are generally classified into
Phases I through IV, although there are not always distinct divisions between
each phase. Phase I clinical trials are normally conducted in healthy human
volunteers. The purpose of the trial is to obtain a preliminary evaluation of
a products safety, its pharmacokinetic profile and its biological effect on
humans. Phase II clinical trials assess the product for its short-term safety and
preliminary efficacy in a limited number of patients. Later Phase II trials
may be comparative (e.g. comparing the product with a placebo). The
appropriate dose ranges and regiments for Phase III (safety and efficacy)
trials are also determined during this phase. Phase III clinical trials are a comprehensive evaluation of safety and
efficacy of the product based upon larger patient groups. The pattern and
profile of the more frequent adverse reactions are investigated in detail and
special features of the product are explored. Phase IV clinical trials are studies performed after a marketing
authorization has been granted. They are designed to monitor drug use in the
normal patient population. These studies are usually larger in scale and focus
on efficacy in clinical practice and side effects. Marketing Authorizations for Orphan Drugs -In April 2002 the European
Commission introduced Regulations regarding orphan drugs. The main requirements
for qualification are:  
    
    the target disease condition has a prevalence of no more than
5 persons per 10,000;  
    
    either the product offers potential significant benefit over
existing treatment for the condition or there are no treatments for
the condition. An application for orphan drug status may be made at any time up to
submission of the marketing application. The benefits to successful applicants
include:  
    
    a reduced registration fee;  
    
    use of the centralized registration procedure; and  
    
    10 years exclusivity on the market Maintenance of Marketing Authorizations -A marketing authorization
application may be submitted when appropriate data is available. The
submission of an application to a regulatory authority does not guarantee that
a license to market the product will be granted by that regulatory authority.
Furthermore, each regulatory authority may impose its own requirements and may
refuse to grant or may require additional data before an approval, even though
the relevant product may have been approved by authorities in other countries.
The time taken to obtain a national approval in individual countries varies,
but can take from a few months to several years from the date of application.
The trend over the years has been towards greater regulation. Marketing
authorizations are granted subject to certain generally applicable conditions
and may also be subject to product specific restrictions determined by
regulatory authorities. When an authorization is granted and a product is brought to market, there
are numerous obligations imposed upon the marketing authorization holder by the
pharmaceutical legislation. These include the obligation to ensure that the
product keeps pace with the state of scientific and technical knowledge, in
particular, in terms of its manufacture and control. This means applying to
vary the marketing authorization when the changes in the state of the art and
relevant circumstances warrant its 32




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updating and amendment. Additionally, requirements for pharmacovigilance
and the reporting of adverse reactions to products are central to the
legislation. Within the European Union, advertising, and the production of
labeling and patient information leaflets, are specifically regulated by
directives, with local codes of conduct and practice, in some cases, providing
additional controls on corporate activity. The provisions of the legislation
require significant staff and expertise which may be provided in-house and/or
by external service. Examples of such staffing requirements include the need
for pharmacovigilance and an information services individual within the company
responsible for compliance. The regulatory authorities have the power to suspend, revoke or vary a
marketing authorization:  
    
    if the grant no longer satisfies safety, quality or efficacy standards;  
    
    for reasons relating to and omissions in the product dossier; and  
    
    for particulars or failures in relation to product manufacture. The requirements for the performance of comprehensive pharmacovigilance
for marketed products are designed for companies and regulators to detect
product safety concerns and to take appropriate action in the interests of
public health. The harmonization and streamlining of compulsory action and
decision making on such matters in the European Union through the European
Committee for Medicinal Products for Human Use means that, increasingly, a
concern arising in one member state in relation to a product marketed in
several states will be examined at the European Union level and the outcome of
the examination will affect the product and its authorization across all member
states in which it is sold and supplied. Manufacturing -Manufacturing conducted within the European Union must
meet good manufacturing practice requirements (Directive 2003/94/EC which
replaces Directive 91/356/EEC). Legislation (Directive 2001/83/EC as amended by
Directive 2003/63/EC and Directive 2004/27/EC) imposes precise obligations upon
manufacturers, in particular with regard to control, batch testing and release
of products in the European market and the qualifications for the personnel
authorized to undertake such activities (the Qualified Person). Inspections of
manufacturing site facilities and procedures are regularly undertaken, both by
local inspectors and by inspectors from other countries in which the product is
to be sold. Failing an inspection may result in:  
    
    product supplies being interrupted;  
    
    recall; or  
    
    plant closure pending elimination of defects. The legislation requires clear, contractual documentation regarding how
manufacturing services are provided by one company to another when aspects of
the manufacturing process are subcontracted to others by the marketing
authorization holder and/or manufacturer. Wholesaling -Wholesale distribution in the European Union is governed by
what was Directive 92/25/EEC, now part of Directive 2001/83/EC, and
accompanying Good Distribution Practice Guidelines. Wholesalers must meet
minimum requirements in terms of staff, facilities and procedure in order to
obtain and retain authorization. Pricing- In a number of member states, it is not possible to market a
product until pricing negotiations with the responsible government authorities
have been concluded. Authorization by the regulatory authorities does not
guarantee the negotiation of a satisfactory price or of reimbursement terms
under national public health systems for the products concerned. In the United
Kingdom, new or existing products which already have a marketing authorization
may be referred by the Department of Health to 33




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the National Institute for Clinical Excellence for a clinical and
cost-effectiveness appraisal. Adverse findings (if any) in consequent NICE
Guidance can mean that the target products will not be routinely prescribed on
the National Health Service, that is, at public expense. Supplementary Protection Certificates -The time taken to research and
develop medicinal products reduces the marketing time provided by a product
patent, and therefore, can reduce the period available to the developer to
recoup investment through sales. In 1992, the European Union introduced
Regulation 1768/92 concerning the creation of a supplementary protection
certificate for authorized products. While this regulation does not extend the
patent, it does confer rights of a similar nature for the product after the
patent has expired. The period during which the certificates are effective
depends on calculations based upon the date of the application for the patent
and the grant of the first European Economic Area marketing authorization for
the product, with a maximum limit of five years. Abridged Applications - Market Exclusivity -In cases where the patent
and supplementary protection certificate have expired or are not available,
medicinal products can benefit from European Union provisions which are
commonly described as the rules of market exclusivity, but which in fact
govern the making of abridged applications for marketing authorizations. Currently under European Union law, a third party is effectively prevented
for a period of between six and ten years from authorization, or in some cases,
until expiration of the patent, if sooner, from relying upon data submitted in
support of a prior full application by the originator, except in certain
defined and limited circumstances. The period is fixed at ten years for two types of products:  
    
    those derived from biotechnological processes specified in
Part A of the Annex to Regulation 2309/93 for which the centralized
procedure is compulsory; and  
    
    high-technology products, viewed by the competent
regulatory authorities as representing significant innovation and
falling within Part B of the Annex, for which the option to use the
centralized procedure has been exercised. Member states may elect to extend the period of protection from six to
ten years for all products. A number of member states have done so. They may
also elect not to apply for an extension beyond the date of expiration of the
patent covering the medicinal product. It should be noted that when Directive 2004/27/EC comes into force in
October 2005 this period of protection will be 10 years for all member states. The above rules do not, however, prevent a competitor from making a
marketing authorization application accompanied by:  
    
    a full data package compiled by the competitor;  
    
    reference to published literature; or  
    
    with the consent of the owner of the original data, cross
reference to the data held on file by the regulatory authorities. The rules are only intended to limit the circumstances in which a
marketing authorization may be granted without submission of a full data
package, in order to protect the interests of the originator of the filed data
who undertook and resourced the original research necessary to support an
application to market. With the current legislation the rules are unclear in
some respects, for example in cases where variations have been approved, and
their interpretation is subject to variation and dispute. However 34




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Directive 2004/27/EC specifies an increased protection period of 11 years
maximum when the Marketing Authorization Holder, during the first eight years,
obtains an authorization for one or more new therapeutic indications, which
bring a significant clinical benefit. The Companys Product Candidates -Several, if not all, of the human
therapeutic products currently being developed by the Company will fall within
the ambit of Regulation 2309/93 (centralized authorization). All products
developed by means of recombinant DNA technology or the controlled expression
of genes coding for biologically active proteins in prokaryotes and eukaryotes
including transformed mammalian cells or hybridoma and monoclonal antibody
method, known as Part A products, are subject to compulsory centralized
authorization for the purposes of marketing within the European Union. In any
remaining cases, there may be an option as to the approval process followed.
Products falling within Part B of the regulation, which can generally be
summarized as products constituting significant innovation, based upon
radioisotopes or of significant therapeutic interest, may be pursued centrally
or through mutual recognition. Ten years marketing exclusivity will apply
across all member states where centralized procedures are applied. As stated
previously the scope of the Centralized system has been amended by Regulation
726/2004, which will replace Regulation 2309/93, and which comes into effect
November 20, 2005. During the development phases of the products, all clinical research
programs must be conducted according to local and European Union requirements
in order to ensure the acceptability of the data generated for European Union
regulatory purposes. The Clinical Trials Directive (2001/20/EC) requires that
both regulatory clearance and Ethical Approval are obtained prior to commencing
a clinical study in either healthy volunteers or patients. Regulation of Veterinary Products -A very similar regulatory system
applies in Europe with regard to veterinary medicinal products. In particular,
hi-technology and biotechnology products are also subject to centralized review
and registration under Regulation 2309/93 above. As is the case with human
pharmaceutical products, no unauthorized veterinary product may be marketed in
the European Community, subject, in the case of veterinary products, to
somewhat more limited exceptions than apply in relation to human
pharmaceuticals. Regulation in Other Countries- In general, regulation is similar in
countries outside the United States and Europe, with the approval system
regulated by specific agencies in each geographic area. However, approval by
one agency does not ensure approval in other countries. In Australia, successful marketing of a therapeutic substance may be
dependent on receiving marketing approval from the Therapeutic Goods
Administration and also on obtaining Commonwealth Government subsidy for use of
the product via either the Pharmaceutical Benefit Scheme or the Special Access
Scheme. Applications for listing on either of these Schemes requires additional
information, in particular economic analysis data, and approval for this second
step may lag behind obtaining marketing approval. The Australian Government is
able to exercise considerable power over price control through this process. 35




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Organizational Structure Protherics PLC acts as the holding company of a group consisting of its
directly and indirectly held subsidiaries. Protherics PLC has the following
principal subsidiaries: % Held
    
    Status
    
    Country of IncorporationDirect HoldingsProtherics Molecular Design Limited
    
    
    100
    
    
    trading
    
    England and WalesProtherics Inc.
    
    
    100
    
    
    trading
    
    U.S.A. (Delaware)Enact Pharma PLC
    
    
    100
    
    
    trading
    
    England and WalesProteus Biotechnology Limited
    
    
    100
    
    
    dormant
    
    England and WalesGenethics Limited
    
    
    76
    
    
    dormant
    
    England and WalesIndirect HoldingsProtherics UK Limited
    
    
    100
    
    
    trading
    
    England and WalesProtherics Australasia pty Limited
    
    
    100
    
    
    trading
    
    AustraliaProtherics Utah Inc.
    
    
    100
    
    
    trading
    
    U.S.A. (Delaware)Protherics Services pty Limited
    
    
    100
    
    
    trading
    
    AustraliaKymed GB Limited
    
    
    100
    
    
    dormant
    
    England and WalesEnzacta R&D Limited
    
    
    99.8
    
    
    dormant
    
    England and WalesDeMontford Biopharma Limited
    
    
    100
    
    
    dormant
    
    England and WalesEnzacta Limited
    
    
    99.8
    
    
    dormant
    
    England and WalesTAb (Wales) Limited
    
    
    100
    
    
    dormant
    
    England and WalesTAb (London) Limited
    
    
    100
    
    
    dormant
    
    England and WalesPolyclonal Antibodies Limited
    
    
    100
    
    
    dormant
    
    England and Wales
 Property, Plants and Equipment The Company leases its corporate headquarters, 4,247 sq. ft. of lab and
office space at The Heath Business & Technical Park, Runcorn, Cheshire WA7 4QF
from SOG Limited. This lease commenced on April 1, 2004, for an initial period
of one year and is renewable annually at the option of the Company. In
addition, the Company leases a corporate office at 3 Creed Court, 5 Ludgate
Hill, London EC4M 7AA. This lease commenced in October 2003 and is for an
initial period of 3 years. The Company also leases a 4,280 sq. ft. corporate office at 5214 Maryland
Way, Suite 405, Brentwood, Tennessee 37027. The lease commenced on November 1,
2001 and will continue through January 31, 2005. In addition, the Company
leases 5,307 sq.ft. of laboratory and office space at 615 Arapeen Drive, Suite
105, Salt Lake City, Utah 84108. The lease commenced June 1, 2003, and will
continue through May 31, 2006. Protherics UK Limited, a subsidiary of the Company, owns and operates
production offices, quality control laboratories and a manufacturing facility,
covering approximately 200 acres, located near Ceredigion, Wales. Protherics Australasia Pty Limited, a subsidiary of the Company, produces
antisera at its facilities leased from the Turretfield Research Centre at
Rosedale, near Adelaide, South Australia, where the Company has constructed
offices, laboratories and a cleanroom. The lease of the Turretfield Research
Centre property will expire on July 31, 2005, with an option to extend the term
for a further ten years. The South Australian Minister for Primary Industries
(the Minister) holds a security interest on the buildings and equipment of
Protherics Australasia Pty Limited in connection with notes payable in the
principal amount of A$1,287,000. Repayment is in equal annual installments
with the final installment due in August 2007. The interest rate is variable
at the discretion of the Minister and is payable annually. The majority of the Companys sheep flock are located at Martindale, South
Australia, where the Company has an agreement with Martindale Holdings pty
Limited for the grazing rights for up to 6,000
sheep. The agreement, which expires on May 31, 2008 with the option to
extend for two further five-year periods, is terminable with twelve months
notice. 36




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The Company has outsourced a portion of its sheep flock management to
Selborne Biological Services Limited, which currently has 3,200 of the
Companys flock at Selbornes property in Tasmania. All of the Companys laboratories, production facilities and farms are
suitably equipped for their intended purposes. 
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
financial statements and notes thereto. General On September 15, 1999, Therapeutic Antibodies merged with a wholly-owned
subsidiary of Proteus, and Proteus was renamed Protherics PLC. The merger was
accounted for as a pooling of interest, and accordingly, the Companys
consolidated financial statements have been restated for all periods presented.
The Company reports its financial results on a March 31 fiscal year end basis,
whereas Therapeutic Antibodies reported its financial results on a calendar
year basis. For purposes of pooling of interests accounting, Therapeutic
Antibodies calendar year-end was conformed to the Companys March 31 year-end
for fiscal year 2000. On July 12, 2001, the Company completed the sale of CAMD to Tularik, Inc.
The operating results for this division were included in the Companys results
for the period up to the date of disposal. In September 2003, the Company completed its acquisition of the
outstanding shares of Enact Pharma PLC (Enact), the OFEX traded
biopharmaceutical company and the results of the businesses acquired have been
included in the operating results from this date. Operating Results Year Ended March 31, 2004 Compared to Year Ended March 31, 2003. Total revenues for the fiscal year 2004 increased by £9,749,000 or 87% to
£21,019,000 from £11,270,000, of which the Enact acquisition contributed
£137,000. The growth in revenues was driven by further development of the
markets for the Companys two main products, CroFab and DigiFab. CroFab
contributed sales of £13,194,000, up 55% from fiscal year 2003, whereas
DigiFab generated sales of £5,960,000, including the final milestone due under
the Altana distribution agreement of £318,000, compared to £1,194,000 in fiscal
year 2003. There was an increase in ViperaTab sales from £211,000 to £284,000
after the reduction in fiscal year 2002 which was due to customers holding high
stock levels. Royalty income from Enfer Scientific relating to the BSE testing increased
by £85,000 to £1,362,000 following a small increase in revenues from Europe.
Other revenues amounted to £82,000 as compared to £68,000 in fiscal year 2003. Although product revenues rose 94% from £9,925,000 in fiscal year 2003 to
£19,251,000 in fiscal year 2004, operating costs, including goodwill
amortization of £782,000, in that period rose just 67% from £11,874,000 to
£19,774,000. This resulted in the Company recording an operating profit of
£1,245,000 in fiscal year 2004 compared to an operating loss of £604,000 for
fiscal year 2003. This improvement is the result of an increase in overall
revenues and the continuing drive to reduce manufacturing cost of sales, most
notably CroFab. Cost of sales increased 60% to £9,461,000 for fiscal year 2004 from
£5,920,000 in fiscal year 2003, a rate of increase significantly lower than
product revenues. This is due to a combination of increasing DigiFab sales
which is a significantly higher margin product than CroFab, and continuing 37




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manufacturing improvements which increased both yields and efficiencies in
fiscal year 2004 as compared to fiscal year 2003. The Company has a high proportion of its income derived from the U.S.
markets, where pricing is in U.S. dollars. Manufacturing costs occur
predominantly in pounds sterling and Australian dollars. Currency exposures are
managed by a policy of forward covering of expected revenues for up
to 12 months on a rolling basis. Although it is anticipated that the unit costs of CroFab will
continue to fall during fiscal year 2005, the effects of these improvements on
the operating results of the Company will be counteracted by the effects on
revenues of the weakening U.S. dollar over the past 12 months. In fiscal year 2004, total research and development expenses increased by
£2,077,000 or 131% from £1,591,000 to £3,668,000. The most significant
contributor to this rise was the high levels of research and development
currently being performed on Voraxaze in preparation for the regulatory
submission to the FDA which is planned in fiscal year 2005, along with studies
for the Companys Angiotensin Vaccine, VEGF Immunotherapeutic Vaccine and NQO2
product candidates. Administration expenses, excluding goodwill amortization, for fiscal year
2004 increased by £1,500,000 reflecting a growth in both the existing and
acquired operations of the Company. Goodwill amortization of £782,000 in fiscal
year 2004 arose as a result of the Enact acquisition in June 2003. Interest income for fiscal year 2004 decreased by 46% to £54,000 due to a
combination of lower cash and short term investment balances held by the
Company and reductions in interest rates. Interest expense for fiscal year 2004 increased by 455% to £527,000. The
main factors contributing to this rise represent the interest due on the 6%
Unsecured Convertible Loan Notes issued as the main part of the consideration
for the Enact acquisition, and the additional asset financing secured to expand
the manufacturing capacity of the Company. The tax credit recognized in fiscal 2004 arose from two sources. The tax
credit due from the surrender of tax losses for cash following the incurrence
of qualifying U.K. research and development expenditure amounted to £252,000
although a charge of £62,000 was recognized in respect of adjustments to prior
years. Following the recognition of a deferred tax asset in respect of part of
the trading losses incurred in Australia in fiscal 2003, a similar asset was
recorded in respect of the Companys U.S. operations of £267,000 in fiscal
2004. The directors are of the opinion that, based on recent and forecast
trading, the levels of profit in these territories in the forthcoming years
should lead to a realization of this asset. The equity minority interest credit in fiscal year 2004 reflects the
minority Enact shareholders share of the losses of Enact prior to the purchase
of the final shareholdings. The Companys net profit for the 2004 fiscal year was £1,265,000 compared
to a loss of £238,000 for fiscal year 2003. Year Ended March 31, 2003 Compared to Year Ended March 31, 2002 Total revenues for fiscal year 2003 increased by £3,346,000 or 42% to
£11,270,000 from £7,924,000 for fiscal year 2002, despite fiscal 2002 including
revenues of £963,000 from the CAMD division sold during that year, as the
Company continued to develop the markets for its two key products, CroFab and
DigiFab. CroFab contributed sales of £8,520,000, up 73% from fiscal year
2002, whereas DigiFab generated sales of £1,194,000 compared to £102,000 in
the two months following its launch in fiscal year 2002. There was a small
reduction in revenues generated from ViperaTAb from
£346,000 to £211,000 due to high stocks being carried forward by customers
following the strong sales reported in fiscal year 2002. 38




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Royalty income from Enfer Scientific relating to the BSE testing reduced
by £199,000 to £1,277,000 with increasing revenues from Europe being more than
offset by reductions in the Irish market. It was anticipated that while the
trend of this revenue stream between the Irish and European markets would
continue into 2004, total BSE testing revenue would not be significantly
affected. Other revenues amounted to £68,000 as compared to £100,000 in fiscal
year 2002. Despite an 84% increase in product revenues from £5,385,000 in fiscal year
2002 to £9,925,000 in fiscal year 2003, operating costs in that period rose
just 18% from £10,026,000 to £11,874,000. This resulted in a 71% reduction in
operating loss to £604,000 for fiscal year 2003 from £2,102,000 for fiscal year
2002. The overall decrease was the result of a growth in overall revenues and
a drive to reduce manufacturing costs of sales, most notably CroFab. Cost of sales increased 27% to £5,920,000 for fiscal year 2003 from
£4,649,000 for fiscal year 2002. The growth in cost of sales was significantly
less than the growth in product revenues. The most notable causes of this
related to CroFab. This was due to the high levels of fixed costs associated
with the manufacturing process and continued improvements in yields and
increased efficiencies. In addition, DigiFab is a significantly higher margin
product than CroFab and therefore cost of sales as a proportion of revenues
should fall if sales of this product continue to develop as expected. It was anticipated that the unit cost of CroFab would continue to fall as
a program to increase yields and efficiencies was undertaken. DigiFab was
anticipated to make an increased contribution to the Companys results in
fiscal 2004. In fiscal year 2003, total research and development expenses increased by
£708,000 or 80% to £1,591,000 from £883,000 for the fiscal year 2002. Included
within the expenses for fiscal year 2002 was £588,000 relating to costs
incurred by the CAMD division prior to its disposal in July 2001 and therefore
the increase in research and development expenses for the continuing business
was £1,296,000. The fiscal year 2002 benefited from an exceptional credit of
£674,000 as DigiFab inventory produced prior to product approval by the FDA
was recognized. Up to the date of approval of a product, all inventory
produced is expensed within research and development expenses. On approval,
all inventory associated with the product is capitalized into inventory and
later expensed into cost of goods as the product is sold. The balance of the
increase arose due to the costs associated with the Phase II clinical trials on
the Companys Angiotensin Vaccine product along with increased spending to
develop improvements and efficiencies to the production processes used to
manufacture the Companys products. Administration expenses for fiscal year 2003 decreased by £131,000 or 3%
to £4,363,000 from £4,494,000 for the fiscal year 2002 primarily as a result of
the disposition of the CAMD division in July 2001. Excluding CAMD, the
administration expenses for the continuing business have increased by £181,000,
although this includes a one-time payment of £375,000 made to buy back the
rights for a second tranche of unsecured convertible debentures of up to
£6,500,000 since this financing was considered inappropriate for the Companys
current circumstances. The balance of the movement in continuing
administrative expenses was attributable to continued effort by management to
reduce operating expenses. The profit on sale of discontinued items in fiscal year 2002 was a result
of the sale of the CAMD division in July 2001. There were no dispositions of
assets during fiscal year 2003. Interest income for fiscal year 2003 decreased 28% to £100,000 due to a
combination of lower cash and short term investment balances held by the
Company during the year and reductions in interest rates. Interest expense for fiscal year 2003 decreased 53% to £95,000. This
arose as a result of the conversion of the remaining unsecured convertible
debentures during fiscal year 2002 for which a charge of £104,000 had been
recognized and, therefore, no similar charge was recognized during fiscal year
2003. 39




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The tax credit of £361,000 recognized in fiscal year 2003 arose from two
sources. The first was a £170,000 surrender of tax losses for cash following
the incurrence of qualifying U.K. research and development expenditure. No
similar credit could be claimed for the fiscal year 2002 due to the profits
arising from the sale of the CAMD division. The second source represented a
deferred tax asset recognized on part of the trading losses incurred in
Australia since the directors are of the opinion, based on recent and forecast
trading, that the level of profits in Australia in the forthcoming years should
lead to a realization of this asset. The Companys net loss for the 2003 fiscal year was £238,000 compared to a
net profit of £2,867,000 for fiscal year 2002. Excluding the profit on the sale
of the CAMD division, and the small operating profit on this discontinued
operation, the fiscal year 2002 produced a loss of £2,228,000. As a result of a review of reprocessed product communicated to the Company
by the FDA in August 2003, the Company wrote off certain inventory subsequent
to the publication of its results for the 2003 fiscal year. The write-off of
this inventory, valued at £537,000 at March 31, 2003, was reflected in the
Companys Annual Report for the year to March 31, 2004 as required by generally
accepted accounting principles in the U.K. Differences between U.K. GAAP and U.S. GAAP The Companys net profit/(loss) for the 2004, 2003 and 2002 fiscal years
as reported under U.K. GAAP amounted to £1,265,000, (£238,000) and £2,867,000,
respectively. The Companys net (loss)/profit under U.S. GAAP for the same
years would have been (£10,855,000), (£889,000) and £2,769,000, respectively.
The contributors to these differences were as follows:  
    
    Certain costs related to the development of software which
were capitalized under U.K. GAAP would not meet the criteria for
capitalization under U.S. GAAP. This adjustment had the effect of
increasing the net profit in 2002 under U.S. GAAP by £370,000. This
adjustment had no effect on the results of the Company for fiscal
years 2003 and 2004.  
    
    Under U.S. GAAP, specific criteria are required to be met
regarding sales made with the right of replacement. If these
criteria are not satisfied, revenue related to these sales is
required to be deferred until that replacement privilege lapses.
This difference had the effect of reducing the net profit of the
Company by £3,274,000 in the fiscal year 2004 (increasing the net
loss of the Company by £1,119,000 in the fiscal year 2003 and
reducing the net profit of the Company by £443,000 in the fiscal
year 2002).  
    
    Under U.S. GAAP, in-process research and development acquired
with Enact is separately identified and a fair market value
determined at the date of acquisition. This cost is subsequently
expensed in the fiscal year. The remaining goodwill as determined by
U.S. GAAP is not amortized but is subject to annual impairment
review. The net effect of these adjustments was to reduce the net
profit of the Company by £9,199,000 in the fiscal year 2004. This
adjustment had no effect on the fiscal years 2003 and 2002.  
    
    Under U.S. GAAP, as permitted by statement of Financial
Accounting Standard No. 123, Accounting for Stock-based
Compensation the Company applies Accounting Principles Board
Opinion No. 25 (APB 25), Accounting for Stock Issued to
Employees. Under APB 25, compensation expense resulting from
awards under variable plans is measured as the difference between
the quoted market price of the underlying shares at the date when
the
number of shares of stock are known (the date the performance
conditions are satisfied) and the exercise price; the cost is
recognized over the period the employee performs related services.
Since the ultimate compensation cost is unknown until the performance
conditions are satisfied, estimates of compensation cost are recorded
before the measurement date based 40




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on the quoted market price of the
underlying stock at period end dates where it is probable that the
performance conditions will be attained.The nature of the conditions attached to the stock option awards mean
that management cannot make a reasonable estimate of the number of
shares that will be eventually issued because the company cannot
control the achievement of the conditions. As a consequence, the
compensation expense for the stock awards is recorded when and only
when the options vest and the target is achieved based on the
difference between the exercise price and the market value on that
date.Under U.S. GAAP, an expense of £225,000 has been recognized in the
year ended March 31, 2004. No expense has been recognized in the two
years ended March 31, 2003 since the market value was below the
exercise price of these options  
    
    Financial Accounting Standard No. 133, Accounting for
Derivative Instruments and Hedging Activities was issued in June
1998. This standard, which was effective for fiscal years beginning
after January 1, 2001, requires all derivatives to be recognized in
the balance sheet as either assets or liabilities and measured at
fair value. As a result of adopting FAS No.133, there was a
one-time, unrealized loss of £84,000 (net of tax) to equity
shareholders funds under U.S. GAAP as a cumulative-effect-type
change in accounting principle to recognize the fair value of
derivative instruments held at April 1, 2001. During the year ending
March 31, 2002, the £84,000 was reclassified to current earnings,
which had the same effect as settlement of the instruments under
U.K. GAAP. The Company has not designated any of its derivative
instruments as qualifying hedge instruments under FAS 133 and
accordingly, the Company records changes in the fair value of its
derivative instruments in current earnings. For the years ended
March 31, 2002, March 31, 2003 and March 31, 2004, there is a
difference between U.S. GAAP and U.K. GAAP to record the fair value
of the derivative instruments on the balance sheet at March 31,
2002, March 31, 2003 and March 31, 2004, resulting in a decrease in
profit of £25,000, a decrease in loss of £468,000 and an increase in
profit of £578,000, respectively. Under U.K. GAAP, the Companys shareholders funds on March 31, 2004 and
2003 amounted to £15,293,000 and £10,338,000, while under U.S. GAAP the
balances would have been £2,877,000 and £9,817,000, respectively. The primary
contributors to these differences were the deferral of revenues with right of
replacement, which decreased shareholders funds by £4,238,000 and £964,000 in
2004 and 2003, respectively; the recognition of unrealized gains on forward
foreign exchange contracts of £1,021,000 and £443,000 in 2004 and 2003,
respectively; and, finally, the treatment of in-process research and
development and goodwill which decreased shareholders funds by £9,199,000 and
£nil in 2004 and 2003, respectively. Further discussion of the differences between U.K. and U.S. GAAP
are itemized in note 27 of the financial statements included as item 18 of
this report. Liquidity and Capital Resources The Company has devoted its efforts and resources to drug discovery and
development programs. Capital resources have been used for the establishment
and expansion of production facilities, for product research and development
activities, for clinical testing and to meet the Companys overall increased
working capital requirements. Future capital requirements will depend on
numerous factors, including revenues generated from the sale of CroFab,
DigiFab and Voraxaze, the progress of the
Companys research programs and clinical trials, the development of
regulatory submissions, the commercial viability of the Companys products, the
ability to attract collaborative partners with sales, distribution and
marketing capabilities, and the terms of any new licensing arrangements. 41




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At March 31, 2004, the Company had cash and cash equivalents totaling
£3,307,000. The Companys net cash generated from operating activities during
fiscal year 2004 totaled £639,000, as compared to a net cash outflow of
£1,723,000 from fiscal year 2003. This favorable movement results from the
increased revenues from expanding product sales, most notably CroFab and
DigiFab along with active management of working capital. However, the
acquisition of Enact has led to significant cash outflows in fiscal year 2004
due to the repayment of loans, overdrafts and accounts payable acquired with
the business, transaction costs and the payment of interest on the 6% Loan
Notes issued to the Enact shareholders. Capital expenditures financed by cash reduced 22% to £1,445,000 in fiscal
year 2004 from £1,862,000 in fiscal year 2003. Against these expenditures, the
Company received £611,000 in grants in fiscal year 2004, £550,000 of which was
received from the Welsh National Assembly in relation to the expansion of the
manufacturing facility. Capital expenditures of £1,960,000 are budgeted for fiscal year 2005 in
order to instigate process improvements, advance research and development
projects and to continue expansion of the commercial production capacity
against which the company has secured external financing of in excess of
£800,000 in addition to anticipated receipt of a further £250,000 grant from
the Welsh National Assembly. The Company also has an overdraft facility with
Barclays Bank PLC of up to £2,000,000, which expires on June 30, 2005. There
are no amounts drawn under this facility as of the date of filing. Funds for operating and capital requirements historically have been
provided by the sale of equity and debt and from collaboration agreements and
other financing arrangements. In May 2000, the Company received £5,207,000 net
of expenses from the issue of £5,447,000 aggregate principal amount of
unsecured convertible debentures. Holders of the debentures had the option of
subscribing for a further amount of up to £6,500,000 in the aggregate at any
time before May 23, 2003, although this option was repurchased by the Company
for £375,000 on November 25, 2002. The debentures carried interest at the rate
of 4% per annum and together with accrued interest, were automatically
converted into ordinary shares at the end of a three-year period, if not
redeemed or converted earlier. At March 31, 2003, the entire principal amount
of the debenture and all accrued interest had been converted into 22,423,753
ordinary shares. On June 18, 2003, the Company issued unsecured convertible loan notes to
those Enact shareholders who had accepted the offer from the Company with
additional loan notes being issued with subsequent acceptances. By September
2003, the Company had acquired the entire issued share capital of Enact and
thereby issued loan notes totaling £7,196,000. The loan notes carry interest at
the rate of 6% per annum, payable twice annually in arrears. If not previously
repaid, converted or repurchased, the loan notes will be repaid at par at the
end of a 7-year period. The loan notes are convertible from the earlier of
December 19, 2004, at 25p per ordinary share or such date that the Company has
received FDA marketing approval for Voraxaze. The terms of the loan notes
permit the Company to repurchase the loan notes at any time by tender
(available to all holders alike) or by privately negotiated transactions with
individual holders at any price. In parallel with the offer made to acquire Enact, the Company raised an
additional £2,351,000 net of expenses through a fully underwritten Cash Placing
and Open Offer of new ordinary shares which was used to provide additional
working capital for the enlarged Company and repay indebtedness of the acquired
company. In August 2004, the Company raised an additional £9,300,000 net of
anticipated expenses through a fully underwritten Cash Placing and Open Offer
of new ordinary shares which is to be used to
fund the following projects: pre-marketing initiatives prior to the
regulatory submissions for Voraxaze in the U.S. and Europe and the subsequent
establishment of small sales forces in both Europe and the US; further
development of the antibody manufacturing process to allow further cost
reductions in the manufacture of CroFab, and qualification of an additional
filling and freeze drying contractor. 42




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Management estimates that these cash resources, together with anticipated
revenues from product sales and expected royalty payments will be sufficient to
fund operations for at least the next twelve months. The principal source of
liquidity in this period will be the anticipated revenues. Managements
estimate of product sales are based primarily on orders for CroFab and
DigiFab currently received under its U.S. distribution agreement, which
provides for orders to be made 12 months in advance of shipment. The Companys
ability to fully supply orders will depend, in part, on its ability to maintain
its current manufacturing capacity, the ability of its third party contractors
to fill and ship orders on a timely basis, and may be subject to other market
and operating risks described herein under Item 3. Key Information  Risk
Factors. The Companys financial instruments comprise borrowings, some cash and
liquid resources, forward foreign currency contracts and various items, such as
trade receivables and trade payables that arise directly from its operations. It is, and has been throughout the period under review, the Companys
policy that no speculative trading in derivative financial instruments shall be
undertaken. Gains and losses from movements in foreign currencies were
significant in the fiscal year 2004, although these were largely mitigated by
forward foreign exchange contracts entered into by the Company. There remains
potential for significant impact on the results of the Company from exchange
rate movements over the longer term. This arises from the main markets for the
Companys approved products being in the U.S. and therefore priced in U.S.
Dollars, while manufacturing costs are incurred in British Pounds Sterling and
Australian Dollars. For further discussion, see Item 11. Quantitative and
Qualitative Disclosures about Market Risk. Contractual Obligations and Commercial Commitments The Companys debt and lease payment commitments at March 31, 2004 are
illustrated below. Less than
    
    Between 1
    
    Between 2
    
    Over 5Total
    
    1 year
    
    and 2 years
    
    and 5 years
    
    years£000
    
    £000
    
    £000
    
    £000
    
    £000Long-Term Debt
    
    
    7,812
    
    
    
    500
    
    
    
    229
    
    
    
    
    
    
    
    7,083Capital Lease Obligations
    
    
    1,915
    
    
    
    456
    
    
    
    448
    
    
    
    1,011
    
    
    
    Operating Leases
    
    
    1,850
    
    
    
    594
    
    
    
    449
    
    
    
    807
    
    
    
    Unconditional purchase
obligations
    
    
    378
    
    
    
    378
    
    
    
    
    
    
    
    
    
    
    
    
 Net Operating Loss Carryforwards The tax credits in fiscal years 2003 and 2001 have risen as a result of
research and development expenditure claimed under the Finance Act 2000. In
addition, a deferred tax asset of £191,000 in respect of the operating losses
incurred in Australia has been recognized in fiscal year 2003 and £267,000 in
respect of the operating losses incurred in the U.S., since it is the
directors opinion based upon recent and forecast trading that the level of
profits in both Australia and the US in the forthcoming years will lead to the
realization of these assets. At March 31, 2004, the Company had tax losses,
subject to the agreement of the Taxation Authorities, of approximately £68
million (2003: £70 million) available for offset against future taxable profits
of the same trade. Of these losses, approximately £23 million (2003: £34
million)
relates to net operating losses of Protherics Inc., the use of £13 million
is restricted to $1.5 million (£0.8 million) per year. 43




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Recently Issued Accounting Pronouncements In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities.FIN 46 was subsequently clarified
and modified by FIN 46(R) in December 2003. FIN 46 clarifies the application of
Accounting Research Bulletin No. 51, Consolidated Financial Statements, to
certain entities in which the equity investors do not have the characteristics
of a controlling financial interest or do not have sufficient equity at risk
for the entity to finance its activities without additional subordinated
financial support from other parties. FIN 46 applies immediately to variable
interest entities created after January 31, 2003. For variable interests
acquired before February 1, 2003, FIN 46 is effective for the Company starting
April 1, 2004. Management does not expect the adoption of FIN 46 to have a
material effect on the Companys results of operations and financial position. In December 2003, the FASB issued FIN 46(R), Consolidation of Variable
Interest Entities. FIN 46(R), replaces FIN 46 and clarifies the accounting for
interests in variable interest entities. Management does not expect the
adoption of FIN 46(R) to have a material effect on the Companys results of
operations and financial position. In May 2003, the FASB issued SFAS No. 150 (SFAS 150), Accounting For
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity. The statement improves the accounting for certain financial instruments
that, under previous guidance, issuers could account for as equity and requires
that these instruments be classified as liabilities in statements of financial
position. This statement is effective prospectively for financial instruments
entered into or modified after May 31, 2003 and, otherwise, is effective at the
beginning of the first interim period beginning after June 15, 2003. This
statement shall be implemented by reporting the cumulative effect of a change
in an accounting principle for financial instruments created before the
issuance date of the statement and still existing at the beginning of the
interim period of adoption. The adoption of SFAS 150 has not, to date, had any
significant impact on the Companys results of operations and financial
position. In December 2003, the FASB issued SFAS No. 132 (Revised 2003), Employers
Disclosures about Pensions and Other Post-Retirement Benefits,which is
effective, subject to certain exemptions, for fiscal years ending on or after
December 23, 2003. The adoption of SFAS 132 has not, to date, had any
significant impact on the Companys results of operations and financial
position. In May 2003, the Emerging Issues Task Force (EITF) issued Issue No.
01-08, Determining Whether an Arrangement Contains a Lease. EITF Issue 01-08
provides guidance in determining whether an arrangement should be considered a
lease subject to the lease accounting and disclosure guidance of FASB Statement
No. 13, Accounting for Leases. The provisions of EITF Issue 01-08 apply to both
potential lessors and lessees that have agreed or committed to arrangements,
modified arrangements, or acquired arrangements in business combinations
initiated after the beginning of the reporting period following May 28, 2003.
The adoption of EITF Issue 01-08 did not have a material impact on the
Companys results of operations and financial position. In May 2003, the FASB EITF published Issue 00-21, Revenue Arrangements
with Multiple Deliverables. EITF 00-21 addresses certain aspects of the
accounting by a vendor for arrangements under which it will perform multiple
revenue generating activities. The Issue is effective for revenue arrangements
entered into for fiscal periods beginning after June 15, 2003. Although the
Company currently is evaluating the impact of this new guidance, it is not
expected to have a material impact on its accounting treatment of multiple
element contracts under U.S. GAAP. At its November 2003 meeting, the EITF reached a consensus on disclosure
guidance previously discussed under EITF 03-01, The Meaning of Other-Than-
Temporary Impairment and Its Application to Certain Investments. The consensus
provided for certain disclosure requirements that were effective for
fiscal years ending after December 15, 2003. At its March 2004 meeting,
the EITF reached a consensus on recognition and measurement guidance previously
discussed under EITF 03-01. The consensus clarifies the meaning of other-than-
temporary impairment and its application to investments classified as 44




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either
available-for-sale or held-to-maturity under FASB Statement No. 115, Accounting
for Certain Investments in Debt and Equity Securities, and investments
accounted for under the cost method or the equity method. The recognition and
measurement guidance for which the consensus was reached in the March 2004
meeting is to be applied to other-than-temporary impairment evaluation in
reporting periods beginning after June 15, 2004. Although the Company currently
is evaluating the impact of this new guidance, it is not expected to have a
material impact on its accounting treatment of multiple element contracts under
U.S. GAAP. Application of Critical Accounting Policies Critical accounting policies applied by the Company under U.K. GAAP are: Turnover- Turnover represents amounts receivable in respect of the sale
of goods and services, license agreements and intellectual property to
customers during the year, net of trade discounts given and value added tax.
Turnover is partly recognized upon the shipment of products to the distributor
with further amounts being recognized in accordance with the contractual terms
upon the shipment to the end user. All other income is recognized on a
receivable basis. Certain sales of the Companys DigiFab product include a right of
replacement. Under U.S. GAAP, FASB 48 Revenue Recognition when Right of
Return Exists indicates that an absence of historical experience with similar
types of sales of similar products may impair the ability to make a reasonable
estimate of returns. Because DigiFab is a relatively new product, there is an
absence of historical experience for these sales, and therefore all revenue
related to sales that include a right of replacement has been deferred under
U.S. GAAP until the replacement privilege expires. The Company has a policy of holding forward foreign exchange contracts to
hedge operating cash flows denominated in currencies other than British pounds
sterling. Where the revenue denominated in a currency other than pounds
sterling is the subject of a hedged instrument, turnover is recognized at the
hedged rate. Deferred taxation -Deferred tax is provided in full on timing differences
which result in an obligation at the balance sheet date to pay more tax, or a
right to pay less tax, at a future date, at rates expected to apply when they
crystallize based on current tax rates and law. Timing differences arise from
the inclusion of income and expenditure in taxation computations in periods
different from those in which they are included in financial statements.
Deferred tax is not provided on unremitted earnings of subsidiaries and
associates where there is no commitment to remit these earnings. Deferred tax
assets are recognized to the extent that it is regarded as more likely than not
they will be recovered. Deferred tax assets and liabilities are not discounted. The Companys opinion is that the trading projections do not satisfy the
definition of the relevant U.K. Accounting Standards to enable it to recognize
deferred tax assets for its U.K. operations at March 31, 2004. In the event
that trading projection would satisfy the definition of the relevant U.K.
Accounting Standards, these assets could be recognized and credited to income
in the period such determination was made. Research and development stocks- Research and development stocks are
fully provided for in the profit and loss account for the year in which they
are purchased or manufactured, and are reinstated as appropriate in the year in
which the related products are brought into commercial use. Goodwill- Goodwill arising on the acquisition of subsidiary undertakings
and businesses, representing any excess of the fair value of the consideration
given over the fair value of the identifiable
assets and liabilities acquired, is capitalized and written off on a
straight line basis over its useful economic life. Provision is made for any
impairment. 45




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Research and Development, Patents and Licenses, etc. For a discussion of the Companys research and development activities, see
Item 4. Information on the CompanyProducts and Intellectual Property,
Patents and Trademarks. The Companys research and development expenditure for fiscal years ended
2004, 2003 and 2002 was £3,668,000, £1,591,000, and £883,000, respectively. Trend Information Although revenues from sales of CroFab have been included for the full
twelve months of results for fiscal years 2002, 2003 and 2004, unexpected
production delays at the Companys third party supplier of filling and
freeze-drying services at the end of fiscal year 2002 prevented the Company
from fully supplying purchase orders during the year. In fiscal year 2003,
CroFab, due to be released at the end of the fiscal year, was released at the
beginning of fiscal year 2004. The Company anticipates further growth in
forthcoming years as the market expands for milder bites, however this is not
anticipated in fiscal 2005. DigiFab was approved by the FDA in August 2001 with revenues commencing
in February 2002 and therefore fiscal years 2003 and 2004 include full 12
months results for DigiFab. The Company anticipates that it may also generate
revenues from sales of DigiFab in Europe in future years, assuming that the
product obtains regulatory approval in Europe, which could occur in fiscal year
2006. Advance orders of CroFab and DigiFab for fiscal year 2005 remain in line
with expectations. The Company has commenced investment in its manufacturing
facilities to increase production of both products in order to meet future
demand, although its ability to do so will depend, to a great extent, on the
Companys ability to complete its manufacturing capacity enhancement plans and
the ability of its filling and freeze-drying contractor to meet scheduled
shipment dates. The Company has a high proportion of its income derived from the U.S.
markets, where pricing is in U.S. dollars although a major proportion of its
manufacturing costs are in pounds sterling and Australian dollars. The Company
manages its currency exposures by a policy of forward covering of expected
revenues for up to twelve months on a rolling basis. During fiscal year 2004,
the U.S. dollar declined in value against sterling by 17% and therefore the
effective exchange rate which will be achieved in the forthcoming fiscal year
under the hedging policy adopted will be adverse to that achieved in fiscal
year 2004. This will have the effect of reducing the per unit value of product
shipments as measured in pounds sterling in fiscal year 2005 compared to fiscal
year 2004. It is the Companys aim to make further cost reductions in the
manufacturing process and to implement modest selling price increases in U.S.
dollars in order to mitigate the negative effects of the weak dollar. However,
there can be no assurance that the Company can fully compensate for the effects
of continued U.S. dollar weakness on its results. The Company has recorded a significant increase in research and
development expenditures during fiscal year 2004 in order to advance its
products in development and to seek regulatory approval for Voraxaze. This
increase is anticipated to continue during fiscal year 2005 as the Company
continues to seek regulatory approval for Voraxaze and invests in improvements
to the manufacturing process in order to reduce future cost of goods. Research
and development expenditures would be funded by, and dependent on, anticipated
increased product revenues during fiscal year 2005 and the fundraising
completed in August 2004. The acquisition of Enact in June 2003 has lead to increased interest
expense relating to the unsecured convertible loan notes issued to Enact
shareholders and to a significant amortization charge on
the goodwill created by the acquisition. The charge in fiscal year 2004
represented the period from acquisition to the year end whereas cost in future
years reflect the full period cost. 46




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A further purpose of the fundraising in August 2004 was to commence
pre-marketing initiatives and to build small sales forces in both Europe and
the U.S. Consequently, this will lead to increases in administration costs. 
 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Directors and Senior Management The following table sets forth information as of August 31, 2004 about the
directors and executive officers of the Company. Name
    
    Age
    
    Position within the CompanyExecutiveAndrew John Heath, M.D., Ph.D.
    
    
    56
    
    
    Chief Executive Officer and DirectorBarrington Marshall Riley, BA, FCA
    
    
    55
    
    
    Finance Director and DirectorJames Campbell Christie, BSc., MBA
    
    
    46
    
    
    Operations Director and DirectorNon-ExecutiveStuart Michael Wallis, FCA, ATII(1)(2)(3)
    
    
    58
    
    
    ChairmanDavid Whitnall Gration, FRPharmS(1)(2)(3)
    
    
    65
    
    
    Deputy ChairmanAnthony Atkinson, BSc., Ph.D, FIIB, FIoN
    
    
    59
    
    
    DirectorGarry Watts, FCA(1)(2)(3)
    
    
    47
    
    
    DirectorJohn Robert Brown, Ph.D, MBA(1)(2)(3)
    
    
    49
    
    
    Director
   (1)
    
    Member of Nomination Committee.(2)
    
    Member of Remuneration Committee(3)
    
    Member of Audit Committee Andrew John Heath, M.D., Ph.D.is the Chief Executive Officer of the
Company. Dr. Heath holds a science degree from the University of London and an
M.D. from Swedens Gothenburg University. He has considerable experience in
the pharmaceutical industry with Glaxo Inc. and Astra USA, Inc. From 1993
until 1996, he was responsible for more than 500 sales and marketing
professionals for Astra U.S. as Vice President Marketing and Sales. In that
post, he had profit and loss responsibility for Astra United States
pharmaceutical portfolio. He served as Chief Executive Officer at AeroGen,
Inc., a privately held drug delivery company, from 1996 until 1998. Dr. Heath
joined Therapeutic Antibodies as a director, Vice Chairman of the Board and
Chief Executive Officer in March 1998 and became Chief Executive Officer of the
Company when Therapeutic Antibodies merged with the Company in September 1999. Barrington Marshall Riley, B.A., F.C.A. is Finance Director for the
Company. Mr. Riley was previously a divisional finance and administration
manager and the company secretary of the U.K. operations of FMC Corporation,
the Chicago-based group. Mr. Riley joined the Company in April 1995 and was
appointed to the Board of the Company in July 1995. James Campbell Christie, B.Sc., M.B.A.is Operations Director for the
Company. He has management responsibility for process development,
manufacturing quality assurance and information technology at the Companys
Australian operations and its manufacturing facility in Wales. Mr. Christie
joined the Board of the Company in September 1999, having previously held the
position of Senior Vice President - Research and Development Administration of
Therapeutic Antibodies. From 1995 to 1998, Mr. Christie was Director of
Operations at Centocor BV, a subsidiary of Centocor Inc., a United States
biopharmaceutical company. He has extensive experience in taking products from
research and
development stages to market and has particular knowledge in the
production of biological pharmaceutical products. Stuart Michael Wallis, F.C.A., A.T.I.I.serves as Chairman of the Company.
He was previously the Chief Executive Officer of Fisons plc and is currently
Chairman of Trident Components Group 47




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##### Table of Contents



Limited, The Simply Smart Group Limited
and is a Director of Euramax International Inc. He became Chairman of
Therapeutic Antibodies in September 1998 and became Chairman of the Company
when Therapeutic Antibodies merged with the Company in September 1999. David Whitnall Gration, F.R.Pharm.Sis the Deputy Chairman of the Company.
Mr. Gration was Executive Chairman of the Company from August 1996 to
September 1999, when he stepped down to a non-executive position. He is also
the executive chairman of SRS Technology Group PLC and a non-executive director
of Avicenna plc. He has over thirty years experience in the pharmaceutical
industry, having held senior positions at The Boots Company PLC, Wyeth
Laboratories Ltd and Celltech Group Plc. Anthony Atkinson, BSc., Ph.D, FIIB, FIoNis Chief Scientific Officer of
the Company. Dr. Atkinson joined the Board in June 2003 as Chief Scientific
Officer following the Companys acquisition of Enact, for which he had been
Chief Executive Officer. On April 22, 2004 he resigned as Chief Scientific
Officer and was appointed non-executive director. Dr. Atkinson was previously
a main board consultant to Biogen, Schering Plough and Dupont de Nemours. Garry Watts, FCAis currently the Chief Executive Officer of SSL
International PLC, having previously held the position of Finance Director and
Managing Director for Europe. He is also a non-executive director of the
Medicines and Healthcare Products Regulatory Agency (MHRA), where he chairs the
Audit and Risk Committee. Previously, he held executive directorships at
Celltech Group plc and Medeva plc. He is a Chartered Accountant and was
previously a partner with KPMG, leading the U.K. healthcare and life science
practice. John Robert Brown, Ph.D, MBAwas previously the Chief Executive Officer of
Acambis PLC having previously held the position of Finance Director. Before
joining Acambis, he was Head of Research at Sutherland and Partners and also
worked at PA Consulting. He is currently also the Chairman of the Roslin
Institute and a non-executive director of Pharmagene PLC. Michael Gatenby, formerly a non-executive director of the Company,
resigned on February 12, 2004. Martin Brown and Michael Peagram, also formerly
non-executive directors of the Company, both resigned on April 16, 2004. There are no family relationships among the directors. There are no
arrangements or understandings with major shareholders, customers or suppliers
or others pursuant to which any person was selected to serve as a director or
senior manager. Compensation For information relating to compensation, stock options and pension
benefits, see Note 5 of the Notes to the Consolidated Financial Statements
included herein at Item 17. The Company operates a cash bonus scheme for
executive directors based on the performance of each director, having regard to
key business issues. The Remuneration Committee oversees the bonus scheme and
has discretion to make additional payments if circumstances justify them.
Bonuses are not pensionable. Board Practices The Board currently has three executive directors and five non-executive
directors. Although non-executive directors are not appointed for specific
terms, the Companys Articles of Association require directors to stand for
re-election at least every three years. 48




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##### Table of Contents



Executive Directors of Protherics- The following executive Directors of
Protherics have entered into service contracts with the Company, the details of
which are as follows: Date of
    
    
    
    
    
    Notice period due fromDirector
    
    Agreement
    
    Annual salary
    
    the Company
    
    the DirectorA. Heath
    
    November 6, 2001
    
    £
    105,150
    
    
    12 months
    
    12 monthsU.S. $
    108,000B.M. Riley
    
    July 13, 1995
    
    £
    130,000
    
    
    12 months
    
    6 monthsJ.C. Christie
    
    September 21, 2000
    
    £
    116,000
    
    
    12 months
    
    6 months
 Upon serving or receiving notice, the Company has the right at its
discretion to pay salary in lieu of notice. There are no other provisions for
compensation payable upon early termination of the service contracts. The
executive directors of Protherics are also entitled to the following benefits:
private medical insurance for themselves and their immediate families, long
term disability insurance, and payment of professional memberships and
subscriptions. In addition, the Group makes contributions to a defined
contribution pension scheme of 10 percent of salary in the case of Messrs.
Riley and Christie. In the case of Dr. Heath, the Group made pension
contributions of 15 percent of his U.K. salary plus an additional £44,850 per
annum, in addition to a maximum of $16,245 of his U.S. salary. Messrs. Riley
and Christie have elected to take a cash alternative to the fully expensed
automobile to which their contract entitles them. The Group also has a bonus
scheme under which the remuneration committee may award the executive directors
of Protherics bonuses, which in the case of Messers Heath, Riley and Christie
were up to 50, 30 and 25 percent of salary. Termination of the contracts
requires six months notice by the employee and twelve months notice by the
Company, with the exception of Dr. Heath, where the notice periods are twelve
months from either party. Except as set out above, there are no existing or proposed service
contracts between the executive directors and any member of the Group. There are no provisions within the directors service contracts that
provide for any benefit to accrue to any executive director upon termination of
employment, except that salary may be paid in lieu of notice. Non-executive Directors of Protherics- Under an appointment letter dated
September 13, 1999, as amended by a letter dated October 31, 2001, Mr. Gration
received director fees of £27,500 during the year ended March 31, 2004. The
Company provides life insurance and permanent health insurance. The
appointment is terminable with 12 months notice by either party. Pursuant to a consultancy agreement dated September 1, 1998, and
subsequently amended by agreement, Mr. Wallis received £35,000 during the year
ended March 31, 2004. The agreement is terminable by 12 months notice from
either party. In addition, Mr. Wallis received £35,000 during the year for his
services as Chairman of the Board under a letter of agreement dated September
1, 1998, subsequently amended by agreement. The letter agreement is terminable
by either party on 12 months notice. The Group has also provided a fully
expensed automobile to Mr. Wallis. Mr. Watts has a letter of appointment dated January 19, 2004 under which
he receives £24,000 per annum, of which he received £4,000 in the period from
his appointment to March 31, 2004. The appointment is terminable by either
party on 3 months notice. Mr. J.R. Brown has a letter of appointment dated February 23, 2004 under
which he receives £21,000 per annum, of which he received £1,750 in the period
from his appointment to March 31, 2004. The appointment is terminable by either
party on 3 months notice. Dr. Atkinson became an executive director of the Company following the
Enact acquisition in June 2003. For his services to Enact, Dr. Atkinson
received total remuneration of £91,000 per year paid 49




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##### Table of Contents



as salary and as a consultancy fee to Chimaeron Limited, a company in
which Dr. Atkinson has an interest. In fiscal year 2004 after the acquisition
of Enact, Dr. Atkinsons remuneration was amended to £20,000 salary and £96,000
consultancy fee to Chimaeron Limited. On April 22, 2004, Dr. Atkinson resigned
his position as Chief Scientific Officer and was appointed a non-executive
director of the Company. Under a letter of appointment dated September 6,
2004, he receives £21,000 per annum. The appointment is terminable by either
party on 3 months notice. In addition, Chimaeron Limited is contracted to
provide consultancy services under an agreement dated
September 27, 2004. Under this agreement, Chimaeron Limited will receive a total of
£114,333 over the period from May, 1 2004 to September 30, 2005. Audit Committee. The Audit Committee is comprised of Messrs. Wallis,
Gration, Watts and J.R. Brown. The Audit Committee monitors the adequacy of
the Groups internal controls, reviews accounting policies and financial
reporting and discusses with the auditors the proposed audit program and the
results of the audit of the Companys financial statements. The Audit
Committee is chaired by Mr. Watts who replaced Mr. Gatenby during fiscal year
2004. Remuneration Committee. The Remuneration Committee is comprised of
Messrs. Wallis, Gration, Watts and J.R. Brown. The Remuneration Committee
meets at least once a year to review the Companys policy on directors
remuneration. The Remuneration Committee evaluates the performance of the
executive directors and other senior employees and advises the board regarding
their annual remuneration package. The Remuneration Committee is chaired by
Mr. Gration. Nomination Committee.The Nomination Committee has been established to
recommend the appointment of new directors to the Board. The Nomination
Committee is comprised of Messrs. Wallis, Gration, Watts and J.R. Brown. The
Nomination Committee is chaired by Mr. Wallis. Employees The number of persons, including directors, employed by the Company as of
March 31, 2004, and August 31, 2004, broken down by activity and geographic
location is shown below. U.K.
    
    U.S.
    
    AustraliaMarch 31
    
    Aug 31
    
    March 31
    
    Aug 31
    
    March 31
    
    Aug 31Management
    
    
    27
    
    
    
    27
    
    
    
    1
    
    
    
    1
    
    
    
    4
    
    
    
    4Administration
    
    
    18
    
    
    
    15
    
    
    
    3
    
    
    
    4
    
    
    
    3
    
    
    
    2Research and production
    
    
    113
    
    
    
    111
    
    
    
    6
    
    
    
    7
    
    
    
    44
    
    
    
    40Total
    
    
    158
    
    
    
    153
    
    
    
    10
    
    
    
    12
    
    
    
    51
    
    
    
    46
 Briefing and consultative procedures exist throughout the Company to keep
employees informed on general business issues and other matters of concern.
The Company has a policy of offering share options to all eligible employees,
subject to availability under the option plan rules. None of the Companys
U.S. employees are subject to a collective bargaining agreement, and the
Company has never experienced a work stoppage. The Company has made every effort to ensure that the principal members of
its management and research team are suitably incentivized, but the retention
of such staff cannot be guaranteed, and the loss of their services could
materially adversely affect the ability of the Company to achieve its planned
development objectives. 50




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##### Table of Contents



Share Ownership The following table sets forth, for each director or senior executive of
the Company, their interest in the ordinary shares of the Company (including
the interests of their immediate families and persons connected with them) and
the percentage of the Companys outstanding share capital represented by such
ownership interests as of August 31, 2004. Ordinary
    
    
    
    
    
    6% ConvertibleName
    
    shares owned
    
    Percentage
    
    Loan Notes (£)S.M. Wallis
    
    
    503,724
    
    
    
    0.220
    
    
    
    60,606A.J. Heath
    
    
    346,498
    
    
    
    0.152
    
    
    
    24,242D.W. Gration
    
    
    47,234
    
    
    
    0.021
    
    
    
    B.M. Riley
    
    
    30,019
    
    
    
    0.013
    
    
    
    15,151J.C. Christie
    
    
    1,343
    
    
    
    0.001
    
    
    
    A. Atkinson
    
    
    
    
    
    
    
    
    
    
    682,162G. Watts
    
    
    
    
    
    
    
    
    
    
    J.R. Brown
    
    
    
    
    
    
    
    
    
    
    
 The 6% Loan Notes are convertible into ordinary shares at 25p per ordinary
share from December 19, 2004. Share Options and Warrants Granted in Protherics PLC The Company operates an approved share option scheme, an unapproved share
option scheme and an approved savings related share option scheme for executive
directors and employees to motivate those individuals through equity
participation in the Company. A separate option scheme was set up for the
benefit of certain former Therapeutic Antibodies employees at the time of the
1999 merger. The Company has also granted individual unapproved options. The schemes are overseen by the Remuneration Committee which determines
the terms under which eligible individuals may be invited to participate. 51




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##### Table of Contents



The table below sets forth the details of the Companys outstanding share
options as of August 31, 2004. At April 1,
    
    
    
    
    
    
    
    
    
    Cancelled
    
    At August 31,
    
    ExerciseDate exercisable
    
    2003
    
    Granted
    
    Exercised
    
    Or expired
    
    2004
    
    price (p)Individual unapproved22 Dec 2002 to 21 Dec 2009
    
    
    600,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600,000
    
    
    
    39.009 July 2002 to 8 July 2010
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    40.009 July 2002 to 8 July 2010
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    25.009 July 2002 to 31 May 2007
    
    
    3,850
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,850
    
    
    U.S.$
    6.00Approved scheme21 July 1997 to 20 July 2004
    
    
    23,535
    
    
    
    
    
    
    
    
    
    
    
    23,535
    
    
    
    
    
    
    
    154.6625 July 1998 to 24 July 2005
    
    
    52,955
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,955
    
    
    
    68.8328 Jan 2003 to 27 Jan 2010
    
    
    64,475
    
    
    
    
    
    
    
    
    
    
    
    928
    
    
    
    63,547
    
    
    
    37.5028 Feb 2004 to 27 Feb 2011
    
    
    343,000
    
    
    
    
    
    
    
    5,000
    
    
    
    10,000
    
    
    
    328,000
    
    
    
    43.50Unapproved scheme19 July 1999 to 18 July 2003
    
    
    248,250
    
    
    
    
    
    
    
    
    
    
    
    248250
    
    
    
    
    
    
    
    66.6620 Aug 1999 to 19 Aug 2003
    
    
    87,110
    
    
    
    
    
    
    
    
    
    
    
    87,110
    
    
    
    
    
    
    
    57.4023 Jan 2001 to 22 Jan 2004
    
    
    297,646
    
    
    
    
    
    
    
    296,646
    
    
    
    1,000
    
    
    
    
    
    
    
    41.6620 Jan 2001 to 19 Jan 2004
    
    
    6,751
    
    
    
    
    
    
    
    
    
    
    
    6,751
    
    
    
    
    
    
    
    76.8422 June 2001 to 21 June 2008
    
    
    275,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    275,000
    
    
    
    46.0023 Dec 2001 to 22 Dec 2005
    
    
    10,305
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,305
    
    
    
    45.0022 Dec 2002 to 21 Dec 2009
    
    
    540,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    540,000
    
    
    
    39.0027 Jan 2003 to 26 Jan 2010
    
    
    87,909
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,909
    
    
    
    37.502 Aug 2003 to 1 Aug 2010
    
    
    2,908
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,908
    
    
    
    28.5022 Feb 2004 to 21 Feb 2011
    
    
    1,430,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,430,000
    
    
    
    43.5016 Jan 2005 to 15 Jan 2012
    
    
    2,369,000
    
    
    
    
    
    
    
    
    
    
    
    11,000
    
    
    
    2,358,000
    
    
    
    39.509 July 2005 to 8 July 2012
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    25.0014 Jan 2006 to 13 Jan 2013
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    21.0020 Jun 2006 to 19 Jun 2013
    
    
    
    
    
    
    1,250,000
    
    
    
    
    
    
    
    40,000
    
    
    
    1,210,000
    
    
    
    23.2524 Jun 2006 to 23 Jun 2013
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    23.001 Mar 2007 to 28 Feb 2014
    
    
    
    
    
    
    1,240,000
    
    
    
    
    
    
    
    
    
    
    
    1,240,000
    
    
    
    58.501 Mar 2009 to 28 Feb 2014
    
    
    
    
    
    
    325,000
    
    
    
    
    
    
    
    
    
    
    
    325,000
    
    
    
    58.50Savings related options1 Oct 2003 to 31 Mar 2004
    
    
    47,260
    
    
    
    
    
    
    
    47,260
    
    
    
    
    
    
    
    
    
    
    
    36.501 Apr 2003 to 31 Oct 2003
    
    
    75,426
    
    
    
    
    
    
    
    11,883
    
    
    
    63,543
    
    
    
    
    
    
    
    37.501 Apr 2005 to 31 Oct 2005
    
    
    96,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    96,300
    
    
    
    37.50Protherics PLC option plan
for ex-Therapeutic Antibodies employees27 Jan 2000 to 29 June 2008
    
    
    166,222
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166,222
    
    
    
    156.0 to 312.07,467,902
    
    
    
    2,845,000
    
    
    
    360,789
    
    
    
    492,117
    
    
    
    9,459,996
 At March 31, 2004, there were no unexercised warrants (2003: 887,008;
2002: 887,008) for ordinary shares, however there are unexercised warrants for
932,500 ordinary shares in Enact Pharma PLC, a company acquired during the
current year, which expire between December 31, 2004 and July 9, 2012 and are
exercisable at prices between 25p and 60p per share. Should these be exercised,
the company is entitled to repurchase these shares by issuing £17.05 6%
convertible loan notes (6% Loan Notes) per 100 Enact Pharma PLC ordinary
shares. The Loan Notes are convertible at 25p per ordinary share from the
earlier of December 19, 2004, or such date that the Company has received FDA
marketing approval for Voraxaze. The terms of the Loan Notes permit the
Company to repurchase the Loan Notes at any time by tender (available to all
holders alike) or by privately negotiated transactions with individual holders
at any price. 52




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##### Table of Contents



Options Granted to Therapeutic Antibodies former employees and consultants In addition, as at March 31, 2004, options over up to 546,197 ordinary
shares (2003: 577,714; 2002: 577,714) previously held under the Therapeutic
Antibodies 1990 Stock Option Plan are held by former employees and consultants
of Therapeutic Antibodies Inc. Option prices range from $3.87 to $6.99 per
share and may be exercised at various dates until December 15, 2006. M. Brown Options In addition to the above, former director M. Brown holds options over
46,520 ordinary shares at $3.86 per share and 104,670 Protherics PLC ordinary
shares at $5.15 per share under the Therapeutic Antibodies 1990 plan. Share Options in Enact Pharma PLC In addition to the above, options over 527,602 ordinary shares in Enact
Pharma PLC, a company acquired in the current year, may be exercised at 20p per
Enact Pharma PLC ordinary share between January 9, 2005, and January 8, 2012.
Should these be exercised, the Company is entitled to repurchase these shares
by issuing £17.05 principal amount of its 6% Loan Notes per 100 Enact Pharma
PLC ordinary shares. The terms of these Loan Notes are disclosed above. 53




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##### Table of Contents



Share Options held by Directors of Protherics PLC Details of share options granted to directors are set forth in the table below
as of August 31, 2004. At April 1,
    
    
    
    
    
    
    
    
    
    
    
    
    
    At August
    
    Exercise
    
    Exercisable2003
    
    Granted
    
    Exercised
    
    Cancelled
    
    31, 2004
    
    Price (p)
    
    From
    
    ToApproved optionsB M Riley
    
    
    52,955
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,955
    
    
    
    68.83
    
    
    25 Jul 1998
    
    24 Jul 2005Unapproved optionsD W Gration
    
    
    87,110
    
    
    
    
    
    
    
    
    
    
    
    87,110
    
    
    
    
    
    
    
    57.40
    
    
    20 Aug 1999
    
    19 Aug 2003D W Gration
    
    
    129,620
    
    
    
    
    
    
    
    129,620
    
    
    
    
    
    
    
    
    
    
    
    41.66
    
    
    23 Jan 2001
    
    22 Jan 2004D W Gration
    
    
    90,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,000
    
    
    
    46.00
    
    
    22 Jun 2001
    
    21 Jun 2008B M Riley
    
    
    78,011
    
    
    
    
    
    
    
    
    
    
    
    78,011
    
    
    
    
    
    
    
    66.66
    
    
    19 Jul 1999
    
    18 Jul 2003B M Riley
    
    
    72,011
    
    
    
    
    
    
    
    72,011
    
    
    
    
    
    
    
    
    
    
    
    41.66
    
    
    23 Jan 2001
    
    22 Jan 2004B M Riley
    
    
    65,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,000
    
    
    
    46.00
    
    
    22 Jun 2001
    
    21 Jun 2008B M Riley
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    39.00
    
    
    22 Dec 2002
    
    21 Dec 2009B M Riley
    
    
    120,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,000
    
    
    
    43.50
    
    
    22 Feb 2004
    
    21 Feb 2011B M Riley
    
    
    350,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    350,000
    
    
    
    39.50
    
    
    16 Jan 2005
    
    15 Jan 2012B M Riley
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    23.25
    
    
    20 Jun 2006
    
    19 Jun   2013B M Riley
    
    
    
    
    
    
    225,000
    
    
    
    
    
    
    
    
    
    
    
    225,000
    
    
    
    58.50
    
    
    1 Mar 2007
    
    28 Feb 2014A Atkinson
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    23.25
    
    
    20 Jun 2006
    
    19 Jun   2013A Atkinson
    
    
    
    
    
    
    135,000
    
    
    
    
    
    
    
    
    
    
    
    135,000
    
    
    
    58.50
    
    
    1 Mar 2007
    
    28 Feb 2014J C Christie
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    39.00
    
    
    22 Dec 2002
    
    21 Dec 2009J C Christie
    
    
    80,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,000
    
    
    
    43.50
    
    
    22 Feb 2004
    
    21 Feb 2011J C Christie
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    39.50
    
    
    16 Jan 2005
    
    15 Jan 2012J C Christie
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    23.25
    
    
    20 Jun 2006
    
    19 Jun   2013J C Christie
    
    
    
    
    
    
    150,000
    
    
    
    
    
    
    
    
    
    
    
    150,000
    
    
    
    58.50
    
    
    1 Mar 2007
    
    28 Feb 2014A J Heath
    
    
    116,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116,300
    
    
    
    175.00
    
    
    27 Jan 2000
    
    29 Jun 2008A J Heath
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    43.50
    
    
    22 Feb 2004
    
    21 Feb 2011A J Heath
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000
    
    
    
    39.50
    
    
    16 Jan 2005
    
    15 Jan 2012A J Heath
    
    
    
    
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    300,000
    
    
    
    23.25
    
    
    20 Jun 2006
    
    19 Jun   2013A J Heath
    
    
    
    
    
    
    325,000
    
    
    
    
    
    
    
    
    
    
    
    325,000
    
    
    
    58.50
    
    
    1 Mar 2009
    
    28 Feb 2014Savings related optionsJ C Christie
    
    
    27,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,000
    
    
    
    37.50
    
    
    1 Apr 2005
    
    31 Oct 2005IndividualA J Heath
    
    
    600,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600,000
    
    
    
    39.00
    
    
    22 Dec 2002
    
    21 Dec 20093,918,007
    
    
    
    1,535,000
    
    
    
    201,631
    
    
    
    165,121
    
    
    
    5,086,255
 The performance criteria for Dr. Heaths individual option are similar to
those of the Unapproved Share Option Scheme. In particular, the option may
generally be exercised only between the third and tenth anniversaries of the
date of grant, and on the date of exercise, the share price must have
outperformed the average of the FTSE Pharmaceuticals Index in any preceding
three-year period. An adjustment may be made to the number of shares under
option or the exercise price in the case of a variation in share capital,
subject to confirmation by the Auditors that it is in their opinion fair and
reasonable. The option lapses if Dr. Heath leaves the Company voluntarily, and
must be exercised within three months if his employment ceases by reason of
injury, disability, sickness or redundancy. The agreement confers no
pensionable benefits. No amendment may be made to the benefit of Dr. Heath
except with the prior approval of the Company in General Meeting except for
minor amendments to benefit the administration of the agreement or to obtain or
maintain favorable tax, exchange control or regulatory treatment for Dr. Heath
or any Group Member. Messrs. Wallis, Watts and J.R. Brown do not hold options for the Companys
ordinary shares. 54




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The price of the Companys ordinary shares to which the options relate was
53.25p at March 31, 2004, and fluctuated between 16.50p and 61.75p during the
year. 
 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS Major Shareholders The table below shows all holders who, to the Companys knowledge, own,
directly or indirectly, 3% or more of the Companys ordinary shares, as of
August 30, 2002, August 29, 2003, and September 15, 2004, each being the most
recent practicable date before reporting for the last three fiscal years. 2002
    
    2003
    
    2004% of
    
    
    
    % of
    
    
    
    % of# of
    
    issued
    
    # of
    
    issued
    
    # of
    
    issuedShareholder
    
    shares
    
    shares
    
    shares
    
    shares
    
    shares
    
    sharesFidelity Investment
Management
    
    *
    
    *
    
    *
    
    *
    
    8,198,636
    
    3.59M & G Asset Management
    
    10,747,635
    
    5.71
    
    13,289,501
    
    6.42
    
    12,570,232
    
    5.50Jupiter Asset Management
    
    8,860,166
    
    4.71
    
    *
    
    *
    
    *
    
    *Morley Fund Management
    
    10,750,000
    
    5.71
    
    13,592,075
    
    6.57
    
    17,883,779
    
    7.83Legal & General
    
    *
    
    *
    
    *
    
    *
    
    6,919,792
    
    3.03Insight Investment
Management
    
    *
    
    *
    
    *
    
    *
    
    13,498,092
    
    5.91Bradshaw Asset Management
Ltd
    
    9,750,200
    
    5.18
    
    8,610,040
    
    4.16
    
    *
    
    *Artemis (formerly ABN Ambro
Asset Management)
    
    7,436,619
    
    3.95
    
    6,273,750
    
    3.03
    
    *
    
    *Deutsche Asset Management
    
    6,535,833
    
    3.47
    
    *
    
    *
    
    *
    
    *Framlington Asset Management
    
    *
    
    *
    
    13,591,500
    
    6.56
    
    26,842,493
    
    11.75Gartmore Investment
Management
    
    *
    
    *
    
    6,842,941
    
    3.31
    
    *
    
    *
   *

    Holder of less than 3% of the Companys ordinary shares. All of the Companys major shareholders have the same voting rights. At August 31, 2004, approximately 13,049,401 ordinary shares were held of
record by approximately 358 holders with registered addresses in the U.S.,
representing approximately 5.71% of the currently outstanding ordinary shares. To the Companys knowledge, it is not directly or indirectly owned or
controlled by another corporation, by any foreign government, or by any other
natural or legal person, nor are there any arrangements, the operation of which
could result in a change in control of the Company. Related Party Transactions The assets and liabilities acquired in the purchase of Enact on June 18,
2003 (see note 25 to the Consolidated Financial Statements included herein)
included unsecured loans with directors A. Atkinson and M. Peagram and carried
an interest rate of 30% per annum with a minimum guaranteed return of 10% on
repayment. These loans were repaid on June 30, 2003. The loan principal and
interest subsequently paid to the directors were as follows: Principal
    
    Interest£
    

£A. Atkinson
    
    
    5,000
    
    
    
    542M. Peagram
    
    
    140,000
    
    
    
    14,219
 M. Peagram also received £15,000 after the acquisition of Enact in
relation to services provided to that company prior to the acquisition. 55




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The Company also rents office accommodation from, and has administration
services provided by Chimaeron Limited, a company in which A. Atkinson has a
controlling interest. Rent charged and other services provided in the year to
March 31, 2004 amounted to £21,375 and £4,811, respectively. On February 22, 2004, the Company assigned certain non-core patents
(originally acquired with Enact) to Nanomor Biomedical Limited, a company in
which A. Atkinson is a director and is in a position to exercise significant
influence, for nil consideration, although, should this company succeed in
raising funds to research and develop commercial products from this
intellectual property, the Company will receive an equity stake of up to 2% and
royalties on any future revenues from products derived. On September 21, 2004, the Company granted licenses for the use of certain
non-core intellectual property to Morvus Technology Limited, a company in which A.
Atkinson is a director and is in a position to exercise significant influence.
In addition, the Company sold certain assets and transferred certain employees
to Morvus Technology Limited. The Company received consideration of 10,000
ordinary 10p shares in Morvus Technology Limited, valued at £150,000, for the
granting of these licenses, and the sale of the assets and the repayment of
certain expenses the Company had incurred in relation to the sold assets. As
part of the agreement, the Company retained a right of first refusal to license
certain products that may be developed by Morvus for a period of five years. M. Brown, a former non-executive director of the Company, rents office
space at the Companys Nashville premises at a market rental of $17,500 per
annum. Interests of Experts and Counsel Not applicable. 
 ITEM 8. FINANCIAL INFORMATION Consolidated Statements and Other Financial Information Reference is made to Item 19 for a list of all financial statements filed
as part of this Annual Report. Legal Proceedings From time to time, the Company must engage in formal opposition
proceedings to protect its proprietary rights and to challenge patent claims of
third parties. See Item 4. Information on the Company  Intellectual Property,
Patents and Trademarks. Dividend Policy To date, the Company has not paid dividends on its ordinary shares. The
Company intends to retain any future earnings to finance the expansion of its
business and has no present intention to pay cash dividends. The declaration
and payment of future dividends will be determined by the Companys board of
directors in light of conditions existing in the future and are expected to
depend upon earnings, financial condition, capital requirements and other
relevant factors not presently determinable. 
 ITEM 9. LISTING The principal trading market for the Companys ordinary shares is the
London Stock Exchange (LSE) under the symbol PTI.L. The Companys ordinary
shares were admitted to the Official List of the LSE in December 1996. The
Companys ordinary shares are not traded on any stock exchange or quoted on any
automated quotation system in the United States. 56




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The following table sets forth for the periods indicated, the high and low
closing mid-market prices as reported in the Daily Official List for the
ordinary shares as reported by the LSE. High
    
    LowFinancial Year Ended March 31,
    
    £
    
    £2000
    
    
    
    
    0.535
    
    
    
    0.3202001
    
    
    
    
    0.448
    
    
    
    0.2802002
    
    
    
    
    0.408
    
    
    
    0.2052003First Quarter
    
    
    0.345
    
    
    
    0.255Second Quarter
    
    
    0.254
    
    
    
    0.144Third Quarter
    
    
    0.244
    
    
    
    0.142Fourth Quarter
    
    
    0.214
    
    
    
    0.1822004First Quarter
    
    
    0.238
    
    
    
    0.165Second Quarter
    
    
    0.473
    
    
    
    0.220Third Quarter
    
    
    0.560
    
    
    
    0.350Fourth Quarter
    
    
    0.618
    
    
    
    0.5052005First Quarter
    
    
    0.562
    
    
    
    0.470
 Calendar Year 2004Most Recent Six MonthsMarch
    
    
    0.595
    
    
    
    0.533April
    
    
    0.562
    
    
    
    0.525May
    
    
    0.542
    
    
    
    0.470June
    
    
    0.542
    
    
    
    0.510July
    
    
    0.537
    
    
    
    0.485August
    
    
    0.500
    
    
    
    0.485
 
 ITEM 10. ADDITIONAL INFORMATION Memorandum and Articles of Association Objects and Purposes The Company was originally founded in 1987 and was incorporated in England
and Wales under the Companies Act 1985 (as amended) (the Companies Act) on
January 12, 1990, as a public company limited by shares with the registered
number 2459087. The Memorandum of Association of the Company provides that the
Companys principal object is to carry on the business of a holding company.
The objects of the Company are set out in full in clause 4 of the Memorandum of
Association which is available for inspection at The Heath Business & Technical
Park, Runcorn, Cheshire, WA7 4QF. The Articles of Association of the Company (the Articles) contain
provisions, inter alia, to the following effect: Voting Rights Subject to any special terms as to voting upon which any shares may have
been issued, every shareholder present in person shall upon a show of hands
have one vote, and on a poll, every shareholder shall have one vote for every
share of which he is a holder. On a poll, votes may be given either personally
or by proxy. A shareholder in respect of whom an order has been made by any
court or official having jurisdiction in matters concerning mental disorder or
incapacity to manage ones affairs may vote, whether on a show of hands or on a
poll, by his receiver or curator bonis and such receiver or curator bonis may,
on a poll, vote by proxy. 57




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In the case of joint holders of a share, the vote of the senior who
tenders a vote, whether in person or by proxy, shall be accepted to the
exclusion of the votes of the other joint holders; and seniority shall be
determined by the orders in which the names of the holders stand in the
register of shareholders of the Company. No shareholder shall, unless otherwise determined by the Directors, be
entitled to be present and vote, either in person or by proxy, at any general
meeting or upon any poll in respect of any shares held by him if:  (a)
    
    any calls or other moneys due and payable in
respect of these shares remain unpaid; or(b)
    
    he or any person appearing to be interested in
shares held by him has been duly served with a direction
notice under section 212 of the Companies Act concerning the
disclosure of interests in voting shares, and has failed to
supply the Company with the information required by the notice
or has supplied information which is false or misleading in a
material respect. The instrument appointing a proxy and accompanying documentation if
necessary, shall be deposited at the registered office not less than 48 hours
before the meeting. Dividends and other payments Holders of ordinary shares are entitled to the profits of the Company
available for distribution and resolved to be distributed in accordance with
the Companies Act, although no interest shall be payable on such distribution.
The profits which the Company may determine to distribute in respect of any
financial year shall be distributed rateably among the holders of the ordinary
shares according to the amounts paid up on the ordinary shares held by them
respectively, unless otherwise provided by the terms of issue. Dividends may be
satisfied wholly or partly by the distribution of assets. The Board, if authorized by an ordinary resolution of the Company, may
offer the holders of ordinary shares the right to elect to receive new ordinary
shares, credited as fully paid, instead of cash for all or part of the dividend
specified by that ordinary resolution. The Board may from time to time declare an interim dividend. The Board may deduct from any dividend payable to the holder of ordinary
shares all such sums as may be due from such holder to the Company on account
of calls or otherwise in relation to such ordinary shares. The Company may make use of all dividends unclaimed after one year until
so claimed. A dividend unclaimed for 12 years from the date when it became due
for payment will be forfeited and revert to the Company. Return of Capital In a winding-up, a liquidator must distribute any surplus after payment to
all creditors to the holders of ordinary shares pro rata to their holdings of
shares. Variation of Rights All or any of the rights attached to any class of shares of the Company
for the time being in issue may be varied or abrogated either with the consent
in writing of the holders of not less than three quarters in nominal value of
the issued shares of that class, or the sanction of an extraordinary resolution
passed at a separate general meeting of the holders of the issued shares of
that class, but not otherwise. The 58




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provisions of the Articles of Association relating to general meetings
apply to every such separate meeting, save that the necessary quorum shall be
two persons present holding or representing by proxy at least one third in
nominal value of the issued shares of that class. Transfers The instrument of transfer of a share shall be in the usual form or such
other form as shall be approved by the Directors of Protherics and shall be
signed by or on behalf of the transferor, and if the share is not fully paid,
by the transferee. The transferor shall be deemed to remain the holder of the
share until the name of the transferee is entered in the register in respect
thereof. The Directors may decline to recognize any instrument of transfer of a
share which is not fully paid, provided that where any shares which are not
fully paid are admitted to the Official List of the Listing Authority, the
discretion shall not be exercised in such a way as to prevent open and proper
dealings in those shares. The Articles of Association do not contain any
restriction on the free transferability of fully paid shares provided that the
instrument of transfer is in favor of not more than four transferees, is in
respect of only one class of shares, and is not in respect of shares in respect
of which the Company has a lien. Every instrument of transfer must be left at
the registered office of the Company or at such other place as determined by
the Directors, accompanied by the certificate for those shares and evidence as
reasonably required by the Directors to prove the title of the transferor and
due execution. The registration of transfers may be suspended at such times and for such
period as the Directors may from time to time determine. No fee shall be charged for the registration of any instrument of transfer
or other document relating to or affecting the title to any share. Any
instrument of transfer which is registered may be retained by the Company, but
any instrument of transfer which the Directors refuse to register shall be
returned to the person lodging it when notice of the refusal is given. Directors of Protherics Except as provided in this paragraph, a Director shall not vote, or be
counted in the quorum in relation to, any resolution of the Board or of a
committee of the Board concerning any matter in which he has to his knowledge,
directly or indirectly, a material interest (other than his interest in shares
or debentures or other securities of the Company). If he shall do so, his vote
shall not be counted. A Director shall (in the absence of some other material interest that is
indicated below) be entitled to vote (and be counted in the quorum) in respect
of any resolution concerning any of the following matters, namely:  (a)
    
    the giving of any security or indemnity to him in
respect of money lent or obligations incurred by him at the
request of or for the benefit of the Company or any of its
subsidiaries;(b)
    
    the giving of any security or indemnity to a
third party in respect of a debt or obligation of the Company
or any of its subsidiaries for which he himself has assumed
responsibility in whole or in part under a guarantee or
indemnity or by the giving of security;(c)
    
    any proposal concerning an offer for any shares,
debentures or other securities of or by the Company or any of
its subsidiaries for subscription or purchase in which offer
he is or is to be interested as a participant in the
underwriting or sub-underwriting thereof; 59




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(d)
    
    any contract, arrangement, transaction or other
proposal concerning any other company in which he is
interested, directly or indirectly and whether as an officer
or shareholder or otherwise howsoever provided that he is not
the holder of or beneficially interested in one per cent or
more of any class of the equity share capital of such company
(or of a third company through which such interest is derived)
or of the voting rights available to members of the relevant
company (any such interest being deemed for these purposes to
be a material interest in all circumstances);(e)
    
    any contract, arrangement, transaction or other
proposal concerning the adoption, modification or operation of
a superannuation fund, retirement benefit scheme under which
he may benefit and which relates to both employees and
Directors of the Company or any of its subsidiaries, and which
either has been approved by, or is subject to and conditional
upon approval by, the Board of Inland Revenue for taxation
purposes or does not accord to any Director as such any
privilege or advantage not accorded to the employees to which
such scheme or fund relates;(f)
    
    any contract, arrangement, transaction or
proposal concerning the adoption, modification or operation of
any scheme enabling employees of the Company or any of its
subsidiaries to acquire shares under which the Director
benefits in a similar manner as the employees, and which does
not accord to him as such any privilege or advantage not
accorded to the employees to whom the contract relates; and(g)
    
    any contract, arrangement, transaction or
proposal concerning any insurance which the Company is
empowered to purchase and/or maintain for, or for the benefit
of, any Directors or for persons who include Directors. A Director shall not vote or be counted in the quorum on any resolution
concerning his own appointment as the holder of any office or place of profit
with the Company or any company in which the Company is interested including
fixing or varying the terms of his appointment or the termination thereof. Each of the Directors shall be paid a fee for his services at a rate
determined by the Board from time to time provided that the aggregate of such
fees (excluding any amounts payable under any other provision of the Articles)
shall not exceed £200,000 per annum or such higher amount as the Company, by
ordinary resolution, may determine from time to time. Such fee shall be deemed
to accrue from day to day. This article does not apply to executive Directors. The Directors may be paid all reasonable traveling, hotel and other
expenses incurred by them in performing their duties as Directors including all

such expenses incurred in connection with attendance at meetings of the Board
or any committee of the Directors or general meetings or if in the opinion of
the Directors it is desirable to make special journeys or perform special
services. A Director appointed to an executive office may be paid such remuneration
in such manner as the Board may decide. The Board may make provision for the payment of pension or life assurance
benefits for any Director or former Director who holds or has held any
executive office or employment with the Company or a subsidiary of it, and for
any member of his family or any of his dependants. No person shall be disqualified from being appointed a Director, and no
Director shall be required to vacate that office, by reason only of the fact
that he has attained the age of 70 years or any other age, nor shall it be
necessary by reason of his age to give special notice under the Companies Act
of any resolution. Where the Board convenes any general meeting of the Company
at which (to the knowledge 60




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of the Board) a Director will be proposed for appointment or
re-appointment who will have attained the age of 70 years or more at the date
for which the meeting is convened, the Board shall give notice of his age in
years in the notice convening the meeting or in any document accompanying the
notice, but the accidental omission to do so shall not invalidate any
proceedings, or any appointment or re-appointment of that Director, at that
meeting. Each Director shall retire from office at the third annual general meeting
after the annual general meeting at which they were last elected, but they may
stand for reelection at the meeting at which they retire. A separate vote must
be held on each Director standing for reelection. Borrowing powers The Directors may exercise all the powers of the Company to borrow money
and to mortgage or charge all or any part of its undertaking, property and
uncalled capital, and to issue debentures and other securities. The Directors shall restrict the borrowings of the Company and exercise
all voting and other rights or powers of control exercisable by the Company in
relation to its subsidiary undertaking (if any), so as to secure (as regards
subsidiary undertakings, so far as by such exercise they can secure) that the
aggregate amount from time to time owing by the Group (being the Company and
all subsidiaries) in respect of all monies borrowed, exclusive of moneys
borrowed by the Company or any of its subsidiaries from any other of such
companies shall not at any time, without the previous sanction of an ordinary
resolution of the Company, exceed an amount equal to three times the aggregate
of:  (a)
    
    the nominal issued and paid up capital of the
Company;(b)
    
    the amounts standing to the credit of the
consolidated reserves of the Company and its subsidiaries
whether distributable or undistributable and including
(without limitation) share premium amount, capital redemption
reserve and profit and loss account all as shown in a
consolidation of the then latest audited balance sheets of the
Company and each of its subsidiary companies but after:  (A)
    
    making such adjustments as may be
appropriate in respect of any variation in the issued
and paid up share capital the share premium account and
the capital redemption reserve fund of the Company since
the date of its latest audited balance sheet;(B)
    
    excluding therefrom (i) any sums set
aside for future taxation, (ii) amounts attributable to
outside shareholders in subsidiaries.(C)
    
    deducting therefrom (i) an amount
equal to any distribution by the Company out of profits
earned prior to the date of its latest audited balance
sheet and which have been declared, recommended or made
since that date except so far as provided for in such
balance sheet, (ii) goodwill and other intangible assets
and (iii) any debit balances on profit and loss account. Alteration of Capital The Company may, from time to time, by ordinary resolution increase its
share capital by the creation of new shares, such increase to be of such
aggregate amount and to be divided into shares of respective amounts as the
resolution may prescribe. All new shares will be subject to the same provisions
as if they had been part of the original capital, subject to any privileges or
conditions attached to them. 61




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The Company may by ordinary resolution consolidate its shares or subdivide
its shares into shares of smaller amount and may by such resolution determine
that, as between the holders of the shares resulting from such subdivision, one
or more of such shares shall have some preferred or other advantage as regards
dividends, capital, voting or otherwise. The Company may from time to time, by special resolution, reduce its share
capital, any capital redemption reserve fund and any share premium account in
any manner authorized by law. The Company may also by ordinary resolution
cancel any shares not taken or agreed to be taken by any person and diminish
the amount of its share capital by the nominal value of the shares so
cancelled. The Company may purchase its own shares in any manner authorized by law. Liability to further capital calls by the Company The Company may issue shares that are not fully paid up and can make
different arrangements between the shareholders as to the amount of calls to be
paid and the time of payment of such calls. Subject to the terms of allotment
thereof, the Directors can call up for all or part of the monies unpaid on the
shares as they think fit. A minimum of fourteen days notice must be given to
the shareholder stating the amount to be paid, to whom payment must be made and
the time and place at which payment must be made. The Company does not
currently have any shares in issue that are not fully paid up. Discrimination against shareholders as a result of such shareholder
owning a substantial number of shares The City Code on Takeovers and Mergers (the City Code) applies to offers
for all public companies considered by the Panel on Takeover and Mergers (the
Panel) to be resident in the United Kingdom, the Channel Islands or the Isle
of Man. The City Code regulates the conduct, structure and timetable of UK
takeovers and has the principal aim to ensure fair and equal treatment of the
shareholders in relation to takeover and mergers. The City Code is
non-statutory, but its rules are regarded as binding by all those who operate
in the London takeover market. The City Code comprises general principles that are essentially statements
of good standards of commercial behavior and a series of rules expanding on
them and regulating particular areas of takeover activity that often have the
effect of delaying or defining a change in control of the company. Under the City Code, if any person acquires shares which results in that
person (and any persons acting in concert with him, as defined in the City
Code) holding shares carrying 30 percent or more of the voting rights of the
Company, that person shall be compelled to offer to acquire the remainder of
the share capital of the Company at a cash price of not less than the highest
price paid by the offeror or persons acting in concert with it during the
preceding 12 months. Annual and Extraordinary General Meetings Extraordinary general meetings are either convened by the Directors
whenever they think fit or on written request of members holding at least 10%
of the Companys shares. An annual general meeting must be held by the Company once a year. General meetings are called by a minimum of 21 clear days notice when a
special resolution is proposed to be passed and by a minimum of a 14 clear days
notice when only ordinary resolutions are proposed. Ordinary Resolutions must
be passed by a simple majority of those members who (being entitled to do so)
vote at the general meeting, and special resolutions must be passed by a
majority of not 62




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less than 75% of the members who (being entitled to do so) vote at the
general meeting. The annual general meeting must be convened on a minimum of
21 clear days notice. The notice must specify the place, day and hour of the meeting and the
general nature of any special business to be discussed. To be held valid, a quorum of not less than three shareholders present in
person or by proxy and entitled to vote must be present at each general
meeting. Limitations on the Right to Own Securities Fully paid shares are issued free from all liens and from any restriction
on the right of transfer except any restriction imposed by failure to comply
with a notice issued under section 212 of the U.K. Companies Act 1985, by which
a public company can, by notice in writing, require a shareholder to confirm
his present and past shareholding in the share capital of the Company or give
particulars of his identity and the extent of his interest and of any other
person interested in the same shares as the case may be. Any shareholder who has failed to comply with a section 212 notice is not
entitled to be present and vote at general meetings. Changes in Control of the Company The Rules Governing Substantial Acquisitions of shares are published with
the City Code and provide, broadly, that a person may not in any period of
seven days acquire shares or rights over shares carrying 10 percent or more of
the voting rights in a company if the total of his shares after the acquisition
would carry between 15 percent and 30 percent of the total voting rights in a
company. In addition the City Code prescribes a timetable for takeover offers. An
offer document must be posted within 28 days of the announcement of a firm
intention to make an offer, and an offer must initially be open for at least 21
days following the date on which the offer document is posted (the Posting
Date). The City Code provides that the 60th day after the Posting Date is the
final day for an offer to become or be declared unconditional as to
acceptances, and the 81st day is the last day for fulfillment of all other
conditions if the offer is declared unconditional as to acceptances on day 60.
If these timings are not met, the offer will lapse. Disclosure of Shareholder Ownership Under the U.K. Companies Act 1985, where there is a change in the interest
of a person in the Companys share capital from below 3 percent to 3 percent or
more, or vice versa, that person must notify the Company of that change within
2 days following the day on which the change occurred. Any change in ownership
above 3 percent beyond an integral percentage, must also be notified within
that 2 day period. For these purposes interest is widely defined and
includes interests by way of contract or options, but does not include
interests by way, for example, of an authorized unit trust. The Listing Rules
of the U.K. Listing Authority require the Company to announce the receipt of
any of the aforementioned notifications by the end of the business day
following receipt of the notification by the Company. 63




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Material Contracts The following is a summary of the Companys existing principal licensing
agreements, collaborative arrangements and other material agreements: Janssen Pharmaceutica In April 1996, the Company entered into a licensing agreement with Janssen
Pharmaceutica NV for Janssens development of a GnRH animal vaccine across a
range of target animal species. Under the terms of the agreement, the Company
granted Janssen the rights to produce, manufacture, use, sell or otherwise deal
in products developed or produced using the Companys technical information
related to its animal vaccine. To date, the Company has received an initial
payment of $300,000 under the agreement. No further milestone or royalty
payments have been received. £35,000 has been received for the supply of
vaccine materials. Janssen has informed the Company that it has demonstrated
proof of efficacy in domestic cats, but has been unable to achieve the same
results in dogs. Janssen has decided that it will not continue development of
this product on commercial grounds. The Company is considering alternative
avenues of commercialization. Enfer Scientific In April 1997, the Company and Enfer Scientific Limited entered into a
licensing agreement whereby the Company granted Enfer worldwide rights for the
development and marketing of the post-mortem tests for bovine spongiform
encephalopathy. A revised agreement was completed in November 2001. Under this
agreement, licenses and sub-licenses for non-European Union countries are
exclusive for a term of 15 years from the date of the agreement. For European
Union countries, licenses are exclusive from the date of the agreement to the
date of the last patent expiry in the European Union country or, if longer,
until 10 years from the date when the products were first put on the market in
any part of the European Union. Thereafter, licenses become non-exclusive and
automatically renewable for 2 year terms unless terminated by either party on 6
months prior notice. The minimum amount payable in any year by the licensee is £65,000. The
Company receives 12.5% of net sales of the licensee, and 10% of the net sales
in respect of sales of product by the licensee to distributors. The licensee
has appointed Abbott Laboratories as its exclusive distributor for all
territories except Ireland. Pursuant to a letter of agreement with the University College Dublin, the
Company is obligated to share each quarters income from Enfer. Initially, the
income was divided in two and the first half was applied first in repaying the
development costs, second in repaying to the Company its cost incurred in
obtaining and maintaining related patents. The remaining income was then
shared 80% to the Company and 20% to the University College Dublin. Following
the repayment of the development costs, the cost incurred in obtaining and
maintaining related patents and other costs incurred in maintaining the royalty
stream are repaid with the remaining income shared 80% to the Company and 20%
to the University College Dublin. An initial payment of £28,000 was received under the Enfer licensing
agreement. A total of £4,552,000 has been recognized as royalty income in the
period from inception of the agreement to August 31, 2004. Altana, Inc. In October 1997, the Company entered into an agreement with Altana, Inc.
which provides Altana with exclusive U.S. distribution rights for CroFab and
DigiFab. Under the agreement terms, the Company is entitled to receive
certain milestone, product sales and royalty payments, of which approximately
$68 million has been earned from inception to August 31, 2004. In February
2001 and 64




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February 2002, Altana began marketing and distributing the Companys
CroFab and DigiFab products, respectively, under the agreement in the United
States. Swedish Orphan AB In January 1990, the Company entered into an agreement with Swedish Orphan
AB whereby Swedish Orphan was appointed as exclusive sales representative to
market ViperaTAb in certain territories. The agreement was subsequently
amended and restated to include CroFab and other antivenin products, and
DigiFab. The territories are currently Sweden, Norway, Denmark, Finland and
Iceland. Mayne Pharmaceuticals (formerly F.H. Faulding & Co. Limited) In September 1995, the Company entered into an exclusive distribution
agreement with F.H. Faulding & Co. Limited. Under the agreement terms, F.H.
Faulding received the right to obtain marketing approval and to distribute
certain products then under development, including DigiFab, in Australia, New
Zealand and certain Southeast Asian countries. In November 1998, the Company entered into a contract manufacturing
agreement with F.H. Faulding for Faulding to fill and freeze dry the Companys
CroFab product. Under the agreement, Faulding is entitled to a set fee per
batch of product filled and freeze dried and to reimbursement for development
costs incurred. Upon receipt of FDA approval in September 2000, Faulding began
filling and freeze drying CroFab under the agreement. Promega Corporation In December 2001, the Company entered into a license agreement with
Promega Corporation (Promega) whereby Promega granted an exclusive worldwide
license to the Company to utilize a family of patents relating to purified
polyvalent antivenins and methods of purifying antivenins using immunoaffinity
techniques. In consideration for the granting of this license, the Company made an
initial payment of $250,000 with a further $1,250,000 payable in interest
bearing installments over the three years following the signing of the license
agreement. Upon payment of all the installments in accordance with the license
agreement, the underlying patents will be assigned to the Company. Chesapeake Biological Laboratories Inc In March 2003, the Company entered into a contract manufacturing agreement
with Chesapeake Biological Laboratories Inc. to fill and freeze dry the
Companys CroFab, DigiFab and ViperaTab products. Under the agreement,
Chesapeake is entitled to a set fee per batch of product filled and
freeze-dried, which commenced in May 2003. Selborne Biological Services (Australia) Pty Limited In October 2002, the Company entered into a supply agreement with Selborne
Biological Services (Australia) Pty Limited for supply of antisera for the
production of its polyclonal antibody product. Under this agreement, Selbourne
are entitled to a set fee for each kilogram of antisera produced from the sheep
provided by the Company and a set fee for costs incurred during the initial
priming period of the sheep. 65




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Scientific Collaborations A portion of the Companys research and development and product testing
activities are carried out through affiliations and consulting arrangements in
place from time to time with clinical research organizations and scientists at
academic institutions in the United Kingdom, Scandinavia and North America.
These include arrangements in respect of pre-clinical and clinical research,
consultancy, patents, royalties and facility leases. Where appropriate, the
Company has entered into formal agreements with such third parties, which
ensure that ownership of any intellectual property rights arising out of such
arrangements vests with the Company. Exchange Controls There are currently no English laws, decrees or regulations that restrict
the export or import of capital, including, but not limited to, foreign
exchange controls or that affect the remittance of dividends, interest or other
payments to non-U.K. resident holders of ordinary shares. Taxation The following is a general description of the principal United States
federal income tax consequences and certain United Kingdom tax consequences of
the ownership and disposition of ordinary shares of the Company by a U.S.
holder. This description is for general information purposes only and is based
on the tax laws of the United States (including the Internal Revenue Code of
1986, as amended, Treasury regulations promulgated thereunder, and judicial and
administrative interpretations thereof) and the United Kingdom, and the income
tax convention between the United States and the United Kingdom which came into
force on March 31, 2003 (the Income Tax Convention), all as in effect on the
date hereof and all of which are subject to change, possibly with retroactive
effect. The Income Tax Convention replaced the old income tax treaty between
the United States and the United Kingdom which had been in effect since 1980
(the Old Income Tax Convention). The tax treatment of a holder of ordinary
shares of the Company may vary depending upon his or her particular situation.
The discussion below does not address the tax treatment of holders subject to
special treatment under the U.S. federal income tax law (including, but not
limited to, U.S. expatriates, insurance companies, tax-exempt organizations,
financial institutions, persons subject to the alternative minimum tax,
securities broker-dealers, persons that have a functional currency other than
the U.S. dollar, holders who hold ordinary shares as part of hedging or
conversion transactions and holders owning, directly or indirectly, 10% or more
of the voting shares of the Company). The following summary is directed to
U.S. holders who will hold the ordinary shares as a capital asset and elect to
credit, rather than deduct, foreign income taxes against U.S. tax liability. For purposes of this discussion, a U.S. holder is any beneficial owner
of ordinary shares that is not resident (and, in the case of an individual, not
ordinarily resident) in the United Kingdom and is (i) an individual citizen or
resident of the United States, for the purpose of the Income Tax Convention,
(ii) a corporation or other entity taxable as a corporation for U.S. federal
income tax purposes, created or organized under the laws of the United States
or any state thereof, (iii) an estate the income of which is subject to U.S.
federal income tax without regard to its source, or (iv) a trust if a court
within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust. The discussion below does not address the effect of any U.S. state or
local tax law on a holder of ordinary shares, nor any U.S. or U.K. gift or
estate tax consequences. This summary is not intended to be, nor should it be
construed to be, legal or tax advice. Investors are urged to consult their own
tax advisors regarding the U.S. federal, state and local and the U.K. and other
tax consequences of their purchase, ownership and disposition of ordinary
shares. 66




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United States Federal Income Tax Consequences to U.S. Holders Taxation of Dividends The Company does not expect to pay dividends for the foreseeable future.
In the event the Company does pay a dividend, a U.S. holder receiving a
distribution on ordinary shares generally will be required to include such
distribution in gross income as a taxable dividend to the extent such
distribution is paid from the current or accumulated earnings and profits of
the Company (as determined for U.S. federal income tax purposes). Such
dividend will be treated as foreign source dividend income to the U.S. holder
for U.S. federal income tax purposes. To the extent that the Company makes
distributions in excess of its current and accumulated earnings and profits,
these distributions will be treated first as a tax-free return of capital to
each U.S. holder. This treatment will reduce the adjusted basis which each
U.S. holder has in his or her ordinary shares, but not below zero.
Distributions in excess of a U.S. holders adjusted tax basis in his or her
ordinary shares will be taxable as a capital gain, provided such shares have
been held as capital assets. This gain will be taxable as a long-term capital
gain if the ordinary shares have been held for more than one year. Dividends
paid by the Company generally will not be eligible for the dividends received
deduction otherwise available to corporate holders. See also the discussion
below entitled Passive Foreign Investment Company Rules. The amount of any distribution paid in pounds sterling will equal the U.S.
dollar value of the pounds sterling received calculated using the exchange rate
in effect on the date the dividend is received by the U.S. holder, regardless
of whether the pounds sterling are converted into U.S. dollars on this date.
If the pounds sterling received as a distribution are not converted into U.S.
dollars on the date of receipt, the recipient U.S. holder will have a basis in
the pounds sterling equal to their U.S. dollar value on the date of receipt.
Generally, any gain or loss realized on a subsequent conversion or other
disposition of the pounds sterling will be taxable as ordinary income or loss. Under recently enacted U.S. tax legislation, dividends paid to a
non-corporate U.S. holder in taxable years beginning after December 31, 2002
and before January 1, 2009 that constitute qualified dividend income generally
will be taxable to the U.S. holder at a maximum tax rate of 15% provided that
the ordinary shares are held by such U.S. holder for more than 60 days during
the 120-day period beginning 60 days before ex-dividend date and the U.S.
holder meets other holding period requirements. Although current law only
provides a 120-day period, a proposed technical correction to the law would
extend such period to 121 days. The U.S. Internal Revenue Service (the IRS)
has announced that taxpayers may apply the extended period as if the
legislation were already enacted in filling their U.S. federal tax returns.
For this purpose, qualified dividend income generally includes dividends
received from a U.S. corporation, as well as from a qualified foreign
corporation. A qualified foreign corporation is generally defined as (i) a
foreign corporation incorporated in a possession of the United States, (ii) a
foreign corporation that is eligible for benefits of a comprehensive income tax
treaty with the United States which the U.S. Treasury determines is
satisfactory and which includes an exchange of information program, or (iii) a
foreign corporation if the stock with respect to which such dividend is paid is
readily tradable on an established securities market in the United States. The
IRS has determined that the Income Tax convention meets the above treaty test.
U.S. holders should consult their own tax advisors on the eligibility of any
dividends paid by us as qualified dividend income and any reduced rates of
taxation. The Income Tax Convention will apply to dividend payments made on or after
May 1, 2003. However, notwithstanding the entry into force of the Income Tax
Convention, at the election by the U.S. holder, the tax treatment of such U.S.
holder may continue to be governed by the Old Income Tax Convention for a
period of 12 months from the date on which the relevant provisions of the
Income Tax Convention came into effect. Therefore, a U.S. holder may make an
election that the Old Income Tax Convention apply to any dividend payments made
to such U.S. holder on or before April 30, 2004. In the case of U.S. holders
eligible for the benefits under the Old Income Tax Convention, subject to
certain limitations, the U.K. withholding tax as determined by the Old Income
Tax Convention (i.e. an amount 67




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equal to one-ninth of the cash dividend) will be treated as a foreign
income tax that is eligible for credit against the U.S. holders U.S. federal
income tax. To qualify for such credit, eligible U.S. holders must make an
election on Form 8833 (Treaty-Based Return Position Disclosure), which must be
filed with their tax return, in addition to any other filings that may be
required. Eligible U.S. holders making this election will be treated as having
received an additional dividend equal to the gross amount of the tax credit
(unreduced by amounts withheld), and as having paid the U.K. withholding tax
due, on the date of the distribution. The rules relating to the determination
of the foreign tax credit are complex and U.S. holders should consult their tax
advisors to determine whether and to what extent a credit would be available.
Under the Income Tax Convention, there will be no hypothetical U.K. tax
withheld. Therefore, a U.S. holder will no longer be entitled to claim a
foreign tax credit in respect of any dividends paid on or after May 1, 2003 (or
May 1, 2004 in the case of a U.S. Holder who makes an election to extend the
applicability of the Old Income Tax Convention). Each U.S. holder is urged to
consult his or her tax advisor concerning whether the U.S. holder is eligible
for benefits under the Old Income Tax Convention and the Income Tax Convention
and whether, and to what extent, a foreign tax credit will be available with
respect to dividends received from the Company. Taxation of Capital Gains If you are a U.S. holder and you sell or dispose of the ordinary shares,
you will recognize a gain or loss for U.S. federal income tax purposes in an
amount equal to the difference between the U.S. dollar amount of cash and the
fair market value of any property you receive and your adjusted tax basis
(determined in U.S. dollars) in the ordinary shares sold or disposed of. This
gain or loss will be capital if you held the ordinary shares as a capital asset
and generally will be U.S. source income or loss. Such gain or loss will be
long-term capital gain or loss if you held the ordinary shares sold or disposed
of for more than one year. In the case of a U.S. holder who is an individual,
capital gains will generally be subject to U.S. federal income tax at
preferential rates if specified minimum holding periods are met. Under
recently enacted U.S. tax legislation, the maximum capital gains tax for
non-corporate U.S. holders is reduced from 20% to 15% for capital assets held
for over one year and sold or exchanged on or after May 6, 2003 but in taxable
years beginning before January 1, 2009. The deduction of capital losses is
subject to certain limitations. See also the discussion below entitled
Passive Foreign Investment Company Rules. Information Reporting and Backup Withholding The Company reports to its U.S. holders and the IRS the amount of
dividends and other proceeds paid during each calendar year and the amount of
any tax withheld. Under the backup withholding rules, a U.S. holder may be
subject to backup withholding at a current rate of 28% with respect to
dividends paid unless the U.S. holder is a corporation or is otherwise exempt
and:  
    
    when required, demonstrates this fact or provides a taxpayer identification number;
    
    certifies as to no loss of exemption from backup withholding; and
    
    otherwise complies with the backup withholding rules. If you do not provide the Company with your correct taxpayer
identification number, you may also be subject to penalties imposed by the IRS.
Backup withholding is not an additional tax. Any amount you pay as backup
withholding will be creditable against your income tax liability. The foregoing discussion assumes that the Company is not currently, and
will not in the future become, a passive foreign investment company for U.S.
federal income tax purposes. If the Company were classified as a passive
foreign investment company, the U.S. federal income tax consequences to you
with respect to the ordinary shares would be significantly different than that
described above and you 68




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generally would be subject to increased U.S. federal income tax
liabilities and possibly interest charges, as described below. Passive Foreign Investment Company Rules U.S. holders owning shares of a passive foreign investment company
(PFIC) are subject to special U.S. federal income tax treatment with respect
to certain distributions received from the PFIC and with respect to gain from
the sale or other disposition of PFIC shares. For U.S. federal income tax
purposes, the Company will be a PFIC for any taxable year if either (i) 75% or
more of the Companys gross income in a taxable year were passive; or (ii) at
least 50% of the average percentage of the Companys assets, by value, produced
or were held for the production of passive income. For this purpose, if the
Company were to own, directly or indirectly, at least 25% by value of the stock
of another company, it would be treated for purposes of the above tests as if
it held its proportionate share of the assets, and received directly its
proportionate share of the income, of that company. Passive income generally
includes dividends, interest, royalties, rents (other than certain rents and
royalties derived in the active conduct of a trade or business), annuities, and
gains from assets which would produce income of this type. If the Company is treated as a PFIC, U.S. holders may be subject to
increased tax liability upon the disposition of the ordinary shares or upon the
receipt of certain distributions, unless such holder makes one of two
elections. Special rules would apply to direct and certain indirect U.S.
holders upon disposition of their ordinary shares, receipt of an excess
distribution, certain non-recognition transactions, or use of ordinary shares
as security for a loan. You could be subject to tax as if any gain or
distribution were ordinary income earned ratably over the period of time during
which you held the ordinary shares, including an interest charge on the
deferred tax, and other adverse tax consequences. If you were to make a timely
filed mark-to-market election with respect to the ordinary shares you owned or
were treated as having owned, at the close of your taxable year, you would
include as ordinary income in that taxable year any excess of the fair market
value of the ordinary shares as of the close of the year over your adjusted tax
basis in those shares. In turn, you would be allowed a deduction for the
taxable year in the amount of any excess of the adjusted basis of the ordinary
shares over their fair market value at the close of the taxable year, limited
to the amount of the net mark-to-market gains you previously included in your
income. If you were to make a timely qualified electing fund election, the
above-described rules generally would not apply. If a qualified electing fund
election were made, you would be currently taxable on your pro-rata share of
the Companys ordinary earnings and profits and net capital gains, regardless
of whether the income or gain was actually distributed to you. You should consult your own tax advisors prior to the purchase of ordinary
shares and from time to time concerning the status of the Company as a PFIC and
the consequences of making an election as described above. Neither the Company
nor its advisors have a duty or will undertake to inform you that the Company
is a PFIC or of changes in circumstances that would cause the Company to become
a PFIC. United Kingdom Tax Consequences to U.S. Holders Taxation of Dividends The Company does not expect to pay dividends for the foreseeable future.
In the event the Company does pay a dividend, under current U.K. taxation
legislation, no tax will be withheld from dividend payments by the Company.
There is a U.K. tax credit in respect of any dividend paid by the Company at a
rate of 10% of the sum of the dividend and the tax credit on it (equivalent to
one-ninth of the cash dividend). Under the terms of the Income Tax Convention
which came into force on March 31, 2003, U.S. holders are no longer able to
recover any part of this tax credit. Each U.S. holder is urged to consult his
or her tax advisor concerning whether the U.S. holder is eligible for benefits
under the Income Tax Convention or the Old Income Tax Convention. 69




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Taxation of Capital Gains A U.S. holder will not generally be liable for U.K. taxation on capital
gains realized on the disposal of such holders ordinary shares unless at the
time of the disposal such U.S. holder is a non-corporate which carries on a
trade, profession or vocation in the United Kingdom through a branch or agency
and which used, held or acquired the ordinary shares for the purposes of such
branch or agency or such U.S. holder is a corporate which carries on a trade in
the United Kingdom through a permanent establishment and which used the
ordinary shares in or for the purposes of the trade or which used, held or
acquired the ordinary shares for the purposes of such permanent establishment. Documents on Display It is possible to read and copy documents referred to in this annual
report on Form 20-F that have been filed with the SEC at the SECs public
reference room located at 450 Fifth Street, NW, Washington, DC 20549. Please
call the SEC at 1(800) SEC-0330 for further information on the public reference
rooms and their copy charges. Certain documents are on display at the
Companys offices at The Heath Business & Technical Park, Runcorn, Cheshire WA7
4QF. 
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This information is provided within Notes 15, 26 and 27 to the
Consolidated Financial Statements attached as an exhibit to this filing. 
 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not applicable. 70




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PART II 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None. 
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS None. 
 ITEM 15. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this report, our management carried
out an evaluation, with the participation of our chief executive officer and
chief financial officer, of the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)). Based on
their evaluation of such controls and procedures, our management concluded that
our disclosure controls and procedures are effective to ensure that information
required to be disclosed by our company in the reports we file under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission and that such information is accumulated and
communicated to management, including our chief executive officer and chief
financial officer, as appropriate to allow timely decisions regarding required
disclosure. Changes in Internal Control Over Financial Reporting There have been no significant changes in our internal control over
financial reporting during the period covered by this report that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting. 
 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT Our board of directors has determined that Mr. Garry Watts, the Chairman
of our Audit Committee, meets the requirement of an Audit Committee Financial
Expert as defined by the SEC. Mr. Watts was appointed to the Audit Committee
on February 2, 2004. Prior to Mr. Watts appointment, Mr. Michael Gatenby met
this requirement until his resignation on February 12, 2004. 
 ITEM 16B. CODE OF ETHICS The Company complied with the Code of Best Practice set out in Section 1
of the UK Combined Code throughout the year ended March 31, 2004. In addition,
the Board of Directors has adopted a Code of Ethics applicable to the Chief
Executive Officer, Finance Director and Financial Controller. We will
provide a copy of the Companys Code of Ethics, without charge, to anyone
who so requests. A copy of this Code of Ethics is available on the Companys
website on www.protherics.com. 71




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ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES The following summarizes the audit and non-audit fees paid to the auditor,
PricewaterhouseCoopers LLP: 2004
    
    2003
    
    2002£000
    
    £000
    
    £000Services as auditorsAudit services
    
    
    79
    
    
    
    65
    
    
    
    70Audit related services
    
    
    27
    
    
    
    20
    
    
    
    20Tax services
    
    
    83
    
    
    
    117
    
    
    
    57All other fees
    
    
    59
    
    
    
    28
    
    
    
    83248
    
    
    
    230
    
    
    
    230
 In addition to the fees disclosed above for the year ended March 31, 2004,
the auditors received £49,000 in relation to the acquisition of Enact and the
associated cash placing and open offer. The auditors will also receive fees in
relation to audit and taxation services provided to Enact for the period prior
to its acquisition by the Company of £6,000 and £12,000 respectively. Audit Fees Audit fees consisted of audit work only the independent auditor can
reasonably be expected to perform, such as statutory audits. Audit related fees Audit related fees consisted of work generally only the independent
auditor can be reasonably be expected to perform, such as procedures relating
to regulatory filings. Tax Fees Tax fees consisted principally of assistance with matters related to
compliance, planning and advice. All other Fees All other fees were principally related to assistance in acquisitions and
disposals of businesses. The Audit Committee follows an audit and non-audit services pre-approval
practice and has delegated the pre-approval of non-audit services to be
performed by Companys auditors to the Audit Committee chairman, and where
appropriate, the Audit Committee Chairman refers back to the full Audit
Committee for approval. All audit engagements are pre-approved by the full
audit committee. 72




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PART III 
 ITEM 17. FINANCIAL STATEMENTS Reference is made to Item 19 for a list of all financial statements filed as
part of this Annual Report. 
 ITEM 18. FINANCIAL STATEMENTS The Company has elected to provide financial statements pursuant to Item 17. 
 ITEM 19. EXHIBITS  (A)
    
    Financial Statements and Schedules1.
    
    Financial Statements PageAuditors Report
    
    
    F-1Statement of Directors Responsibilities
    
    
    F-3Consolidated Profit and Loss Account for the years ended
March 31, 2002, 2003 and 2004
    
    
    F-4Consolidated Statement of Total Recognised Gains and Losses
March 31, 2002, 2003 and 2004
    
    
    F-5Consolidated Balance Sheet at March 31, 2003 and March 31, 2004
    
    
    F-6Company Balance Sheet at March 31, 2003 and March 31, 2004
    
    
    F-7Consolidated Cash Flow Statement for the years ended
March 31, 2002, 2003 and 2004
    
    
    F-8Notes to Consolidated Financial Statements
    
    
    F-9
  2.
    
    Financial Schedules All financial statement schedules have been omitted because they are not
required or the required information is provided in the Consolidated Financial
Statements and Notes thereto.  (B)
    
    Exhibits ExhibitNumber
    
    Exhibit Title1.1
    
    Articles of Association of Protherics PLC, as amended on July 24, 2003 *1.2
    
    Memorandum of Association of Protherics PLC (3)2.1
    
    Form of Instrument Constituting 6% Unsecured Convertible Loan Notes 2010 *
 73




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ExhibitNumber
    
    Exhibit Title4.1
    
    Licensing Agreement, dated April 16, 1996, between Proteus and Janssen Pharmaceutica
NV (4)4.2
    
    Patent and Know-how Licence Agreement, dated April 2, 2001, between Protherics
Molecular Design Limited and Enfer Technology Limited (2)4.3
    
    Letter Agreement, dated August 13, 1996, between Proteus, University College Dublin
and Pharmapro Limited (3)4.4
    
    Distribution Agreement, dated October 11, 1997, between Therapeutic Antibodies Inc.
and Altana, Inc. (4)4.5
    
    First Amendment to the Distribution Agreement, dated October 25, 1999, between
Altana, Inc. and Protherics (3)4.6
    
    Amendment No. 1 to Distribution Agreement, dated September 12, 2000, between Altana,
Inc. and Protherics (3) (+)4.7
    
    Amendment No . 3 to Distribution Agreement, dated February 2002, between Altana Inc.
and Protherics (1)4.8
    
    First Amended and Restated Product Agreement, dated March 31, 2000, between Swedish
Orphan AB and Protherics Inc. (3)4.9
    
    Letter of extension dated November 14, 2003, to First Amended and Restated Product
Agreement, dated March 31, 2000, between Swedish Orphan AB and Protherics Inc. *4.10
    
    First Amendment of Registration and Distribution Agreement, dated August 31, 1995,
amended on March 14, 1996, between Therapeutic Antibodies Inc. and F.H. Faulding &
Co. Limited (5)4.11
    
    Contract Manufacturing Agreement, dated as of November 17, 1998, between Therapeutic
Antibodies Inc. and F.H. Faulding & Co. Limited (3)4.12
    
    Supply agreement, dated October 21, 2002, between Selborne Biological Services
(Australia) Pty Limited and Protherics Australasia Pty Limited (1)4.13
    
    Manufacturing Agreement, dated March 19, 2003, between Protherics UK Limited and
Chesapeake Biological Laboratories Inc (1)4.14
    
    Business Purchase Agreement, dated July 12, 2001, among Protherics Molecular Design
Limited, Tularik Limited, Protherics PLC and Tularik Inc. (3)4.15
    
    License Agreement, dated December 31, 2001, between Protherics UK PLC and Promega
Corporation (2) (+)4.16
    
    Memorandum of Lease, dated August 1, 1995, between Minister for Primary Industries,

as Lessor, and TAb Australasia Pty. Limited, as Lessee (8)4.17
    
    Proteus Approved Executive Share Option Scheme (4)4.18
    
    Proteus Unapproved Share Option Scheme (4)4.19
    
    Proteus Savings-Related Share Option Scheme (4)
 74




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##### Table of Contents



ExhibitNumber
    
    Exhibit Title4.20
    
    Option Deed, dated December 22, 1999, between Protherics PLC and Andrew J. Heath (3)4.21
    
    Employment Agreement, dated November 13, 2001, between Protherics Inc. and Andrew J.
Heath (2)4.22
    
    Employment Agreement, dated November 13, 2001, between Protherics PLC and Andrew J.
Heath (2)4.23
    
    Employment Agreement, dated July 13, 1995, between Protherics PLC and Barry M. Riley
(2)4.24
    
    Employment Agreement, dated July 13, 1995, between Protherics PLC and James C.
Christie (2)4.25
    
    Letter Agreement, dated September 1, 1998, between Therapeutic Antibodies (UK)
Limited and Stuart M. Wallis (7)4.26
    
    Consultancy Agreement, dated August 21, 1998, between Therapeutic Antibodies (UK)
Limited and Stuart M. Wallis (7)4.27
    
    Consultancy Agreement, dated September 1, 1998, between Therapeutic Antibodies (UK)
Limited and Stuart M. Wallis (7)4.28
    
    Letter of Appointment, dated
September 6, 2004, between Protherics PLC and Anthony
Atkinson *4.29
    
    Consultancy Services Agreement dated September 27, 2004, between
Protherics PLC, Chimaeron Limited and Anthony Atkinson for the consultancy services
of Anthony Atkinson *4.30
    
    Letter of Appointment dated February 21, 2001, between Enact Pharma PLC and Michael J
Peagram (1)4.31
    
    The Protherics PLC Company Share Option Plan for Therapeutic Antibodies Inc.
Employees adopted on January 27, 2000 (3)4.32
    
    Letter of Appointment dated January 19, 2004, between Protherics PLC and Garry Watts *4.33
    
    Letter of Appointment dated February 23, 2004, between Protherics PLC and John R.
Brown *8.1
    
    List of Subsidiaries*11.1
    
    Code of Ethics*31.1
    
    Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*31.2
    
    Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*32.1
    
    Certifications pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as
amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*
  *
    
    Filed herewith 75




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##### Table of Contents



(+)
    
    Portions of this exhibit have been omitted pursuant to a request for
confidential treatment and have been filed separately with the Commission.(1)
    
    Incorporated by reference to exhibits filed with the Companys Annual
Report on Form 20-F, filed on September 27, 2003.(2)
    
    Incorporated by reference to exhibits filed with the Companys Annual
Report on Form 20-F, filed on September 27, 2002.(3)
    

    Incorporated by reference to exhibits filed with the Companys Annual
Report on Form 20-F, filed on September 27, 2001.(4)
    
    Incorporated by reference to exhibits filed with the Companys
Registration Statement on Form F-4, filed on August 16, 1999, File No.
333-85347.(5)
    
    Incorporated by reference to exhibits filed with the Quarterly Report on
Form 10-Q/A, filed by Therapeutic Antibodies Inc. on October 16, 1996,
File No. 000-25978.(6)
    
    Incorporated by reference to exhibits filed with the Annual Report on
Form 10-K, filed by Therapeutic Antibodies Inc. on March 31, 1998, File
No. 000-25978.(7)
    
    Incorporated by reference to exhibits filed with the Annual Report on
Form 10-K filed by Therapeutic Antibodies Inc. on March 31, 1999, File No.
000-25978.(8)
    
    Incorporated by reference to exhibits filed by Therapeutic Antibodies
Inc. with its Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1995, File No. 0-25978.
 76




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##### Table of Contents



SIGNATURES The Registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf. September 30, 2004
    PROTHERICS PLCBy:
    /s/ Barrington M. RileyBarrington M. RileyFinance Director




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##### Table of Contents



Auditors report to the members of Protherics PLC We have audited the financial statements of Protherics PLC (the Company) and
its subsidiaries (collectively the Group) as set out on pages F-1 to F-43
which comprise the consolidated profit and loss account, the consolidated
statement of total recognized gains and losses, the consolidated balance sheet,
the company balance sheet, the consolidated cash flow statement and the related
notes (referred to herein as the financial statements). Respective responsibilities of directors and auditors The directors responsibilities for preparing the financial statements in
accordance with applicable United Kingdom law and accounting standards are set
out in the Statement of Directors Responsibilities on page F-3. Our
responsibility is to audit the financial statements in accordance with relevant
legal and regulatory requirements, United Kingdom Auditing Standards issued by
the Auditing Practices Board and the Listing Rules of the Financial Services
Authority. 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 Company has not kept
proper accounting records or if we have not received all the information and
explanations we require for our audit. Basis of audit opinion We conducted our audit in accordance with United Kingdom Auditing Standards
issued by the Auditing Practices Board and with the standards of the Public
Company Accounting Oversight Board (United States). 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. United Kingdom Opinion In our opinion the financial statements give a true and fair view of the state
of affairs of the Company and the Group at 31 March 2004 and 31 March 2003 and
of the result and cash flows of the Group for the years ended 31 March 2004, 31
March 2003 and 31 March 2002 and have been properly prepared in accordance with
the Companies Act 1985. F-1




---



United States Opinion Accounting principles generally accepted in the United Kingdom vary in certain
significant respects from accounting principles generally accepted in the
United States. The application of the latter would have affected the
determination of consolidated net profit or loss expressed in pounds Sterling
for each of the three years in the period ended 31 March 2004 and the
determination of consolidated equity shareholders funds also expressed in
pounds Sterling at 31 March 2004 and 2003 as shown in the summary of
differences between UK and US generally accepted accounting principles set out
in Note 27 of the Notes to the Financial Statements on pages F-38 to F-43. PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
Manchester, U.K.
26 May 2004 F-2




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##### Table of Contents



Statement of Directors Responsibilities United Kingdom 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 of the Group and of the profit or loss of the
Group for that period. 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;  
    
    prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the Company will continue in
business. The directors are responsible for maintaining proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and of 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 of the Group and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities. The maintenance and integrity of the Protherics website are the responsibility
of the directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the website. Legislation in
the United Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions. F-3




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##### Table of Contents



Consolidated Profit and Loss Account
for the year ended 31 March 2004 Year ended 31 March 2004
    
    Year ended
    
    Year Ended 31 March 2002Continuing
    
    Acquired
    
    
    
    
    
    31 March
    
    Continuing
    
    Discontinued
    
    31 Marchoperations
    
    operations
    
    Total
    
    2003
    
    operations
    
    operations
    
    2002Notes
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000Turnover
    
    
    2
    
    
    
    20,882
    
    
    
    137
    
    
    
    21,019
    
    
    
    11,270
    
    
    
    6,961
    
    
    
    963
    
    
    
    7,924Cost of Sales
    
    
    
    
    
    
    (9,459
    )
    
    
    (2
    )
    
    
    (9,461
    )
    
    
    (5,920
    )
    
    
    (4,649
    )
    
    
    
    
    
    
    (4,649
    )Gross profit
    
    
    
    
    
    
    11,423
    
    
    
    135
    
    
    
    11,558
    
    
    
    5,350
    
    
    
    2,312
    
    
    
    963
    
    
    
    3,275Administration expensesResearch & development
    
    
    3
    
    
    
    (1,733
    )
    
    
    (1,935
    )
    
    
    (3,668
    )
    
    
    (1,591
    )
    
    
    (295
    )
    
    
    (588
    )
    
    
    (883
    )General & administrative
    
    
    
    
    
    
    (5,595
    )
    
    
    (268
    )
    
    
    (5,863
    )
    
    
    (4,363
    )
    
    
    (4,182
    )
    
    
    (312
    )
    
    
    (4,494
    )(7,328
    )
    
    
    (2,203
    )
    
    
    (9,531
    )
    
    
    (5,954
    )
    
    
    (4,477
    )
    
    
    (900
    )
    
    
    (5,377
    )Goodwill amortisation
    
    
    
    
    
    
    
    
    
    
    (782
    )
    
    
    (782
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,328
    )
    
    
    (2,985
    )
    
    
    (10,313
    )
    
    
    (5,954
    )
    
    
    (4,477
    )
    
    
    (900
    )
    
    
    (5,377
    )Operating profit / (loss)
    
    
    2,3Before goodwill amortisation
    
    
    
    
    
    
    4,095
    
    
    
    (2,068
    )
    
    
    2,027
    
    
    
    (604
    )
    
    
    (2,165
    )
    
    
    63
    
    
    
    (2,102
    )Goodwill amortisation
    
    
    
    
    
    
    
    
    
    
    (782
    )
    
    
    (782
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total operating profit / (loss)
    
    
    
    
    
    
    4,095
    
    
    
    (2,850
    )
    
    
    1,245
    
    
    
    (604
    )
    
    
    (2,165
    )
    
    
    63
    
    
    
    (2,102
    )Profit on sale of discontinued
operations
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,032
    
    
    
    5,032Profit / (loss) on ordinary
activities before interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,245
    
    
    
    (604
    )
    
    
    (2,165
    )
    
    
    5,095
    
    
    
    2,930Interest receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54
    
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    139Interest payable
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    (527
    )
    
    
    (95
    )
    
    
    
    
    
    
    
    
    
    
    (202
    )Profit / (Loss) on ordinary
activities before taxation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    772
    
    
    
    (599
    )
    
    
    
    
    
    
    
    
    
    
    2,867Taxation for the year
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    457
    
    
    
    361
    
    
    
    
    
    
    
    
    
    
    
    Profit / (Loss) on ordinary
activities after taxation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,229
    
    
    
    (238
    )
    
    
    
    
    
    
    
    
    
    
    2,867Equity minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Profit / (Loss) for the financial year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,265
    
    
    
    (238
    )
    
    
    
    
    
    
    
    
    
    
    2,867Basic and
fully diluted earnings / (loss) per share (pence)
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    0.61
    
    
    
    (0.13
    )
    
    
    
    
    
    
    
    
    
    
    1.59Basic and
fully diluted earnings / (loss) per share (pence) before
goodwill amortisation
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    0.99
    
    
    
    (0.13
    )
    
    
    
    
    
    
    
    
    
    
    1.59
 The results for the year ended 31 March 2003 relate solely to continuing
operations. The notes on pages F-9 to F-43 form part of these financial statements. F-4




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##### Table of Contents



Consolidated Statement of Total Recognized Gains and Losses
for the year ended 31 March 2004 2004
    
    2003
    
    2002£000
    
    £000
    
    £000Profit / (loss) for the financial year
    
    
    1,265
    
    
    
    (238
    )
    
    
    2,867Currency translation differences on
foreign currency equity investments
    
    
    623
    
    
    
    435
    
    
    
    18Total recognized gains for the year
    
    
    1,888
    
    
    
    197
    
    
    
    2,885
 The notes on pages F-9 to F-43 form part of these financial statements. F-5




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##### Table of Contents



Consolidated Balance Sheet
at 31 March 2004 2004
    
    2003Notes
    
    £000
    
    £000Fixed assetsIntangible fixed assets
    
    
    9
    
    
    
    9,838
    
    
    
    873Tangible fixed assets
    
    
    10
    
    
    
    7,473
    
    
    
    5,35117,311
    
    
    
    6,224Current assetsStocks
    
    
    12
    
    
    
    9,745
    
    
    
    7,085Debtors
    
    
    13
    
    
    
    3,740
    
    
    
    3,269Deferred taxation asset due beyond one year
    
    
    7
    
    
    
    442
    
    
    
    191Investments
    
    
    
    
    
    
    1
    
    
    
    Cash at bank and in hand
    
    
    
    
    
    
    3,307
    
    
    
    2,75617,235
    
    
    
    13,301Creditors:Amounts falling due within one year
    
    
    14
    
    
    
    (9,804
    )
    
    
    (8,470
    )Net current assets
    
    
    
    
    
    
    7,431
    
    
    
    4,831Total assets less current liabilities
    
    
    
    
    
    
    24,742
    
    
    
    11,055Creditors:Amounts falling due after more than one year
6% Convertible unsecured loan notes
    
    
    15
    
    
    
    (7,050
    )
    
    
    Other
    
    
    15
    
    
    
    (2,399
    )
    
    
    (717
    )(9,449
    )
    
    
    (717
    )Net assets
    
    
    
    
    
    
    15,293
    
    
    
    10,338Capital and reservesCalled up equity share capital
    
    
    17
    
    
    
    4,155
    
    
    
    3,765Share premium account
    
    
    18
    
    
    
    66,027
    
    
    
    63,350Other reserves
    
    
    18
    
    
    
    51,163
    
    
    
    51,163Profit and loss account
    
    
    18
    
    
    
    (106,052
    )
    
    
    (107,940
    )Equity shareholders funds
    
    
    19
    
    
    
    15,293
    
    
    
    10,338
 The notes on pages F-9 to F-43 form part of these financial statements. Approved by the Board on 26 May 2004
and signed on its behalf by Barrington M. RileyFinance Director F-6




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##### Table of Contents



Company Balance Sheet
at 31 March 2004 2004
    
    2003Notes
    
    £000
    
    £000Fixed AssetsTangible fixed assets
    
    
    10
    
    
    
    269
    
    
    
    69Investments in subsidiary undertakings
    
    
    11
    
    
    
    62,357
    
    
    
    66,92062,626
    
    
    
    66,989Current assetsDebtors
    
    
    13
    
    
    
    12,673
    
    
    
    6,530Cash at bank and in hand
    
    
    
    
    
    
    1
    
    
    
    12,674
    
    
    
    6,530Creditors:Amounts falling due within one year
    
    
    14
    
    
    
    (5,992
    )
    
    
    (12,800
    )Net current assets / (liabilities)
    
    
    
    
    
    
    6,682
    
    
    
    (6,270
    )Total assets less current liabilities
    
    
    
    
    
    
    69,308
    
    
    
    60,719Creditors:Amounts falling due after more than one year
6% Convertible unsecured loan notes
    
    
    15
    
    
    
    (7,050
    )
    
    
    -Other
    
    
    15
    
    
    
    (31
    )
    
    
    -(7,081
    )
    
    
    -Net assets
    
    
    
    
    
    
    62,227
    
    
    
    60,719Capital and reservesCalled up equity share capital
    
    
    17
    
    
    
    4,155
    
    
    
    3,765Share premium account
    
    
    18
    
    
    
    66,027
    
    
    
    63,350Profit and loss account
    
    
    18
    
    
    
    (7,955
    )
    
    
    (6,396
    )Equity shareholders funds
    
    
    
    
    
    
    62,227
    
    
    
    60,719
 The notes on pages F-9 to F-43 form part of these financial statements. Approved by the Board on 26 May 2004
and signed on its behalf by Barrington M. RileyFinance Director F-7




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##### Table of Contents



Consolidated Cash Flow Statement
For the year ended 31 March 2004 31 March
    
    31 March
    
    31 March2004
    
    2003
    
    2002Notes
    
    £000
    
    £000
    
    £000Net cash inflow / (outflow) from operating
activities
    
    
    22
    (i)
    
    
    639
    
    
    
    (1,723
    )
    
    
    (1,635
    )Returns on investments and servicing of financeInterest received
    
    
    
    
    
    
    54
    
    
    
    100
    
    
    
    139Finance lease interest paid
    
    
    
    
    
    
    (56
    )
    
    
    (12
    )
    
    
    (15
    )Other interest paid
    
    
    
    
    
    
    (345
    )
    
    
    (83
    )
    
    
    (99
    )Net cash (outflow) / inflow from returns on
investments and servicing of finance
    
    
    
    
    
    
    (347
    )
    
    
    5
    
    
    
    25TaxationUK Corporation tax received
    
    
    
    
    
    
    26
    
    
    
    582
    
    
    
    Net cash inflow from taxation
    
    
    
    
    
    
    26
    
    
    
    582
    
    
    
    Capital expenditure and financial investmentPayments to acquire tangible fixed assets
    
    
    
    
    
    
    (1,445
    )
    
    
    (1,862
    )
    
    
    (657
    )Capital grants received
    
    
    
    
    
    
    611
    
    
    
    
    
    
    
    Payments to acquire intangible fixed assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (172
    )Proceeds from sale of tangible fixed assets
    
    
    
    
    
    
    29
    
    
    
    22
    
    
    
    37Net cash outflow from capital expenditure and
financial investment
    
    
    
    
    
    
    (805
    )
    
    
    (1,840
    )
    
    
    (792
    )Acquisitions and disposalsPurchase of business
    
    
    25
    
    
    
    (519
    )
    
    
    
    
    
    
    Net overdrafts acquired with subsidiary
undertaking
    
    
    25
    
    
    
    (812
    )
    
    
    
    
    
    
    Sale of business
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    5,823Net cash (outflow) / inflow from acquisitions
and disposals
    
    
    
    
    
    
    (1,331
    )
    
    
    
    
    
    
    5,823Net cash (outflow) / inflow before management
of liquid resources and financing
    
    
    
    
    
    
    (1,818
    )
    
    
    (2,976
    )
    
    
    3,421Management of liquid resourcesCash withdrawn from money market deposits
    
    
    22
    (iii)
    
    
    
    
    
    
    
    
    
    
    1,686Net cash inflow from management of liquid
resources
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,686FinancingIssue of share capital, net
    
    
    
    
    
    
    3,067
    
    
    
    
    
    
    
    (2
    )Repayment of loans
    
    
    22
    (iii)
    
    
    (492
    )
    
    
    (484
    )
    
    
    (345
    )Repayment of finance leases and hire purchase
agreements
    
    
    22
    (iii)
    
    
    (201
    )
    
    
    (51
    )
    
    
    (75
    )Net cash inflow / (outflow) from financing
    
    
    
    
    
    
    2,374
    
    
    
    (535
    )
    
    
    (422
    )Increase / (decrease) in cash during the year
    
    
    22
    (iii)
    
    
    556
    
    
    
    (3,511
    )
    
    
    4,685
 The notes on pages F-9 to F-43 form part of these financial statements. F-8




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##### Table of Contents



Notes to the Financial Statements
for the year ended 31 March 2004 1. Accounting Policies Basis of accounting: The financial statements are prepared under the historical cost convention and
in accordance with applicable United Kingdom accounting standards on a basis
consistent with prior years. Basis of consolidation: The consolidated financial statements incorporate the financial statements of
the company and all its subsidiaries. Acquisitions and disposals: On the acquisition of a business, fair values are attributed to the Groups
share of net separable assets. Where the cost of acquisition exceeds the fair
values attributable to such net assets, the difference is treated as purchased
goodwill. Prior to the adoption of Financial Reporting Standard 10, Goodwill
and Intangible Assets, goodwill was written off to reserves and has not
subsequently been reinstated. Goodwill arising since the adoption of this
standard will be capitalised on the balance sheet in the year of acquisition
and amortised over its estimated useful life. The profit or loss on the disposal of a previously acquired business includes
the attributable amount of any purchased goodwill relating to that business not
previously charged through the profit and loss account. The results and cash flows relating to each business are included in the
consolidated profit and loss account and consolidated cash flow statement from
the date of acquisition or up to the date of disposal. Turnover: Turnover represents amounts receivable in respect of the sale of goods and
services, licence agreements and intellectual property to customers during the
year, net of trade discounts given and value added tax. Turnover is partly
recognised upon the shipment of products to the distributor with further
amounts being recognised in accordance with the contractual terms upon the
shipment to the end user. All other income is recognised on a receivable basis. Research and development expenditure: Research and development expenditure, including patents developed and
registered by the Group, is written off to the profit and loss account in the
year in which it is incurred. Intangible fixed assets: Goodwill arising on the acquisition of subsidiary undertakings and businesses,
representing any excess of the fair value of the consideration given over the
fair value of the identifiable assets and liabilities acquired, is capitalized
and written off on a straight line basis over its useful economic life.
Provision is made for any impairment. Patents acquired, including associated acquisition costs, are accounted for at
cost on acquisition and are amortised in equal annual amounts over their
estimated useful economic lives (8 years). Tangible Fixed Assets: Cost of tangible fixed assets includes the original purchase price of the asset
and the costs attributable to bringing the asset to its working condition for
its intended use. F-9




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##### Table of Contents



Depreciation of tangible fixed assets is provided to write off the cost, on a
straight line basis, over their estimated useful lives. The annual rates used
are as follows: Buildings and improvements
    
    5% to 10%Plant
    
    10% to 15%Computer equipment and software
    
    20% to 33%Fixtures, fittings and motor vehicles
    
    20% to 25%
 Freehold land is not depreciated. Gross interest costs relating to major tangible fixed assets under construction
are included in the cost of such assets and are depreciated as part of the
total cost. Interest is capitalized at rates attached to specific loans taken
out to fund the asset during the period of construction. Investments: Investments held as fixed assets are stated at cost less provision for any
impairment in value. Stocks: Stocks are valued at the lower of cost and net realisable value. Cost
comprises materials, direct labour and a share of production overheads
appropriate to the relevant stage of production. Net realisable value is
determined at the balance sheet date on commercially saleable products based on
estimated selling price less all further costs to completion and all relevant
marketing, selling and distribution costs. Research and development stocks are
fully provided for in the profit and loss account for the year, and are
reinstated as appropriate if the related products are brought into commercial
use. Deferred taxation: Deferred tax is provided in full on timing differences which result in an
obligation at the balance sheet date to pay more tax, or a right to pay less
tax, at a future date, at rates expected to apply when they crystallise based
on current tax rates and law. Timing differences arise from the inclusion of
income and expenditure in taxation computations in periods different from those
in which they are included in financial statements. Deferred tax is not
provided on unremitted earnings of subsidiaries and associates where there is
no commitment to remit these earnings. Deferred tax assets are recognised to
the extent that it is regarded as more likely than not they will be recovered.
Deferred tax assets and liabilities are not discounted. Foreign currencies: Assets and liabilities of subsidiaries in foreign currencies are translated
into sterling at rates of exchange ruling at the end of the financial year and
the results of foreign subsidiaries are translated at average rates of exchange
for the year. Differences on exchange arising from the retranslation of the
opening net investment in subsidiary companies, and from the translation of the
profits and losses of those companies at average rates, are taken to reserves
and are reported in the statement of total recognised gains and losses. F-10




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##### Table of Contents



The principal exchange rates used for translation of foreign currencies were as
follows: 2004
    
    2003
    
    2002Average
    
    Year End
    
    Average
    
    Year End
    
    Average
    
    Year EndUS Dollar
    
    
    1.688
    
    
    
    1.844
    
    
    
    1.545
    
    
    
    1.580
    
    
    
    1.432
    
    
    
    1.426Australian Dollar
    
    
    2.437
    
    
    
    2.408
    
    
    
    2.748
    
    
    
    2.619
    
    
    
    2.785
    
    
    
    2.672
 Assets, liabilities, revenues and costs expressed in foreign currencies are
translated into sterling at rates of exchange ruling on the date on which
transactions occurred, except for monetary assets and liabilities which are
translated at the rate ruling at the balance sheet date. Differences arising
on the retranslation of such items are dealt with in the profit and loss
account with the exception of differences arising upon translation of balances
which are considered to be as permanent as equity which are taken to reserves. Leasing: Assets acquired under finance leases are capitalised at their fair value on the
inception of the lease. Depreciation on leased assets is calculated to write
off this amount on a straight line basis over the shorter of the lease term and
the useful life of the assets. Rentals payable are apportioned between the
finance charge and a reduction of the outstanding obligation for future amounts
payable so that the charge for each accounting period is a constant percentage
of the remaining balance of the capital sum outstanding. Rentals payable under operating leases are charged on a straight line basis
over the term of the lease. Grants: Grants are taken to deferred income and are released to the profit and loss
account in appropriate installments relating to the type and nature of
expenditure they are intended to fund. Pensions: The Group operates a defined contribution pension scheme for all members of
staff who wish to participate. The funds of the scheme are administered by
trustees and are independent of the Groups finances. The Groups
contributions are charged against profits on an accruals basis, in the period
to which they relate. Share options: The Group grants share options to directors and employees. When the options are
exercised, the proceeds received net of any transaction cost are credited to
share capital (par value) and share premium. The Group operates an approved savings related option scheme which allow for
the grant of share options for a discount to the market price at the date of
the grant. The Group has made use of the exemption under UITF Abstract 17 not
to recognise any charge in respect of these options. F-11




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##### Table of Contents



Financial instruments: The Group uses derivative instruments in the form of forward foreign exchange
contracts to reduce exposure to foreign exchange risks. Gains or losses
arising on these contracts are deferred and recognised in the profit and loss
account only when the hedged transaction has itself been reflected in the
Groups financial statements. The Group excludes all short-term debtors and creditors from its derivatives
and financial instrument disclosures (other than those on currency risk
relating to monetary assets and liabilities). Loans are recorded at their net proceeds upon issue. Costs of issue are
amortised over the period of the instrument. 2. Segmental Information The turnover, net assets/(liabilities) and profit/(loss) on ordinary activities
are attributable to the principal activity of the Group, that being the
research, development, manufacture and sale of pharmaceutical products and
potential drugs for use in the treatment of human diseases. The Group operates
in the United Kingdom, United States of America and Australia and its turnover,
operating loss and net assets by geographical origin are as follows: 2004
    
    2003
    
    2002Inter
    
    
    
    
    
    
    
    
    
    Inter
    
    
    
    
    
    
    
    
    
    InterExternal
    
    segment
    
    
    
    
    
    External
    
    segment
    
    
    
    
    
    External
    
    segmentturnover
    
    turnover
    
    Total
    
    turnover
    
    turnover
    
    Total
    
    turnover
    
    turnover
    
    Total£000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000United Kingdom
    
    
    1,519
    
    
    
    13,596
    
    
    
    15,115
    
    
    
    1,301
    
    
    
    9,165
    
    
    
    10,466
    
    
    
    2,501
    
    
    
    8,732
    
    
    
    11,233United States
    
    
    19,438
    
    
    
    470
    
    
    
    19,908
    
    
    
    9,926
    
    
    
    
    
    
    
    9,926
    
    
    
    5,386
    
    
    
    
    
    
    
    5,386Australia
    
    
    62
    
    
    
    3,783
    
    
    
    3,845
    
    
    
    43
    
    
    
    2,328
    
    
    
    2,371
    
    
    
    37
    
    
    
    1,834
    
    
    
    1,87121,019
    
    
    
    17,849
    
    
    
    38,868
    
    
    
    11,270
    
    
    
    11,493
    
    
    
    22,763
    
    
    
    7,924
    
    
    
    10,566
    
    
    
    18,490
 Operating (loss)/profit2004
    
    2003
    
    2002£000
    
    £000
    
    £000United Kingdom
    
    
    (1,700
    )
    
    
    (905
    )
    
    
    2,926United States
    
    
    2,899
    
    
    
    (64
    )
    
    
    (5,363
    )Australia
    
    
    46
    
    
    
    365
    
    
    
    3351,245
    
    
    
    (604
    )
    
    
    (2,102
    )
 All the acquired and discontinued operations originated in the United Kingdom.
The acquired elements of external and inter segment turnover were £137,000
(2003: £nil, 2002: £nil) and the discontinued elements of external and inter
segment turnover were £nil (2003: £nil, 2002: £963,000) and £nil (2003: £ nil,
2002: £nil). The operating assets by geographical origin are as follows: 2004
    
    2003Net
    
    
    
    
    
    
    
    
    
    Netoperating
    
    Net cash /
    
    Net assets/
    
    operating
    
    Net cash /
    
    Net assets/assets
    
    (debt)
    
    (liabilities)
    
    assets
    
    (debt)
    
    (liabilities)£000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000United Kingdom
    
    
    23,359
    
    
    
    (6,079
    )
    
    
    17,280
    
    
    
    11,935
    
    
    
    1,777
    
    
    
    13,712United States
    
    
    (4,626
    )
    
    
    44
    
    
    
    (4,582
    )
    
    
    (5,743
    )
    
    
    (184
    )
    
    
    (5,927
    )Australia
    
    
    2,980
    
    
    
    (385
    )
    
    
    2,595
    
    
    
    2,558
    
    
    
    (5
    )
    
    
    2,55321,713
    
    
    
    (6,420
    )
    
    
    15,293
    
    
    
    8,750
    
    
    
    1,588
    
    
    
    10,338
 F-12




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##### Table of Contents



An analysis of turnover by geographical destination is as follows: 2004
    
    2003
    
    2002Conti-
    
    
    
    
    
    
    
    Conti-
    
    Discon-
    
    
    
    
    
    Conti-
    
    Discon-nuing
    
    Acquired
    
    
    
    
    
    nuing
    
    tinued
    
    
    
    
    
    nuing
    
    tinuedoperat-
    
    operat-
    
    
    
    
    
    operat-
    
    operat
    
    
    
    
    
    operat-
    
    operations
    
    ions
    
    Total
    
    ions
    
    ions
    
    Total
    
    ions
    
    ions
    
    Total£000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000United Kingdom
    
    
    20
    
    
    
    137
    
    
    
    157
    
    
    
    54
    
    
    
    
    
    
    
    54
    
    
    
    69
    
    
    
    1
    
    
    
    70Rest of Europe
    
    
    1,588
    
    
    
    
    
    
    
    1,588
    
    
    
    1,503
    
    
    
    
    
    
    
    1,503
    
    
    
    1,933
    
    
    
    72
    
    
    
    2,005North America
    
    
    18,993
    
    
    
    
    
    
    
    18,993
    
    
    
    9,669
    
    
    
    
    
    
    
    9,669
    
    
    
    4,786
    
    
    
    889
    
    
    
    5,675Rest of World
    
    
    281
    
    
    
    
    
    
    
    281
    
    
    
    44
    
    
    
    
    
    
    
    44
    
    
    
    173
    
    
    
    1
    
    
    
    17420,882
    
    
    
    137
    
    
    
    21,019
    
    
    
    11,270
    
    
    
    
    
    
    
    11,270
    
    
    
    6,961
    
    
    
    963
    
    
    
    7,924
 An analysis of profit/(loss) on ordinary activities before taxation has not
been presented as the directors consider the analysis of operating loss to be
more meaningful. A reconciliation of operating profit/(loss) and profit/(loss)
on ordinary activities before taxation is given in the consolidated profit and
loss account. 3. Operating Profit / (loss) The operating profit / (loss) is stated after charging/(crediting): 2004
    
    2003
    
    2002£000
    
    £000
    
    £000Depreciation  owned assets
    
    
    1,114
    
    
    
    882
    
    
    
    868Depreciation  leased assets
    
    
    114
    
    
    
    15
    
    
    
    64Amortization - goodwill
    
    
    782
    
    
    
    
    
    
    
    Amortization  intangible assets
    
    
    120
    
    
    
    128
    
    
    
    26Auditors remuneration:Audit
    
    
    73
    
    
    
    65
    
    
    
    70Other Services
    
    
    108
    
    
    
    165
    
    
    
    160Operating leases  hire of plant and equipment
    
    
    32
    
    
    
    46
    
    
    
    58Operating leases  other
    
    
    561
    
    
    
    437
    
    
    
    405Loss /
(profit) on disposal of tangible fixed assets
    
    
    125
    
    
    
    (2
    )
    
    
    16Release of deferred grant income
    
    
    (77
    )
    
    
    (101
    )
    
    
    (55
    )Staff costs (see note 4)
    
    
    6,853
    
    
    
    5,004
    
    
    
    4,542
 In the year ended 31 March 2002, research and development costs relating to
continuing operations are stated after an exceptional credit of £674,000
arising from the reinstatement of stock fully provided for in the prior year,
following FDA approval of DigiFab in August 2001. Cost of sales in the year
ended 31 March 2002 includes the cost of the reinstated stock which has been
sold in that year. The audit fee relating to the parent company amounted to £13,500 (2003:
£13,000, 2002: £12,000). In addition to the fees disclosed above for the year ended 31 March 2004, the
auditors received £49,000 in relation to the acquisition of Enact Pharma PLC
and the associated cash placing and open offer. The auditors will also receive
fees in relation to audit and taxation services provided to Enact Pharma PLC
for the period prior to its acquisition by the company of £6,000 and £12,000
respectively. F-13




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##### Table of Contents



A more detailed analysis of auditors remuneration on a worldwide basis is
provided below: 2004
    
    2003
    
    2002£000
    
    %
    
    £000
    
    %
    
    £000
    
    %Services as auditors- Statutory accounts
    
    
    79
    
    
    
    31.9
    
    
    
    65
    
    
    
    28.3
    
    
    
    70
    
    
    
    30.4- US regulatory
    
    
    27
    
    
    
    10.9
    
    
    
    20
    
    
    
    8.7
    
    
    
    20
    
    
    
    8.7106
    
    
    
    42.8
    
    
    
    85
    
    
    
    37.0
    
    
    
    90
    
    
    
    39.1Further assurance services- Tax compliance
    
    
    43
    
    
    
    17.4
    
    
    
    23
    
    
    
    10.0
    
    
    
    18
    
    
    
    7.8- Other
    
    
    10
    
    
    
    4.0
    
    
    
    18
    
    
    
    7.8
    
    
    
    83
    
    
    
    36.153
    
    
    
    21.4
    
    
    
    41
    
    
    
    17.8
    
    
    
    101
    
    
    
    43.9Tax advisory services
    
    
    40
    
    
    
    16.1
    
    
    
    94
    
    
    
    40.9
    
    
    
    39
    
    
    
    17.0Other non-audit services- Consulting services
    
    
    49
    
    
    
    19.7
    
    
    
    10
    
    
    
    4.3
    
    
    
    
    
    
    
    248
    
    
    
    100.0
    
    
    
    230
    
    
    
    100.0
    
    
    
    230
    
    
    
    100.0
 4. Staff Costs The average number of persons, including directors, employed by the Group
during the year was: 2004
    
    2003
    
    2002Number
    
    Number
    
    NumberManagement
    
    
    32
    
    
    
    25
    
    
    
    20Administration
    
    
    24
    
    
    
    15
    
    
    
    15Research
    
    
    163
    
    
    
    133
    
    
    
    109219
    
    
    
    173
    
    
    
    144
 Their total remuneration was: 2004
    
    2003
    
    2002£000
    
    £000
    
    £000Salaries
    
    
    5,865
    
    
    
    4,343
    
    
    
    3,955Social security costs
    
    
    503
    
    
    
    327
    
    
    
    331Pension costs
    
    
    485
    
    
    
    334
    
    
    
    2566,853
    
    
    
    5,004
    
    
    
    4,542
 Pension contributions of £6,000 (2003: £5,000, 2002: £3,000) were included in
accruals at year end. F-14




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##### Table of Contents



5. Directors Remuneration and Interests in Shares and Share Options A. Aggregate Directors Remuneration The total amounts for directors remuneration were as follows: 2004
    
    2003
    
    2002£000
    
    £000
    
    £000Emoluments
    
    
    815
    
    
    
    711
    
    
    
    776Money purchase pension contributions
    
    
    102
    
    
    
    89
    
    
    
    47917
    
    
    
    800
    
    
    
    823
 B. Directors Emoluments Compensationfor loss of
    
    Benefits
    
    Annual
    
    Total
    
    Total
    
    TotalSalary
    
    office
    
    in kind
    
    Bonus
    
    2004
    
    2003
    
    2002£000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000ExecutiveA Atkinson
    
    
    91
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91
    
    
    
    
    
    
    
    J C Christie
    
    
    116
    
    
    
    
    
    
    
    1
    
    
    
    20
    
    
    
    137
    
    
    
    130
    
    
    
    120A J Heath
    
    
    169
    
    
    
    
    
    
    
    1
    
    
    
    73
    
    
    
    243
    
    
    
    212
    
    
    
    211J A Miller
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40B M Riley
    
    
    130
    
    
    
    
    
    
    
    1
    
    
    
    26
    
    
    
    157
    
    
    
    136
    
    
    
    115A Rushton
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70
    
    
    
    124Non-ExecutiveJ Brown
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    M S Brown
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    14
    
    
    
    15M R B Gatenby
    
    
    19
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    21
    
    
    
    21D W Gration
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    26
    
    
    
    47M Peagram
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    S M Wallis
    
    
    70
    
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    101
    
    
    
    102
    
    
    
    83G Watts
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    657
    
    
    
    5
    
    
    
    34
    
    
    
    119
    
    
    
    815
    
    
    
    711
    
    
    
    776
 The fees in respect of A Atkinson include £76,000 (2003: £nil, 2002: £nil) paid
to a company controlled by himself. The fees in respect of S M Wallis and M
Peagram include £35,000 and £16,000 paid to their respective management
companies (2003: £60,000 and £nil, 2002: £60,000 and £nil respectively). Benefits in kind reflect the provision of private healthcare with the exception
of S M Wallis for whom a fully expensed car is provided. Retirement benefits are accruing to three directors (2003: four; 2002: four)
under the Groups defined contribution pension scheme. M S Brown rents office space at the Groups Nashville premises at a market
rental of $17,500 per annum (2003: $16,527; 2002: $14,015). J A Miller, A Rushton and M R B Gatenby resigned as a directors of the company
on 12 July 2001, 25 October 2002 and 12 February 2004 respectively. M S Brown
and M Peagram resigned as directors of the company on 16 April 2004. F-15




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##### Table of Contents



C. Directors Pension Entitlements Three directors were members of Money Purchase Schemes (2003: four; 2002:
four). Contributions made by the Company in respect of such directors were as
follows: 2004
    
    2003
    
    2002£000
    
    £000
    
    £000J C Christie
    
    
    12
    
    
    
    11
    
    
    
    10A J Heath
    
    
    77
    
    
    
    61
    
    
    
    17B M Riley
    
    
    13
    
    
    
    12
    
    
    
    9A Rushton
    
    
    
    
    
    
    5
    
    
    
    11102
    
    
    
    89
    
    
    
    47
 D. Interests in Ordinary Shares and Convertible Loan Notes The directors interests in the ordinary shares of the Company at 31 March 2004
were as follows: Ordinary Shares
    
    6% Convertible Loan Notes31 March
    
    31 March
    
    31 March
    
    31 March
    
    31 March
    
    31 March2004
    
    2003
    
    2002
    
    2004
    
    2003
    
    2002Number
    
    Number
    
    Number
    
    £
    
    £
    
    £M S Brown
    
    
    2,964,523
    
    
    
    3,167,317
    
    
    
    3,555,100
    
    
    
    
    
    
    
    
    
    
    
    S M Wallis
    
    
    457,931
    
    
    
    436,125
    
    
    
    436,125
    
    
    
    60,606
    
    
    
    
    
    
    
    A J Heath
    
    
    314,999
    
    
    
    300,000
    
    
    
    300,000
    
    
    
    24,242
    
    
    
    
    
    
    
    D W Gration
    
    
    42,941
    
    
    
    40,897
    
    
    
    40,897
    
    
    
    
    
    
    
    
    
    
    
    B M Riley
    
    
    27,291
    
    
    
    14,814
    
    
    
    14,814
    
    
    
    15,151
    
    
    
    
    
    
    
    J C Christie
    
    
    1,221
    
    
    
    1,163
    
    
    
    1,163
    
    
    
    
    
    
    
    
    
    
    
    M R B Gatenby
    
    
    
    
    
    
    26,666
    
    
    
    26,666
    
    
    
    
    
    
    
    
    
    
    
    A Rushton
    
    
    
    
    
    
    
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    A Atkinson
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    682,162
    
    
    
    
    
    
    
    M Peagram
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    297,157
    
    
    
    
    
    
    
    G Watts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    J Brown
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,808,906
    
    
    
    3,986,982
    
    
    
    4,377,765
    
    
    
    1,079,318
    
    
    
    
    
    
    
    
 All directors interests in ordinary shares are beneficial, with the exception
of 758,223 ordinary shares (2003: 758,223; 2002: 758,223) held by M S Brown. As at the date of this report, there were no changes to the directors
interests in ordinary shares. M S Brown and A J Heath held warrants to subscribe for nil (2003: 29,075; 2002:
29,075) and nil (2003: 14,538; 2002: 14,538) ordinary shares respectively, at
$2.07 per share. The warrants expired on 15 June 2003. F-16




---



##### Table of Contents



E. Share Options 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. On
12 December 2003, D W Gration exercised options over 129,620 ordinary shares at
an exercise price of 41.66p at which time the market price was 50.5p per
ordinary share. On 21 January 2004, B M Riley exercised options over 72,011
ordinary shares at an exercise price of 41.66p at which time the market price
was 58.25p per ordinary share. None of the directors exercised any options
during the prior year. Details of share options granted to directors are as follows: At 1 April
    
    
    
    
    
    
    
    
    
    Cancelled
    
    At 31 March
    
    Exercise
    
    Exercisable2003
    
    Granted
    
    Exercised
    
    or expired
    
    2004
    
    price (p)
    
    from
    
    toApproved optionsB M Riley
    
    
    52,955
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,955
    
    
    
    68.83
    
    
    25 Jul 1998
    
    24 July 2005Unapproved optionsD W Gration
    
    
    87,110
    
    
    
    
    
    
    
    
    
    
    
    87,110
    
    
    
    
    
    
    
    57.40
    
    
    20 Aug 1999
    
    19 Aug 2003D W Gration
    
    
    129,620
    
    
    
    
    
    
    
    129,620
    
    
    
    
    
    
    
    
    
    
    
    41.66
    
    
    23 Jan 2001
    
    22 Jan 2004D W Gration
    
    
    90,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,000
    
    
    
    46.00
    
    
    22 Jun 2001
    
    21 Jun 2008B M Riley
    
    
    78,011
    
    
    
    
    
    
    
    
    
    
    
    78,011
    
    
    
    
    
    
    
    66.66
    
    
    19 Jul 1999
    
    18 Jul 2003B M Riley
    
    
    72,011
    
    
    
    
    
    
    
    72,011
    
    
    
    
    
    
    
    
    
    
    
    41.66
    
    
    23 Jan 2001
    
    22 Jan 2004B M Riley
    
    
    65,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,000
    
    
    
    46.00
    
    
    22 Jun 2001
    
    21 Jun 2008B M Riley
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    39.00
    
    
    22 Dec 2002
    
    21 Dec 2009B M Riley
    
    
    120,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,000
    
    
    
    43.50
    
    
    22 Feb 2004
    
    21 Feb 2011B M Riley
    
    
    350,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    350,000
    
    
    
    39.50
    
    
    16 Jan 2005
    
    15 Jan 2012B M Riley
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    23.25
    
    
    20 June 2006
    
    19 June 2013B M Riley
    
    
    
    
    
    
    225,000
    
    
    
    
    
    
    
    
    
    
    
    225,000
    
    
    
    58.50
    
    
    1 March 2007
    
    28 Feb 2014A Atkinson
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    23.25
    
    
    20 June 2006
    
    19 June 2013A Atkinson
    
    
    
    
    
    
    135,000
    
    
    
    
    
    
    
    
    
    
    
    135,000
    
    
    
    58.50
    
    
    1 March 2007
    
    28 Feb 2014J C Christie
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    39.00
    
    
    22 Dec 2002
    
    21 Dec 2009J C Christie
    
    
    80,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,000
    
    
    
    43.50
    
    
    22 Feb 2004
    
    21 Feb 2011J C Christie
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    39.50
    
    
    16 Jan 2005
    
    15 Jan 2012J C Christie
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    23.25
    
    
    20 June 2006
    
    19 June 2013J C Christie
    
    
    
    
    
    
    150,000
    
    
    
    
    
    
    
    
    
    
    
    150,000
    
    
    
    58.50
    
    
    1 March 2007
    
    28 Feb 2014A J Heath
    
    
    116,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116,300
    
    
    
    175.00
    
    
    27 Jan 2000
    
    29 Jun 2008A J Heath
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    43.50
    
    
    22 Feb 2004
    
    21 Feb 2011A J Heath
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000
    
    
    
    39.50
    
    
    16 Jan 2005
    
    15 Jan 2012A J Heath
    
    
    
    
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    300,000
    
    
    
    23.25
    
    
    20 June 2006
    
    19 June 2013A J Heath
    
    
    
    
    
    
    325,000
    
    
    
    
    
    
    
    
    
    
    
    325,000
    
    
    
    58.50
    
    
    1 March 2009
    
    28 Feb 2014Savings-related
optionsJ C Christie
    
    
    27,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,000
    
    
    
    37.50
    
    
    1 Apr 2005
    
    31 Oct 2005IndividualA J Heath
    
    
    600,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600,000
    
    
    
    39.00
    
    
    22 Dec 2002
    
    21 Dec 2009Therapeutic
Antibodies
1990 PlanM S Brown
    
    
    46,520
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,520
    
    
    US$
    3.86
    
    
    1 Oct 1994
    
    30 Sept 2004M S Brown
    
    
    104,670
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,670
    
    
    US$
    5.15
    
    
    26 Apr 1996
    
    25 Apr 20064,069,197
    
    
    
    1,535,000
    
    
    
    201,631
    
    
    
    165,121
    
    
    
    5,237,445
 F-17




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##### Table of Contents



At 1 April
    
    
    
    
    
    
    
    
    
    Cancelled
    
    At 31 March
    
    Exercise
    
    Exercisable2002
    
    Granted
    
    Exercised
    
    or expired
    
    2003
    
    price (p)
    
    from
    
    toApproved optionsB M Riley
    
    
    52,955
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,995
    
    
    
    68.83
    
    
    25 Jul 1998
    
    24 Jul 2005Unapproved optionsD W Gration
    
    
    87,110
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,110
    
    
    
    57.40
    
    
    20 Aug 1999
    
    19 Aug 2003D W Gration
    
    
    129,620
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    129,620
    
    
    
    41.66
    
    
    23 Jan 2001
    
    22 Jan 2004D W Gration
    
    
    90,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,000
    
    
    
    46.00
    
    
    22 Jun 2001
    
    21 Jun 2008B M Riley
    
    
    78,011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78,011
    
    
    
    66.66
    
    
    19 Jul 1999
    
    18 Jul 2003B M Riley
    
    
    72,011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,011
    
    
    
    41.66
    
    
    23 Jan 2001
    
    22 Jan 2004B M Riley
    
    
    65,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,000
    
    
    
    46.00
    
    
    22 Jun 2001
    
    21 Jun 2008B M Riley
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    39.00
    
    
    22 Dec 2002
    
    21 Dec 2009B M Riley
    
    
    120,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,000
    
    
    
    43.50
    
    
    22 Feb 2004
    
    21 Feb 2011B M Riley
    
    
    350,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    350,000
    
    
    
    39.50
    
    
    16 Jan 2005
    
    15 Jan 2012J C Christie
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    39.00
    
    
    22 Dec 2002
    
    21 Dec 2009J C Christie
    
    
    80,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,000
    
    
    
    43.50
    
    
    22 Feb 2004
    
    21 Feb 2011J C Christie
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    39.50
    
    
    16 Jan 2005
    
    15 Jan 2012A J Heath
    
    
    116,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116,300
    
    
    
    175.00
    
    
    27 Jan 2000
    
    29 Jun 2008A J Heath
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    43.50
    
    
    22 Feb 2004
    
    21 Feb 2011A J Heath
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000
    
    
    
    39.50
    
    
    16 Jan 2005
    
    15 Jan 2012Savings related optionsJ C Christie
    
    
    27,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,000
    
    
    
    37.50
    
    
    1 Apr 2005
    
    31 Oct 2005IndividualA J Heath
    
    
    600,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600,000
    
    
    
    39.00
    
    
    22 Dec 2002
    
    21 Dec 2009S M Wallis
    
    
    6,054,338
    
    
    
    
    
    
    
    
    
    
    
    6,054,338
    
    
    
    
    
    
    
    39.50
    
    
    31 Dec 2001
    
    31 Mar 2003Therapeutic Antibodies
1990 PlanM S Brown
    
    
    46,520
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,520
    
    
    US$
    3.86
    
    
    1 Oct 1994
    
    30 Sept 2004M S Brown
    
    
    104,670
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,670
    
    
    US$
    5.15
    
    
    26 Apr 1996
    
    25 Apr 200610,123,535
    
    
    
    
    
    
    
    
    
    
    
    6,054,338
    
    
    
    4,069,197
 Options issued 1 March 2004 under the unapproved scheme are subject to
performance criteria which measure total shareholder return on a sliding scale
against the FTSE All Share Pharmaceutical and Biotech Index . Options issued to
existing holders with a total aggregate value (at the dates of grant) of up to
four times annual salary may be exercised after three years. If the Company is
at the median, one third of the shares under option become exercisable, rising
on a sliding scale such that all the shares under option become exercisable if
the Companys performance is at or above the upper quartile. For options
granted to existing holders with a total aggregate value (at the dates of
grant) between four and eight times annual salary, performance will be measured
after five years. No options are exercisable until the total shareholder return
of the Company reaches the median of the FTSE All Share Pharmaceuticals and
Biotech Index. Options may then be exercised on a sliding scale with the
maximum number of shares being exercisable if the Companys performance is at
or above the upper quartile. The Committee must also be satisfied that there
has been an improvement in the Companys underlying financial performance over
the period. Under both the approved and unapproved share option schemes, options may be
exercised on any date between three and ten years from the date of the grant of
the option subject to the Companys share price outperforming the average price
of shares in the FT Pharmaceutical Index in any three year period commencing on
or after the date of grant of the option. Prior to December 1999, the approved
scheme required real growth in earnings per share over three years. Initially,
the unapproved scheme, adopted by Proteus International PLC in 1996, prior to
the merger with Therapeutic Antibodies Inc. had performance criteria intended
for an early stage biotechnology company, relating principally to the
successful F-18




---



##### Table of Contents



completion of agreements with milestone payments generating turnover. The board
considered that the criteria were not appropriate to the more mature business
of Protherics, and, under the scheme rules, adopted the performance conditions
approved in December 1999 as likely to be a fairer and more effective
incentive. There are no performance criteria under the approved savings option
scheme. The performance criteria for A J Heaths individual option are similar to those
of the Unapproved Share Option Scheme. In particular, the option may generally
be exercised only between the third and tenth anniversaries of the date of
grant, and on the date of exercise, the share price must have outperformed the
average of the FTSE Pharmaceuticals Index in any preceding three year period.
An adjustment may be made to the number of shares under option or the exercise
price in the case of a variation in share capital, subject to confirmation by
the Auditors that it is in their opinion fair and reasonable. The option
lapses if A J Heath leaves the Company voluntarily, and must be exercised
within three months if his employment ceases by reason of injury, disability,
sickness or redundancy. The agreement confers no pensionable benefits. No
amendment may be made to the benefit of A J Heath except with the prior
approval of the Company in General Meeting except for minor amendments to
benefit the administration of the agreement or to obtain or maintain favorable
tax, exchange control or regulatory treatment for A J Heath or any Group
Member. A J Heath holds options over 116,300 shares under the Protherics PLC plan for
ex Therapeutic Antibodies employees. There are no performance criteria under
this plan, which mirrors the terms of the Therapeutic Antibodies 1990 plan,
from which the options were transferred. There are no performance criteria for the options held by M S Brown under the
Therapeutic Antibodies employees 1990 plan. The market price of the Companys ordinary shares to which the options relate
was 53.25p at 31 March 2004 and fluctuated between 16.5p and 61.75p during the
year. F. Directors Transactions The assets and liabilities acquired in the purchase of Enact Pharma PLC on 18
June 2003 (see note 25) included unsecured loans with directors A Atkinson and
M Peagram and carried an interest rate of 30% per annum with a minimum
guaranteed return of 10% on repayment. These loans were repaid on 30 June 2003.
The loan principal and interest subsequently paid to the directors were as
follows: Principal
    
    Interest£
    
    £A Atkinson
    
    
    5,000
    
    
    
    542M Peagram
    
    
    140,000
    
    
    
    14,219
 M Peagram also received £15,000 after the acquisition of Enact Pharma PLC in
relation to services provided to that company prior to the acquisition. The Company also rents office accommodation from, and has administration
services provided by Chimaeron Limited, a company in which A Atkinson has a
controlling interest. Rent charged and other services provided in the year to
31 March 2004 amounted to £21,375 and £4,811 respectively (2003: £nil and £nil
respectively). During the year, the company assigned certain intellectual property to a
company in which A Atkinson is a director and is in a position to exercise
significant influence for nil consideration although, should this company
succeed in raising funds to research and develop commercial products from this
intellectual property, Protherics PLC will receive a 2% equity stake and
royalties on any future revenues from products derived. The directors of
Protherics PLC had assigned no value to this intangible asset and therefore
consider this transaction to be at an arms length valuation. F-19




---



##### Table of Contents



6. Interest Payable 2004
    
    2003
    
    2002£000
    
    £000
    
    £000Finance lease and hire purchase agreements
    
    
    56
    
    
    
    12
    
    
    
    15Bank loans and overdrafts
    
    
    36
    
    
    
    3
    
    
    
    24% convertible debentures
    
    
    
    
    
    
    
    
    
    
    1046% convertible loan note
    
    
    337
    
    
    
    
    
    
    
    Amortisation of 6% convertible loan notes issue costs
    
    
    18
    
    
    
    
    
    
    
    Notes payable to South Australian Minister for Primary Industries
    
    
    29
    
    
    
    39
    
    
    
    42Other
    
    
    51
    
    
    
    41
    
    
    
    39527
    
    
    
    95
    
    
    
    202
 7. Taxation 2004
    
    2003
    
    2002£000
    
    £000
    
    £000Current taxationUK Corporation tax for the current year
    
    
    252
    
    
    
    170
    
    
    
    Adjustment in respect of prior years:  UK Corporation
tax
    
    
    (62
    )
    
    
    
    
    
    
    Total current taxation
    
    
    190
    
    
    
    170
    
    
    
    Deferred taxationIncrease in estimate of recoverable tax asset
    
    
    267
    
    
    
    191
    
    
    
    457
    
    
    
    361
    
    
    
    
 The tax credit arising in the current and prior year was as a result of
research and development expenditure claimed under the Finance Act 2000. No
corporation tax charge arose in the three years ended 31 March
2004 due to the utilization of losses brought forward from previous years. The weighted average standard rate of current tax for the year based on the
average rate of corporation tax to the group is 30.5% (2003: 31.4%; 2002:
31.7%). The actual charge for the current and previous year differs from the
standard rate for the reasons set out in the following reconciliation: 2004
    
    2003
    
    2002£000
    
    £000
    
    £000Profit/(loss) on ordinary activities before tax
    
    
    772
    
    
    
    (599
    )
    
    
    2,867Tax on profit/(loss) on ordinary activities at standard rate
    
    
    235
    
    
    
    (188
    )
    
    
    908Factors affecting charge for the periodTiming differences between capital allowances and depreciation
    
    
    134
    
    
    
    (39
    )
    
    
    (35
    )Other timing differences
    
    
    120
    
    
    
    (419
    )
    
    
    (73
    )Other expenses/(income) not deductible for tax purposes
    
    
    47
    
    
    
    17
    
    
    
    (340
    )Additional tax credit for research and development expenditure
incurred
    
    
    (87
    )
    
    
    (128
    )
    
    
    (111
    )Lower rate of tax on research and development credits surrendered
    
    
    70
    
    
    
    13
    
    
    
    (utilisation of)/addition to losses carried forward
    
    
    (771
    )
    
    
    574
    
    
    
    (349
    )Adjustments to tax charge in respect of prior years
    
    
    62
    
    
    
    
    
    
    
    Total actual amount of current tax
    
    
    (190
    )
    
    
    (170
    )
    
    
    
 A deferred tax asset of £442,000 has been recognized at 31 March 2004 (2003:
£191,000; 2002: nil). This asset, which relates to trading losses incurred in
Australia and the United States, has been recognised in the financial
statements following the development of the Groups products during the past
year and the directors are of the opinion, based on recent and forecast
trading, that the level of profits in both Australia and the United States in
the forthcoming years will lead to the realization of this asset. F-20




---



##### Table of Contents



The deferred tax asset recognized is set out in the following reconciliation: £000At 1 April 2003
    
    
    191Credited to the profit and loss account
    
    
    267Exchange adjustment
    
    
    (16
    )At 31 March 2004
    
    
    442
 In addition to the losses on which a deferred tax asset has been recognised,
the Group has additional taxable losses in the United Kingdom, Australia and
the United States which arose as a result of the research and development
incurred during the start-up of the Groups activities. These losses are
available for offset against future taxable profits in these territories. A
deferred tax asset has not been recognised in respect of these losses and other
timing differences since the Group does not anticipate generating sufficient
taxable profits to utilise these losses within the immediate future and
consequently the recoverability of the deferred tax asset is uncertain. The
total amount of deferred tax assets not recognised, measured at a weighted
average standard rate of 30.5%, is approximately £20 million (2003:
approximately £22 million at 31.4%; 2002: approximately £22 million at 31.7%). At 31 March 2004 the Group had tax losses, subject to the agreement of the
Taxation Authorities, of approximately £68 million (2003: £70 million; 2002:
£68 million) available for offset against future taxable profits of the same
trade. Of these losses, approximately £23 million (2003: £34 million; 2002:
£45 million) relates to Protherics Inc., and of these, the use of £13 million
is restricted to US$1.5 million per year. 8. Earnings/(loss) per Share Basic earnings/(loss) per share is based on attributable profits of £1,265,000
(2003: attributable losses of £238,000; 2002 attributable profits of
£2,867,000) and a weighted average number of shares in issue during the year of
206,355,558 (2003: 190,364,364; 2002: 180,136,683). The weighted average number
of shares in issue for the twelve months ended 31 March 2003 and 31 March 2002
have been adjusted for the cash placing and open offer during the current year
in accordance with Financial Reporting Standard 14, Earnings per share. This
has had no effect on the loss per share previously reported. Fully diluted profit per share is based on attributable profits of £1,265,000
and on the weighted average number of shares in issue during the period of
207,078,267. Losses per share were anti-dilutive in the years ended 31 March
2003 and 31 March 2002. Supplementary earnings per share has been calculated to exclude the effect of
goodwill amortisation. This adjusted number has been provided in order that the
effects of goodwill amortisation, which is a significant non cash charge in the
profit and loss account, can be more easily identified. 2004
    
    2003
    
    2002£000
    
    £000
    
    £000Profit / (loss) for the year retained for equity shareholders
    
    
    1,265
    
    
    
    (238
    )
    
    
    2,867Add back: goodwill amortisation (2004: 0.38 pence per share,
2003 and 2002: nil pence per share)
    
    
    782
    
    
    
    
    
    
    
    2,047
    
    
    
    (238
    )
    
    
    2,867
 F-21




---



##### Table of Contents



9. Intangible Fixed Assets Patents
    
    Goodwill
    
    Total£000
    
    £000
    
    £000GroupCostAt 1 April 2003
    
    
    1,026
    
    
    
    
    
    
    
    1,026Translation
    
    
    (147
    )
    
    
    
    
    
    
    (147
    )Additions (note 25)
    
    
    
    
    
    
    9,981
    
    
    
    9,981At 31 March 2004
    
    
    879
    
    
    
    9,981
    
    
    
    10,860AmortisationAt 1 April 2003
    
    
    153
    
    
    
    
    
    
    
    153Translation
    
    
    (33
    )
    
    
    
    
    
    
    (33
    )Charge for the year
    
    
    120
    
    
    
    782
    
    
    
    902At 31 March 2004
    
    
    240
    
    
    
    782
    
    
    
    1,022Net Book Value31 March 2004
    
    
    639
    
    
    
    9,199
    
    
    
    9,83831 March 2003
    
    
    873
    
    
    
    
    
    
    
    873
 The goodwill arising on the acquisition of Enact Pharma PLC is being amortised
on a straight line basis over 10 years being the period over which the
directors estimate that the values of the underlying businesses acquired are
expected to exceed the value of the underlying assets. F-22




---



##### Table of Contents



10. Tangible Fixed Assets Furniture,Land &
    
    Plant &
    
    fixturesbuildings
    
    machinery
    
    & equipment
    
    Total£000
    
    £000
    
    £000
    
    £000GroupCostAt 1 April 2003
    
    
    4,650
    
    
    
    5,430
    
    
    
    1,842
    
    
    
    11,922Reclassification
    
    
    
    
    
    
    339
    
    
    
    (339
    )
    
    
    Additions
    
    
    541
    
    
    
    1,868
    
    
    
    892
    
    
    
    3,301Acquisition of subsidiary undertaking
    
    
    
    
    
    
    32
    
    
    
    23
    
    
    
    55Disposals
    
    
    
    
    
    
    (272
    )
    
    
    (116
    )
    
    
    (388
    )Translation
    
    
    94
    
    
    
    106
    
    
    
    41
    
    
    
    241At 31 March 2004
    
    
    5,285
    
    
    
    7,503
    
    
    
    2,343
    
    
    
    15,131DepreciationAt 1 April 2003
    
    
    2,650
    
    
    
    3,023
    
    
    
    898
    
    
    
    6,571Reclassification
    
    
    
    
    
    
    21
    
    
    
    (21
    )
    
    
    Charge for the year
    
    
    350
    
    
    
    618
    
    
    
    260
    
    
    
    1,228Disposals
    
    
    
    
    
    
    (156
    )
    
    
    (78
    )
    
    
    (234
    )Translation
    
    
    32
    
    
    
    45
    
    
    
    16
    
    
    
    93At 31 March 2004
    
    
    3,032
    
    
    
    3,551
    
    
    
    1,075
    
    
    
    7,658Net Book Value31 March 2004
    
    
    2,253
    
    
    
    3,952
    
    
    
    1,268
    
    
    
    7,47331 March 2003
    
    
    2,000
    
    
    
    2,407
    
    
    
    944
    
    
    
    5,351
 2004
    
    2003£000
    
    £000Land and buildings comprise:Freehold
    
    
    1,452
    
    
    
    1,313Short leasehold
    
    
    801
    
    
    
    6872,253
    
    
    
    2,000
 Plant and machinery includes cost of £1,737,000 (2003: £381,000) in respect of
assets in the course of construction. The net book value of tangible fixed assets includes £2,127,000 (2003:
£302,000) in respect of assets held under finance lease and hire purchase
agreements. Depreciation for the year on those assets was £114,000 (2003:
£15,000). The net book value of tangible fixed assets include capitalized interest of
£68,000 (2003: £114,000). No interest was capitalized in the year and
depreciation for the year amounted to £46,000 (2003: £44,000). F-23




---



##### Table of Contents



Land &
    
    Plant andbuildings
    
    machinery
    
    Total£000
    
    £000
    
    £000CompanyCostAt 1 April 2003
    
    
    42
    
    
    
    84
    
    
    
    126Additions
    
    
    
    
    
    
    260
    
    
    
    260Disposals
    
    
    
    
    
    
    (41
    )
    
    
    (41
    )At 31 March 2004
    
    
    42
    
    
    
    303
    
    
    
    345DepreciationAt 1 April 2003
    
    
    42
    
    
    
    15
    
    
    
    57Charge for the year
    
    
    
    
    
    
    29
    
    
    
    29Disposals
    
    
    
    
    
    
    (10
    )
    
    
    (10
    )At 31 March 2004
    
    
    42
    
    
    
    34
    
    
    
    76Net Book Value31 March 2004
    
    
    
    
    
    
    269
    
    
    
    26931 March 2003
    
    
    
    
    
    
    69
    
    
    
    69
 11. Investments in Subsidiary Undertakings Long termShares
    
    loans
    
    Total£000
    
    £000
    
    £000CompanyCostAt 1 April 2003
    
    
    1,652
    
    
    
    65,516
    
    
    
    67,168Additions (note 25)
    
    
    8,277
    
    
    
    
    
    
    
    8,277Net amounts repaid during the year
    
    
    
    
    
    
    (12,840
    )
    
    
    (12,840
    )At 31 March 2004
    
    
    9,929
    
    
    
    52,676
    
    
    
    62,605Provision at 31 March 2004 and 31 March 2003
    
    
    (119
    )
    
    
    (129
    )
    
    
    (248
    )Net Book Value31 March 2004
    
    
    9,810
    
    
    
    52,547
    
    
    
    62,35731 March 2003
    
    
    1,533
    
    
    
    65,387
    
    
    
    66,920
 F-24




---



##### Table of Contents



Details of subsidiary undertakings, all of which are registered in England and
Wales, unless noted, are as follows: % ofordinarysharesheld
    
    StatusDirect holdingsProtherics Molecular Design Limited
    
    
    100
    
    
    tradingProtherics Inc. (formerly Therapeutic Antibodies Inc.)
    
    
    100
    
    
    trading (incorporated in Delaware USA)Proteus Biotechnology Limited
    
    
    100
    
    
    dormantEnact Pharma PLC
    
    
    100
    
    
    tradingGenethics Limited
    
    
    76
    
    
    dormantIndirect holdingsProtherics UK Limited
    
    
    100
    
    
    tradingProtherics Australasia Pty Limited
    
    
    100
    
    
    trading (incorporated in Australia)Protherics Utah Inc
    
    
    100
    
    
    trading (incorporated in Delaware USA)Enzacta R&D Limited
    
    
    99.8
    
    
    dormantEnzacta Limited
    
    
    99.8
    
    
    dormantKymed GB Limited
    
    
    100
    
    
    dormantDe Montfort Biopharma Limited
    
    
    100
    
    
    dormantTAb (Wales) Limited
    
    
    100
    
    
    dormantTAb (London) Limited
    
    
    100
    
    
    dormantPolyclonal Antibodies Limited
    
    
    100
    
    
    dormantProtherics Services pty Limited
    
    
    100
    
    
    dormant
 All of the trading subsidiaries are engaged in the research, development,
manufacture and sale of pharmaceutical products and potential drugs for use in
the treatment of human diseases. 12. Stocks Group2004
    
    2003£000
    
    £000Raw materials and consumables
    
    
    998
    
    
    
    1,027Work in progress
    
    
    8,686
    
    
    
    6,034Finished goods
    
    
    61
    
    
    
    249,745
    
    
    
    7,085
 13. Debtors  amounts falling due within one year Group
    
    Company2004
    
    2003
    
    2004
    
    2003£000
    
    £000
    
    £000
    
    £000Trade debtors
    
    
    2,459
    
    
    
    2,531
    
    
    
    
    
    
    
    Amounts owed by Group undertakings
    
    
    
    
    
    
    
    
    
    
    12,349
    
    
    
    6,447Other debtors
    
    
    227
    
    
    
    215
    
    
    
    
    
    
    
    Taxation recoverable
    
    
    307
    
    
    
    88
    
    
    
    
    
    
    
    Prepayments and accrued income
    
    
    747
    
    
    
    435
    
    
    
    324
    
    
    
    833,740
    
    
    
    3,269
    
    
    
    12,673
    
    
    
    6,530
 F-25




---



##### Table of Contents



14. Creditors  amounts falling due within one year Group
    
    Company2004
    
    2003
    
    2004
    
    2003£000
    
    £000
    
    £000
    
    £000Bank loans and overdrafts
    
    
    172
    
    
    
    
    
    
    
    9
    
    
    
    7Notes
payable to South Australian Minister for
Primary Industries (Note 15)
    
    
    130
    
    
    
    110
    
    
    
    
    
    
    
    Other loans
    
    
    198
    
    
    
    266
    
    
    
    
    
    
    
    Obligations under finance lease and hire
purchase agreements (Note 15)
    
    
    456
    
    
    
    75
    
    
    
    25
    
    
    
    Trade creditors
    
    
    2,497
    
    
    
    1,649
    
    
    
    593
    
    
    
    313Amounts owed to Group undertakings
    
    
    
    
    
    
    
    
    
    
    4,756
    
    
    
    12,160Other taxation and social security
    
    
    127
    
    
    
    97
    
    
    
    147
    
    
    
    104Other creditors
    
    
    125
    
    
    
    494
    
    
    
    
    
    
    
    2Accruals
    
    
    1,925
    
    
    
    1,050
    
    
    
    462
    
    
    
    214Deferred income
    
    
    4,174
    
    
    
    4,729
    
    
    
    
    
    
    
    9,804
    
    
    
    8,470
    
    
    
    5,992
    
    
    
    12,800
 15. Creditors  amounts falling due after more than one year Group
    
    Company2004
    
    2003
    
    2004
    
    2003£000
    
    £000
    
    £000
    
    £000Loans:6% Convertible unsecured loan notes
    
    
    7,050
    
    
    
    
    
    
    
    7,050
    
    
    
    Notes
payable to South Australian Minister for Primary Industries
    
    
    208
    
    
    
    306
    
    
    
    
    
    
    
    Bank loans
    
    
    54
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    231
    
    
    
    
    
    
    
    7,312
    
    
    
    537
    
    
    
    7,050
    
    
    
    Obligations under finance lease and
hire purchase agreements
    
    
    1,459
    
    
    
    180
    
    
    
    31
    
    
    
    Deferred income
    
    
    678
    
    
    
    
    
    
    
    
    
    
    
    9,449
    
    
    
    717
    
    
    
    7,081
    
    
    
    Repayments of loans and overdraftsIn one year or less, or on demand
    
    
    500
    
    
    
    376
    
    
    
    9
    
    
    
    7In more than one year, but not
more than two years
    
    
    229
    
    
    
    351
    
    
    
    
    
    
    
    In more than two years, but not
more than five years
    
    
    
    
    
    
    156
    
    
    
    
    
    
    
    In more than five years
    
    
    7,083
    
    
    
    30
    
    
    
    7,050
    
    
    
    7,812
    
    
    
    913
    
    
    
    7,059
    
    
    
    7
 Obligations under finance lease and hire purchase agreement bear interest at
normal commercial rates and fall due as follows: F-26




---



##### Table of Contents



Group
    
    Company2004
    
    2003
    
    2004
    
    2003£'000
    
    £'000
    
    £'000
    
    £'000Less than one year
    
    
    456
    
    
    
    75
    
    
    
    25
    
    
    
    Within one to two years
    
    
    448
    
    
    
    77
    
    
    
    28
    
    
    
    Within two to five years
    
    
    1,011
    
    
    
    103
    
    
    
    3
    
    
    
    Loans:
    
    
    1,915
    
    
    
    255
    
    
    
    56
    
    
    
    
 Interest on the 6% convertible unsecured loan notes is payable twice annually
in arrears. If not previously repaid, converted or repurchased, the loan notes
will be repaid at par on 19 June 2010. The loan notes are convertible at 25p
per ordinary share, at the holders option, from the earlier of 19 December
2004, or such date that the Company has received FDA marketing approval for
Voraxaze but in any event no earlier than June 19, 2004. The terms of the loan
notes permit the Company to repurchase the loan notes at any time by tender
(available to all holders alike) or by privately negotiated transactions with
individual holders at any price. The notes payable to the South Australian Minister for Primary Industries (the
Minister) are secured on buildings and equipment of Protherics Australasia Pty
Limited. Repayment is in equal annual installments, with the final installment
due in August 2007. The interest rate is variable at the discretion of the
Minister and is payable annually. The Welsh Development Agency has a legal charge over certain buildings, plant
and equipment securing grants received amounting to £33,000. The other loans are secured upon the patent shown in the consolidated balance
sheet and are repayable by monthly installments, the final being due in January
2005. The interest rate is variable and reset quarterly based upon the lower of
7% and the Prime lending rate in the United States. F-27




---



##### Table of Contents



16. Deferred Taxation A provision for deferred taxation is not required and there is no potential
liability for deferred taxation (2003: £nil). 17. Share Capital Group and company
    
    Group and company2004
    
    2003No. Shares
    
    £000
    
    No. Shares
    
    £000AuthorizedOrdinary shares of 2p each
    
    
    313,500,000
    
    
    
    6,270
    
    
    
    300,000,000
    
    
    
    6,000Allotted, called-up and fully paidOrdinary shares of 2p each
    
    
    207,750,086
    
    
    
    4,155
    
    
    
    188,232,913
    
    
    
    3,765
 During the year the company allotted 18,802,484 ordinary shares with a nominal
value of £376,050 in the cash placing and open offer initiated in conjunction
with the acquisition of Enact Pharma PLC. The consideration received in
relation to this transaction was £3,008,000 with issue expenses of £209,000
being charged to reserves. In addition, warrants and options have been
exercised over 714,689 ordinary shares with a nominal value of £14,294 for a
total consideration of £268,000. At 31 March 2004 there were no unexercised warrants (2003: 887,008 ordinary
shares), however there are unexercised warrants for 932,500 ordinary shares in
Enact Pharma PLC, a company acquired during the current year, which expire
between 31 December 2004 and 9 July 2012 and are exercisable at prices between
25p and 60p per share. Should these be exercised, the company is entitled to
repurchase these shares by issuing £17.05 6% convertible loan notes per 100
Enact Pharma PLC ordinary shares. The terms of these loan notes are disclosed
in note 15 to the accounts. F-28




---



##### Table of Contents



Details of outstanding share options are as follows: At 1 April
    
    
    
    
    
    
    
    
    
    Cancelled
    
    At 31 March
    
    Exercise2003
    
    Granted
    
    Exercised
    
    or expired
    
    2004
    
    price (p)Date exercisableIndividual unapproved22 Dec 2002 to 21 Dec 2009
    
    
    600,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600,000
    
    
    
    39.009 July 2002 to 8 July 2010
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    40.009 July 2002 to 8 July 2010
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    25.009 July 2002 to 31 May 2007
    
    
    3,850
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,850
    
    
    
    US$  6.00Approved scheme21 July 1997 to 20 July 2004
    
    
    23,535
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,535
    
    
    
    154.6625 July 1998 to 24 July 2005
    
    
    52,955
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,955
    
    
    
    68.8328 Jan 2003 to 27 Jan 2010
    
    
    64,475
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,475
    
    
    
    37.5028 Feb 2004 to 27 Feb 2011
    
    
    343,000
    
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    341,000
    
    
    
    43.50Unapproved scheme19 July 1999 to 18 July 2003
    
    
    248,250
    
    
    
    
    
    
    
    
    
    
    
    248,250
    
    
    
    
    
    
    
    66.6620 Aug 1999 to 19 Aug 2003
    
    
    87,110
    
    
    
    
    
    
    
    
    
    
    
    87,110
    
    
    
    
    
    
    
    57.4023 Jan 2001 to 22 Jan 2004
    
    
    297,646
    
    
    
    
    
    
    
    296,646
    
    
    
    1,000
    
    
    
    
    
    
    
    41.6620 Jan 2001 to 19 Jan 2004
    
    
    6,751
    
    
    
    
    
    
    
    
    
    
    
    6,751
    
    
    
    
    
    
    
    76.8422 June 2001 to 21 June 2008
    
    
    275,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    275,000
    
    
    
    46.0023 Dec 2001 to 22 Dec 2005
    
    
    10,305
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,305
    
    
    
    45.0022 Dec 2002 to 21 Dec 2009
    
    
    540,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    540,000
    
    
    
    39.0027 Jan 2003 to 26 Jan 2010
    
    
    87,909
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,909
    
    
    
    37.502 Aug 2003 to 1 Aug 2010
    
    
    2,908
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,908
    
    
    
    28.5022 Feb 2004 to 21 Feb 2011
    
    
    1,430,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,430,000
    
    
    
    43.5016 Jan 2005 to 15 Jan 2012
    
    
    2,369,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,369,000
    
    
    
    39.509 July 2005 to 8 July 2012
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    25.0014 Jan 2006 to 13 Jan 2013
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    21.0020 Jun 2006 to 19 Jun 2013
    
    
    
    
    
    
    1,250,000
    
    
    
    
    
    
    
    
    
    
    
    1,250,000
    
    
    
    23.2524 Jun 2006 to 23 Jun 2013
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    23.001 Mar 2007 to 28 Feb 2014
    
    
    
    
    
    
    1,240,000
    
    
    
    
    
    
    
    
    
    
    
    1,240,000
    
    
    
    58.501 Mar 2009 to 28 Feb 2014
    
    
    
    
    
    
    325,000
    
    
    
    
    
    
    
    
    
    
    
    325,000
    
    
    
    58.50Savings related options1 Oct 2003 to 31 Mar 2004
    
    
    47,260
    
    
    
    
    
    
    
    47,260
    
    
    
    
    
    
    
    
    
    
    
    36.501 Apr 2003 to 31 Oct 2003
    
    
    75,426
    
    
    
    
    
    
    
    11,883
    
    
    
    63,543
    
    
    
    
    
    
    
    37.501 Apr 2005 to 31 Oct 2005
    
    
    96,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    96,300
    
    
    
    37.50Protherics PLC option plan for
Therapeutic Antibodies employees27 Jan 2000 to 29 June 2008
    
    
    166,222
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166,222
    
    
    
    156.00 to 312.007,467,902
    
    
    
    2,845,000
    
    
    
    355,789
    
    
    
    408,654
    
    
    
    9,548,459
 F-29




---



##### Table of Contents



At 1 April
    
    
    
    
    
    
    
    
    
    Cancelled
    
    At 31 March
    
    ExerciseDate exercisable
    
    2002
    
    Granted
    
    Exercised
    
    Or expired
    
    2003
    
    price (p)Individual unapproved22 Dec 2002 to 21 Dec 2009
    
    
    600,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600,000
    
    
    
    39.009 July 2002 to 8 July 2010
    
    
    
    
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    40.009 July 2002 to 8 July 2010
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    25.009 July 2002 to 31 May 2007
    
    
    
    
    
    
    3,850
    
    
    
    
    
    
    
    
    
    
    
    3,850
    
    
    US$
    6.00Approved scheme21 July 1997 to 20 July 2004
    
    
    23,535
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,535
    
    
    
    154.6625 July 1998 to 24 July 2005
    
    
    52,955
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,955
    
    
    
    68.8328 Jan 2003 to 27 Jan 2010
    
    
    72,838
    
    
    
    
    
    
    
    
    
    
    
    8,363
    
    
    
    64,475
    
    
    
    37.5028 Feb 2004 to 27 Feb 2011
    
    
    384,000
    
    
    
    
    
    
    
    
    
    
    
    41,000
    
    
    
    343,000
    
    
    
    43.50Unapproved scheme19 July 1999 to 18 July 2003
    
    
    248,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    248,250
    
    
    
    66.6620 Aug 1999 to 19 Aug 2003
    
    
    87,110
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,110
    
    
    
    57.4023 Jan 2001 to 22 Jan 2004
    
    
    297,646
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    297,646
    
    
    
    41.6620 Jan 2001 to 19 Jan 2004
    
    
    6,751
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,751
    
    
    
    76.8422 June 2001 to 21 June 2008
    
    
    275,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    275,000
    
    
    
    46.0023 Dec 2001 to 22 Dec 2005
    
    
    10,305
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,305
    
    
    
    45.0022 Dec 2002 to 21 Dec 2009
    
    
    565,000
    
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    540,000
    
    
    
    39.0027 Jan 2003 to 26 Jan 2010
    
    
    89,419
    
    
    
    
    
    
    
    
    
    
    
    1,510
    
    
    
    87,909
    
    
    
    37.502 Aug 2003 to 1 Aug 2010
    
    
    2,908
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,908
    
    
    
    28.5022 Feb 2004 to 21 Feb 2011
    
    
    1,530,000
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    1,430,000
    
    
    
    43.5016 Jan 2005 to 15 Jan 2012
    
    
    2,399,000
    
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    2,369,000
    
    
    
    39.509 July 2005 to 8 July 2012
    
    
    
    
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    25.0014 Jan 2006 to 13 Jan 2013
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    21.00Savings related options1 Oct 2003 to 31 Mar 2004
    
    
    47,260
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,260
    
    
    
    36.501 Apr 2003 to 31 Oct 2003
    
    
    80,592
    
    
    
    
    
    
    
    
    
    
    
    5,166
    
    
    
    75,426
    
    
    
    37.501 Apr 2005 to 31 Oct 2005
    
    
    114,300
    
    
    
    
    
    
    
    
    
    
    
    18,000
    
    
    
    96,300
    
    
    
    37.50Protherics PLC option plan for
Therapeutic
Antibodies employees27 Jan 2000 to 29 June 2008
    
    
    166,222
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166,222
    
    
    
    156.0 to 312.07,053,091
    
    
    
    643,850
    
    
    
    
    
    
    
    229,039
    
    
    
    7,467,902
 Therapeutic Antibodies former employees and consultants In addition to the above, options over up to 546,197 shares (2003: 577,714)
previously held under the Therapeutic Antibodies 1990 Plan may be granted upon
request by Therapeutic Antibodies former employees and consultants under the
terms of the Merger Agreement dated 20 May 1999. Option prices range from
$3.87 to $6.99 per share and may be exercised at various dates from 29 April
1994 to 15 Dec 2006. M Brown Options In addition to the above, M Brown holds options over 46,520 ordinary shares at
$3.86 per share and 104,670 ordinary shares at $5.15 per share under the
Therapeutic Antibodies 1990 plan. Full details have been provided in note 5. Share options in Enact Pharma PLC F-30




---



##### Table of Contents



In addition to the above, options over 537,852 ordinary shares in Enact Pharma
PLC, a company acquired in the current year, may be exercised at 20p per Enact
Pharma PLC ordinary share between 9 January 2005 and 8 January 2012. Should
these be exercised, the company is entitled to repurchase these shares by
issuing £17.05 6% convertible loan notes per 100 Enact Pharma PLC ordinary
shares. The terms of these loan notes are disclosed in note 15 to the accounts. 18. Reserves Group and Company
    
    Group Merger
    
    Profit and Loss accountShare Premium
    
    Reserve
    
    Group
    
    Company£000
    
    £000
    
    £000
    
    £000At 31 March 2003
    
    
    63,350
    
    
    
    51,163
    
    
    
    (107,940
    )
    
    
    (6,396
    )Exchange movement
    
    
    
    
    
    
    
    
    
    
    623
    
    
    
    Issue of shares
    
    
    2,677
    
    
    
    
    
    
    
    
    
    
    
    Retained profit/
(loss) for the year
    
    
    
    
    
    
    
    
    
    
    1,265
    
    
    
    (1,559
    )At 31 March 2004
    
    
    66,027
    
    
    
    51,163
    
    
    
    (106,052
    )
    
    
    (7,995
    )
 Goodwill on acquisition written off in prior periods amounts to £l,909,000. In
accordance with section 230 (1-4) of the Companies Act 1985, a separate profit
and loss account for the Company is not presented. Of the retained profit for
the year of the Group, losses of £1,559,000 have been dealt with in the
accounts of the Company. 19. Reconciliation of Movement in Equity Shareholders Funds Group2004
    
    2003£000
    
    £000Profit / (loss) for the financial year
    
    
    1,265
    
    
    
    (238
    )Issue of shares
    
    
    3,276
    
    
    
    Expenses of equity share issues
    
    
    (209
    )
    
    
    Currency translation differences on foreign currency equity investments
    
    
    623
    
    
    
    435Net increase in shareholders funds
    
    
    4,955
    
    
    
    197Opening shareholders funds
    
    
    10,338
    
    
    
    10,141Closing shareholders funds
    
    
    15,293
    
    
    
    10,338
 20. Capital Commitments At 31 March 2004 the Group had capital commitments of £378,000 (2003: £356,000)
contracted but not provided for. 21. Financial Commitments At 31 March 2004 the Group had the following annual commitments in respect of
operating leases which expire: Property
    
    Other2004
    
    2003
    
    2004
    
    2003£000
    
    £000
    
    £000
    
    £000Within one year
    
    
    135
    
    
    
    83
    
    
    
    11
    
    
    
    9Within two to five years
    
    
    439
    
    
    
    51
    
    
    
    9
    
    
    
    20574
    
    
    
    134
    
    
    
    20
    
    
    
    29
 F-31




---



##### Table of Contents



22.
    
    Notes to the Consolidated Cash Flow Statement(i)
    
    Reconciliation of operating profit/(loss) to net cash outflow from
operating activities 31 March
    
    31 March
    
    31 March2004
    
    2003
    
    2002£000
    
    £000
    
    £000Operating profit/(loss)
    
    
    1,245
    
    
    
    (604
    )
    
    
    (2,102
    )Depreciation and amortisation
    
    
    2,130
    
    
    
    1,025
    
    
    
    958Loss/(profit) on disposal of tangible fixed assets
    
    
    125
    
    
    
    (2
    )
    
    
    16Deferred grant income
    
    
    (77
    )
    
    
    (101
    )
    
    
    (55
    )Grant received
    
    
    31
    
    
    
    122
    
    
    
    Increase in stocks
    
    
    (2,583
    )
    
    
    (3,092
    )
    
    
    (2,295
    )Increase in debtors
    
    
    (478
    )
    
    
    (1,677
    )
    
    
    (388
    )Increase in creditors
    
    
    246
    
    
    
    2,606
    
    
    
    2,264(Profit) on sale of current asset investments
    
    
    
    
    
    
    
    
    
    
    (33
    )Net cash inflow/(outflow) from operating activities
    
    
    639
    
    
    
    (1,723
    )
    
    
    (1,635
    )
  (ii)
    
    Reconciliation of net cash flow to movement in net (debt)/funds. 31 March
    
    31 March
    
    31 March2004
    
    2003
    
    2002£000
    
    £000
    
    £000Increase/(decrease) in cash
    
    
    556
    
    
    
    (3,511
    )
    
    
    4,685Cash (inflow) from management of liquid resources
    
    
    
    
    
    
    
    
    
    
    (1,686
    )Cash outflow from financing
    
    
    693
    
    
    
    535
    
    
    
    420Increase/(decrease) in net funds resulting from cash flows
    
    
    1,249
    
    
    
    (2,976
    )
    
    
    3,419Conversion of loan notes into shares
    
    
    
    
    
    
    
    
    
    
    3,0346% Convertible loan notes issued
    
    
    (7,050
    )
    
    
    
    
    
    
    New loans in respect of patents purchased
    
    
    
    
    
    
    
    
    
    
    (858
    )New finance lease and hire purchase agreements
    
    
    (1,857
    )
    
    
    (89
    )
    
    
    (302
    )Finance leases disposed of with business
    
    
    
    
    
    
    
    
    
    
    256Debt acquired with acquired businesses
    
    
    (356
    )
    
    
    
    
    
    
    Foreign exchange differences
    
    
    6
    
    
    
    (21
    )
    
    
    31(Decrease)/increase in net funds in the year
    
    
    (8,008
    )
    
    
    (3,086
    )
    
    
    5,580Net funds/(debt) brought forward
    
    
    1,588
    
    
    
    4,674
    
    
    
    (906
    )Net
(debt)/funds carried forward
    
    
    (6,420
    )
    
    
    1,588
    
    
    
    4,674
  (iii)
    
    Analysis of net funds/(debt) At 1
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign
    
    At 31April
    
    
    
    
    
    
    
    
    
    Non-cash
    
    Exchange
    
    March2003
    
    Cash flow
    
    Acquisitions
    
    Changes
    
    Differences
    
    2004£000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000Cash at bank and in hand
    
    
    2,756
    
    
    
    556
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    3,307Loans  amounts falling
due in less than one
year
    
    
    (376
    )
    
    
    155
    
    
    
    (285
    )
    
    
    
    
    
    
    6
    
    
    
    (500
    )Loans  amounts falling
due in more than one
year
    
    
    (537
    )
    
    
    337
    
    
    
    (71
    )
    
    
    (7,050
    )
    
    
    9
    
    
    
    (7,312
    )Obligations under
finance lease and hire
purchase agreements
    
    
    (255
    )
    
    
    201
    
    
    
    
    
    
    
    (1,857
    )
    
    
    (4
    )
    
    
    (1,915
    )1,588
    
    
    
    1,249
    
    
    
    (356
    )
    
    
    (8,907
    )
    
    
    6
    
    
    
    (6,420
    )
 F-32




---



##### Table of Contents



Cash at bank and in hand represent cash and deposits held at financial
institutions that can be accessed with notice not exceeding 24 hours. Non-cash changes to finance leases and hire purchase agreements relate to new
agreements entered into during the year. Non-cash changes to loans relate to
the issue convertible loan notes issued. 23. Contingent Liabilities The Company has guaranteed certain operating lease, finance lease and hire
purchase agreements entered into by subsidiary companies. 24. Sale of business On 12 July 2001 the Group sold its computer aided molecular design division
(CAMD) to Tularik for 400,000 shares. Tularik is listed in the USA on NASDAQ.
These shares were subsequently sold to finance working capital requirements.
The cash effects of the disposal are shown below. £000Tangible fixed assets
    
    
    1,014Loans and finance leases
    
    
    (256
    )758Profit on disposal
    
    
    5,032Valuation of net consideration received on date of disposal of CAMD
    
    
    5,790Satisfied by:Shares in Tularik Inc.
    
    
    6,292Cash sale costs
    
    
    (502
    )5,790Profit on subsequent disposal of shares
    
    
    33Cash received on disposal of shares
    
    
    5,823
 It is anticipated that the profit generated on the sale will be wholly relieved
by available tax losses and reliefs. 25. Acquisition of subsidiary undertaking On May 2, 2003, the Company announced that it had reached agreement on the
terms of a recommended offer for Enact Pharma PLC (Enact), the OFEX traded
biopharmaceutical company and this offer was declared wholly unconditional on
June 18, 2003. On this date, the company acquired 89.4% of the issued share
capital. The remaining 10.6% of issued share capital was acquired by 4
September 2003. F-33




---



##### Table of Contents



The following table sets out the book values of identifiable assets and
liabilities acquired and their fair value to the group Fair value
    
    Fair value toBook value
    
    adjustment
    
    the group£000
    
    £000
    
    £000Intangible fixed asset  licences
    
    
    115
    
    
    
    (115
    )
    
    
    Tangible fixed assets
    
    
    55
    
    
    
    
    
    
    
    55Debtors
    
    
    128
    
    
    
    
    
    
    
    128Current asset investments
    
    
    727
    
    
    
    
    
    
    
    727Cash
    
    
    10
    
    
    
    
    
    
    
    10Bank overdraft
    
    
    (822
    )
    
    
    
    
    
    
    (822
    )Bank loans
    
    
    (93
    )
    
    
    
    
    
    
    (93
    )Other loans
    
    
    (263
    )
    
    
    
    
    
    
    (263
    )Trade creditors
    
    
    (967
    )
    
    
    
    
    
    
    (967
    )Accruals
    
    
    (411
    )
    
    
    
    
    
    
    (411
    )Other creditors
    
    
    (68
    )
    
    
    
    
    
    
    (68
    )Net liabilities acquired
    
    
    (1,589
    )
    
    
    (115
    )
    
    
    (1,704
    )Goodwill
    
    
    
    
    
    
    
    
    
    
    9,981Net consideration
    
    
    
    
    
    
    
    
    
    
    8,277Satisfied by:Issue of 6% convertible loan notes
    
    
    
    
    
    
    
    
    
    
    7,196Issue costs of 6% convertible loan notes
    
    
    
    
    
    
    
    
    
    
    (164
    )Cash
    
    
    
    
    
    
    
    
    
    
    519Distribution of current asset investment acquired with business
    
    
    
    
    
    
    
    
    
    
    7268,277
 Following a reorganisation of the groups research and development activities,
it is not possible to show the cash effects of acquired operations in the year. The trading results of Enact from 1 October 2002 to 18 June 2003, being the
date of Enacts last annual report to the date of acquisition, were as follows: £000Turnover
    
    
    33Operating (loss)
    
    
    (3,110
    )(Loss) before tax
    
    
    (3,166
    )Taxation
    
    
    53(Loss) after tax
    
    
    (3,113
    )
 Enact had no recognised gains and losses other than those included in the
results above and therefore no separate statement of total recognised gains and
losses has been presented. The results above include a write down of current asset investments amounting
to £1,266,000. F-34




---



##### Table of Contents



26. Financial Instruments The Groups financial instruments comprise borrowings, cash and liquid
resources, forward foreign currency contracts and various items, such as trade
debtors and trade creditors, that arise directly from its operations. It is, and has been throughout the period under review, the Groups policy that
no speculative trading in derivative financial instruments shall be undertaken. Interest Rate Risk The Group finances its operations through a mixture of equity and borrowings.
Its ability to borrow is restricted by the nature of its activities. Whether
to borrow on fixed or floating rate terms is one of several components of any
decision to borrow on particular terms. Additional considerations include the
level of interest rates proposed, the maturity profile and potential conversion
rights. As such the Group does not have a policy in relation to interest rates in
isolation. However, by holding a mix of fixed and floating rate financial
liabilities, the Group seeks to mitigate partially against increased interest
rates whilst maintaining a degree of flexibility to benefit from decreasing
rates of interest. Liquidity Risk The Groups principal policy in managing liquidity risk is to align the
maturity profile of its anticipated net revenue stream with that of its
financial assets and liabilities taking into account the commercial risk
inherent in its product portfolio. At 31 March 2004, the Group held net cash balances of £3,307,000 million. Of
this amount, £2,107,000 million was invested in overnight money market deposits
so as to maximise returns received. Foreign Currency Risk The Group makes use of forward foreign currency contracts to fix a proportion
of its expected US dollar sales into Sterling. The Group has overseas
subsidiaries in the USA and Australia whose revenues, expenses, assets and
liabilities are denominated in US dollars and Australian dollars respectively.
In order to protect the Groups sterling balance sheet from movements in
exchange rates, Group companies have borrowed funds in their local currency. The company has decided to opt to exclude short term trade debtors and
creditors from the following analyses (other than the currency exposure
disclosures) as allowed under FRS 13. F-35




---



##### Table of Contents



Financial assets Financial assets comprise cash balances and money market deposits which attract
variable rates of interest which are based on market rates in each country. An
analysis of financial assets by currency is as follows: 31 March
    
    31 March2004
    
    2003£000
    
    £000Financial assets by currencySterling
    
    
    2,861
    
    
    
    2,005US Dollar
    
    
    392
    
    
    
    313Australian Dollar
    
    
    54
    
    
    
    4383,307
    
    
    
    2,756
 All financial assets mature within one year, or on demand. Borrowing Facilities The Group has an undrawn committed facility of £2,000,000 available at 31 March
2004 (2003 - £nil) which was secured by a mortgage on the Groups property in
Wales and a floating charge over the assets of the Group. Financial Liabilities The Group held the following financial liabilities at 31 March 2004. Fixed rate
    
    Fixed rate
    
    
    
    
    
    
    
    
    
    Non interestweighted
    
    weighted
    
    Fixed rate
    
    Floating rate
    
    bearing
    
    31 Marchaverage
    
    average
    
    financial
    
    financial
    
    financial
    
    2004period
    
    interest rate
    
    liabilities
    
    liabilities
    
    liabilities
    
    Totalyears
    
    %
    
    £000
    
    £000
    
    £000
    
    £000CurrencySterling
    
    
    5.9
    
    
    
    6.4
    
    
    
    8,865
    
    
    
    76
    
    
    
    
    
    
    
    8,941US Dollar
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    348
    
    
    
    
    
    
    
    348Australian Dollar
    
    
    1.8
    
    
    
    7.8
    
    
    
    100
    
    
    
    305
    
    
    
    33
    
    
    
    438Total
    
    
    5.8
    
    
    
    6.5
    
    
    
    8,965
    
    
    
    729
    
    
    
    33
    
    
    
    9,727
 The Group held the following financial liabilities at 31 March 2003. Fixed rate
    
    Fixed rate
    
    
    
    
    
    
    
    
    
    Non interestweighted
    
    weighted
    
    Fixed rate
    
    Floating rate
    
    bearing
    
    31 Marchaverage
    
    average
    
    financial
    
    financial
    
    financial
    
    2003period
    
    interest rate
    
    liabilities
    
    liabilities
    
    liabilities
    
    Totalyears
    
    %
    
    £000
    
    £000
    
    £000
    
    £000CurrencySterling
    
    
    4.8
    
    
    
    10.8
    
    
    
    229
    
    
    
    
    
    
    
    
    
    
    
    229US Dollar
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    497
    
    
    
    
    
    
    
    497Australian Dollar
    
    
    2.0
    
    
    
    7.3
    
    
    
    26
    
    
    
    385
    
    
    
    31
    
    
    
    442Total
    
    
    4.6
    
    
    
    10.4
    
    
    
    255
    
    
    
    882
    
    
    
    31
    
    
    
    1,168
 A maturity profile of financial liabilities, which include loan notes and
obligations under finance leases and hire purchase obligations is presented in
note 15. Floating rate borrowings are based on interbank rates in each country. F-36




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##### Table of Contents



Fair Value of Financial Assets and Financial Liabilities The book value and the fair value of money market deposits equate due to their
short-term nature. The fair value of the convertible unsecured loan note,
based on the fair value of the underlying shares (assuming conversion), was
£15,120,000 compared to a book value of £7,092,000. The fair value of forward
foreign currency contracts, based on closing exchange rates at the year end,
was an asset of £1,552,000, compared to a book value of £323,000 (2003: asset
of £484,000, compared to a book value of £41,000). The fair value of all other
items has been calculated by discounting expected future cash flows at
prevailing interest rates, and is not materially different from their book
value. Currency profile The main functional currencies of the Group are sterling, the US dollar and the
Australian dollar. The following analysis of net monetary assets and
liabilities shows the Groups currency exposures after the effects of forward
contracts used to manage currency exposure. The amounts show the transactional
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. 31 March 2004Australian
    
    
    
    
    
    
    
    
    
    Canadian
    
    
    
    
    
    31 MarchSterling
    
    Dollar
    
    US Dollar
    
    Euro
    
    Dollar
    
    Yen
    
    2004denominated
    
    denominated
    
    denominated
    
    denominated
    
    denominated
    
    denominated
    
    total£000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000Functional CurrencySterling
    
    
    
    
    
    
    861
    
    
    
    (91
    )
    
    
    (218
    )
    
    
    (42
    )
    
    
    (22
    )
    
    
    488Australian Dollar
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    US Dollar
    
    
    (1,040
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,040
    )Total
    
    
    (1,040
    )
    
    
    861
    
    
    
    (91
    )
    
    
    (218
    )
    
    
    (42
    )
    
    
    (22
    )
    
    
    (552
    )
 31 March 2003Australian
    
    
    
    
    
    
    
    
    
    Canadian
    
    
    
    
    
    31 MarchSterling
    
    Dollar
    
    US Dollar
    
    Euro
    
    Dollar
    
    Yen
    
    2003denominated
    
    denominated
    
    denominated
    
    denominated
    
    denominated
    
    denominated
    
    total£000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000Functional CurrencySterling
    
    
    
    
    
    
    (4,681
    )
    
    
    2,327
    
    
    
    (53
    )
    
    
    
    
    
    
    
    
    
    
    (2,407
    )Australian Dollar
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    US Dollar
    
    
    (3,057
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,057
    )Total
    
    
    (3,057
    )
    
    
    (4,681
    )
    
    
    2,327
    
    
    
    (53
    )
    
    
    
    
    
    
    
    
    
    
    (5,464
    )
 Hedging The Group makes use of forward foreign currency contracts to fix a proportion
of its expected US dollar sales into Sterling. At 31 March 2004, there were
unrecognized profits of £1,229,000 (2003: unrecognized profits of £443,000).
As in the prior year, these forward foreign currency contracts are due to
expire within 12 months of the balance sheet date. F-37




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27. Differences between U.K. and U.S. generally accepted accounting principles The consolidated financial statements have been prepared in accordance with
U.K. GAAP which differ in certain significant respects from U.S. GAAP. The
main differences between U.K. GAAP and U.S. GAAP that affect the Groups
consolidated loss and net assets are set out below. (a) Computer software The Group has capitalized costs incurred in developing its Prometheus software
for internal use. A significant proportion of these costs relate to internal
costs incurred during the development period. U.S. GAAP requires such costs to
be expensed and, consequently, the costs capitalized under U.K. GAAP have been
written off to conform with U.S. GAAP. (b) Acquisitions prior to fiscal years commencing after 15 December 2001 Under U.K. GAAP, it is the Companys policy that goodwill arising on
acquisitions during accounting periods ending on or after December 23, 1998 is
capitalized in the balance sheet and amortized over its estimated useful
economic life limited to a period of 20 years or less. Goodwill arising from
acquisitions consummated in accounting periods ended before December 23, 1998
was charged against reserves in the year of acquisition. On a subsequent
disposal or an indication of impairment in respect of the acquired asset or
entity, the effect of any associated goodwill was eliminated from reserves and
then charged against the profit and loss account. Under U.S. GAAP, goodwill is capitalized in the balance sheet and was, prior to
years commencing after 15 December 2001, amortized its estimated useful
economic life not exceeding 40 years. For purposes of restating shareholders equity in accordance with U.S. GAAP,
goodwill has been reclassified as an asset less amortization based upon the
useful economic life of 10 years on a straight line basis. Goodwill under U.S. GAAP is stated at cost less amortization as follows: 2004
    
    2003
    
    2002£000
    
    £000
    
    £000Cost
    
    
    1,909
    
    
    
    1,909
    
    
    
    1,909Accumulated Amortization
    
    
    (1,909
    )
    
    
    (1,909
    )
    
    
    (1,909
    )Net book value
    
    
    
    
    
    
    
    
    
    
    
 (c) Acquisition of Enact Pharma PLC In June 2003, the Company acquired Enact Pharma PLC Enact, a research and
development company based in the UK. Under UK GAAP, in-process research and
development is not considered to be a separate intangible asset and, thus, such
balances are subsumed within goodwill and amortized over their estimated useful
life. Under UK GAAP, this resulted in goodwill of £9,981,000 of which £782,000
was amortized in the year to 31 March 2004. Under US GAAP, in accordance with APB Opinion No. 16, Business Combinations,
and No. 17, Intangible Assets, in process research and development is
separately identified and analyzed to determine the fair market value at the
date of acquisition. In process research and development is identified in
accordance with the definition within Statement of Financial Standard (SFAS)
No. 2, Accounting for Research and Development Costs. Following
identification of qualifying research and development projects within Enact,
their value was determined by estimating the costs to develop the purchased
in-process research and development into commercially viable products,
estimating the F-38




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##### Table of Contents



resulting cash flows from the projects and discounting the net cash flows to
their present value. Once valued, this intangible asset is expensed and the
charge relating to in-process research and development amounted to £9,981,000. The impact on the profit and loss account for the year ended 31 March 2004 was: £000Amortization of goodwill under U.K. GAAP
    
    
    782In process research and development write-off under U.S. GAAP
    
    
    (9,981
    )Net book value
    
    
    (9,199
    )
 (d) Stock compensation plans As required under U.K. GAAP, Urgent Issues Task Force Abstract 17 (UITF17)
the expense of share options granted to employees is recognized in the Groups
financial statements when the share options have been granted. Such grants
give rise to the compensation expense measured by reference to the fair value
of shares only on the date of grant, and at no subsequent date for variable
plans. Under U.S. GAAP, as permitted by statement of Financial Accounting
Standard No. 123, Accounting for Stock-based Compensation, the Group applies
Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock
Issued to Employees. Under APB 25, compensation expense resulting from awards
under variable plans is measured as the difference between the quoted market
price of the underlying shares at the date when the number of shares of stock
are known (the date the performance conditions are satisfied) and the exercise
price; the cost is recognized over the period the employee performs related
services. Since the ultimate compensation cost is unknown until the
performance conditions are satisfied, estimates of compensation cost are
recorded before the measurement date based on the quoted market price of the
underlying stock at period end dates where it is probable that the performance
conditions will be attained. The nature of the conditions attached to the stock option awards mean that
management cannot make a reasonable estimate of the number of shares that will
be eventually issued because the company cannot control the achievement of the
conditions. As a consequence, the compensation expense for the stock awards is
recorded when and only when the options vest and the target is achieved based
on the difference between the exercise price and the market value on that dare. Under U.S. GAAP, an expense of £225,000 has been recognized in the year ended
31 March 2004. No expense has been recognized in the two years ended 31 March
2003 since the market value was below the exercise price of these options. (e) Revenue Recognition Certain sales of the Companys CroFab products sold in fiscal 2001 and
DigiFab sold in fiscal 2002, 2003 and 2004 include a right of replacement or
return. Under U.S. GAAP, FASB 48 Revenue Recognition when Right of Return
Exists indicates that an absence of historical experience with similar types
of sales of similar products may impair the ability to make a reasonable
estimate of returns. Because CroFab and DigiFab were both relatively new
products, there is an absence of historical experience for these sales, and
therefore all revenue related to sales that include a right of replacement must
be deferred under U. S. GAAP until the replacement or return privilege expires. In addition to the net effect on net profit/(loss) and shareholders equity for
fiscal 2004 and 2003, under US GAAP the following balances would be restated to
the figures shown below: F-39




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##### Table of Contents



US GAAPYear ended
    
    Year ended31 March
    
    31 March2004
    
    2003£000
    
    £000Revenues
    
    
    16,913
    
    
    
    12,515Cost of goods sold
    
    
    8,629
    
    
    
    8,284Inventory
    
    
    10,807
    
    
    
    7,315Deferred Income
    
    
    9,474
    
    
    
    5,923
 (f) Accounting for Derivative Instruments and Hedging Activities. Financial Accounting Standard No. 133, Accounting for Derivative Instruments
and Hedging Activities was issued in June 1998. This standard, which was
effective for fiscal years beginning after 1 January 2001, requires all
derivatives to be recognized in the balance sheet as either assets or
liabilities and measured at fair value. As a result of adopting FAS No.133,
there was a one-time, unrealized loss of £84,000 (net of tax) to equity
shareholders funds under U.S. GAAP as a cumulative-effect-type change in
accounting principle to recognize the fair value of derivative instruments held
at April 1, 2001. During the year ending March 31, 2002, the £84,000 was
reclassified to current earnings, which had the same effect as settlement of
the instruments under U.K. GAAP. The Company has not designated any of its
derivative instruments as qualifying hedge instruments under FAS 133 and
accordingly, the Company records changes in the fair value of its derivative
instruments in current earnings. For the years ended March 31, 2002 and March
31, 2003 there is a difference between U.S. GAAP and U.K. GAAP to record the
fair value of the derivative instruments on the balance sheet at March 31,
2002, March 31, 2003 and March 31, 2004 resulting in a decrease in profit of
£25,000, increase in profit of £468,000 and increase in profit of £578,000
respectively. (g) Approximate effect on net (loss)/profit of differences between U.K.
GAAP and U.S. GAAP Year ended
    
    Year ended
    
    Year ended31 March
    
    31 March
    
    31 March2004
    
    2003
    
    2002£000
    
    £000
    
    £000Net profit/(loss) of Group under UK GAAP
    
    
    1,265
    
    
    
    (238
    )
    
    
    2,867Adjustments:Computer Software
    
    
    
    
    
    
    
    
    
    
    370Acquisition of Enact
    
    
    (9,199
    )
    
    
    
    
    
    
    Stock compensation plans
    
    
    (225
    )
    
    
    
    
    
    
    Revenue recognition
    
    
    (3,274
    )
    
    
    (1,119
    )
    
    
    (443
    )Derivative instruments and hedging activities
    
    
    578
    
    
    
    468
    
    
    
    (25
    )Net (loss)/profit under US GAAP
    
    
    (10,855
    )
    
    
    (889
    )
    
    
    2,769
 F-40




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##### Table of Contents



(h) Approximate effect on equity shareholders funds of differences between
U.K. GAAP and U.S. GAAP Year ended
    
    Year ended
    
    Year ended31 March
    
    31 March
    
    31 March2004
    
    2003
    
    2002£000
    
    £000
    
    £000Equity Shareholders funds under UK GAAP
    
    
    15,293
    
    
    
    10,338
    
    
    
    10,141Adjustments:Computer Software
    
    
    
    
    
    
    
    
    
    
    Acquisition of Enact
    
    
    (9,199
    )Revenue recognition
    
    
    (4,238
    )
    
    
    (964
    )
    
    
    155Derivative instruments and hedging activities
    
    
    1,021
    
    
    
    443
    
    
    
    (25
    )Equity Shareholders funds under US GAAP
    
    
    2,877
    
    
    
    9,817
    
    
    
    10,271
 (i) Consolidated cash flow statements The Groups consolidated financial statements include Consolidated Statements
of Cash Flows in accordance with U.K. Financial Reporting Standard 1 (Revised
1996)   Cash Flow Statements (FRS 1 (Revised)). The statement prepared
under FRS 1 (Revised) presents substantially the same information as that
required under U.S. Statement of Financial Accounting Standard No. 95 (SFAS
95), except that FRS 1 (Revised) reflects changes in cash (cash in hand and
deposits repayable on demand less any bank loans or bank overdrafts repayable
on demand), whereas SFAS 95 reflects changes in the total of cash and cash
equivalents. Under FRS 1 (Revised) cash flows are presented separately for (i) operating
activities: (ii) returns on investments and servicing of finance; (iii)
taxation; (iv) capital expenditure and financial investment (and acquisitions
and disposals); (v) management of liquid resources; and (vi) financing
activities. SFAS 95 only requires presentation of cash flows from operating,
investing and financing activities. Cash flows under FRS1 (Revised) in respect of interest received, interest paid
(net of that capitalized), interest on finance leases and taxation would be
included within operating activities under SFAS 95. Under SFAS 95 all
short-term borrowings are included in financing activities. The following statements summarize the statement of cash flows for the Group as
if they had been presented in accordance with U.S. GAAP and include the
adjustments which reconcile cash and cash equivalents under U.S. GAAP to cash
reported under U.K. GAAP. Year
    
    Year
    
    Yearended 31
    
    ended 31
    
    ended 31March
    
    March
    
    March2004
    
    2003
    
    2002£000
    
    £000
    
    £000Net cash inflow/(outflow) from operating activities
    
    
    313
    
    
    
    (1,080
    )
    
    
    (1,602
    )Net cash flows of investing activities
    
    
    (2,136
    )
    
    
    (1,840
    )
    
    
    5,031Net cash flows of financing activities
    
    
    2,374
    
    
    
    (535
    )
    
    
    (422
    )Net (decrease)/increase in cash and cash equivalents under US GAAP
    
    
    551
    
    
    
    (3,455
    )
    
    
    3,007Cash and cash equivalents under US GAAP at beginning of year
    
    
    2,756
    
    
    
    6,211
    
    
    
    3,204Cash and cash equivalents under US GAAP at end of year
    
    
    3,307
    
    
    
    2,756
    
    
    
    6,211Short term cash deposits
    
    
    
    
    
    
    
    
    
    
    Restricted cash balances
    
    
    
    
    
    
    
    
    
    
    Cash and bank balances under UK GAAP at end of year
    
    
    3,307
    
    
    
    2,756
    
    
    
    6,211
 F-41




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##### Table of Contents



(j) Recently issued accounting pronouncements In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities.FIN 46 was subsequently clarified
and modified by FIN 46(R) in December 2003. FIN 46 clarifies the application of
Accounting Research Bulletin No. 51, Consolidated Financial Statements, to
certain entities in which the equity investors do not have the characteristics
of a controlling financial interest or do not have sufficient equity at risk
for the entity to finance its activities without additional subordinated
financial support from other parties. FIN 46 applies immediately to variable
interest entities created after January 31, 2003. For variable interests
acquired before February 1, 2003, FIN 46 is effective for the Company starting
April 1, 2004. Management does not expect the adoption of FIN 46 to have a
material effect on the Companys results of operations and financial position. In
December 2003, the FASB issued FIN 46(R), Consolidation of Variable
Interest Entities. FIN 46(R), replaces FIN 46 and clarifies the accounting for
interests in variable interest entities. Management does not expect the
adoption of FIN 46(R) to have a material effect on the Companys results of
operations and financial position. In May 2003, the FASB issued SFAS No. 150 (SFAS 150), Accounting For
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity. The statement improves the accounting for certain financial instruments
that, under previous guidance, issuers could account for as equity and requires
that these instruments be classified as liabilities in statements of financial
position. This statement is effective prospectively for financial instruments
entered into or modified after May 31, 2003 and, otherwise, is effective at the
beginning of the first interim period beginning after June 15, 2003. This
statement shall be implemented by reporting the cumulative effect of a change
in an accounting principle for financial instruments created before the
issuance date of the statement and still existing at the beginning of the
interim period of adoption. The adoption of SFAS 150 has not, to date, had any
significant impact on the Companys results of operations and financial
position. In December 2003, the FASB issued SFAS No. 132 (Revised 2003), Employers
Disclosures about Pensions and Other Post-Retirement Benefits,which is
effective, subject to certain exemptions, for fiscal years ending on or after
December 23, 2003. The adoption of SFAS 132 has not, to date, had any
significant impact on the Companys results of operations and financial
position. In May 2003, the Emerging Issues Task Force, (EITF) issued Issue No.
01-08, Determining Whether an Arrangement Contains a Lease. EITF Issue 01-08
provides guidance in determining whether an arrangement should be considered a
lease subject to the lease accounting and disclosure guidance of FASB Statement
No. 13, Accounting for Leases. The provisions of EITF Issue 01-08 apply to both
potential lessors and lessees that have agreed or committed to arrangements,
modified arrangements, or acquired arrangements in business combinations
initiated after the beginning of the reporting period following May 28, 2003.
The adoption of EITF Issue 01-08 did not have a material impact on the
Companys results of operations and financial position. In May 2003, the FASB EITF published Issue 00-21, Revenue Arrangements
with Multiple Deliverables. EITF 00-21 addresses certain aspects of the
accounting by a vendor for arrangements under which it will perform multiple
revenue generating activities. The Issue is effective for revenue arrangements
entered into for fiscal periods beginning after June 15, 2003. Although the
Company currently is evaluating the impact of this new guidance, it is not
expected to have a material impact on its accounting treatment of multiple
element contracts under U.S. GAAP. F-42




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At its November 2003 meeting, the EITF reached a consensus on disclosure
guidance previously discussed under EITF 03-01, The Meaning of Other-Than-
Temporary Impairment and Its Application to Certain Investments. The consensus
provided for certain disclosure requirements that were effective for fiscal
years ending after December 15, 2003. At its March 2004 meeting, the EITF
reached a consensus on recognition and measurement guidance previously
discussed under EITF 03-01. The consensus clarifies the meaning of other-than-
temporary impairment and its application to investments classified as either
available-for-sale or held-to-maturity under FASB Statement No. 115, Accounting
for Certain Investments in Debt and Equity Securities, and investments
accounted for under the cost method or the equity method. The recognition and
measurement guidance for which the consensus was reached in the March 2004
meeting is to be applied to other-than-temporary impairment evaluation in
reporting periods beginning after June 15, 2004. Although the Company currently
is evaluating the impact of this new guidance, it is not expected to have a
material impact on its accounting treatment of multiple element contracts under
U.S. GAAP. F-43